** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

 

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended November 2, 2007**

 

**Commission file number: 0-2396**

 

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**BRIDGFORD FOODS CORPORATION**

(Exact name of Registrant as specified in itscharter)

 

| **California**           | ** ** | **95-1778176**      |
|--------------------------|------------|---------------------|
| (State of incorporation) |       | (I.R.S. Employer    |
|                     |       | Identification No.) |

 

**1308 North Patt Street**

**Anaheim, California 92801**

(Address of principal executive offices)

 

**(714) 526-5533**

(Registrant’s telephone number, including areacode)

 

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    Securities registered pursuant to Section 12(b) ofthe Act: Common Stock, par value $1.00 per share, the NASDAQ Stock Market LLC.

 

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

 

   Indicate by check mark whether theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o No x

 

   Indicate by check mark whether theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o No x

 

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

 

   Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. x

 

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

 

| Large accelerated filer  o |   | Accelerated filer  o |   | Non-accelerated filer  x |
|------------------------------------------------|--------|-------------------------------------|--------|-----------------------------------------|

 

   Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the Act. Yes o No x

 

   The aggregate market value of voting stockheld by non-affiliates of the registrant on April 20, 2007 was$16,285,000.

 

   Indicate the number of shares outstanding ofeach of the registrant’s classes of common stock, as of the latest practicabledate: 9,867,328 shares as of January 21, 2008.

 

   Portions of the registrant’s ProxyStatement for the registrant’s Annual Meeting of Shareholders to be held March 19,2008 are incorporated by reference into Part III, Items 10-14 of thisAnnual Report on Form 10-K.

 

 

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INDEX TO FORM 10K

 
| ** **                                                                                                                  | Page   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|
| PART I                                                                                                                 | 3      |
| Item 1. Business                                                                                                            | 3      |
| Item 1A. Risk Factors                                                                                                       | 6      |
| Item 1B. Unresolved Staff  Comments                                                                                         | 8      |
| Item 2. Properties                                                                                                          | 9      |
| Item 3. Legal Proceedings                                                                                                   | 9      |
| Item 4. Submission of  Matters to a Vote of Security Holders                                                                | 9      |
|                                                                                                                        |   |
| PART II                                                                                                                | 10     |
| Item 5. Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 10     |
| Item 6. Selected Financial Data                                                                                             | 12     |
| Item 7. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 12     |
| Item 7A.  Quantitative and Qualitative Disclosures about Market Risk                                                        | 19     |
| Item 8.  Consolidated Financial Statements and Supplementary Data                                                           | 20     |
| Item 9. Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 20     |
| Item 9A. Controls  and Procedures                                                                                           | 20     |
| Item 9B. Other  Information                                                                                                 | 22     |
|                                                                                                                        |   |
| PART III                                                                                                               | 22     |
| Item 10.  Directors, Executive Officers and Corporate Governance                                                            | 22     |
| Item 11. Executive  Compensation                                                                                            | 22     |
| Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related  Stockholder Matters                   | 22     |
| Item 13.  Certain Relationships and Related Transactions, and Director Independence                                         | 23     |
| Item 14.  Principal Accountant Fees and Services                                                                            | 23     |
|                                                                                                                        |   |
| PART IV                                                                                                                | 23     |
| Item 15.  Exhibits and Financial Statement Schedules                                                                        | 23     |
| SIGNATURES                                                                                                                  | 25     |

 

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**PART I**

 

**Item 1.****                                   ****Business**

 

*This Annual Report on Form 10-Kcontains certain forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 and the Company intends that such forward-looking statements besubject to the safe harbors created thereby. Readers are cautioned that suchstatements, which may be identified by words including ‘‘anticipates,’’ ‘‘believes,’’‘‘intends,’’ ‘‘estimates,’’ ‘‘expects,’’ and similar expressions, are onlypredictions or estimations and are subject to known and unknown risks anduncertainties. These forward-looking statements include, but are not limitedto, statements regarding the following: general economic and businessconditions; the impact of competitive product and pricing; success of operatinginitiatives; development and operating costs; advertising and promotionalefforts; adverse publicity; acceptance of new product offerings; consumer trialand frequency; changes in business strategy or development plans; availability,terms and deployment of capital; availability of qualified personnel;commodity, labor, and employee benefit costs; changes in, or failure to complywith, government regulations; weather conditions; construction schedules; andother factors referenced in this Report.*

 

*The forward-looking statementsincluded herein are based on current expectations that involve a number ofrisks and uncertainties. These forward-looking statements are based onassumptions regarding the Company’s business, which involve judgments withrespect to, among other things, future economic and competitive conditions, andfuture business decisions, all of which are difficult or impossible to predictaccurately and many of which are beyond the control of the Company. Althoughthe Company believes that the assumptions underlying the forward-lookingstatements are reasonable, actual results may differ materially from those setforth in the forward-looking statements. In light of the significantuncertainties inherent in the forward-looking information included herein, theinclusion of such information should not be regarded as representation by theCompany or any other person that the objectives or plans of the Company will beachieved. The forward-looking statements contained herein speak as of the dateof this Report and the Company undertakes no obligation to update suchstatements after the date hereof.*

 

**Background of Business**

 

Bridgford Foods Corporation, a California corporation(collectively with its subsidiaries, the “Company,” “we,” “our”), was organizedin 1952. The Company originally began its operations in 1932 as a retail meatmarket in San Diego, California, and evolved into a meat wholesaler for hotelsand restaurants, a distributor of frozen food products, a processor and packer ofmeat and a manufacturer and distributor of frozen food products for sale on aretail and wholesale basis. For more than the past five years, the Company andits subsidiaries have been primarily engaged in the manufacturing, marketingand distribution of an extensive line of frozen, refrigerated and snack foodproducts throughout the United States. The Company has not been involved in anybankruptcy, receivership or similar proceedings, nor has it been party to anymerger, acquisition, etc. or acquired or disposed of any material amounts ofassets during the past five years. Substantially all of the assets of theCompany have been acquired in the ordinary course of business. The Company hadno significant change in the type of products produced or distributed, nor inthe markets or methods of distribution since the beginning of the fiscal year.

 

**Description of Business**

 

The Company operates in two business segments -the processing and distribution of frozen products and the processing anddistribution of refrigerated and snack food products.  For information regarding the separatefinancial performance of the business segments refer to Note 7 of the Notes tothe Consolidated Financial Statements included in this Annual Report on Form 10-K.The products manufactured and distributed by the Company consist of anextensive line of food products, including biscuits, bread dough items, rolldough items, dry sausage products, beef jerky and a variety of sandwiches andsliced luncheon meats. The products purchased by the Company for resale includea variety of jerky, cheeses, salads, party dips, Mexican foods, nuts and otherdelicatessen type food products.

 
| ** **                                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Products  manufactured or processed by the Company                 |       | 73       | %          | 71       | %          | 70       | %          |
| Items  manufactured or processed by third parties for distribution |       | 27       | %          | 29       | %          | 30       | %          |
|                                                               |       | 100      | %          | 100      | %          | 100      | %          |

 

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Although the Company has recently introduced severalnew products, most of these products have not contributed significantly to theCompany’s revenue growth for the fiscal year. The Company’s sales are notsubject to material seasonal variations. Historically the Company has been ableto respond quickly to the receipt of orders and, accordingly, the Company doesnot maintain a significant sales backlog. The Company and its industrygenerally have no unusual demands or restrictions on working capital items.During the last fiscal year the Company did not enter into any new markets orany significant contractual or other material relationships.

 

The Company has two classes of similar food products,each of which has accounted for 10% or more of consolidated sales in the priorthree fiscal years listed below. The following table shows sales, as apercentage of consolidated sales, for each of these two classes of similarproducts for each of the last three fiscal years:

 
| ** **                            | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Frozen Food  Products                 |       | 39       | %          | 38       | %          | 36       | %          |
| Refrigerated and  Snack Food Products |       | 61       | %          | 62       | %          | 64       | %          |
|                                  |       | 100      | %          | 100      | %          | 100      | %          |

 

To date, federal, state and local environmental lawsand regulations, including those relating to the discharge of materials intothe environment, have not had a material effect on the Company’s business.

 

**Availability of SEC Filings and Codeof Conduct on Internet Website**

 

The Company maintains anInternet website at http://www.bridgford.com. Available on this website, free of charge, are annual reports on Form 10-Kand quarterly reports on Form 10-Q which the Company files with theSecurities and Exchange Commission.  TheCompany’s Code of Conduct is also available on the website.

 

**Major Product Classes**

 

**Frozen Food Products**

 

The Company’s frozen food division serves both foodservice and retail customers. The Company sells approximately 200 unique frozenfood products through wholesalers, cooperatives and distributors toapproximately 21,000 retail outlets and 22,000 restaurants and institutions.

 

**Frozen Food Products – Food ServiceCustomers**

 

The food service industry is composed ofestablishments that serve food outside the home and includes restaurants, thefood operations of health care providers, schools, hotels, resorts,corporations, and other traditional and non-traditional food service outlets.Growth in this industry has been driven by the increase in away-from-home mealpreparation, which has accompanied the expanding number of both dual income andsingle-parent households. Another trend within the food service industry is thegrowth in the number of non-traditional food service outlets such asconvenience stores, retail stores and supermarkets. These non-traditionallocations often lack extensive cooking, storage or preparation facilities,resulting in a need for pre-cooked and prepared foods similar to those providedby the Company. The expansion in the food service industry has also beenaccompanied by the continued consolidation and growth of broadline andspecialty food service distributors, many of which are long-standing customersof the Company.

 

The Company supplies its food service customersgenerally through distributors that take title to the product and resell it.Among the Company’s customers are many of the country’s largest broadline andspecialty food service distributors. For these and other large end purchasers,the Company’s products occasionally go through extensive qualificationprocedures and its manufacturing capabilities are subjected to thorough reviewby the end purchasers prior to the Company’s approval as a vendor. Large endpurchasers typically select suppliers that can consistently meet increased volumerequirements on a national basis during peak promotional periods. The Companybelieves that its manufacturing flexibility, national presence andlong-standing customer relationships should allow us to compete effectivelywith other manufacturers seeking to provide similar products to the Company’scurrent large food service end purchasers, although no assurances can be given.

 

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**Frozen Food Products – RetailCustomers**

 

The majority of the Company’s existing and targetedretail customers are involved in the resale of branded and private labelpackaged foods. The same trends which have contributed to the increase inaway-from-home meal preparation have also fueled the growth in easy to prepare,microwaveable frozen and refrigerated convenience foods. Among the fastestgrowing segments is the frozen and refrigerated hand-held foods market. Thisgrowth has been driven by improved product quality and variety and theincreasing need for inexpensive and healthy food items that require minimalpreparation. Despite rapid growth, many categories of frozen and refrigeratedhand-held foods have achieved minimal household penetration. The Companybelieves it has been successful in establishing and maintaining supply relationshipswith certain selected leading retailers in this market.

 

**Frozen Food Products – Sales andMarketing**

 

The Company’s frozen food business covers the UnitedStates and Canada. In addition to regional sales managers, the Companymaintains a network of independent food service and retail brokers coveringmost of the states as well as Canada. Brokers are compensated on a commissionbasis. The Company believes that its broker relationships, in close cooperationwith the regional sales managers, are a valuable asset providing significantnew product and customer opportunities. The regional sales managers performseveral significant functions for the Company, including identifying anddeveloping new business opportunities and providing customer service andsupport to the Company’s distributors and end purchasers through the effectiveuse of the Company’s broker network.

 

The Company’s annual advertising expenditures aredirected towards retail and institutional customers. These customersparticipate in various special promotional and marketing programs and directadvertising allowances sponsored by the Company. The Company also invests ingeneral consumer advertising in various newspapers and periodicals. The Companydirects advertising toward food service customers with campaigns in majorindustry publications and through Company participation in trade showsthroughout the United States.

 

**Refrigerated and Snack Food Products –Customers**

 

The Company’s refrigerated and snack food productsdivision sells approximately 260 different items through a direct storedelivery network serving approximately 35,000 supermarkets, mass merchandiseand convenience retail stores located in 49 states and Canada.

 

These customers are comprised of large retail chainsand smaller “independent” operators. This part of the Company’s business ishighly competitive. Proper placement of the Company’s product lines is criticalto selling success since most items could be considered “impulse” items whichare often consumed shortly after purchase. The Company’s ability to sellsuccessfully to this distribution channel depends on aggressive marketing andmaintaining relationships with key buyers.

 

**Refrigerated and Snack Food Products —Sales and Marketing**

 

The Company’s direct store delivery network consistsof two separate divisions, refrigerated and non-refrigerated snack foodproducts. Refrigerated snack food products are distributed through fivedifferent regions located in the southwest, primarily operating in California,Arizona and Nevada. Non-refrigerated snack food products are distributed inseventeen geographic regions across the United States and Canada, each managedby regional sales managers. The regional sales managers perform severalsignificant functions for the Company including identifying and developing newbusiness opportunities and providing customer service and support to theCompany’s customers. The Company also utilizes the services of brokers whereappropriate to support efficient product distribution and customer satisfaction.

 

**Product Planning and Research andDevelopment**

 

The Company continually monitors the consumeracceptance of each product within its extensive product line. Individualproducts are regularly added to and deleted from the Company’s product line.The addition or deletion of any product has not had a material effect on theCompany’s operations in the current fiscal year. The Company believes that akey factor in the success of its products is its system of carefully targetedresearch and testing of its products to ensure high quality and that eachproduct matches an identified market opportunity. The emphasis in new productintroductions in the past several years has been in single service items. TheCompany is constantly searching to develop new products to 

 

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complementits existing product line and improved processing techniques and formulas forits existing product line. The Company utilizes in-house test kitchens toresearch and experiment with unique food preparation methods, improve qualitycontrol and analyze new ingredient mixtures. The Company’s refrigerated andsnack food products segment has continued to refine development of a new majormanufacturing line that was put into service in the fourth quarter of fiscalyear 2007.  The Company does not expectto begin significant production until the second quarter of 2008 on this line.Management believes that the line will be profitable and improve margins onexisting product lines. During 2007, the Company completed development work andpreparations for production of “First Strike” rations for the U.S. military forces.Potential orders for this item are expected to be substantial. Other than“First Strike” rations, the Company does not anticipate any significant changein product-mix as a result of its current research and development efforts.

 

**Competition**

 

The products of the Company are sold under highlycompetitive conditions. All food products can be considered competitive withother food products, but the Company considers its principal competitors toinclude national, regional and local producers and distributors ofrefrigerated, frozen and snack food products. Several of the Company’scompetitors include large companies with substantially greater financial andmarketing resources than those of the Company. Existing competitors may broadentheir product lines and potential competitors may enter or increase their focuson the Company’s market, resulting in greater competition for the Company. TheCompany believes that its products compete favorably with those of the Company’scompetitors. Such competitors’ products compete against those of the Companyfor retail shelf space, institutional distribution and customer preference.

 

**Importance of Key Customers**

 

Sales to Wal-Mart® comprised 14.6% of revenues infiscal year 2007 and 12.4 % of accounts receivable was due from Wal-Mart® at November 2,2007. Sales to Wal-Mart® comprised 15.0% of revenues in fiscal year 2006 and13.3% of accounts receivable was due from Wal-Mart® at November 3,2006.  Sales to Wal-Mart® comprised 13.8%of revenues in fiscal year 2005 and 13.6% of accounts receivable was due fromWal-Mart® at October 28, 2005.

 

**Employees**

 

The Company has approximately 660 employees,approximately 41% of whose employment relationship is governed by collectivebargaining agreements. These agreements currently expire or expired between March 2007and March 2012. A contract with UFCW Meat Cutters Local 324, covering 58employees, expired October 3, 2007. As of January, 2008, a new agreement is currently in the process ofratification. A contract with Teamsters Locals 87, 150, 386 and 431, covering10 employees, expired on March 31, 2007. As of January, 2008, a new agreement is in the process of ratification.  The Company believes that its relationshipwith employees is favorable.

 

**Executive Officers of the Registrant**

 

The names, ages and positions of all the executiveofficers of the Company as of January 1, 2008 are listed below. Messrs. HughWm. Bridgford and Allan L. Bridgford are brothers. William L. Bridgford is theson of Hugh Wm. Bridgford and the nephew of Allan L. Bridgford. Officers arenormally appointed annually by the board of directors at their meetingimmediately following the annual meeting of shareholders. All executiveofficers are full-time employees of the Company, except for Allan L. Bridgford,who works 60% of full-time effective March, 2005.

 
| **Name**             | ** ** | **Age** | ** ** | **Position(s) with the Company**                                                     |
|----------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------------|
| Allan L. Bridgford   |       | 72      |       | Senior Chairman and member of the Executive  Committee                                              |
| Hugh Wm. Bridgford   |       | 76      |       | Vice President and Chairman of the Executive  Committee                                             |
| William L. Bridgford |       | 53      |       | Chairman and member of the Executive Committee                                                      |
| John V. Simmons      |       | 52      |       | President and member of the Executive Committee                                                     |
| Raymond F. Lancy     |       | 54      |       | Chief Financial Officer, Executive Vice President,  Treasurer and member of the Executive Committee |

 

***Item 1A.******                         ******RiskFactors***

 

In addition to the other matters set forth in thisAnnual Report on Form 10-K, the continuing operations and the price of theCompany’s common stock are subject to the following risks, each of which couldmaterially adversely affect the business, financial condition and results ofoperations. The risks described below are not the only risks faced by theCompany.  The 

 

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risksdescribed below are only the risks that the Company currently believes arematerial to its business.  However,additional risks not presently known, or risks that are currently believed tobe immaterial, may also impair business operations.

 

**General Risks of Food Industry**

 

The food industry, and the markets within the foodindustry in which the Company competes, are subject to various risks, includingthe following: adverse changes in general economic conditions, evolvingconsumer preferences, nutritional and health-related concerns, federal, stateand local food inspection and processing controls, consumer product liabilityclaims, risks of product tampering, and the availability and expense ofliability insurance. The meat and poultry industries are subject to scrutinydue to the association of meat and poultry products with recent outbreaks ofillness, and on rare occasions even death, caused by food borne pathogens.Product recalls are sometimes required in the food industries to withdrawcontaminated or mislabeled products from the market.  These and other risks, if realized by theCompany, could have an adverse affect on our operating results and financialposition.

 

**Risks Relating to Suppliers and RawMaterials**

 

The Company purchases large quantities of commoditypork, beef and flour. Historically, market prices for products processed by theCompany have fluctuated in response to a number of factors, including changesin the United States government farm support programs, changes in internationalagricultural and trading policies, weather and other conditions during thegrowing and harvesting seasons.

 

The Company’s operating results are heavily dependentupon the prices paid for raw materials. The marketing of the Company’svalue-added products does not lend itself to instantaneous changes in sellingprices. Changes in selling prices are relatively infrequent and do not comparewith the volatility of commodity markets.  While fluctuations in significant components of our cost structure, suchas commodities and fuel prices, have had a significant impact upon ourprofitability over the last three years, the impact of general price inflationon the Company’s financial position and results of operations has not beensignificant during the last three years. However, future volatility of generalprice inflation and raw material cost and availability could adversely affectthe Company’s financial results.

 

**Risks Relating to GovernmentRegulation**

 

The operations of the Company are subject to extensiveinspection and regulation by the United States Department of Agriculture (the “USDA”),the Food and Drug Administration (the “FDA”) and by other federal, state andlocal authorities, regarding the processing, packaging, storage,transportation, distribution and labeling of products that are manufactured,produced and processed by the Company. The Company’s processing facilities andproducts are subject to continuous inspection by USDA and/or other federal,state and local authorities. On July 25, 1996, the USDA issued strict newpolicies concerning contamination by food borne pathogens such as E. coli,Listeria Monocytogenes and Salmonella, and established a new system ofregulation known as the Hazard Analysis Critical Control Points (“HACCP”)program. The HACCP program requires all meat and poultry processing plants todevelop and implement sanitary operating procedures and other programrequirements on or before January 26, 1998. The Company believes that itis currently in compliance with  governmental laws and regulations (including the January 1998 HACCPrequirements), and that it maintains necessary permits and licenses relating toits meat operations.

 

On October 6, 2003, new USDA regulations regardingthe control of Listeria Monocytogenes in Ready-To-Eat Meat and Poultry Productstook effect. These regulations require environmental and/or finished producttesting for harmful bacteria that may be present. This testing could result inproducts being retained, recalled or destroyed if Listeria Monocytogenes isdetected. The Company is in full compliance with these regulations.

 

A failure to obtain or a loss of necessary permits andlicenses could delay or prevent us from meeting current product demand andcould adversely affect operating performance. Furthermore, the Company is routinely subject to new or modified laws,regulations and accounting standards.  Iffound to be out of compliance with applicable laws and regulations in these orother areas, the Company could be subject to civil remedies, including fines,injunctions, recalls or asset seizures, as well as potential criminalsanctions, any of which could have a significant adverse effect on the Company’sfinancial results.

 

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**Risks Relating to Dependence on KeyManagement**

 

The Company’s executive officers and certain other keyemployees have been primarily responsible for the development and expansion ofthe Company’s business, and the loss of the services of one or more of theseindividuals could have an adverse effect on the Company. The Company’s successwill be dependent in part upon its continued ability to recruit, motivate andretain qualified personnel. There can be no assurance that the Company will besuccessful in this regard. The Company has no employment or non-competitionagreements with key personnel.

 

**Risks Relating to Changes in ConsumerPreference and Economic Conditions**

 

The food industry in general is subject to changingconsumer trends, demands and preferences. Failure to identify and react appropriately to changes in these factorscould lead to, among other things, reduced demand and price reduction for theCompany’s products and could have an adverse effect on financial results.  Furthermore, the Company may be adverselyaffected by changes in domestic or foreign economic conditions, includinginflation, interest rates, availability of capital markets, consumer spendingrates, and energy availability and costs (including fuel surcharges).  Any such changes could have a significantadverse effect on demand for our products, as well as the costs andavailability of raw materials, ingredients and packaging materials, therebynegatively affecting financial results.

 

**Risks Relating to Loss of MajorCustomers**

 

The Company could suffersignificant reductions in revenues and operating income if we lost one or moreof our largest customers, including, for example, Wal-Mart Stores, Inc.,which accounted for 14.6% of revenues in fiscal year 2007.  Many of our customers, such as supermarkets,warehouse clubs and food distributors, have consolidated in recent years.  Such consolidation has produced large,sophisticated customers with increased buying power who are more capable ofoperating with reduced inventories while demanding lower pricing and increasedpromotional programs. These customers also may use their shelf space for theirown private label products.  Failure torespond to these trends could reduce our volume and cause us to lower prices orincrease promotional spending for our product lines which could adverselyaffect our profitability.

 

**Members of the Bridgford Family Can ExerciseSignificant Control**

 

Members of the Bridgford family beneficially own, inthe aggregate, approximately 77% of the outstanding stock of the Company. Inaddition, three members of the Bridgford family serve on the Board ofDirectors.  As a result, members of theBridgford family have the ability to exert substantial influence or actualcontrol over our management and affairs and over substantially all mattersrequiring action by our shareholders, including amendments to by-laws, electionand removal of directors, any proposed merger, consolidation or sale of all orsubstantially all of our assets and other corporate transactions.  This concentration of ownership may alsodelay or prevent a change in control otherwise favored by our othershareholders and could depress the Company’s stock price. Additionally, as aresult of the Bridgford family’s significant ownership of the outstandingvoting stock, we have relied on the “controlled company” exemption from certaincorporate governance requirements of the NASDAQ stock market; therefore, wehave elected not to implement the rule that provides for a nominating committeeto identify and recommend nominees to the Board of Directors.  Pursuant to these exemptions, ourcompensation committee, which is made up of independent directors, does nothave sole authority to determine the compensation of our executive officers,including our Chairman.

 

***Item 1B.******                         ******UnresolvedStaff Comments***

 

Not applicable.

 

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***Item 2.******                                  ******Properties***

 

TheCompany owns the following facilities:

 
| **Property Location**     | ** ** | **Building   Square   Footage** | ** ** | **Acreage** | ** ** |
|--------------------------------|------------|-------------------------------------------|------------|-------------|------------|
| Anaheim,  California ***       |       | 100,000                                   |       | 5.0         |       |
| Modesto,  California **        |       | 0                                         |       | 0.3         |       |
| Dallas, Texas *                |       | 94,000                                    |       | 4.0         |       |
| Dallas, Texas *                |       | 30,000                                    |       | 2.0         |       |
| Dallas, Texas *                |       | 16,000                                    |       | 1.0         |       |
| Dallas, Texas *                |       | 3,200                                     |       | 1.5         |       |
| Statesville,  North Carolina * |       | 42,000                                    |       | 8.0         |       |
| Chicago,  Illinois **          |       | 156,000                                   |       | 1.5         |       |

 

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 *   - property used by Frozen Food ProductsSegment

 

 **  - property used by Refrigerated and SnackFood Segment

 

 ***- propertyused by both Frozen Food Products Segment and Refrigerated and Snack FoodSegment

 

The foregoing plants are, in general, fully utilizedby the Company for processing, warehousing, distributing and administrativepurposes. The Company also leases warehouse and/or office facilities throughoutthe United States and Canada. The Company believes that its properties aregenerally adequate to satisfy its foreseeable needs. Additional properties maybe acquired and/or plants expanded if favorable opportunities and conditionsarise.

 

***Item 3.******                                  ******LegalProceedings***

 

No material legal proceedings were pending against theCompany at November 2, 2007 or as of the date of filing of this AnnualReport on Form 10-K. The Company is likely to be subject to claims arisingfrom time to time in the ordinary course of its business. In certain of suchactions, plaintiffs may request punitive or other damages that may not becovered by insurance and, accordingly, no assurance can be given with respectto the ultimate outcome of any such possible future claims or litigation ortheir effect on the Company. The outcome of litigation cannot be predicted withcertainty and adverse litigation trends and outcomes could significantly andadversely affect the financial results of the Company.

 

***Item 4.******                                  ******Submissionof Matters to a Vote of Security Holders***

 

**Annual Meeting of Shareholders**

 

The 2008 annual meeting of shareholders will be heldat the Four Points Sheraton, 1500 South Raymond Avenue, Fullerton, Californiaat 10:00 a.m. on Wednesday, March 19, 2008.

 

No matters were submitted by the Company’sshareholders during the fourth quarter of the fiscal year ended November 2,2007.

 

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**PART II**

 

***Item 5.   Market for Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities***

 

Set forth below is a linegraph comparing the cumulative stockholder return on the Company’s common stockwith the cumulative total return of the Standard & Poor’s 500 StockIndex and an industry peer group identified by the Company (the “Peer GroupIndex”). The Peer Group Index consists of Bob Evans Farms, Inc.; Cagle’s, Inc.;Hormel Foods Corporation; Pilgrims Pride Corporation; Sanderson Farms Inc.;Seaboard Corp.; Tyson Foods, Inc.; and United Heritage Corporation. ThePeer Group Index return consists of the weighted returns of each componentissuer according to such issuer’s respective stock market capitalization at thebeginning of each period for which a return is indicated. The performance shownis not necessarily an indicator of future price performance.

 

 

Notwithstandinganything to the contrary set forth in the Company’s previous filings under theSecurities Act of 1933, as amended, or the Securities Exchange Act of 1934, asamended, that might incorporate future filings, including this Annual Report onForm 10-K, in whole or in part, the Stock Performance Graph shall not beincorporated by reference into any such filings.

 

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**Common Stock and Dividend Data**

 

The common stock of the Company is traded in thenational over-the-counter market and is authorized for quotation on the NasdaqGlobal Market under the symbol “BRID”. The following table reflects the highand low closing prices and cash dividends paid as quoted by Nasdaq for each ofthe last eight fiscal quarters.

 
| Fiscal Year 2007 | ** ** | **High** | ** ** | **Low** | ** ** | **Cash   Dividends   Paid** | ** ** |
|----------------------------|------------|----------|------------|---------|------------|---------------------------------------|------------|
| First Quarter              |       | $        | 8.08       |    | $          | 6.01                                  |       | $ | 0.00 |   |
| Second Quarter             |       | $        | 7.95       |    | $          | 7.02                                  |       | $ | 0.00 |   |
| Third Quarter              |       | $        | 7.70       |    | $          | 7.23                                  |       | $ | 0.00 |   |
| Fourth Quarter             |       | $        | 7.83       |    | $          | 6.45                                  |       | $ | 0.00 |   |

 
| **Fiscal Year 2006** | ** ** | **High** | ** ** | **Low** | ** ** | **Cash   Dividends   Paid** | ** ** |
|--------------------------------|------------|----------|------------|---------|------------|---------------------------------------|------------|
| First Quarter                  |       | $        | 7.90       |    | $          | 6.50                                  |       | $ | 0.00 |   |
| Second Quarter                 |       | $        | 6.50       |    | $          | 5.80                                  |       | $ | 0.00 |   |
| Third Quarter                  |       | $        | 6.80       |    | $          | 5.99                                  |       | $ | 0.00 |   |
| Fourth Quarter                 |       | $        | 6.40       |    | $          | 5.57                                  |       | $ | 0.00 |   |

 

On January 24, 2008,the closing sale price for the Company’s common stock on the Nasdaq GlobalMarket was $6.93 per share. As of January 24, 2008, there were 333stockholders of record of the Company’s common stock.

 

The payment of any future dividends will be at thediscretion of the Company’s Board of Directors and will depend upon futureearnings, financial requirements and other factors.

 

**Unregistered Sales of Equity Securities**

 

During the period coveredby this Report the Company did not sell or issue any equity securities thatwere not registered under the Securities Act of 1933, as amended.

 

**Repurchases of Equity Securities by the Issuer**

 

During fiscal year 2007, the Company repurchased anaggregate of 69,000 shares of its common stock for $515,000 pursuant to itsrepurchase plan previously authorized by the Board of Directors.   The following table provides informationregarding the Company’s repurchases of its common stock in each of the fourperiods comprising the fourth quarter of fiscal year 2007.

 
| ** **                                                           | ** ** | **Total Number of** | ** ** | **Average Price Paid ** | ** ** | **Total Number of   Shares Purchased as  Part of Publicly   Announced Plans or** | ** ** | **Maximum Number of   Shares that May Yet   Be Purchased Under   the Plans or Programs** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Period (1)**                                                  | ** ** | **Shares Purchased**     | ** ** | **Per Share**                     | ** ** | **Programs (2)**                                                                                                              | ** ** | **(2)**                                                                                                                                                   | ** ** |
| July 14,  2007 — August 10, 2007 (4 weeks)       |       | 5,568                         |       | $                                      | 7.65       |                                                                                                                               | 5,568      |                                                                                                                                                      | 535,417    |   |
| August 11,  2007 — September 7, 2007   (4 weeks)      |       | 3,373                         |       | $                                      | 7.52       |                                                                                                                               | 3,373      |                                                                                                                                                      | 532,044    |   |
| September 8,  2007 — October   5, 2007 (4 weeks) |       | 4,703                         |       | $                                      | 7.35       |                                                                                                                               | 4,703      |                                                                                                                                                      | 527,341    |   |
| October 6,  2007 — November   2, 2007 (4 weeks)  |       | 8,583                         |       | $                                      | 6.94       |                                                                                                                               | 8,583      |                                                                                                                                                      | 518,758    |   |
| Total                                                                |       | 22,227                        |       | $                                      | 7.29       |                                                                                                                               | 22,227     |                                                                                                                                                      |       |   |

 

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(1)                                  The periodsshown are the Company’s fiscal periods during the sixteen-week quarter ending November 2,2007.

 

11

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(2)                                  All repurchasesreflected in the foregoing table were made on the open market.  The Company’s stock repurchase program wasapproved by the Board of Directors in November 1999 (1,500,000 sharesauthorized, disclosed in a Form 10-K filed on January 26, 2000) andwas expanded in June 2005 (500,000 additional shares authorized, disclosedin a press release and Form 8-K filed on June 17, 2005).  Under the stock repurchase program, theCompany is authorized, at the discretion of management and the Board ofDirectors, to purchase up to an aggregate of 2,000,000 shares of the Company’scommon stock on the open market.  TheCompany’s Stock Purchase Plan (“Purchase Plan”) is administered by CitigroupGlobal Markets Inc. (“CGM”) for purchase of shares of common stock (“Stock”)issued by the Company in compliance with the requirements of Rule 10b5-1under the Securities Exchange Act of 1934 (“Exchange Act”). Commencing on September 16,2007 and continuing through and including September 15, 2008, CGM shallact as the Company’s exclusive agent to purchase Stock under the PurchasePlan.   This Purchase Plan supplementsany purchases of stock by the Company “outside” of the Purchase Plan, which mayoccur from time to time, in open market transactions pursuant to Rule 10b-18of the Exchange Act. The daily purchase quantity is defined as a number ofshares up to, but not to exceed, each day’s applicable Rule 10b-18 maximumvolume limit (i.e. 25% of the prior four calendar weeks’ average daily tradingvolume); however, once per week a block of stock may be purchased that exceedsthe Rule 10b-18  average dailytrading volume condition, provided that no other Purchase Plan purchases aremade on any day on which such a block is purchased.  As of November 2, 2007, the totalmaximum number of shares that may be purchased under the Purchase Plan is518,758 at a total maximum aggregate price (exclusive of commission) of$5,187,580.

 

***Item 6.******                                  ******SelectedFinancial Data***

 

         The following selected consolidatedfinancial data as of and for the last five fiscal years have been derived fromthe Company’s audited consolidated financial statements.  The data set forth below should be read inconjunction with “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and the Company’s Consolidated Financial Statementsand the Notes thereto included elsewhere in this Annual Report on Form 10-K.

 
| ** **                          | ** ** | **Nov. 2,   2007** | ** ** | **Nov. 3,   2006 *** | ** ** | **Oct. 28,   2005** | ** ** | **Oct. 29,   2004** | ** ** | **Oct. 31,   2003** | ** ** |
|-------------------------------------|------------|------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| Net Sales                           |       | $                            | 125,091    |                                | $          | 134,264                       |       | $                             | 130,845    |                          | $          | 137,865 |   | $ | 136,251 |   |
| Gross Margin  Percent               |       | 35.1                         | %          | 36.6                                | %          | 34.7                          | %          | 34.5                          | %          | 36.7                          | %          |
| Net Income  (Loss)                  |       | (292                         | )          | 1,240                               |       | (943                          | )          | 24                            |       | 1,210                         |       |
| Basic Earnings  (Loss) Per Share    |       | (0.03                        | )          | 0.13                                |       | (0.09                         | )          | —                        |       | 0.12                          |       |
| Current Assets                      |       | 41,355                       |       | 45,913                              |       | 43,738                        |       | 44,401                        |       | 45,686                        |       |
| Current  Liabilities                |       | 11,902                       |       | 14,231                              |       | 11,841                        |       | 12,665                        |       | 12,489                        |       |
| Working Capital                     |       | 29,453                       |       | 31,682                              |       | 31,897                        |       | 31,736                        |       | 33,197                        |       |
| Property, Plant  and Equipment, Net |       | 11,221                       |       | 13,041                              |       | 14,519                        |       | 16,755                        |       | 17,735                        |       |
| Total Assets                        |       | 67,647                       |       | 72,931                              |       | 72,963                        |       | 74,942                        |       | 75,927                        |       |
| Shareholders’  Equity          |       | 49,969                       |       | 50,186                              |       | 48,262                        |       | 48,664                        |       | 52,333                        |       |
| Cash Dividends  Per Share           |       | $                            | 0.00       |                                | $          | 0.00                          |       | $                             | 0.00       |                          | $          | 0.05 |   | $ | 0.16 |   |

 

(Inthousands, except percent and per share amounts)

----

 

* - 53weeks.

 

***Item 7.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations***

 

Certain statements under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and elsewhere inthis report constitute “forward-looking statements” within the meaning of theSecurities Act of 1933 and the Securities Exchange Act of 1934. Suchforward-looking statements involve known and unknown risks, uncertainties, andother factors which may cause the actual results, performance or achievementsof Bridgford Foods Corporation to be materially different from any futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such factors include, among others, the following:general economic and business conditions; the impact of competitive productsand pricing; success of operating initiatives; development and operating costs;advertising and promotional efforts; adverse publicity; acceptance of newproduct offerings; consumer trial and frequency; changes in business strategyor development plans; availability, terms and deployment of capital;availability of qualified personnel; commodity, labor, and employee benefitcosts; changes in, or failure to comply with, government regulations; weatherconditions; construction schedules; and other factors referenced in thisReport.

 

12

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**Resultsof Operations (in thousands except percentages)**

 

***Fiscal Year Ended November 2, 2007 (52weeks) Compared to Fiscal Year Ended November 3, 2006 (53 weeks)***

 

**Net Sales-Consolidated**

 

Net sales in fiscal 2007 decreased $9,173 (6.8%) whencompared to the prior year. After considering the additional week in fiscal2006, a 53 week year, sales decreased $6,640 (5.0%) compared to the prioryear.  The primary reason for thedecrease was lower unit volume (8.3%). Increased selling prices (1.9%)partially offset the unit volume decline. Promotional allowances as a percentage of consolidated sales increased1.1% which also contributed to the net sales decrease.

 

**Net Sales-Frozen Food Products Segment**

 

Netsales in the Frozen Food Products segment decreased $1,405 (2.8%) compared tothe prior year. After considering the additional week in fiscal 2006, salesdecreased $446 (0.9%). Unit volume decreases of 5.4% were partially offset byunit price increases of 4.5%. Promotional allowances were higher compared tothe prior year which also contributed to the slight net sales decline.

 

**Net Sales-Refrigerated and Snack Food Segment**

 

Netsales in the Refrigerated and Snack Food Products segment decreased $7,768(9.3%) compared to the prior year. After considering the additional week infiscal 2006, sales decreased $6,194 (7.6%). Unit volume decreased 9.3% infiscal 2007.  The impact of price increaseswas negligible.  Promotional allowanceswere higher compared to the prior year which also contributed to the salesdecline.

 

**Cost of Products Sold-Consolidated**

 

Costof products sold decreased $4,007 (4.7%) compared to the prior year primarilydue to lower unit sales volumes.

 

**Cost of Products Sold–Frozen Food Products Segment**

 

Costof products sold in the Frozen Food Products segment increased $146 (0.5%)compared to the prior year.  Higher flourcommodity costs in fiscal 2007 were the primary contributing factor causingthis increase.

 

**Cost of Products Sold–Refrigerated and Snack Food Segment**

 

Costof products sold in the Refrigerated and Snack Food Products segment decreased$4,605 (8.0%) compared to the prior year. Lower unit volumes partially offsetby higher meat commodity costs in fiscal 2007 were the primary factors causingthis change.

 

**Gross Margin-Consolidated**

 

Thegross margin before depreciation decreased from 36.6% to 35.1%, in fiscal 2007,primarily due to higher flour and meat commodity costs when compared to theprior fiscal year.  Higher promotionalallowances also reduced net selling prices contributing to the gross margindecline.

 

**Gross Margin–Frozen Food Products Segment**

 

Thegross margin before depreciation decreased from 40.9% to 38.9%, in fiscal 2007,primarily due to higher flour commodity costs when compared to the prior fiscalyear.  Higher promotional allowances alsoreduced net selling prices contributing to the gross margin decline. Increasedselling prices were insufficient to overcome increased commodity costs.

 

**Gross Margin–Refrigerated and Snack Food Segment**

 

Thegross margin before depreciation decreased from 31.2% to 30.3%, in fiscal 2007,primarily due to higher meat commodity costs and lower unit volumes whencompared to the prior fiscal year. The impact of price increases wasnegligible.  Promotional allowances werehigher compared to the prior year which also contributed to the slight grossmargin decline.

 

13

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**Selling, General and AdministrativeExpenses-Consolidated**

 

Selling, general and administrative expenses decreased$2,714 (6.2%) when compared to the prior year. After considering the additionalweek in fiscal 2006, average weekly expenses were lower compared to the prioryear. Within this category costs for advertising and outsourced computernetwork security and support outpaced sales growth.  Offsetting these increases were loweremployee benefit expenses (pension, healthcare, workers’ compensation andvacation pay), increased gains on life insurance policies and reduced staffcosts related to computer network outsourcing.

 

**Selling, General and Administrative Expenses-Frozen FoodProducts Segment**

 

Selling, general andadministrative expenses in the Frozen Food Products segment increased by $382(2.7%) compared to the prior year. Higher advertising costs were partially offset by lower employee benefitexpenses when compared to the prior year.

 

**Selling, General and Administrative Expenses-Refrigerated andSnack Food Segment**

 

Selling, general andadministrative expenses in the Refrigerated and Snack Food Segment decreased$3,095 (10.4%) compared to the prior year. This decrease was primarily caused by lower unit sales volume. Loweremployee benefit expenses outpaced the impact of the sales decline.

 

**Depreciation Expense-Consolidated**

 

Depreciationexpense decreased by $388 (10.3%) compared to the prior year.  The decrease in depreciation expense reflectslower capital expenditure levels in recent years and certain significant assetsbecoming fully depreciated in the 2007 fiscal year. Offsetting these decreaseswas the addition of a new major manufacturing line put into service in the lastquarter of the 2007 fiscal year.

 

**Depreciation Expense-Frozen Food Products Segment**

 

Depreciationexpense in the Frozen Food Products segment decreased by $390 (27.9%) comparedto the prior year. The decrease in depreciation expense reflects lower capitalexpenditure levels in recent years and certain significant assets becomingfully depreciated in the 2007 fiscal year.

 

**Depreciation Expense- Refrigerated and Snack Food Segment**

 

Depreciationexpense in the Refrigerated and Snack Food Segment was essentially equal ascompared to the prior year. Recent lower capital expenditure levels wereoff-set by the addition of a new major manufacturing line put into service inthe last quarter of the 2007 fiscal year.

 

**Gain on Sale of Equity Securities**

 

The Company did not engage in the sale of equitysecurities during fiscal year 2007 and recorded a pre-tax gain of $106 infiscal 2006.

 

**Income Taxes**

 

The effective income tax rate was (56.6)% and 17.2% infiscal years 2007 and 2006, respectively. In fiscal year 2007, the effectiveincome tax rate differed from the applicable mixed statutory rate ofapproximately 38% primarily due to the Company’s current year claim forresearch and development tax credits and non-taxable life insurance.  In fiscal year 2006, the effective income taxrate differed from the applicable mixed statutory rate of approximately 38%primarily due to the Company’s current year claim for research and developmenttax credits related to prior year activities.

 

***Fiscal Year Ended November 3, 2006 (53weeks) Compared to Fiscal Year Ended October 28, 2005 (52 weeks)***

 

**Net Sales - Consolidated**

 

Sales in fiscal 2006 increased $3,419 (2.6%) whencompared to the prior year. After considering the additional week in 2006, a 53week year, sales were essentially flat compared to the prior year. Sales in theCompany’s frozen food segment 

 

14

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increased$3,638 (7.7%), as a result of increased average unit selling prices and higherunit volume primarily due to the introduction of a successful new product.Promotional spending as a percentage of sales increased to 8.4% compared to8.0% in the prior year partially offsetting the sales increase in the frozenfood division. Sales in the Company’s refrigerated and snack food productssegment decreased $219 (0.3%) primarily as result of lower unit salesvolume.  Higher unit selling priceshelped mitigate the decrease.

 

**Gross Margin - Consolidated**

 

The gross margin increased to 36.6% compared to theprior year at 34.7%. This improvement resulted from higher unit selling pricesand lower commodity costs. Meat ingredient costs declined significantly in thefiscal year helping to increase the gross margin.  Flour commodities increased significantly in2006 partially offsetting the meat commodity cost declines. When combining alldivisions, net-selling prices increased approximately 5.4% on a unit volume declineof approximately 2.6 % compared to the prior fiscal year.

 

**Selling, General and Administrative - Consolidated**

 

Selling, general and administrative expenses increased$464 (1.1%) when compared to the prior year. After considering the additionalweek in 2006, a 53 week year, average weekly expenses were slightly lower ascompared to the prior year. Within this category costs for fuel, vehiclerepairs, consulting and travel expenses outpaced sales growth.  Offsetting these increases were higherinterest income on investments and lower pension, advertising and telephoneexpenses.

 

**Gain on Sale of Equity Securities**

 

The Company sold 5,028 shares of stock received as aresult of the bankruptcy of a significant customer on February 22, 2006.  This transaction resulted in a pre-tax gainof $106.

 

**Income Taxes**

 

The effective income tax rate was 17.2% and (58.2)% infiscal years 2006 and 2005, respectively. In fiscal year 2006, the effective income tax rate differed from theapplicable mixed statutory rate of approximately 38.0% primarily due to theCompany’s current year claim for research and development tax credits relatedto prior year activities.  In fiscal year2005, the effective income tax rate differed from the applicable mixedstatutory rate of approximately 38.0% primarily due to a reduction in recordedincome tax reserves.

 

***FiscalYear Ended October 28, 2005 Compared to Fiscal Year Ended October 29, 2004***

 

**Net Sales – Consolidated**

 

Sales in fiscal 2005 decreased $7,020 (5.1%) whencompared to the prior year. Sales in the Company’s frozen food segmentincreased 6.6%, as a result of increased average unit selling prices offset byslightly lower unit volume. Promotional spending as a percentage of salesdecreased to 8.0% compared to 8.6% in the prior year contributing to the salesincrease in the frozen food division. Sales in the Company’s refrigerated andsnack food products segment decreased 10.1% primarily as result of lower unitsales volume.

 

**Gross Margin - Consolidated**

 

The gross margin increased to 34.7% compared the prioryear at 34.5%. Continued high meat ingredient costs were offset by higher unitselling prices resulting in a consistent gross margin percentage. Whencombining all divisions, net selling prices increased approximately 4.8% on aunit volume decline of approximately 12.7 % compared to the prior fiscal year.

 

15

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**Selling, General and Administrative -Consolidated**

 

Selling, general and administrative expenses decreased$335 (0.8%) when compared to the prior year. Costs for marketing programs,product display racks and fuel increased significantly.  Offsetting these increases were a significantreduction in the provision for doubtful accounts receivable, gains related toincreased cash surrender values on life insurance policies and higherinvestment income.  Cost control programsinstituted by management also helped control this expense category.

 

**Income Taxes**

 

The effective income tax rate was 58.2%.  The increase in effective rate relates to thereduction of tax reserves in the current fiscal year and significantnon-taxable gains on life insurance policies. The Company released a portion of tax reserves for state tax estimatesduring fiscal 2005 as the amount is no longer probable or reasonably estimatedin accordance with Statement of Financial Accounting Standards (SFAS) No. 5,“Accounting for Contingencies”.  TheCompany provides tax reserves for federal, state, local and internationalexposures relating to audit results, tax planning initiatives and complianceresponsibilities.  The development ofthese reserves requires judgments about tax issues, potential outcomes andtiming, and is a subjective estimate. Although the outcome of these tax audits is uncertain, in management’sopinion adequate provisions for income taxes have been made for potentialliabilities emanating from these reviews. Actual outcomes may differ materially from these estimates.

 

**Liquidity and Capital Resources (in thousands except shareamounts)**

 

The Company’s need for operations growth, capitalexpenses and share repurchases are expected to be met with cash flows providedby operating activities.

 

**Cashflows from operating activities:**

 
| ** **                                                                                | ** ** | **2007**   | ** ** | **2006**               | ** ** | **2005**               | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                | ** ** | ** ** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** |
|                                                                                      |       |       |       |                   |       |                   |       |   |   |   |
| Net income  (loss)                                                                        |       | $          | (292       | )                      | $          | 1,240                  |       | $ | (943 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |       |       |                   |       |                   |       |
| Depreciation                                                                              |       | 3,389      |       | 3,777                  |       | 4,251                  |       |
| (Recovery) on  losses on accounts receivable                                              |       | (245       | )          | (277                   | )          | (578                   | )          |
| (Gain) on sale  of property, plant and equipment                                          |       | (8         | )          | (31                    | )          | (11                    | )          |
| (Gain) on sale  of equity securities                                                      |       | —     |       | (106                   | )          | —                 |       |
| Deferred income  taxes, net                                                               |       | (523       | )          | 1,111                  |       | (571                   | )          |
| Changes in  working capital                                                               |       | 9,911      |       | (8,540                 | )          | (2,133                 | )          |
| Net cash (used)  provided by operating activities                                         |       | $          | 12,232     |                   | $          | (2,826                 | )          | $ | 15 |   |

 

Over the past three years, cash provided by operating activities wasapproximately $9,421, which enabled the Company to fund additions to property,plant and equipment in the amount of $5,227 and share repurchases of $830.

 

Significant changes in working capital are as follows:

 

2007 – Operating cash flows increased due to the sale of trading securitiesand reductions in accounts receivable and inventories offset by increases inprepaid expenses and other non-current assets. Significant reductions inaccounts payable, accrued payroll, advertising and other expenses and thecurrent and non-current portion of long-term liabilities offset cash flowincreases during 2007.  During the yearthe Company funded $3,290 toward its defined benefit pension plan.

 

2006- Operating cash flows decreased due to the purchase of tradingsecurities, increases in other non-current assets and decreases in non-currentliabilities. Significant inventory reductions offset these cash flow decreases.During the year the Company funded $2,557 toward its defined benefit pensionplan.

 

16

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2005- Operating cash flows increased slightly.  Significant reductions in accounts receivableand inventories were offset by the purchase of trading securities. During theyear the Company funded $991 toward its defined benefit pension plan.

 

**Cash used in investing activities:**

 
| ** **                                           | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Proceeds from  sale of property, plant and equipment |       | $        | 26         |     | $          | 62       |       | $ | 28 |   |
| Proceeds from  sale of equity securities             |       | —   |       | 606      |       | —   |       |
| Additions to  property, plant and equipment          |       | (1,587   | )          | (2,330   | )          | (2,032   | )          |
| Net cash used in  investing activities               |       | $        | (1,561     | )        | $          | (1,662   | )          | $ | (2,004 | ) |

 

Expenditures for property, plant and equipment includethe acquisition of new equipment, upgrading of facilities to maintain operatingefficiency and investments in cost effective technologies to lower costs.Overall capital spending has declined in recent years as the Company carefullyscrutinizes capital investments for short term pay-back of investment. A newmajor manufacturing line in the amount of $1,914 was put into service in thelast quarter of fiscal year 2007.

 

**Cash usedin financing activities:**

 
| ** **                             | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Shares  repurchased                    |       | $        | (515       | )        | $          | (187     | )          | $ | (128 | ) |
| Cash dividends  paid                   |       | —   |       | —   |       | —   |       |
| Net cash used in  financing activities |       | $        | (515       | )        | $          | (187     | )          | $ | (128 | ) |

 

The Company’s stockrepurchase program was approved by the Board of Directors in November 1999and was expanded in June 2005 (500,000 additional shares authorized,disclosed in a press release and Form 8-K filed on June 17,2005).  Under the stock repurchase program,the Company is authorized, at the discretion of management and the Board ofDirectors, to purchase up to an aggregate of 2,000,000 shares of the Company’scommon stock on the open market. As of November 2, 2007, up to 518,758 shares werestill authorized for repurchase under the program.

 

The Company has remained freeof interest-bearing debt for twenty-one consecutive years. The Companymaintains a line of credit with Bank of America that expires April 30,2008. [The Companyexpects to renew this line of credit with Bank of America prior to itsexpiration.]** ** Under the terms of this line of credit, theCompany may borrow up to $2,000 at an interest rate equal to the bank’sreference rate, unless the Company elects an optional interest rate. The borrowing agreement contains various covenants,the more significant of which require the Company to maintain certain levels ofshareholders’ equity and working capital. The Company was in compliance withall provisions of the agreement during the 2007 fiscal year and there were noborrowings under this line of credit during such period. Management believesthat the Company’s strong financial position and its capital resources aresufficient to provide for its operating needs and capital expenditures forfiscal 2008.

 

**Off-Balance Sheet Arrangements**

 

The Company does not currently have any off balancesheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

 

**Contractual Obligations (in thousands)**

 

The Company has remained free of interest bearing debtfor twenty-one consecutive years and had no other debt or other contractualobligations except for leases existing at November 2, 2007. The Companyleases certain transportation equipment under operating leases. Future minimumlease payments are approximately (in thousands):

 
| ** **             | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012   and   there-  after** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|------------------------------------------|------------|
| Net Lease  Commitments |       | $        | 415        |     | $          | 415      |       | $        | 415        |                                     | $          | 415 |   | $ | 395 |   |
|                        |            |          |            |          |            |          |            |          |            |                                          |            |  |  |  |  |  |

 

17

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**Critical Accounting Policies**

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makecertain estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported revenues and expenses during therespective reporting periods. Actual results could differ from those estimates.Amounts estimated related to liabilities for self-insured workers’compensation, employee healthcare and pension benefits are especially subjectto inherent uncertainties and these estimated liabilities may ultimately settleat amounts not originally estimated.  TheCompany records promotional and returns allowances based on recent andhistorical trends. Management believes its current estimates are reasonable andbased on the best information available at the time.

 

The Company’s credit risk is diversified across abroad range of customers and geographic regions. Losses due to credit risk haverecently been immaterial. The provision for doubtful accounts receivable isbased on historical trends and current collection risk. The Company hassignificant amounts receivable with a few large, well known customers which,although historically secure, could be subject to material risk should thesecustomers’ operations suddenly deteriorate. The Company monitors thesecustomers closely to minimize the risk of loss. Sales to Wal-Mart® comprised14.6% of revenues in fiscal year 2007 and 12.4% of accounts receivable was duefrom Wal-Mart® at November 2, 2007. Sales to Wal-Mart® comprised 15.0% ofrevenues in fiscal year 2006 and 13.3% of accounts receivable was due fromWal-Mart® at November 3, 2006. Sales to Wal-Mart® comprised 13.8% of revenues in fiscal year 2005 and13.6% of accounts receivable was due from Wal-Mart® at October 28, 2005.

 

Revenues are recognized upon passage of title to thecustomer, typically upon product pick-up, shipment or delivery to customers.Products are delivered to customers primarily through the Company’s ownlong-haul fleet or through a Company owned direct store delivery system.

 

The Company records the cash surrender or contractvalue for life insurance policies as an adjustment of premiums paid indetermining the expense or income to be recognized under the contract for theperiod.

 

Estimated amounts related to liabilities for pensionbenefits are especially subject to inherent uncertainties and these liabilitiesmay ultimately settle at amounts not originally estimated. Management believesits current estimates are reasonable and based on the best informationavailable at the time.

 

Deferred taxes are provided for items whose financialand tax bases differ. A valuation allowance is provided against deferred taxassets when it is expected that it is more likely than not that the relatedasset will not be fully realized.

 

The Company provides tax reserves for federal, state,local and international exposures relating to audit results, tax planninginitiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues,potential outcomes and timing, and is a subjective estimate.  Although the outcome of these tax audits isuncertain, in management’s opinion adequate provisions for income taxes havebeen made for potential liabilities emanating from these reviews.  Actual outcomes may differ materially fromthese estimates.

 

The Company assesses the recoverability of itslong-lived assets on an annual basis or whenever adverse events or changes incircumstances or business climate indicate that expected undiscounted futurecash flows related to such long-lived assets may not be sufficient to supportthe net book value of such assets. If undiscounted cash flows are notsufficient to support the recorded assets, the Company recognizes an impairmentto reduce the carrying value of the applicable long-lived assets to theirestimated fair value.

 

**Restatement**

 

Certain restatements were made in fiscal year 2006 tomove auction rate securities from cash and cash equivalents to tradingsecurities.  Such restatements did notaffect common measures of financial statements including working capital and 

 

18

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thecurrent ratio. The above-mentioned restatement had no impact on the Company’sreported results of operations.  TheCompany held no auction rate securities as of November 2, 2007.

 

 **Recently Issued AccountingPronouncements and Regulations**

 

In July 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation ofFASB Statement of Accounting Standards No. 109, “Accounting for IncomeTaxes” (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withSFAS 109. This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The Company iscurrently evaluating the provisions of FIN 48 and the impact on ourconsolidated financial position and results of operations. The Company adoptedFIN 48 on November 3, 2007.

 

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 108,  “Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements” (“SAB  108”).  SAB 108 provides guidance on how prior yearmisstatements should be considered when quantifying misstatements in currentyear financial statements for purposes of determining whether the current year’sfinancial statements are materially misstated. SAB 108 is effective for fiscalyears ending after November 15, 2006. The adoption of SAB 108 did not havea material impact on the Company’s results of operations or financial positionin fiscal year 2007.

 

In September 2006, the FASB issued Statement ofAccounting Standards No. 157, “Fair Value Measurements” (“SFAS  157”). This Statement defines fair value,provides a framework for measuring fair value, and expands the disclosuresrequired for fair value measurements. SFAS 157 applies to other accountingpronouncements that require fair value measurements; it does not require anynew fair value measurements. SFAS 157 is effective for financial statements forfiscal years beginning after November 15, 2007, the Company’s firstquarter of the 2009 fiscal year, and interim periods within those years.   The Company does not expect this statementwill have a material impact on the Company’s results of operations or financialposition upon adoption.

 

In September 2006, the FASB issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans–an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS158 requires employers to recognize the over- or under-funded status of definedbenefit plans and other postretirement plans in the statement of financialposition and to recognize changes in the funded status in the year in which thechanges occur through comprehensive income. In addition, SFAS 158 requiresemployers to measure the funded status of plans as of the date of the year-endstatement of financial position. The recognition and disclosure provisions ofSFAS 158 became effective for the Company’s fiscal year ending November 2,2007 while the requirement to measure plan assets and benefit obligations as ofa company’s year-end date is effective for fiscal years ending after December 15,2008 (effective for the Company’s fiscal year ending October 30,2009).  The impact of the Company’sinitial adoption of SFAS 158 is disclosed in Note 3 to the ConsolidatedFinancial Statements.

 

In February 2007, the FASB issuedStatement of Financial Accounting Standards No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 expands opportunities to use fairvalue measurement in financial reporting and permits entities to choose tomeasure many financial instruments and certain other items at fair value.  This Statement is effective for fiscal yearsbeginning after November 15, 2007, or the Company’s fiscal year ending October 30,2009.  The Company does not expect thisstatement will have a material impact on its results of operations or financialposition.

 

***Item 7A.******                         ******Quantitativeand Qualitative Disclosures about Market Risk***

 

The Company did not have significant overall currencyexposure at November 2, 2007. The Company’s financial instruments consistof cash and cash equivalents and life insurance policies at November 2,2007 and the carrying value of the Company’s financial instruments approximatedtheir fair market values based on current market prices and rates. Ahypothetical 10% adverse move in interest rates along the entire interest rateyield curve would not materially affect the fair 

 

19

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marketvalue of the Company’s interest sensitive financial investments.  Declines in interest rates over time will,however, reduce the Company’s investment income, while increases in interestrates over time will increase the Company’s interest expense. It is not theCompany’s policy to enter into derivative financial instruments. The Companydoes not currently have any significant foreign currency exposure. The Companydoes not engage in buying or selling spot or futures commodity contracts. TheCompany’s investment portfolio is not subject to significant market risk orinterest rate fluctuations.

 

***Item 8.******                                  ******ConsolidatedFinancial Statements and Supplementary Data***

 

**Unaudited Interim FinancialInformation***(in thousands, except per share amounts)*

 
| ** **                       | ** ** | **2007**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 26** | ** ** | **April 20** | ** ** | **July 13** | ** ** | **November 2** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(16 weeks)** | ** ** |
| Net sales                        |       | $                   | 32,314     |   | $ | 27,894 |   | $ | 26,686 |   | $ | 38,197 |   |
| Income (loss)  before taxes      |       | 55                  |       | (356 | ) | 79 |   | (451 | ) |
| Net income  (loss)               |       | 40                  |       | (273 | ) | 33 |   | (92 | ) |
| Basic earnings  (loss) per share |       | $                   | 0.00       |   | $ | (0.03 | ) | $ | 0.00 |   | $ | 0.00 |   |

 
| ** **                       | ** ** | **2006**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 20** | ** ** | **April 14** | ** ** | **July 7** | ** ** | **November 3** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(17 weeks)** | ** ** |
| Net sales                        |       | $                   | 34,575     |   | $ | 28,305 |   | $ | 28,169 |   | $ | 43,215 |   |
| Income (loss)  before taxes      |       | (240                | )          | 168 |   | 234 |   | 1,335 |   |
| Net income  (loss)               |       | (137                | )          | 72 |   | 224 |   | 1,081 |   |
| Basic earnings  (loss) per share |       | $                   | (0.01      | ) | $ | 0.01 |   | $ | 0.02 |   | $ | 0.11 |   |

 
| ** **                       | ** ** | **2005**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 21** | ** ** | **April 15** | ** ** | **July 8** | ** ** | **October 28** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(16 weeks)** | ** ** |
| Net sales                        |       | $                   | 33,591     |   | $ | 27,714 |   | $ | 27,656 |   | $ | 41,884 |   |
| Income (loss)  before taxes      |       | (316                | )          | (1,049 | ) | 66 |   | (955 | ) |
| Net income  (loss)               |       | (196                | )          | (650 | ) | 243 |   | (340 | ) |
| Basic earnings  (loss) per share |       | $                   | (0.02      | ) | $ | (0.07 | ) | $ | 0.03 |   | $ | (0.03 | ) |

 

See Item 15(a) below and the index therein for alisting of the consolidated financial statements and supplementary data filedas a part of this report.

 

***Item 9.******                                  ******Changesin and Disagreements with Accountants on Accounting and Financial Disclosure***

 

Not applicable.

 

***Item 9A.******                         ******Controlsand Procedures***

 

Management of the Company, with the participation andunder the supervision of the Company’s Chairman and Chief Financial Officer,has evaluated the effectiveness of the Company’s disclosure controls andprocedures (as defined in Exchange Act Rule 13a-15(e)) as of the end ofthe period covered by this Report. Based on this evaluation the Chairman andChief Financial Officer have concluded that the Company’s disclosure controlsand procedures are effective as of the end of the period covered by this Reportto provide reasonable assurance that material information required to bedisclosed by the Company in the reports that it files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified by the Securities and Exchange Commission’s rules andforms. There has been no change in 

 

20

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theCompany’s internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) during the period covered by thisReport that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

The Company’s management, including its Chairman andChief Financial Officer, does not expect that the Company’s disclosure controlsand internal controls will prevent all error and all fraud. A control system,no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the Company have been detected. These inherentlimitations include the realities that judgments in decision-making can befaulty, and that breakdowns can occur because of simple error or mistake.Additionally, controls can be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of thecontrol.

 

The design of any system of controls is also based inpart upon certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions; over time, a control may becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of inherent limitations ina cost-effective control system, misstatements due to error or fraud may occurand not be detected.

 

The Company maintains and evaluates a system ofinternal accounting controls, and a program of internal auditing designed toprovide reasonable assurance that the Company’s assets are protected and thattransactions are performed in accordance with proper authorization, and areproperly recorded. This system of internal accounting controls is continuallyreviewed and modified in response to evolving business conditions andoperations and to recommendations made by the independent registered publicaccounting firm and internal auditor. The Company has an established a code ofconduct. The management of the Company believes that the accounting and internalcontrol systems provide reasonable assurance that assets are safeguarded andfinancial information is reliable.

 

The Audit Committee of the Board of Directors meetsregularly with the Company’s financial management and counsel, and with theindependent registered public accounting firm engaged by the Company. Internalaccounting controls and the quality of financial reporting are discussed duringthese meetings. The Audit Committee has discussed with the independentregistered public accounting firm matters required to be discussed by Statementof Auditing Standards No. 61 (Communication with Audit Committees). Inaddition, the independent registered public accounting firm’s independence fromthe Company and its management, including the matters in the writtendisclosures required by the Independence Standards Board Standards No. 1(Independence Discussions with Audit Committees), has been discussed by theCommittee and the independent registered public accounting firm.

 

**Section 404 of the Sarbanes-Oxley Act of 2002**

 

In order to comply with the Sarbanes-Oxley Act of 2002 (the “Act”), the Company has undertakenand continues a comprehensive effort, which includes the documentation andreview of its internal controls. In order to comply with the Act, the Companyis in the process of centralizing most accounting and many administrativefunctions at its corporate headquarters in an effort to control the cost ofmaintaining its control systems.  On July 11,2006, The Committee of Sponsoring Organizations (“COSO”) issued guidance on howsmall companies should implement an effective internal control framework overfinancial reporting and other risks. This guidance is considered a key tool tohelp smaller public companies to confront the challenges of the Act.  As a result, the Company may incursubstantial additional expenses and diversion of management’s time. During thecourse of these activities, the Company may identify certain internal controlissues which management believes should be improved. These improvements, ifnecessary, will likely include further formalization of policies andprocedures, improved segregation of duties, additional information technologysystem controls and additional monitoring controls. Although management doesnot believe that any of these matters will result in material weaknesses beingidentified in the Company’s internal controls as defined by the Public CompanyAccounting Oversight Board Auditing Standard No. 5, no assurances can begiven regarding the outcome of these efforts. Additionally, control weaknessesmay not be identified in a timely enough manner to allow remediation prior tothe issuance of the auditor’s report on internal controls over financialreporting. Any failure to adequately comply could result in sanctions or investigationsby regulatory authorities, which could harm the Company’s business or investors’confidence in the Company.

 

21

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The Securities and Exchange Commission, on December 15,2006, adopted new measures to grant relief to smaller public companies byextending the date of compliance with Section 404 of the Act.  Under these new measures, the Company will berequired to comply with the Act in two phases. The first phase will be effective for the Company’s fiscal year ending October 31,2008 and will require the Company to issue a management report on internalcontrol over financial reporting. The second phase will require the Company toprovide an auditor’s attestation report on internal control over financialreporting beginning with the Company’s fiscal year ending October 30,2009.

 

***Item 9B.******                         ******OtherInformation***

 

Notapplicable.

 

**PART III**

 

***Item 10.******                           ******Directors,Executive Officers and Corporate Governance***

 

Information set forth in the sections entitled “Proposal1 – Election of Directors” and “Section 16(a) Beneficial OwnershipReporting Compliance” contained in the Company’s definitive proxy statement forthe Annual Meeting of Shareholders to be held on March 19, 2008 isincorporated herein by reference. Information concerning the executive officersof the Company is set forth in Part I hereof under the heading “ExecutiveOfficers of the Registrant”.

 

The Company adopted a Code of Ethics pursuant to Section 406of the Sarbanes-Oxley Act of 2002 during the first quarter of 2004, whichapplies to the Company’s principal executive officer, principal financialofficer, principal accounting officer or controller, or persons performingsimilar functions and other designated officers and employees. The Code ofEthics appears on the Company’s website at www.bridgford.com.  Any amendment or waiver of the Code of Ethicsthat applies to the Company’s directors or executive officers will be posted onits website or in a report on Form 8-K filed with the Securities andExchange Commission.

 

The Company is considered a “controlled company”within the meaning of Rule 4350(c)(5) of the National Association ofSecurities Dealers (“NASD”) and is therefore exempted from various NASD rules pertainingto certain “independence” requirements of its directors. Nevertheless, theBoard of Directors has determined that Messrs. Andrews, Foster, Scott andZippwald, who together comprise the Audit Committee, are all “independentdirectors” within the meaning of Rule 4200 of the Nasdaq Marketplace Rules.The Board of Directors believes that Messrs. Andrews and Scott qualify as “financialexperts” as such term is used in the rules and regulations of theSecurities and Exchange Commission.

 

***Item 11.******                           ******ExecutiveCompensation***

 

Information set forth in the sections entitled “Proposal1 – Election of Directors”, “Compensation of Executive Officers”, and “CompensationCommittee Interlocks and Insider Participation” contained in the Company’sdefinitive proxy statement for the 2008 Annual Meeting of Shareholders to beheld on March 19, 2008 is incorporated herein by reference.

 

***Item 12.******                           ******SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters***

 

Information set forth in the sections entitled “PrincipalShareholders and Management” and “Proposal 1 – Election of Directors” containedin the Company’s definitive proxy statement for the 2008 Annual Meeting ofShareholders to be held on March 19, 2008 is incorporated herein byreference.

 

22

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**Equity Compensation Plan Information**

 

The following table sets forth information regardingoutstanding options, warrants and rights and shares reserved for futureissuance under the Company’s existing compensation plans as of November 2,2007. The Company’s sole shareholder approved equity compensation plan is the1999 Stock Incentive Plan. The Company does not have any non-stockholderapproved equity compensation plans.

 
| **Plan Category**                                      | ** ** | **Number of securities to  be issued upon exercise of  outstanding options,   warrants and rights as of  November 2, 2007  (a)** | ** ** | **Weighted-average exercise  price of outstanding   options, warrants and rights  (b)** | ** ** | **Number of securities remaining  available for future issuance under  equity compensation plans as of  November 2, 2007 (excluding securities  reflected in column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       | 250,000                                                                                                                                                                                                     |       | $                                                                                                                          | 10.00      |                                                                                                                                                                                                                                                                      | 650,000    |   |
| Equity  compensation plans not approved by security holders |       | —                                                                                                                                                                                                      |       | —                                                                                                                     |       | —                                                                                                                                                                                                                                                                    |       |
| Total                                                       |       | 250,000                                                                                                                                                                                                     |       | $                                                                                                                          | 10.00      |                                                                                                                                                                                                                                                                      | 650,000    |   |

 

***Item 13.******                           ******CertainRelationships and Related Transactions, and Director Independence***

 

Information set forth in the section entitled “CertainRelationships and Related Party Transactions” contained in the Company’sdefinitive proxy statement for the 2008 Annual Meeting of Shareholders to beheld on March 19, 2008 is incorporated herein by reference.

 

***Item 14.******                           ******PrincipalAccountant Fees and Services***

 

Information set forth in the sections entitled “PrincipalAccountant Fees and Services” and “Policy on Audit Committee Pre-Approval ofAudit Services And Permissible Non-Audit Services of Independent Accountants”****contained in the Company’s definitive proxy statement forthe Annual Meeting of Shareholders to be held on March 19, 2008 isincorporated herein by reference.

 

**PART IV**

 

***Item 15.******                           ******Exhibitsand Financial Statement Schedules***

 

(a)(1) *Financial Statements*. The followingdocuments are filed as a part of this report:

 
| ** **                                                                                                                                                              | **Page** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Report  of Independent Registered Public Accounting Firm                                                                                                                | 26       |
| Consolidated  Balance Sheets as of November 2, 2007 and November 3, 2006                                                                                      | 27       |
| Consolidated  Statements of Operations for years ended November 2, 2007,  November 3, 2006, and October 28, 2005                                         | 28       |
| Consolidated  Statements of Shareholders’ Equity and Comprehensive Income for years ended  November 2, 2007, November 3, 2006, and October 28, 2005 | 29       |
| Consolidated  Statements of Cash Flows for years ended November 2, 2007,  November 3, 2006, and October 28, 2005                                         | 30       |
| Notes to  Consolidated Financial Statements                                                                                                                             | 31       |

 

(2) *Financial Statement Schedule*

 

Thefollowing financial statement is filed herewith:

 
| Schedule  II - Valuation and Qualifying Accounts | 46 |
|--------------------------------------------------|----|

 

23

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(3) *Exhibits*

 

(a) *The exhibits below are filed or incorporated hereinby reference*.

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                          |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.5                 |       | Restated Articles of Incorporation, dated  December 29, 1989 (filed as Exhibit 3.5 to Form 10-K on  January 28, 1993 and incorporated herein by reference).                          |
|                |       |                                                                                                                                                                                                     |
| 3.6                 |       | Amendment to Articles of Incorporation, dated  July 27, 1990 (filed as Exhibit 3.6 to Form 10-K on  January 28, 1993 and incorporated herein by reference).                          |
|                |       |                                                                                                                                                                                                     |
| 3.7                 |       | By-laws, as amended (filed as Exhibit 2 to  Form 10-K on January 28,1993 and incorporated herein by reference).                                                                           |
|                |       |                                                                                                                                                                                                     |
| 3.8                 |       | Certificate of Amendment to By-laws (filed as  Exhibit 99.1 to Form 8-K on October 10, 2007 and incorporated  herein by reference).                                                       |
|                |       |                                                                                                                                                                                                     |
| 10.1                |       | Bridgford Foods Corporation Defined Benefit Pension  Plan (filed as Exhibit10.1 to Form 10-K on January 28, 1993 and  incorporated herein by reference).*                                      |
|                |       |                                                                                                                                                                                                     |
| 10.2                |       | Bridgford Foods Corporation Supplemental Executive  Retirement Plan (filed as Exhibit 10.2 to Form 10-K on  January 28, 1993 and incorporated herein by reference).*                      |
|                |       |                                                                                                                                                                                                     |
| 10.3                |       | Bridgford Foods Corporation Deferred Compensation  Savings Plan (filed as Exhibit 10.3 to Form 10-K on  January 28, 1993 and incorporated herein by reference).*                          |
|                |       |                                                                                                                                                                                                     |
| 10.4                |       | Bridgford Foods Corporation 1999 Stock Incentive  Plan and Form of Stock Option Agreement (filed as Exhibit 4.1 to  Form S-8 on May 28, 1999 and incorporated herein by reference).* |
|                |       |                                                                                                                                                                                                     |
| 21.1                |       | Subsidiaries of the Registrant.                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                     |
| 23.1                |       | Consent of Independent Registered Public Accounting  Firm.                                                                                                                                               |
|                |       |                                                                                                                                                                                                     |
| 24.1                |       | Power of Attorney (included as part of the signature  page)                                                                                                                                              |
|                |       |                                                                                                                                                                                                     |
| 31.1                |       | Certification of Principal Executive Officer,  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                           |
|                |       |                                                                                                                                                                                                     |
| 31.2                |       | Certification of Principal Financial Officer,  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                           |
|                |       |                                                                                                                                                                                                     |
| 32.1                |       | Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (Principal Executive Officer).                                        |
|                |       |                                                                                                                                                                                                     |
| 32.2                |       | Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (Principal Financial Officer).                                        |

 

----

* Each of these Exhibitsconstitutes a management contract, compensatory plan or arrangement.

 

24

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***SIGNATURES***

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 

BRIDGFORD FOODS CORPORATION

Registrant

 
|   | By:        | /s/  WILLIAM L. BRIDGFORD |
|--------|------------|--------------------------------|
|   | ** ** | **William L. Bridgford**       |
|   |       | *Chairman*                     |

 

Date: January 31,2008

 

**POWER OFATTORNEY**

 

We, theundersigned directors and officers of Bridgford Foods Corporation, do herebyconstitute and appoint William L. Bridgford and Raymond F. Lancy, or either ofthem, with full power of substitution and resubstitution, our true and lawful attorneysand agents, to do any and all acts and things in our name and behalf in ourcapacities as directors and officers and to execute any and all instruments forus and in our names in the capacities indicated below, which said attorneys andagents, or either of them, or their substitutes, may deem necessary oradvisable to enable said corporation to comply with the Securities Exchange Actof 1934, as amended, and any rules, regulations and requirements of theSecurities and Exchange Commission in connection with this Annual Report on Form 10-K,including specifically, but without limitation, power and authority to sign forus or any of us in our names and in the capacities indicated below, any and allamendments; and we do hereby ratify and confirm all that the said attorneys andagents, or either of them, shall do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated

 
| **Signature**                              | ** ** | **Title**                      | ** ** | **Date**              |
|--------------------------------------------|------------|--------------------------------|------------|-----------------------|
|                                       |       |                           |       |                  |
| /s/   WILLIAM  L. BRIDGFORD |       | Chairman                       |       | January 31, 2008 |
| **William  L. Bridgford**                  |       | (Principal Executive  Officer) |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   ALLAN  L. BRIDGFORD   |       | Senior Chairman                |       | January 31, 2008 |
| **Allan  L. Bridgford**                    |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   HUGH  WM. BRIDGFORD   |       | Vice President and  Director   |       | January 31, 2008 |
| **Hugh  Wm. Bridgford**                    |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   JOHN  V. SIMMONS      |       | President                      |       | January 31, 2008 |
| **John V.  Simmons**                       |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   RAYMOND  F. LANCY     |       | Chief Financial Officer        |       | January 31, 2008 |
| **Raymond  F. Lancy**                      |       | (Principal Financial  Officer) |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   TODD  C. ANDREWS      |       | Director                       |       | January 31, 2008 |
| **Todd  C. Andrews**                       |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   RICHARD  A. FOSTER    |       | Director                       |       | January 31, 2008 |
| **Richard  A. Foster**                     |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   ROBERT  E. SCHULZE    |       | Director                       |       | January 31, 2008 |
| **Robert  E. Schulze**                     |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   D.  GREGORY SCOTT     |       | Director                       |       | January 31, 2008 |
| **D.  Gregory Scott**                      |       |                           |       |                  |
| ** **                                 |       |                           |       |                  |
| /s/   PAUL  R. ZIPPWALD     |       | Director                       |       | January 31, 2008 |
| **Paul  R. Zippwald**                      |       |                           |       |                  |

 

25

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**Report OfIndependent Registered Public Accounting Firm**

 

To the Board of Directors and Shareholders

Bridgford Foods Corporation

 

We have audited the accompanying consolidated balance sheets ofBridgford Foods Corporation (the “Company”) as of November 2, 2007 and November 3,2006 and the related consolidated statements of operations, shareholders’equity and comprehensive income and cash flows for the fiscal years ended November 2,2007, November 3, 2006 and October 28, 2005.  In connection with our audits of theconsolidated financial statements, we also have audited the supplementaryinformation included in Schedule II. These consolidated financial statements and the financial statementschedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements and the financial statement schedulebased on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial positionof the Company as of November 2, 2007 and November 3, 2006, and theconsolidated results of its operations and its cash flows for the fiscal yearsended November 2, 2007, November 3, 2006 and October 28, 2005 inconformity with accounting principles generally accepted in the United Statesof America.  Also in our opinion, therelated financial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

 

As discussed in Note 1 to the consolidated financial statements, the consolidatedbalance sheet as of November 3, 2006 and the consolidated statements ofcash flows for the fiscal years ended November 3, 2006 and October 28,2005 have been restated to reclassify auction rate securities out of cash andcash equivalents and into trading securities.

 

As discussed in Note 1 to theconsolidated financial statements, effective November 2, 2007, the Companyadopted Statement of Financial Accounting Standards No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans – anamendment of FASB Statements No. 87, 88, 106 and 132(R).”

 

 
|                  |   | /s/  HASKELL & WHITE LLP |
|-----------------------|--------|----------------------------------------|
|                  |   |                                   |
| Irvine, California    |   |                                   |
| January 30, 2008 |   |                                   |

 

26

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**BRIDGFORD FOODS CORPORATIONCONSOLIDATED BALANCE SHEETS**

**November 2, 2007 and November 3,2006**

**(inthousands, except per share amounts)**

 
| ** **                                                                                                                                               | ** ** | **2007**   | ** ** | **2006**               | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|
| ** **                                                                                                                                               | ** ** | ** ** | ** ** | **(as restated)** | ** ** |
| **ASSETS**                                                                                                                                               | ** ** | ** ** | ** ** | ** **             | ** ** |
| Current assets:                                                                                                                                          |       |       |       |                   |       |
| Cash and cash  equivalents                                                                                                                               |       | $          | 11,336     |                   | $          | 1,180 |   |
| Trading  securities                                                                                                                                      |       | —     |       | 12,200                 |       |
| Accounts receivable,  less allowance for doubtful accounts of $482 and $524, respectively and  promotional allowances of $1,980 and $2,170, respectively |       | 8,563      |       | 10,222                 |       |
| Inventories                                                                                                                                              |       | 18,332     |       | 19,544                 |       |
| Prepaid expenses                                                                                                                                         |       | 1,137      |       | 291                    |       |
| Refundable  income taxes                                                                                                                                 |       | 497        |       | 655                    |       |
| Deferred income  taxes                                                                                                                                   |       | 1,490      |       | 1,821                  |       |
| Total current  assets                                                                                                                                    |       | 41,355     |       | 45,913                 |       |
|                                                                                                                                                     |       |       |       |                   |       |
| Property, plant  and equipment, net of accumulated depreciation of $53,840 and $53,941,  respectively                                                    |       | 11,221     |       | 13,041                 |       |
| Other  non-current assets                                                                                                                                |       | 11,191     |       | 10,620                 |       |
| Deferred income  taxes                                                                                                                                   |       | 3,880      |       | 3,357                  |       |
| Total assets                                                                                                                                             |       | $          | 67,647     |                   | $          | 72,931 |   |
|                                                                                                                                                     |       |       |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                            |       |       |       |                   |       |
| Current  liabilities:                                                                                                                                    |       |       |       |                   |       |
| Accounts payable                                                                                                                                         |       | $          | 2,978      |                   | $          | 3,923 |   |
| Accrued payroll,  advertising and other expenses                                                                                                         |       | 5,253      |       | 6,029                  |       |
| Current portion  of non-current liabilities                                                                                                              |       | 3,671      |       | 4,279                  |       |
| Total current  liabilities                                                                                                                               |       | 11,902     |       | 14,231                 |       |
| Non-current  liabilities                                                                                                                                 |       | 5,776      |       | 8,514                  |       |
|                                                                                                                                                     |       |       |       |                   |       |
| Contingencies  and commitments (Notes 3, 5 and 6)                                                                                                        |       |       |       |                   |       |
|                                                                                                                                                     |       |       |       |                   |       |
| Shareholders’  equity:                                                                                                                              |       |       |       |                   |       |
| Preferred  stock, without par value                                                                                                                      |       |       |       |                   |       |
| Authorized - 1,000 shares Issued and outstanding –  none                                                                                            |       | —     |       | —                 |       |
| Common stock,  $1.00 par value                                                                                                                           |       |       |       |                   |       |
| Authorized -  20,000 shares. Issued and outstanding - 9,889 in 2007 and 9,958 in 2006                                                                    |       | 9,946      |       | 10,015                 |       |
| Capital in  excess of par value                                                                                                                          |       | 13,789     |       | 14,235                 |       |
| Retained  earnings                                                                                                                                       |       | 26,837     |       | 27,129                 |       |
| Accumulated  other comprehensive loss                                                                                                                    |       | (603       | )          | (1,193                 | )          |
| Total  shareholders’ equity                                                                                                                         |       | 49,969     |       | 50,186                 |       |
|                                                                                                                                                     |       | $          | 67,647     |                   | $          | 72,931 |   |

 

See accompanying notes to consolidated financialstatements.

 

27

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**BRIDGFORD FOODS CORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**For the years ended November 2,2007, November 3, 2006, and October 28, 2005,**

**(inthousands, except share and per share amounts)**

 
| ** **                                                | ** ** | **2007**  | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|-----------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Net sales                                                 |       | $         | 125,091    |      | $          | 134,264   |       | $ | 130,845 |   |
| Cost of products  sold, excluding depreciation            |       | 81,126    |       | 85,133    |       | 85,455    |       |
| Selling, general  and administrative expenses             |       | 41,249    |       | 43,963    |       | 43,393    |       |
| Depreciation                                              |       | 3,389     |       | 3,777     |       | 4,251     |       |
| Gain on sale of  equity securities                        |       | —    |       | (106      | )          | —    |       |
|                                                      |       | 125,764   |       | 132,767   |       | 133,099   |       |
| Income (loss)  before taxes                               |       | (673      | )          | 1,497     |       | (2,254    | )          |
| Provision  (benefit) for taxes on income                  |       | (381      | )          | 257       |       | (1,311    | )          |
| Net income  (loss)                                        |       | $         | (292       | )         | $          | 1,240     |       | $ | (943 | ) |
| Basic earnings  (loss) per share                          |       | $         | (0.03      | )         | $          | 0.13      |       | $ | (0.09 | ) |
| Shares used to  compute basic earnings (loss) per share   |       | 9,928,107 |       | 9,966,483 |       | 9,994,816 |       |
| Diluted earnings  (loss) per share                        |       | $         | (0.03      | )         | $          | 0.13      |       | $ | (0.09 | ) |
| Shares used to  compute diluted earnings (loss) per share |       | 9,928,107 |       | 9,966,483 |       | 9,994,816 |       |

 

See accompanying notes to consolidated financialstatements.

 

28

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**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITYAND COMPREHENSIVE INCOME**

**For the years ended November 2,2007, November 3, 2006, and October 28, 2005**

**(inthousands)**

 
| ** **                                                  | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Capital in  excess of  par value** | ** ** | **Retained  earnings** | ** ** | **Accumulated  other  comprehensive   income (loss)** | ** ** | **Total  shareholders’   equity** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------------|------------|---------------------------------------------|------------|
| Balance, October 29,  2004                             |       | 10,002     |       | $          | 10,059     |                                                | $          | 14,506                 |       | $                                                               | 26,832     |                                        | $          | (2,733 | ) | $ | 48,664 |   |
| Shares  repurchased and retired                             |       | (16        | )          | (16        | )          | (112                                                | )          |                   |       |                                                            |       | (128                                        | )          |
| Net loss                                                    |       |       |       |       |       |                                                |       | (943                   | )          |                                                            |       | (943                                        | )          |
| Other  comprehensive net income (loss):                     |       |       |       |       |       |                                                |       |                   |       |                                                            |       |                                        |       |
| Unrealized gain  on investment                              |       |       |       |       |       |                                                |       |                   |       | 30                                                              |       | 30                                          |       |
| Minimum pension  liability                                  |       |       |       |       |       |                                                |       |                   |       | 639                                                             |       | 639                                         |       |
| Comprehensive  loss                                         |       |       |       |       |       |                                                |       |                   |       |                                                            |       | (274                                        | )          |
| Balance,  October 28, 2005                             |       | 9,986      |       | 10,043     |       | 14,394                                              |       | 25,889                 |       | (2,064                                                          | )          | 48,262                                      |       |
| Shares  repurchased and retired                             |       | (28        | )          | (28        | )          | (159                                                | )          |                   |       |                                                            |       | (187                                        | )     |
| Net income                                                  |       |       |       |       |       |                                                |       | 1,240                  |       |                                                            |       | 1,240                                       |       |
| Other  comprehensive net income (loss):                     |       |       |       |       |       |                                                |       |                   |       |                                                            |       |                                        |       |
| Unrealized loss  on investment                              |       |       |       |       |       |                                                |       |                   |       | (55                                                             | )          | (55                                         | )          |
| Minimum pension  liability                                  |       |       |       |       |       |                                                |       |                   |       | 926                                                             |       | 926                                         |       |
| Comprehensive  loss                                         |       |       |       |       |       |                                                |       |                   |       |                                                            |       | 2,111                                       |       |
| Balance,  November 3, 2006                             |       | 9,958      |       | 10,015     |       | 14,235                                              |       | 27,129                 |       | (1,193                                                          | )          | 50,186                                      |       |
| Shares  repurchased and retired                             |       | (69        | )          | (69        | )          | (446                                                | )          |                   |       |                                                            |       | (515                                        | )          |
| Net loss                                                    |       |       |       |       |       |                                                |       | (292                   | )          |                                                            |       | (292                                        | )          |
| Other  comprehensive net income (loss):                     |       |       |       |       |       |                                                |       |                   |       |                                                            |       |                                        |       |
| Unrealized loss  on investment                              |       |       |       |       |       |                                                |       |                   |       | (6                                                              | )          | (6                                          | )          |
| Net Change in  pension liability prior to SFAS 158 adoption |       |       |       |       |       |                                                |       |                   |       | 1,163                                                           |       | 1,163                                       |       |
| SFAS 158  adoption                                          |       |       |       |       |       |                                                |       |                   |       | (567                                                            | )          | (567                                        | )          |
| Comprehensive  income                                       |       |       |       |       |       |                                                |       |                   |       |                                                            |       | 298                                         |       |
| Balance,  November 2, 2007                             |       | 9,889      |       | $          | 9,946      |                                                | $          | 13,789                 |       | $                                                               | 26,837     |                                        | $          | (603 | ) | $ | 49,969 |   |

 

See accompanying notes to consolidated financialstatements.

 

29

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**BRIDGFORD FOODS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS**

**For theyears ended November 2, 2007, November 3, 2006, and October 28,2005**

**(inthousands)**

 
| ** **                                                                                | ** ** | **2007**   | ** ** | **2006**               | ** ** | **2005**               | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                | ** ** | ** ** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** |
| Cash flows from  operating activities:                                                    |       |       |       |                   |       |                   |       |
| Net income  (loss)                                                                        |       | $          | (292       | )                      | $          | 1,240                  |       | $ | (943 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |       |       |                   |       |                   |       |
| Depreciation                                                                              |       | 3,389      |       | 3,777                  |       | 4,251                  |       |
| (Recovery) on  losses on accounts receivable                                              |       | (245       | )          | (277                   | )          | (578                   | )          |
| (Gain) on sale  of property, plant and equipment                                          |       | (8         | )          | (31                    | )          | (11                    | )          |
| (Gain) on sale of  equity securities                                                      |       | —     |       | (106                   | )          | —                 |       |
| Deferred income  taxes, net                                                               |       | (523       | )          | 1,111                  |       | (571                   | )          |
| Changes in  operating assets and liabilities:                                             |       |       |       |                   |       |                   |       |
| Trading  securities                                                                       |       | 12,200     |       | (7,700                 | )          | (4,500                 | )          |
| Accounts  receivable                                                                      |       | 1,905      |       | (436                   | )          | 2,243                  |       |
| Inventories                                                                               |       | 1,211      |       | 1,780                  |       | 1,154                  |       |
| Prepaid expenses                                                                          |       | (887       | )          | 52                     |       | 78                     |       |
| Income taxes  receivable                                                                  |       | 489        |       | (327                   | )          | 179                    |       |
| Other  non-current assets                                                                 |       | (951       | )          | (1,484                 | )          | (761                   | )          |
| Accounts payable                                                                          |       | (945       | )          | 117                    |       | 69                     |       |
| Accrued payroll,  advertising and other expenses                                          |       | (775       | )          | 714                    |       | (533                   | )          |
| Income taxes  payable                                                                     |       | —     |       | —                 |       | (913                   | )          |
| Current portion  of non-current liabilities                                               |       | (597       | )          | 1,558                  |       | 553                    |       |
| Non-current  liabilities                                                                  |       | (1,739     | )          | (2,814                 | )          | 298                    |       |
| Net cash (used)  provided by operating activities                                         |       | 12,232     |       | (2,826                 | )          | 15                     |       |
| Cash used in  investing activities:                                                       |       |       |       |                   |       |                   |       |
| Proceeds from  sale of property, plant and equipment                                      |       | 26         |       | 62                     |       | 28                     |       |
| Proceeds from  sale of equity securities                                                  |       | —     |       | 606                    |       | —                 |       |
| Additions to  property, plant and equipment                                               |       | (1,587     | )          | (2,330                 | )          | (2,032                 | )          |
| Net cash used in  investing activities                                                    |       | (1,561     | )          | (1,662                 | )          | (2,004                 | )          |
| Cash used in  financing activities:                                                       |       |       |       |                   |       |                   |       |
| Shares  repurchased                                                                       |       | (515       | )          | (187                   | )          | (128                   | )          |
| Cash dividends  paid                                                                      |       | —     |       | —                 |       | —                 |       |
| Net cash used in  financing activities                                                    |       | (515       | )          | (187                   | )          | (128                   | )          |
| Net increase  (decrease) in cash and cash equivalents                                     |       | 10,156     |       | (4,675                 | )          | (2,117                 | )          |
|                                                                                      |       |       |       |                   |       |                   |       |
| Cash and cash  equivalents at beginning of year                                           |       | 1,180      |       | 5,855                  |       | 7,972                  |       |
| Cash and cash  equivalents at end of year                                                 |       | $          | 11,336     |                   | $          | 1,180                  |       | $ | 5,855 |   |
|                                                                                      |       |       |       |                   |       |                   |       |
| Supplemental  disclosure of cash flow information:                                        |       |       |       |                   |       |                   |       |
| Cash paid for  income taxes                                                               |       | $          | 8          |                   | $          | 26                     |       | $ | 687 |   |

 

See accompanying notes to consolidated financialstatements.

 

30

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**BRIDGFORDFOODS CORPORATION**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(amounts in thousands except shareamounts, per share amounts, time periods and percentages)**

 

**NOTE 1- *The Company and Summary of Significant Accounting Policies:***

 

The consolidated financial statements include theaccounts of the Company and its subsidiaries, all of which are wholly owned.All inter-company transactions have been eliminated.

 

**Use of estimates and assumptions**

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makecertain estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements, as well as the reported revenues and expensesduring the respective reporting periods. Actual results could differ from thoseestimates. Amounts estimated related to liabilities for self-insured workers’compensation, employee healthcare and pension benefits are especially subjectto inherent uncertainties and these estimated liabilities may ultimately settleat amounts not originally estimated. Management believes its current estimatesare reasonable and based on the best information available at the time.

 

Under the provisions of Statement of FinancialAccounting Standards No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets” (“SFAS 144”), the Company is required to test long-livedassets for recoverability whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. If a impairment is indicated,the Company must measure the fair value of assets in accordance with SFAS 144to determine if and when adjustments are to be recorded.

 

**Concentrations of credit risk**

 

The Company’s credit risk is diversified across abroad range of customers and geographic regions. Losses due to credit risk haverecently been immaterial. The carrying amount of cash equivalents, accounts andother receivables, accounts payable and accrued liabilities approximate fairmarket value due to the short maturity of these instruments. The Companymaintains cash balances at financial institutions, which may at times, exceedthe amounts insured by the Federal Deposit Insurance Corporation of $100 perinstitution. However, management does not believe there is significant creditrisk associated with these financial institutions. The provision for doubtfulaccounts receivable is based on historical trends and current collectibilityrisk. The Company has significant amounts receivable with a few large, wellknown customers which, although historically secure, could be subject tomaterial risk should these customers’ operations suddenly deteriorate. Sales toWal-Mart® comprised 14.6% of revenues in fiscal year 2007 and 12.4% of accountsreceivable was due from Wal-Mart® at November 2, 2007. Sales to Wal-Mart®comprised 15.0% of revenues in fiscal year 2006 and 13.3% of accountsreceivable was due from Wal-Mart® at November 3, 2006. Sales to Wal-Mart®comprised 13.8% of revenues in fiscal year 2005 and 13.6% of accountsreceivable was due from Wal-Mart® at October 28, 2005.

 

**Business segments**

 

The Company and its subsidiaries operate in twobusiness segments - the processing and distribution of frozen foods, and theprocessing and distribution of refrigerated and snack food products.

 

**Fiscal year**

 

The Company maintains its accounting records on a52-53 week fiscal basis. Fiscal year 2007 included 52 weeks, fiscal year 2006included 53 weeks, and fiscal year 2005 included 52 weeks.

 

**Revenues**

 

Revenues are recognized upon passage of title to thecustomer, typically upon product pick-up, shipment or delivery to customers.Products are delivered to customers primarily through the Company’s ownlong-haul fleet or through a Company owned direct store delivery system. Thesedelivery costs, $6,171, $6,375, and $6,382 for 2007, 2006, and 2005,respectively, 

 

31

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areincluded in selling, general and administrative expenses in the accompanyingconsolidated financial statements. The Company records promotional and returnsallowances based on recent and historical trends.

 

**Cash equivalents**

 

The Company considers all investments with originalmaturities of three months or less to be cash equivalents. Cash equivalentsinclude money market funds and treasury bills of $11,336 at November 2,2007 and $1,180 at November 3, 2006.

 

**Restatement / Trading Securities**

 

At November 3, the Company held $12,200 ofauction rate securities, which are now shown as a separately stated currentasset in the accompanying financial statements. Previously, auction ratesecurities were part of cash and cash equivalents and are now classified astrading securities in the consolidated balance sheet. Auction rate securitiesare variable-rate bonds tied to short-term interest rates with maturities onthe face of the securities in excess of 90 days.  The Company’s investments in these auctionrate securities are accounted for under SFAS 115, Accounting for CertainInvestments in Debt and Equity Securities. The securities are recorded at cost, which approximates fair marketvalue because of their variable interest rates, which typically reset every 7to 35 days.  Despite the long-term natureof their stated contractual maturities, the Company has the intent and abilityto quickly liquidate these securities; therefore, the Company has no cumulativegross unrealized holding gains or losses, or gross unrealized gains or lossesfrom these investments.  All incomegenerated from these investments was recorded as interest income.

 

The consolidated balance sheet at November 3,2006 has been restated to move auction rate securities out of cash and cashequivalents to trading securities.

 

The restated sections of the consolidated balancesheet can be summarized as follows:

 
| ** **                 | ** ** | **2006** | ** ** |
|----------------------------|------------|----------|------------|
| Original:                  |       |     |       |
| Cash and cash  equivalents |       | $        | 13,380     |   |
| Trading  securities        |       | —   |       |
|                       |       |     |       |
| As restated:               |       |     |       |
| Cash and cash  equivalents |       | 1,180    |       |
| Trading  securities        |       | 12,200   |       |
|                            |            |          |            |  |

 

The consolidated statements of cash flow for yearsended November 3, 2006 and October 28, 2005 have been restated toshow the effect of auction rate securities activity classified as tradingsecurities.

 

The restated sections of the consolidated statementsof cash flows can be summarized as follows:

 
| ** **                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Original:                                         |       |     |       |     |       |
| Net cash  provided by operating activities        |       | $        | 4,874      |     | $          | 4,515 |   |
|                                              |       |     |       |     |       |
| As restated:                                      |       |     |       |     |       |
| Net cash (used)  provided by operating activities |       | $        | (2,826     | )        | $          | 15 |   |

 

**Inventories**

 

Inventories are valued atthe lower of cost (which approximates actual cost on a first-in, first-outbasis) or market.  Costs related towarehousing, transportation and distribution to customers are considered whencomputing market value.  Inventoriesinclude the cost of raw materials, labor and manufacturing overhead.  The Company regularly reviews inventory 

 

32

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quantities on hand and writes down any excessor obsolete inventories to net realizable value.  An inventory reserve is created whenpotentially slow-moving or obsolete inventories are identified in order toreflect the appropriate inventory value. Changes in economic conditions, production requirements, and lower than expected customer demand couldresult in additional obsolete or slow-moving inventory that cannot be sold ormust be sold at reduced prices and could result in additional reserveprovisions.

 

**Property, plant and equipment**

 

Property, plant and equipment are carried at cost lessaccumulated depreciation. Major renewals and betterments are charged to theasset accounts while the cost of maintenance and repairs is charged to expenseas incurred. When assets are sold or otherwise disposed of, the cost andaccumulated depreciation are removed from the respective accounts and theresulting gain or loss is credited or charged to income. Depreciation iscomputed on a straight-line basis over 10 to 20 years for buildings andimprovements, 5 to 10 years for machinery and equipment, and 3 to 5 years for transportationequipment.

 

**Income taxes**

 

Deferred taxes are provided for items whose financialand tax bases differ. A valuation allowance is provided against deferred taxassets when it is expected that it is more likely than not that the relatedasset will not be fully realized.

 

The Company provides tax reserves for federal, state,local and international exposures relating to audit results, tax planninginitiatives and compliance responsibilities. The development of these reservesrequires judgments about tax issues, potential outcomes and timing, and is asubjective estimate. Although the outcome of these tax audits is uncertain, inmanagement’s opinion adequate provisions for income taxes have been made forpotential liabilities emanating from these reviews. If actual outcomes differmaterially from these estimates, they could have a material impact on theCompany’s results of operations.

 

**Stock-based compensation**

 

In December 2004, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment.”SFAS No. 123R requires public companies to measure and recognizecompensation expense for all share-based payments to employees, includinggrants of employee stock options, in the financial statements based on the fairvalue at the date of the grant. The Statement also clarifies and expands SFAS No. 123’sguidance in several areas, including measuring fair value, classifying an awardas equity or as a liability, and attributing compensation cost to reportingperiods.  SFAS No. 123R became effective for the Company’s fiscalyear ending November 3, 2006. The Company has not issued, awarded, grantedor entered into any stock-based payment agreements since April 29, 1999.The modified prospective adoption of SFAS No. 123R did not have any impacton the Company’s financial condition or results of operations for fiscal yearended November 3, 2006.

 

Prior to adoption of SFAS No. 123R, the Companyadopted SFAS No. 123 ‘“Accounting for Stock-Based Compensation” whichallowed the Company to apply the provisions of Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations in accounting for stock-based compensation and, therefore, nocompensation expense was recognized for its fixed stock option plans as optionsare generally granted at fair market value based upon the closing price on thedate immediately preceding the grant date.  On December 31, 2002 theFASB issued SFAS No. 148, “Accounting for Stock Based Compensation- Transitionand Disclosure”, which amended SFAS No. 123.  SFAS No. 148requires more prominent and frequent disclosures about the effects ofstock-based compensation.  Accordingly, if compensation expense for theCompany’s stock options had been recognized, based upon the fair value ofawards granted, there would have been no impact on the Company’s net income andearnings per share for fiscal year ended November 2, 2007.

 

 

33

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Had compensation cost for the Company’s Stock OptionPlan been determined based on the fair value of the options consistent withSFAS 123, during the fiscal year ended October 28, 2005, the Company’s netincome and earnings per share would have remained unchanged as indicated below:

 
| ** **                                               | ** ** | **For the year  ended  October 28,  2005** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                               | ** ** | ** **                                                | ** ** |
| Net income  (loss) as reported                           |       | $                                                         | (943       | ) |
| Deduct: Pro  forma compensation expense, net of tax      |       | —                                                    |       |
| Pro forma net  income (loss)                             |       | $                                                         | (943       | ) |
| Basic and  diluted earnings (loss) per share as reported |       | $                                                         | (0.09      | ) |
| Pro forma basic  and diluted (loss) earning per share    |       | $                                                         | (0.09      | ) |
| Weighted average  shares outstanding, basic              |       | 9,994,816                                                 |       |
| Weighted average  shares outstanding, diluted            |       | 9,994,816                                                 |       |

 

The fair value of compensatory stock options wasestimated using the Black-Scholes option-pricing model using the followingweighted average assumptions at the date of issuance:

 

| Risk-free  interest rate       |   | 5.34           | %      |
|--------------------------------|--------|----------------|--------|
| Expected years  until exercise |   | 6.0 years |   |
| Expected stock  volatility     |   | 40.00          | %      |
| Expected  dividends            |   | 2.20           | %      |

 

Thefollowing balances are reflected as of November 2, 2007:

 
| ** **                   | ** ** | ** ** | ** ** | ** **                           | ** ** | **Options Exercisable** | ** ** | ** ** | ** ** | ** **                                         | ** ** |
|------------------------------|------------|------------|------------|--------------------------------------|------------|------------------------------|------------|------------|------------|----------------------------------------------------|------------|
| **Options Outstanding** | ** ** | ** ** | ** ** | **Weighted average**            | ** ** | **Weighted average**    | ** ** | ** ** | ** ** | ** **                                         | ** ** |
| **Exercise price**      | ** ** | **Shares** | ** ** | **remaining life (years)** | ** ** | **exercise price**      | ** ** | **Shares** | ** ** | **Weighted average exercise price** | ** ** |
| $                            | 10         |       | 250,000    |                                 | 1.5        |                         | $          | 10         |       | 250,000                                            |       | $ | 10 |   |
|                              |            |            |            |                                      |            |                              |            |            |            |                                                    |            |  |  |  |

 

Thefollowing balances are reflected as of  November 3,2006:

 
| ** **                   | ** ** | ** ** | ** ** | ** **                           | ** ** | **Options Exercisable** | ** ** | ** ** | ** ** | ** **                                         | ** ** |
|------------------------------|------------|------------|------------|--------------------------------------|------------|------------------------------|------------|------------|------------|----------------------------------------------------|------------|
| **Options Outstanding** | ** ** | ** ** | ** ** | **Weighted average**            | ** ** | **Weighted average**    | ** ** | ** ** | ** ** | ** **                                         | ** ** |
| **Exercise price**      | ** ** | **Shares** | ** ** | **remaining life (years)** | ** ** | **exercise price**      | ** ** | **Shares** | ** ** | **Weighted average exercise price** | ** ** |
| $                            | 10         |       | 250,000    |                                 | 2.5        |                         | $          | 10         |       | 250,000                                            |       | $ | 10 |   |
|                              |            |            |            |                                      |            |                              |            |            |            |                                                    |            |  |  |  |

 

 The following balances are reflected as of October 28,2005:

 
| ** **                   | ** ** | ** ** | ** ** | ** **                           | ** ** | **Options Exercisable** | ** ** | ** ** | ** ** | ** **                                         | ** ** |
|------------------------------|------------|------------|------------|--------------------------------------|------------|------------------------------|------------|------------|------------|----------------------------------------------------|------------|
| **Options Outstanding** | ** ** | ** ** | ** ** | **Weighted average**            | ** ** | **Weighted average**    | ** ** | ** ** | ** ** | ** **                                         | ** ** |
| **Exercise price**      | ** ** | **Shares** | ** ** | **remaining life (years)** | ** ** | **exercise price**      | ** ** | **Shares** | ** ** | **Weighted average exercise price** | ** ** |
| $                            | 10         |       | 250,000    |                                 | 3.5        |                         | $          | 10         |       | 250,000                                            |       | $ | 10 |   |
|                              |            |            |            |                                      |            |                              |            |            |            |                                                    |            |  |  |  |

 

**Basic and diluted earnings per share**

 

Basic earnings per share is calculated based on theweighted average number of shares outstanding for all periods presented.Diluted earnings per share is calculated based on the weighted average numberof shares outstanding plus shares issuable on conversion or exercise of allpotentially dilutive securities (stock options).

 

**Foreign currency transactions**

 

The Company’s foreign branch located in Canada entersinto transactions that are denominated in a foreign currency. The relatedtransaction gains and losses arising from changes in exchange rates are notmaterial and are included in selling, general and administrative expenses inthe consolidated statement of operations in the period the transactionoccurred.

 

**Comprehensive income (loss)**

 

Comprehensive income (loss) is defined as the changein equity (net assets) of a business enterprise during the period fromtransactions and other events and circumstances from non-owner sources.Comprehensive income (loss) consists of net income (loss), the additionalminimum pension liability adjustment and unrealized gains on equity securities.The Company’s 

 

34

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costbasis in the stock is equal to the fair market value at the date of issuance.During fiscal years 2006 and 2005 the Company recognized a minimum pensionliability in accordance with the provisions of SFAS No. 87 “Employers’Accounting for Pensions”. This impact was recorded as a component ofshareholders’ equity, net of tax. During fiscal year 2007, the Companyrecognized the net change in the minimum pension liability prior to the adoptionof SFAS 158 as well as the impact of SFAS 158 adoption on the Company’s definedbenefit pension plan and post retirement healthcare plan.  No effect has been given to thesetransactions in the consolidated statement of cash flows.

 

**Critical accounting policies**

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makecertain estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported revenues and expenses during therespective reporting periods. Actual results could differ from those estimates.Amounts estimated related to liabilities for pension costs, self-insuredworkers’ compensation and employee healthcare are especially subject toinherent uncertainties and these estimated liabilities may ultimately settle atamounts not originally estimated. Management believes its current estimates arereasonable and based on the best information available at the time.

 

Under the provisions of Statement of FinancialAccounting Standards No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets” (“SFAS 144”), the Company is required to test long-livedassets for recoverability whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. If a impairment is indicated,the Company must measure the fair value of assets in accordance with SFAS 144to determine if and when adjustments are to be recorded.

 

The Company’s credit risk is diversified across abroad range of customers and geographic regions. Losses due to credit risk haverecently been immaterial. The provision for doubtful accounts receivable isbased on historical trends and current collectibility risk. The Company hassignificant amounts receivable with a few large, well known customers which,although historically secure, could be subject to material risk should thesecustomers’ operations suddenly deteriorate. The Company monitors thesecustomers closely to minimize the risk of loss. Sales to Wal-Mart® comprised14.6% of revenues in fiscal year 2007 and 12.4 % of accounts receivable was duefrom Wal-Mart® at November 2, 2007. Sales to Wal-Mart® comprised 15.0% of revenues in fiscal year 2006 and13.3% of accounts receivable was due from Wal-Mart® at November 3, 2006.Sales to Wal-Mart® comprised 13.8% of revenues in fiscal year 2005 and 13.6% ofaccounts receivable was due from Wal-Mart® at October 28, 2005.

 

Revenues are recognized upon passage of title to thecustomer upon product pick-up, shipment or delivery to customers as determinedby applicable contracts. Products are delivered to customers through theCompany’s own fleet or through a Company-owned direct store delivery system.

 

The Company records the cash surrender or contractvalue for life insurance policies as an adjustment of premiums paid indetermining the expense or income to be recognized under the contract for theperiod.

 

The above listing is not intended to be acomprehensive list of all the Company’s accounting policies. In many cases, theaccounting treatment of a particular transaction is specifically dictated byaccounting principles generally accepted in the United States, with no need formanagement’s judgment in their application. There are also areas in whichmanagement’s judgment in selecting any available alternative would not producea materially different result.

 

**Recently Issued Accounting Pronouncements and Regulations**

 

In July 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation ofFASB Statement of Accounting Standards No. 109, “Accounting for IncomeTaxes” (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withSFAS 109. This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The Company iscurrently evaluating the provisions of FIN 48 and the impact on ourconsolidated financial position and results of operations. The Company adoptedFIN 48 on November 3, 2007.

 

35

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In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 108,  “Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements” (“SAB  108”).  SAB 108 provides guidance on how prior yearmisstatements should be considered when quantifying misstatements in currentyear financial statements for purposes of determining whether the current year’sfinancial statements are materially misstated. SAB 108 is effective for fiscalyears ending after November 15, 2006. The adoption of SAB 108 did not havea material impact on the Company’s results of operations or financial positionin fiscal year 2007.

 

In September 2006, the FASB issued Statement ofAccounting Standards No. 157, “Fair Value Measurements” (“SFAS  157”). This Statement defines fair value,provides a framework for measuring fair value, and expands the disclosuresrequired for fair value measurements. SFAS 157 applies to other accountingpronouncements that require fair value measurements; it does not require anynew fair value measurements. SFAS 157 is effective for financial statements forfiscal years beginning after November 15, 2007, the Company’s first quarterof the 2009 fiscal year, and interim periods within those years.   The Company does not expect this statementwill have a material impact on the Company’s results of operations or financialposition upon adoption.

 

In September 2006, the FASB issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans–an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS158 requires employers to recognize the over- or under-funded status of definedbenefit plans and other postretirement plans in the statement of financialposition and to recognize changes in the funded status in the year in which thechanges occur through comprehensive income. In addition, SFAS 158 requiresemployers to measure the funded status of plans as of the date of the year-endstatement of financial position. The recognition and disclosure provisions ofSFAS 158 became effective for the Company’s fiscal year ending November 2,2007 while the requirement to measure plan assets and benefit obligations as ofa company’s year-end date is effective for fiscal years ending after December 15,2008 (effective for the Company’s fiscal year ending October 30,2009).  The impact of the Company’sinitial adoption of SFAS 158 is disclosed in Note 3 to the ConsolidatedFinancial Statements.

 

In February 2007, the FASB issuedStatement of Financial Accounting Standards No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 expands opportunities to use fairvalue measurement in financial reporting and permits entities to choose tomeasure many financial instruments and certain other items at fair value.  This Statement is effective for fiscal yearsbeginning after November 15, 2007, or the Company’s fiscal year ending October 30,2009.  The Company does not expect thisstatement will have a material impact on its results of operations or financialposition.

 

**NOTE 2- *Composition ofCertain Financial Statement Captions:***

 
| ** **                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Inventories:                    |       |     |       |     |       |
| Meat, ingredients  and supplies |       | $        | 3,726      |     | $          | 3,748 |   |
| Work in process                 |       | 1,360    |       | 2,228    |       |
| Finished goods                  |       | 13,246   |       | 13,568   |       |
|                            |       | $        | 18,332     |     | $          | 19,544 |   |
| Property, plant  and equipment: |       |     |       |     |       |
| Land                            |       | $        | 1,840      |     | $          | 1,840 |   |
| Buildings and  improvements     |       | 13,496   |       | 13,233   |       |
| Machinery and  equipment        |       | 42,025   |       | 39,640   |       |
| Asset impairment  reserve       |       | (54      | )          | (54      | )          |
| Transportation  equipment       |       | 7,650    |       | 10,130   |       |
| Construction in  process        |       | 104      |       | 2,193    |       |
|                            |       | 65,061   |       | 66,982   |       |
| Accumulated  depreciation       |       | (53,840  | )          | (53,941  | )          |
|                            |       | $        | 11,221     |     | $          | 13,041 |   |
|                            |       |     |       |     |       |
| Other  non-current assets:      |       |     |       |     |       |
| Cash surrender  value benefits  |       | $        | 11,181     |     | $          | 10,561 |   |
| Intangible asset                |       | 10       |       | 59       |       |
|                            |       | $        | 11,191     |     | $          | 10,620 |   |

 

36

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| Accrued payroll,  advertising and other expenses:       |   |   |   |   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|
| Payroll,  vacation, payroll taxes and employee benefits |   | $      | 3,396  |   | $      | 4,297 |   |
| Accrued  advertising and broker commissions             |   | 929    |   | 681    |   |
| Property taxes                                          |   | 363    |   | 439    |   |
| Others                                                  |   | 565    |   | 612    |   |
|                                                    |   | $      | 5,253  |   | $      | 6,029 |   |
|                                                    |   |   |   |   |   |
| Current portion  of non-current liabilities:            |   |   |   |   |   |
| Incentive  compensation                                 |   | $      | 203    |   | $      | 217 |   |
| Accrued pension  cost                                   |   | 2,877  |   | 3,476  |   |
| Other accrued  retirement plans                         |   | 506    |   | 510    |   |
| Post retirement  healthcare                             |   | 85     |   | 76     |   |
|                                                    |   | $      | 3,671  |   | $      | 4,279 |   |
|                                                    |   |   |   |   |   |
| Non-current  liabilities:                               |   |   |   |   |   |
| Incentive compensation                                  |   | $      | 285    |   | $      | 340 |   |
| Accrued pension  cost                                   |   | 688    |   | 3,732  |   |
| Other accrued  retirement plans                         |   | 3,692  |   | 3,929  |   |
| Post retirement  healthcare                             |   | 1,111  |   | 513    |   |
|                                                    |   | $      | 5,776  |   | $      | 8,514 |   |

 

**NOTE 3- *Retirement andOther Benefit Plans:***

 

**Adoptionof SFAS No. 158**

 

Effective November 2, 2007, the Company adoptedSFAS 158, which requires the recognition in pension obligations and accumulatedother comprehensive income of actuarial gains or losses, prior service costs orcredits and transition assets or obligations previously deferred under thereporting requirements of SFAS 87, SFAS 106 and SFAS 132(R). The followingtable reflects the effects of initial adoption of SFAS 158 on the ConsolidatedBalance Sheet as of November 2, 2007.

 
| ** **                                       | ** ** | **Before  Application of  SFAS No. 158** | ** ** | **Adjustments** | ** ** | **After  Application of  SFAS No. 158** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------|------------|--------------------------------------------------------|------------|
| Deferred income  taxes current                   |       | $                                                       | 1,494      |            | $          | (4                                                     | )          | $ | 1,490 |   |
| Deferred income  taxes                           |       | 3,524                                                   |       | 356             |       | 3,880                                                  |       |
| Total assets                                     |       | 67,299                                                  |       | 348             |       | 67,647                                                 |       |
| Current  liabilities                             |       | 11,913                                                  |       | (11             | )          | 11,902                                                 |       |
| Non-current  liabilities                         |       | 4,850                                                   |       | 926             |       | 5,776                                                  |       |
| Accumulated  other comprehensive income/(loss)   |       | (36                                                     | )          | (567            | )          | (603                                                   | )          |
| Total  shareholders’ equity                 |       | 50,536                                                  |       | (567            | )          | 49,969                                                 |       |
| Total  liabilities and shareholders’ equity |       | $                                                       | 67,299     |            | $          | 348                                                    |       | $ | 67,647 |   |

 

**Noncontributory-TrusteedDefined Benefit Retirement Plans for Sales, Administrative, Supervisory andCertain Other Employees**

 

The Company has noncontributory-trusteed definedbenefit retirement plans for sales, administrative, supervisory and certainother employees. The benefits under these plans are primarily based on years ofservice and compensation levels. The Company’s funding policy is to contributeannually the maximum amount deductible for federal income tax purposes, withoutregard to the plans’ unfunded current liability. The measurement date for theplan is the Company’s fiscal year end.

 

37

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Net pension cost consisted of the following:

 
| ** **                                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                      |       | $        | 170        |     | $          | 1,160    |       | $ | 1,680 |   |
| Interest cost                                     |       | 1,856    |       | 1,922    |       | 1,803    |       |
| Expected return  on plan assets                   |       | (1,892   | )          | (1,592   | )          | (1,406   | )          |
| Amortization of  unrecognized loss                |       | —   |       | 191      |       | 370      |       |
| Amortization of  transition asset (15.2 years)    |       | 0        |       | —   |       | —   |       |
| Amortization of  unrecognized prior service costs |       | 2        |       | 31       |       | 42       |       |
| Net pension cost                                  |       | $        | 136        |     | $          | 1,712    |       | $ | 2,489 |   |

 

In the third quarter of fiscal 2006, the Company frozethe defined benefit pension plan accrued benefits for members employed by theCompany within administration, sales or supervisory job classification orwithin a non-bargaining class . This action is defined as a curtailment underSFAS No. 88 “Employers’ Accounting for Settlements and Curtailments ofDefined Benefit Pension Plans and for Termination Benefits” and, therefore, theCompany recognized a curtailment loss of approximately $8 in fiscal year 2006.

 

Netpension cost is determined using assumptions as of the beginning of each fiscalyear. Weighted average assumptions for the fiscal years are as follows:

 
| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate                      |       | 6.25     | %          | 6.00     | %          | 6.00     | %          |
| Rate of increase  in salary levels |       | N/A      |       | N/A      |       | 3.75     | %          |
| Expected return  on plan assets    |       | 8.25     | %          | 8.00     | %          | 8.00     | %          |

 

The benefit obligation, plan assets, and funded statusof these plans as of the fiscal years ended are as follows:

 
| ** **                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Change in benefit  obligations:                |       |     |       |     |       |
| Benefit  Obligations - beginning of year       |       | $        | 30,469     |     | $          | 33,215 |   |
| Service Cost                                   |       | 170      |       | 1,160    |       |
| Interest Cost                                  |       | 1,856    |       | 1,922    |       |
| Actuarial (Gain)  Loss                         |       | (245     | )          | 348      |       |
| Benefits Paid                                  |       | (879     | )          | (965     | )          |
| Curtailments                                   |       | 0        |       | (5,211   | )          |
| Plan Amendments                                |       | 0        |       | 0        |       |
| Benefit  Obligations - end of year             |       | 31,371   |       | 30,469   |       |
| Change in plan  assets:                        |       |     |       |     |       |
| Fair value of  plan assets - beginning of year |       | 23,279   |       | 19,440   |       |
| Employer  Contributions                        |       | 2,439    |       | 2,757    |       |
| Actual return on  plan assets                  |       | 2,967    |       | 2,029    |       |
| Benefits Paid                                  |       | (879     | )          | (965     | )          |
| Fair value of  plan assets - end of year       |       | 27,806   |       | 23,261   |       |
| Funded Status of  the plans                    |       | (3,565   | )          | (7,208   | )          |
| Unrecognized  prior service costs              |       | 10       |       | 59       |       |
| Unrecognized net  actuarial loss               |       | 576      |       | 1,867    |       |
| Unrecognized net  transition asset             |       | —   |       | —   |       |
| Additional  accrued minimum liability          |       | 0        |       | (1,926   | )          |
| Accrued pension  cost                          |       | $        | (2,979     | )        | $          | (7,208 | ) |

 

The accumulated benefit obligation is $31,371 and$30,469 at November 2, 2007 and November 3, 2006, respectively.

 

The benefit obligation is determined using assumptionsas of the end of each fiscal year. Weighted average assumptions as of thefiscal years ended are as follows:

 
| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Discount rate                      |       | 6.25     | %          | 6.00     | %          |
| Rate of increase  in salary levels |       | N/A      |       | N/A      |       |

 

38

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The discount rate used to value the projected benefitobligation was 6.25% for fiscal year 2007. SFAS No. 87 “Employers’Accounting for Pensions” generally requires that the discount rate used in theliability measurement reflect the economic environment in which the liabilitycan be settled as of the measurement date. The discount rates were based onCitigroup Pension Discount Curve, which has become an industry benchmark.Higher funding levels, improved investment returns and the freezing of pensionbenefits helped to reduce the minimum liability compared to the prior year.

 

Plan assets are primarily invested in marketableequity securities, corporate and government debt securities and areadministered by an investment management company. The plans’ long-term returnon assets is based on the weighted-average of the plans’ investment allocationas of the measurement date and the published historical returns for those typesof asset categories, taking into consideration inflation rate forecasts. Thecompensation increase assumption is based upon historical patterns of salaryincreases and management’s expectation of future salary increases for planparticipants. The expected Company contribution to the plan in fiscal year 2008is $2,877.

 

The actual allocations as of the fiscal years endedand target allocation for plan assets are as follows:

 
| **Asset Class**                             | ** ** | **2007** | ** ** | **Target  Asset  Allocation** | ** ** | **2006** | ** ** | **Target  Asset  Allocation** | ** ** |
|--------------------------------------------------|------------|----------|------------|-------------------------------|------------|----------|------------|-------------------------------|------------|
| Large Cap  Equities                              |       | 40.6     | %          | 40.0                          | %          | 72.16    | %          | 45.0                          | %          |
| Mid Cap Equities                                 |       | 9.6      | %          | 10.0                          | %          | 0.0      | %          | 7.5                           | %          |
| Small Cap  Equities                              |       | 4.3      | %          | 5.0                           | %          | 0.0      | %          | 5.0                           | %          |
| International  (including Non-U.S. Fixed Income) |       | 21.2     | %          | 20.0                          | %          | 0.0      | %          | 7.5                           | %          |
| Fixed Income                                     |       | 0.0      | %          | 0.0                           | %          | 27.44    | %          | 35.0                          | %          |
| Other  (Government/Corporate, Bonds)             |       | 24.2     | %          | 25.0                          | %          | 0.0      | %          | 0.0                           | %          |
| Cash                                             |       | 0.1      | %          | 0.0                           | %          | 0.4      | %          | 0.0                           | %          |
| Total                                            |       | 100.0    | %          | 100.0                         | %          | 100.0    | %          | 100.0                         | %          |

 

Expected payments for the pension benefits are asfollows:

 
| ** **       | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** |
|------------------|------------|-----------------------|------------|-------------------------------------|------------|
| Fiscal 2008      |       | $                     | 1,034      |                                | $          | 513 |   |
| Fiscal 2009      |       | $                     | 1,107      |                                | $          | 513 |   |
| Fiscal 2010      |       | $                     | 1,148      |                                | $          | 513 |   |
| Fiscal 2011      |       | $                     | 1,204      |                                | $          | 513 |   |
| Fiscal 2012      |       | $                     | 1,303      |                                | $          | 513 |   |
| Fiscal 2013-2017 |       | $                     | 8,305      |                                | $          | 3,821 |   |

 

Net amounts recognized as of the end of each fiscalyear are as follows:

 
| ** **                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
| Accrued benefit  cost                   |       | $        | (3,565     | )        | $          | (7,208 | ) |
| Intangible asset                        |       | 10       |       | 59       |       |
| Accumulated  other comprehensive income |       | 576      |       | 1,867    |       |
|                                    |       | $        | (2,979     | )        | $          | (5,282 | ) |

 

**Non-QualifiedSupplemental Retirement Plan for Certain Key Employees**

 

In fiscal year 1991, the Company adopted anon-qualified supplemental retirement plan for certain key employees. Benefitsprovided under the plan are equal to 60% of the employee’s final averageearnings, less amounts provided by the Company’s defined benefit pension planand amounts available through Social Security. Effective January 1, 1991the Company adopted a deferred compensation savings plan for certain keyemployees. Under this arrangement, selected employees contribute a portion oftheir annual compensation to the plan. The Company contributes an amount toeach participant’s account by computing an investment return equal to Moody’sAverage Seasoned Bond Rate plus 2%. Employees receive vested amounts upondeath, termination or attainment of retirement age. Total benefit expenserecorded under these plans for fiscal years 2007, 2006, and 2005 was $0, $0,and $9, respectively. Benefits payable related to these 

 

39

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plans andincluded in other non-current liabilities in the accompanying financialstatements were $3,692 and $3,929 at November 2, 2007 and November 3,2006, respectively. In connection with this arrangement the Company is thebeneficiary of life insurance policies on the lives of certain key employees.The aggregate cash surrender value of these policies, included in non-currentassets, was $11,181 and $10,561 at November 2, 2007 and November 3,2006, respectively.

 

**IncentiveCompensation Plan for Certain Key Executives**

 

The Company provides an incentive compensation planfor certain key executives, which is based upon the Company’s pretax income.The payment of these amounts is generally deferred over a five-year period. Thetotal amount payable related to this arrangement was $488 and $557 at November 2,2007 and November 3, 2006, respectively. Future payments are approximately$203, $112, $82, $62 and $30 for fiscal years 2008 through 2012, respectively.

 

**PostretirementHealth Care Benefits for Selected Executive Employees**

 

The Company provides postretirement health carebenefits for selected executive employees.  Net periodic postretirement benefit cost is determined using assumptionsas of the beginning of each fiscal year.

 

Net periodic postretirement benefit cost consisted ofthe following:

 
| ** **                                | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Service cost                              |       | $        | 15         |     | $          | 14 |   |
| Interest cost                             |       | 70       |       | 66       |       |
| Return on plan  assets                    |       | 0        |       | 0        |       |
| Amortization of  unrecognized loss        |       | 0        |       | 0        |       |
| Amortization of  prior service cost       |       | 75       |       | 75       |       |
| Amortization of  actuarial (gain) / loss  |       | 10       |       | 11       |       |
| Net periodic  postretirement benefit cost |       | $        | 170        |     | $          | 166 |   |

 

Weighted average assumptions for the fiscal year endedNovember 2, 2007 are as follows:

 
| ** **                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Discount rate                         |       | 6.25     | %          | 6.00     | %          |
| Medical trend  rate next year         |       | 9.00     | %          | 10.0     | %          |
| Ultimate trend  rate                  |       | 5.00     | %          | 5.00     | %          |
| Year ultimate  trend rate is achieved |       | 2011     |       | 2011     |       |

 

The table below shows the estimated effect of a 1%increase in health care cost trend rate on the following:

 
| ** **                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Interest cost  plus service cost               |       | $        | 10         |     | $          | 10 |   |
| Accumulated  postretirement benefit obligation |       | $        | 111        |     | $          | 120 |   |

 

The table below shows the estimated effect of a 1%decrease in health care cost trend rate on the following:

 
| ** **                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Interest cost  plus service cost               |       | $        | (9         | )        | $          | (9 | ) |
| Accumulated  postretirement benefit obligation |       | $        | (94        | )        | $          | (113 | ) |

 

40

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The benefit obligation and funded status of this planas of the fiscal year ended November 2, 2007 is as follows:

 
| ** **                                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Change in  accumulated postretirement benefit obligation:         |       |     |       |     |       |
| Benefit  Obligations - beginning of year                          |       | $        | 1,159      |     | $          | 1,143 |   |
| Service Cost                                                      |       | 15       |       | 14       |       |
| Interest Cost                                                     |       | 70       |       | 66       |       |
| Actuarial (Gain)  Loss                                            |       | (44      | )          | (48      | )          |
| Benefits Paid                                                     |       | (4       | )          | (16      | )          |
| Plan Amendments                                                   |       | 0        |       | 0        |       |
| Benefit  Obligations - end of year                                |       | $        | 1,196      |     | 1,159      |   |
| Funded Status of  the plans                                       |       | 1,196    |       | 1,159    |       |
| Unrecognized  prior service costs                                 |       | (298     | )          | (372     | )          |
| Unrecognized net  actuarial loss                                  |       | (144     | )          | (198     | )          |
| Unrecognized net  transition asset                                |       | —   |       | —   |       |
| Accrued  postretirement benefit cost                              |       | N/A      |       | $        | 589        |   |
| Transitional  Adjustment to Other Comprehensive Income (SFAS 158) |       | 442      |       |     |       |
| Postretirement  benefit liability                                 |       | $        | 1,196      |     |       |   |

 

Expected payments for the postretirement benefits areas follows:

 
| ** **       | ** ** | **Postretirement  Benefits** | ** ** |
|------------------|------------|------------------------------|------------|
| Fiscal 2008      |       | $                            | 85         |   |
| Fiscal 2009      |       | $                            | 88         |   |
| Fiscal 2010      |       | $                            | 89         |   |
| Fiscal 2011      |       | $                            | 90         |   |
| Fiscal 2012      |       | $                            | 90         |   |
| Fiscal 2013-2017 |       | $                            | 422        |   |

 

**StockIncentive Plan**

 

The Company’s 1999 Stock Incentive Plan (“the Plan”)was approved by the Board of Directors on January 11, 1999 and 275,000options were granted on April 29, 1999. During fiscal year 2000, 25,000options were canceled. Under the Plan, the maximum aggregate number of shareswhich may be optioned and sold is 900,000 shares of common stock, subject toadjustment upon changes in capitalization or merger. Generally, options grantedunder the plan vest in annual installments over four years following the dateof grant (as determined by the Board of Directors) subject to the optionee’scontinuous service. Options expire ten years from the date of grant with theexception of an incentive stock option granted to an optionee who owns stockrepresenting more than 10% of the voting power of all classes of stock of theCompany, in which case the term of the option is five years. Options generallyterminate three months after termination of employment or one year after terminationdue to permanent disability or death. Options are generally granted at a fairmarket value determined by the Board of Directors subject to the following:

 

a.)                   With respect to options granted to an employee orservice provider who, at the time of grant owns stock representing more than10% of the voting power of all classes of stock of the Company; the per shareexercise price shall be no less than 110% of the fair market value on the dateof grant.

 

b.)                  With respect to options granted to an employee orservice provider other than described in the preceding paragraph, the exerciseprice shall be no less than 100% for incentive stock options and 85% fornon-statutory stock options of the fair market value on the date of grant.

 

No options have been granted, exercised, canceled orforfeited for the last five fiscal years.

 

As of November 2, 2007, 250,000 options wereoutstanding at an exercise price of $10.00 per share.

 

41

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**401(K) Planfor Sales, Administrative, Supervisory and Certain Other Employees**

 

During the fiscal year ended November 3, 2006,the Company implemented a qualified 401(K) retirement plan (the “Plan”)for its sales, administrative, supervisory and certain other employees. Duringfiscal years 2007 and 2006, the Company made total contributions to the Plan inthe amounts of $470 and $229, respectively.

 

**NOTE 4- *Income Taxes:***

 

The provision (benefit) for taxes on income includesthe following:

 
| ** ** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Current:   |       |     |       |     |       |     |       |
| Federal    |       | $        | 37         |     | $          | (171     | )          | $ | (1,262 | ) |
| State      |       | 136      |       | 28       |       | (208     | )          |
|       |       | 173      |       | (143     | )          | (1,470   | )          |
|       |       |     |       |     |       |     |       |
| Deferred:  |       |     |       |     |       |     |       |
| Federal    |       | (432     | )          | 357      |       | 318      |       |
| State      |       | (122     | )          | 43       |       | (159     | )          |
|       |       | (554     | )          | 400      |       | 159      |       |
|       |       | $        | (381       | )        | $          | 257      |       | $ | (1,311 | ) |

 

The total tax provision (benefit) differs from the amount computed byapplying the statutory federal income tax rate to income (loss) before incometaxes as follows:

 
| ** **                                                                                                | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| (Benefit)  provision for federal income taxes at the applicable statutory rate                            |       | $        | (229       | )        | $          | 509      |       | $ | (766 | ) |
| (Decrease)  increase in provision resulting from state income taxes, net of federal  income   tax benefit |       | (47      | )          | 44       |       | (90      | )          |
| Tax reserve  release                                                                                      |       | —   |       | —   |       | (330     | )          |
| Research &  development tax credit                                                               |       | (25      | )          | (154     | )          | —   |       |
| Non-taxable life  insurance gain                                                                          |       | (211     | )          | (142     | )          | (202     | )          |
| Other, net                                                                                                |       | 131      |       | —   |       | 77       |       |
|                                                                                                      |       | $        | (381       | )        | $          | 257      |       | $ | (1,311 | ) |

 

Deferred income taxes result from differences in the bases of assetsand liabilities for tax and accounting purposes.

 
| ** **                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Receivables  allowance            |       | $        | 193        |     | $          | 209 |   |
| Inventory  capitalization         |       | 364      |       | 381      |       |
| Incentive  compensation           |       | 69       |       | 74       |       |
| State taxes                       |       | (241     | )     | (200     | )          |
| Employee  benefits                |       | 1,051    |       | 1,332    |       |
| Other                             |       | 54       |       | 25       |       |
| Current tax  assets, net          |       | $        | 1,490      |     | $          | 1,821 |   |
| Incentive  compensation           |       | $        | 114        |     | $          | 136 |   |
| Pension and  health care benefits |       | 2,306    |       | 3,666    |       |
| Depreciation                      |       | (274     | )          | (445     | )          |
| Net operating  loss carry-forward |       | 1,734    |       | —   |       |
| Non-current tax  assets, net      |       | $        | 3,880      |     | $          | 3,357 |   |

 

The Company has determined, based on availableevidence, that it is more likely than not that the deferred tax assets will berealized. No valuation allowance was provided against deferred tax assets inthe accompanying consolidated financial 

 

42

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statements.As of November 2, 2007, the Company had net operating loss carryforwardsof approximately $3,986 and $4,949 for federal and state purposes,respectively.  These loss carryforwardswill expire at various dates from 2011 through 2026.

 

**NOTE 5- *Line of Credit:***

 

Under the terms of a revolving line of credit withBank of America, the Company may borrow up to $2,000 through April 30,2008. The interest rate is at the bank’s reference rate unless the Companyelects an optional interest rate. The borrowing agreement contains variouscovenants, the more significant of which require the Company to maintaincertain levels of shareholders’ equity and working capital. The Company was incompliance with all provisions of the agreement during the year. There were noborrowings under this line of credit during the year.

 

**NOTE 6- *Contingencies andCommitments:***

 

The Company leases certain transportation and computerequipment under operating leases. The terms of the transportation leasesprovide for annual renewal options and contingent rental payments based uponmileage and adjustments of rental payments based on the Consumer Price Index.Minimum rental payments were $415 in fiscal year 2007, $395 in fiscal year2006, and $330 in fiscal year 2005. Contingent payments were approximately $120in fiscal year 2007, $108 in fiscal year 2006, and $132 in fiscal year 2005.Future minimum lease payments are approximately $415 in the each of the years2008 through 2011 and $395 in 2012 and thereafter.

 

**NOTE 7- *SegmentInformation:***

 

The Company has two reportable operating segments,Frozen Food Products (the processing and distribution of frozen products), andRefrigerated and Snack Food Products (the processing and distribution ofrefrigerated meat and other convenience foods).

 

The Company evaluates each segment’s performance basedon revenues and operating income. Selling and general administrative expensesinclude corporate accounting, information systems, human resource and marketingmanagement at the corporate level. These activities are allocated to eachoperating segment based on revenues and/or actual usage.

 

The following segment information is for the yearsended November 2, 2007, November 3, 2006, and October 28, 2005:

 
| **2007**                                       | ** ** | **Frozen Food  Products** | ** ** | **Refrigerated  and Snack Food  Products** | ** ** | **Other** | ** ** | **Elimination** | ** ** | **Totals** | ** ** |
|------------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------|------------|-----------|------------|-----------------|------------|------------|------------|
| Sales                                          |       | $                              | 49,401     |                                                 | $          | 75,690    |       | $               | —     |       | $          | — |   | $ | 125,091 |   |
| Intersegment  sales                            |       | —                         |       | 1,834                                                |       | —    |       | (1,834          | )          | —     |       |
| Net sales                                      |       | 49,401                         |       | 77,524                                               |       | —    |       | (1,834          | )          | 125,091    |       |
| Cost of products  sold, excluding depreciation |       | 30,169                         |       | 52,791                                               |       | —    |       | (1,834          | )          | 81,126     |       |
| Selling, general  and administrative expenses  |       | 14,571                         |       | 26,678                                               |       | —    |       | —          |       | 41,249     |       |
| Depreciation                                   |       | 1,008                          |       | 2,381                                                |       | —    |       | —          |       | 3,389      |       |
| Gain on sale of  equity securities             |       | —                         |       | —                                               |       | —    |       | —          |       | —     |       |
|                                           |       | 45,748                    |       | 81,850                                               |       | —    |       | (1,834          | )          | 125,764    |       |
| Income (loss)  before taxes                    |       | 3,653                          |       | (4,326                                               | )          | —    |       | —          |       | (673       | )          |
| Provision  (benefit) for taxes on income       |       | 1,347                          |       | (1,728                                               | )          | —    |       | —          |       | (381       | )          |
| Net income  (loss)                             |       | $                              | 2,306      |                                                 | $          | (2,598    | )          | $               | —     |       | $          | — |   | (292 | ) |
| Total assets                                   |       | $                              | 12,003     |                                                 | $          | 26,348    |       | $               | 29,296     |       | $          | — |   | $ | 67,647 |   |
| Additions to  property, plant and equipment    |       | $                              | 274        |                                                 | $          | 1,247     |       | $               | 66         |       | $          | — |   | $ | 1,587 |   |

 

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| **2006**                                       | ** ** | **Frozen Food  Products** | ** ** | **Refrigerated  and Snack Food  Products** | ** ** | **Other** | ** ** | **Elimination** | ** ** | **Totals** | ** ** |
|------------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------|------------|-----------|------------|-----------------|------------|------------|------------|
| Sales                                          |       | $                              | 50,806     |                                                 | $          | 83,458    |       | $               | —     |       | $          | — |   | $ | 134,264 |   |
| Intersegment  sales                            |       | —                         |       | 2,285                                                |       | —    |       | (2,285          | )          | —     |       |
| Net sales                                      |       | 50,806                         |       | 85,743                                               |       | —    |       | (2,285          | )          | 134,264    |       |
| Cost of products  sold, excluding depreciation |       | 30,023                         |       | 57,395                                               |       | —    |       | (2,285          | )          | 85,133     |       |
| Selling, general  and administrative expenses  |       | 14,189                         |       | 29,774                                               |       | —    |       | —          |       | 43,963     |       |
| Depreciation                                   |       | 1,398                          |       | 2,379                                                |       | —    |       | —          |       | 3,777      |       |
| Gain on sale of  equity securities             |       | —                         |       | (106                                                 | )          | —    |       | —          |       | (106       | )          |
|                                           |       | 45,610                         |       | 89,442                                               |       | —    |       | (2,285          | )          | 132,767    |       |
| Income (loss)  before taxes                    |       | 5,196                          |       | (3,699                                               | )          | —    |       | —          |       | 1,497      |       |
| Provision  (benefit) for taxes on income       |       | 1,872                          |       | (1,615                                               | )          | —    |       | —          |       | 257        |       |
| Net income  (loss)                             |       | $                              | 3,324      |                                                 | $          | (2,084    | )          | $               | —     |       | $          | — |   | $ | 1,240 |   |
| Total assets                                   |       | $                              | 12,194     |                                                 | $          | 30,612    |       | $               | 30,125     |       | $          | — |   | $ | 72,931 |   |
| Additions to  property, plant and equipment    |       | $                              | 314        |                                                 | $          | 1,705     |       | $               | 311        |       | $          | — |   | $ | 2,330 |   |

 
| **2005**                                       | ** ** | **Frozen Food  Products** | ** ** | **Refrigerated  and Snack Food  Products** | ** ** | **Other** | ** ** | **Elimination** | ** ** | **Totals** | ** ** |
|------------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------|------------|-----------|------------|-----------------|------------|------------|------------|
| Sales                                          |       | $                              | 47,168     |                                                 | $          | 83,677    |       | $               | —     |       | $          | — |   | $ | 130,845 |   |
| Intersegment  sales                            |       | —                         |       | 4,038                                                |       | —    |       | (4,038          | )          | —     |       |
| Net sales                                      |       | 47,168                         |       | 87,715                                               |       | —    |       | (4,038          | )          | 130,845    |       |
| Cost of products  sold, excluding depreciation |       | 26,479                         |       | 63,014                                               |       | —    |       | (4,038          | )          | 85,455     |       |
| Selling, general  and administrative expenses  |       | 13,160                         |       | 30,233                                               |       | —    |       | —          |       | 43,393     |       |
|                                           |       |                           |       |                                                 |       |      |       |            |       |       |       |
| Depreciation                                   |       | 1,865                          |       | 2,386                                                |       | —    |       | —          |       | 4,251      |       |
|                                           |       | 41,504                         |       | 95,633                                               |       | —    |       | (4,038          | )          | 133,099    |       |
| Income (loss)  before taxes                    |       | 5,664                          |       | (7,918                                               | )          | —    |       | —          |       | (2,254     | )          |
| Provision  (benefit) for taxes on income       |       | 2,004                          |       | (3,315                                               | )          | —    |       | —          |       | (1,311     | )          |
| Net income  (loss)                             |       | $                              | 3,660      |                                                 | $          | (4,603    | )          | $               | —     |       | $          | — |   | $ | (943 | ) |
| Total assets                                   |       | $                              | 12,394     |                                                 | $          | 32,747    |       | $               | 27,822     |       | $          | — |   | $ | 72,963 |   |
| Additions to  property, plant and equipment    |       | $                              | 549        |                                                 | $          | 1,419     |       | $               | 64         |       | $          | — |   | $ | 2,032 |   |

 

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**NOTE8- *Unaudited Interim Financial Information***

 
| ** **                       | ** ** | **2007**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 26** | ** ** | **April 20** | ** ** | **July 13** | ** ** | **November 2** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(16 weeks)** | ** ** |
| Net sales                        |       | $                   | 32,314     |   | $ | 27,894 |   | $ | 26,686 |   | $ | 38,197 |   |
| Income (loss)  before taxes      |       | 55                  |       | (356 | ) | 79 |   | (451 | ) |
| Net income  (loss)               |       | 40                  |       | (273 | ) | 33 |   | (92 | ) |
| Basic earnings  (loss) per share |       | $                   | 0.00       |   | $ | (0.03 | ) | $ | 0.00 |   | $ | 0.00 |   |

 
| ** **                       | ** ** | **2006**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 20** | ** ** | **April 14** | ** ** | **July 7** | ** ** | **November 3** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(17 weeks)** | ** ** |
| Net sales                        |       | $                   | 34,575     |   | $ | 28,305 |   | $ | 28,169 |   | $ | 43,215 |   |
| Income (loss)  before taxes      |       | (240                | )          | 168 |   | 234 |   | 1,335 |   |
| Net income  (loss)               |       | (137                | )          | 72 |   | 224 |   | 1,081 |   |
| Basic earnings  (loss) per share |       | $                   | (0.01      | ) | $ | 0.01 |   | $ | 0.02 |   | $ | 0.11 |   |

 
| ** **                       | ** ** | **2005**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 21** | ** ** | **April 15** | ** ** | **July 8** | ** ** | **October 28** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(16 weeks)** | ** ** |
| Net sales                        |       | $                   | 33,591     |   | $ | 27,714 |   | $ | 27,656 |   | $ | 41,884 |   |
| Income (loss)  before taxes      |       | (316                | )          | (1,049 | ) | 66 |   | (955 | ) |
| Net income  (loss)               |       | (196                | )          | (650 | ) | 243 |   | (340 | ) |
| Basic earnings  (loss) per share |       | $                   | (0.02      | ) | $ | (0.07 | ) | $ | 0.03 |   | $ | (0.03 | ) |

 

45

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**BRIDGFORD FOODS CORPORATION**

**SCHEDULEII**

**VALUATION AND QUALIFYING ACCOUNTS**

***(in thousands)***

 
| ** **                        | ** ** | **Allowance for Doubtful Accounts** | ** ** |
|-----------------------------------|------------|----------------------------------------------------|------------|
| ** **                        | ** ** | **Balance at  Beginning  of year**       | ** ** | **Changes in  Provisions for  Doubtful Accounts  Receivable** | ** ** | **Accounts  Written Off Less  Recoveries** | ** ** | **Balance  at Close of  Period** | ** ** |
| Year ended  November 2, 2007 |       | $                                                  | 524        |   | $ | (245 | ) | $ | (203 | ) | $ | 482 |   |
| Year ended  November 3, 2006 |       | $                                                  | 468        |   | $ | (277 | ) | $ | (333 | ) | $ | 524 |   |
| Year ended  October 28, 2005 |       | $                                                  | 1,118      |   | $ | (578 | ) | $ | 72 |   | $ | 468 |   |

 
| ** **                        | ** ** | **Promotional Allowances**              | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **Balance at  Beginning  of year** | ** ** | **Allowance  for Accruals** | ** ** | **Promotions  Incurred** | ** ** | **Balance  at Close of  Period** | ** ** |
| Year ended  November 2, 2007 |       | $                                            | 2,170      |   | $ | 6,856 |   | $ | 7,046 |   | $ | 1,980 |   |
| Year ended  November 3, 2006 |       | $                                            | 2,092      |   | $ | 5,918 |   | $ | 5,840 |   | $ | 2,170 |   |
| Year ended  October 28, 2005 |       | $                                            | 2,368      |   | $ | 5,260 |   | $ | 5,536 |   | $ | 2,092 |   |

 

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