UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549








Form
10-K





ANNUAL
REPORT


PURSUANT
TO SECTIONS 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





(Mark
One)


T
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
fiscal year ended September 27,
2009





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)
            (I.R.S.
      Employer Identification Number)2727
      East Vernon AvenueVernon, California
            90058(Address
      of principal executive offices)
            (Zip
      code)








Registrant’s
telephone number, including area code:  (323) 582-9977





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
            Name of each exchange on which
      registeredCommon
      Stock, par value $0.01
            NYSE
      AMEX








Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No T





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No T










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 T No £





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes £ No £





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]





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





Large
      Accelerated Filer £
            Accelerated
      Filer £





Non-Accelerated
      Filer £
            Smaller
      Reporting Company T





(Do not
check if 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 T





The
aggregate market value of voting common equity held by non-affiliates of the
registrant, on March 27, 2009, which was the last trading day of the
registrant’s second fiscal quarter ended March 29, 2009, was approximately $41.3
million based on a closing price of $3.44 per share on such date on the NYSE
AMEX. For purposes of this computation, all executive officers, directors and
10% beneficial owners of the registrant are deemed to be
affiliates.  Such determination should not be deemed an admission that
such executive officers, directors and 10% beneficial owners are
affiliates.  The registrant has no non-voting common
equity.





There
were 15,823,271 shares of common stock, par value $0.01, outstanding as of
December 10, 2009.





Documents
Incorporated By Reference: None





TABLE OF CONTENTS





PART
      IItem 1
            Business
            1Item 1A
            Risk Factors
            3Item 1B
            Unresolved Staff Comments
            7Item 2
            Properties
            7Item 3
            Legal Proceedings
            8Item 4
            Submission of Matters to a Vote of Security
      Holders
            9PART
      IIItem 5
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            9Item 6
            Selected Financial Data
            11Item 7
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            12Item 7A
            Quantitative and Qualitative Disclosures About Market
      Risk
            23Item 8
            Financial Statements and Supplementary Data
            24Item 9
            Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure
            24Item 9A
            Controls and Procedures
            24Item 9A (T)
            Controls and Procedures
            24Item 9B
            Other Information
            25PART
      IIIItem 10
            Directors, Executive Officers and Corporate
      Governance
            26Item 11
            Executive Compensation
            28Item 12
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            36Item 13
            Certain Relationships and Related Transactions, and Director
      Independence
            38Item 14
            Principal Accountant Fees and Services
            39PART
      IVItem 15
            Exhibits and Financial Statement Schedules
            41SIGNATURES
            
            44


i
 Table of Contents


CAUTIONARY
STATEMENT








All
statements included or incorporated by reference in this Annual Report on Form
10-K, other than statements or characterizations of historical fact, are
forward-looking statements.  Examples of forward-looking statements
include, but are not limited to, statements concerning projected net revenues,
costs and expenses and gross margins; our accounting estimates, assumptions and
judgments; our success in pending litigation; the demand for our products; the
availability and pricing of commodities; the competitive nature of and
anticipated growth in our industry; manufacturing capacity and goals; our
ability to consummate acquisitions and integrate their operations successfully;
and our prospective needs for additional capital.





These
forward-looking statements are based on our current expectations, estimates,
approximations and/or projections about our industry and business, management’s
beliefs, and certain assumptions made by us, all of which are subject to change.
Forward-looking statements can often be identified by words such as
“anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,”
“estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,”
“on-going,” similar expressions, and variations or negatives of these words.
These statements are not guarantees of future performance and are subject to
risks, uncertainties and assumptions that are difficult to predict. Therefore,
our actual results could differ materially from those expressed in any
forward-looking statements as a result of various factors, some of which are
listed under “Risk Factors” in Item 1A of this Report. These forward-looking
statements speak only as of the date of this Report. We undertake no obligation
to revise or update publicly any forward-looking statement for any reason,
except as otherwise required by law.


ii
 Table of Contents


PART
I





ITEM
      1.
            Business








History





Overhill
Farms, Inc. was formed in 1995 as a Nevada corporation, with the acquisition of
substantially all of the assets of IBM Foods, Inc., founded in
1968.  We sell our products nationwide, and our headquarters and
manufacturing facilities are located in Vernon, California.





Products
and Services





We are a
leading value-added manufacturer of high quality, prepared frozen food products
for branded retail, private label, foodservice and airline
customers.  Our product line includes entrées, plated meals,
bulk-packed meal components, pastas, soups, sauces, poultry, meat and fish
specialties, and organic and vegetarian offerings.  We provide custom
prepared foods to a number of prominent, nationally recognized customers such as
Jenny Craig, Inc., H. J. Heinz Company, American Airlines, Inc., Safeway Inc.,
Pinnacle Foods Group LLC and Panda Restaurant Group, Inc.





Sales
and Marketing





We
operate as a single business segment – the development and production of frozen
food products. We market our products through both an internal sales force and
outside food brokers.  Our customers are foodservice, retail and
airline accounts.





A
significant portion of our total net revenues during the last three fiscal years
was derived from four customers.  Jenny Craig, Inc., Panda Restaurant
Group, Safeway Inc. and H. J. Heinz Company, Inc. accounted for approximately
25%, 22%, 17% and 12%, respectively, of our revenues for the fiscal year ended
September 27, 2009.  For the fiscal year ended September 28, 2008,
Jenny Craig, Inc., Panda Restaurant Group, Inc., Safeway Inc. and H. J. Heinz
Company, accounted for approximately 24%, 16%, 13% and 18%, respectively, of our
revenues.  For the fiscal year ended September 30, 2007, Jenny Craig,
Inc., Panda Restaurant Group, Inc., Safeway Inc. and H. J. Heinz Company
accounted for approximately 26%, 27%, 9% and 9%, respectively, of our
revenues.





Manufacturing
and Sourcing





Our
headquarters, entrée manufacturing and warehousing, product development, sales
and quality control facilities are located at a single location in Vernon,
California.  We also maintain a separate protein cooking facility in
Vernon, California. In 2007, we invested approximately $7.0 million in capital
expenditures to expand the manufacturing capacity of our entrée plant in order
to accommodate new business opportunities.





Our
ability to cost-effectively produce large quantities of our products, while
maintaining a high degree of quality, is partially dependent on our ability to
procure raw materials on an economical cost basis.  We rely on several
large suppliers for products, including poultry, and we purchase the remaining
raw materials from suppliers in the open market.  We do not anticipate
any particular difficulty in acquiring these materials in the
future.  We store raw materials, packaging and finished goods on-site
and in public frozen and dry food storage facilities until
shipment.  When possible and practical, we negotiate supply contracts
at fixed prices to protect against the risk of market fluctuations.





Backlog





We
typically deliver products directly from finished goods inventory.  As
a result, we do not maintain a large backlog of unfilled purchase
orders.  While at any given time there may be a small backlog of
orders, our backlog is not material in relation to our total revenues, nor is it
necessarily indicative of trends in our business.


1
 Table of Contents


Competition





Our
products compete with those produced by numerous regional and national
firms.  Many of these companies are divisions of larger highly
integrated companies.  Competition is strong, with many firms
producing alternative products for the foodservice and retail
industries.  Competitive factors include price, food safety, product
quality, flexibility, product development, customer service and, on a retail
basis, name recognition.  We are competitive in this market as a
result of our ability to produce mid-sized to large custom product runs within a
short time frame on a cost-effective basis and our ability to provide ancillary
support services such as research and development, assistance with regulatory
matters, production planning and logistics.





Product
Development and Marketing





We
maintain a comprehensive, fully staffed research and development department that
formulates recipes and upgrades specific products for current and prospective
customers and establishes production and quality standards.  We
develop products based upon customers’ specifications, conventional recipes, new
product trends or our own product initiatives.  We are continuously
developing recipes as customers’ tastes and client requirements
change.  We also maintain a quality control department for inspection,
testing, monitoring and compliance to ensure that our products are produced
consistently in accordance with our standards.





Intellectual
Property





We have
registered the “Overhill Farms” and “Chicago Brothers” trademarks with the
United States Patent and Trademark Office.   Also, during the
fiscal year ended September 28, 2008, we entered into a five-year licensing
agreement with Better Living Brands tmAlliance (“Alliance”) for the exclusive right to produce and sell frozen
entrées under the Eating Right tm and
O Organicstm
brands.





Employees





Our total
hourly and salaried workforce consisted of 898 employees at September 27,
2009.  Most of our operations are labor intensive, generally requiring
unskilled employees.  Approximately 81% of our 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,
2008.  We believe our relations with our employees and the union are
good.





Regulation





Food
manufacturers are subject to strict government regulation, particularly in the
health and environmental areas, by the United States Department of Agriculture
(“USDA”), the Food and Drug Administration (“FDA”), as well as the Occupational
Safety and Health Administration (“OSHA”) and the Environmental Protection
Agency (“EPA”).  Our food processing facilities are subject to
continuous on-site examination, inspection and regulation by the
USDA.  Compliance with the current applicable federal, state and local
environmental regulations has not adversely affected our financial position,
results of operations or competitive position.  However, we cannot
predict whether regulation by various federal, state or local governmental
entities and agencies may adversely affect our future business and financial
results.  If a product recall does occur, we have processes and
procedures in place to assist in the recall of products.  Since 1997,
we have used a Hazard Analysis Critical Point Plan to ensure proper handling of
all food items.





Additional
Information





Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”), are available free of charge on our website at www.overhillfarms.com
as soon as reasonably practicable after being filed or furnished to the
Securities and Exchange Commission (“Commission”). Our reports filed with the
Commission are also made available to read and copy at the Commission’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain
information about the Public Reference
Room by contacting the Commission at 1-800-SEC-0330. Reports filed with the
Commission are also made available on its website at www.sec.gov.


2
 Table of Contents





ITEM
      1A.
            Risk
      Factors








Our
ability to compete effectively in the highly competitive food industry may
affect our operational performance and financial results.





Our
continued success depends in part on our ability to be an efficient producer in
the highly competitive food industry.  We face competition in all of
our markets from large, national companies and smaller, regional
operators.  Some of our competitors, including diversified food
companies, are larger and have greater financial resources than we
do.  From time to time, we experience price pressure in some of our
markets as a result of competitors’ promotional pricing practices as well as
general market conditions.  Our failure to match or exceed our
competitors’ cost reductions through productivity gains and other improvements
could weaken our competitive position.  Competition is based on
product quality, food safety, distribution effectiveness, brand loyalty, price,
effective promotional activities, the ability to identify and satisfy emerging
consumer preferences and the ability to provide ancillary support
services.  We may not be able to effectively compete with these
larger, more diversified companies.  Also, a disruption of our supply
chain could impair our ability to manufacture or supply goods.  In
addition, products have life cycles, and as the lives of products diminish, we
may not be able to replace our existing customers.





The
loss or consolidation of any of our key customers could adversely affect our
financial results by decreasing our existing sales opportunities and prices and
increasing our marketing and promotional expenses.





The
largest purchasers of our products, Jenny Craig, Inc., Panda Restaurant Group,
Inc., Safeway Inc. and H. J. Heinz Company, Inc., accounted for approximately
25%, 22%, 17% and 12%, respectively, of our total net revenues during the fiscal
year ended September 27, 2009.  Except for H. J. Heinz Company, we
expect that our sales to these customers will continue to constitute a
significant percentage of our net revenues.  The loss of any of these
customers as a significant outlet for our products could adversely affect our
competitive position and operating results if we do not obtain additional
customers to offset any change in these accounts.





Some
of our significant customer and supplier contracts are short-term and may not be
renewable on terms favorable to us or at all.





Some of
our customers and suppliers operate through purchase orders or short-term
contracts.  Though we have long-term business relationships with many
of our customers and suppliers and alternative sources of supply for key items,
we cannot be sure that any of these customers or suppliers will continue to do
business with us on the same basis.  Additionally, although we try to
renew these contracts as they expire, there can be no assurance that these
customers or suppliers will renew these contracts on terms that are favorable to
us, if at all.  The termination of or modification to any number of
these contracts may adversely affect our business and prospects, including our
financial performance and results of operations.  Our three-year
contract with H. J. Heinz Company is set to expire at the end of calendar year
2009 and they have informed us that they intend to move most of their remaining
volume to self-manufacture.  We are currently projecting a further
revenue reduction of approximately $18 million, in current H.J Heinz Company
products, for fiscal year 2010, beginning in our second quarter.





Financial
difficulties of foodservice and retail customers due to the economic downturn
may adversely affect our revenues, costs and collections.





As the
domestic economic downturn continues, collectability of receivables from our
customers may be adversely affected, causing an increase in aged receivables
and/or a reduced collection rate.  Our margins could be adversely
affected if we are forced to write off uncollectible accounts.  In
addition, the economic downturn could adversely affect the fiscal health of key
customers or impair their ability to continue to operate during a recessionary
period, which would decrease our revenues unless we are able to replace any lost
business.


3
 Table of Contents


We
are a major purchaser of many commodities that we use for raw materials and
packaging, and price changes for the commodities we depend on may adversely
affect our profitability.





When
possible, we enter into contracts for the purchase of raw materials at fixed
prices, which are designed to protect us against raw material price increases
during their terms.  Where appropriate, we attempt to recover our
commodity cost increases by increasing prices, promoting a higher-margin product
mix and creating additional operating efficiencies.





We also
use paper products, such as corrugated cardboard, aluminum products, films and
plastics to package our products.  Substantial increases in prices of
packaging materials or higher prices of our raw materials could adversely affect
our operating performance and financial results.  In addition,
transportation costs have been unpredictable.  If such costs rise to
the levels that were seen in fiscal year 2008, our operating margins could be
eroded.





Commodity
price changes may result in unexpected increases in raw materials and packaging
costs, and we may be unable to increase our prices to offset these increased
costs without suffering reduced volume, revenue and income.  Any
substantial fluctuation in the prices we pay for raw materials and packaging, if
not offset by increases in our sales prices, could adversely affect our
profitability.





If
our food products become adulterated or misbranded, we would need to recall
those items and may experience product liability claims if consumers are injured
as a result.





Food
products occasionally contain contaminants due to inherent defects in those
products or improper storage or handling.  Under adverse
circumstances, food manufacturers such as us may need to recall some of their
products if they become adulterated or misbranded or as a result of
government-mandated recall.





The scope
of such a recall could result in significant costs incurred as a result of the
recall, potential destruction of inventory, and lost sales. Should consumption
of any product cause injury, we may be liable for monetary damages as a result
of a judgment against us.  A widespread product recall could result in
changes to one or more of our business processes, product shortages, a loss of
customer confidence in our food or other adverse effects on our
business.





If we are
required to defend against a product liability claim, whether or not we are
found liable under the claim, we could incur substantial costs, our reputation
could suffer and our customers might substantially reduce their existing or
future orders from us.





Concerns
with the safety and quality of food products could cause customers to avoid our
products.





We could
be adversely affected if our customers and the ultimate consumers of our
products lose confidence in the safety and quality of various food
products.  Adverse publicity about these types of concerns, such as
the publicity about genetically modified organisms and avian influenza, whether
or not valid, may discourage our customers from buying our products or cause
production and delivery disruptions.  Negative changes in customer
perceptions about the safety and quality of products we produce could adversely
affect our business and financial condition.





Further
instability or tightening in the credit markets could impair our ability to
obtain financing as and when needed.





Further
instability or tightening in the credit markets could impair our ability to
obtain additional credit as and when needed to finance our operations and fund
future plant or business expansions.  In addition, tight credit
markets could eventually result in an increase in interest rates, which would
adversely affect us, as we currently have $27.7 million in long-term debt,
including current maturities, with interest rates that adjust
monthly.


4
 Table of Contents


If
we violate our financial and other covenants under our secured credit facility,
our financial condition, results of operations or cash flows may be adversely
affected if secured parties foreclose on our assets or impose default rates of
interest.





Our
outstanding $27.7 million senior secured credit facility, maturing in May 2011,
is secured by a first-priority lien on substantially all of our assets. The
facility contains covenants whereby, among other things, we are required to
maintain compliance with agreed levels of EBITDA, interest coverage, fixed
charge coverage, leverage targets and annual capital expenditures and
incremental indebtedness limits.  If we violate these covenants and
are unable to obtain waivers or renegotiate the terms of the covenants, we could
become subject to, among other things, interest rate increases and acceleration
of maturity of the loans, which could adversely affect our financial condition,
results of operations or cash flows.





A
change in control could result in an event of default under our secured credit
facility, which could adversely affect our financial condition, results of
operations or cash flows.





Our
secured credit facility provides that a change in control would occur if, among
other occurrences, Mr. Rudis ceases to be our chief executive officer other than
due to death or disability or if a suitable replacement chief executive officer
has not accepted appointment within 90 days after Mr. Rudis’ death or
disability, any person or group becomes the beneficial owner of 35% or more of
our voting stock, or certain changes in the composition of our board occur
during any period of two consecutive years.  The occurrence of a
change in control could permit the secured parties to terminate or reduce their
loan commitments, declare all or a portion of loans then outstanding to be due
and payable, and/or exercise other available rights and
remedies.  Depending on our financial condition at the time, we may
not be able to raise sufficient funds to repay this indebtedness upon an event
of default.  Accordingly, the occurrence of a change in control could
adversely affect our financial condition, results of operations or cash
flows.





A
small number of stockholders beneficially own a significant percentage of our
outstanding common stock and therefore could significantly influence or control
matters requiring stockholder approval.





Assuming
the exercise of the aggregate options issued to our executive officers and
directors to purchase shares of our common stock, our executive officers and
directors and stockholders who beneficially own greater than 5% of our common
stock were beneficial owners, in the aggregate, of approximately 32% of our
outstanding common stock as of December 10, 2009.  These stockholders,
if acting together, could be able to significantly influence or control matters
requiring approval by our stockholders, including the election of directors and
the approval of mergers or other business combination transactions.





Our
failure to attract and retain key management personnel could adversely affect
our business.





Our
business requires managerial, financial and operational expertise, and our
future success depends upon the continued service of key
personnel.  As a value-added manufacturer of quality frozen food
products and custom prepared foods, we operate in a specialized
industry.  Our key personnel have experience and skills specific to
this industry, and there are a limited number of individuals with the relevant
experience and skills.  Though we have an employment agreement with
Mr. Rudis, the agreement permits the voluntary resignation on the part of Mr.
Rudis prior to the end of the term of the agreement.  If we lose any
of our key personnel, our business operations could be adversely
affected.





We
may not be able to protect our intellectual property and proprietary rights or
may become subject to claims relating to our use of our customers’ trademarks,
which could harm our competitive position, resulting in decreased
revenue.





We
believe that our trademarks and other proprietary rights, though few in number,
are important to our success and competitive position.  Accordingly,
we devote what we believe are adequate resources to the establishment and
protection of our trademarks and proprietary rights.  We have taken
actions to establish and protect our trademarks and other proprietary
rights.  However, these actions may be inadequate to prevent imitation
of our products by others or to prevent others from claiming violations of their
trademarks and proprietary rights by us.


5
 Table of Contents


From time
to time, we manufacture products under our customers’
trademarks.  While we generally require them to agree to indemnify us
in connection with our use of their trademarks, it is possible that we could
face infringement actions based upon the content provided by our
customers.  If any of these claims are proved valid, through
litigation or otherwise, we may be required to cease using the trademarks and/or
pay financial damages and/or expenses for which we are not
indemnified.





Our
common stock price is subject to significant volatility, which could result in
substantial losses for investors.





During
the 52-week period ended December 10, 2009, the high and low sales prices of our
common stock on the NYSE AMEX were $6.60 per share and $2.95 per share,
respectively.  Prices for our shares are determined in the marketplace
and may accordingly be influenced by many factors, including, but not limited
to:





·
            the
      depth and liquidity of the market for the
  shares;





·
            quarter-to-quarter
      variations in our operating
results;





·
            announcements
      about our performance as well as the announcements of our competitors
      about the performance of their
businesses;





·
            investors’
      evaluations of our future prospects and the food industry
      generally;





·
            changes
      in earnings estimates by, or failure to meet the expectations of,
      securities analysts; and





·
            general
      economic and market conditions.





In
addition, the stock market has been experiencing significant volatility that may
be unrelated to the operating performance of the specific companies whose stock
is traded.  This volatility could adversely affect the trading price
of our shares.





The price
at which investors purchase shares of our common stock may not be indicative of
the price that will prevail in the trading market.  Investors may be
unable to sell their shares of common stock at or above their purchase price,
which may result in substantial losses.





Future
airline bankruptcies, additional cost-cutting in the airline industry or other
financial difficulties of our airline customers may adversely affect our
revenues, costs and collections.





In fiscal
year 2009, sales to airline customers were approximately $11.1 million, or 5.3%
of total net revenues, compared to sales of $20.7 million in fiscal year 2008
and $19.7 million in fiscal year 2007, representing 8.7% and 10.2% of total net
revenues in fiscal years 2008 and 2007, respectively.  Additionally,
accounts receivable from airline-related customers accounted for approximately
4.9% and 10.0% of the total accounts receivable balance at September 27, 2009
and September 28, 2008, respectively.  Given the financial and
business challenges facing the airline industry, we carefully monitor our
receivables from all of our customers in this sector.  The on-going
effect of these challenges on the airline industry, airline revenues, and on our
business in particular cannot be accurately determined and could further
adversely affect our financial position, results of operations or cash flows by,
among other things, decreasing our sales to and making it more difficult to
collect receivables from airline customers.





Our
business is subject to federal, state and local government regulations that
could adversely affect our business and financial position.





Food
manufacturing operations are subject to regulation by various federal, state and
local government entities and agencies.  As a producer of food
products for human consumption, our operations are subject to stringent
production, packaging, quality, labeling and distribution standards, including
regulations mandated by the federal Food, Drug and Cosmetic Act and the U.S.
Department of Agriculture.  Future regulation by various federal,
state or local governmental entities or agencies may adversely affect our
business and financial results.


6
 Table of Contents


In
addition, our business operations and the past and present ownership and
operation of our properties are subject to extensive and changing federal, state
and local environmental laws and regulations pertaining to the discharge of
materials into the environment, the handling and disposition of wastes
(including solid and hazardous wastes) or otherwise relating to protection of
the environment.  We cannot predict whether environmental issues
relating to presently known matters or identified sites or to other matters or
sites will require currently unanticipated investigation, assessment or
expenditures.





Future sales of shares of our common
stock by our stockholders could cause our stock price to decline.




We cannot
predict the effect, if any, that market sales of shares of our common stock or
the availability of shares of common stock for sale will have on the market
price prevailing from time to time.  As of December 10, 2009, we had
outstanding 15,823,271 shares of common stock, most or all of which were
eligible for resale without registration.  Also, as of December 10,
2009, there were outstanding options to purchase up to 521,000 shares of common
stock.  All of the shares of common stock underlying these options are
covered by an existing effective registration statement.  Sales of
shares of our common stock in the public market, or perceptions that those sales
may occur, could cause the trading price of our common stock to decrease or to
be lower than it might be in the absence of those sales or
perceptions.





Our
articles of incorporation, our bylaws and provisions of Nevada law could make it
more difficult for a third party to acquire us, even if doing so could be in our
stockholders’ best interest.





Provisions
of our articles of incorporation and bylaws could make it more difficult for a
third party to acquire us, even if doing so might be in the best interest of our
stockholders.  It could be difficult for a potential bidder to acquire
us because our articles of incorporation and bylaws contain provisions that may
discourage takeover attempts.  These provisions may limit our
stockholders’ ability to approve a transaction that our stockholders may think
is in their best interest.  These provisions include a requirement
that certain procedures must be followed before matters can be proposed for
consideration at meetings of our stockholders and also include the ability of
our board of directors to fix the rights and preferences of an issue of shares
of preferred stock without stockholder action.





Provisions
of Nevada’s business combinations statute also restrict certain business
combinations with interested stockholders.  We have elected not to be
governed by these provisions in our amended and restated articles of
incorporation.  However, this election may not be effective unless we
meet certain conditions under the Nevada statute.





The
provisions of our articles of incorporation, bylaws and Nevada law are intended
to encourage potential acquirers to negotiate with us and allow the board of
directors the opportunity to consider alternative proposals in the interest of
maximizing stockholder value.  However, those provisions may also
discourage acquisition proposals or delay or prevent a change in
control.





ITEM
      1B.
            Unresolved Staff
      Comments








Not applicable.





ITEM
      2.
            Properties








We lease
two manufacturing facilities in Vernon, California.  In January 2002,
we entered into a ten-year lease, with an option for a five-year renewal, for a
facility, Plant No. 1, that has been expanded to 170,000 square
feet.  Most of our principal executive office, manufacturing and
warehousing, product development and sales and quality control facilities have
been consolidated into this single location.  In December 2008, we
entered into a 60-month lease, with an option for a 60-month renewal, for a
facility, Plant No. 2, that has been expanded to 123,000 square
feet.  Plant No. 2 is used primarily for cooking protein as well as
dry and cold storage.  In addition, we lease a 25,000 square foot dry
goods storage facility in Vernon, California.


7
 Table of Contents


We
believe that our Plant No. 1, currently operating at approximately 60% capacity,
is adequate to meet our requirements for the near future.  In fiscal
year 2009, items that were processed at Plant No. 1 (some of which included
components that were processed at Plant No. 2) accounted for sales of
approximately $156.6 million.  Items that were processed in Plant No.
2 that did not require further processing in Plant No. 1 accounted for the
balance of sales in fiscal year 2009 of approximately $53.2
million.  As our sales of cooked protein grow, it may become necessary
to augment the cooking capacity that we now have at Plant No. 2.  We
continue to monitor our cooking capacity.  If we deem additional
cooking capacity to be necessary, we expect capital expenditures for that
capacity could range from $5 million to $10 million during fiscal years 2010 and
2011, depending on the amount of additional cooking capacity added.








ITEM
      3.
            Legal
      Proceedings








We are involved
in certain legal actions and claims arising in the ordinary course of
business.  Management believes that such contingencies, including the
matters described below, will be resolved without materially and adversely
affecting our financial position, results of operations or cash
flows.





The
matters described below arise out of the same background facts. Earlier this
year the IRS threatened to impose substantial penalties against us because we
reported wages for a large number of employees using invalid social security
numbers. On April 6, 2006, we notified all employees (approximately 260) who
reportedly had invalid social security numbers and gave them approximately 60
days to provide a legitimate explanation. Most employees failed to do so.
Effective May 31, 2009, we terminated those who did not provide us a valid
social security number or a legitimate explanation (the “Termination”), after
concluding that their continued employment would expose us to IRS penalties,
scrutiny and potential additional criminal and civil sanctions.





On April
28, 2009, Local 770 of the United Food and Commercial Workers Union submitted to
the Company what the Company believes is an invalid grievance seeking
reinstatement and back pay for an unspecified number of ex-employees, alleging
the Termination was a violation of the parties’ collective bargaining agreement.
On June 29-30, 2009, Marcelino Arteaga, Agapita Padilla and Fernando Morales
Lira filed grievances through Local 770 and an unfair labor practice charge with
the National Labor Relations Board (“NLRB”), demanding arbitration arising out
of our termination of their employment because they had publicly accused us of
being “racist,” and seeking reinstatement and back pay. On June 30, 2009, we
filed a complaint in Orange County Superior Court against Nativo Lopez and six
other leaders of what we believe to be an unlawful campaign to force us to
continue the employment of workers who had used invalid social security numbers
to hide their illegal work status. We have asserted claims for defamation,
extortion, intentional interference with prospective economic advantage, and
intentional interference with contractual relations, seeking damages and an
injunction barring the defendants from continuing their conduct. On July 1,
2009, Bohemia Agustiana, Isela Hernandez, and Ana Munoz filed suit in Los
Angeles County Superior Court on behalf of themselves and a class which they
claim includes all non-exempt production and quality control workers who were
employed in California during the previous four-year period, seeking unspecified
damages, restitution, injunctive relief, attorneys’ fees and costs for failure
to pay minimum wage, failure to furnish wage and hour statements, waiting time
penalties, conversion and unfair business practices. On August 7, 2009 the
Office of Special Counsel for the Civil Rights Division of the US Department of
Justice (“OSC”) requested information from us in connection with an
investigation regarding the Termination. On September 9, 2009, we received a
letter from the OSC, requesting information regarding a discrimination charge
filed by former employee Lucia Vasquez (a/k/a Gyneth Garcia). Vasquez also
separately filed a claim for unemployment benefits with the California
Employment Development Department, which was denied; she has appealed the
determination.





These
claims are being vigorously contested, as we believe the Termination was
appropriate and that we have paid all wages due. We filed a motion to dismiss
the Local 770 case with the arbitrator in Los Angeles County on December 1, 2009
and believe we have valid defenses to the grievance, that our employment
termination decisions did not violate any union contract terms and that tax and
immigration laws required us to terminate these employees. The Agustiana claim
is in the discovery phase, and we have filed a motion to dismiss their
conversion claim. The NLRB granted our request to defer further proceedings on
the Arteaga, Padilla and Lira unfair labor practice charge pending the
resolution of the grievance and arbitration process; we are currently selecting
an arbitrator. We responded in detail to the OSC’s information request, and the
OSC has taken no further action on either Vasquez’s discrimination charge or the
request for information as of December 11, 2009. With regard to our lawsuit
against Lopez, et al., the Court denied defendants’ motion to dismiss, finding
that we had established a probability of prevailing on the merits, and that we
had submitted substantial evidence that the defendants’ accusations of racism
were not true.


8
 Table of Contents


ITEM
      4.
            Submission of Matters
      to a Vote of Security
Holders








Not
applicable.





PART
II





ITEM
      5.
            Market for
      Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities








Market
Information and Record Holders





Our
common stock has traded on NYSE AMEX under the symbol “OFI” since November 1,
2002.  At December 10, 2009, we had approximately 128 stockholders of
record.  These holders of record include depositories that hold shares
of stock for brokerage firms which, in turn, hold shares of stock for numerous
beneficial owners.  On December 10, 2009, the closing sale price of
our common stock on NYSE AMEX was $5.56.  The following table sets
forth the range of high and low sales prices for our common stock on NYSE AMEX
for the periods indicated:





Fiscal 2008
            
            High
            
            
            LowFirst
      Quarter from October 1, 2007
              to
      December 30, 2007
            
            $
            3.99
            
            
            $
            2.76Second
      Quarter from December 31, 2007
              to
      March 30, 2008
            
            
            5.20
            
            
            
            2.15Third
      Quarter from March 31, 2008
              to
      June 29, 2008
            
            
            8.45
            
            
            
            3.71Fourth
      Quarter from June 30, 2008
              to
      September 28, 2008
            
            
            10.00
            
            
            
            5.81Fiscal 2009
            
            High
            
            
            LowFirst
      Quarter from September 29, 2008
              to
      December 28, 2008
            
            $
            5.85
            
            
            $
            3.00Second
      Quarter from December 29, 2008
              to
      March 29, 2009
            
            
            5.40
            
            
            
            2.95Third
      Quarter from March 30, 2009
              to
      June 28, 2009
            
            
            5.98
            
            
            
            3.40Fourth
      Quarter from June 29, 2009
              to
      September 27, 2009
            
            
            6.08
            
            
            
            5.05


9
 Table of Contents


Performance
Graph





The
following is a line graph comparing the yearly percentage change in the
cumulative total return of our common stock to the cumulative total return of
the Standard & Poor’s 500 Index and a peer group for the period commencing
September 26, 2004 and ending September 27, 2009.  The peer group is
comprised of Tyson Foods, Inc.; Monterey Gourmet Foods, Inc.; Cuisine Solutions,
Inc.; ConAgra Foods, Inc.; Armanino Foods of Distinction, Inc.; Smithfield
Foods, Inc.; and Bridgford Foods Corporation.





The graph
assumes that $100 was invested in our common stock, the Standard & Poor’s
500 Index and the peer group on September 26, 2004 and that all the dividends
were reinvested on a quarterly basis.  Returns for the companies
included in the peer group have been weighted on the basis of the market
capitalization for each company.








Fiscal Year-Ended2004
            
            
            2005
            
            
            2006
            
            
            2007
            
            
            2008
            
            
            2009Overhill
      Farms, Inc. (OFI)
            
            $
            100.00
            
            
            $
            276.47
            
            
            $
            277.34
            
            
            $
            303.67
            
            
            $
            508.99
            
            
            $
            580.19Standard
      & Poor's 500 Index
            
            
            100.00
            
            
            
            110.69
            
            
            
            120.38
            
            
            
            137.53
            
            
            
            109.29
            
            
            
            94.08Peer
      Group
            
            
            100.00
            
            
            
            109.42
            
            
            
            111.48
            
            
            
            126.34
            
            
            
            95.33
            
            
            
            111.49








Dividends





We have
never paid cash dividends on our common stock.  We currently
anticipate that no cash dividends will be paid on our common stock in the
foreseeable future in order to conserve cash for use in our
business.  Our current financing arrangements also prohibit us from
paying cash dividends.








Recent
Sales of Unregistered Securities





None.


10
 Table of Contents


ITEM
      6.
            Selected Financial
      Data








The
following table sets forth selected historical financial data of Overhill Farms,
Inc.  The selected financial data as of and for each of the last five
fiscal years are derived from the financial statements of Overhill Farms, Inc.,
which have been audited by Ernst & Young LLP, independent registered public
accounting firm.





The data
may not necessarily be indicative of our future results of operations or
financial position.  The historical data should be read in conjunction
with “Management's Discussion and Analysis of Financial Condition and Results of
Operation” and the financial statements and the related notes included elsewhere
in this report.








Fiscal Year EndedStatements
      of Income Data
              (in
      thousands, except per share data):
            
            September 27,
              2009
            
            
            September 28,
              2008
            
            
            September 30,
              2007
            
            
            October 1,
              2006
            
            
            October 2,
              2005(52 weeks)
            
            
            (52 weeks)
            
            
            (52 weeks)
            
            
            (52 weeks)
            
            
            (53 weeks)Net
      revenues
            
            $
            209,877
            
            
            $
            238,780
            
            
            $
            192,642
            
            
            $
            168,310
            
            
            $
            162,566Operating
      income
            
            
            15,579
            
            
            
            20,616
            
            
            
            11,900
            
            
            
            14,288
            
            
            
            11,903Net
      income
            
            
            8,301
            
            
            
            10,321
            
            
            
            4,562
            
            
            
            5,102
            
            
            
            3,696Net
      income per share – Basic
            
            $
            0.52
            
            
            $
            0.66
            
            
            $
            0.30
            
            
            $
            0.34
            
            
            $
            0.25Net
      income per share – Diluted
            
            $
            0.52
            
            
            $
            0.65
            
            
            $
            0.29
            
            
            $
            0.32
            
            
            $
            0.24Weighted
      average shares outstanding – Basic
            
            
            15,823,271
            
            
            
            15,747,434
            
            
            
            15,338,038
            
            
            
            15,204,424
            
            
            
            14,863,716Weighted
      average shares outstanding - Diluted
            
            
            16,028,698
            
            
            
            15,992,467
            
            
            
            15,803,109
            
            
            
            15,880,507
            
            
            
            15,575,459






As of Fiscal Year EndedBalance
      Sheet Data
              (in
      thousands)
            
            September 27,
              2009
            
            
            September 28,
              2008
            
            
            September 30,
              2007
            
            
            October 1,
              2006
            
            
            October 2,
              2005(52 weeks)
            
            
            (52 weeks)
            
            
            (52 weeks)
            
            
            (52 weeks)
            
            
            (53 weeks)Total
      assets
            
            $
            73,637
            
            
            $
            79,420
            
            
            $
            76,150
            
            
            $
            58,128
            
            
            $
            56,221Long-term
      debt
            
            
            21,891
            
            
            
            33,479
            
            
            
            41,383
            
            
            
            37,219
            
            
            
            45,058Total
      liabilities
            
            
            42,141
            
            
            
            56,224
            
            
            
            63,731
            
            
            
            51,191
            
            
            
            54,844Retained
      earnings (accumulated deficit)
            
            
            19,780
            
            
            
            11,479
            
            
            
            1,157
            
            
            
            (3,405
            )
            
            
            (8,507
            )Stockholders’
      equity
            
            
            31,497
            
            
            
            23,195
            
            
            
            12,419
            
            
            
            6,937
            
            
            
            1,378





No cash
dividends on our common stock were declared during any of the periods presented
above.


11
 Table of Contents


ITEM
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations








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





·
            the impact of competitive products and
      pricing;




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




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




·
            seasonality in the retail
      category;




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




·
            fulfillment by suppliers of existing raw material
      contracts;




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




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




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





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





·
            financial
      viability and resulting effect on revenues and collectability of accounts
      receivable of our customers during the on-going economic downturn and any
      future deep recessionary periods;





·
              ability
      to obtain additional financing as and when needed, and rising costs of
      credit that may be associated with new
  borrowings;





·
            voluntary
      or government-mandated food recalls;
and





·
            other
      factors discussed in this report.





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





Any of
the factors described above or in the “Risk Factors” contained in Item 1A of
this report could cause our financial results, including our net income or loss
or growth in net income or loss to differ materially from prior results, which
in turn could, among other things, cause the price of our common stock to
fluctuate substantially.


12
 Table of Contents


Overview





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





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





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





·
            operating
      and investing in efficient production
  facilities;





·
            providing
      value-added ancillary support services to
  customers;





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





·
            continuing
      to pursue growth through strategic acquisitions and
      investments.





Overall,
we have performed well in the most difficult economic environment since the
Great Depression.  Sales to virtually all of our major customers have
either decreased or grown less than expected as sales to their customers have
decreased, their inventories have been reduced, and their new marketing
initiatives delayed.  In addition, as previously disclosed, revenues
to one of our significant accounts, H. J. Heinz Company, decreased $19.1 million
as they decided to self-manufacture products previously produced by
us.  While our foodservice accounts increased during the fiscal year,
these gains were not enough to offset other account decreases.  During
our fiscal fourth quarter, we were additionally impacted by the seasonality in
our retail category, as retailers typically sell fewer frozen meals during
warmer months, coupled with aggressive promotional activity from competing
national brands. In spite of all the above, we reported our second best earnings
ever, generated $14.7 million in net cash from operations, reduced long-term
debt $12.9 million and increased retained earnings by $8.3 million. In addition,
we plan to pay another $5 million on our debt by the end of calendar year
2009.





During
the fourth quarter of fiscal year 2009, we entered into an agreement with J. R.
Simplot Company which designated J. R. Simplot as the exclusive distributor of
certain of our products to some of the nation’s largest foodservice
accounts.  We believe that this agreement represents a significant
opportunity for us in fiscal year 2010 and beyond.  In addition, we
extended our contracts with two of our largest customers, Jenny Craig, Inc. and
Safeway Inc.  In both cases, we offered minor price concessions in
exchange for longer-term contracts. In November 2009, H. J. Heinz Company
informed us that they intend to move most of their remaining volume to
self-manufacture beginning after their contract expires at the end of calendar
year 2009.  We are currently projecting a further revenue reduction of
approximately $18 million, in current H. J Heinz Company products, for fiscal
year 2010, beginning in the second quarter.  We will continue to
produce some product for H. J Heinz Company on an on-going basis after the
contract expires and we are continuing to work with them on potential new
products.  It is our objective to offset any lost H. J Heinz Company
business during calendar 2010 with higher margin sales in the retail and
foodservice segments from both our existing new product and customer pipeline
and our new arrangement with J. R. Simplot.





As our
top-line revenues decreased during fiscal year 2009, our margins, primarily in
our fourth quarter, were negatively affected by higher overhead costs as a
percentage of net revenues on the lower sales volume.  Although we
expect continued margin pressure throughout fiscal year 2010, we anticipate
margins will improve as sales revenues increase as the economy begins to
recover.  However, we believe we can offset the higher overhead costs
and minor price concessions through reduced purchase prices of raw materials,
production efficiencies and a change in mix of customers between retail,
foodservice and airlines.


13
 Table of Contents


Fiscal
years 2009, 2008 and 2007 were 52-week periods.  For the fiscal year
2009, net revenues of $209.9 million reflected a 12.1% decrease as compared to
the fiscal year 2008.  During fiscal year 2009, decreased sales in the
retail and airline category contributed to the decline.  We
experienced a 24.0% increase in net revenues for the fiscal year 2008, to $238.8
million, compared to $192.6 million for the fiscal year 2007.  The
increase in net revenues during fiscal year 2008 was due to growth in our retail
category.





Gross
profit was $25.6 million in fiscal year 2009, compared to $29.3 million in
fiscal year 2008 and $19.9 million in fiscal year 2007. Gross profit as a
percentage of net revenues during fiscal years 2009, 2008 and 2007 were 12.2%,
12.3% and 10.4%, respectively.  Although gross profit decreased due to
lower revenues, gross profit as a percentage of revenues remained relatively
unchanged in fiscal year 2009 due to a higher margin sales mix along with
increased efficiencies and yields, favorable commodity prices, lower freight
charges and lower product development costs offset partially by higher overhead
costs as a percentage of net revenues on lower sales volume. The earlier
increase in gross profit in dollars and as a percentage of revenues in fiscal
year 2008 compared to fiscal year 2007 was due to higher margin sales along with
on-going manufacturing improvements, increased efficiencies and yields and
modest increases in sales prices to several customers. As previously disclosed,
in order to improve our gross profit margins, we continue to analyze our lower
margin accounts in order to increase margins or change to more profitable
business.





Operating
income as a percentage of net revenues for the fiscal year ended 2009 was 7.4%
compared to 8.6% in fiscal year 2008 and 6.2% in fiscal year 2007, due primarily
to decreased net revenues as noted above and increased
SG&A.  SG&A expenses as a percentage of net revenues increased
to 4.8% in fiscal year 2009 compared to 3.6% in fiscal year 2008 and 4.2% in
fiscal year 2007.  SG&A expenses increased as a percentage of net
revenues due to increased total brokerage fees stemming from higher sales to
Safeway Inc. and increased professional fees relating to litigation described in
Item 3 of this report. Net income of $8.3 million decreased as a percentage of
net revenues to 4.0% in fiscal year 2009 versus 4.3% in fiscal year 2008 and
2.4% in fiscal year 2007.





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





Results
of Operations





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





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





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


14
 Table of Contents


Fiscal
Year Ended September 27, 2009 Compared to Fiscal Year Ended September 28,
2008





Fiscal Year Ended
            
            
            Change 2009 vs 2008­September 27,
2009
            
            
            ­September 28,
2008
            
            
            Dollar Variance
            
            
            % VarianceDollars
            
            
            % of Net Revenues
            
            
            Dollars
            
            
            % of Net Revenues
            
            
            Favorable (Unfavorable)
            
            
            Favorable (Unfavorable)(Dollars
      in thousands)Net
      revenues
            
            $
            209,877
            
            
            
            100.0
            %
            
            $
            238,780
            
            
            
            100.0
            %
            
            $
            (28,903
            )
            
            
            (12.1
            )%Cost
      of sales
            
            
            184,326
            
            
            
            87.8
            
            
            
            209,517
            
            
            
            87.7
            
            
            
            25,191
            
            
            
            12.0Gross
      profit
            
            
            25,551
            
            
            
            12.2
            
            
            
            29,263
            
            
            
            12.3
            
            
            
            (3,712
            )
            
            
            (12.7
            )Selling,
      general and administrative expenses
            
            
            9,972
            
            
            
            4.8
            
            
            
            8,647
            
            
            
            3.6
            
            
            
            (1,325
            )
            
            
            (15.3
            )Operating
      income
            
            
            15,579
            
            
            
            7.4
            
            
            
            20,616
            
            
            
            8.6
            
            
            
            (5,037
            )
            
            
            (24.4
            )Interest
      and other (income) expense, net
            
            
            2,279
            
            
            
            1.1
            
            
            
            3,663
            
            
            
            1.5
            
            
            
            1,384
            
            
            
            37.8Income
      before income taxes
            
            
            13,300
            
            
            
            6.3
            
            
            
            16,953
            
            
            
            7.1
            
            
            
            (3,653
            )
            
            
            (21.5
            )Income
      tax provision
            
            
            4,999
            
            
            
            2.4
            
            
            
            6,632
            
            
            
            2.8
            
            
            
            1,634
            
            
            
            24.6Net
      income
            
            $
            8,301
            
            
            
            4.0
            %
            
            $
            10,321
            
            
            
            4.3
            %
            
            $
            (2,020
            )
            
            
            (19.6
            %)





Net Revenues.Net
revenues for the fiscal year ended September 27, 2009 decreased $28.9 million or
12.1%  (13.1% of the decrease was attributed to volume/mix offset by a
1.0% pricing increase) to $209.9 million from $238.8 million for the fiscal year
ended September 28, 2008, due to decreases in airline and retail net revenues as
discussed below.





Retail
net revenues decreased $27.6 million (or 15.9%) to $146.4 million for the fiscal
year ended September 27, 2009 from $174.0 million for the fiscal year ended
September 28, 2008.  The decrease in retail net revenues was largely
due to the previously disclosed reduced volume from H. J. Heinz
Company.  This reduction in volume resulted in a decrease in net
revenues of approximately $19.1 million. The remaining decrease in retail net
revenues is attributed to a $5.8 million decline in sales to Jenny Craig, Inc.
due to the current economic downturn and their inventory management plans. For
fiscal year 2009, the retail category as a percentage of net revenues decreased
to 69.7% from 72.9%.





During
fiscal year 2008, we entered into a five-year licensing agreement with Better
Living Brands tmAlliance (the “Alliance”) for the exclusive right to produce and sell
frozen entrées under the Eating Right tm and
O Organicstm
brands.  The mission of the Alliance is to provide health and wellness
food and beverage solutions via its two proven multi-category lifestyle
brands.  We paid a one-time $1.25 million licensing fee in two
installments, $1.0 million in May 2008 and $250,000 in May 2009.  In
addition, we made royalty fee prepayments of $125,000 each in May 2008 and in
October 2008.  The agreement is renewable for two five-year
terms.  For fiscal year 2009, amortization expense related to the
licensing fee was $226,000.





Foodservice
net revenues increased $8.2 million (or 18.6%) to $52.3 million for fiscal year
2009 from $44.1 million for fiscal year 2008 due to the anticipated increased
sales to an existing customer as well as sales to a new customer. For fiscal
year 2009, the foodservice category as a percentage of net revenues increased to
24.9% from 18.5%.  On September 30, 2009, we entered into a sales and
distribution agreement with J. R. Simplot Company which designated J. R. Simplot
as the exclusive distributor of a certain number of our products to some of the
nation’s largest foodservice accounts.We continue to increase our
sales efforts in this category and believe that foodservice represents a
significant opportunity for us in 2010 and beyond.





Airline
net revenues decreased $9.6 million (or 46.4%) to $11.1 million for fiscal year
2009 from $20.7 million for fiscal year 2008. Due to continued efforts in the
airline industry to cut costs, airline net revenues may continue to decrease in
future periods. For fiscal year 2009, the airline category as a percentage of
net revenues decreased to 5.3% from 8.7% as we continue our transition to
opportunities outside of this category.


15
 Table of Contents


Although
calendar 2010 will present challenges it will also have many new
business opportunities.  In November 2009, H. J. Heinz Company
informed us that they intend to move most of their remaining volume to
self-manufacture beginning after their contract expires at the end of calendar
year 2009.  We are currently projecting a further revenue reduction of
approximately $18 million, in current H. J. Heinz Company products, for fiscal
year 2010, beginning in the second quarter.  We will produce some
product for H. J. Heinz Company on an on-going basis after the contract expires
and are continuing to work with them on potential new products.  It is
our objective to offset any lost H. J. Heinz Company business during calendar
2010 with higher margin sales in the retail and foodservice segments from both
our existing new product and customer pipeline and our new arrangement with J.
R. Simplot.





Gross
Profit.  Gross profit for fiscal year 2009 decreased by $3.7
million (12.6%) to $25.6 million from $29.3 million for fiscal year
2008.  Gross profit as a percentage of revenues decreased slightly to
12.2% for the fiscal year ended September 27, 2009 from 12.3% for the fiscal
year ended September 28, 2008 due primarily to lower margins in our fourth
quarter of fiscal year 2009 which resulted from higher overhead costs as a
percentage of net revenues on lower sales volume as well as minor price
reductions to some of our largest customers.  Prior to our fourth
quarter, our gross profit as a percentage of revenues was higher than fiscal
year 2008 due largely to higher margin sales mix along with increased
efficiencies and yields, favorable commodity prices, lower freight charges,
lower product development costs and modest increases in sales prices to several
customers, offset partially by higher overhead costs as a percentage of net
revenues on lower sales volume. In addition, in order to improve our gross
profit margins, we continue to analyze our lower margin accounts and expect to
move away from some of the accounts that do not meet our profit objectives
towards higher margin business currently available to us.





Selling, General and Administrative
Expenses.  SG&A expenses increased $1.3 million (or 15.3%)
to $10.0 million, or 4.8% of net revenues, for fiscal year 2009 from $8.6
million, or 3.6% of net revenues, for fiscal year 2008. SG&A expenses were
driven by higher brokerage and licensing fees ($461,000) stemming predominately
from higher sales to Safeway Inc. and higher professional and legal fees
relating primarily to litigation ($878,000) described in Item 3 of this
report.





Operating
Income.Operating income decreased $5.0 million (24.4%) to
$15.6 million for fiscal year 2009 from $20.6 million for fiscal year
2008.  The decrease in operating income was the result of the decrease
in gross profit and an increase in SG&A expenses as noted
above.





Interest and Other (Income) Expense,
net.
Interest expense decreased $1.4 million (37.8%) for fiscal year 2009 to $2.3
million from $3.7 million for fiscal year 2008 due to lower debt balances and
lower variable interest rates.





Income Tax
Provision.  Income tax expense was $5.0 million for fiscal year
2009 compared to $6.6 million for fiscal year 2008.  The difference
was a result of income before taxes decreasing $3.7 million from $17.0 million
for fiscal year 2008 to $13.3 million during fiscal year 2009.  The
effective tax rates were 37.6% and 39.1% for fiscal years 2009 and 2008,
respectively.





Net Income.Net income for
fiscal year 2009 was $8.3 million, or $0.52 per basic and diluted share,
compared to net income of $10.3 million, or $0.66 per basic share and $0.65 per
diluted share for fiscal year 2008.





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


16
 Table of Contents


Fiscal
Year Ended September 28, 2008 Compared to Fiscal Year Ended September 30,
2007








Fiscal Year Ended
            
            
            Change 2008 vs 2007­September 28,
2008
            
            
            September 30, 2007
            
            
            Dollar Variance
            
            
            % VarianceDollars
            
            
            % of Net Revenues
            
            
            Dollars
            
            
            % of Net Revenues
            
            
            Favorable (Unfavorable)
            
            
            Favorable (Unfavorable)(Dollars
      in thousands)Net
      revenues
            
            $
            238,780
            
            
            
            100.0
            %
            
            $
            192,642
            
            
            
            100.0
            %
            
            $
            46,138
            
            
            
            24.0
            %Cost
      of sales
            
            
            209,517
            
            
            
            87.7
            
            
            
            172,694
            
            
            
            89.6
            
            
            
            (36,823
            )
            
            
            (21.3
            )Gross
      profit
            
            
            29,263
            
            
            
            12.3
            
            
            
            19,948
            
            
            
            10.4
            
            
            
            9,315
            
            
            
            46.7Selling,
      general and administrative expenses
            
            
            8,647
            
            
            
            3.6
            
            
            
            8,047
            
            
            
            4.2
            
            
            
            (600
            )
            
            
            (7.5
            )Operating
      income
            
            
            20,616
            
            
            
            8.6
            
            
            
            11,900
            
            
            
            6.2
            
            
            
            8,716
            
            
            
            73.2Interest
      and other (income) expense, net
            
            
            3,663
            
            
            
            1.5
            
            
            
            4,389
            
            
            
            2.3
            
            
            
            726
            
            
            
            16.5Income
      before income taxes
            
            
            16,953
            
            
            
            7.1
            
            
            
            7,511
            
            
            
            3.9
            
            
            
            9,442
            
            
            
            125.7Income
      tax provision
            
            
            6,632
            
            
            
            2.8
            
            
            
            2,949
            
            
            
            1.5
            
            
            
            (3,683
            )
            
            
            (124.9
            )Net
      income
            
            $
            10,321
            
            
            
            4.3
            %
            
            $
            4,562
            
            
            
            2.4
            %
            
            $
            5,759
            
            
            
            126.2
            %





Net Revenues.Net
revenues for fiscal year 2008 increased $46.2 million (or 24.0%) to $238.8
million from $192.6 million for fiscal year 2007, driven predominately by
increases in volume and new products from new and existing customers as noted
below.





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





Foodservice
net revenues decreased $14.4 million (or 24.6%) to $44.1 million for fiscal year
2008 from $58.5 million for fiscal year 2007 due to anticipated reduced volume
from one customer and softness in the foodservice industry caused by a slowing
economy. For fiscal year 2008, the foodservice category as a percentage of net
revenues decreased to 18.5% from 30.4%.





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





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





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


17
 Table of Contents


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





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





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





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





Liquidity
and Capital Resources





For
fiscal years ended 2009 and 2008, our operating activities provided cash of
$14.7 million and $10.7 million, respectively.  Cash generated from
operations before working capital changes for fiscal year 2009 was $12.2
million.  Cash generated by changes in working capital was $2.5
million for fiscal year 2009 and resulted from decreases in accounts receivable
and inventory of $2.4 million and $2.0 million, respectively, as well as an
increase in accrued liabilities of $71,000.  This was partially offset
by a decrease in accounts payable of $1.8 million and an increase in prepaid
expenses and other assets and $98,000. At September 27, 2009, we had working
capital of $23.6 million compared to working capital of $26.3 million at
September 28, 2008.  We were able to fund our operations during fiscal
year 2009 internally, without increasing our external debt, by executing the
cash management procedures noted above.





During
fiscal year 2009, our investing activities, consisting primarily of an
acquisition of wastewater capacity units for our plant No. 1 in Vernon,
California, and capital expenditures of $1.1 million and $2.1 million,
respectively, resulted in a net use of cash of approximately $3.1 million,
compared to a net use of cash of approximately $1.3 million during fiscal year
2008.  The wastewater capacity units, which are required by California
law, and the property and equipment additions were made to accommodate
additional business opportunities, meet anticipated growth and improve operating
efficiency. We anticipate that cash generated from operating activities and
borrowing availability under our existing credit facilities will fund revenue
growth and working capital needs in the near term.





We
believe that our cash and financial liquidity positions are sufficient to fund
current working capital needs and future growth initiatives.  Our
current financing, at favorable interest rates, is in place into
2011.  We have an available revolving line of credit of $7.5 million,
which we believe is adequate to meet immediate requirements.  We are
scheduled to make an excess cash prepayment of $2.4 million on our Tranche A
debt prior to calendar year-end.  We intend to reduce our debt with
regularly scheduled debt reduction payments and additional voluntary prepayments
where liquidity and loan agreements allow.





During
fiscal year 2009, our financing activities used cash of $12.9 million, compared
to cash used by financing activities of $4.0 million during fiscal year
2008.  The net use of cash was largely due to $4.6 million in
mandatory and $7.8 million in voluntary principal payments we made on our
Tranche A and Tranche B Term Loans, as well as payments on equipment loans and
our capital lease obligation of $227,000 and $279,000,
respectively.





We
executed a senior secured credit agreement with 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.


18
 Table of Contents


On March
9, 2007, we 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
September 27, 2009, the facility with GCF, reflecting principal payments and the
March 9, 2007 amendment, was a $49.7 million senior secured credit facility
maturing in May 2011, secured by a first priority lien on substantially all of
our assets. As of September 27, 2009, 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:





Total Debt to EBITDA Ratio for Last Twelve
      Months
            
            Applicable Margin for Alternate Base Rate
      Loans
            
            Applicable Margin for
                LIBOR LoansRevolving 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
September 27, 2009, our principal balances on the loans totaled $27.3 million,
consisting of $14.4 million in Tranche A Term Loans and $12.9 million in Tranche
B Term Loans.  At September 27, 2009, interest rates on the Tranche A
Term Loans and Tranche B Term Loans were 3.5% and 6.0%,
respectively.  As of September 27, 2009 and September 28, 2008, our
total debt to EBITDA ratio for the last twelve months was 1.47 and 1.71,
respectively and, therefore, for fiscal years 2009 and 2008, we qualified for
the lowest applicable margin for the alternate base rate and LIBOR
loans.  For fiscal year 2009, we incurred $1.9 million in interest
expense, excluding amortization of deferred financing costs.  For
fiscal year 2008, we incurred $3.3 million in interest expense, excluding
amortization of deferred financing costs, net of $43,000 in capitalized
interest.  During fiscal year ended 2009, the outstanding balance of
the facility was reduced by mandatory and voluntary principal payments on the
Tranche A Term Loan of $4.6 million and $5.0 million,
respectively.  In addition, we also made a voluntary principal payment
on the Tranche B Term Loan of $2.8 million during the first quarter of fiscal
year 2009. As of September 27, 2009, we had $7.5 million available to borrow
under the revolving loan, as the balance was zero.





Initial
proceeds from the GCF facility, received 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, $535,000 is recorded as debt discount, net
of accumulated amortization, on the accompanying balance sheet as of September
27, 2009.  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 was
recorded as a debt discount.


19
 Table of Contents


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.





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 related to certain manufacturing
equipment 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.  On September 2, 2009, we purchased
the manufacturing equipment from General Electric Capital
Corporation.   As of September 27, 2009 the net book value of the
assets was $387,232.





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.





Contractual
Obligations and Other Commitments





We are
obligated to make future payments under various contracts such as debt
agreements, lease obligations and other purchase obligations.





Following
is a summary of our contractual obligations at September 27, 2009:








Payments Due By PeriodContractual Obligations
            
            Total
            
            
            Within 1 Year
            
            
            2-3 Years
            
            
            4-5 Years
            
            
            More than 5 YearsDebt
      maturities
            
            $
            27,697,858
            
            
            $
            5,271,441
            
            
            $
            22,426,417
            
            
            $
            -
            
            
            $
            -Interest
      expense(1)
            
            
            3,034,956
            
            
            
            1,863,415
            
            
            
            1,171,541
            
            
            
            -
            
            
            
            -Operating
      lease obligations (2)
            
            
            15,043,088
            
            
            
            3,395,759
            
            
            
            5,734,014
            
            
            
            3,756,273
            
            
            
            2,157,042Other
      contractual obligations
            
            
            100,000
            
            
            
            100,000
            
            
            
            -
            
            
            
            -
            
            
            
            -Open
      purchase orders
            
            
            15,968,561
            
            
            
            15,968,561
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      contractual obligations
            
            $
            61,844,463
            
            
            $
            26,599,176
            
            
            $
            29,331,972
            
            
            $
            3,756,273
            
            
            $
            2,157,042


____________


(1)
            Assumes
      only mandatory principal pay-downs and the use of LIBOR as of September
      27, 2009 on the GCF debt and fixed-rate interest payments on equipment
      loans and capital lease
obligation.


20
 Table of Contents


(2)
            Includes
      real estate leases.





The above
table outlines our obligations as of September 27, 2009 and does not reflect the
changes in our obligations that occurred after that date.  There have
been no material changes to our obligations as of December 11,
2009.





Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued a
standard that defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements.  The standard 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.  The standard became effective for
our fiscal year that began on September 29, 2008.  The adoption of the
standard did not have a material impact on our financial position or results of
operations.  As of September 27, 2009,
we had financial assets in cash, which are measured at fair value using quoted
prices for identical assets in an active market (Level 1 fair value hierarchy)
in accordance with thestandard.





In
February 2008, the FASB issued changes to fair value accounting, which permits a
one-year deferral of the application of fair value measurements for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  The guidance partially defers the
effective date of fair value measurement to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items
within the scope of this change.  We are currently evaluating the
potential impact of the changes on our financial statements.





In
December 2007, the FASB issued a standard on business combinations which
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired.  The standard also modifies the recognition for
preacquisition contingencies, such as environmental or legal issues,
restructuring plans and acquired research and development value in purchase
accounting.  The standard amends the standard on accounting for income
taxes, and requires the acquirer to recognize changes in the amount of its
deferred tax benefits that are recognizable because of a business combination
either in income from continuing operations in the period of the combination or
directly in contributed capital, depending on the circumstances.  The
standard also establishes disclosure requirements that will enable users to
evaluate the nature and financial effects of the business
combination.  The standard is effective on or after the beginning
of the first annual reporting period beginning on or after December 15,
2008.  The impact to us of the adoption of the standard will
depend on the nature and size of any potential future acquisitions.





In
December 2007, the FASB issued a standard on the accounting for noncontrolling
interests, which clarifies the classification of noncontrolling interests in
consolidated statements of financial position and the accounting for and
reporting of transactions between the reporting entity and holders of such
noncontrolling interests.  The standard will be effective for fiscal
years beginning after December 15, 2008.  We do not expect the
adoption of this standard to have an impact on our financial condition or
results of operations.





In April
2009, FASB issued changes regarding interim disclosures about fair value of
financial instruments. The changes enhance
consistency in financial reporting by increasing the frequency of fair value
disclosures from annually to quarterly.  The changes require
disclosures on a quarterly basis of qualitative and quantitative information
about fair value estimates for all those financial instruments not measured on
the balance sheet at fair value. The disclosure requirement became effective
beginning with our first interim reporting period ending after June 15, 2009.
The adoption of this change did not have a material impact on our results of
operations or financial condition.





On May
28, 2009, the FASB issued a standard related to subsequent
events.  The standard is effective for interim or annual periods
ending after June 15, 2009 and establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued.  Entities are also required to disclose the date through which
subsequent events have been evaluated and the basis for that date.  We
have evaluated subsequent events through the date of issuance of these financial
statements, December 11, 2009.


21
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In June
2009, the FASB issued a standard related to the FASB accounting standards
codification and the hierarchy of generally accepted accounting
principles.  The standard will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by the FASB to be
applied by nongovernmental entities.  Rules and interpretive releases
of the Securities and Exchange Commission (“SEC”) under authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants.  On the effective date of this standard, the codification
will supersede all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the codification will become non-authoritative.  This
standard is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  The adoption of this
standard did not have a material impact on our results of operations, financial
condition or cash flows.





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 elsewhere
in this report 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 historical bad debt experience and current market
conditions.  Bad debt expense and accounts receivable write-offs, net
of recoveries, historically have been relatively small, as we generally transact
the substantial portion of our business with large, established food or service
related businesses.  For fiscal years 2009, 2008 and 2007, our
write-offs, net of recoveries, to the allowance for doubtful accounts were
approximately $2,000, $20,000 and $9,000, respectively.





A
significant portion of our total net revenues during the last two fiscal years
was derived from four customers.  Jenny Craig, Inc., Panda Restaurant
Group, Inc., Safeway Inc. and H. J. Heinz Company, Inc., accounted for
approximately 25%, 22%, 17% and 12%, respectively of our net revenues for fiscal
year 2009 and approximately 24%, 16%, 13% and 18%, respectively, of our net
revenues for fiscal year 2008.  Receivables related to Jenny Craig,
Inc., Panda Restaurant Group, Inc. (through its distributors), Safeway Inc. and
H. J. Heinz Company accounted for approximately 21%, 37%, 20% and 6%,
respectively of our total accounts receivable balance at September 27, 2009 and
approximately 20%, 16%, 12% and 21%, respectively, of our total accounts
receivable balance at September 28, 2008.





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 write it down based upon the age of specific items in
inventory and the expected recovery from the disposition of the
items.





We
write-down our inventory for the estimated aged surplus, spoiled or damaged
products and discontinued items and components.  We determine the
amount of the write-down 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 in the write-down of our
inventory.


22
 Table of Contents


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.





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.





Goodwill.We
evaluate goodwill at least annually for impairment.  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 September 27, 2009, 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 guidance on accounting for uncertainty of income
taxes on October 1, 2007.  The guidance clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with the standard on accounting for income taxes.  This
guidance 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.  It also provides guidance on
derecognition of tax benefits, classification on the balance sheet, interest and
penalties, accounting in interim periods, disclosure and
transition.  As a result of the implementation of the guidance, we
recorded no increase in the liability for unrecognized tax benefits, and the
balance of unrecognized tax benefits was zero at September 27,
2009.





We have
also adopted the accounting policy that interest and penalties recognized are
classified as part of income taxes.  No interest and penalties were
recognized in the statement of income for fiscal year 2009.





ITEM
      7A.
            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 by approximately $134,000 the annual
interest expense on our debt outstanding as of September 27, 2009.  We
are also subject to interest rate risk on our fixed interest rate
obligations.  Based upon outstanding amounts of fixed rate obligations
as of September 27, 2009, a hypothetical 10% decrease in average market interest
rates would increase the fair value of outstanding fixed rate debt by
approximately $2,000.


23
 Table of Contents


ITEM8.
            Financial Statements
      and Supplementary Data








See the
index to financial statements included in Part IV, Item 15.  The
supplementary financial information required by Item 302 of Regulation S-K is
contained in Note 12 of the notes to financial statements included in this
report.





ITEM
      9.
            Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure








None.





ITEM
      9A.
            Controls and
      Procedures








Not
applicable





ITEM9A(T).
            Controls and
      Procedures








Evaluation
of Disclosure 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 September 27, 2009, that the design and operation of our
“disclosure controls and procedures” (as defined in Rules 13a-15(e) and
15d-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.





Management’s
Report on Internal Control Over Financial Reporting

















24
 Table of Contents












Inherent
Limitations on the Effectiveness of Controls





Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
systems are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in a
cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if any,
have been or will be detected.





These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of a simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls’ effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.





Changes
in Internal Control Over Financial Reporting





During
the quarter ended September 27, 2009, 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.





ITEM9B.
            Other
      Information








Not
applicable.


25
 Table of Contents


PART
III





ITEM
      10.
            Directors, Executive
      Officers and Corporate
Governance








The
following table sets forth certain information regarding our directors and
executive officers as of December 11, 2009.








Name
            
            Age
            
            Positions Held
            
            Director
                SinceJames
      Rudis
            
            60
            
            Chairman
      of the Board, President, Chief Executive Officer and
    Director
            
            1995Tracy
      E. Quinn
            
            55
            
            Interim
      Chief Financial Officer
            
            -Richard
      A. Horvath
            
            63
            
            Senior
      Vice President and Secretary
            
            -Harold
      Estes(1)
            
            69
            
            Director
            
            2002Geoffrey
      A. Gerard(1)(2)(3)
            
            64
            
            Director
            
            2002Alexander
      Auerbach(2)(3)
            
            65
            
            Director
            
            2004Alexander
      Rodetis, Jr.(1)
            
            67
            
            Director
            
            2004


____________





(1)
            Member
      of audit committee.


(2)
            Member
      of compensation committee.


(3)
            Member
      of nominating and governance
committee.





The
following information regarding the principal occupations and other employment
of our directors and executive officers during the past five years and their
directorships in certain companies is as reported to us by each of
them.





James Rudis was elected to our
board of directors in April 1995 and has served as President since June 1997. He
also served as a director of TreeCon Resources, Inc. (our former parent company)
from December 1992 to December 2003, and until December 2003 had served as
President of TreeCon Resources (formerly Polyphase Corp.) since July 1997 and
Chairman and Chief Executive Officer of TreeCon Resources since February
1998.  He served as Executive Vice President of TreeCon Resources from
March 1994 until July 1997.  Prior to his employment with us and with
TreeCon Resources, Mr. Rudis was President of Quorum Corporation, a private
consulting firm involved in acquisitions and market development.  From
1970 until 1984, he held various executive positions in CIT Financial
Corporation, including Vice President and Regional Manager of that company’s
Commercial Finance Division.





Tracy E. Quinnhas served as
our Interim Chief Financial Officer since September 2007.  Ms. Quinn
filled various senior-level finance and operating positions for the H. J. Heinz
Company prior to taking early retirement in 2005 after 21 years with that
company. At Heinz, she served as Corporate Controller and Chief Accounting
Officer; Vice President-Finance with one of its U.S. frozen foods divisions;
Vice President-Strategy Development at the corporate level; Managing Director of
its U.S. infant foods business unit; and Chief Financial Officer or Chief
Executive Officer of various Heinz international operations.





Richard A. Horvath has served
as our Senior Vice President and Secretary since November 1997.  Mr.
Horvath also served as our Chief Financial Officer from November 1997 through
March 2003 and as a member of our board of directors from November 1999 to
September 2004.  Mr. Horvath has been in the food industry for over 30
years.  Prior to his employment with us, Mr. Horvath served as Chief
Financial Officer of Martino’s Bakery, Inc.  During the period of 1973
to 1996, he held various positions with Carnation Company, Star Kist Foods and
Mission Foods.


26
 Table of Contents


Harold Estes was appointed to
our board of directors in October 2002.  Mr. Estes is the President of
Texas Timberjack, Inc. (“TTI”), a wholly-owned subsidiary of TreeCon
Resources.  He was elected as a director of TreeCon Resources in
February 1996 and resigned from the TreeCon Resources board of directors in
April 1997. TTI is a distributor of industrial and commercial timber and logging
equipment and is also engaged in certain related timber and sawmill
operations.  Mr. Estes has been President of TTI since 1984, when he
acquired TTI from Eaton Corporation.  Mr. Estes previously served as a
director of Newton Bancshares, Inc., the parent of First National Bank of Newton
(Texas), for approximately ten years until the sale of the bank in October
2001.





Geoffrey A. Gerard was elected
to our board of directors in February 2002.  Mr. Gerard served as
Secretary and General Counsel of Equivest, Inc. from 1975 to
1977.  Mr. Gerard then served as Secretary and General Counsel for two
privately held oil and gas exploration companies until 1978.  Mr.
Gerard has been in the private practice of law in Dallas County, Texas since
1978, specializing in business transactions.  Mr. Gerard received a
B.S. in Business-Finance and a J.D. from Indiana University.





Alexander Auerbach was
appointed to our board of directors in September 2004.  Mr. Auerbach
is President of Alexander Auerbach & Co., Inc., a public relations and
marketing services firm that he founded in 1986.  Prior to
establishing Alexander Auerbach & Co., Inc., Mr. Auerbach served as Chief
Operating Officer of two magazine publishing companies.  Earlier in
his career, Mr. Auerbach was a senior member of the business and financial news
staff of The Los Angeles Times and a financial writer for The Boston
Globe.  Mr. Auerbach holds a B.A. from Columbia University and an
M.B.A. from the University of California at Los Angeles.





Alexander Rodetis, Jr. was
appointed to our board of directors in September 2004. Mr. Rodetis is currently
President and co-founder of Fairway Financial Services LLC, organized in October
2005 and currently engaged to provide financial and due diligence guidance to
bank and non-bank lending institutions as well as to companies seeking solutions
to their corporate finance requirements. In addition, Mr. Rodetis is President
of Pegasus Financial Services, L.L.C., which he founded in September 1996 and is
currently engaged, on a project basis, to perform loan reviews and credit
assessments for the loan portfolio of a community bank located on the East
Coast. Mr. Rodetis has been in the financial services community for over
thirty-five years. Mr. Rodetis had been the Marketing and Strategic Planning
Coordinator of the Daley-Hodkin Group from March 2004 to September 2007, a
business valuation, asset disposition and consulting organization and previously
held the position of Inventory Appraisal Business Head for the Group. He served
as Senior Vice President of General Motors Acceptance Corporation’s Commercial
Finance Division from 2002 to 2003, where he co-founded the Special Assets
Group. From 1998 to 2002, Mr. Rodetis served as Executive Vice President of the
Merchants Bank of New York, where he co-founded the asset-based lending
corporation for the bank. Prior to that, he served as Vice President of Fremont
Financial Corp. and of National Westminster Bancorp and held various credit and
marketing positions at other banking institutions, including The Chase Manhattan
Bank and Citibank North America, Inc. Mr. Rodetis earned a B.S. in Accounting, a
B.A. in Business Administration and an M.B.A. in finance from Fairleigh
Dickinson University. He has also completed financial analysis and corporate
finance courses at The Harvard School of Business.





Term
of Office and Family Relationships





Our
directors are elected at each annual stockholders’ meeting or at such other
times as reasonably determined by our board of directors.  Each of our
directors is to hold office until his successor is elected and qualified or
until his earlier death, resignation or removal.  Each of our
executive officers serves at the discretion of our board of
directors.  There are no family relationships among our executive
officers or directors.





Code
of Ethics





Our board
of directors has adopted a code of ethics that applies to all of our
directors, officers and employees.  The code of ethics constitutes our
“code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of
2002 and is our “code of conduct” within the meaning of the listing standards of
NYSE AMEX.  We will provide a copy of our code of ethics to any person
without charge, upon written request to Overhill Farms, Inc.,
Attention:  Investor Relations, 2727 East Vernon Avenue, Vernon,
California 90058.


27
 Table of Contents


Audit
Committee Composition





During
fiscal year 2009, our audit committee was composed of Messrs. Rodetis, Gerard
and Estes, with Mr. Rodetis serving as the committee chairman.  Our
board of directorshas determined that Mr.
Rodetis is an “audit committee financial expert” and that each of Messrs.
Rodetis, Gerard and Estes are “independent” as defined in Sections 803A and 803B
of the NYSE AMEX listing standards.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act, requires our executive officers and directors, and
persons who beneficially own more than 10% of a registered class of our common
stock, to file initial reports of ownership and reports of changes in ownership
with the Commission.  These officers, directors and stockholders are
required by Commission regulations to furnish us with copies of all reports that
they file.





Based
solely upon a review of copies of the reports furnished to us during the fiscal
year ended September 27, 2009 and thereafter, or any written representations
received by us from directors, officers and beneficial owners of more than 10%
of our common stock (“reporting persons”) that no other reports were required,
we believe that, during fiscal year 2009, except as set forth below, all Section
16(a) filing requirements applicable to our reporting persons were
met.





Alexander
Auerbach filed one late Form 4 reporting a single transaction.





ITEM 11.
            Executive
      Compensation








Compensation Discussion and
Analysis





Compensation
Governance










Compensation
Philosophy and Objectives










·
              To
      provide an executive compensation structure and system that is both
      competitive in the marketplace and also internally equitable based upon
      the weight and level of responsibilities of each
  executive;





·
              To
      attract, retain and motivate qualified executives within this structure,
      and reward them for outstanding performance-to-objectives and business
      results; and





·
              To
      structure our compensation policy so that the compensation of executive
      officers is dependent in part on the achievement of our current year
      business plan objectives and dependent in part on the long-term increase
      in our net worth and the resultant improvement in stockholder value, and
      to maintain an appropriate balance between short and long-term performance
      objectives.


28
 Table of Contents


The compensation committee evaluates both performance
and compensation to ensure that the total compensation paid to our executive
officers is fair, reasonable and competitive.  The principal
components of compensation for our executives consist of base salary,
discretionary bonuses and perquisites and other personal
benefits.




From time to time we also offer alternative sources of
compensation, such as stock options, to our executive officers. Options provide
executive officers with the opportunity to buy and maintain an equity interest
in our company and to share in the appreciation of the value of our common
stock. In addition, if a participant were to leave prior to the exercise of the
participant’s options, the unexercised options would be forfeited after the
expiration of the period specified in the options. This makes it more difficult
for competitors to recruit key employees away from us. We believe that option
grants afford a desirable long-term compensation method because they closely
align the interests of our management and other employees with stockholder value
and motivate officers to improve our long-term stock performance.  No
stock options were granted in fiscal year 2009.




Section 162(m) of the Internal Revenue Code places a
limit on the amount of compensation that may be deducted in any year with
respect to each of our named executive officers.  It is our policy
that, to the extent possible, compensation will be structured so that the
federal income tax deduction limitations will not be
exceeded.





Executive Compensation for Fiscal Year 2009




Our compensation policy is designed to reward
performance.  In measuring our executive officers’ contributions to
our company, our compensation committee considers numerous factors, including
our growth and financial performance as measured by revenue, gross margin
improvement, earnings per share, as well as cashflow targets, among other key
performance indicators.  We consider individual experience,
responsibilities and tenure when determining base salaries, as well as industry
averages for similar positions.  In addition, we analyze qualitative
and quantitative factors when awarding incentive compensation, such asthe overall performance of our company andthe relative contribution of each
individualcompared to pre-established performance
goals.




Our chief executive officer makes recommendations
to our compensation committee regarding the salaries, bonus arrangements and
option grants, if any, for key employees, including all executive
officers.  For executive officers whose bonus awards are based partly
on individual performance, our chief executive officer’s evaluation of such
performance is provided to and reviewed by our compensation committee.  Our compensation committee does not
currently engage any consultant related to executive and/or director
compensation matters.




Stock price performance has not been a factor in
determining annual compensation because the price of our common stock is subject
to a variety of factors outside of management’s control.  We do not
subscribe to an exact formula for allocating cash and non-cash compensation.
However, a significant percentage of total executive compensation is
performance-based.  Historically, the majority of the incentives to
our executives have been in the form of cash incentives, as we previously had
debt restrictions that restricted the number of stock options
granted.




For
fiscal year2009, our compensation for named
executives consisted of base salary, discretionary bonuses and
perquisites.  No stock optionsor other equity incentiveswere granted.




Our board of directors, upon recommendation of our
compensation committee, has approved bonusesfor each executive officer for fiscal year
2009.  The primary criteria used in determining bonuses related to our
overall performance, progress on strategic objectives and each individual’s
contribution to that performance.




During fiscal year 2009, although our net revenues
decreased by $28.9 million, our gross profit as a percentage of net revenues
remained relatively constant at 12.2%.  We also strengthened our
balance sheet and improved our capital and liquidity positions by decreasing our
overall debt by $12.9 million.  As a result, Mr. Rudis received a
total bonus of $177,850, Ms. Quinn received a total bonus of $57,350 and Mr.
Horvath received a total bonus of $29,716.Further information regarding executive
bonuses is contained below under the heading “Executive
Bonuses.”


29
 Table of Contents


Executive
Bonuses





Upon
recommendation of the compensation committee, our board of directors approved
bonuses for fiscal year 2009 for our named executive officers, based upon their
contributions to our success during fiscal year 2009.  The bonuses
will be paid in fiscal year 2010.





For
fiscal year 2009, Mr. Rudis served as our Chairman of the Board of Directors,
Chief Executive Officer and President.  As part of the function of all
three roles, Mr. Rudis served as the relationship manager to stockholders,
lenders and all four of our previously disclosed significant
customers.  In addition to setting the long-term strategy for us, Mr.
Rudis was responsible for our overall profitability and maintained a close
working relationship with all significant parties to help ensure positive
results were achieved.





For
fiscal year 2009, Ms. Quinn served as our Interim Chief Financial Officer and
was responsible for overseeing all of our accounting practices and policies as
well as directing our financial strategy and forecasts. Under Ms. Quinn’s
leadership as Interim Chief Financial Officer, we were able to reduce our debt
by additional voluntary payments of $7.8 million during fiscal year
2009.





For
fiscal year 2009, Mr. Horvath served as the relationship manager with numerous
customers.  In addition, Mr. Horvath also served as our Vice-President
of Human Resources and Administration.  In his dual roles, Mr. Horvath
ensured resources were available to complete customer orders.





To
determine the amounts of the executive bonuses for fiscal year 2009, the
compensation committee considered these individual accomplishments and also
reviewed some of the Company’s more significant financial benchmarks, including
but not limited to net revenue growth, gross margin improvement, earnings per
share, cash flow and earnings before interest, taxes, depreciation and
amortization (“EBITDA”).





For the
fiscal year ended September 27, 2009, amid a severe economic downturn and the
loss of $19.1 million in revenues from H. J. Heinz Company, Inc., we were able
to remain profitable and not violate any of our debt
covenants.  Although our net revenues and gross profit decreased $28.9
million and $3.7 million, respectively, in fiscal year 2009 compared to fiscal
year 2008, our gross profit as a percentage of revenue remained relatively flat,
decreasing only 0.1%.  For fiscal year 2009, we had earnings per share
of $0.52 and we were able to pay down our total debt balance by $12.9
million.   Lastly, our EBITDA for fiscal year 2009 was $18.8
million.  EBITDA for the fiscal year ended September 27, 2009, was
calculated using the following measurements: net income of $8.3 million;
interest expense of $1.9 million; tax expense of $5.0 million; depreciation
expense of $3.2 million; and amortization expense of $406,000.





The
$177,850bonus
approved for James Rudis consisted of $170,500 in cash (approximately 47% of his
base salary) and a $7,350 401(k) contribution. The bonus approved for Tracy E.
Quinn was $57,350, consisted of $50,000 in cash (approximately 14% of her base
salary) and a $7,350 401(k) contribution. The $29,716 bonus approved for Richard
A. Horvath consisted of $25,000 in cash  (approximately 17% of his
base salary) and a $4,716 401(k) contribution, which represented 3% of Mr.
Horvath’s gross W-2 earnings for calendar year 2009.





Conclusion










30
 Table of Contents


Summary
Compensation Table





The
following table sets forth for fiscal years 2009, 2008 and 2007 compensation
awarded or paid to Mr. James Rudis, our Chairman, Chief Executive Officer and
President, Ms. Tracy E. Quinn, our Interim Chief Financial Officer, and Mr.
Richard A. Horvath, our Senior Vice President and Secretary, for services
rendered to us.  Messrs. Rudis and Horvath and Ms. Quinn are also
referred to as “named executive officers.”  Other than as indicated in
the table below, none of our executive officers received salary plus bonus in
excess of $100,000 for fiscal year 2009.








Name
      and
            
            
            
            
            
            
            
            
            
            All
      OtherPrincipal Positions
            
            Year
            
            Salary ($)
            
            
            Bonus ($)
            
            
            Compensation ($)
            
            
            Total ($)James
      Rudis,
            
            2009
            
            $
            371,178
            
            
            $
            177,850
            
            
            $
            227,407
            (1)
            
            $
            776,435Chairman,
      President and
            
            2008
            
            
            352,075
            
            
            
            251,900
            
            
            
            196,117
            
            
            
            800,092Chief
      Executive Officer
            
            2007
            
            
            306,006
            
            
            
            56,700
            
            
            
            188,573
            
            
            
            551,279Tracy
      E. Quinn,
            
            2009
            
            
            360,000
            
            
            
            57,350
            
            
            $
            80,253
            (2)
            
            
            497,603Interim
      Chief Financial
            
            2008
            
            
            358,269
            
            
            
            6,900
            
            
            
            120,290
            
            
            
            485,459Officer
            
            2007
            
            
            22,500
            
            
            
            675
            
            
            
            —
            
            
            
            23,175Richard
      A. Horvath,
            
            2009
            
            
            157,200
            
            
            
            29,716
            
            
            
            —
            
            
            
            186,916Senior
      Vice President
            
            2008
            
            
            149,886
            
            
            
            25,552
            
            
            
            —
            
            
            
            175,438and
      Secretary
            
            2007
            
            
            147,191
            
            
            
            19,851
            
            
            
            
            
            
            
            167,042








(1)
            Mr.
      Rudis received certain perquisites and other personal benefits in fiscal
      year 2009, which consist of the
following:


a.
            Premium
      paid of $17,966 for term life insurance for the benefit of Mr. Rudis’
      spouse; and


b.
            Mr.
      Rudis maintains offices in both Vernon, California and New York. $209,442
      represents perquisites or other benefits relating to payment of or
      reimbursement for commuting expenses between New York and California,
      including $155,532 for airfare, $29,590 for lodging and $24,320 for
      transportation, meals and other miscellaneous
  expenses.





(2)
            Ms.
      Quinn received certain perquisites and other personal benefits in fiscal
      year 2009, which consist of the
following:


a.
            Ms.
      Quinn maintains her principal residence in
      Pennsylvania.  $80,253 represents perquisites or other benefits
      relating to payment of or reimbursement for commuting expenses between
      Pennsylvania and California, including $49,464 for airfare, $21,317 for
      lodging and $9,472 for transportation, meals and other miscellaneous
      expenses.





Executive
Employment Agreements and Arrangements





James
Rudis





Mr.
Rudis’ employment agreement will expire on December 31, 2009.  On
December 3, 2009, our board of directors approved a modification and extension
for Mr. Rudis’ employment agreement.  Both the board and Mr. Rudis
have agreed in principal to the terms of the modification and
extensions.  The agreement is subject to execution of a final
agreement expected no later than December 31, 2009.  The new agreement
is to be effective starting on January 1, 2010 and will expire on December 31,
2012.  After the initial term, the relationship will be at-will and
may be terminated by us at any time or by Mr. Rudis upon at least 60 days’
written notice. Upon termination, Mr. Rudis would be entitled to receive accrued
and unpaid base salary, unreimbursed business expenses and accrued but unused
vacation and unused sick pay.





Mr.
Rudis’ base salary, as of September 27, 2009, was $362,174 per
year.  Mr. Rudis’ amended base salary, based on the new agreement,
will be $450,000 and we will review his compensation annually and increase it in
a percentage not less than that of the annual increase in the cost of
living.  The employment agreement contains a modified covenant by Mr.
Rudis not to compete with us during the term of his employment and for a period
of one year thereafter.  We have agreed to provide at our expense a
$1.0 million life insurance policy on Mr. Rudis’ life, payable to a beneficiary
of his choice, and to pay to him up to $800 per month for an automobile lease
and to reimburse him for all operating expenses relating to the leased
automobile.  In addition, if Mr. Rudis chooses not to participate in
our existing group medical insurance plan, we have agreed to reimburse him for
health insurance premiums he pays through the term of the employment agreement
and any extensions for him and his immediate family, up to the amounts he paid
for such coverage immediately prior to the effective date of the employment
agreement.  Mr. Rudis’ maintains four weeks vacation time annually, at
his option, Mr. Rudis can accrue vacation time beyond each year or be paid in
cash for all or part of any unused vacation days.  On execution of the
agreement, Mr. Rudis will receive a signing bonus of $50,000.


31
 Table of Contents


Mr. Rudis
is also entitled to receive a minimum payment of $300,000 (in addition to any
other payments our compensation committee may award in its sole discretion)
upon:





•
            an
      individual, entity or group becoming the beneficial owner of more than 50%
      of the total voting power of our total outstanding voting securities on a
      fully-diluted basis;





•
            an
      individual or entity acquiring substantially all of our assets and
      business; or





•
            a
      merger, consolidation, reorganization, business combination or acquisition
      of assets or stock of another entity, other than in a transaction that
      results in our voting securities outstanding immediately before the
      transaction continuing to represent at least 50% of the combined voting
      power of the successor entity’s outstanding voting securities immediately
      after the transaction.





However,
a change in control does not include a financing transaction approved by our
board of directors and involving the offering and sale of shares of our capital
stock.





The
employment agreement also provides that if Mr. Rudis is terminated by reason of
his death or disability, he or his estate is entitled to receive:





•
            his
      base salary, bonuses earned and reimbursement for business expenses, in
      each case through the date of
termination;





•
            all
      rights to which he or his estate is entitled under his life insurance
      policy; and





•
            all
      amounts to which he is entitled under any profit-sharing
    plan.





If Mr.
Rudis voluntarily resigns prior to the end of the term, he will not be entitled
to receive any bonus payments.  If we terminate Mr. Rudis without
cause, then subject to certain requirements, Mr. Rudis will be entitled
to:





•
            a
      severance benefit in the form of continuation of his base salary in effect
      at the date of termination and payment of COBRA health insurance premiums
      for the longer of twelve months or the remaining unexpired portion of the
      initial term of the agreement; and





•
            a
      pro rated bonus payment under the terms of a bonus plan, if any, pursuant
      to which a bonus has been earned, payable at the time provided in the
      bonus plan.





In
addition, Mr. Rudis maintains offices in both Vernon, California and New
York.  As of September 27, 2009 we paid $209,442 in perquisites or
other benefits relating to payment of or reimbursement for commuting expenses
between New York and California.  This includes $155,532 for airfare,
$29,540 for lodging and $24,320 for transportation, meals and other
miscellaneous expenses.





Tracy
E. Quinn





Ms.
Quinn’s employment arrangement commenced on September 10, 2007.  The
initial term of Ms. Quinn’s employment was for 90 days, but is reviewable by us
every 30 days, and terminable at-will by either party.   Ms.
Quinn receives a monthly base salary of $30,000.  In addition, we have
agreed to pay or reimburse Ms. Quinn for all reasonable travel expenses from the
Pittsburgh, Pennsylvania area to southern California and all reasonable living
expenses while she is conducting business on our behalf in southern
California.  As of September 27, 2009, we paid  $80,253 in
perquisites or other benefits relating to payment of or reimbursement for
commuting expenses between Pennsylvania and California, including $49,464 for
airfare, $21,317 for lodging and $9,471 for transportation, meals and other
miscellaneous expenses.


32
 Table of Contents


Richard
A. Horvath





Mr.
Horvath receives an annual base salary of $150,000 and an automobile allowance
of $600 per month.  Our board of directors determines Mr. Horvath’s
discretionary bonus based on performance and his contributions to our
success.








Outstanding
Equity Awards at Fiscal Year-End





The
following table provides information regarding the number of shares of common
stock underlying options held by the named executive officers at September 27,
2009.








Option AwardsName
            
            Number of Securities
      Underlying Unexercised Options (#) Exercisable
            
            
            Number of Securities
      Underlying Unexercised Options (#)
      Unexercisable
            
            
            Option Exercise Price ($)
            
            
            Option Expiration DateJames
      Rudis
            
            
            300,000
            
            
            
            -
            
            
            $
            1.60
            
            
            
            (1
            )69,136
            
            
            
            -
            
            
            
            1.47
            
            
            
            (2
            )10,288
            
            
            
            -
            
            
            
            1.50
            
            
            
            (2
            )10,288
            
            
            
            -
            
            
            
            2.00
            
            
            
            (2
            )10,288
            
            
            
            -
            
            
            
            2.50
            
            
            
            (2
            )Tracy
      E. Quinn
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Richard
      A. Horvath
            
            
            20,000
            
            
            
            -
            
            
            $
            1.60
            
            
            
            (1
            )7,000
            
            
            
            -
            
            
            
            1.47
            
            
            
            (2
            )


___________


(1)
            Option
      expiration date is September 30,
2012.





(2)
            Option expiration date is
      February 1, 2015.





Potential
Payments Upon Termination or Change in Control





Executive Employment Agreements and
Arrangements.  We have entered into agreements with our named
executive officers that provide certain benefits upon the termination of their
employment under certain prescribed circumstances.  Those agreements
are described above under “ Executive Employment Agreements and
Arrangements.”





Calculation of Potential Payments
upon Termination or Change of Control.In accordance with the
rules of the Commission, the following table presents our estimate of the
benefits payable to the named executive officers under their employment
agreements or arrangements assuming that their service to us terminated on
September 25, 2009, the last business day of fiscal year 2009, under the
following circumstances:  (A) a change in control occurred, as defined
under Mr. Rudis’s employment agreement; (B) a qualifying termination occurred,
which is a termination by Mr. Rudis for “good reason” or by us without “cause”
under his employment agreement; or (C) a non-qualifying termination occurred,
which is a voluntary resignation by Mr. Rudis for other than “good reason,” by
us for “cause,” as defined under Mr. Rudis’s employment agreement, or by us
prior to renewal as provided in the executive employment agreements or by us
upon Mr. Rudis’s death or disability, or any termination of Ms. Quinn or Mr.
Horvath.


33
 Table of Contents




Name
            
            Trigger
            
            Salary and Bonus
            
            
            Continuation of Benefits
            
            
            Total Value (5)James
      Rudis
            
            Change
      in Control
            
            $
            300,000
            (1)
            
            $
            -
            
            
            $
            300,000Qualifying
      Termination
            
            
            668,121
            (2)
            
            
            41,451
            (3)
            
            
            709,572Non-Qualifying
      Termination
            
            
            128,854
            (4)
            
            
            -
            
            
            
            128,854Tracy
      E. Quinn
            
            Change
      in Control
            
            
            -
            
            
            
            -
            
            
            
            -Qualifying
      Termination
            
            
            -
            
            
            
            -
            
            
            
            -Non-Qualifying
      Termination
            
            
            13,015
            (4)
            
            
            -
            
            
            
            13,015
            (4)Richard
      A. Horvath
            
            Change
      in Control
            
            
            -
            
            
            
            -
            
            
            
            -Qualifying
      Termination
            
            
            -
            
            
            
            -
            
            
            
            -Non-Qualifying
      Termination
            
            
            4,780
            (4)
            
            
            -
            
            
            
            4,780
            (4)





____________





(1)
            Pursuant
      to Mr. Rudis’ employment agreement, Mr. Rudis is entitled to a $300,000
      lump sum change in control payment.





(2)
            Includes
      base salary for the remainder of the term of employment or twelve months,
      whichever is longer, any bonus earned through the date of termination,
      accrued but unused vacation and unused sick
pay.





(3)
            Includes
      monthly premiums required to maintain his health insurance for the
      remainder of the term of employment or twelve months, whichever is
      longer.





(4)
            Includes
      accrued base salary, accrued but unused vacation and unused sick
      pay.





(5)
            Excludes
      the value to the executive of the continuing right to indemnification and
      continuing coverage under our directors’ and officers’ liability
      insurance, if applicable.





Director
Compensation





Non-employee
directors are entitled to cash payments of $2,500 per month in consideration for
their service on our board of directors.  We may also periodically
award options to our directors under our existing option and stock plans or
otherwise.





Mr. Rudis
was compensated as a full-time employee and officer and received no additional
compensation for service as a board member during fiscal year
2009.  Information regarding the compensation awarded to Mr. Rudis is
included in the “Summary Compensation Table” above.


34
 Table of Contents


Director
Compensation Table





The
following table summarizes the compensation of our directors for the year ended
September 27, 2009:





Name
            
            Fees Earned
                or Paid
                in Cash
                ($)(1)
            
            
            Option
                Awards
                ($)(2)
            
            
            Total
                ($)Geoffrey
      A. Gerard
            
            $
            30,000
            
            
            $
            —
            
            
            $
            30,000Alexander
      Auerbach (3)
            
            
            30,000
            
            
            
            —
            
            
            
            30,000Alexander
      Rodetis, Jr.
            
            
            30,000
            
            
            
            —
            
            
            
            30,000Harold
      Estes
            
            
            30,000
            
            
            
            —
            
            
            
            30,000


__________


(1)
            For
      a description of annual director fees, see the disclosure above under
      “Director Compensation.” The value of perquisites and other personal
      benefits was less than $10,000 in aggregate for each
    director.





(2)
            There
      were no stock options awarded during fiscal 2009.  Outstanding
      options held by each director as of September 27, 2009 are as
      follows:


·
            Geoffrey
      A. Gerard – 27,000 options, which are fully
  vested.


·
            Alexander
      Auerbach – 25,000 options, which are fully
  vested.


·
            Alexander
      Rodetis, Jr. – 25,000 options, which are fully
  vested.





(3)
            Mr.
      Auerbach’s firm, Alexander Auerbach & Co., also provides us with
      public relations and marketing services, for which we paid $51,000 with
      respect to fiscal year 2009.  See “Certain Relationships and
      Related Transactions, and Director Independence” in Item 13 of this
      report.





Compensation
Committee Interlocks and Insider Participation





During
fiscal year 2009, the compensation committee was composed of Messrs. Auerbach
and Gerard, with Mr. Auerbach serving as the committee chairman.  No
director who was a member of the compensation committee during fiscal year 2009
was an officer or employee of Overhill Farms, Inc. during fiscal year 2009, was
formerly an officer of Overhill Farms, Inc., or had any relationship requiring
disclosure pursuant to Item 404 of Regulation S-K under the Securities Act of
1933, as amended, except that as disclosed in Item 13 of this report, Mr.
Auerbach is a stockholder, director and officer of a company that provided us
with public relations and marketing services in exchange for fees that
constituted more than 5%, or approximately $51,000, for our fiscal year 2009, of
that company’s gross revenues for its fiscal year ended January 31,
2009.





During
fiscal year 2009, none of our executive officers served as a member of a
compensation committee of another entity (or other board committee of such
company performing similar functions or, in the absence of any such committee,
the entire board of directors of such corporation), one of whose executive
officers serves on our compensation committee.  During 2009, none of
our executive officers served as a director of another entity, one of whose
executive officers served on our compensation committee.  During
fiscal year 2009, none of our executive officers served as a member of the
compensation committee of another entity, one of whose executive officers served
as a director of our company.





The
following Compensation Committee Report is not deemed filed with the
Commission.  Notwithstanding anything to the contrary set forth in any
of our previous filings made under the Securities Act or under the Exchange Act
that might incorporate future filings made by us under those statutes, the
Compensation Committee Report will not be incorporated by reference into any
such prior filings or into any future filings made by us under those
statutes.


35
 Table of Contents


Compensation
Committee Report





The
Compensation Committee has reviewed and discussed the foregoing Compensation
Discussion and Analysis with management, and based on that review and
discussion, the Compensation Committee recommended to the board of directors
that the Compensation Discussion and Analysis be included in the Annual Report
on Form 10-K for the fiscal year ended September 27, 2009.





Respectfully
      submitted,Compensation
      CommitteeAlexander Auerbach,
  ChairmanGeoffrey A.
  Gerard








ITEM
      12.
            Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters








As of
December 11, 2009, a total of 15,823,271 shares of our common stock were
outstanding.  The following table sets forth certain information as of
that date regarding the beneficial ownership of our common stock
by:





•
            each
      of our directors;





•
            each
      of the named executive officers included in the Summary Compensation Table
      contained in Item 11 of this
report;





•
            all
      of our directors and executive officers as a group;
  and





•
            each
      person known by us to beneficially own more than 5% of the outstanding
      shares of our common stock.





Beneficial
ownership is determined in accordance with Rule 13d-3 promulgated by the
Commission and generally includes voting or investment power with respect to
securities.  Except as indicated below, we believe each holder
possesses sole voting and investment power with respect to all of the shares of
common stock owned by that holder, subject to community property laws where
applicable.  In computing the number of shares beneficially owned by a
holder and the percentage ownership of that holder, shares of common stock
subject to options held by that holder that are currently exercisable or are
exercisable within 60 days after the date of the table are deemed
outstanding.  Those shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of any other person or
group.





The
inclusion of shares in this table as beneficially owned is not an admission of
beneficial ownership.  Except as indicated below, the address for each
named beneficial owner is the same as ours.


36
 Table of Contents




Name
      and Address of Beneficial Owner
            
            Amount and Nature of Beneficial
      Ownership
            
            
            Percent
                of ClassLord
      Abbett & Co. LLC
            
            
            2,130,127
            (1)
            
            
            13.5
            %William
      Blair & Company, L.L.C
            
            
            1,322,972
            (2)
            
            
            8.4
            %Harold
      Estes
            
            
            1,091,565
            (3)
            
            
            6.9
            %James
      Rudis
            
            
            605,550
            (4)
            
            
            3.7
            %Richard
      A. Horvath
            
            
            27,000
            (5)
            
            
            *Geoffrey
      A. Gerard
            
            
            51,000
            (6)
            
            
            *Alexander
      Auerbach
            
            
            35,000
            (7)
            
            
            *Alexander
      Rodetis, Jr.
            
            
            26,700
            (8)
            
            
            *Tracy
      E. Quinn
            
            
            -
            
            
            
            -All
      directors and executive officers as a group (7 persons)
            
            
            1,750,815
            (9)
            
            
            10.7
            %


_______


*
            Less
      than 1.0%.





(1)
            Based
      upon Schedule 13F-HR filed with the Commission as of September 30,
      2009.  The holder has sole voting power over 1,868,682 shares
      and sole dispositive power over 2,130,127 shares.  The address
      for the holder is 90 Hudson Street, Jersey City, New Jersey
      07302.





(2)
            Based
      upon Schedule 13F-HR filed with the Commission as of September 30, 2009.
      Includes shares owned of record by William Blair Small Cap Growth Fund,
      over which power to vote or dispose of the shares is held by Colin
      Williams, portfolio manager to the Fund, and Karl Brewer, portfolio
      manager to the Fund and principal of William Blair & Company, L.L.C.
      The address for William Blair & Company, L.L.C. is 222 W. Adams
      Street, Chicago, Illinois 60606.





(3)
            Mr.
      Estes’ address is 6004 South US Highway 59, Lufkin, Texas
      75901.





(4)
            Includes
      400,000 shares of common stock underlying
  options.





(5)
            Includes
      27,000 shares of common stock underlying
  options.





(6)
            Includes
      27,000 shares of common stock underlying
  options.





(7)
            Includes
      25,000 shares of common stock underlying
  options.





(8)
            Includes
      25,000 shares of common stock underlying
  options.





(9)
            Includes
      504,000 shares of common stock underlying
  options.





Equity
Compensation Plan Information





The
following table gives information about our common stock that may be issued upon
the exercise of options, warrants and rights under all of our existing equity
compensation plans as of September 27, 2009.


37
 Table of Contents




Plan category
            
            Number of securities to be issued upon exercise of
      outstanding options, warrants and rights
            
            
            Weighted-average exercise price of outstanding
      options, warrants and rights
            
            
            Number of securities remaining available for
      future issuance under equity compensation plans (excluding securities
      reflected in column (a))(a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved by security holders
            
            
            521,000
            (1)
            
            $
            1.61
            
            
            
            139,000
            (2)Equity
      compensation plans not approved by security holders
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            521,000
            
            
            $
            1.61
            
            
            
            139,000





_______





(1)
            Represents
      shares of common stock underlying options granted under our Amended and
      Restated 2002 Employee Stock Option Plan and Amended and Restated 2005
      Stock Plan.





(2)
            Represents
      shares of common stock authorized for issuance under our Amended and
      Restated 2002 Employee Stock Option Plan, which plan was originally
      adopted by our board of directors and then majority stockholder on
      September 25, 2002, to be effective as of October 29, 2002; the plan was
      further approved by our stockholders at our 2003 annual meeting and was
      amended and restated by our compensation committee (further stockholder
      approval was not required) on December 3, 2008.  Also represents
      shares of common stock authorized for issuance under our Amended and
      Restated 2005 Stock Plan, which was adopted by our board of directors on
      February 1, 2005, approved by then majority stockholder on February 24,
      2005 and approved by our stockholders at our 2005 annual meeting and was
      amended and restated by our compensation committee (further stockholder
      approval was not required) on December 3, 2008.  Our Amended and
      Restated 2002 Employee Stock Option Plan and Amended and Restated 2005
      Stock Plan each provide that if, at any time while that plan is in effect
      or unexercised options granted under that plan are outstanding, there is
      an increase or decrease in the number of issued and outstanding shares of
      common stock of Overhill Farms, Inc. through the declaration of a stock
      dividend or through a recapitalization that results in a stock split,
      combination or exchange of shares, then appropriate adjustment shall be
      made in the maximum number of shares authorized for issuance under that
      plan so that the same proportion of our issued and outstanding shares of
      common stock will continue to be subject to being optioned under the plan
      and appropriate adjustment will be made in the number of shares and the
      exercise price per share then subject to outstanding options so that the
      same proportion of our issued and outstanding shares will remain subject
      to purchase at the same aggregate exercise
  price.





ITEM
      13.
            Certain Relationships
      and Related Transactions, and Director
  Independence








Review,
Approval or Ratification of Transactions with Related Persons





Our board
of directors has the responsibility to review and discuss with management and
approve material transactions with related parties.  These
transactions are governed by our Policies and Procedures for the Approval of
Related Party Transactions.  During the review process, the material
facts as to the related party’s interest in a transaction are disclosed to all
board members.  Under the policies and procedures, the board is to
review each interested transaction with a related party that requires approval
and either approve or disapprove of the entry into the related party
transaction.  A related party transaction is any transaction in which
we are a participant and any related party has or will have a direct or indirect
interest.  Transactions that are in the ordinary course of business
and would not require either disclosure pursuant to Item 404(a) of Regulation
S-K or approval of the board would not be deemed a related party
transaction.  No director may participate in any discussion or
approval of a related party
transaction with respect to which he or she is a related party.  Our
board intends to approve only those related party transactions that are in our
best interests.


38
 Table of Contents


Transactions
with Related Persons





Other
than as described below, there were no transactions or series of transactions to
which we were or are a party involving an amount in excess of $120,000 and in
which any director, executive officer, holder of more than 5% of our voting
stock, or members of the immediate family of any foregoing persons, had or will
have a direct or indirect material interest.  The transaction listed
below was approved by our board of directors, and the interest of Mr. Auerbach
in this matter described below was disclosed to our board of directors before
our board of directors approved the matter.





In
February 2004, we engaged Alexander Auerbach & Co., Inc. (“AAPR”) to provide
us with public relations and marketing services.  AAPR provides public
relations, media relations and communications marketing services to support our
sales activities.  Alexander Auerbach, who is one of our directors, is
a stockholder, director and officer of AAPR.  We paid to AAPR $51,000
for services rendered under this engagement during fiscal year
2009.  These fees totaled more than 5% of AAPR’s gross revenues for
its fiscal year ended January 31, 2009.





Director
Independence





NYSE AMEX
rules and the charters of our board committees provide that a majority of our
board of directors and all members of our audit, compensation and nominating and
governance committees of our board of directors will be
independent.  On an annual basis, each director and executive officer
is obligated to complete a Director and Officer Questionnaire that requires
disclosure of any transactions with us in which a director or executive officer,
or any member of his or her immediate family, have a direct or indirect material
interest.  Following completion of these questionnaires, the board of
directors, with the assistance of the nominating and governance committee, makes
an annual determination as to the independence of each director using the
current standards for “independence” established by the Commission and NYSE AMEX
and consideration of any other material relationship a director may have with
us.





Our board
of directors has determined that each of our non-employee directors is
“independent” as defined in the general board independence standard contained in
Section 803A of the NYSE AMEX listing standards.  Our board of
directors also has determined that each of Messrs. Rodetis, Gerard,and Estes are
“independent” as defined in Sections 803A and 803B of the NYSE AMEX listing
standards applicable to audit committee members. In addition, our board of
directors has determined that Mr. Auerbach is “independent” under Section 803A
of the NYSE AMEX listingstandards applicable to
compensation committee members. Also, our board of directors has determined that
Messrs. Gerard and Auerbach are  “independent” under Section 803A of
the NYSE AMEX listing standards applicable to nominating and governance
committee members.





ITEM
      14.
            Principal Accountant
      Fees and Services








Audit
and Non-Audit Fees





The
following table presents fees for professional audit services rendered by Ernst
& Young LLP for the audit of our annual financial statements for fiscal
years 2009 and 2008.





2009
            
            
            2008Audit
      Fees
            
            $
            430,000
            
            
            $
            630,000Audit-Related
      Fees
            
            
            --
            
            
            
            --Tax
      Fees
            
            
            --
            
            
            
            --All
      Other Fees
            
            
            --
            
            
            
            --





Audit Fees.  Audit
fees consist of amounts billed for professional services rendered for the audit
of our annual financial statements included in our Annual Reports on Form 10-K,
and reviews of our interim financial statements included in our Quarterly
Reports on Form 10-Q and our Registration Statement on Form S-3, including
amendments thereto.


39
 Table of Contents


Audit-Related
Fees.  Audit-Related Fees consist of fees billed for
professional services that are reasonably related to the performance of the
audit or review of our consolidated financial statements but are not reported
under “Audit Fees.”





Tax Fees.Tax Fees
consist of fees for professional services for tax compliance activities,
including the preparation of federal and state tax returns and related
compliance matters.





All Other
Fees.  Consists of amounts billed for services other than those
noted above.





Pre-Approval
Policy





Our audit
committee’s policy is to pre-approve all auditing services and permitted
non-audit services to be performed for us by our independent auditors, subject
to the de minimis exceptions for non-audit services described in Section
10A(i)(1)(B) of the Exchange Act that are approved by the audit committee prior
to the completion of the audit.  During fiscal year 2009, all services
performed by Ernst & Young LLP were pre-approved by our audit committee in
accordance with these policies and applicable Commission
regulations.


40
 Table of Contents


PART
IV





ITEM
      15.
            Exhibits and Financial
      Statement Schedules








(a)
            The
      following financial statements are filed as part of this
      report:





Report of
Independent Registered Public Accounting Firm





Balance
Sheets — September 27, 2009 and September 28, 2008





Statements
of Income — Years Ended September 27, 2009, September 28, 2008 and September 30,
2007





Statements
of Stockholders’ Equity — Years Ended September 27, 2009, September 28, 2008 and
September 30, 2007





Statements
of Cash Flows — Years Ended September 27, 2009, September 28, 2008 and September
30, 2007





Notes to
Financial Statements





(b)
            The
      following exhibits are attached to or incorporated by reference
      herein:





Exhibit
              Number
            Exhibit Title3.1
      (2)
            Second
      Amended and Restated Articles of Incorporation of Overhill Farms, Inc.
      filed on June 1, 2009 with the Nevada Secretary of State (Exhibit
      3.1)3.2(14)
            Second
      Amended and Restated Bylaws of Overhill Farms, Inc., adopted effective as
      of April 2, 2009 (Exhibit 3.1)4.1
      (1)
            Form
      of the specimen common stock certificate of Overhill Farms, Inc. (Exhibit
      4.1)10.1
      (13)
            Lease
      dated November 15, 2008 between U.S. Growers Cold Storage, Inc. and
      Overhill Farms, Inc. regarding premises located at 3055 E. 44th
      Street, 3021 E. 44th
      Street, 3009 E. 44th
      Street and 3001 E. 44th
      Street Vernon, California (Exhibit 10.1)10.2
      (3)
            Master
      Lease Agreement dated as of August 1, 2002 between General Electric
      Capital Corporation and Overhill Farms, Inc. and related documentation
      regarding freezers and various other equipment (Exhibit
    10.35)10.3
      (3)
            Industrial
      Real Estate Lease (Single-Tenant Facility) dated April 22, 1994 between
      Vernon Associates and Ernest Paper Products, Inc. and related addendum
      regarding premises located at 2727 E. Vernon Avenue, Vernon, California
      (Exhibit 10.86)10.4
      (3)
            Sublease
      dated as of January 1, 2002 by and between Ernest Paper Products, Inc. and
      Overhill Farms, Inc. and related documents regarding premises located at
      2727 E. Vernon Avenue, Vernon, California (Exhibit
  10.87)


41
 Table of Contents




10.5
      (3)
            Standard
      Industrial/Commercial Single-Tenant Lease – Net dated January 1, 2002 by
      and between Vernon Associates, LLC and Overhill Farms, Inc. regarding
      premises located at 2727 E. Vernon Avenue, Vernon, California (Exhibit
      10.88)10.6
      (3)
            Addendum
      to Standard Industrial/Commercial Single-Tenant Lease – Net regarding
      premises located at
              2727
      E. Vernon Avenue, Vernon, California (Exhibit 10.89)10.7
      (4)
            Consulting
      Agreement dated February 18, 2004 between Overhill Farms, Inc. and
      Alexander Auerbach & Co., Inc. (Exhibit 10.1)10.8
      # (13)
            Amended
      and Restated 2002 Employee Stock Option Plan of Overhill Farms, Inc.
      (Exhibit 10.8)10.9
      # (13)
            Amended
      and Restated 2005 Stock Plan of Overhill Farms, Inc. (Exhibit
      10.9)10.10
      (5) #
            Form
      of Restricted Stock Purchase Agreement Under 2005 Stock Plan (Exhibit
      10.3)10.11
      (6) #
            Form
      of Stock Option Agreement Under 2005 Stock Plan (Exhibit
    10.2)10.12
      (12) #
            Form
      of Stock Option Agreement Under 2002 Employee Stock Option Plan (Exhibit
      4.7)10.13
      (7)
            Senior
      Secured Credit Facility, dated April 17, 2006 by and among Overhill Farms,
      Inc., the Lenders party thereto from time to time and Guggenheim Corporate
      Funding, LLC (Exhibit 10.1)10.14
      (7)
            First
      Amendment to Senior Secured Credit Facility, dated May 16, 2006, by and
      among Overhill Farms, Inc., Midland National Life Insurance Company, North
      American Company for Life and Health Insurance and Orpheus Holdings LLC
      and Guggenheim Corporate Funding, LLC (Exhibit 10.2)10.15
      (7)
            Pledge
      and Security Agreement, dated as of May 17, 2006 by and among Overhill
      Farms, Inc., as Grantor and Guggenheim Corporate Funding, LLC as
      Collateral Agent (Exhibit 10.3)10.16
      (8)
            Summary
      of Director Compensation (Exhibit 10.22)10.17
      (9)
            Second
      Amendment to Senior Secured Credit Facility, dated as of March 9, 2007 by
      and among Overhill Farms, Inc., the Lenders party thereto and Guggenheim
      Corporate Funding, LLC (Exhibit 10)10.18
      **
            Description
      of Employment Arrangement between Overhill Farms, Inc. and Richard A.
      Horvath10.19
      #(10)
            Description
      of Employment Arrangement between Overhill Farms, Inc. and Tracy E.
      Quinn10.20
      #(11)
            Employment
      Agreement, entered into as of January 10, 2008 between Overhill Farms,
      Inc., and James Rudis (Exhibit 10.1)23**
            Consent
      of Independent Registered Public Accounting Firm31.1**
            Certification
      of Principal 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 (2)31.2**
            Certification
      of Principal 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 (2)32**
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002


______________________





**      Filed
herewith


42
 Table of Contents


#
            Management
      contract or compensatory plan or
  arrangement


(1)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Registration Statement on Form 10 (File No.
      1-16699).


(2)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter
      ended June 28, 2009.


(3)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended
      September 28, 2003.


(4)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Current Report on Form 8-K for September 17,
      2004.


(5)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Current Report on Form 8-K for February 1,
    2005.


(6)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Current Report on Form 8-K for February 24,
    2005.


(7)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Current Report on Form 8-K for May 17, 2006
  .


(8)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended October
      1, 2006.


(9)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Quarterly Report on Form 10-Q for April 1,
    2007.


(10)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended
      September 30, 2007.


(11)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Current Report on Form 8-K for January 10,
    2008.


(12)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Registration Statement on Form S-8 (Registration No.
      333-127022).


(13)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended
      September 28, 2008.


(14)
            Incorporated
      by reference to the exhibit shown in parentheses included in the
      Registrant’s Current Report on Form 8-K for April 9,
  2009.





(c)
            The
      following schedule is included
herein:





Schedule
II – Valuation and Qualifying Accounts and Reserves





Schedules
for which provision is made in the applicable rules and regulations of the
Commission and are not required under the related instructions or are
inapplicable have been omitted.


43
 Table of Contents


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.








By:
            /s/ James RudisName:
      James RudisTitle:
      Chairman, President and Chief Executive OfficerDate:
      December 11, 2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/ James Rudis
            
            Chairman
      of the Board of Directors, President and Chief
            
            December
      11, 2009James
      Rudis
            
            Executive
      Officer (principal executive officer)/s/ Tracy E. Quinn
            
            Interim
      Chief Financial Officer  (principal financial
and
            
            December
      11, 2009Tracy
      E. Quinn
            
            accounting
      officer)/s/ Alexander Auerbach
            
            Director
            
            December
      11, 2009Alexander
      Auerbach/s/ Harold Estes
            
            Director
            
            December
      11, 2009Harold
      Estes/s/ Geoffrey A. Gerard
            
            Director
            
            December
      11, 2009Geoffrey
      A. Gerard/s/ Alexander Rodetis, Jr.
            
            Director
            
            December
      11, 2009Alexander
      Rodetis, Jr.


44
 Table of Contents


OVERHILL
FARMS, INC.





INDEX
TO FINANCIAL STATEMENTS








Audited Financial
    Statements:
            Page:Report
      of Independent Registered Public Accounting Firm
            F-2Balance
      Sheets as of September 27, 2009 and September 28, 2008
            F-3Statements
      of Income for the Years Ended September 27, 2009, September 28, 2008 and
      September 30, 2007
            F-5Statements
      of Stockholders’ Equity for the Years Ended September 27, 2009, September
      28, 2008 and September 30, 2007
            F-6Statements
      of Cash Flows for the Years Ended September 27, 2009, September 28, 2008
      and September 30, 2007
            F-7Notes
      to Financial Statements
            F-10Schedule
      II – Valuation and Qualifying Accounts and Reserves
            F-25


F-1
 Table of Contents


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders of Overhill Farms, Inc.





We have
audited the accompanying balance sheets of Overhill Farms, Inc. as of September
27, 2009 and September 28, 2008, and the related statements of income,
stockholders’ equity, and cash flows for each of the three years in the period
ended September 27, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15(c). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Overhill Farms, Inc. at September
27, 2009 and September 28, 2008, and the results of its operations and its cash
flows for each of the three years in the period ended September 27, 2009, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.





/s/
      ERNST & YOUNG LLP





Los
Angeles, California


December
11, 2009


F-2
 Table of Contents


OVERHILL
FARMS, INC.





BALANCE
SHEETS





Assets





September 27,
              2009
            
            
            September 28,
              2008Current
      assets:Cash
            
            $
            5,430,295
            
            
            $
            6,637,576Accounts
      receivable, net of allowance for doubtful accounts of $15,000 and zero in
      2009 and 2008, respectively
            
            
            17,854,041
            
            
            
            20,253,633Inventories
            
            
            15,263,224
            
            
            
            17,294,076Prepaid
      expenses and other
            
            
            1,859,173
            
            
            
            1,492,977Deferred
      income taxes
            
            
            1,122,211
            
            
            
            1,223,241Total
      current assets
            
            
            41,528,944
            
            
            
            46,901,503Property
      and equipment, at cost:Fixtures
      and equipment
            
            
            24,593,878
            
            
            
            23,705,525Leasehold
      improvements
            
            
            11,394,840
            
            
            
            10,373,256Automotive
      equipment
            
            
            44,607
            
            
            
            50,85436,033,325
            
            
            
            34,129,635Less
      accumulated depreciation and amortization
            
            
            (19,196,429
            )
            
            
            (16,220,194
            )Total
      property and equipment
            
            
            16,836,896
            
            
            
            17,909,441Other
      non-current assets:Goodwill
            
            
            12,188,435
            
            
            
            12,188,435Deferred
      financing costs, net of accumulated amortization of $419,000 and $339,000
      in 2009 and 2008, respectively
            
            
            166,620
            
            
            
            247,127Other
            
            
            2,916,475
            
            
            
            2,173,058Total
      other non-current assets
            
            
            15,271,530
            
            
            
            14,608,620Total
      assets
            
            $
            73,637,370
            
            
            $
            79,419,564





The
accompanying notes are an integral


part of
these financial statements.


F-3
 Table of Contents


OVERHILL
FARMS, INC.





BALANCE
SHEETS (continued)





Liabilities
and Stockholders’ Equity





September 27,
              2009
            
            
            September 28,
              2008Current
      liabilities:Accounts
      payable
            
            $
            9,338,604
            
            
            $
            11,177,686Accrued
      liabilities
            
            
            3,272,770
            
            
            
            3,201,548Current
      maturities of long-term debt
            
            
            5,271,441
            
            
            
            6,228,881Total
      current liabilities
            
            
            17,882,815
            
            
            
            20,608,115Long-term
      accrued liabilities
            
            
            466,987
            
            
            
            406,309Deferred
      tax liabilities
            
            
            1,899,658
            
            
            
            1,730,185Long-term
      debt, less current maturities, net of unamortized debt discount of
      $535,000 and $861,000 in 2009 and 2008, respectively
            
            
            21,891,204
            
            
            
            33,479,461Total
      liabilities
            
            
            42,140,664
            
            
            
            56,224,070Commitments
      and contingencies (Note 10)Stockholders’
      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 15,823,271 and 15,823,271 shares in 2009 and 2008,
      respectively
            
            
            158,233
            
            
            
            158,233Additional
      paid-in capital
            
            
            11,558,479
            
            
            
            11,558,479Retained
      earnings
            
            
            19,779,994
            
            
            
            11,478,782Total
      stockholders’ equity
            
            
            31,496,706
            
            
            
            23,195,494Total
      liabilities and stockholders’ equity
            
            $
            73,637,370
            
            
            $
            79,419,564





The
accompanying notes are an integral


part of
these financial statements.


F-4
 Table of Contents


OVERHILL
FARMS, INC.





STATEMENTS
OF INCOME





For the Years EndedSeptember 27,
              2009
              (52
    weeks)
            
            
            September 28,
              2008
              (52
    weeks)
            
            
            September 30,
              2007
              (52
    weeks)Net
      revenues
            
            $
            209,877,039
            
            
            $
            238,780,014
            
            
            $
            192,641,574Cost
      of sales
            
            
            184,326,050
            
            
            
            209,516,642
            
            
            
            172,693,668Gross
      profit
            
            
            25,550,989
            
            
            
            29,263,372
            
            
            
            19,947,906Selling,
      general and administrative expenses
            
            
            9,971,692
            
            
            
            8,647,533
            
            
            
            8,047,433Operating
      income
            
            
            15,579,297
            
            
            
            20,615,839
            
            
            
            11,900,473Interest
      expense:Interest
      expense
            
            
            (1,873,574
            )
            
            
            (3,300,041
            )
            
            
            (3,974,481
            )Amortization
      of debt discount and deferred financing costs
            
            
            (406,016
            )
            
            
            (406,016
            )
            
            
            (391,930
            )Total
      interest expense
            
            
            (2,279,590
            )
            
            
            (3,706,057
            )
            
            
            (4,366,411
            )Other
      income (expense)
            
            
            -
            
            
            
            42,964
            
            
            
            (22,841
            )Income
      before income taxes
            
            
            13,299,707
            
            
            
            16,952,746
            
            
            
            7,511,221Income
      taxes
            
            
            4,998,495
            
            
            
            6,631,442
            
            
            
            2,948,760Net
      income
            
            $
            8,301,212
            
            
            $
            10,321,304
            
            
            $
            4,562,461Net
      income per share – basic
            
            $
            0.52
            
            
            $
            0.66
            
            
            $
            0.30Weighted-average
      shares outstanding – basic
            
            
            15,823,271
            
            
            
            15,747,434
            
            
            
            15,338,038Net
      income per share – diluted
            
            $
            0.52
            
            
            $
            0.65
            
            
            $
            0.29Weighted-average
      shares outstanding – diluted
            
            
            16,028,698
            
            
            
            15,992,467
            
            
            
            15,803,109





The
accompanying notes are an integral


part of
these financial statements.


F-5
 Table of Contents


OVERHILL
FARMS, INC.





STATEMENTS
OF STOCKHOLDERS’ EQUITY





Preferred
      Stock
            
            
            Common
      Stock
            
            
            Additional
      Paid-InCapital
            
            
            Retained
      Earnings (AccumulatedDeficit)
            
            
            Accumulated
      Other ComprehensiveLoss
            
            
            TotalShares
            
            
            Amount
            
            
            Shares
            
            
            AmountBalance,
      October 1, 2006
            
            
            -
            
            
            
            -
            
            
            
            15,267,271
            
            
            $
            152,673
            
            
            $
            10,189,545
            
            
            $
            (3,404,983
            )
            
            
            -
            
            
            $
            6,937,235Exercise
      of stock options
            
            
            -
            
            
            
            -
            
            
            
            353,000
            
            
            
            3,530
            
            
            
            442,405
            
            
            
            -
            
            
            
            -
            
            
            
            445,935Tax
      deduction from option exercises
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            485,039
            
            
            
            -
            
            
            
            -
            
            
            
            485,039Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            4,562,461
            
            
            
            -
            
            
            
            4,562,461Unrealized
      loss on marketable Securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (11,644
            )
            
            
            (11,644
            )Total
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            4,550,817Balance,
      September 30, 2007
            
            
            -
            
            
            
            -
            
            
            
            15,620,271
            
            
            
            156,203
            
            
            
            11,116,989
            
            
            
            1,157,478
            
            
            
            (11,644
            )
            
            
            12,419,026Exercise
      of stock options
            
            
            -
            
            
            
            -
            
            
            
            203,000
            
            
            
            2,030
            
            
            
            292,249
            
            
            
            -
            
            
            
            -
            
            
            
            294,279Tax
      deduction from option exercises
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            149,241
            
            
            
            -
            
            
            
            -
            
            
            
            149,241Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,321,304
            
            
            
            -
            
            
            
            10,321,304Unrealized
      loss on marketable securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11,644
            
            
            
            11,644Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,332,948Balance,
      September 28, 2008
            
            
            -
            
            
            
            -
            
            
            
            15,823,271
            
            
            
            158,233
            
            
            
            11,558,479
            
            
            
            11,478,782
            
            
            
            -
            
            
            
            23,195,494Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,301,212
            
            
            
            -
            
            
            
            8,301,212Total
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,301,212Balance,
      September 27, 2009
            
            
            -
            
            
            $
            -
            
            
            
            15,823,271
            
            
            $
            158,233
            
            
            $
            11,558,479
            
            
            $
            19,779,994
            
            
            $
            -
            
            
            $
            31,496,706





The
accompanying notes are an integral


part of
these financial statements.


F-6
 Table of Contents


OVERHILL
FARMS, INC.





STATEMENTS
OF CASH FLOWS





For the Years EndedSeptember 27,
              2009
              (52 weeks)
            
            
            September 28,
              2008
              (52 weeks)
            
            
            September 30,
              2007
              (52 weeks)Operating
      Activities:Net
      income
            
            $
            8,301,212
            
            
            $
            10,321,304
            
            
            $
            4,562,461Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            3,455,560
            
            
            
            3,138,269
            
            
            
            2,415,229Amortization
      of debt discount and deferred financing costs
            
            
            406,016
            
            
            
            406,016
            
            
            
            391,930(Gain)
      loss on asset disposals
            
            
            (56,582
            )
            
            
            66,351
            
            
            
            35,837Loss
      on recalled products
            
            
            -
            
            
            
            885,540
            
            
            
            -Provision
      (recovery) of doubtful accounts
            
            
            15,000
            
            
            
            (18,202
            )
            
            
            (59,103
            )Deferred
      income tax provision
            
            
            270,503
            
            
            
            (44,267
            )
            
            
            711,270Loss
      on sale of marketable securities
            
            
            -
            
            
            
            8,325
            
            
            
            -Impairment
      of marketable securities
            
            
            -
            
            
            
            -
            
            
            
            8,329Changes
      in:Accounts
      receivable
            
            
            2,384,592
            
            
            
            37,989
            
            
            
            (6,112,952
            )Inventories
            
            
            2,030,852
            
            
            
            717,742
            
            
            
            (7,128,697
            )Prepaid
      expenses and other
            
            
            (323,192
            )
            
            
            (1,245,243
            )
            
            
            828,384Accounts
      payable
            
            
            (1,839,082
            )
            
            
            (3,827,708
            )
            
            
            7,542,131Accrued
      liabilities
            
            
            71,222
            
            
            
            219,890
            
            
            
            374,645Net
      cash provided by operating activities
            
            
            14,716,101
            
            
            
            10,666,006
            
            
            
            3,569,464Investing
      Activities:Additions
      to property and equipment
            
            
            (2,053,413
            )
            
            
            (1,359,090
            )
            
            
            (8,123,471
            )Proceeds
      from sale of property and equipment
            
            
            61,980
            
            
            
            -
            
            
            
            10,238Sale
      of marketable securities
            
            
            -
            
            
            
            53,976
            
            
            
            65,557Acquisition
      of wastewater capacity units
            
            
            (1,060,741
            )
            
            
            -
            
            
            
            -Net
      cash used in investing activities
            
            
            (3,052,174
            )
            
            
            (1,305,114
            )
            
            
            (8,047,676
            )





The
accompanying notes are an integral


part of
these financial statements.


F-7
 Table of Contents


OVERHILL
FARMS, INC.





STATEMENTS
OF CASH FLOWS (continued)





For the Years EndedSeptember 27,
              2009
              (52 weeks)
            
            
            September 28,
              2008
              (52 weeks)
            
            
            September 30,
              2007
              (52 weeks)Financing
      Activities:Borrowings
      under credit facility
            
            
            -
            
            
            
            1,000,000
            
            
            
            13,000,000Borrowings
      under equipment loans
            
            
            -
            
            
            
            -
            
            
            
            692,660Principal
      payments on equipment loans
            
            
            (227,052
            )
            
            
            (210,695
            )
            
            
            (155,986
            )Principal
      payments on credit facility
            
            
            (12,364,734
            )
            
            
            (5,000,000
            )
            
            
            (10,360,238
            )Principal
      payments on capital lease obligation
            
            
            (279,422
            )
            
            
            (282,009
            )
            
            
            (280,737
            )Debt
      discount
            
            
            -
            
            
            
            -
            
            
            
            (132,344
            )Deferred
      financing costs
            
            
            -
            
            
            
            -
            
            
            
            (1,500
            )Exercise
      of stock options, including tax benefit
            
            
            -
            
            
            
            443,520
            
            
            
            930,974Net
      cash (used in) provided by financing activities
            
            
            (12,871,208
            )
            
            
            (4,049,184
            )
            
            
            3,692,829Net
      (decrease) increase in cash
            
            
            (1,207,281
            )
            
            
            5,311,708
            
            
            
            (785,383
            )Cash
      at beginning of year
            
            
            6,637,576
            
            
            
            1,325,868
            
            
            
            2,111,251Cash
      at end of year
            
            $
            5,430,295
            
            
            $
            6,637,576
            
            
            $
            1,325,868Supplemental
      Schedule of Cash Flow Information:Cash
      paid during the year for:Interest
            
            $
            1,997,961
            
            
            $
            3,097,552
            
            
            $
            3,974,659Income
      taxes
            
            $
            5,075,000
            
            
            $
            6,869,000
            
            
            $
            2,056,000





The
accompanying notes are an integral


part of
these financial statements.


F-8
 Table of Contents


OVERHILL
FARMS, INC.





STATEMENTS
OF CASH FLOWS (continued)








Supplemental
Schedule of Noncash Investing and Financing Activities:





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, which is less than fair market value, and are classified under
fixtures and equipment on the accompanying balance sheets. Accumulated
amortization of the assets under the capital lease is included in accumulated
depreciation and amortization on the accompanying balance sheets.








The
accompanying notes are an integral


part of
these financial statements.


F-9
 Table of Contents


OVERHILL
FARMS, INC.





NOTES
TO FINANCIAL STATEMENTS





September
27, 2009








1.
            COMPANY
      AND ORGANIZATIONAL MATTERS





Nature
of Business





Overhill
Farms, Inc. (the “Company” or “Overhill Farms”) is a leading value-added
manufacturer of high quality, prepared frozen food products for branded retail,
private label, foodservice and airline customers.  The Company’s
product line includes entrées, plated meals, bulk-packed meal components,
pastas, soups, sauces, poultry, meat and fish specialties, and organic and
vegetarian offerings.





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Fiscal
Year





The
Company utilizes a 52- to 53- week accounting period, which ends on the last
Sunday of September in each fiscal year if September 30 does not fall on a
Saturday, or October 1 if September 30 falls on a Saturday.  The
fiscal years ended September 27, 2009, September 28, 2008 and September 30, 2007
were 52-week periods.





Deferred
Financing Costs and Debt Discount





Debt
financing costs are deferred and amortized as additional interest expense over
the term of the related debt.  Amortization of these costs totaled
$406,000, $406,000 and $392,000 for the fiscal years ended September 27, 2009,
September 28, 2008 and September 30, 2007, respectively.





Financial
Instruments





The fair
value of financial instruments is determined by reference to market data and by
other valuation techniques as appropriate.  The Company believes the
carrying value of the debt approximates fair value at both September 27, 2009
and September 28, 2008, as the debt bears interest at variable rates based on
prevailing market conditions.  The fair values of other financial
instruments approximate their recorded values due to their short-term
nature.





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.  The Company uses a standard costing system to estimate its
FIFO cost of inventory at the end of each reporting
period.  Historically, standard costs have been materially consistent
with actual costs.  The Company periodically reviews its inventory for
excess items, and writes it down based upon the age of specific items in
inventory and the expected recovery from the disposition of the
items.





The
Company writes down its inventory for the estimated aged surplus, spoiled or
damaged products, and discontinued items and components.  The amount
of the write-down is determined 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 to the write-down of the Company’s inventory.


F-10
 Table of Contents


Inventory
write-offs were $720,000, $1.4 million and $553,000 for fiscal years 2009, 2008
and 2007 respectively.





The
Company classifies costs related to shipping as cost of sales in the
accompanying statements of income.





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 the Company’s 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 life 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.  Depreciation expense was $3.2 million, $3.0 million and $2.4
million for fiscal years 2009, 2008 and 2007, respectively.





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.  The fixtures and equipment balances included $2.3
million and $1.7 million of construction in process at September 27, 2009 and
September 28, 2008, respectively.  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.





Licensing
Fee





During
fiscal year 2008, the Company entered into a five-year licensing
agreement (with two renewable five-year terms) with Better Living Brands
tmAlliance (“Alliance”) for the exclusive right to produce and sell frozen
entrées under the Eating Right tm and
O Organicstm
brands.  The Company agreed to pay a one-time $1.25 million licensing
fee that it is amortizing over five years.  For fiscal years 2009 and
2008, amortization expense related to the licensing fee was $226,000 and $84,000
respectively.  In addition, the company made royalty fee prepayments
of $125,000 each in May 2008 and in October 2008 that will be applied as a
credit against future earned royalties.  For fiscal years 2009 and
2008, royalty expense related to the royalty fee prepayment was $57,000 and
zero, respectively.





Goodwill





Goodwill
is evaluated at least annually for impairment.  The Company has one
reporting unit and estimates fair value based upon a variety of factors,
including discounted cash flow analysis, market capitalization and other
market-based information.  The Company performed its evaluation of
goodwill for impairment as of September 27, 2009, which indicated that goodwill
was not impaired.





Stock
Options





The
Company measures the cost of all employee stock-based compensation awards based
on the grant date fair value of those awards using a Black-Scholes model and
records 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). No options were granted during fiscal
years 2009, 2008 or 2007.  Therefore, there was no impact on the
income statement or cash flow statement as a result of stock-based compensation
for any of these periods.





Revenue
Recognition





The
Company’s revenues arise from one business segment – the development and
manufacture of frozen food products.  Revenues are recognized when
title and risk of loss of product pass to the customer, which is either at point
of shipping or at destination, depending on customer terms.  The
Company provides for estimated returns and allowances, which have historically
been immaterial, at the time of sale.  Shipping and handling revenues
are included as a component of net revenue.


F-11
 Table of Contents


The
Company classifies customer rebate costs and slotting fees as a reduction in net
revenues.  Fiscal year 2009 was the first year that the Company
incurred slotting fees which were directly related to sales under the
Alliance.  The slotting fees for fiscal year 2009 were
$553,000.  Customer rebate costs were $97,000, $43,000 and $31,000 for
fiscal years 2009, 2008 and 2007, respectively.





Income
Taxes





Deferred
income taxes are recorded using the liability method, reflecting the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.





The
Company adopted the provisions of FASB guidance on accounting for uncertainty of
income taxes on October 1, 2007.  The guidance clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with the standard on accounting for income
taxes.  This guidance 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.  It also
provides guidance on derecognition of tax benefits, classification on the
balance sheet, interest and penalties, accounting in interim periods, disclosure
and transition.  As a result of the implementation of the guidance,
the Company recorded no increase in the liability for unrecognized tax benefits,
and the balance of unrecognized tax benefits was zero at September 27, 2009 and
September 28, 2008.





The
Company has also adopted the accounting policy that interest and penalties
recognized are classified as part of income taxes.  No interest and
penalties were recognized in the statement of income for fiscal years 2009 and
2008.





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





Asset
Retirement Obligations





The
Company records liabilities related to asset retirement obligations in the
period in which they are incurred and measures them at the net present value of
the future estimated cost.  The offset to the liability is capitalized
as part of the carrying amount of the related long-lived
asset.  Changes in the liability due to the passage of time are
recognized over the operating term in the income statement in cost of
sales.





Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued a
standard that defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements.  The standard 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.  The standard became effective for
the Company’s fiscal year that began on September 29, 2008.  The
adoption of the standard did not have a material impact on the Company’s
financial position or results of operations.  As of September 27, 2009,
the Company had financial assets in cash, which are measured at fair value using
quoted prices for identical assets in an active market (Level 1 fair value
hierarchy) in accordance with thestandard.





In
February 2008, the FASB issued changes to fair value accounting, which permits a
one-year deferral of the application of fair value measurements for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  The guidance partially defers the
effective date of fair value measurement to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items
within the scope of this change.  The Company is currently evaluating
the potential impact of the changes on their financial
statements.


F-12
 Table of Contents


In
December 2007, the FASB issued a standard on business combinations which
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired.  The standard also modifies the recognition for
preacquisition contingencies, such as environmental or legal issues,
restructuring plans and acquired research and development value in purchase
accounting.  The standard amends the standard on accounting for income
taxes, and requires the acquirer to recognize changes in the amount of its
deferred tax benefits that are recognizable because of a business combination
either in income from continuing operations in the period of the combination or
directly in contributed capital, depending on the circumstances.  The
standard also establishes disclosure requirements that will enable users to
evaluate the nature and financial effects of the business
combination.  The standard is effective on or after the beginning
of the first annual reporting period beginning on or after December 15,
2008.  The impact to the Company of the adoption of the
standard will depend on the nature and size of any potential future
acquisitions.





In
December 2007, the FASB issued a standard on the accounting for noncontrolling
interests, which clarifies the classification of noncontrolling interests in
consolidated statements of financial position and the accounting for and
reporting of transactions between the reporting entity and holders of such
noncontrolling interests.  The standard will be effective for fiscal
years beginning after December 15, 2008.  The Company expects the
adoption of this standard will have no impact on their financial condition or
results of operations.





In April
2009, FASB issued changes regarding interim disclosures about fair value of
financial instruments. The changes enhance
consistency in financial reporting by increasing the frequency of fair value
disclosures from annually to quarterly.  The changes require
disclosures on a quarterly basis of qualitative and quantitative information
about fair value estimates for all those financial instruments not measured on
the balance sheet at fair value. The disclosure requirement became effective
beginning with the Company’s first interim reporting period ending after June
15, 2009. The adoption of this change did not have a material impact on the
Company’s results of operations or financial condition.





On May
28, 2009, the FASB issued a standard related to subsequent
events.  The standard is effective for interim or annual periods
ending after June 15, 2009 and establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued.  Entities are also required to disclose the date through which
subsequent events have been evaluated and the basis for that
date.  The Company has evaluated subsequent events through the date of
issuance of these financial statements, December 11, 2009.





In June
2009, the FASB issued a standard related to the FASB accounting standards
codification and the hierarchy of generally accepted accounting
principles.  The standard will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by the FASB to be
applied by nongovernmental entities.  Rules and interpretive releases
of the Securities and Exchange Commission (“SEC”) under authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants.  On the effective date of this standard, the codification
will supersede all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the codification will become non-authoritative.  This
standard is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  The adoption of this
standard did not have a material impact on the Company’s results of operations,
financial condition or cash flows.








Reclassifications





Certain
prior year amounts have been reclassified to conform to the current period
presentation.


F-13
 Table of Contents


Use
of Estimates





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 materially from those
estimates.





3.
            RELATED
      PARTY TRANSACTIONS





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.  The
Company paid to AAPR $51,000, $41,000 and $36,000 for services rendered under
this engagement during fiscal year 2009, 2008 and 2007,
respectively.  These fees totaled more than 5% of AAPR’s gross
revenues for its fiscal years ended January 31, 2009, 2008 and 2007,
respectively.





4.
            INVENTORIES





Inventories
are summarized as follows:





September 27,
              2009
            
            
            September 28,
              2008Raw
      ingredients
            
            $
            6,677,662
            
            
            $
            5,287,858Finished
      product
            
            
            6,658,263
            
            
            
            9,580,980Packaging
            
            
            1,927,299
            
            
            
            2,425,238$
            15,263,224
            
            
            $
            17,294,076





5.
            LONG-TERM
      DEBT





Long-term
debt of the Company is summarized as follows:





September 27, 2009
            
            
            September 28, 2008Tranche
      A Term Loans payable to GCF
            
            $
            14,425,028
            
            
            $
            23,989,762Tranche
      B Term Loans payable to GCF
            
            
            12,850,000
            
            
            
            15,650,000Equipment
      loans
            
            
            422,830
            
            
            
            649,882Capital
      lease
            
            
            -
            
            
            
            279,42227,697,858
            
            
            
            40,569,066Less
      current maturities
            
            
            (5,271,441
            )
            
            
            (6,228,881
            )Less
      debt discount
            
            
            (535,213
            )
            
            
            (860,724
            )$
            21,891,204
            
            
            $
            33,479,461





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.


F-14
 Table of Contents


As of
September 27, 2009, the facility with GCF, reflecting principal payments and the
March 9, 2007 amendment, was a $49.7 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 September 27, 2009, 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:





Total Debt to EBITDA Ratio for Last Twelve
      Months
            
            Applicable Margin for Alternate Base Rate
      Loans
            
            
            Applicable Margin for
                LIBOR LoansRevolving 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
September 27, 2009, the Company’s principal balances on the loans totaled $27.3
million, consisting of $14.4 million in Tranche A Term Loans and $12.9 million
in Tranche B Term Loans.  At September 27, 2009, interest rates on the
Tranche A Term Loans and Tranche B Term Loans were 3.5% and 6.0%,
respectively.  As of September 27, 2009 and September 28, 2008, the
Company’s total debt to EBITDA ratio for the last twelve months was 1.47 and
1.71, respectively and, therefore, for fiscal years 2009 and 2008, the Company
qualified for the lowest applicable margin for the alternate base rate and LIBOR
loans.  For fiscal year 2009, the Company incurred $1.9 million in
interest expense, excluding amortization of deferred financing
costs.  For fiscal year 2008, the Company incurred $3.3 million in
interest expense, excluding amortization of deferred financing costs, net of
$43,000 in capitalized interest.  During fiscal year 2009, the
outstanding balance of the facility was reduced by mandatory and voluntary
principal payments on the Tranche A Term Loan of $4.6 million and $5.0 million,
respectively.  In addition, the Company also made a voluntary
principal payment on the Tranche B Term Loan of $2.8 million during the first
quarter of fiscal year 2009. As of September 27, 2009, the Company had $7.5
million available to borrow under the revolving loan, as the balance was
zero.





Initial
proceeds from the GCF facility, received 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, $535,000 is recorded as debt discount, net
of accumulated amortization, on the accompanying balance sheet as of September
27, 2009.  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.


F-15
 Table of Contents


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.  For fiscal year 2009, the Company is required to make
an excess cash prepayment of $2.4 million on its Tranche A debt.  The
prepayment amount is included in the current maturities of long-term debt as it
will be paid prior to calendar year end.  The facility also contains
customary restrictions on incurring indebtedness and liens, making investments,
repurchasing shares, paying dividends and making loans or advances.





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,
which occurred in September 2009.  The assets acquired under this
capital lease have an acquisition cost of $911,647.  As of September
27, 2009 the net book value of the assets was $387,232.





As of
September 27, 2009, 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.





Mandatory
payments on the Company’s long-term debt as of September 27, 2009 were as
follows:





2010
            
            
            5,271,4412011
            
            
            22,417,8172012
            
            
            8,600Total
      payments
            
            $
            27,697,858








6.
            STOCKHOLDERS'
      EQUITY





Stock
Options





The
Company adopted stock option plans in October 2002 and May 2005.  The
Company reserved 800,000 and 550,000 shares of common stock under the plans
adopted in October 2002 and May 2005, respectively, for the issuance to eligible
directors and employees of, and consultants to, the Company under the
plans.  The plans provide for the grant of both incentive stock
options (at exercise prices no less than fair value at the date of grant) and
non-qualified stock options (at exercise prices as determined by the Company’s
Compensation Committee).  Such options may be exercisable as
determined by such Committee.  The plans expire ten years following
their adoption.


F-16
 Table of Contents


A summary
of the Company’s stock option activity and related information
follows:





For the Fiscal Years EndedSeptember
      27,
            
            
            September
      28,
            
            
            September
      30,2009
            
            
            2008
            
            
            2007Options
            
            
            Weighted- Average Exercise
      Price
            
            
            Options
            
            
            Weighted- Average Exercise
      Price
            
            
            Options
            
            
            Weighted- Average Exercise
      PriceOutstanding
      at beginning of year
            
            
            521,000
            
            
            $
            1.61
            
            
            
            749,000
            
            
            $
            1.56
            
            
            
            1,102,000
            
            
            $
            1.47Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            203,000
            
            
            $
            1.45
            
            
            
            353,000
            
            
            $
            1.26Canceled
            
            
            -
            
            
            
            -
            
            
            
            25,000
            
            
            $
            1.63
            
            
            
            -
            
            
            
            -Outstanding
      at end of year
            
            
            521,000
            
            
            $
            1.61
            
            
            
            521,000
            
            
            $
            1.61
            
            
            
            749,000
            
            
            $
            1.56Exercisable
      at end of year
            
            
            521,000
            
            
            $
            1.61
            
            
            
            521,000
            
            
            $
            1.61
            
            
            
            749,000
            
            
            $
            1.56





Exercise
prices for the 521,000 options outstanding as of September 27, 2009 ranged from
$1.47 to $2.50.  The weighted-average contractual life of those
options is 3.9 years.  The following table summarizes information
about stock options outstanding as of September 27, 2009:





Options
      Outstanding
            
            
            Options ExercisableNumber Outstanding
            
            
            Weighted- Average Remaining Contractual
      Life
            
            
            Weighted -Average Exercise
      Price
            
            
            Aggregate Intrinsic Value(1)
            
            
            Number Exercisable
            
            
            Weighted- Average Exercise
      Price
            
            
            Aggregate Intrinsic Value(1)$2.50
            
            
            
            18,004
            
            
            
            5
            
            
            $
            2.50
            
            
            $
            63,555
            
            
            
            18,004
            
            
            $
            2.50
            
            
            $
            63,555$2.00
            
            
            
            18,004
            
            
            
            5
            
            
            $
            2.00
            
            
            $
            72,556
            
            
            
            18,004
            
            
            $
            2.00
            
            
            $
            72,556$1.60
            
            
            
            322,000
            
            
            
            3
            
            
            $
            1.60
            
            
            $
            1,426,460
            
            
            
            322,000
            
            
            $
            1.60
            
            
            $
            1,426,460$1.50
            
            
            
            18,004
            
            
            
            5
            
            
            $
            1.50
            
            
            $
            81,558
            
            
            
            18,004
            
            
            $
            1.50
            
            
            $
            81,558$1.47
            
            
            
            144,988
            
            
            
            5
            
            
            $
            1.47
            
            
            $
            661,145
            
            
            
            144,988
            
            
            $
            1.47
            
            
            $
            661,145$1.47
      - $2.50
            
            
            
            521,000
            
            
            
            3.9
            
            
            $
            1.61
            
            
            $
            2,305,274
            
            
            
            521,000
            
            
            $
            1.61
            
            
            $
            2,305,274


___________________


(1)
            Based
      on the last reported sale price of the Company’s common stock of $6.03 on
      September 25, 2009 (the last trading day of fiscal year
    2009).


F-17
 Table of Contents


7.
            NET
      INCOME PER SHARE





The
following table sets forth the calculation of income per share (“EPS”) for the
periods presented:





For the Fiscal Years EndedSeptember 27,
              2009
            
            
            September 28,
              2008
            
            
            September 30,
              2007Basic
      EPS Computation:Numerator:Net
      income
            
            $
            8,301,212
            
            
            $
            10,321,304
            
            
            $
            4,562,461Denominator:Weighted-average
      common shares outstanding
            
            
            15,823,271
            
            
            
            15,747,434
            
            
            
            15,338,038Total
      shares
            
            
            15,823,271
            
            
            
            15,747,434
            
            
            
            15,338,038Basic
      EPS
            
            $
            0.52
            
            
            $
            0.66
            
            
            $
            0.30Diluted
      EPS Computation:Numerator:Net
      income
            
            $
            8,301,212
            
            
            $
            10,321,304
            
            
            $
            4,562,461Denominator:Weighted-average
      common shares outstanding
            
            
            15,823,271
            
            
            
            15,747,434
            
            
            
            15,338,038Incremental
      shares from assumed conversion of preferred stock and exercise of stock
      option and warrants
            
            
            205,427
            
            
            
            245,033
            
            
            
            465,071Total
      shares
            
            
            16,028,698
            
            
            
            15,992,467
            
            
            
            15,803,109Diluted
      EPS
            
            $
            0.52
            
            
            $
            0.65
            
            
            $
            0.29








8.
            ACCRUED
      LIABILITIES





Accrued
liabilities consisted of the following:





September 27,
            
            
            September 28,2009
            
            
            2008Compensation
            
            $
            2,220,694
            
            
            $
            2,403,619Taxes
      other than income taxes
            
            
            35,181
            
            
            
            26,586Interest
            
            
            101,064
            
            
            
            225,451Other
            
            
            1,382,818
            
            
            
            952,201$
            3,739,757
            
            
            $
            3,607,857


F-18
 Table of Contents


9.
            INCOME
      TAXES





Income
tax provision consisted of the following:





For the Fiscal Years EndedSeptember 27,
              2009
            
            
            September 28,
              2008
            
            
            September 30,
              2007Current:Federal
            
            $
            3,515,271
            
            
            $
            5,226,233
            
            
            $
            1,611,133State
            
            
            1,212,721
            
            
            
            1,449,476
            
            
            
            626,357Total
      current
            
            
            4,727,992
            
            
            
            6,675,709
            
            
            
            2,237,490Deferred:Federal
            
            
            303,322
            
            
            
            (100,270
            )
            
            
            672,684State
            
            
            (32,819
            )
            
            
            56,003
            
            
            
            38,586Total
      deferred
            
            
            270,503
            
            
            
            (44,267
            )
            
            
            711,270Total
      income tax provision
            
            $
            4,998,495
            
            
            $
            6,631,442
            
            
            $
            2,948,760





The total
income tax provision was 37.6%, 39.1% and 39.3% of pretax income for fiscal
years 2009, 2008 and 2007, respectively.  A reconciliation of income
taxes with the amounts computed at the statutory federal rate
follows:





For the Fiscal Years EndedSeptember 27,
              2009
            
            
            September 28,
              2008
            
            
            September 30,
              2007Computed
      tax provision at federal statutory rate (35%)
            
            $
            4,654,897
            
            
            $
            5,933,461
            
            
            $
            2,553,815State
      income tax provision, net of federal benefit
            
            
            766,936
            
            
            
            978,085
            
            
            
            438,863Permanent
      items
            
            
            (232,879
            )
            
            
            (305,915
            )
            
            
            (26,760
            )Valuation
      allowance change
            
            
            –
            
            
            
            3,808
            
            
            
            –Other
            
            
            (190,459
            )
            
            
            22,003
            
            
            
            (17,158
            )$
            4,998,495
            
            
            $
            6,631,442
            
            
            $
            2,948,760





The
deferred tax assets and deferred tax liabilities recorded on the balance sheet
are as follows:





September 27, 2009
            
            
            September 28, 2008Deferred
              Tax
              Assets
            
            
            Deferred
              Tax
              Liabilities
            
            
            Deferred
              Tax
              Assets
            
            
            Deferred
              Tax
              LiabilitiesCurrent:Inventory
      and accounts receivable
            
            $
            333,359
            
            
            $
            –
            
            
            $
            164,584
            
            
            $
            –Accrued
      liabilities
            
            
            1,015,118
            
            
            
            –
            
            
            
            1,255,515
            
            
            
            –Prepaid
      expenses
            
            
            –
            
            
            
            (226,265
            )
            
            
            –
            
            
            
            (196,858
            )1,348,477
            
            
            
            (226,265
            )
            
            
            1,420,099
            
            
            
            (196,858
            )Noncurrent:Deposits
      and deferrals
            
            $
            219,180
            
            
            $
            –
            
            
            $
            166,883
            
            
            $
            –Depreciation
            
            
            191,490
            
            
            
            –
            
            
            
            304,356
            
            
            
            –Goodwill
            
            
            –
            
            
            
            (2,477,913
            )
            
            
            –
            
            
            
            (2,178,716
            )Accrued
      Liabilities
            
            
            190,278Valuation
      Allowance
            
            
            (20,964
            )
            
            
            –
            
            
            
            (20,964
            )
            
            
            –Other
            
            
            –
            
            
            
            (1,730
            )
            
            
            –
            
            
            
            (1,744
            )579,984
            
            
            
            (2,479,643
            )
            
            
            450,275
            
            
            
            (2,180,460
            )Total
      deferred taxes net of valuation allowance
            
            $
            1,928,461
            
            
            $
            (2,705,908
            )
            
            $
            1,870,374
            
            
            $
            (2,377,318
            )


F-19
 Table of Contents


As of
September 27, 2009, the Company had no net operating losses or alternative
minimum tax credits available for carryforward for federal tax
purposes.





10.
            COMMITMENTS
      AND CONTINGENCIES





Commitments





The
Company enters into monthly and long-term leases.  Future minimum
lease payments for all long-term operating leases, including facilities and
equipment, at September 27, 2009 were as follows:





2010
            
            
            3,395,7592011
            
            
            3,264,7432012
            
            
            2,469,2712013
            
            
            2,374,4732014
      and thereafter
            
            
            3,538,842$
            15,043,088





The
Company leases its facilities, both Plant No. 1 and Plant No. 2, under operating
leases expiring through September 2011, with an option for a five-year extension
and expiring December 2013, with an option for a 60-month extension,
respectively.  Both facilities operate in Vernon,
California.  Certain of the other leases provide for renewal options
at substantially the same terms as the current leases.





The
Company’s lease of its primary operating facility requires the premises to be
restored to its original condition upon the termination of the
lease.  Accordingly, the Company has recorded a liability of $467,000
representing the present value of the estimated restoration costs at September
27, 2009.  The corresponding asset is being depreciated over 13 years,
and the present value of the liability is being accreted over the term in order
to establish a reserve at the end of the lease equal to the refurbishment
costs.





Certain
of the Company’s equipment leases provide for declining annual rental
amounts.  Rent expense is recorded on a straight-line basis over the
term of the lease.  Accordingly, deferred rent is recorded in the
accompanying balance sheets in other assets as the difference between rent
expense and amounts paid under the terms of the lease agreements.





Rent
expense, including monthly equipment rentals, was approximately $2.7 million,
$2.4 million and $2.3 million, for fiscal years 2009, 2008 and 2007,
respectively.





The
Company maintains an employment agreement with its Chief Executive Officer,
James Rudis.  Mr. Rudis’ employment agreement runs through December
31, 2009.  On December 3, 2009, our board of directors approved a
modification and extension for Mr. Rudis’ employment agreement.  Both
the board and Mr. Rudis have agreed in principal to the terms of the
modification and extensions.  The agreement is subject to execution of
a final agreement expected no later than December 31, 2009.  The new
agreement is to be effective starting on January 1, 2010 and will expire on
December 31, 2011.  After the initial term, the relationship will be
at-will and may be terminated by us at any time or by Mr. Rudis upon at least 60
days’ written notice. The value of the remaining compensation obligations under
Mr. Rudis’ existing employment agreement as of September 27, 2009 was
$100,000.


F-20
 Table of Contents


The
Company’s open purchase orders for raw materials and contractual obligations to
purchase raw protein within the next year totals $16.0 million.





Contingencies





The
Company is involved in certain legal actions and claims arising in the ordinary
course of business.  Management believes (based, in part, on advice of
legal counsel) that such contingencies, including the matters described
below, will be resolved without materially and adversely affecting the
Company’s financial position, results of operations or cash flows.  The
Company intends to vigorously contest all claims and grievances described
below.





Litigation Arising From the
Use of Invalid Social Security Numbers by Former Employees





The
following cases arise out of the same background facts.  Earlier this
year the Internal Revenue Service threatened to impose substantial penalties
against the Company because it was using invalid social security numbers to
report wages for a large number of employees.  On April 6, 2006, the
Company gave notice of the invalid social security numbers to approximately 260
employees.  The Company gave each employee approximately 60 days to
provide a legitimate explanation for having furnished it a false number, but
most employees failed to do so.  The Company then terminated the
employees who were unable to provide it a legitimate explanation, effective May
31, 2009, after concluding that their continued employment would expose the
Company to IRS penalties, scrutiny and potential additional criminal and civil
sanctions.





Local
770 v. Overhill Farms.





On April
28, 2009, Local 770 of the United Food and Commercial Workers Union submitted an
unsigned grievance regarding “the proposed terminations of workers regarding
invalid social security numbers,” which the grievance alleged was a violation of
the parties’ collective bargaining agreement.  Instead of identifying
a grievant, as required by the collective bargaining agreement, the Union said
that the grievance was on behalf of “All Affected.”  The Union has
refused the Company’s request to identify any specific employee or ex-employee
who desired to grieve any issue related his or her use of invalid social
security numbers, and has refused to explain how any of the employment
terminations violated any part of the collective bargaining
agreement.  The Union seeks reinstatement and back pay for an
unspecified number of ex-employees.





On
December 1, 2009, the Company filed a motion to dismiss the grievance because
the Union failed to submit it in compliance with the collective bargaining
agreement.  If the grievance is not dismissed, arbitration is
currently scheduled to begin on January 13, 2010.  The Company
believes it has valid defenses to the grievance, that its employment termination
decisions did not violate any terms of the collective bargaining agreement and
that tax and immigration laws required the Company to terminate these
employees.  The Company intends to vigorously contest the grievance
filed by the Union.





Overhill
Farms v. Larry (Nativo) Lopez, et al.





On June
30, 2009, the Company filed a lawsuit against Nativo Lopez and six other leaders
of what it believes to be an unlawful campaign to force the Company to continue
the employment of workers who had used invalid social security numbers to hide
their illegal work status.  Among other things, the Company alleges
that the defendants defamed the Company by calling its actions “racist” and
unlawful.  The Company has asserted claims for defamation, extortion,
intentional interference with prospective economic advantage, and intentional
interference with contractual relations.  The Company filed the
lawsuit in Orange County, California, and seek damages and an injunction barring
the defendants from continuing their conduct.





All of
the named defendants tried unsuccessfully to dismiss the action.  In
refusing to dismiss the case, the Court ruled on November 13, 2009, that the
Company had established a probability of prevailing on the merits, and that it
had submitted substantial evidence that the defendants’ accusations of racism
were not true.





F-21
 Table of Contents





Agustiana,
et al. v. Overhill Farms.


On July
1, 2009, Bohemia Agustiana, Isela Hernandez, and Ana Munoz filed a purported
“class action” against the Company in which they asserted claims for failure to
pay minimum wage, failure to furnish wage and hour statements, waiting time
penalties, conversion and unfair business practices.  The plaintiffs
are former employees who had been terminated one month earlier because they had
used invalid social security numbers in connection with their employment with
the Company.  They filed the case in Los Angeles County on behalf of
themselves and a class which they say includes all non-exempt production and
quality control workers who were employed in California during the four-year
period prior to filing their complaint.  The plaintiffs seek
unspecified damages, restitution, injunctive relief, attorneys’ fees and
costs.  The Company has filed a motion to dismiss the conversion
claim, and the parties are beginning the discovery phase of the
case.





The
Company believes it has valid defenses to the plaintiffs’ claims and that it
paid all wages due to these employees.  The Company intends to
vigorously contest the claims in this case.





Marcelino
Arteaga, et al. v. Overhill Farms.





On July
7, 2009, the Company received an unfair labor practice charge that had been
filed with the National Labor Relations Board (“NLRB”) on June 29, 2009. The
charge was filed by Marcelino Arteaga on behalf of himself and two other
ex-employees, Agapita Padilla and Fernando Morales Lira.  In addition,
on June 30, 2009, these three employees separately submitted grievances and
demanded arbitration arising out of the Company’s decision on June 26, 2009, to
terminate their employment because they had publicly accused it of being
“racist.”  On August 7, 2009, the NLRB granted the Company’s request
to defer further proceedings pending the resolution of the grievance and
arbitration process.  The Company is currently working with the Union
to select an arbitrator and to schedule the arbitration as soon as reasonably
practicable.





Department
of Justice.





On August
7, 2009, the Office of Special Counsel for the Civil Rights Division of the US
Department of Justice (“OSC”) requested information from the Company in
connection with an investigation about whether the Company terminated employees
in May 2009 for whom it had received Social Security Administration no-match
letters on the basis of national origin or citizenship status.  The
Company responded in detail on September 11, 2009, explaining that all affected
employees had been identified by the IRS (not the SSA) as having invalid social
security numbers, that the Company did not select them, and that the Company
applied the same workplace rules against furnishing false information to all
employees, regardless of national origin or citizenship status.





On
September 9, 2009, the Company received a second letter from the OSC, which
related to its investigation of a discrimination charge filed by an ex-employee,
Lucia Vasquez (a/k/a Gyneth Garcia).  On September 25, 2009, the
Company responded in detail to this discrimination charge, explaining that it
terminated Vasquez’ employment, along with over 200 other employees, because she
failed to explain why she had provided
 an invalid name and
social security number at the time of hire, and that the termination decision
had nothing to do with her national origin or citizenship status.





The OSC
has taken no further action as of December 11, 2009.





In the
meantime, Vasquez separately filed a claim for unemployment
benefits.  She was initially awarded the benefits, but the Company
appealed.  Following an evidentiary hearing before an Administrative
Law Judge (“ALJ”) on September 29, 2009, the ALJ rejected Vasquez’s claim for
unemployment benefits.  The ALJ found that she had engaged in serious
dishonesty, which included both making a false statement at the time of hire in
2003 and lying to the Company in May 2009 when confronted about her false
statement.  Vasquez has since appealed that determination on as-yet
unspecified grounds, the Company has responded, and the status of her appeal is
pending.





Recently Settled
Litigation





As
previously disclosed in the Company’s periodic reports, on September 23, 2008,
the Company filed a lawsuit against one of its customers, American Pie, LLC, who
distributes products under the name “Claim Jumper.” The action involved a
complaint by the Company against American Pie and two of its officers, William
R. Collins and Robert G. Blume (collectively, “defendants”).  The
complaint asserted claims for: 1) breach of contract; 2) breach of implied
covenant of good faith and fair dealing; 3) fraud; 4) unfair business practices;
and 5) declaratory relief to recover amounts American Pie refused to pay for
goods delivered by the Company.  On December 10, 2008, the defendants
filed a counterclaim against the Company alleging:  1) breach of an
oral contract; 2) breach of a written contract; and 3) breach of implied
warranties of merchantability and fitness for an intended purpose to recover
price increases, compensation for products the Company allegedly failed to
produce, and for purportedly contaminated product.  The action was
settled to all parties’ joint satisfaction on terms that are confidential, and
the complaint and counterclaim were dismissed with prejudice pursuant to the
parties’ stipulation by order entered May 22, 2009.


F-22
 Table of Contents


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.





Receivables related to Jenny Craig, Inc., Panda Restaurant Group, Inc. (through
its distributors), Safeway Inc. and H. J. Heinz Company, accounted for
approximately 21%, 37%, 20% and 6%, respectively of the Company’s
total accounts receivable balance at September 27, 2009 and approximately 20%,
16%, 12% and 21%, respectively, of the Company’s total accounts receivable
balance at September 28, 2008.





Significant
Customers





Significant
customers accounted for the following percentages of the Company’s
revenues:





For the Fiscal Years EndedSeptember 27,
            
            
            September 28,
            
            
            September 30,2009
            
            
            2008
            
            
            2007Jenny
      Craig, Inc.
            
            
            25
            %
            
            
            24
            %
            
            
            26
            %Panda
      Restaurant Group, Inc.
            
            
            22
            %
            
            
            16
            %
            
            
            27
            %Safeway
      Inc.
            
            
            17
            %
            
            
            13
            %
            
            
            9
            %H. J. Heinz Company
            
            
            12
            %
            
            
            18
            %
            
            
            9
            %





No other
customer accounted for revenues of 10% or more in the periods
presented.





Concentration
of Sources of Labor





The
Company’s total hourly and salaried workforce consisted of approximately 898
employees at September 27, 2009.  Approximately 81% of the Company’s
workforce is covered by a three-year collective bargaining agreement renewed
effective March 1, 2008.





11.
            EMPLOYEE
      BENEFIT PLANS





In April
1997, Overhill Farms introduced a retirement savings plan under Section 401(k)
of the Internal Revenue Code.  The plan covers substantially all
non-union employees meeting minimum service requirements.





Effective
March 1, 2005, Overhill Farms executed a new three-year contract with the UFCW
Union, Local 770, that eliminated the need for a previous provision in its
401(k) plan established in January 2002 for its union employees that required an
annual contribution to be made by the Company in the event that revenues
exceeded specific thresholds.  On January 1, 2009, the Company merged
the union and non-union 401(k) plans into a single plan.


F-23
 Table of Contents


Employees voluntarily make contributions into the new plan.  The
Company does not provide for a match to the employees’ contributions, and
expenses related to the plans have not been significant.  The
Company’s 2008 bonus program permitted a discretionary bonus equal to 3% of
non-union employees’ gross W-2 earnings in the form of a 401(k) contribution.
The total contribution under the 2008 bonus program of $336,000 was made during
fiscal year 2009.  The Company’s 2009 bonus program permits a
discretionary bonus equal to 3% of non-union employees’ gross W-2 earnings in
the form of a 401(k) contribution to be made during fiscal year
2010.





12.
            SUBSEQUENT
      EVENTS





The
Company has completed an evaluation of all subsequent events through December
11, 2009, which is the issuance date of these financial statements and concluded
no subsequent events occurred that required recognition or disclosure other than
the legal matters noted in footnote 10 to these financial
statements.





13.
            QUARTERLY
      FINANCIAL DATA (unaudited)





For the Fiscal Year Ended September 27,
      2009December 28,
              2008
              (13 weeks)
            
            
            March 29,
              2009
              (13 weeks)
            
            
            June 28,
              2009
              (13 weeks)
            
            
            September 27,
              2009
              (13 weeks)Net
      revenues
            
            $
            55,272,029
            
            
            $
            51,583,412
            
            
            $
            54,501,049
            
            
            $
            48,520,549Gross
      profit
            
            
            7,507,519
            
            
            
            5,767,638
            
            
            
            7,386,029
            
            
            
            4,889,803Operating
      income
            
            
            4,973,303
            
            
            
            3,472,107
            
            
            
            4,714,498
            
            
            
            2,419,389Net
      income
            
            
            2,532,963
            
            
            
            1,794,270
            
            
            
            2,571,969
            
            
            
            1,402,010Net
      income per share – basic
            
            $
            0.16
            
            
            $
            0.11
            
            
            $
            0.16
            
            
            $
            0.09Net
      income per share – diluted
            
            $
            0.16
            
            
            $
            0.11
            
            
            $
            0.16
            
            
            $
            0.09








For the Fiscal Year Ended September 28,
      2008December 30,
              2007
              (13 weeks)
            
            
            March 30,
              2008
              (13 weeks)
            
            
            June 29,
              2008
              (13 weeks)
            
            
            September 28,
              2008
              (13 weeks)Net
      revenues
            
            $
            56,826,629
            
            
            $
            66,447,684
            
            
            $
            62,422,674
            
            
            $
            53,083,027Gross
      profit
            
            
            5,987,304
            
            
            
            8,423,072
            
            
            
            8,398,885
            
            
            
            6,454,111Operating
      income
            
            
            3,776,072
            
            
            
            6,364,719
            
            
            
            6,175,461
            
            
            
            4,299,587Net
      income
            
            
            1,577,944
            
            
            
            3,171,915
            
            
            
            3,153,992
            
            
            
            2,417,453Net
      income per share – basic (1)
            
            $
            0.10
            
            
            $
            0.20
            
            
            $
            0.20
            
            
            $
            0.15Net
      income per share – diluted
            
            $
            0.10
            
            
            $
            0.20
            
            
            $
            0.20
            
            
            $
            0.15


_________


(1) EPS
totals may not add due to rounding.


F-24
 Table of Contents


Schedule
II





OVERHILL
FARMS, INC.





VALUATION
AND QUALIFYING ACCOUNTS AND RESERVES








Description
            
            Balance at Beginning of
Year
            
            
            Additions
            
            
            Deductions(1)
            
            
            Balance at End of yearAllowance
      for Doubtful Accounts2009
            
            $
            -
            
            
            $
            (17,000
            )
            
            $
            2,000
            
            
            $
            (15,000
            )2008
            
            
            (18,000
            )
            
            
            (2,000
            )
            
            
            20,000
            
            
            
            -2007
            
            
            (15,000
            )
            
            
            (12,000
            )
            
            
            9,000
            
            
            
            (18,000
            )Income
      Tax Valuation Allowance2009
            
            $
            (21,000
            )
            
            
            -
            
            
            $
            -
            
            
            $
            (21,000
            )2008
            
            
            (17,000
            )
            
            
            (4,000
            )
            
            
            -
            
            
            
            (21,000
            )2007
            
            
            (17,000
            )
            
            
            -
            
            
            
            -
            
            
            
            (17,000
            )


__________________


(1)Deductions to the allowance for doubtful accounts consist of
      write-offs, net of recoveries.


F-25
 Table of Contents





Exhibit
              Number
            Index of Exhibits Attached to this
      Report10.18
            Description
      of Employment Arrangement between Overhill Farms, Inc. and Richard A.
      Horvath23
            Consent
      of Independent Registered Public Accounting Firm31.1
            Certification
      of Principal 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 Principal 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 Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002