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)


[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              For the fiscal year ended September
      28, 2008






OR




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






Commission file number 1-16699




OVERHILL
FARMS, INC.


(Exact
name of registrant as specified in its charter)




Nevada
            75-2590292(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            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
      Alternext US (formerly, American Stock
Exchange)






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 [X]




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 [X]










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





Indicate
by check mark 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  [ X]





Non-Accelerated
      Filer  [  ]
              (Do
      not check if smaller reporting company)
            Smaller
      Reporting Company
 [  ]




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





The
aggregate market value of voting common equity held by non-affiliates of the
registrant, based on the closing price of such stock on March 28, 2008, which
was the last business day of the registrant’s second fiscal quarter ended March
30, 2008 (based on the closing price on such date on the NYSE Alternext US) was
approximately $50.3 million.  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 11, 2008.





Documents
Incorporated By Reference:  None








TABLE
OF CONTENTS





PART
      I
            
            PageItem
      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
            8PART
      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
      Operation
            12Item
      7A
            Quantitative
      and Qualitative Disclosures About Market Risk
            24Item
      8
            Financial
      Statements and Supplementary Data
            24Item
      9
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            24Item
      9A
            Controls
      and Procedures
            25Item
      9A (T)
            Controls
      and Procedures
            28Item
      9B
            Other
      Information
            28PART
      IIIItem
      10
            Directors,
      Executive Officers and Corporate Governance
            29Item
      11
            Executive
      Compensation
            31Item
      12
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            39Item
      13
            Certain
      Relationships and Related Transactions, and Director
      Independence
            41Item
      14
            Principal
      Accountant Fees and Services
            42PART
      IVItem
      15
            Exhibits
      and Financial Statement Schedules
            44SIGNATURES
            
            47


i




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,”
“ongoing,” 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


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., H. J. Heinz
Company, Panda Restaurant Group, Inc. and Safeway Inc. accounted for
approximately 24%, 18%, 16% and 13%, respectively, of our revenues for the
fiscal year ended September 28, 2008.  For the fiscal year ended
September 30, 2007, Jenny Craig, Inc., H. J. Heinz Company, Panda Restaurant
Group, Inc. and Safeway Inc. accounted for approximately 26%, 9%, 27% and 9%,
respectively, of our revenues.  For the fiscal year ended October 1,
2006, Jenny Craig, Inc., H. J. Heinz Company, Panda Restaurant Group, Inc. and
Safeway Inc. accounted for approximately 28%, 0%, 35% and 2%, respectively, of
our revenues.





Manufacturing
and Sourcing





In 2003,
we consolidated our headquarters, entrée manufacturing and warehousing, product
development, sales and quality control facilities into 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


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 1,048 employees at September 28,
2008.  Most of our operations are labor intensive, generally requiring
unskilled employees.  Approximately 83% 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


2


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.





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., H. J. Heinz Company,
Panda Restaurant Group, Inc. and Safeway Inc., accounted for approximately 24%,
18%, 16% and 13%, respectively, of our total net revenues during the fiscal year
ended September 28, 2008.  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.





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 deepens, collectibility 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.





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 the summer of 2008, our operating margins could be
eroded.


3


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 may need to recall some of their products if
they become adulterated or misbranded or as a result of government-mandated
recall, such as the 2008 beef recall involving the Hallmark/Westland Meat
Packing Co.  Food manufacturers may also be liable if the consumption
of any of their products causes injury.





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.





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.





Tightening
credit markets could impair our ability to obtain financing as and when
needed.





Tightening
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 result in an
increase in interest rates, which would adversely affect us, as we currently
have $40.6 million in long-term debt with interest rates that adjust
quarterly.


4


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 $49.7
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 28% of our
outstanding common stock as of December 11, 2008.  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


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 11, 2008, the high and low sales prices of our
common stock on the NYSE Alternext US (formerly, American Stock Exchange) were
$10.00 per share and $2.15 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
declines in air travel and bankruptcies or other financial difficulties of our
airline customers may adversely affect our revenues, costs and
collections.





In fiscal
year 2008, sales to airline customers were approximately $20.7 million, or 8.7%
of total net revenues, compared to sales of $19.7 million in fiscal year 2007
and $21.6 million in fiscal year 2006, representing 10.2% and 12.8% of total net
revenues in fiscal years 2007 and 2006, respectively.  Additionally,
accounts receivable from airline-related customers accounted for approximately
10.0% and 9.0% of the total accounts receivable balance at September 28, 2008
and September 30, 2007, 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


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 additional, 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 11, 2008, 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 11,
2008, 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.  We also lease a 55,000
square foot facility, Plant No. 2, primarily for cooking protein.  In
addition, we lease two dry goods storage facilities. These leased facilities are
a 25,000 square foot facility in Vernon, California and a 7,620 square foot
facility in Huntington Park, California.


7


We
believe that our Plant No. 1, currently operating at approximately 75% capacity,
is adequate to meet our requirements for the near future.  In fiscal
year 2008, 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 $190.7 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 2008 of approximately $45.0
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
are in the process of evaluating our cooking capacity.  If we deem
additional cooking capacity to be necessary, estimated capital expenditures for
that capacity could range from $5 million to $10 million during fiscal years
2009 and 2010, depending on the amount of additional cooking capacity
added.





We
recently signed a new 60-month lease for Plant No. 2, which will be effective
January 1, 2009.  This new lease includes the original 55,000 square
foot facility mentioned above, as well as 68,000 additional square feet that we
plan to use to expand our dry and cold storage and cooking
capacity.  We anticipate that cash generated from operating activities
and borrowing availability under our existing credit facility will be sufficient
to fund our anticipated capital expenditures and expansion of our storage and
cooking capacity.





ITEM
      3.
            Legal
      Proceedings




From time
to time, we are involved in various lawsuits, claims and proceedings related to
the conduct of our business.  Management does not believe that the
disposition of any pending claims is likely to materially and adversely affect
our financial condition, results of operations or cash flows.






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




Not
applicable.


8


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 Alternext US (which was known as the American
Stock Exchange until October 1, 2008) under the symbol “OFI” since November 1,
2002.  At December 11, 2008, we had approximately 150 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 11, 2008, the closing sale price of
our common stock on NYSE Alternext US was $4.20.  The following table
sets forth the range of high and low sales prices for our common stock on NYSE
Alternext US for the periods indicated:





Fiscal
      2007
            
            High
            
            LowFirst
      Quarter from October 2, 2006to
      December 31, 2006
            
            $3.70
            
            $2.66Second
      Quarter from January 1, 2007to
      April 1, 2007
            
            7.47
            
            2.80Third
      Quarter from April 2, 2007to
      July 1, 2007
            
            7.65
            
            5.45Fourth
      Quarter from July 2, 2007to
      September 30, 2007
            
            6.10
            
            3.42Fiscal
      2008
            
            High
            
            LowFirst
      Quarter from October 1, 2007to
      December 30, 2007
            
            $3.99
            
            $2.76Second
      Quarter from December 31, 2007to
      March 30, 2008
            
            5.20
            
            2.15Third
      Quarter from March 31, 2008to
      June 29, 2008
            
            8.45
            
            3.71Fourth
      Quarter from June 30, 2008to
      September 28, 2008
            
            10.00
            
            5.81





9


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 28, 2003 and ending September 28, 2008.  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 28, 2003 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-Ended2003
            2004
            2005
            2006
            2007
            2008Overhill
      Farms, Inc. (OFI)
            $100.00
            $213.79
            $591.08
            $592.93
            $649.22
            $
      975.67Standard
      & Poor's 500 Index
            100.00
            121.71
            153.16
            134.01
            123.27
            111.36Peer
      Group
            100.00
            126.83
            139.06
            142.40
            159.60
            118.59




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





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 Form 10-K.





Fiscal
      Year EndedStatements
      of Income Data
              (in
      thousands, except per share data):
            
            September
      28,
              2008
            
            
            September
      30,
              2007
            
            
            October
      1,
              2006
            
            
            October
      2,
              2005
            
            
            September
      26,
              2004(52
      weeks)
            
            
            (52
      weeks)
            
            
            (52
      weeks)
            
            
            (53
      weeks)
            
            
            (52
      weeks)Net
      revenues
            
            $
            238,780
            
            
            $
            192,642
            
            
            $
            168,310
            
            
            $
            162,566
            
            
            $
            133,957Operating
      income
            
            
            20,616
            
            
            
            11,900
            
            
            
            14,288
            
            
            
            11,903
            
            
            
            6,245Net
      income (loss)
            
            
            10,321
            
            
            
            4,562
            
            
            
            5,102
            
            
            
            3,696
            
            
            
            (2,142
            )Net
      income (loss) per share – Basic
            
            $
            0.66
            
            
            $
            0.30
            
            
            $
            0.34
            
            
            $
            0.25
            
            
            $
            (0.14
            )Net
      income (loss) per share – Diluted
            
            $
            0.65
            
            
            $
            0.29
            
            
            $
            0.32
            
            
            $
            0.24
            
            
            $
            (0.14
            )Weighted
      average shares outstanding – Basic
            
            
            15,747,434
            
            
            
            15,338,038
            
            
            
            15,204,424
            
            
            
            14,863,716
            
            
            
            14,805,556Weighted
      average shares outstanding - Diluted
            
            
            15,992,467
            
            
            
            15,803,109
            
            
            
            15,880,507
            
            
            
            15,575,459
            
            
            
            14,805,556






As
      of Fiscal Year EndedBalance
      Sheet Data
              (in
      thousands)
            
            September
      28,
              2008
            
            
            September
      30,
              2007
            
            
            October
      1,
              2006
            
            
            October
      2,
              2005
            
            
            September
      26,
              2004(52
      weeks)
            
            
            (52
      weeks)
            
            
            (52
      weeks)
            
            
            (53
      weeks)
            
            
            (52
      weeks)Total
      assets
            
            $
            79,420
            
            
            $
            76,150
            
            
            $
            58,128
            
            
            $
            56,221
            
            
            $
            59,550Long-term
      debt
            
            
            33,479
            
            
            
            41,383
            
            
            
            37,219
            
            
            
            45,058
            
            
            
            47,775Total
      liabilities
            
            
            56,224
            
            
            
            63,731
            
            
            
            51,191
            
            
            
            54,844
            
            
            
            62,031Retained
      earnings (accumulated deficit)
            
            
            11,479
            
            
            
            1,157
            
            
            
            (3,405
            )
            
            
            (8,507
            )
            
            
            (12,203
            )Stockholders’
      equity (deficit)
            
            
            23,195
            
            
            
            12,419
            
            
            
            6,937
            
            
            
            1,378
            
            
            
            (2,481
            )





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


11





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




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;





●
            fulfillment by suppliers of existing raw material
      contracts;





●
            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 customer


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





●
            seasonality in the retail
      category;





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





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





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





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





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





●
            financial
      viability of our customers during deep recessionary
    periods;





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





●
            other
      factors discussed in this report.





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





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





Overview





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


12





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





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





●
            operating
      and investing in efficient production
  facilities;





●
            providing
      value-added ancillary support services to
  customers;





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





●
            continuing
      to pursue growth through strategic acquisitions and
      investments.





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





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





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





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




13




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





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





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





Results
of Operations





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





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





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


14





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 andadministrative
      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
      expense
            
            
            3,663
            
            
            
            1.5
            
            
            
            4,389
            
            
            
            2.3
            
            
            
            726
            
            
            
            16.5Income
      before incometaxes
            
            
            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 the fiscal year ended September 28, 2008 increased $46.2 million or
24.0%  (18.5 % was attributed to volume/mix increases and 5.5% was
attributed to pricing increases) to $238.8 million from $192.6 million for the
fiscal year ended September 30, 2007, due to increased volume and new products
from new and existing customers as discussed below.





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





During
fiscal year 2008, we entered into a five-year licensing agreement with Better
Living Brands tmAlliance (“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 agreed to pay a one-time $1.25 million licensing
fee in two installments, of which we paid $1.0 million in May 2008 and will pay
the remaining $250,000 in May 2009.  In addition, we paid a $125,000
royalty fee prepayment in May 2008 and the remaining $125,000 royalty prepayment
in October 2008.  The agreement is renewable for two five-year
terms.  For fiscal year 2008, amortization expense related to the
licensing fee was $84,000.  We anticipate revenue from the licensing
agreement to begin in fiscal year 2009.





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





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


15


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





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





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





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





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





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





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




16




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





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





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





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





Fiscal
      Year Ended
            
            
            Change
      2007 vs 2006­September
      30, 2007
            
            
            October
      1, 2006
            
            
            Dollar
      Variance
            
            
            %
      VarianceDollars
            
            
            %
      of Net Revenues
            
            
            Dollars
            
            
            %
      of Net Revenues
            
            
            Favorable
      (Unfavorable)
            
            
            Favorable
      (Unfavorable)(Dollars
      in thousands)Net
      revenues
            
            $
            192,642
            
            
            
            100.0%
            
            
            $
            168,310
            
            
            
            100.0%
            
            
            $
            24,332
            
            
            
            14.5%Cost
      of sales
            
            
            172,694
            
            
            
            89.6
            
            
            
            146,825
            
            
            
            87.2
            
            
            
            (25,869
            )
            
            
            (17.6
            )Gross
      profit
            
            
            19,948
            
            
            
            10.4
            
            
            
            21,485
            
            
            
            12.8
            
            
            
            (1,537
            )
            
            
            (7.2
            )Selling,
      general andadministrative
      expenses
            
            
            8,047
            
            
            
            4.2
            
            
            
            7,196
            
            
            
            4.3
            
            
            
            (851
            )
            
            
            (11.8
            )Operating
      income
            
            
            11,900
            
            
            
            6.2
            
            
            
            14,288
            
            
            
            8.5
            
            
            
            (2,388
            )
            
            
            (16.7
            )Interest
      expense
            
            
            4,389
            
            
            
            2.3
            
            
            
            5,731
            
            
            
            3.4
            
            
            
            1,342
            
            
            
            23.4Income
      beforeincome
      taxes
            
            
            7,511
            
            
            
            3.9
            
            
            
            8,558
            
            
            
            5.1
            
            
            
            (1,047
            )
            
            
            (12.2
            )Income
      taxprovision
            
            
            2,949
            
            
            
            1.5
            
            
            
            3,456
            
            
            
            2.1
            
            
            
            507
            
            
            
            14.7Net
      income
            
            $
            4,562
            
            
            
            2.4%
            
            
            $
            5,102
            
            
            
            3.0%
            
            
            $
            (540
            )
            
            
            (10.6%
            )





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





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





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




17




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





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





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





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





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





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





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





Liquidity
and Capital Resources





Cash
increased $5.3 million to $6.6 million at September 28, 2008 from $1.3 million
at September 30, 2007.  Our principal sources of liquidity are cash
generated from our operating activities and availability under our credit
facility described below.  During the fiscal year ended September 28,
2008, our operating activities provided cash of $10.7 million, compared to cash
provided of $3.6 million during the fiscal year ended September 30,
2007.  We used operating cash flows to finance working capital needs
primarily as a result of a decrease in accounts payable of $3.8 million during
fiscal year 2008.  Accounts receivable decreased by
$38,000.  Inventory declined by $718,000, which reflects the results
of our efforts to increase inventory turns.  Cash used by prepaid
expenses and other assets was $1.2 million during fiscal year 2008 and related
primarily to the Alliance licensing and royalty agreement discussed
above.  In addition, cash provided by accrued liabilities was $220,000
during fiscal year 2008.  At September 28, 2008, we had working
capital of $26.3 million compared to working capital of $22.1 million at
September 30, 2007.  We were able to fund our growth in sales during
fiscal year 2008 internally, without increasing our external debt, by executing
the cash management procedures noted above.





18




During
fiscal year 2008, our investing activities, consisting of additions to capital
expenditures and marketable securities, resulted in a net use of cash of
approximately $1.3 million, compared to a net use of cash of approximately $8.0
million during fiscal year 2007.  The decrease in cash used was due to
prior year additions of property and equipment related to the expansion of the
manufacturing capacity of our entrée plant to accommodate additional business
opportunities, meet anticipated growth and improve operating
efficiency.  The additions to property and equipment were partially
offset by $54,000 in proceeds from the sale of marketable securities during
fiscal year 2008, compared to $66,000 during fiscal year
2007.   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.  To
continue our current growth rate into fiscal year 2009, we will need additional
capacity either through acquisition of another facility or another business
within the next twelve months, which likely would result in a large use of
cash.





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 $3.6 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 2008, our financing activities used cash of $4.0 million, compared
to cash provided by financing activities of $3.7 million during fiscal year
2007.  The net use of cash was due to principal payments on debt,
equipment loans and our capital lease obligation of $5.0 million, $211,000 and
$282,000, respectively, as we paid down our revolving loan balance to zero
during the second quarter of fiscal year 2008.  The principal payments
were offset by borrowings of $1.0 million and receipt of $444,000 from the
exercise of employee stock options, including the related tax
benefit.





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.





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 28, 2008, 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 28, 2008, the facility was structured as a $7.5
million non-amortizing revolving loan, a $26.5 million amortizing Tranche A Term
Loan and a $15.7 million non-amortizing Tranche B Term Loan. The facility bears
interest, adjustable quarterly, at the London Inter Bank Offered Rate (“LIBOR”)
plus the Applicable Margin (listed below) for LIBOR loans or, at our option in
the case of the revolving loans, an alternate base rate equal to the greater of
the prime rate and the federal funds effective rate plus 0.50%, plus an
applicable margin, as follows:




19




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 28, 2008, our principal balances on the loans totaled $39.7 million,
consisting of $24.0 million in Tranche A Term Loans and $15.7 million in Tranche
B Term Loans.  At September 28, 2008, interest rates on the Tranche A
Term Loans and Tranche B Term Loans were 5.7% and 8.2%,
respectively.  As of June 29, 2008, our total debt to EBITDA ratio
for the last twelve months was less than 2.00:1.00 and, therefore, we
qualified for the lowest applicable margin for the alternative base rate and
LIBOR loans, which was applicable to our borrowing beginning in the fourth
quarter of fiscal year 2008.  For the fiscal year ended September 28,
2008, we incurred $3.3 million in interest expense net of $43,000 in capitalized
interest.  Over the term of the loan, the facility had been reduced by
mandatory principal payments on the Tranche A Term Loan of $4.5 million and
voluntary principal payments on the Tranche B Term Loan of $2.9
million.  As of September 28, 2008, we had $7.5 million available to
borrow under the revolving loan, as we had paid down the loan balance to zero
during the quarter ended March 30, 2008 and did not borrow against it for the
remainder of the fiscal year.





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, $861,000 is recorded as debt discount, net
of accumulated amortization, on the accompanying balance sheet as of September
28, 2008.  We recorded a pretax charge of approximately $176,000 in
connection with the termination of the former financing arrangements in the
third quarter of fiscal year 2006.  We paid GCF an additional $132,000
in fees and expenses on March 9, 2007 related to the second amendment, which was
recorded as a debt discount.





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





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.




20




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 28, 2008:





Payments
      Due By PeriodContractual
      Obligations
            
            
            Total
            
            
            Within
              1
      Year
            
            
            2-3
      Years
            
            
            4-5
      Years
            
            
            More
      than
              5
      YearsDebt
      maturities
            
            
            $
            40,289,644
            
            
            $
            5,949,459
            
            
            $
            34,331,585
            
            
            $
            8,600
            
            
            $
            -Interest
      expense(1)
            
            
            
            9,491,550
            
            
            
            3,728,594
            
            
            
            5,762,875
            
            
            
            81
            
            
            
            -Capital
      lease obligation
            
            
            
            279,422
            
            
            
            279,422
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      leaseobligations
      (2)
            
            
            
            10,679,923
            
            
            
            2,022,302
            
            
            
            3,071,432
            
            
            
            2,350,626
            
            
            
            3,235,563Other
      contractualobligations
            
            
            
            860,933
            
            
            
            763,431
            
            
            
            97,502
            
            
            
            -
            
            
            
            -Open
      purchase orders
            
            
            
            17,422,298
            
            
            
            17,422,298
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      contractualobligations
            
            
            $
            79,023,770
            
            
            $
            30,165,506
            
            
            $
            43,263,394
            
            
            $
            2,359,307
            
            
            $
            3,235,563


____________


(1)  Assumes
      only mandatory principal pay-downs and the use of LIBOR as of September
      28, 2008 on the GCF debt and fixed-rate interest payments on equipment
      loans and capital lease obligation.(2)  Includes
      real estate leases.





The above
table outlines our obligations as of September 28, 2008 and does not reflect the
changes in our obligations that occurred after that date.





Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value and requires enhanced disclosures about fair value
measurements. SFAS 157 requires companies to disclose the fair value of their
financial instruments according to a fair value hierarchy (i.e., levels 1, 2,
and 3, as defined). Additionally, companies are required to provide enhanced
disclosure regarding instruments in the level 3 category, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities. SFAS 157 became effective for our fiscal
year that began on September 29, 2008. We currently are evaluating the impact
adoption may have on our financial condition or results of
operations.




21




In
December 2007, the FASB issued SFAS No. 141 (revised 2007)
(“SFAS 141(R)”), “Business Combinations,” which replaces FASB Statement
141. SFAS 141(R) 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. SFAS 141(R) also modifies the recognition
for preacquisition contingencies, such as environmental or legal issues,
restructuring plans and acquired research and development value in purchase
accounting. SFAS 141(R) amends SFAS No. 109, “Accounting for
Income Taxes,” to require 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.
SFAS 141(R) also establishes disclosure requirements which will enable
users to evaluate the nature and financial effects of the business combination.
SFAS 141(R) is effective on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.We currently are evaluating the impact
adoption may have on our financial condition or results of operations relating
to potential future acquisitions.





In
December 2007, the FASB issued SFAS No. 160 (“SFAS 160”),
“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. SFAS 160 will be effective
for fiscal years beginning after December 15, 2008.  We currently
are evaluating the impact adoption may have on our financial condition or
results of operations.





In May
2008, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally
Accepted Accounting Principles.”  SFAS 162 is intended to improve
financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements that are
prepared in conformity with generally accepted accounting principles. Unlike
Statement on Auditing Standards No. 69 “The Meaning of Present Fairly in
Conformity With GAAP,” SFAS 162 is directed to the entity rather than the
auditor. The statement is effective in fiscal year 2009, and we do not expect
its adoption to impact our results of operations, financial position 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 2008, 2007 and 2006, our
write-offs, net of recoveries, to the allowance for doubtful accounts were
approximately $20,000, $9,000 and $181,000, respectively.





A
significant portion of our total net revenues during the last two fiscal years
was derived from four customers.  Jenny Craig, Inc., H. J. Heinz
Company, Panda Restaurant Group, Inc. and Safeway Inc. accounted for
approximately 24%, 18%, 16% and 13%, respectively, of our net revenues for
fiscal year 2008 and approximately 26%, 9%, 27% and 9%, respectively, of our net
revenues for fiscal year 2007.  Receivables related to Jenny Craig,
Inc., H. J. Heinz Company, Panda Restaurant Group, Inc. (through its
distributors) and Safeway Inc. accounted for approximately 20%, 21%, 16% and
12%, respectively of our total accounts receivable balance at September 28, 2008
and approximately 27%, 17%, 26% and 10%, respectively, of our total accounts
receivable balance at September 30, 2007.





22




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.





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 in accordance with SFAS No.
142, “Goodwill and Other Intangible Assets.”  We have one reporting
unit and estimate fair value based on a variety of market factors, including
discounted cash flow analysis, market capitalization, and other market-based
data.  At September 28, 2008, we had goodwill of $12.2
million.  A deterioration of our operating results and the related
cash flow effect could decrease the estimated fair value of our business and,
thus, cause our goodwill to become impaired and cause us to record a charge
against operations in an amount representing the impairment.





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





We
adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty of Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN
48”) on October 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes.” This interpretation prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in
interim periods, disclosure and transition.  As a result of the
implementation of FIN 48, we recorded no increase in the liability for
unrecognized tax benefits, and the balance of unrecognized tax benefits was zero
at September 28, 2008.





We have
also adopted the accounting policy that interest recognized in accordance with
Paragraph 15 of FIN 48 and penalties recognized in accordance with Paragraph 16
of FIN 48 are classified as part of income taxes.  No interest and
penalties were recognized in the statement of income for fiscal year
2008.


23




Other
Matters





We
manufactured for one of our customers, American Pie, LLC, who distributes
products under the name “Claim Jumper,” pursuant to a written manufacturing
agreement that expired automatically on April 30, 2007.  Thereafter,
we manufactured for the customer on a purchase order basis pursuant to increased
prices for some products.  During the first quarter of fiscal year
2008, we informed the customer that we intended to discontinue production for
them.  The decision was based on our evaluation of the overall
economics of that account.  The customer represented it would pay
price increases for continued manufacturing during a transition period to a new
manufacturer.  After completing production for the customer in June
2008, the customer withheld payment of approximately $1.9 million for product
produced and shipped pursuant to the customer’s purchase orders.  The
customer has made certain claims, including the claim that the customer should
not have paid the price increases to which it earlier agreed.  Based
on information available at this time, and prior to discovery in the litigation
referenced below, we consider the customer's claims to lack
merit.  After several discussions and subsequent to the closing of our
third fiscal quarter, the customer made a partial payment of approximately $1.0
million against the outstanding receivable balance.  However, prior to
fiscal year end, the customer still refused payment of the remaining outstanding
receivable balance and we filed a lawsuit against the customer as of September
23, 2008 (Overhill Farms, Inc. v. American Pie (United States District Court for
the Central District of California, Case No. CV 0806268 R
(CTx))).  This action involves a complaint by us against customer
American Pie and two of its officers, William R. Collins and Robert G. Blume
(collectively, “defendants”).  The complaint asserts 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 us pursuant
to purchase orders and invoices reflecting price increases effective December 9,
2007 and thereafter.  On November 4, 2008, the defendants filed a
motion to dismiss our third and fourth claims for fraud and unfair business
practices for failure to state a claim.  On December 1, 2008, the
United States District Court denied the defendants’ motion to dismiss our claims
for fraud and unfair business practices.  The defendants responded to
the complaint on December 10, 2008, and also filed a counterclaim against us,
which is in the process of being evaluated.  The counterclaim
alleges:  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 not
produced by us, and for purportedly contaminated product.  Based on
the information now available, we believe the net balance due on our complaint
is collectible once the complaint and counterclaim are resolved.





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 $271,000 the annual
interest expense on our debt outstanding as of September 28, 2008.  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 28, 2008, a hypothetical 10% decrease in average market interest
rates would increase the fair value of outstanding fixed rate debt by
approximately $5,000.






ITEM
      8.
            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.


24





ITEM
      9A.
            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 28, 2008, 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





Management is responsible for establishing and
maintaining adequate“internal control over
financial reporting”as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act.
Internal control over financial reporting
refers to the process designed by, or under the supervision of, our Chief
Executive Officer and Interim Chief Financial Officer, and effected by our Board
of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles, and includes those policies and procedures that:





(i)
pertainto the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions ofour
assets;





(ii)
providereasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expendituresare being made only in accordance with authorizations ofour management and directors; and





(iii)
providereasonable assurance regarding prevention
or timelydetection of unauthorized
acquisition, use or disposition ofourassets that could have a material effect onour financial statements.





Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





Management has used
the framework set forth in the report entitled “Internal Control—Integrated
Framework”published by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness ofourinternal control over
financial reporting. Management has
concluded thatourinternal control over
financial reporting was effective at a reasonable assurance levelas of the end of the most recent fiscal year.





Our independent registered public accounting firm, Ernst
& Young LLP, independently assessed the
effectiveness of our internal control over financial reporting.  Ernst
& Young LLP has issued an attestation report concurring with
management’s assessment, which is included in this
report.




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.




25




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 28, 2008, there were no changes in our “internal
control over financial reporting” (as defined in Rule 13a-15(f) under the
Exchange Act) that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.


26


Report
of Independent Registered Public Accounting Firm




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




We have
audited Overhill Farms, Inc.’s internal control over financial reporting as of
September 28, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Overhill Farms, Inc.’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting
based on our audit.




We
conducted our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, Overhill Farms, Inc. maintained, in all material respects, effective
internal control over financial reporting as of September 28, 2008, based
on the COSO criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets of Overhill Farms, Inc. as
of September 28, 2008 and September 30, 2007, and the related statements of
income, stockholders’ equity, and cash flows for each of the three years in the
period ended September 28, 2008 of Overhill Farms, Inc., and our report
dated December 11, 2008, expressed an unqualified opinion thereon.






/s/
      ERNST & YOUNG LLP




Los
Angeles, California


December
11, 2008







27


ITEM
      9A(T).
            Controls and
      Procedures




Not applicable.






ITEM
      9B.
            Other
      Information




Not
applicable.


28


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, 2008.





Name
            Age
            Positions
      Held
            Director
                SinceJames
      Rudis
            59
            Chairman
      of the Board, President, Chief Executive Officer and
    Director
            1995Tracy
      E. Quinn
            54
            Interim
      Chief Financial Officer
            -Richard
      A. Horvath
            62
            Senior
      Vice President and Secretary
            -Harold
      Estes(1)
            68
            Director
            2002Geoffrey
      A. Gerard(1)(2)(3)
            63
            Director
            2002Alexander
      Auerbach(2)(3)
            64
            Director
            2004Alexander
      Rodetis, Jr.(1)
            66
            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.


29


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, which was
organized to provide financial and due diligence guidance to bank and non-bank
lending institutions as well as companies seeking solutions to their corporate
finance requirements.  In addition, Mr. Rodetis is President of
Pegasus Financial Services, LLC, which 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 of the U.S.  Mr. Rodetis has
been in the financial services community for over thirty years.  Mr.
Rodetis previously served as the Marketing and Strategic Planning Coordinator
and Inventory Appraisal Business Head for The Daley-Hodkin Group, a business
valuation, asset disposition and consulting organization.  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 that 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 appliesto 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 Alternext
US.  We will provide a copy of our code ofethics to any person without charge, upon written
request to Overhill Farms, Inc., Attention:  Investor Relations, 2727 East Vernon Avenue, Vernon,
California 90058.


30


Audit
Committee Composition





During
fiscal year 2008, our audit committee initially was composed of Messrs. Rodetis,
Gerard and Louis J. Giraudo, with Mr. Rodetis serving as the committee
chairman.  Following Mr. Giraudo’s resignation from our board and
audit committee on February 4, 2008, Mr. Estes was appointed to fill the
vacancy on the audit committee.   Our board of directorshas determined that Mr.
Rodetis is an “audit committee financial expert” and that each of Messrs.
Rodetis, Gerard, Giraudo and Estes are “independent” as defined in Sections 803A
and 803B of the NYSE Alternext US 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 28, 2008 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 2008, except as set forth below, all Section
16(a) filing requirements applicable to our reporting persons were
met.





The
following individuals did not timely file the following numbers of Form 4s to
report the following transactions:  Harold Estes – one report, seven
transactions; and Geoffrey A. Gerard – two reports, two
transactions.  We believe that each of the foregoing individuals has
prepared and filed all required Form 4s to report their respective
transactions.





ITEM
      11.
            Executive
  Compensation


Compensation Discussion and Analysis





Compensation Governance





Our compensation committee is responsiblefor reviewing and making recommendations to our board of
directors regarding compensation policy for our executive officers and also has
the authority to approve grants under our option and stock
plans.





Compensation Philosophy and
Objectives





Our compensation
programs for our executive officers are intended to reflect our performance and
the value created for our stockholders.  We are engaged in a very
competitive industry, and our success depends upon our ability to attract and
retain qualified executivesthrough the competitive compensation packages we offer
to these individuals.  Our current compensation philosophy is based on
three central 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.


31


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, discretionarybonuses 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 expirationof 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 2008.





Section 162(m) of the Internal Revenue Code places a
limit on the amount of compensationthat
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 2008





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 year2008, 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 2008. 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 2008, we improved our financial
performance compared to fiscal year 2007, with year-over-year increases in net
revenues of 24.0% and net income of
126.2%.  We also strengthened our balance sheet and improved our
capital and liquidity positions. As a result, Mr. Rudis received a total bonus
of $182,322, Ms. Quinn received a total bonus of $8,027 and Mr. Horvath received
a total bonus of $23,474.Further information regarding executive bonuses is
contained below under the heading “Executive Bonuses.”


32


Conclusion





Our policy is not to disclose target levels with respect
to specific quantitative or qualitative performance-related factors or factorsconsidered to involve confidential business
information, because their disclosure would have an adverse effect on us.
Attracting and retaining talented and motivated management and employees is
essential to create long-term stockholder value. Offering a competitive,
performance-based compensation program helps to achieve this objective by
aligning the interests of executive officers and other key employees with those
of stockholders. We believe that our fiscal year 2008 compensation program met
this objective.





Summary
Compensation Table





The
following table sets forth for fiscal years 2008, 2007 and 2006 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 2008.






Name
      and
            
            
            
            
            
            
            
            
            
            All
      OtherPrincipal
      Positions
            
            Year
            
            Salary
      ($)
            
            Bonus
      ($)
            
            Compensation
      ($)
            
            Total
      ($)James
      Rudis,
            
            2008
            
            $
      352,075
            
            
            $
      257,322
            (1)
            
            $
      196,117
            (2)
            
            805,514Chairman,
      President and
            
            2007
            
            306,006
            
            
            56,700
            
            
            188,573
            
            
            551,279Chief
      Executive Officer
            
            2006
            
            303,446
            
            
            131,720
            
            
            196,109
            
            
            631,275Tracy
      E. Quinn,
            
            2008
            
            358,269
            
            
            8,027
            
            
            $
      120,290
            (3)
            
            486,586Interim
      Chief Financial Officer
            
            2007
            
            22,500
            
            
            675
            
            
            —
            
            
            23,175Richard
      A. Horvath,
            
            2008
            
            149,886
            
            
            23,474
            
            
            —
            
            
            173,360Senior
      Vice President
            
            2007
            
            147,191
            
            
            19,851
            
            
            —
            
            
            167,042and
      Secretary
            
            2006
            
            147,191
            
            
            25,346
            
            
            
            
            
            172,537





(1)
            Includes
      $75,000 signing bonus paid to Mr. Rudis upon the execution of his
      employment agreement in January
2008.





(2)
            Mr.
      Rudis received certain perquisites and other personal benefits 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.  $178,151 represents perquisites or other benefits
      relating to payment of or reimbursement for commuting expenses between New
      York and California, including $132,898 for airfare, $27,294 for lodging
      and $17,959 for transportation, meals and other miscellaneous
      expenses.





(3)
            Ms.
      Quinn received certain perquisites and other personal benefits which
      consist of the following:


a.
            Ms.
      Quinn maintains her principal residence in
      Pennsylvania.  $120,290 represents perquisites or other benefits
      relating to payment of or reimbursement for commuting expenses between
      Pennsylvania and California, including $70,004 for airfare, $34,330 for
      lodging and $15,956 for transportation, meals and other miscellaneous
      expenses.





Executive
Employment Agreements and Arrangements





James
Rudis





Mr. Rudis’
employment agreement, as amended, initially ran through October 31,
2007.  Pursuant to a termination option extension agreement we entered
into with Mr. Rudis on November 30, 2006, we and Mr. Rudis chose not to
terminate the employment agreement. On January 10, 2008, our board of directors
approved a modification and extension for Mr. Rudis’ employment
agreement.  The new agreement is effective retroactive
to


33


November
1, 2007 and will expire on December 31, 2009.  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 28, 2008, was $348,000 per year and we have
agreed to 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.  We have also increased Mr. Rudis’ vacation time from three
weeks to four weeks annually and, 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.





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.


34


On
execution of the employment agreement, Mr. Rudis was awarded a signing bonus of
$75,000 in consideration of his execution of the agreement and will be eligible
to receive annual bonuses during the employment period at the discretion of the
compensation committee.





In
addition, Mr. Rudis maintains offices in both Vernon, California and New
York.  As of September 28, 2008 we paid $178,151 in perquisites or
other benefits relating to payment of or reimbursement for commuting expenses
between New York and California.  This includes $132,898 for airfare,
$27,294 for lodging and $17,959 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 28, 2008, we paid  $120,290 in
perquisites or other benefits relating to payment of or reimbursement for
commuting expenses between Pennsylvania and California, including $70,004 for
airfare, $34,330 for lodging and $15,956 for transportation, meals and other
miscellaneous expenses.




Richard
A. Horvath





Mr. Horvath
receives an annual base salary of $142,686 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.





Executive
Bonuses





Upon
recommendation of the compensation committee, our board of directors approved
bonuses for fiscal year 2008 for our named executive officers, based upon their
contributions to our success during fiscal year 2008.  The bonuses
will be paid in fiscal year 2009.





The
$182,322 bonus approved for James Rudis consisted of $170,000 in cash
(approximately 49% of his base salary) and a $12,322 401(k)
contribution.  The bonus approved for Tracy E. Quinn was $8,027,
representing 3% of Ms. Quinn’s gross W-2 earnings, payable in the form of a
401(k) contribution.  The $23,474 bonus approved for Richard A.
Horvath represented 3% of Mr. Horvath's gross W-2 earnings, which consisted of
$20,000 in cash and $3,474 401(k) contribution.


35


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 28,
2008.





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 26, 2008, the last business day of fiscal year 2008, 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.


36




Name
            
            Trigger
            
            Salary
      and Bonus
            
            Continuation
      of Benefits
            
            Total
      Value  (5)James
      Rudis
            
            Change
      in Control
            
            $  300,000
            (1)
            $
            -
            $
            -Qualifying
      Termination
            
            726,159
            (2)
            
            31,457 (3)
            
            757,616Non-Qualifying
      Termination
            
            105,782
            (4)
            
            -
            
            105,782Tracy
      E. Quinn
            
            Change
      in Control
            
            -
            
            
            -
            
            -Qualifying
      Termination
            
            -
            
            
            -
            
            -Non-Qualifying
      Termination
            
            4,694
            (4)
            
            -
            
            4,694 (4)Richard
      A. Horvath
            
            Change
      in Control
            
            -
            
            
            -
            
            -Qualifying
      Termination
            
            -
            
            
            -
            
            -Non-Qualifying
      Termination
            
            4,194
            (4)
            
            -
            
            4,194 (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 and accrued, 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.





In
January 2008, our board of directors formed a special committee to evaluate
offers for acquisition of all of our outstanding common stock.  The
special committee consisted of Messrs. Auerbach, Gerard and Rodetis, with Mr.
Rodetis serving as the committee chairman.  The members of the special
committee received additional cash payments of $2,500 per month and the chairman
received $5,500 per month.  The special committee was dissolved as of
July 1, 2008.





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
2008.  Information regarding the compensation awarded to Mr. Rudis is
included in the “Summary Compensation Table” above.


37


Director
Compensation Table




The
following table summarizes the compensation of our directors for the year ended
September 28, 2008:


Name
            
            Fees
      Earned
                or
      Paidin
      Cash
                ($)(1)
            
            
            OptionAwards
                ($)(2)
            
            
            Total
                ($)Geoffrey
      A. Gerard
            
            $
            42,500
            
            
            
            $
            —
            
            
            $
            42,500Alexander Auerbach (3)
            
            
            42,500
            
            
            
            
            —
            
            
            
            42,500Louis
      J. Giraudo
            
            
            10,000
            
            
            
            
            —
            
            
            
            10,000Alexander
      Rodetis, Jr.
            
            
            57,500
            
            
            
            
            —
            
            
            
            57,500Harold
      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 2008.  Outstanding
      options held by each director as of September 28, 2008 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 $41,000 with
      respect to fiscal year 2008.  See “Certain Relationships and
      Related Transactions, and Director Independence” in Item 13 of this
      report.







Compensation
Committee Interlocks and Insider Participation





During
fiscal year 2008, the compensation committee initially was composed of Messrs.
Auerbach, Gerard and Giraudo, with Mr. Auerbach serving as the committee
chairman.  Mr. Giraudo resigned from the compensation committee in
February 2008.  No director who was a member of the compensation
committee during fiscal year 2008 was an officer or employee of Overhill Farms,
Inc. during fiscal year 2008, 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 $41,000 for
our fiscal year 2008, of that company’s gross revenues for its fiscal year ended
January 31, 2008.





During
fiscal year 2008, 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 2008, 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 2008, 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.


38




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 28, 2008.




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, 2008, 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.


39





Name
      and Address of Beneficial OwnerAmount
      and Nature of Beneficial Ownership
            
            Percentof
      ClassLord
      Abbett & Co. LLC
            1,927,895(1)
            
            
            12.2%William
      Blair & Company, L.L.C
            1,452,314(2)
            
            
            9.2%Harold
      Estes
            1,091,565(3)
            
            
            6.9%James
      Rudis
            605,550(4)
            
            
            3.7%Richard
      A. Horvath
            27,000(5)
            
            
            *Geoffrey
      A. Gerard
            55,000(6)
            
            
            *Alexander
      Auerbach
            30,000(7)
            
            
            *Alexander
      Rodetis, Jr.
            25,000(7)
            
            
            *Tracy
      E. Quinn
            -
            
            
            -All
      directors and executive officers as a group(7
      persons)
            1,834,115(8)
            
            
            11.2%





*
            Less
      than 1.0%.





(1)
            Based
      upon a Form 13F filed with the Commission by the holder for September 30,
      2008 in its capacity as an investment adviser, the holder has sole voting
      power over 1,180,195 shares and sole dispositive power over 1,927,895
      shares.  The address for the holder is 90 Hudson Street, Jersey
      City, New Jersey 07302.





(2)
            Based
      on ownership information provided to us by William Blair & Company,
      L.L.C. as of November 14, 2008. 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)
            Represents
      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
      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 28, 2008.


40





Plan
      category
            
            Number
      of securities to be issued upon exercise of outstandingoptions,
      warrantsand
      rights
            
            Weighted-average
      exercise priceof
      outstanding options, warrantsand
      rights
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflectedin
      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.


41





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 $41,000
for services rendered under this engagement during fiscal year
2008.  These fees totaled more than 5% of AAPR’s gross revenues for
its fiscal year ended January 31, 2008.





Director
Independence





NYSE
Alternext US 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
Alternext US 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 Alternext US listing standards.  Our board of
directors also has determined that each of Messrs. Rodetis, Gerard, Giraudo and
Estes are “independent” as defined in Sections 803A and 803B of the NYSE
Alternext US 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 Alternext US 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 Alternext US 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 2008 and 2007.





2008
            
            
            2007Audit
      Fees
            
            $
            630,000
            
            
            $
            649,000Audit-Related
      Fees
            
            
            --
            
            
            
            --Tax
      Fees
            
            
            --
            
            
            
            --All
      Other Fees
            
            
            --
            
            
            
            --





42


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, and the review of our internal accounting and reporting
controls as required under Section 404 of the Sarbanes-Oxley Act of
2002.





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 2008, all services
performed by Ernst & Young LLP were pre-approved by our audit committee in
accordance with these policies and applicable Commission
regulations.


43


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 FirmBalance
      Sheets — September 28, 2008 and September 30, 2007Statements
      of Income — Years Ended September 28, 2008, September 30, 2007 and October
      1, 2006Statements
      of Stockholders’ Equity — Years Ended September 28, 2008, September 30,
      2007 and October 1, 2006Statements
      of Cash Flows — Years Ended September 28, 2008, September 30, 2007 and
      October 1, 2006Notes
      to Financial Statements(b)
              The
      following exhibits are attached to or incorporated by reference
      herein:




Exhibit
              Number
            Exhibit
      Title3.1
      (1)
            Form
      of Amended and Restated Articles of Incorporation of Overhill Farms, Inc.
      (Exhibit 3.1)3.2
      (1)
            Form
      of Amended and Restated Bylaws of Overhill Farms, Inc. (Exhibit
      3.2)3.3
      (2)
            Action
      with Respect to Bylaws of Overhill Farms, Inc., certified by the Secretary
      of Overhill Farms, Inc. as of June 13, 2003 (Exhibit
  3.1)3.4
      (3)
            Certificate
      of Amendment to Articles of Incorporation of Overhill Farms, Inc. filed
      August 12, 2003 with the Nevada Secretary of State (Exhibit
      3.4)3.5(13)
            Action
      with Respect to Bylaws of Overhill Farms, Inc., certified by the Secretary
      of Overhill Farms, Inc. as of March 11, 2008 (Exhibit
  3.1)4.1
      (1)
            Form
      of the specimen common stock certificate of Overhill Farms, Inc. (Exhibit
      4.1)10.1
      **
            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, California10.2
      (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)


44





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
      #**
            Amended
      and Restated 2002 Employee Stock Option Plan of Overhill Farms,
      Inc.10.9
      #**
            Amended
      and Restated 2005 Stock Plan of Overhill Farms, Inc.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


#      Management contract or compensatory plan or
arrangement


45




(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 Current Report on Form 8-K for August 7, 2003 regarding the
      amendment of the Registrant’s bylaws and various agreements entered into
      by the Registrant.(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 Current Report on Form 8-K for March 11,
  2008.




(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.


46


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, 2008







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
            December
      11, 2008James
      Rudis
            
            Chief
      Executive
      Officer (principal executive officer)/s/
      TracyE. Quinn
            
            Interim Chief
      Financial Officer
            December
      11, 2008Tracy
      E. Quinn
            
            (principal financial and accounting
      officer)/s/
      Alexander Auerbach
            
            Director
            December
      11, 2008Alexander
      Auerbach/s/
      Harold Estes
            
            Director
            December
      11, 2008Harold
      Estes/s/
      Geoffrey A. Gerard
            
            Director
            December
      11, 2008Geoffrey
      A. Gerard/s/
      Alexander Rodetis, Jr.
            
            Director
            December
      11, 2008Alexander
      Rodetis, Jr.





47


OVERHILL
FARMS, INC.





INDEX
TO FINANCIAL STATEMENTS










Audited Financial
    Statements:
              PageReport
      of Independent Registered Public Accounting Firm
              F-2Balance
      Sheets as of September 28, 2008 and September 30, 2007
              F-3Statements
      of Income for the Years Ended September 28, 2008, September 30, 2007and
      October 1, 2006
              F-5Statements
      of Stockholders’ Equity for the Years Ended September 28, 2008, September
      30, 2007 and October 1, 2006
              F-6Statements
      of Cash Flows for the Years Ended September 28, 2008, September 30, 2007
      and October 1, 2006
              F-7Notes
      to Financial Statements
              F-10Schedule
      II – Valuation and Qualifying Accounts and Reserves
              F-24





F-1


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 28, 2008 and September 30, 2007, and the related statements of
income, stockholders’ equity, and cash flows for each of the three years in the
period ended September 28, 2008. 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as 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 28, 2008 and September 30, 2007, and the results of its
operations and its cash flows for each of the three years in the period ended
September 28, 2008, 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.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Overhill Farms, Inc.’s internal control
over financial reporting as of September 28, 2008, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated December 11, 2008
expressed an unqualified opinion thereon.




/s/
      ERNST & YOUNG LLP




Los
Angeles, California


December
11, 2008






F-2




OVERHILL
FARMS, INC.
 
 BALANCE
SHEETS




AssetsSeptember
      28,
              2008
            
            
            September
      30,
              2007Current
      assets:Cash
            
            $
            6,637,576
            
            
            $
            1,325,868Accounts
      receivable, net of allowance for doubtful accounts of zero and $18,000 in
      2008 and 2007, respectively
            
            
            20,253,633
            
            
            
            21,073,735Inventories
            
            
            17,294,076
            
            
            
            18,097,043Prepaid
      expenses and other
            
            
            1,492,977
            
            
            
            1,170,053Deferred
      income taxes
            
            
            1,223,241
            
            
            
            960,764Total
      current assets
            
            
            46,901,503
            
            
            
            42,627,463Property
      and equipment, at cost:Fixtures
      and equipment
            
            
            23,705,525
            
            
            
            22,997,549Leasehold
      improvements
            
            
            10,373,256
            
            
            
            10,254,496Automotive
      equipment
            
            
            50,854
            
            
            
            50,85434,129,635
            
            
            
            33,302,899Less
      accumulated depreciation and amortization
            
            
            (16,220,194
            )
            
            
            (13,685,015
            )Total
      property and equipment
            
            
            17,909,441
            
            
            
            19,617,884Other
      non-current assets:Goodwill
            
            
            12,188,435
            
            
            
            12,188,435Deferred
      financing costs, net of accumulated amortization of $339,000 and $258,000
      in 2008 and 2007, respectively
            
            
            247,127
            
            
            
            327,633Other
            
            
            2,173,058
            
            
            
            1,389,006Total
      other non-current assets
            
            
            14,608,620
            
            
            
            13,905,074Total
      assets
            
            $
            79,419,564
            
            
            $
            76,150,421








The
accompanying notes are an integral pa rt of
these financial statements.


F-3


OVERHILL
FARMS, INC.
 
 BALANCE
SHEETS (continued)


Liabilities
      and Stockholders’ EquitySeptember
      28,
              2008
            
            
            September
      30,
              2007Current
      liabilities:Accounts
      payable
            
            $
            11,177,686
            
            
            $
            15,005,394Accrued
      liabilities
            
            
            3,201,548
            
            
            
            2,981,658Current
      maturities of long-term debt
            
            
            6,228,881
            
            
            
            2,492,702Total
      current liabilities
            
            
            20,608,115
            
            
            
            20,479,754Long-term
      accrued liabilities
            
            
            406,309
            
            
            
            353,515Deferred
      tax liabilities
            
            
            1,730,185
            
            
            
            1,515,294Long-term
      debt, less current maturities, net of unamortized debt discount of
      $861,000 and $1,186,000 in 2008 and 2007, respectively
            
            
            33,479,461
            
            
            
            41,382,832Total
      liabilities
            
            
            56,224,070
            
            
            
            63,731,395Commitments
      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 15,620,271 shares in 2008 and 2007,
      respectively
            
            
            158,233
            
            
            
            156,203Additional
      paid-in capital
            
            
            11,558,479
            
            
            
            11,116,989Retained
      earnings
            
            
            11,478,782
            
            
            
            1,157,478Accumulated
      other comprehensive loss
            
            
            -
            
            
            
            (11,644
            )Total
      stockholders’ equity
            
            
            23,195,494
            
            
            
            12,419,026Total
      liabilities and stockholders’ equity
            
            $
            79,419,564
            
            
            $
            76,150,421








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




F-4




OVERHILL
FARMS, INC.
 
 STATEMENTS
OF INCOME


For
      the Years EndedSeptember
      28,
              2008
              (52
    weeks)
            
            
            September
      30,
              2007
              (52
    weeks)
            
            
            October
      1,
              2006
              (52
      weeks)Net
      revenues
            
            $
            238,780,014
            
            
            $
            192,641,574
            
            
            $
            168,309,591Cost
      of sales
            
            
            209,516,642
            
            
            
            172,693,668
            
            
            
            146,824,919Gross
      profit
            
            
            29,263,372
            
            
            
            19,947,906
            
            
            
            21,484,672Selling,
      general and administrative expenses
            
            
            8,647,533
            
            
            
            8,047,433
            
            
            
            7,196,309Operating
      income
            
            
            20,615,839
            
            
            
            11,900,473
            
            
            
            14,288,363Interest
      expense:Interest
      expense
            
            
            (3,300,041
            )
            
            
            (3,974,481
            )
            
            
            (5,144,474
            )Amortization
      of debt discount and deferred financing costs
            
            
            (406,016
            )
            
            
            (391,930
            )
            
            
            (275,391
            )Debt
      extinguishment expenses
            
            
            -
            
            
            
            -
            
            
            
            (175,766
            )Total
      Interest Expense
            
            
            (3,706,057
            )
            
            
            (4,366,411
            )
            
            
            (5,595,631
            )Other
      income (expense)
            
            
            42,964
            
            
            
            (22,841
            )
            
            
            (135,047
            )Income
      before income taxes
            
            
            16,952,746
            
            
            
            7,511,221
            
            
            
            8,557,685Income
      taxes
            
            
            6,631,442
            
            
            
            2,948,760
            
            
            
            3,455,700Net
      income
            
            $
            10,321,304
            
            
            $
            4,562,461
            
            
            $
            5,101,985Net
      income per share – basic
            
            $
            0.66
            
            
            $
            0.30
            
            
            $
            0.34Weighted-average
      shares outstanding – basic
            
            
            15,747,434
            
            
            
            15,338,038
            
            
            
            15,204,424Net
      income per share – diluted
            
            $
            0.65
            
            
            $
            0.29
            
            
            $
            0.32Weighted-average
      shares outstanding – diluted
            
            
            15,992,467
            
            
            
            15,803,109
            
            
            
            15,880,507







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


F-5




OVERHILL
FARMS, INC.




STATEMENT
OF STOCKHOLDER'S EQUITY




Preferred
      Stock
            
            
            Common
      Stock
            
            
            AdditionalPaid-In
            
            
            Treasury
      Stock
            
            
            WarrantsTo
      Purchase
              Common
            
            
            Retained
      Earnings (Accumulated
            
            
            Accumulated
      Other ComprehensiveShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Shares
            
            
            Amount
            
            
            Stock
            
            
            Deficit)
            
            
            Loss
            
            
            TotalBalance,
      October 2, 2005
            
            
            24
            
            
            
            -
            
            
            
            14,916,197
            
            
            
            149,162
            
            
            
            9,735,098
            
            
            
            -
            
            
            
            -
            
            
            
            400
            
            
            
            (8,506,968
            )
            
            
            -
            
            
            
            1,377,692Share
      repurchase
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            14,200
            
            
            
            (53,250
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (53,250
            )Cancellation
      of shares
            
            
            -
            
            
            
            -
            
            
            
            (14,200
            )
            
            
            (142
            )
            
            
            (53,108
            )
            
            
            (14,200
            )
            
            
            53,250
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercise
      of stock options
            
            
            -
            
            
            
            -
            
            
            
            82,000
            
            
            
            820
            
            
            
            74,309
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            75,129Warrant
      exercise
            
            
            -
            
            
            
            -
            
            
            
            198
            
            
            
            2
            
            
            
            398
            
            
            
            -
            
            
            
            -
            
            
            
            (400
            )
            
            
            -
            
            
            
            -
            
            
            
            -Preferred
      stock conversion
            
            
            (24
            )
            
            
            -
            
            
            
            283,076
            
            
            
            2,831
            
            
            
            (2,831
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Tax
      deduction from option exercises
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            112,980
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            112,980Receipts
      of marketable securities fornotes
      written-off at spin-off
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            322,699
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            322,699Net
      income (comprehensive income)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,101,985
            
            
            
            -
            
            
            
            5,101,985Balance,
      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
            
            
            
            -
            
            
            
            10,321,304Loss
      on sale of 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
            
            
            $
            -
            
            
            $
            23,195,494








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




F-6


OVERHILL
FARMS, INC.





STATEMENTS
OF CASH FLOWS





For
      the Years EndedSeptember
      28,
              2008
              (52
      weeks)
            
            
            September
      30,
              2007
              (52
      weeks)
            
            
            October
      1,
              2006
              (52
      weeks)Operating
      Activities:Net
      income
            
            $
            10,321,304
            
            
            $
            4,562,461
            
            
            $
            5,101,985Adjustments
      to reconcile net income to netcash
      provided by operating activities:Depreciation
      and amortization
            
            
            3,053,978
            
            
            
            2,415,229
            
            
            
            1,746,469Amortization
      of debt discount and deferredfinancing
      costs
            
            
            406,016
            
            
            
            391,930
            
            
            
            275,390Loss
      on asset disposals
            
            
            66,351
            
            
            
            35,837
            
            
            
            2,424Loss
      on recalled products
            
            
            885,540
            
            
            
            -
            
            
            
            -Recovery
      of doubtful accounts
            
            
            (18,202
            )
            
            
            (59,103
            )
            
            
            -Noncash
      debt extinguishment expenses
            
            
            -
            
            
            
            -
            
            
            
            175,766Deferred
      income tax provision
            
            
            (44,267
            )
            
            
            711,270
            
            
            
            2,789,719Loss
      on sale of marketable securities
            
            
            8,325
            
            
            
            -
            
            
            
            38,886Impairment
      of marketable securities
            
            
            -
            
            
            
            8,329
            
            
            
            90,284Changes
      in:Accounts
      receivable
            
            
            37,989
            
            
            
            (6,112,952
            )
            
            
            (2,267,032
            )Inventories
            
            
            717,742
            
            
            
            (7,128,697
            )
            
            
            (1,534,768
            )Prepaid
      expenses and other
            
            
            (1,160,952
            )
            
            
            828,384
            
            
            
            (86,653
            )Accounts
      payable
            
            
            (3,827,708
            )
            
            
            7,542,131
            
            
            
            1,015,720Accrued
      liabilities
            
            
            219,890
            
            
            
            374,645
            
            
            
            (118,738
            )Net
      cash provided by operating activities
            
            
            10,666,006
            
            
            
            3,569,464
            
            
            
            7,229,452Investing
      Activities:Additions
      to property and equipment
            
            
            (1,359,090
            )
            
            
            (8,123,471
            )
            
            
            (2,337,440
            )Proceeds
      from sale of property and equipment
            
            
            -
            
            
            
            10,238
            
            
            
            -Sale
      of marketable securities
            
            
            53,976
            
            
            
            65,557
            
            
            
            140,967Net
      cash used in investing activities
            
            
            (1,305,114
            )
            
            
            (8,047,676
            )
            
            
            (2,196,473
            )








The
accompanying notes are an integral


part of
these financial statements.




F-7




OVERHILL
FARMS, INC.





STATEMENTS
OF CASH FLOWS (continued)





For
      the Years EndedSeptember
      28,
              2008
              (52
      weeks)
            
            
            September
      30,
              2007
              (52
      weeks)
            
            
            October
      1,
              2006
              (52
      weeks)Financing
      Activities:Principal
      payments on financing arrangements
            
            
            -
            
            
            
            -
            
            
            
            (45,358,000
            )Borrowings
      under financing arrangements
            
            
            -
            
            
            
            -
            
            
            
            44,500,000Borrowings
      under credit facility
            
            
            1,000,000
            
            
            
            13,000,000
            
            
            
            -Borrowings
      under equipment loans
            
            
            -
            
            
            
            692,660
            
            
            
            323,902Principal
      payments on equipment loans
            
            
            (210,695
            )
            
            
            (155,986
            )
            
            
            -Principal
      payments on other debt
            
            
            -
            
            
            
            -
            
            
            
            (44,828
            )Principal
      payments on credit facility
            
            
            (5,000,000
            )
            
            
            (10,360,238
            )
            
            
            (3,500,000
            )Principal
      payments on capital lease obligation
            
            
            (282,009
            )
            
            
            (280,737
            )
            
            
            -Cash
      paid in association with financing arrangements
            
            
            -
            
            
            
            -
            
            
            
            (1,632,223
            )Debt
      discount
            
            
            -
            
            
            
            (132,344
            )
            
            
            -Deferred
      financing costs
            
            
            -
            
            
            
            (1,500
            )
            
            
            -Exercise
      of stock options, including tax benefit
            
            
            443,520
            
            
            
            930,974
            
            
            
            134,858Net
      cash (used in) provided by financing activities
            
            
            (4,049,184
            )
            
            
            3,692,829
            
            
            
            (5,576,291
            )Net
      increase (decrease) in cash
            
            
            5,311,708
            
            
            
            (785,383
            )
            
            
            (543,312
            )Cash
      at beginning of year
            
            
            1,325,868
            
            
            
            2,111,251
            
            
            
            2,654,563Cash
      at end of year
            
            $
            6,637,576
            
            
            $
            1,325,868
            
            
            $
            2,111,251Supplemental
      Schedule of Cash Flow Information:Cash
      paid during the year for:Interest
            
            $
            3,097,552
            
            
            $
            3,974,659
            
            
            $
            5,150,961Income
      taxes
            
            $
            6,869,000
            
            
            $
            2,056,000
            
            
            $
            726,000









The
accompanying notes are an integral


part of
these financial statements.




F-8




OVERHILL
FARMS, INC.





STATEMENTS
OF CASH FLOWS (continued)







Supplemental
Schedule of Noncash Investing and Financing Activities:





On
December 23, 2005, Levine Leichtman Capital Partners II, L.P. received 283,076
shares of the Company’s common stock upon surrender and conversion in full of
the 23.57 shares of Series A Convertible Preferred Stock it then held. In
addition, that investor received 198 shares of the Company’s common stock upon
cashless exercise in full of the two warrants it held to purchase an aggregate
of 200 shares of the Company’s common stock at an exercise price of $0.0000008
per share, for a rounded aggregate exercise price of $0.01.





During
fiscal year 2006, the Company received a total of 523,000 shares of TreeCon
Resources common stock, which served as collateral for two notes receivable and
were tendered by Mr. Rudis, the Company’s President, Chief Executive Officer and
Chairman of the Board and Mr. Shatley, who served as an officer of the former
parent company and formerly served as an officer and director of the
Company.  Such notes were made on September 25, 2001 and were
allocated to Overhill Farms, Inc. in the spin-off transaction on October 29,
2002.





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


OVERHILL
FARMS, INC.




NOTES
TO FINANCIAL STATEMENTS
  September
28, 2008












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 28, 2008, September 30, 2007 and October 1, 2006
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, $392,000 and $451,000 for the fiscal years ended September 28, 2008,
September 30, 2007 and October 1, 2006, 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 28, 2008
and September 30, 2007, 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




Inventory
write-offs were $1.4 million, $553,000 and $602,000 for the years ended
September 28, 2008, September 30, 2007 and October 1, 2006,
respectively.  Approximately $1.0 million was written off as a result
of a government mandated recall of beef produced by the Hallmark/Westland Meat
Packing Co. during the fiscal year ended September 28, 2008.





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 $3.0 million, $2.4 million and $1.7
million for the fiscal years ended September 28, 2008, September 30, 2007 and
October 1, 2006, 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 $1.7
million and $2.7 million of construction in process at September 28, 2008 and
September 30, 2007, 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 other income
(expense).





Licensing
Fee





During
fiscal year 2008, the Company entered into a five-year licensing agreement with
Better Living Brands(TM) Alliance
(“Alliance”) for the exclusive right to produce and sell frozen entrées under
the Eating Right(TM) and O Organics(TM) brands.  The Company agreed to
pay a one-time $1.25 million licensing fee in two installments, of which the
Company paid $1.0 million in May 2008 and will pay the remaining $250,000 in May
2009.  In addition, the Company paid a $125,000 royalty fee prepayment
in May 2008 and the remaining $125,000 royalty prepayment in October
2008.  The agreement is renewable for two five-year
terms.  For fiscal year 2008, amortization expense related to the
licensing fee was $84,000.





Goodwill





Goodwill
is evaluated at least annually for impairment in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
Assets.”  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 28, 2008,
which indicated that goodwill was not impaired.





Stock
Options





In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based
Payment” (“SFAS 123R”), which requires the Company to measure the cost of all
employee stock-based compensation awards based on the grant date fair value of
those awards and to record that cost as compensation expense over the period
during which the employee is required to perform service in exchange for the
award (generally over the vesting period of the award).  Accordingly,
with the adoption of SFAS 123R, any future option awards will have an impact on
the Company’s results of operations.  The Company adopted SFAS 123R on
October 3, 2005 utilizing the modified prospective method.  The
Company’s adoption of SFAS 123R did not impact the Company’s income before
income tax expense, net income and basic and diluted earnings per share since no
options were granted during the fiscal years ended September 28, 2008, September
30, 2007 or October 1, 2006 and all of the Company’s outstanding options were
fully vested at the date of adoption of this standard.  Accordingly,
no compensation expense related to this standard was recorded to
date.





F-11




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.





The
Company classifies customer rebate costs as a reduction in net
revenues.  Customer rebate costs were $43,000, $31,000 and $5,000 for
the fiscal years ended September 28, 2008, September 30, 2007 and October 1,
2006, 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 Interpretation No. 48, "Accounting for
Uncertainty of Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN
48") on October 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). This
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition of tax benefits, classification on the balance sheet, interest and
penalties, accounting in interim periods, disclosure and transition. The total
amount of unrecognized tax benefits as of the date of adoption was not material.
The Company has substantially concluded all U.S. federal income tax matters
for years through fiscal year 2004.  As a result of the implementation
of FIN 48, the Company recorded no increase in the liability for unrecognized
tax benefits and the balance of unrecognized tax benefits was zero at September
28, 2008.





The
Company has adopted the accounting policy that interest recognized in accordance
with Paragraph 15 of FIN 48 and penalty recognized in accordance with Paragraph
16 of FIN 48 are classified as part of income taxes. The total amount of
interest and penalty recognized in the statement of income was zero for the
fiscal year ended September 28, 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 FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value and requires enhanced disclosures about fair value
measurements. SFAS 157 requires companies to disclose the fair value of their
financial instruments according to a fair value hierarchy (i.e., levels 1, 2,
and 3, as defined). Additionally, companies are required to provide enhanced
disclosure regarding instruments in the level 3 category, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities. SFAS 157 will be effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. The Company is currently evaluating the impact adoption may have on its
financial condition or results of operations.





F-12




In
December 2007, the FASB issued SFAS No. 141 (revised 2007)
(“SFAS 141(R)”), “Business Combinations,” which replaces FASB Statement
141. SFAS 141(R) 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. SFAS 141(R) also modifies the
recognition for preacquisition contingencies, such as environmental or legal
issues, restructuring plans and acquired research and development value in
purchase accounting. SFAS 141(R) amends SFAS No. 109, “Accounting
for Income Taxes,” to require 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.
SFAS 141(R) also establishes disclosure requirements which will enable
users to evaluate the nature and financial effects of the business combination.
SFAS 141(R) is effective on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.The Company is currently evaluating the
impact adoption may have on its financial condition or results of operations
relating to potential future acquisitions.





In
December 2007, the FASB issued SFAS No. 160 (“SFAS 160”),
“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. SFAS 160 will be effective
for fiscal years beginning after December 15, 2008.  The Company
is currently evaluating the impact adoption may have on its financial condition
or results of operations.





In May
2008, the FASB issued SFAS No. 162 (“SFAS 162) “The Hierarchy of Generally
Accepted Accounting Principles”.  SFAS 162 is intended to improve financial
reporting by identifying a consistent hierarchy for selecting accounting
principles to be used in preparing financial statements that are prepared in
conformity with generally accepted accounting principles. Unlike Statement on
Auditing Standards No. 69 “The Meaning of Present Fairly in Conformity With
GAAP,” SFAS 162 is directed to the entity rather than the auditor. The statement
is effective in fiscal year 2009, and the Company does not expect its adoption
to impact the Company’s results of operations, financial position or cash
flows.





Reclassifications





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





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




F-13




During
fiscal year 2006, Levine Leichtman Capital Partners II, L.P. (“LLCP”) was a
principal stockholder and secured creditor of the Company.  As
described in Note 5, the Company repaid approximately $44.5 million in existing
debt and related fees expenses of LLCP and its affiliate, Pleasant Street
Investors, LLC (“PSI”) in connection with the termination of Company’s financing
arrangements with them. In addition, as described in Note 10, on December 23,
2005, LLCP resold to 15 institutional investors in a private transaction all of
the 5,771,661 shares of the Company’s common stock that it owned of record as of
that date and the Company made various representations and warranties as a party
to a stock purchase agreement with LLCP and the investors. Also, on December 23,
2005, the Company, LLCP and James Rudis entered into a Third Amendment to the
Amended and Restated Investor Rights Agreement. This agreement was terminated in
connection with the refinancing of the Company’s indebtedness to LLCP and PSI in
May 2006.





In
February 2004, the Company engaged Alexander Auerbach & Co., Inc. (“AAPR”)
to provide the Company with public relations and marketing
services.  AAPR provides public relations, media relations and
communications marketing services to support the Company’s sales
activities.  Alexander Auerbach, who is a director and stockholder of
the Company, is a stockholder, director and officer of AAPR.  The
Company paid to AAPR $41,000, $36,000 and $29,000 for services rendered under
this engagement during fiscal year 2008, 2007 and 2006,
respectively.  These fees totaled more than 5% of AAPR’s gross
revenues for its fiscal years ended January 31, 2008, 2007 and 2006,
respectively.





4.
            INVENTORIES





Inventories
are summarized as follows:





September
      28,
              2008
            
            
            September
      30,
              2007Raw
      ingredients
            
            $
            5,287,858
            
            
            $
            7,394,169Finished
      product
            
            
            9,580,980
            
            
            
            8,316,681Packaging
            
            
            2,425,238
            
            
            
            2,386,193$
            17,294,076
            
            
            $
            18,097,043





5.
            LONG-TERM
      DEBT





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





September
      28, 2008
            
            
            September
      30, 2007Tranche
      A Term Loans payable to GCF
            
            $
            23,989,762
            
            
            $
            25,489,762Tranche B
      Term Loans payable to GCF
            
            
            15,650,000
            
            
            
            15,650,000LIBOR
      revolving loans payable to GCF
            
            
            -
            
            
            
            2,500,000Equipment
      loans
            
            
            649,882
            
            
            
            860,576Capital
      lease
            
            
            279,422
            
            
            
            561,43040,569,066
            
            
            
            45,061,768Less
      current maturities
            
            
            (6,228,881
            )
            
            
            (2,492,702
            )Less
      debt discount
            
            
            (860,724
            )
            
            
            (1,186,234
            )$
            33,479,461
            
            
            $
            41,382,832





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





F-14




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





As of
September 28, 2008, 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 28, 2008, the facility was structured as a
$7.5 million non-amortizing revolving loan, a $26.5 million amortizing Tranche A
Term Loan and a $15.7 million non-amortizing Tranche B Term Loan. The facility
bears interest, adjustable quarterly, at the London Inter Bank Offered Rate
(“LIBOR”) plus the Applicable Margin for LIBOR loans or, at the Company’s option
in the case of the revolving loans, an alternate base rate equal to the greater
of the prime rate and the federal funds effective rate plus 0.50%, plus the
Applicable Margin for Alternate Base Rate Loans, as follows:




Total
      Debt toEBITDA Ratio
              
              Applicable
      Margin for Alternate Base Rate Loans
              
              Applicable
      Margin for LIBOR Loansfor
      Last
                Twelve
              
              
              
              
              
              Tranche
      A
              
              Tranche
      BMonths
              
              Revolving
      Loan
              
              Revolving
      Loan
              
              Term
      Loan
              
              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 28, 2008, the Company’s principal balances on the loans totaled $39.7
million, consisting of $24.0 million in Tranche A Term Loans and $15.7 million
in Tranche B Term Loans.  At September 28, 2008, interest rates on the
Tranche A Term Loans and Tranche B Term Loans were 5.7% and 8.2%,
respectively.  As of June 29, 2008, the Company’s total debt to EBITDA
ratio for the last twelve months was less than 2.00:1.00 and therefore the
Company qualified for the lowest applicable margin for the alternative base rate
and LIBOR loans, which was applicable to the Company’s borrowing beginning in
the fourth quarter of fiscal year 2008.    For the fiscal
year ended September 28, 2008, the Company incurred $3.3 million in interest
expense net of $43,000 in capitalized interest.  Over the term of the
loan, the facility had been reduced by mandatory principal payments on the
Tranche A Term Loan of $4.5 million and voluntary principal payments on the
Tranche B Term Loan of $2.9 million.  As of September 28, 2008, the
Company had $7.5 million available to borrow under the revolving loan, as the
Company had paid down the loan balance to zero during the quarter ended March
30, 2008.





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, $861,000 is recorded as debt discount, net
of accumulated amortization, on the accompanying balance sheet as of September
28, 2008.  The Company recorded a pretax charge of approximately
$176,000 in connection with the termination of the former financing arrangements
in the third quarter of fiscal year 2006.  The Company paid GCF an
additional $132,000 in fees and expenses on March 9, 2007 related to the second
amendment, which was recorded as a debt discount.





F-15




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





Mandatory
prepayments under the facility are required based on excess cash flow, as
defined in the agreement, and upon receipt of proceeds from a disposition or
payment from a casualty or condemnation of the collateralized assets, and
voluntary prepayments under the facility are generally permitted as provided in
the agreement.  For the fiscal year ended September 28, 2008, the
Company is required to make an excess cash prepayment of $3.6 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, 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.  As of September 28, 2008, the remaining balance of the capital
lease was due within 12 months. The assets acquired under this capital lease
have an acquisition cost of $911,647.  As of September 28, 2008 the
net book value of the assets was $562,036.





As of
September 28, 2008, the Company was in compliance with the covenant requirements
of the agreement with GCF.  The Company believes it is probable that
it will remain in compliance with all of those covenant requirements for the
foreseeable future.  However, if the Company fails to achieve certain
revenue, expense and profitability levels, a violation of the financial
covenants under its financing arrangements could result and interest rate
increases and acceleration of maturity of the loans could occur, which could
adversely affect its financial condition, results of operations and cash
flows.





Mandatory
payments on the Company’s long-term debt as of September 28, 2008 were as
follows:





2009
            
            
            6,228,8812010
            
            
            2,869,6782011
            
            
            31,461,9072012
            
            
            8,600Total
      payments (1)
            
            $
            40,569,066




__________

              (1)
      Includes General Electric capital lease of $842,168, as amended,
      commencing on October 2, 2006.








6.
            STOCKHOLDERS'
      EQUITY





On
December 23, 2005, LLCP received 283,076 shares of the Company’s common stock
upon surrender and conversion in full of the 23.57 shares of Series A
Convertible Preferred Stock it then held.





In
addition, LLCP received 198 shares of the Company’s common stock upon cashless
exercise in full of the two warrants it held to purchase an aggregate of 200
shares of the Company’s common stock at an exercise price of $0.0000008 per
share, for a rounded aggregate exercise price of $0.01.





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




Pro forma
information regarding net income and earnings per share is required by SFAS No.
123R, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of SFAS 123R.  No options
were granted in fiscal years 2008, 2007 and 2006.





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





For
      the Fiscal Years EndedSeptember
      28, 2008
            
            
            September
      30, 2007
            
            
            October
      1,2006Weighted-
            
            
            
            
            
            Weighted-
            
            
            
            
            
            Weighted-Average
            
            
            
            
            
            Average
            
            
            
            
            
            AverageExercise
            
            
            
            
            
            Exercise
            
            
            
            
            
            ExerciseOptions
            
            
            Price
            
            
            Options
            
            
            Price
            
            
            Options
            
            
            PriceOutstanding
      at beginningof
      year
            
            
            749,000
            
            
            
            $
            1.56
            
            
            
            
            1,102,000
            
            
            
            $
            1.47
            
            
            
            
            1,184,000
            
            
            
            $
            1.43Granted
            
            
            -
            
            
            
            $
            -
            
            
            
            
            -
            
            
            
            $
            -
            
            
            
            
            -
            
            
            
            $
            -Exercised
            
            
            203,000
            
            
            
            $
            1.45
            
            
            
            
            353,000
            
            
            
            $
            1.26
            
            
            
            
            82,000
            
            
            
            $
            0.92Canceled
            
            
            25,000
            
            
            
            $
            1.63
            
            
            
            
            -
            
            
            
            $
            -
            
            
            
            
            -
            
            
            
            $
            -Outstanding
      at end of year
            
            
            521,000
            
            
            
            $
            1.61
            
            
            
            
            749,000
            
            
            
            $
            1.56
            
            
            
            
            1,102,000
            
            
            
            $
            1.47Exercisable
      at end of year
            
            
            521,000
            
            
            
            $
            1.61
            
            
            
            
            749,000
            
            
            
            $
            1.56
            
            
            
            
            1,102,000
            
            
            
            $
            1.47





Exercise
prices for the 521,000 options outstanding as of September 28, 2008 ranged from
$1.47 to $2.50.  The weighted-average contractual life of those
options is 4.9 years.  The following table summarizes information
about stock options outstanding as of September 28, 2008:





Options
      Outstanding
            
            
            Options
      ExercisableWeighted-Average
      Remaining
            
            
            Weighted
      -Average
            
            
            Aggregate
            
            
            
            
            
            Weighted-
      Average
            
            
            AggregateNumber
            
            
            Contractual
            
            
            Exercise
            
            
            Intrinsic
            
            
            Number
            
            
            Exercise
            
            
            IntrinsicOutstanding
            
            
            Life
            
            
            Price
            
            
            Value(1)
            
            
            Exercisable
            
            
            Price
            
            
            Value(1)$
            2.50
            
            
            
            18,004
            
            
            
            6
            
            
            $
            2.50
            
            
            $
            61,214
            
            
            
            18,004
            
            
            $
            2.50
            
            
            $
            61,214$
            2.00
            
            
            
            18,004
            
            
            
            6
            
            
            $
            2.00
            
            
            $
            70,216
            
            
            
            18,004
            
            
            $
            2.00
            
            
            $
            70,216$
            1.60
            
            
            
            322,000
            
            
            
            4
            
            
            $
            1.60
            
            
            $
            1,384,600
            
            
            
            322,000
            
            
            $
            1.60
            
            
            $
            1,384,600$
            1.50
            
            
            
            18,004
            
            
            
            6
            
            
            $
            1.50
            
            
            $
            79,218
            
            
            
            18,004
            
            
            $
            1.50
            
            
            $
            79,218$
            1.47
            
            
            
            144,988
            
            
            
            6
            
            
            $
            1.47
            
            
            $
            642,297
            
            
            
            144,988
            
            
            $
            1.47
            
            
            $
            642,297$
            1.47
      - $2.50
            
            
            
            521,000
            
            
            
            4.9
            
            
            $
            1.61
            
            
            $
            2,237,545
            
            
            
            521,000
            
            
            $
            1.61
            
            
            $
            2,237,545


___________________


(1)  Based
      on the last reported sale price of the Company’s common stock of $5.90 on
      September 26, 2008 (the last trading day of fiscal year
      2008).





The total
intrinsic value of options exercised during the fiscal year ended September 28,
2008 was $366,275 at the time of exercise.  The total intrinsic value
of options cancelled during the fiscal year ended September 28, 2008 was $65,411
at time of cancellation.


F-17


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
      28,
              2008
            
            
            September
      30,
              2007
            
            
            October
      1,
              2006Basic
      EPS Computation:Numerator:Net
      income
            
            $
            10,321,304
            
            
            $
            4,562,461
            
            
            $
            5,101,985Denominator:Weighted-average
      common shares outstanding
            
            
            15,747,434
            
            
            
            15,338,038
            
            
            
            15,204,424Total
      shares
            
            
            15,747,434
            
            
            
            15,338,038
            
            
            
            15,204,424Basic
      EPS
            
            $
            0.66
            
            
            $
            0.30
            
            
            $
            0.34Diluted
      EPS Computation:Numerator:Net
      income
            
            $
            10,321,304
            
            
            $
            4,562,461
            
            
            $
            5,101,985Denominator:Weighted-average
      common shares outstanding
            
            
            15,747,434
            
            
            
            15,338,038
            
            
            
            15,204,424Incremental
      shares from assumed conversionof
      preferred stock and exercise of stockoption
      and warrants
            
            
            245,033
            
            
            
            465,071
            
            
            
            676,083Total
      shares
            
            
            15,992,467
            
            
            
            15,803,109
            
            
            
            15,880,507Diluted
      EPS
            
            $
            0.65
            
            
            $
            0.29
            
            
            $
            0.32





8.
            ACCRUED
      LIABILITIES





Accrued
liabilities consisted of the following:





September
      28,
            
            
            September
      30,2008
            
            
            2007Compensation
            
            $
            2,403,619
            
            
            $
            2,119,833Taxes
      other than income taxes
            
            
            26,586
            
            
            
            28,155Interest
            
            
            225,451
            
            
            
            22,962Other
            
            
            952,201
            
            
            
            1,164,223$
            3,607,857
            
            
            $
            3,335,173





F-18


9.
            INCOME
      TAXES





Income
tax provision consisted of the following:





For
      the Fiscal Years EndedSeptember
      28,
              2008
            
            
            September
      30,
              2007
            
            
            October
      1,
              2006Current:Federal
            
            $
            5,226,233
            
            
            $
            1,611,133
            
            
            $
            233,823State
            
            
            1,449,476
            
            
            
            626,357
            
            
            
            432,158Total
      current
            
            
            6,675,709
            
            
            
            2,237,490
            
            
            
            665,981Deferred:Federal
            
            
            (100,270
            )
            
            
            672,684
            
            
            
            2,454,692State
            
            
            56,003
            
            
            
            38,586
            
            
            
            335,027Total
      deferred
            
            
            (44,267
            )
            
            
            711,270
            
            
            
            2,789,719Total
      income tax provision
            
            $
            6,631,442
            
            
            $
            2,948,760
            
            
            $
            3,455,700





In fiscal
year 2008, the Company recorded a valuation allowance of approximately $4,000
against a capital loss carryforward that the Company does not anticipate
utilizing.





The total
income tax provision was 39.1%, 39.3% and 40.4% of pretax income for the fiscal
years ended September 28, 2008, September 30, 2007 and October 1, 2006,
respectively.  A reconciliation of income taxes with the amounts
computed at the statutory federal rate follows:





For
      the Fiscal Years EndedSeptember
      28,
              2008
            
            
            September
      30,
              2007
            
            
            October
      1,
              2006Computed
      tax provision at federal statutory rate (35%)
            
            $
            5,933,461
            
            
            $
            2,553,815
            
            
            $
            2,930,873State
      income tax provision,net
      of federal benefit
            
            
            978,085
            
            
            
            438,863
            
            
            
            503,824Permanent
      items
            
            
            (305,915
            )
            
            
            (26,760
            )
            
            
            34,669Valuation
      allowance change
            
            
            3,808
            
            
            
            –
            
            
            
            17,195Other
            
            
            22,003
            
            
            
            (17,158
            )
            
            
            (30,861
            )$
            6,631,442
            
            
            $
            2,948,760
            
            
            $
            3,455,700





F-19


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





September
      28, 2008
            
            
            September
      30, 2007Deferred
              Tax
              Assets
            
            
            Deferred
              Tax
              Liabilities
            
            
            Deferred
              Tax
              Assets
            
            
            Deferred
              Tax
              LiabilitiesCurrent:Inventory
      and accounts receivable
            
            $
            164,584
            
            
            $
            –
            
            
            $
            154,786
            
            
            $
            –Accrued
      liabilities
            
            
            1,255,515
            
            
            
            –
            
            
            
            992,315
            
            
            
            –Prepaid
      expenses
            
            
            –
            
            
            
            (196,858
            )
            
            
            –
            
            
            
            (184,632
            )Other
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (1,705
            )1,420,099
            
            
            
            (196,858
            )
            
            
            1,147,101
            
            
            
            (186,337
            )Noncurrent:Deposits
      and deferrals
            
            $
            166,883
            
            
            $
            –
            
            
            $
            91,465
            
            
            $
            –Depreciation
            
            
            304,356
            
            
            
            –
            
            
            
            251,222
            
            
            
            –Goodwill
            
            
            –
            
            
            
            (2,178,716
            )
            
            
            –
            
            
            
            (1,837,468
            )Valuation
      Allowance
            
            
            (20,964
            )
            
            
            –
            
            
            
            (17,195
            )
            
            
            –Other
            
            
            –
            
            
            
            (1,744
            )
            
            
            –
            
            
            
            (3,318
            )450,275
            
            
            
            (2,180,460
            )
            
            
            325,492
            
            
            
            (1,840,786
            )Total
      deferred taxes net of valuation allowance
            
            $
            1,870,374
            
            
            $
            (2,377,318
            )
            
            $
            1,472,593
            
            
            $
            (2,027,123
            )





As of
September 28, 2008, 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 28, 2008 were as follows:





2009
            
            $
            2,022,3022010
            
            
            1,820,8812011
            
            
            1,250,5512012
            
            
            1,190,2992013
            
            
            1,160,3272014
      and thereafter
            
            
            3,235,563$
            10,679,923





The
Company leases its facilities under operating leases expiring through September
2011, with an option for a five-year extension on the Plant No. 1 operating
facility in Vernon.  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 $406,000
representing the present value of the estimated restoration costs at September
28, 2008.  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.


F-20


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 $2.4 million,
$2.3 million and $2.7 million, for the fiscal years ended September 28, 2008,
September 30, 2007 and October 1, 2006, respectively.





The
Company maintains an employment agreement with its Chief Executive Officer,
James Rudis.  Mr. Rudis’ employment agreement runs through December
31, 2009.  After the initial term, the relationship will be at-will
and may be terminated by the Company at any time or by Mr. Rudis upon at least
60 days’ written notice.  The value of the remaining compensation
obligations under Mr. Rudis’ employment agreement as of September 28, 2008 was
$486,000.





The
Company’s open purchase orders for raw materials and contractual obligations to
purchase raw protein within the next year totals $17.4 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 will be resolved without materially and
adversely affecting the Company’s financial position, results of operations or
cash flows.





During
the first quarter of fiscal year 2008, the Company informed one of its
customers, American Pie, LLC, who distributes products under the name “Claim
Jumper,” that the Company intended to discontinue production for
them.  The decision was based on the Company’s evaluation of the
overall economics of that account.  The customer represented it would
pay price increases for continued manufacturing during a transition period to a
new manufacturer.  After completing production for the customer in
June 2008, the customer withheld payment of approximately $1.9 million for
product produced and shipped pursuant to the customer’s purchase
orders.  The customer has made certain claims, including the claim
that the customer should not have paid the price increases to which it earlier
agreed.  Based on information available at this time, and prior to
discovery in the litigation referenced below, the Company considers the
customer's claims to lack merit.  After several discussions and
subsequent to the closing of the Company’s third fiscal quarter, the customer
made a partial payment of approximately $1.0 million against the outstanding
receivable balance.  However, prior to fiscal year end, the customer
still refused payment of the remaining outstanding receivable balance and the
Company filed a lawsuit against the customer as of September 23, 2008 (Overhill
Farms, Inc. v. American Pie (United States District Court for the Central
District of California, Case No. CV 0806268 R (CTx))).  This action
involves a complaint by the Company against customer American Pie and two of its
officers, William R. Collins and Robert G. Blume (collectively,
“defendants”).  The complaint asserts 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 pursuant
to purchase orders and invoices reflecting price increases effective December 9,
2007 and thereafter.  On November 4, 2008, the defendants filed a
motion to dismiss the Company's third and fourth claims for fraud and unfair
business practices for failure to state a claim.  On December 1, 2008,
the United States District Court denied the defendants’ motion to dismiss the
Company's claims for fraud and unfair business practices.  The
defendants responded to the complaint on December 10, 2008 and also filed a
counterclaim against the Company, which is in the process of being
evaluated.  The Company believes that the net balance due is
collectible.





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.





F-21




Receivables
related to Jenny Craig, Inc., H. J. Heinz Company, Panda Restaurant Group, Inc.
(through its distributors) and Safeway Inc., accounted for approximately 20%,
21%, 16% and 12%, respectively of the Company’s total accounts receivable
balance at September 28, 2008 and approximately 27%, 17%, 26% and 10%,
respectively, of the Company’s total accounts receivable balance at September
30, 2007.


Significant
Customers





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





For
      the Fiscal Years EndedSeptember
      28,
            
            September
      30,
            
            October
      1,2008
            
            2007
            
            2006Jenny
      Craig, Inc.
            24%
            
            26%
            
            28%H.
      J. Heinz Company
            18%
            
            9%
            
            -Panda
      Restaurant Group, Inc.
            16%
            
            27%
            
            35%Safeway
      Inc.
            13%
            
            9%
            
            2%





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 1,048
employees at September 28, 2008.  Approximately 83% of the Company’s
workforce is covered by a three-year collective bargaining agreement renewed
effective March 1, 2008.





Liquidated
Damages





On
December 23, 2005, LLCP resold to 15 institutional investors in a private
transaction all of the 5,771,661 shares of the Company’s common stock that LLCP
owned of record as of that date (“Transferred Shares”). To facilitate LLCP's
sale of the Transferred Shares, the Company made various representations and
warranties as a party to a stock purchase agreement with LLCP and the
investors.  In addition, the Company entered into a registration
rights agreement with the investors that required the Company to register for
resale the Transferred Shares and to maintain the effectiveness of the
registration statement for a maximum of 24 months following the closing date.
The registration statement was declared effective by the Securities and Exchange
Commission on April 13, 2006. If the Company is unable to meet its obligations
under the registration rights agreement to maintain the effectiveness
of the registration statement, the Company will be required to pay to each
investor liquidated damages equal to 1% of the amount paid by the investor for
the Transferred Shares still owned by the investor on the date of the default
and 1% of the amount paid by the investor for the Transferred Shares still owned
by the investor on each monthly anniversary of the date of the default that
occurs prior to the cure of the default.  The registration statement
remained effective through December 23, 2007, the end of the required
effectiveness period.  Accordingly, the Company did not and will not
incur any liquidated damages with respect to its registration
obligations.





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.


F-22


Employees
voluntarily make contributions under both plans.  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 2007 bonus plan
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
2007 bonus plan of $325,000 was made during fiscal year 2008.  The
Company’s 2008 bonus plan 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 2009.




12.
            QUARTERLY
      FINANCIAL DATA (unaudited)





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






For
      the Fiscal Year Ended September 30, 2007December
      31,
              2006
              (13
      weeks)
            
            
            April
      1,
              2007
              (13
      weeks)
            
            
            July
      1,
              2007
              (13
      weeks)
            
            
            September
      30,
              2007
              (13
      weeks)Net
      revenues
            
            $
            40,538,492
            
            
            $
            46,028,425
            
            
            $
            53,079,823
            
            
            $
            52,994,834Gross
      profit
            
            
            5,506,502
            
            
            
            4,210,388
            
            
            
            5,326,133
            
            
            
            4,904,883Operating
      income
            
            
            3,729,285
            
            
            
            2,533,333
            
            
            
            3,004,555
            
            
            
            2,633,300Net
      income
            
            
            1,555,759
            
            
            
            875,043
            
            
            
            1,100,645
            
            
            
            1,031,014Net
      income per share – basic
            
            $
            0.10
            
            
            $
            0.06
            
            
            $
            0.07
            
            
            $
            0.07Net
      income per share – diluted
            
            $
            0.10
            
            
            $
            0.06
            
            
            $
            0.07
            
            
            $
            0.06


_________


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


F-23




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 Accounts2008
            
            $
            (18,000
            )
            
            $
            (2,000
            )
            
            $
            20,000
            
            
            $
            -2007
            
            
            (15,000
            )
            
            
            (12,000
            )
            
            
            9,000
            
            
            
            (18,000
            )2006
            
            
            (196,000
            )
            
            
            -
            
            
            
            181,000
            
            
            
            (15,000
            )Income
      Tax Valuation Allowance2008
            
            $
            (17,000
            )
            
            $
            (4,000
            )
            
            $
            -
            
            
            $
            (21,000
            )2007
            
            
            (17,000
            )
            
            
            -
            
            
            
            -
            
            
            
            (17,000
            )2006
            
            
            -
            
            
            
            (17,000
            )
            
            
            -
            
            
            
            (17,000
            )


__________________


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





F-24





Exhibit
              Number
            Index of Exhibits
      Attached to this Report10.1
            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, California10.8
            Amended
      and Restated 2002 Employee Stock Option Plan of Overhill Farms,
      Inc.10.9
            Amended
      and Restated 2005 Stock Plan of Overhill Farms, Inc.10.18
            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