**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-K**

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

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thefiscal year ended November 3, 2006**

**Commissionfile number: 0-2396**

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**BRIDGFORDFOODS CORPORATION**

(Exact name of Registrantas specified in its charter)

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

 

**1308North Patt Street**

**Anaheim,California 92801**

(Address of principalexecutive offices)

**(714)526-5533**

(Registrant’s telephonenumber, including area code)

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    Securities registered pursuant toSection 12(b) of the Act: Common Stock, par value $1.00 per share, the NASDAQStock Market LLC.

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

   Indicate bycheck mark whether the registrant is a well-known seasoned issuer, as definedin Rule 405 of the Securities Act. Yes oNo x

   Indicate bycheck mark whether the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act. Yes oNo x

   Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes xNo o

   Indicate bycheck mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

   Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer andlarge accelerated 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 oNo x

   The aggregatemarket value of voting stock held by non-affiliates of the registrant on April14, 2006 was $15,212,000.

   Indicate thenumber of shares outstanding of each of the registrant’s classes of commonstock, as of the latest practicable date: 9,952,097 shares as of January 23,2007.

   Documents incorporated by reference,portions of the registrant’s proxy statement for the 2007 Annual Meeting ofStockholders (to be filed with the Commission on or before March 5, 2007): PartIII, Items 10-14.

 

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

 

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**PART I**

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

*ThisAnnual Report on Form 10-K contains certain forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934 and the Company intends that such forward-lookingstatements be subject to the safe harbors created thereby. Theseforward-looking statements include, but are not limited to, statementsregarding the following: general economic and business conditions; the impactof competitive product and pricing; success of operating initiatives;development and operating costs; advertising and promotional efforts; adversepublicity; acceptance of new product offerings; consumer trial and frequency;changes in business strategy or development plans; availability, terms anddeployment of capital; availability of qualified personnel; commodity, labor,and employee benefit costs; changes in, or failure to comply with, governmentregulations; weather conditions; construction schedules; and other factorsreferenced in this Report.*

*Theforward-looking statements included herein are based on current expectationsthat involve a number of risks and uncertainties. These forward-lookingstatements are based on assumptions regarding the Company’s business, whichinvolve judgments with respect to, among other things, future economic andcompetitive conditions, and future business decisions, all of which aredifficult or impossible to predict accurately and many of which are beyond thecontrol of the Company. Although the Company believes that the assumptionsunderlying the forward-looking statements are reasonable, actual results maydiffer materially from those set forth in the forward-looking statements. Inlight of the significant uncertainties inherent in the forward-lookinginformation included herein, the inclusion of such information should not beregarded as representation by the Company or any other person that theobjectives or plans of the Company will be achieved. The forward-lookingstatements contained herein speak as of the date of this Report and the Companyundertakes no obligation to update such statements after the date hereof.*

**Backgroundof Business**

Bridgford FoodsCorporation, a California corporation (collectively with its subsidiaries, the “Company”),was organized in 1952. The Company originally began its operations in 1932 as aretail meat market in San Diego, California, and evolved into a meat wholesalerfor hotels and restaurants, a distributor of frozen food products, a processorand packer of meat and a manufacturer and distributor of frozen food productsfor sale on a retail and wholesale basis. For more than the past five years,the Company and its subsidiaries have been primarily engaged in themanufacturing, marketing and distribution of an extensive line of frozen,refrigerated and snack food products throughout the United States. The Companyhas not been involved in any bankruptcy, receivership or similar proceedings,nor has it been party to any merger, acquisition, etc. or acquired or disposedof any material amounts of assets during the past five years. Substantially allof the assets of the Company have been acquired in the ordinary course ofbusiness. The Company had no significant change in the type of productsproduced or distributed, nor in the markets or methods of distribution sincethe beginning of the fiscal year.

**Descriptionof Business**

The Companyoperates in two business segments – the processing and distribution of frozenproducts and the processing and distribution of refrigerated and snack foodproducts.  For information regarding theseparate financial performance of the business segments refer to Note 7 of theNotes to the Consolidated Financial Statements included in this Annual Report onForm 10-K. The products manufactured and distributed by the Company consist ofan extensive line of food products, including biscuits, bread dough items, rolldough items, dry sausage products and a variety of sandwiches and slicedluncheon meats. The products purchased by the Company for resale include avariety of jerky, cheeses, salads, party dips, Mexican foods, nuts and otherdelicatessen type food products.
| ** **                                                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Products  manufactured or processed by the Company                 |       | 71       | %          | 70       | %          | 69       | %          |
| Items  manufactured or processed by third parties for distribution |       | 29       | %          | 30       | %          | 31       | %          |
|                                                               |       | 100      | %          | 100      | %          | 100      | %          |

 

Although theCompany has recently introduced several new products, most of these productshave not contributed significantly to the Company’s revenue growth for thefiscal year.  However, Bridgford MonkeyBread, introduced in 2005, continues to grow in popularity.  The Company’s sales are not subject tomaterial seasonal variations. Historically the Company has been able to respondquickly to the receipt of orders and, accordingly, the Company does notmaintain a significant sales backlog. The Company and its industry generallyhave no unusual demands or restrictions on working capital items. During thelast fiscal year the Company did not enter into any new markets or anysignificant contractual or other material relationships.

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The Company hastwo classes of similar food products, each of which has accounted for 10% ormore of consolidated sales in the prior three fiscal years listed below. Thefollowing table shows sales, as a percentage of consolidated sales, for each ofthese two classes of similar products for each of the last three fiscal years:
| ** **                            | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Frozen Food  Products                 |       | 38       | %          | 36       | %          | 32       | %          |
| Refrigerated and  Snack Food Products |       | 62       | %          | 64       | %          | 68       | %          |
|                                  |       | 100      | %          | 100      | %          | 100      | %          |

 

To date, federal,state and local environmental laws and regulations, including those relating tothe discharge of materials into the environment, have not had a material effecton the Company’s business.

**MajorProduct Classes**

**FrozenFood Products**

The Company’sfrozen food division serves both food service and retail customers. The Companysells approximately 200 unique frozen food products through wholesalers,cooperatives and distributors to approximately 21,000 retail outlets and 22,000restaurants and institutions.

**FrozenFood Products – Food Service Customers**

The food serviceindustry is composed of establishments that serve food outside the home andincludes restaurants, the food operations of health care providers, schools,hotels, resorts, corporations, and other traditional and non-traditional foodservice outlets. Growth in this industry has been driven by the increase inaway-from-home meal preparation, which has accompanied the expanding number ofboth dual income and single-parent households. Another trend within the foodservice industry is the growth in the number of non-traditional food serviceoutlets such as convenience stores, retail stores and supermarkets. Thesenon-traditional locations often lack extensive cooking, storage or preparationfacilities, resulting in a need for pre-cooked and prepared foods similar tothose provided by the Company. The expansion in the food service industry hasalso been accompanied by the continued consolidation and growth of broadlineand specialty food service distributors, many of which are long-standingcustomers of the Company.

The Companysupplies its food service customers generally through distributors that taketitle to the product and resell it. Among the Company’s customers are many ofthe country’s largest broadline and specialty food service distributors. Forthese and other large end purchasers, the Company’s products occasionally gothrough extensive qualification procedures and its manufacturing capabilitiesare subjected to thorough review by the end purchasers prior to the Company’sapproval as a vendor. Large end purchasers typically select suppliers that canconsistently meet increased volume requirements on a national basis during peakpromotional periods. The Company believes that its manufacturing flexibility,national presence and long-standing customer relationships should pose barriersto entry for other manufacturers seeking to provide similar products to theCompany’s current large food service end purchasers, although no assurances canbe given.

**FrozenFood Products – Retail Customers**

The majority ofthe Company’s existing and targeted retail customers are involved in the resaleof branded and private label packaged foods. The same trends which havecontributed to the increase in away-from-home meal preparation have also fueledthe growth in easy to prepare, microwaveable frozen and refrigeratedconvenience foods. Among the fastest growing segments is the frozen andrefrigerated hand-held foods market. This growth has been driven by improvedproduct quality and variety and the increasing need for inexpensive and healthyfood items that require minimal preparation. Despite rapid growth, manycategories of frozen and refrigerated hand-held foods have achieved minimalhousehold penetration. The Company believes it has been successful inestablishing and maintaining supply relationships with certain selected leadingretailers in this market.

**FrozenFood Products – Sales and Marketing**

The Company’sfrozen food business covers the United States and Canada. In addition toregional sales managers, the Company maintains a network of independent foodservice and retail brokers covering most of the states as well as Canada.Brokers are compensated on a commission basis. The Company believes that itsbroker relationships, in close cooperation 

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with the regional salesmanagers, are a valuable asset providing significant new product and customeropportunities. The regional sales managers perform several significantfunctions for the Company, including identifying and developing new businessopportunities and providing customer service and support to the Company’sdistributors and end purchasers through the effective use of the Company’sbroker network.

The Company’sannual advertising expenditures are directed towards retail and institutionalcustomers. These customers participate in various special promotional andmarketing programs and direct advertising allowances sponsored by the Company.The Company also invests in general consumer advertising in various newspapers andperiodicals. The Company directs advertising at food service customers withcampaigns in major industry publications and through Company participation intrade shows throughout the United States.

**Refrigeratedand Snack Food Products – Customers**

The Company’srefrigerated and snack food products division sells approximately 270 differentitems through a direct store delivery network serving approximately 36,000supermarkets, mass merchandise and convenience retail stores located in 49states and Canada.

These customersare comprised of large retail chains and smaller “independent” operators. Thispart of the Company’s business is highly competitive. Proper placement of theCompany’s product lines is critical to selling success since most items couldbe considered “impulse” items which are often consumed shortly after purchase.The Company’s ability to sell successfully to this distribution channel dependson aggressive marketing and maintaining relationships with key buyers.

**Refrigeratedand Snack Food Products – Sales and Marketing**

The Company’sdirect store delivery network consists of two separate divisions, refrigeratedand non-refrigerated snack food products. Refrigerated snack food products aredistributed through five different regions located in the southwest, primarilyoperating in California, Arizona and Nevada. Non-refrigerated snack foodproducts are distributed in seventeen geographic regions across the UnitedStates and Canada, each managed by regional sales managers. The regional salesmanagers perform several significant functions for the Company includingidentifying and developing new business opportunities and providing customerservice and support to the Company’s customers. The Company also utilizes theservices of brokers where appropriate to support efficient product distributionand customer satisfaction.

**ProductPlanning and Research and Development**

The Companycontinually monitors the consumer acceptance of each product within itsextensive product line. Individual products are regularly added to and deletedfrom the Company’s product line. The addition or deletion of any product hasnot had a material effect on the Company’s operations in the current fiscalyear. The Company believes that a key factor in the success of its products isits system of carefully targeted research and testing of its products to ensurehigh quality and that each product matches an identified market opportunity.The emphasis in new product introductions in the past several years has been insingle service items. The Company is constantly searching to develop newproducts to complement its existing product line and improved processingtechniques and formulas for its existing product line. The Company utilizesin-house test kitchens to research and experiment with unique food preparationmethods, improve quality control and analyze new ingredient mixtures. TheCompany’s refrigerated and snack food products segment has continued to refinedevelopment of a new major manufacturing line that was originally scheduled forcompletion in the fourth quarter of fiscal year 2005.  The Company has been field testing thisproduct with consumers since early November 2006.  Further testing will commence upon completionof final modifications to the product line. The Company does not expect to begin production for at least another 60days after new modifications are complete. While management believes that the line, once complete, will beprofitable, no absolute assurance can be given. At November 3, 2006, the total investment in this line was $1,747,including $281 in soft development costs. The Company does not anticipate any significant change in product-mix asa result of its current research and development efforts.

**Competition**

The products ofthe Company are sold under highly competitive conditions. All food products canbe considered competitive with other food products, but the Company considersits principal competitors to include national, regional and local producers anddistributors of refrigerated, frozen and snack food products. Several of theCompany’s competitors include large companies with substantially greaterfinancial and marketing resources than those of the Company. Existingcompetitors may broaden their product lines and potential competitors may enteror increase their focus on the Company’s market, resulting in greatercompetition for the Company. The Company believes that its products competefavorably with those of the Company’s competitors. Such competitors’ productscompete against those of the Company for retail shelf space, institutionaldistribution and customer preference.

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**Importanceof Key Customers**

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% ofrevenues in fiscal year 2005 and 13.6% of accounts receivable was due fromWal-Mart® at October 28, 2005.  Sales toWal-Mart® comprised 14.6% of revenues in fiscal year 2004.

**Employees**

The Company hasapproximately 684 employees, approximately 43% of whose employment relationshipis governed by collective bargaining agreements. These agreements currentlyexpire or expired between March 2004 and March 2008. A contract with UFCW MeatCutters Local # 324, covering 69 employees, expired October 3, 2006.  The agreement was extended withoutmodification for six months to March 31, 2007. Negotiations have not yet resumed on a further extension and/or renewal.  The Company believes that its relationshipwith employees is favorable.

**ExecutiveOfficers of the Registrant**

The names, agesand positions of all the executive officers of the Company as of January 1,2007 are listed below. Messrs. Hugh Wm. Bridgford and Allan L. Bridgford arebrothers. William L. Bridgford is the son of Hugh Wm. Bridgford and the nephewof Allan L. Bridgford. Officers are normally appointed annually by the board ofdirectors at their meeting immediately following the annual meeting ofshareholders. All executive officers 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   |       | 71      |       | Senior Chairman and member of the Executive  Committee                                              |
| Hugh Wm. Bridgford   |       | 75      |       | Vice President and Chairman of the Executive  Committee                                             |
| William L. Bridgford |       | 52      |       | Chairman and member of the Executive Committee                                                      |
| John V. Simmons      |       | 51      |       | President and member of  the Executive Committee                                               |
| Raymond F. Lancy     |       | 53      |       | Chief Financial Officer, Executive Vice President,  Treasurer and member of the Executive Committee |

 

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

In addition to theother matters set forth in this Annual Report on Form 10-K, the continuingoperations and the price of the Company’s common stock are subject to thefollowing risks, each of which could materially adversely affect the business,financial condition and results of operations.

**GeneralRisks of Food Industry**

The food industry,and the markets within the food industry in which the Company competes, aresubject to various risks, including: adverse changes in general economicconditions, evolving consumer preferences, nutritional and health-relatedconcerns, federal, state and local food inspection and processing controls,consumer product liability claims, risks of product tampering, and theavailability and expense of liability insurance. The meat and poultryindustries have recently been subject to increasing scrutiny due to theassociation of meat and poultry products with recent outbreaks of illness, andon rare occasions even death, caused by food borne pathogens. Product recallsare sometimes required in the food industries to withdraw contaminated ormislabeled products from the market.

**RisksRelating to Suppliers and Raw Materials**

The Companypurchases large quantities of commodity pork, beef and flour. Historically,market prices for products processed by the Company have fluctuated in responseto a number of factors, including changes in the United States government farmsupport programs, changes in international agricultural and trading policies,weather and other conditions during the growing and harvesting seasons.

The Company’soperating results are heavily dependent upon the prices paid for raw materials.The marketing of the Company’s value-added products does not lend itself toinstantaneous changes in selling prices. Changes in selling prices arerelatively infrequent and do not compare with the volatility of commoditymarkets. The impact of general price inflation on the Company’s financialposition and results of operations has not been significant during the lastthree years.

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**RisksRelating to Government Regulation**

The operations ofthe Company are subject to extensive inspection and regulation by the UnitedStates Department of Agriculture (the “USDA”), the Food and Drug Administration(the “FDA”) and by other federal, state and local authorities, regarding theprocessing, packaging, storage, transportation, distribution and labeling ofproducts that are manufactured, produced and processed by the Company. TheCompany’s processing facilities and products are subject to continuousinspection by USDA and/or other federal, state and local authorities. On July25, 1996, the USDA issued strict new policies concerning contamination by foodborne pathogens such as E. coli, Listeria Monocytogenes and Salmonella, andestablished a new system of regulation known as the Hazard Analysis CriticalControl Points (“HACCP”) program. The HACCP program requires all meat andpoultry processing plants to develop and implement sanitary operatingprocedures and other program requirements on or before January 26, 1998. TheCompany believes that it is currently in compliance with all materialgovernmental laws and regulations (including the January 1998 HACCPrequirements), and that it maintains all material permits and licenses relatingto its operations.

On October 6,2003, new USDA regulations regarding the control of Listeria Monocytogenes inReady-To-Eat Meat and Poultry Products took effect. These regulations requireenvironmental and/or finished product testing for harmful bacteria that may bepresent. This testing could result in products being retained, recalled ordestroyed if Listeria Monocytogenes is detected. The Company believes that itis in full compliance with these regulations.

**RisksRelating to Dependence on Key Management**

The Company’sexecutive officers and certain other key employees have been primarilyresponsible for the development and expansion of the Company’s business, andthe loss of the services of one or more of these individuals could have anadverse effect on the Company. The Company’s success will be dependent in partupon its continued ability to recruit, motivate and retain qualified personnel.There can be no assurance that the Company will be successful in this regard.The Company has no employment or non-competition agreements with key personnel.

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

Notapplicable.

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

The Company owns the following facilities:

| Property Location       | ** ** | **Building  Square  Footage** | ** ** | **Acreage** | ** ** |
|------------------------------|------------|-------------------------------|------------|-------------|------------|
| Anaheim,  California         |       | 100,000                       |       | 5.0         |       |
| Modesto,  California         |       | 2,500                         |       | 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         |       |

 

The foregoing plants are,in general, fully utilized by the Company for processing, warehousing,distributing and administrative purposes. The Company also leases warehouseand/or office facilities throughout the United States and Canada. The Companybelieves that its properties are generally adequate to satisfy its foreseeableneeds. Additional properties may be acquired and/or plants expanded iffavorable opportunities and conditions arise.

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

No material legalproceedings were pending at November 3, 2006 or currently against the Company.The Company is likely to be subject to claims arising from time to time in theordinary course of its business. In certain of such actions, plaintiffs mayrequest punitive or other damages that may not be covered by insurance and,accordingly, no assurance can be given with respect to the ultimate outcome ofany such possible future claims or litigation or their effect on the Company.

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

**AnnualMeeting of Shareholders**

The 2007 annual meetingof shareholders will be held at the Four Points Sheraton, 1500 South RaymondAvenue, Fullerton, California at 10:00 a.m. on Wednesday, March 14, 2007.

No matters were submittedby the Company’s shareholders during the fourth quarter of the fiscal yearended November 3, 2006.

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**PART II**

***Item 5.******                                   Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities***

**CommonStock and Dividend Data**

The common stockof the Company is traded in the national over-the-counter market and isauthorized for quotation on the Nasdaq Global Market under the symbol “BRID”.The following table reflects the high and low closing prices and cash dividendspaid as quoted by Nasdaq for each of the last eight fiscal quarters.
| **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 |   |

 
| **Fiscal Year 2005** | ** ** | **High** | ** ** | **Low** | ** ** | **Cash  Dividends  Paid** | ** ** |
|--------------------------------|------------|----------|------------|---------|------------|---------------------------|------------|
| First Quarter                  |       | $        | 9.24       |    | $          | 8.01                      |       | $ | 0.00 |   |
| Second Quarter                 |       | $        | 9.15       |    | $          | 8.20                      |       | $ | 0.00 |   |
| Third Quarter                  |       | $        | 9.19       |    | $          | 6.46                      |       | $ | 0.00 |   |
| Fourth Quarter                 |       | $        | 8.18       |    | $          | 6.05                      |       | $ | 0.00 |   |

 

The payment of anyfuture dividends will be at the discretion of the Company’s Board of Directorsand will depend upon future earnings, financial requirements and other factors.The Company repurchased 28,000 shares of common stock in the amount of $187,000in fiscal year 2006 under the 2.0 million share repurchase plan previouslyauthorized by the Board of Directors.

**Unregistered Sales of EquitySecurities**

**         **During the periodcovered by this Report the Company did not sell or issue any equity securitiesthat were not registered under the Securities Act of 1933, as amended.

**Purchasesof Equity Securities by the Issuer**

Thefollowing table provides information regarding repurchases by the Company ofits common stock, for each of the four periods included in the interimseventeen-week period ended November 3, 2006.
| **Period (1)**                                    | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs (2)** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs**(2) | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
| July 8, 2006 –  August 4, 2006 (4 weeks)          |       | 100                                                  |       | $                                                | 6.53       |                                                                                                                                      | 100        |                                                                                                                                       | 593,985    |   |
| August 5, 2006 –  September 1, 2006 (4 weeks)     |       | –                                               |       | –                                           |       | –                                                                                                                                    |       | 593,985                                                                                                                                    |       |
| September 2,  2006 – September 29, 2006 (4 weeks) |       | 725                                                  |       | $                                                | 6.24       |                                                                                                                                      | 725        |                                                                                                                                       | 593,260    |   |
| September 30,  2006 – November 3, 2006 (5 weeks)  |       | 4,835                                                |       | $                                                | 6.15       |                                                                                                                                      | 4,835      |                                                                                                                                       | 588,425    |   |
| Total                                                  |       | 5,660                                                |       | $                                                | 6.17       |                                                                                                                                      | 5,660      |                                                                                                                                       |       |   |

 

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(1)                                Period information is presented by referenceto the Company’s fiscal period ends during the seventeen-week period endedNovember 3, 2006.

(2)                                  All repurchases reflected in the foregoingtable were made on the open market.  TheCompany’s stock repurchase program was approved by the Board of Directors inNovember 1999 (1,500,000 shares authorized, disclosed in a Form 10-K filed onJanuary 26, 2000) and was expanded in June 2005 (500,000 additional sharesauthorized, disclosed in a press release and Form 8-K filed on June 17,2005).  Under the stock repurchaseprogram, the Company is authorized, at the discretion of management and theBoard of Directors, to purchase up to an aggregate of 2,000,000 shares of theCompany’s common stock on the open market.  On September 15, 2006, the Company adopted10b5-1 Stock Purchase between Citigroup Global Markets Inc. (“CGM”) and theCompany for the purchase of shares of common stock (“Stock”) issued by theCompany that complies with the requirements of Rule 10b5-1 (“Rule”) under theSecurities Exchange Act of 1934 (“Exchange Act”).  This Purchase Plan

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supplementsany purchases by the Company “outside” of this Purchase Plan from time to timeof shares of Stock in open market transactions pursuant to Rule 10b-18 of theExchange Act (“Non-Plan Purchases”).  Thepurchase period covers each trading day commencing October 2, 2006 through andincluding September 15, 2007.The daily purchase quantity is defined as a numberof shares up to, but not to exceed, each day’s applicable SEC Rule 10b-18maximum volume limit (i.e. 25% of the prior four calendar weeks’ average dailytrading volume); however, once per week a block of stock may be purchased thatexceeds the SEC Rule 10b-18 25% average daily trading volume condition, providedthat no other Plan purchases are made on any day on which such a block ispurchased.  The total maximum number ofshares that may be purchased under the plan is 594,000 at a total maximumdollar amount (exclusive of commission) of $5,940,000.

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

         The following selected consolidatedfinancial data as of and for the years ended November 3, 2006, October 28,2005, October 29, 2004, October 31, 2003 and November 1, 2002 has been derivedfrom the 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. 3,  2006 *** | ** ** | **Oct. 28,  2005** | ** ** | **Oct. 29,  2004** | ** ** | **Oct. 31,  2003** | ** ** | **Nov. 1,  2002** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|------------------------|------------|
| Net Sales                           |       | $                             | 134,264    |                    | $          | 130,845                 |       | $                       | 137,865    |                   | $          | 136,251 |   | $ | 139,202 |   |
| Gross Margin  Percent               |       | 36.6                          | %          | 34.7                    | %          | 34.5                    | %          | 36.7                    | %          | 36.5                   | %          |
| Net Income  (Loss)                  |       | 1,240                         |       | (943                    | )          | 24                      |       | 1,210                   |       | 1,138                  |       |
| Basic Earnings  (Loss) Per Share    |       | 0.13                          |       | (0.09                   | )          | –                  |       | 0.12                    |       | 0.11                   |       |
| Current Assets                      |       | 45,913                        |       | 43,738                  |       | 44,401                  |       | 45,686                  |       | 46,413                 |       |
| Current  Liabilities                |       | 14,231                        |       | 11,841                  |       | 12,665                  |       | 12,489                  |       | 11,800                 |       |
| Working Capital                     |       | 31,682                        |       | 31,897                  |       | 31,736                  |       | 33,197                  |       | 34,613                 |       |
| Property, Plant  and Equipment, Net |       | 13,041                        |       | 14,519                  |       | 16,755                  |       | 17,735                  |       | 19,030                 |       |
| Total Assets                        |       | 72,931                        |       | 72,963                  |       | 74,942                  |       | 75,927                  |       | 77,182                 |       |
| Shareholders’  Equity          |       | 50,186                        |       | 48,262                  |       | 48,664                  |       | 52,333                  |       | 54,390                 |       |
| Cash Dividends Per  Share           |       | 0.00                          |       | 0.00                    |       | 0.05                    |       | 0.16                    |       | 0.26                   |       |
|                                     |            |                               |            |                         |            |                         |            |                         |            |                        |            |  |  |  |  |  |

 

(Inthousands, except percent and per share amounts)

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* - 53 weeks.

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

Certain statementsunder “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” and elsewhere in this report constitute “forward-lookingstatements” within the meaning of the Securities Act of 1933 and the SecuritiesExchange Act of 1934. Such forward-looking statements involve known and unknownrisks, uncertainties, and other factors which may cause the actual results,performance, or achievements of Bridgford Foods Corporation to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. Such factors include, among others,the following; general economic and business conditions; the impact ofcompetitive products and pricing; success of operating initiatives; developmentand operating costs; advertising and promotional efforts; adverse publicity;acceptance of new product offerings; consumer trial and frequency; changes inbusiness strategy or development plans; availability, terms and deployment ofcapital; availability of qualified personnel; commodity, labor, and employeebenefit costs; changes in, or failure to comply with, government regulations;weather conditions; construction schedules; and other factors referenced inthis Report.

**Results of Operations (inthousands)**

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

**Sales**

Sales in fiscal2006 increased $3,419 (2.6%) when compared to the prior year. After consideringthe additional week in 2006, a 53 week year, sales were essentially flatcompared to the prior year. Sales in the Company’s frozen food segmentincreased $3,638 (7.7%), as a result of increased average unit selling pricesand higher unit volume primarily due to the introduction of a successful newproduct. Promotional spending as a percentage of sales increased to 8.4%compared to 8.0% in the prior year partially off-setting the sales increase inthe frozen food division. Sales in the Company’s refrigerated and snack foodproducts segment decreased $219 (0.3%) primarily as result of lower unit salesvolume.  Higher unit selling priceshelped mitigate the decrease.

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**GrossMargin**

The gross marginincreased to 36.6% compared the prior year at 34.7%. This improvement resultedfrom higher unit selling prices and lower commodity costs. Meat ingredientcosts declined significantly in the fiscal year helping to increase the grossmargin.  Flour commodities increasedsignificantly in 2006 partially off-setting the meat commodity cost declines.When combining all divisions, net-selling prices increased approximately 5.4%on a unit volume decline of approximately 2.6 % compared to the prior fiscalyear.

**Selling,General and Administrative**

Selling, generaland administrative expenses increased $464 (1.1%) when compared to the prioryear. After considering the additional week in 2006, a 53 week year, averageweekly expenses were slightly lower as compared to the prior year. Within thiscategory costs for fuel, vehicle repairs, consulting and travel expensesoutpaced sales growth.  Off-setting theseincreases were higher interest income on investments and lower pension,advertising and telephone expenses.

**Gainon Sale of Equity Securities**

The Company sold5,028 shares of stock received as a result of the bankruptcy of a significantcustomer on February 22, 2006.  Thistransaction resulted in a pre-tax gain of $106.

**IncomeTaxes**

The effectiveincome tax rate was 17.2% and (58.2)% in fiscal years 2005 and 2006,respectively.  In fiscal year 2005, theeffective income tax rate differed from the applicable mixed statutory rate ofapproximately 38.0% primarily due to the Company’s current year claim forresearch and development tax credits related to prior year activities.  In fiscal year 2006, the effective income taxrate differed from the applicable mixed statutory rate of approximately 38.0%primarily due to a reduction in recorded income tax reserves.

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN48”).  This Statement addressesuncertainty in tax positions recognized in a company’s financial statements andstipulates a recognition threshold and measurement of a tax position taken orexpected to be taken in a tax return.  FIN48 will apply to the Company’s fiscal year beginning November 3, 2007, withearlier adoption permitted.   The Companydoes not expect this interpretation will have a material impact on the Company’sresults of operations or financial position.

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

**Sales**

Sales in fiscal2005 decreased $7,020 (5.1%) when compared to the prior year. Sales in theCompany’s frozen food segment increased 6.6%, as a result of increased averageunit selling prices offset by slightly lower unit volume. Promotional spendingas a percentage of sales decreased to 8.0% compared to 8.6% in the prior yearcontributing to the sales increase in the frozen food division. Sales in theCompany’s refrigerated and snack food products segment decreased 10.1%primarily as result of lower unit sales volume.

**GrossMargin**

The gross marginincreased to 34.7% compared the prior year at 34.5%. Continued high meatingredient costs were offset by higher unit selling prices resulting in aconsistent gross margin percentage. When combining all divisions, net-sellingprices increased approximately 4.8% on a unit volume decline of approximately12.7 % compared to the prior fiscal year.

**Selling,General and Administrative**

Selling, generaland administrative expenses decreased $335 (0.8%) when compared to the prioryear. Costs for marketing programs, product display racks and fuel increasedsignificantly.  Offsetting theseincreases were a significant reduction in the provision for doubtful accountsreceivable, gains related to increased cash surrender values on life insurancepolicies and higher investment income. Cost control programs instituted by management also helped control thisexpense category.

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**IncomeTaxes**

The effective incometax rate was 58.2%.  The increase ineffective rate relates to the reduction of tax reserves in the current fiscalyear and significant non-taxable gains on life insurance policies.  The Company released a portion of taxreserves for state tax estimates during fiscal 2005 as the amount is no longerprobable or reasonably estimated in accordance with Statement of FinancialAccounting Standards (SFAS No. 5), “Accounting for Contingencies”.  The Company provides tax reserves forfederal, state, local and international exposures relating to audit results,tax planning initiatives and compliance responsibilities.  The development of these reserves requiresjudgments about tax issues, potential outcomes and timing, and is a subjectiveestimate.  Although the outcome of thesetax audits is uncertain, in management’s opinion adequate provisions for incometaxes have been made for potential liabilities emanating from thesereviews.  Actual outcomes may differmaterially from these estimates.

***Fiscal Year ended October 29, 2004 compared to Fiscal YearEnded October 31, 2003***

**Sales**

Sales in fiscal2004 increased $1,614 (1.2%) when compared to the prior year. Sales in theCompany’s frozen food segment declined 3.3%, as a result of lower unit volumepartially offset by increased average unit selling prices. Promotional spendingas a percentage of sales increased to 8.6% compared to 7.2% in the prior yearcontributing to the sales decline in the frozen food division. Sales in theCompany’s refrigerated and snack food products segment increased 3.5% primarilyas a result of higher unit selling prices on level unit volumes.

**GrossMargin**

The gross margindeclined to 34.5% compared to the prior year at 36.7%. Increased meatingredient costs were the principal reason for this decline. When combining alldivisions, net-selling prices increased approximately 5% on a unit volumedecline of approximately 1.1 % compared to the prior fiscal year.

**Selling,General and Administrative**

Selling, generaland administrative expenses decreased $48 (0.1%) when compared to the prioryear. Rising payroll, workers’ compensation insurance, fuel and finished goodsstorage costs were offset by a significant reduction in the provision fordoubtful accounts receivable and the combined impact of aggressive cost controlprograms instituted by management. The Company recorded an asset impairmentreserve against the net book value of machinery and equipment of $54 in fiscalyear 2004 and no asset impairment reserve in the prior year.

**Gainon Sale of Equity Securities**

The Company sold14,014 shares of stock received as a result of the bankruptcy of a significantcustomer on July 26, 2004. This transaction resulted in a pre-tax gain of $553.

**IncomeTaxes**

The effectiveincome tax rate was 38% in 2004, consistent with the prior year.

**Liquidityand Capital Resources (in thousands except per share amounts)**

Net cash providedby operating activities was $4,874 and $4,515, in fiscal years 2006 and 2005,respectively. Gross accounts receivable balances increased $436 in 2006 anddecreased $2,243 in 2005. The balance in 2006 increased slightly due to strongsales in the fourth quarter of the fiscal year in the frozen food segmentoffset by lower unit sales volume in the refrigerated and snack food segment inthe same period. The balance in 2005 decreased due to lower overall saleslevels in the fourth quarter and improved collection trends compared to theprior year. Inventories decreased $1,780 in fiscal year 2006 primarily due tothe sale of ingredient inventories not immediately required for a significantproduction line under development but not complete at the end of the fiscalyear and a slight decline in overall commodity costs. The Company’srefrigerated and snack food products segment has continued development of a newmajor production line that was originally scheduled for completion in thefourth quarter of fiscal year 2005.  Asuccessful production run was completed in October 2006 and this product wastest marketed to consumers on a limited basis in November 2006.  To date this product has been well receivedhowever field testing continues.  Earlyproduction runs have confirmed the need for additional heating capacity in theoven in order to attain desired rates of production. This expected projectcompletion date has been moved forward into fiscal year 2008 until satisfactoryresults are achieved. Inventories increased $4,445 in fiscal year 2004 due tosignificant beef 

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ingredient inventoriesbeing stored in anticipation of the start up of the new production line in thefirst half of fiscal year 2005 and higher valuations due to commodity costincreases.  Accounts payable balanceswere consistent with the current business cycle. Accrued payroll, advertisingand other expenses increased $714 in 2006 primarily as a result of the fundingpattern of self-insured workers’ compensation claims. The current portion ofnon-current liabilities increased $1,558 and decreased $553 in 2006 and 2005,respectively.  The increases in both 2006and 2005 were due to a higher anticipated funding of the pension liability in2006 and 2007.  Included in the currentportion of non-current liabilities is $3,476 related to the anticipatedcontribution required in fiscal years 2007. The minimum pension liabilityrelated to the Company’s defined benefit pension plan decreased to $1,926 atNovember 3, 2006 compared to $3,458 at October 28, 2005.  In the third quarter of fiscal 2006, theCompany froze the defined benefit pension plan accrued benefits for membersemployed by the Company within administration, sales or supervisory jobclassification or within a non-bargaining class (the Corporate Group)contributing to the decrease in the minimum pension liability.  This action is defined as a curtailment underSFAS No. 88 “Employers’ Accounting for Settlements and Curtailments of DefinedBenefit Pension Plans and for Termination Benefits” and, therefore, the Companyrecognized a curtailment loss of approximately $8. As a result of this action,net pension costs were reduced in the last fiscal quarter by approximately $667as compared to the same quarter last year and will be reduced in futureperiods. The net tax effected amount of this liability is included inshareholders’ equity as an “accumulated comprehensive loss” in the Statement ofShareholders’ Equity and Other Comprehensive Income (Loss).

The Company’scapital improvement expenditures increased $298 in 2006 and decreased $1,412 in2005 compared to the prior year.  Overallcapital spending has declined in recent years and significant capitalexpenditures related to the Dallas high rise freezer and the new Statesvillebread plant reached the end of their depreciation periods on certain majorequipment. As a result, depreciation expense declined in the current year. Cashand cash equivalents increased $3,025 in 2006 and decreased $2,383 in 2005. Netcash flow improved in 2006 and 2005 primarily as a result of lower inventoryrequirements, lower expenditures for property, plant and equipment and lowerincome tax payments.

Working capital decreased$215 in 2006 and increased $161 in 2005. Working capital decreased in 2006primarily as the result of a significant increase pension contributionsrequired for the Company’s defined benefit pension plans, with current fundingrequirements increasing by $1,674 compared to the prior year. Off-setting thisworking capital decrease decrease were higher earnings levels compared to theprior year.   Working capital increasedin 2005 primarily as a result of lower inventory requirements, lowerexpenditures for property, plant and equipment and an increase in refundableincome taxes. The Company has remained free of interest-bearing debt for twentyconsecutive years. The Company maintains a line of credit with Bank of Americathat expires April 30, 2008. 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. Theborrowing agreement contains various covenants, the more significant of whichrequire the Company to maintain certain levels of shareholders’ equity andworking capital. The Company was in compliance with all provisions of theagreement during the 2006 fiscal year and there were no borrowings under thisline of credit during such period. Management is of the opinion that theCompany’s strong financial position and its capital resources are sufficient toprovide for its operating needs and capital expenditures for fiscal 2008.

**Off-BalanceSheet Arrangements**

The Company does notcurrently have any off balance sheet arrangements within the meaning of Item303(a)(4) of Regulation S-K.

**ContractualObligations (in thousands)**

The Company hasremained free of interest bearing long-term debt for twenty consecutive yearsand had no other long-term debt or other contractual obligations except forleases. The Company leases certain transportation equipment under operatingleases. Future minimum lease payments are approximately (in thousands):
| ** **            | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Net Lease Commitments |       | $        | 415        |     | $          | 415      |       | $        | 415        |     | $          | 415 |   | $ | 395 |   |
|                       |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

**CriticalAccounting Policies**

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make certain estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported revenues and expenses during the respective reporting periods.Actual results could differ from those estimates. Amounts estimated related toliabilities for self-insured workers’ compensation, employee healthcare andpension benefits are especially subject to inherent uncertainties and theseestimated liabilities may ultimately settle at amounts not originallyestimated.  The Company recordspromotional and returns allowances based on recent and historical trends.Management believes its current estimates are reasonable and based on the bestinformation available at the time.

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The Company’scredit risk is diversified across a broad range of customers and geographicregions. Losses due to credit risk have recently been immaterial althoughlosses in fiscal year 2002 were significant due to a bankruptcy of asignificant customer. The provision for doubtful accounts receivable is basedon 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® comprised15.0% of revenues in fiscal year 2006 and 13.3% of accounts receivable was duefrom Wal-Mart® at November 3, 2006.  Salesto 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.  Sales to Wal-Mart® comprised 14.6% ofrevenues in fiscal year 2004.

Revenues arerecognized upon passage of title to the customer, typically upon productpick-up, shipment or delivery to customers. Products are delivered to customersprimarily through its own long-haul fleet or through a company owned directstore delivery system.

The Companyrecords the cash surrender or contract value for life insurance policies as anadjustment of premiums paid in determining the expense or income to berecognized under the contract for the period.

Amounts estimatedrelated to liabilities for pension benefits are especially subject to inherentuncertainties and these estimated liabilities may ultimately settle at amountsnot originally estimated. Management believes its current estimates arereasonable and based on the best information available at the time.

Deferred taxes areprovided for items whose financial and tax bases differ. A valuation allowanceis provided against deferred tax assets when it is expected that it is morelikely than not that the related asset will not be fully realized.

The Companyprovides tax reserves for federal, state, local and international exposuresrelating 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.

The Companyassesses the recoverability of its long-lived assets on an annual basis orwhenever adverse events or changes in circumstances or business climateindicate that expected undiscounted future cash flows related to suchlong-lived assets may not be sufficient to support the net book value of suchassets. If undiscounted cash flows are not sufficient to support the recordedassets, the Company recognizes an impairment to reduce the carrying value ofthe applicable long-lived assets to their estimated fair value.

 **Recently IssuedAccounting Pronouncements and Regulations**

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN48”).  This Statement addressesuncertainty in tax positions recognized in a company’s financial statements andstipulates a recognition threshold and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 will apply to the Company’s fiscal year beginning November 4,2007, with earlier adoption permitted.  The Company does not expect this interpretation will have a materialimpact on the Company’s results of operations or financial position.

In September 2006,the Securities and Exchange Commission issued SAB No. 108, “Considering theEffects of Prior Year Misstatements when Quantifying Misstatements in CurrentYear Financial Statements”.  SAB No. 108provides guidance on how prior year misstatements should be considered whenquantifying misstatements in current year financial statements for purposes ofdetermining whether the current year’s financial statements are materiallymisstated. SAB No. 108 is effective for fiscal years ending after November 15,2006. Although the Company will continue to evaluate the application of SAB No.108, management does not currently believe adoption will have a material impacton the Company’s results of operations or financial position.

In September 2006,the FASB issued Statement of Accounting Standards No. 157, “Fair ValueMeasurements” (SFAS No. 157). This Statement defines fair value, provides aframework for measuring fair value, and expands the disclosures required forfair value measurements. SFAS No. 157 applies to other accountingpronouncements that require fair value 

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measurements; it does notrequire any new fair value measurements. SFAS No. 157 is effective forfinancial statements for fiscal years beginning after November 15, 2007, theCompany’s first quarter of the 2009 fiscal year, and interim periods withinthose years.   The Company does notexpect this statement will have a material impact on the Company’s results ofoperations or financial position.

In September 2006,the Financial Accounting Standards Board issued FAS 158, “Employers’ Accountingfor Defined Benefit Pension and Other Postretirement Plans–an amendment of FASBStatements No. 87, 88, 106, and 132(R)”. FAS 158 requires employers torecognize the over- or under-funded status of defined benefit plans and otherpostretirement plans in the statement of financial position and to recognizechanges in the funded status in the year in which the changes occur throughcomprehensive income. In addition, FAS 158 requires employers to measure thefunded status of plans as of the date of the year-end statement of financialposition. The recognition and disclosure provisions of FAS 158 are effectivefor fiscal years ending after December 15, 2006 (effective for the Company’sfiscal year ending November 2, 2007), while the requirement to measure planassets and benefit obligations as of a company’s year-end date is effective forfiscal years ending after December 15, 2008 (effective for the Company’s fiscalyear ending October 30, 2009).  TheCompany expects the adoption of this statement will materially affect othercomprehensive income, long-term liabilities and shareholders equity.

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

The Company didnot have significant overall currency exposure at November 3, 2006. The Company’sfinancial instruments consist of cash and cash equivalents and life insurancepolicies at November 3, 2006 and the carrying value of the Company’s financialinstruments approximated their fair market values based on current market pricesand rates. It is not the Company’s policy to enter into derivative financialinstruments. The Company does not currently have any significant foreigncurrency exposure. The Company does not engage in buying or selling spot orfutures commodity contracts. The Company’s investment portfolio is not subjectto significant market risk or interest rate fluctuations.

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

**UnauditedInterim Financial Information***(in thousands, except per share amounts)*
| ** **                       | ** ** | **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 | ) |

 
| ** **                       | ** ** | **2004**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 23** | ** ** | **April 16** | ** ** | **July 9** | ** ** | **October 29** | ** ** |
| ** **                       | ** ** | **(12 weeks)**      | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(16 weeks)** | ** ** |
| Net sales                        |       | $                   | 35,322     |   | $ | 30,541 |   | $ | 29,756 |   | $ | 42,246 |   |
| Income (loss)  before taxes      |       | (222                | )          | (336 | ) | (1,005 | ) | 1,602 |   |
| Net income  (loss)               |       | (138                | )          | (209 | ) | (623 | ) | 994 |   |
| Basic earnings (loss)  per share |       | $                   | (0.01      | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | 0.10 |   |

 

See Item 15(a)below and the index therein for a listing of the consolidated financialstatements and supplementary data filed as a part of this report.

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

On December 13,2004, the Audit Committee of the Board of Directors of the Company dismissedPricewaterhouseCoopers LLP as the Company’s independent registered publicaccounting firm. PricewaterhouseCoopers LLP completed the audit of the Company’sfinancial statements for the year ended October 29, 2004 on January 27, 2005completely terminating PricewaterhouseCoopers LLP’s appointment as theindependent registered public accounting firm for the Company. The decision tochange principal accountants was approved by the Audit Committee and the Boardof Directors of the Company.

The reports ofPricewaterhouseCoopers LLP on the consolidated financial statements ofBridgford Foods Corporation for the year ended October 29, 2004, did notcontain an adverse opinion or disclaimer of opinion, nor were they qualified ormodified as to uncertainty, audit scope, or accounting principle.

During the yearended October 29, 2004, and through January 27, 2005, there were nodisagreements with PricewaterhouseCoopers LLP on any matter of accountingprinciples or practices, financial statement disclosure, or auditing scope orprocedure, which disagreements, if not resolved to the satisfaction ofPricewaterhouseCoopers LLP, would have caused it to make reference thereto inits reports on the financial statements for such years.

On December 14,2004, the Audit Committee of the Board of Directors of the Company appointedHaskell & White LLP as its new independent registered public accountingfirm as of December 13, 2004 for the fiscal year beginning October 30, 2004 andending October 28, 2005.

During the Company’sfiscal year ended November 3, 2006 and through the subsequent interim periodended February 1, 2007, neither the Company nor anyone on its behalf consultedHaskell & White LLP regarding any of the matters or events set forth inItem 304(a)(2)(i) and (ii) of Regulation S-K.

During the yearsended November 3, 2006, October 28, 2005, and October 29, 2004, and throughFebruary 1, 2007, there have been no reportable events (as defined in Item304(a)(1)(v) of Regulation S-K).

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

Management of theCompany, with the participation and under the supervision of the Company’sChairman and Chief Financial Officer, has evaluated the effectiveness of theCompany’s disclosure controls and procedures (as defined in Exchange Act Rule13a-15(e)) as of the end of the period covered by this Report. Based on thisevaluation the Chairman and Chief Financial Officer have concluded that theCompany’s disclosure controls and procedures are effective as of the end of theperiod covered by this Report to provide reasonable assurance that materialinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified by the Securities and ExchangeCommission’s rules and forms. There has been no change in the Company’sinternal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) during the period covered by this Report that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

The Company’smanagement, including its Chairman and Chief Financial Officer, does not expectthat the Company’s disclosure controls and internal controls will prevent allerror and all fraud. A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a controlsystem must reflect the fact that there are resource constraints, and thebenefits of controls must be considered relative to their costs. Because ofinherent limitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the control.

The design of anysystem of controls is also based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions;over time, a control may become inadequate because of changes in conditions, orthe degree of compliance with the policies or procedures may deteriorate.Because of inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

The Companymaintains and evaluates a system of internal accounting controls, and a programof internal auditing designed to provide reasonable assurance that the Company’sassets are protected and that transactions are performed in accordance withproper authorization, and are properly recorded. This system of internalaccounting controls is continually reviewed and modified in response toevolving business conditions and operations and to recommendations made by theindependent registered public accounting firm and internal auditor. The Companyhas an established a code of conduct. The management of the Company believesthat the accounting and internal control systems provide reasonable assurancethat assets are safeguarded and financial information is reliable.

15

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The AuditCommittee of the Board of Directors meets regularly with the Company’sfinancial management and counsel, and with the independent registered publicaccounting firm engaged by the Company. Internal accounting controls and thequality of financial reporting are discussed during these meetings. The AuditCommittee has discussed with the independent registered public accounting firmmatters required to be discussed by Statement of Auditing Standards No. 61(Communication with Audit Committees). In addition, the independent registeredpublic accounting firm’s independence from the Company and its management,including the matters in the written disclosures required by the IndependenceStandards Board Standards No. 1 (Independence Discussions with AuditCommittees), has been discussed by the Committee and the independent registeredpublic accounting firm.

**Section404 of the Sarbanes-Oxley Act of 2002**

In order to complywith the Sarbanes-Oxley Act of 2002(the “Act”), the Company has undertaken and continues a comprehensiveeffort, which includes the documentation and review of its internal controls.In order to comply with the Act, the Company is in the process of centralizingmost accounting and many administrative functions at its corporate headquartersin an effort to control the cost of maintaining its control systems.  On July 11, 2006, The Committee of SponsoringOrganizations (“COSO”) issued guidance on how small companies should implementan effective internal control framework over financial reporting and otherrisks. This guidance is considered a key tool to help smaller public companiesto confront the challenges of the Act. As a result, the Company may incur substantial additional expenses anddiversion of management’s time. During the course of these activities, theCompany may identify certain internal control issues which management believesshould be improved. These improvements, if necessary, will likely includefurther formalization of policies and procedures, improved segregation ofduties, additional information technology system controls and additionalmonitoring controls. Although management does not believe that any of thesematters will result in material weaknesses being identified in the Company’sinternal controls as defined by the Public Company Accounting Oversight BoardAuditing Standard No. 2, no assurances can be given regarding the outcome ofthese efforts. Additionally, control weaknesses may not be identified in atimely enough manner to allow remediation prior to the issuance of the auditor’sreport on internal controls over financial reporting. Any failure to adequatelycomply could result in sanctions or investigations by regulatory authorities,which could harm the Company’s business or investors’ confidence in theCompany.

The Securities andExchange Commission, on December 15, 2006, adopted new measures to grant reliefto smaller public companies by extending the date of compliance with Section404 of the Act.  Under these newmeasures, the Company will be required to comply with the Act in twophases.  The first phase will beeffective for the Company’s fiscal year ending October 31, 2008 and willrequire the Company to issue a management report on internal control overfinancial reporting. The second phase will require the Company to provide anauditor’s attestation report on internal control over financial reportingbeginning with the Company’s fiscal year ending October 30, 2009.

In December 2006,the Public Company Accounting Oversight Board voted to propose a new standardfor auditing internal controls over financial reporting available for commentby the public.  The proposed standardwill replace the Board’s current Auditing Standard No. 2.  The new standard proposes to removeunnecessary audit requirements while maintaining adequate internal control,provide direction on how to scale the audit for smaller and less complexcompanies, and reduce and simplify the text of the standard.  The Board plans to determine whether to adoptthe final standard after close of the comment period and consent by the Securitiesand Exchange Commission after February 2007.

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

Not applicable.

16

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**PART III**

***Item 10.******                            Directorsand Executive Officers of the Registrant***

Information setforth in the sections entitled “Election of Directors” and “Section 16(a)Beneficial Ownership Reporting Compliance” contained in the Company’sdefinitive proxy statement for the Annual Meeting of Shareholders to be held onMarch 14, 2007 is incorporated herein by reference. Information concerning theexecutive officers of the Company is set forth in Part I hereof under theheading “Executive Officers of the Registrant”.

The Companyadopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of2002 during the first quarter of 2004, which applies to the Company’s principalexecutive officer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions and other designatedofficers and employees. The Code of Ethics appears on the Company’s website atwww.bridgford.com.  Any amendment orwaiver of the Code of Ethics that applies to the Company’s directors orexecutive officers will be posted on its website or in a report on Form 8-Kfiled with the Securities and Exchange Commission.

The Company isconsidered a “controlled company” within the meaning of Rule 4350(c)(5) of theNational Association of Securities Dealers (“NASD”) and is therefore exemptedfrom various NASD rules pertaining to certain “independence” requirements ofits directors. Nevertheless, the Board of Directors has determined that Messrs.Andrews, Foster, Scott and Zippwald are all “independent directors” within themeaning of Rule 4200 of the Nasdaq Marketplace Rules. The Audit Committee hasbeen established in accordance with Securities and Exchange Commission rulesand regulations, and each of the members of the Audit Committee is anindependent director as defined under the NASD’s listing standards. The Boardof Directors believes that Messrs. Andrews and Scott qualify as “financialexperts” as such term is used in the rules and regulations of the Securitiesand Exchange Commission.

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

Information setforth in the sections entitled “Proposal 1 – Election of Directors” and “Compensationof Executive Officers” contained in the Company’s definitive proxy statementfor the 2007 Annual Meeting of Shareholders to be held on March 14, 2007 isincorporated herein by reference.

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

Information setforth in the section entitled “Principal Shareholders and Management” containedin the Company’s definitive proxy statement for the 2007 Annual Meeting ofShareholders to be held on March 14, 2007 is incorporated herein by reference.

**EquityCompensation Plan Information**

The followingtable sets forth information regarding outstanding options, warrants and rightsand shares reserved for future issuance under the Company’s existingcompensation plans as of November 3, 2006. The Company’s sole shareholderapproved equity compensation plan is the 1999 Stock Incentive Plan. The Companydoes not have any non-stockholder approved equity compensation plans.
| **Plan Category**                                      | ** ** | **Number of securities to  be issued upon exercise of  outstanding options,  warrants and rights as of  November 3, 2006  (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 3, 2006 (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.         Certain Relationships and RelatedTransactions***

Information setforth in the section entitled “Certain Relationships and Related PartyTransactions” contained in the Company’s definitive proxy statement for the2007 Annual Meeting of Shareholders to be held on March 14, 2007 isincorporated herein by reference.

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

Information setforth in the section entitled “Principal Accountant Fees and Services”contained in the Company’s definitive proxy statement for the Annual Meeting ofShareholders to be held on March 14, 2007 is incorporated herein by reference.

17

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**PART IV**

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

(a)(1) *FinancialStatements*. The following documents are filed as a part of thisreport:
| Report of Independent  Registered Public Accounting Firm                                                                                                |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Consolidated Balance Sheets as of November 3, 2006 and  October 28, 2005                                                                                |   |   |
| Consolidated Statements of Operations for years ended  November 3, 2006, October 28, 2005 and October 29, 2004                                          |   |   |
| Consolidated Statements of Shareholder’s Equity and  Comprehensive Income for years ended November 3, 2006,  October 28, 2005 and October 29, 2004 |   |   |
| Consolidated Statement of Cash Flows for years ended  November 3, 2006, October 28, 2005 and October 29, 2004                                           |   |   |
| Notes to Consolidated Financial Statements                                                                                                              |   |   |

 

(2) *FinancialStatement Schedule*

The following financial statement is filed herewith.
| Report of Independent  Registered Public Accounting Firm on Financial Statement Schedule |   |   |
|------------------------------------------------------------------------------------------|--------|--------|
| Schedule II - Valuation and Qualifying Accounts                                          |   |   |

 

(3) *Exhibits*

(a) *The exhibitsbelow are filed or incorporated herein by 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).                                                                      |
|           |       |                                                                                                                                                                                 |
| 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.                                                                                                                           |
|           |       |                                                                                                                                                                                 |
| 23.2           |       | 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 Pursuant to 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 Exhibits constitutes a management contract, compensatory plan orarrangement.

18

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***SIGNATURES***

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to 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: February 1, 2007

**POWER OF ATTORNEY**

 We, the undersigned directors and officers of BridgfordFoods Corporation do hereby constitute and appoint William L. Bridgford andRaymond F. Lancy, or either of them, with full power of substitution andresubstitution, our true and lawful attorneys and agents, to do any and allacts and things in our name and behalf in our capacities as directors andofficers and to execute any and all instruments for us and in our names in thecapacities indicated below, which said attorneys and agents, or either of them,or their substitutes, may deem necessary or advisable to enable saidcorporation to comply with the Securities Exchange Act of 1934, as amended, andany rules, regulations and requirements of the Securities and ExchangeCommission in connection with this Annual Report on Form 10-K, including specifically,but without limitation, power and authority to sign for us or any of us in ournames and in the capacities indicated below, any and all amendments; and we dohereby ratify and confirm all that the said attorneys and agents, or either ofthem, shall do or cause to be done by virtue hereof.

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated
| **Signature**                                    | ** ** | **Title**                      | ** ** | **Date**         |
|--------------------------------------------------|------------|--------------------------------|------------|------------------|
|                                             |       |                           |       |             |
| /s/    WILLIAM  L. BRIDGFORD |       | Chairman                       |       | February 1, 2007 |
| **William  L. Bridgford**                        |       | (Principal  Executive Officer) |       |             |
| ** **                                       |       |                           |       |             |
| /s/    ALLAN  L. BRIDGFORD   |       | Senior Chairman                |       | February 1, 2007 |
| **Allan  L. Bridgford**                          |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /s/    HUGH  WM. BRIDGFORD   |       | Vice President  and Director   |       | February 1, 2007 |
| **Hugh  Wm. Bridgford**                          |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /  s/     JOHN V. SIMMONS    |       | President                      |       | February 1, 2007 |
| **John V.  Simmons**                             |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /s/    RAYMOND  F. LANCY     |       | Chief Financial  Officer       |       | February 1, 2007 |
| **Raymond  F. Lancy**                            |       | (Principal  Financial Officer) |       |             |
| ** **                                       |       |                           |       |             |
| /  s/    TODD C. ANDREWS     |       | Director                       |       | February 1, 2007 |
| **Todd  C. Andrews**                             |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /s/    RICHARD  A. FOSTER    |       | Director                       |       | February 1, 2007 |
| **Richard  A. Foster**                           |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /s/    ROBERT  E. SCHULZE    |       | Director                       |       | February 1, 2007 |
| **Robert  E. Schulze**                           |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /s/    D.  GREGORY SCOTT     |       | Director                       |       | February 1, 2007 |
| **D.  Gregory Scott**                            |       |                           |       |             |
| ** **                                       |       |                           |       |             |
| /s/    PAUL  R. ZIPPWALD     |       | Director                       |       | February 1, 2007 |
| **Paul  R. Zippwald**                            |       |                           |       |             |

 

19

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**Report Of Independent RegisteredPublic Accounting Firm**

***Haskell & WhiteLLP***

To theBoard of Directors and Shareholders

Bridgford FoodsCorporation

We have audited theaccompanying consolidated balance sheets of Bridgford Foods Corporation (the “Company”)as of November 3, 2006 and October 28, 2005 and the related consolidatedstatements of operations, shareholders’ equity and comprehensive income andcash flows for the fiscal years ended November 3, 2006 and October 28, 2005. Inconnection with our audits of the consolidated financial statements, we also haveaudited the supplementary information included in Schedule II. Theseconsolidated financial statements and the financial statement schedule are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements and the financial statementschedule based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statementsare free of material misstatement. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financialreporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly,we express no such opinion. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of the Company as ofNovember 3, 2006 and October 28, 2005, and the consolidated results of itsoperations and its cash flows for the fiscal years ended November 3, 2006 andOctober 28, 2005 in conformity with accounting principles generally accepted inthe United States of America. Also in our opinion, the related financialstatement schedule, when considered in relation to the basic financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.
|  | /s/ Haskell & White LLP |
|--|-----------------------------|

 

Irvine,California

 January 12, 2007

***PricewaterhouseCoopersLLP***

To the Board of Directors and Shareholders ofBridgford Foods Corporation

In our opinion, the accompanying consolidatedstatements of operations, shareholders’ equity and comprehensive income andcash flows present fairly, in all material respects, the results of operationsand cash flows of Bridgford Foods Corporation and its subsidiaries (the “Company”)for the year ended October 29, 2004, in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audit. Weconducted our audit of these statements in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion.
| /s/ PricewaterhouseCoopers LLP |   |
|--------------------------------|--------|
| Orange County, California      |   |
| January 27, 2005               |   |

 

20

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**BRIDGFORDFOODS CORPORATIONCONSOLIDATED BALANCE SHEETS**

**November03, 2006 and October 28, 2005**

**(in thousands, except per share amounts)**
| ** **                                                                                                                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                                                                                                                                |       |     |       |     |       |
| Current assets:                                                                                                                                           |       |     |       |     |       |
| Cash and cash  equivalents                                                                                                                                |       | $        | 13,380     |     | $          | 10,355 |   |
| Accounts  receivable, less allowance for doubtful accounts of $524 and $468,  respectively  and promotional allowances of $2,170 and $2,092, respectively |       | 10,222   |       | 9,508    |       |
| Inventories                                                                                                                                               |       | 19,544   |       | 21,324   |       |
| Prepaid expenses                                                                                                                                          |       | 291      |       | 401      |       |
| Refundable  income taxes                                                                                                                                  |       | 655      |       | 552      |       |
| Deferred income  taxes                                                                                                                                    |       | 1,821    |       | 1,598    |       |
| Total current assets                                                                                                                                      |       | 45,913   |       | 43,738   |       |
|                                                                                                                                                      |       |     |       |     |       |
| Property, plant and  equipment, net of accumulated depreciation of $53,941 and $50,731,  respectively                                                     |       | 13,041   |       | 14,519   |       |
| Other non-current  assets                                                                                                                                 |       | 10,620   |       | 10,239   |       |
| Deferred income taxes                                                                                                                                     |       | 3,357    |       | 4,467    |       |
| Total assets                                                                                                                                              |       | $        | 72,931     |     | $          | 72,963 |   |
|                                                                                                                                                      |       |     |       |     |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                            |       |     |       |     |       |
| Current liabilities:                                                                                                                                      |       |     |       |     |       |
| Accounts payable                                                                                                                                          |       | $        | 3,923      |     | $          | 3,806 |   |
| Accrued payroll,  advertising and other expenses                                                                                                          |       | 6,029    |       | 5,314    |       |
| Current portion  of non-current liabilities                                                                                                               |       | 4,279    |       | 2,721    |       |
| Total current  liabilities                                                                                                                                |       | 14,231   |       | 11,841   |       |
| Non-current liabilities                                                                                                                                   |       | 8,514    |       | 12,860   |       |
|                                                                                                                                                      |       |     |       |     |       |
| 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 – 9,958 in 2006 and 9,986 in 2005                                                                 |       | 10,015   |       | 10,043   |       |
| Capital in excess of  par value                                                                                                                           |       | 14,235   |       | 14,394   |       |
| Retained earnings                                                                                                                                         |       | 27,129   |       | 25,889   |       |
| Accumulated other  comprehensive loss                                                                                                                     |       | (1,193   | )          | (2,064   | )          |
| Total  shareholders’ equity                                                                                                                          |       | 50,186   |       | 48,262   |       |
|                                                                                                                                                      |       | $        | 72,931     |     | $          | 72,963 |   |

 

See accompanying notes toconsolidated financial statements.

21

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**BRIDGFORD FOODS CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**Forthe years ended November 3, 2006, October 28, 2005, and October 29, 2004**

**(in thousands, except share and per share amounts)**
| ** **                                                | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------|------------|-----------|------------|-----------|------------|------------|------------|
| Net sales                                                 |       | $         | 134,264    |      | $          | 130,845    |       | $ | 137,865 |   |
| Cost of products  sold, excluding depreciation            |       | 85,133    |       | 85,455    |       | 90,306     |       |
| Selling, general  and administrative expenses             |       | 43,963    |       | 43,393    |       | 43,728     |       |
| Depreciation                                              |       | 3,777     |       | 4,251     |       | 4,345      |       |
| Gain on sale of  equity securities                        |       | (106      | )          | —    |       | (553       | )          |
|                                                      |       | 132,767   |       | 133,099   |       | 137,826    |       |
| Income (loss)  before taxes                               |       | 1,497     |       | (2,254    | )          | 39         |       |
| Provision  (benefit) for taxes on income                  |       | 257       |       | (1,311    | )          | 15         |       |
| Net income  (loss)                                        |       | $         | 1,240      |      | $          | (943       | )          | $ | 24 |   |
| Basic earnings  (loss) per share                          |       | $         | 0.13       |      | $          | (0.09)     |       | $ | — |   |
| Shares used to  compute basic earnings (loss) per share   |       | 9,966,483 |       | 9,994,816 |       | 10,131,570 |       |
| Diluted earnings  (loss) per share                        |       | $         | 0.13       |      | $          | (0.09)     |       | $ | — |   |
| Shares used to compute  diluted earnings (loss) per share |       | 9,966,483 |       | 9,994,816 |       | 10,131,570 |       |

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYAND COMPREHENSIVE INCOME**

**Forthe years ended November 3, 2006, October 28, 2005, and October 29, 2004**

**(in thousands, except per share amounts)**
| ** **                              | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Capital in  excess of  par value** | ** ** | **Retained  earnings** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Total  shareholders’  equity** | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|-----------------------------------------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
| Balance, October  31, 2003              |       | 10,276     |       | $          | 10,333     |                                                | $          | 16,340                 |       | $                                                         | 27,321     |                                  | $          | (1,661 | ) | $ | 52,333 |   |
| Shares repurchased and retired          |       | (274       | )          | (274)      |       | (1,834                                              | )          |                   |       |                                                      |       | (2,108                                | )          |
| Cash dividends paid ($.05 per share)    |       |       |       |       |       |                                                |       | (513                   | )          |                                                      |       | (513                                  | )          |
| Net income                              |       |       |       |       |       |                                                |       | 24                     |       |                                                      |       | 24                                    |       |
| Other  comprehensive net income (loss): |       |       |       |       |       |                                                |       |                   |       |                                                      |       |                                  |       |
| Unrealized gain on investment           |       |       |       |       |       |                                                |       |                   |       | 25                                                        |       | 25                                    |       |
| Minimum pension liability               |       |       |       |       |       |                                                |       |                   |       | (1,097                                                    | )          | (1,097                                | )          |
| Comprehensive  income                   |       |       |       |       |       |                                                |       |                   |       |                                                      |       | (1,048                                | )          |
| 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 |   |

 

See accompanying notes toconsolidated financial statements.

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**BRIDGFORD FOODS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS**

**For theyears ended November 3, 2006, October 28, 2005, and October 29, 2004**

**(in thousands)**
| ** **                                                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                    |       |     |       |     |       |     |       |
| Net income (loss)                                                                         |       | $        | 1,240      |     | $          | (943     | )          | $ | 24 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |     |       |     |       |     |       |
| Depreciation                                                                              |       | 3,777    |       | 4,251    |       | 4,345    |       |
| (Recovery) on losses on accounts receivable                                               |       | (277     | )          | (578     | )          | (246     | )          |
| (Gain) on sale of property, plant and equipment                                           |       | (31      | )          | (11      | )          | (11      | )          |
| (Gain) on sale of equity securities                                                       |       | (106     | )          | —   |       | (553     | )          |
| Provision for asset impairment                                                            |       | —   |       | —   |       | 54       |       |
| Deferred income taxes, net                                                                |       | 1,111    |       | (571     | )          | (601     | )          |
| Changes in  operating assets and liabilities:                                             |       |     |       |     |       |     |       |
| Accounts receivable                                                                       |       | (436     | )          | 2,243    |       | 1,346    |       |
| Inventories                                                                               |       | 1,780    |       | 1,154    |       | (4,445   | )          |
| Prepaid expenses                                                                          |       | 52       |       | 78       |       | (619     | )          |
| Income taxes receivable                                                                   |       | (327     | )          | 179      |       | 732      |       |
| Other non-current assets                                                                  |       | (1,484   | )          | (761     | )          | (74      | )          |
| Accounts payable                                                                          |       | 117      |       | 69       |       | (968     | )          |
| Accrued payroll, advertising and other expenses                                           |       | 714      |       | (533     | )          | 930      |       |
| Income taxes payable                                                                      |       | —   |       | (913     | )          | 913      |       |
| Current portion of non-current liabilities                                                |       | 1,558    |       | 553      |       | (699     | )          |
| Non-current liabilities                                                                   |       | (2,814   | )          | 298      |       | 780      |       |
| Net cash provided by operating activities                                                 |       | 4,874    |       | 4,515    |       | 908      |       |
| Cash used in  investing activities:                                                       |       |     |       |     |       |     |       |
| Proceeds from sale of property, plant and equipment                                       |       | 62       |       | 28       |       | 35       |       |
| Proceeds from sale of equity securities                                                   |       | 606      |       | —   |       | 898      |       |
| Additions to property, plant and equipment                                                |       | (2,330   | )          | (2,032   | )          | (3,444   | )          |
| Net cash used in investing activities                                                     |       | (1,662   | )          | (2,004   | )          | (2,511   | )          |
| Cash used in  financing activities:                                                       |       |     |       |     |       |     |       |
| Shares repurchased                                                                        |       | (187     | )          | (128     | )          | (2,108   | )          |
| Cash dividends paid                                                                       |       | —   |       | —   |       | (513     | )          |
| Net cash used in financing activities                                                     |       | (187     | )          | (128     | )          | (2,621   | )          |
| Net increase  (decrease) in cash and cash equivalents                                     |       | 3,025    |       | 2,383    |       | (4,224   | )          |
|                                                                                      |       |     |       |     |       |     |       |
| Cash and cash  equivalents at beginning of year                                           |       | 10,355   |       | 7,972    |       | 12,196   |       |
| Cash and cash  equivalents at end of year                                                 |       | $        | 13,380     |     | $          | 10,355   |       | $ | 7,972 |   |
| Cash paid for income  taxes                                                               |       | $        | 26         |     | $          | 687      |       | $ | 39 |   |

 

See accompanying notes toconsolidated financial statements.

23

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**BRIDGFORDFOODS CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(amounts in thousands except share amounts, per share amountsand percentages)**

**NOTE1- *The Company and Summary of SignificantAccounting Policies:***

The consolidatedfinancial statements include the accounts of the Company and its subsidiaries,all of which are wholly owned. All intercompany transactions have beeneliminated.

**Useof estimates and assumptions**

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make certain estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements, aswell as the reported revenues and expenses during the respective reportingperiods. Actual results could differ from those estimates. Amounts estimatedrelated to liabilities for self-insured workers’ compensation, employeehealthcare and pension benefits are especially subject to inherentuncertainties and these estimated liabilities may ultimately settle at amountsnot originally estimated. Management believes its current estimates arereasonable and based on the best information available at the time.

Under theprovisions of Statement of Financial Accounting Standards No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets”, (“FAS 144”), the Companyis required to test long-lived assets for recoverability whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. If a impairment is indicated, the Company must measure the fairvalue of assets in accordance with FAS 144 to determine if and when adjustmentsare to be recorded.

**Concentrationsof credit risk**

The Company’s creditrisk is diversified across a broad range of customers and geographic regions.Losses due to credit risk have recently been immaterial, although losses infiscal year 2002 were significant due to a bankruptcy of a significantcustomer. The carrying amount of cash equivalents, accounts and otherreceivables, accounts payable and accrued liabilities approximate fair marketvalue due to the short maturity of these instruments. The Company maintainscash balances at financial institutions, which may at times, exceed the amountsinsured by the Federal Deposit Insurance Corporation of $100 per institution.However, management does not believe there is significant credit riskassociated 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 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. Sales to Wal-Mart®comprised 14.6% of revenues in fiscal year 2004.

**Businesssegments**

The Company andits subsidiaries operate in two business segments - the processing anddistribution of frozen foods, and the processing and distribution ofrefrigerated and snack food products.

**Fiscalyear**

The Companymaintains its accounting records on a 52-53 week fiscal basis. Fiscal years2004 and 2005 include 52 weeks each and fiscal year 2006 included 53 weeks.

**Revenues**

Revenues arerecognized upon passage of title to the customer, typically upon productpick-up, shipment or delivery to customers. Products are primarily delivered tocustomers through the Company’s own fleet or through a Company owned directstore delivery system. These costs, $6,375, $6,382 and $6,514 for 2006, 2005and 2004, respectively, are included in selling, general and administrativeexpenses in the accompanying consolidated financial statements. The Companyrecords promotional and returns allowances based on recent and historicaltrends.

24

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**Cashequivalents**

The Companyconsiders all investments with original maturities of three months or less tobe cash equivalents. Cash equivalents include short-term taxable auction ratesecurities, money market funds, and treasury bills of $12,629 at November 3,2006 and $10,856 at October 28, 2005.

**Inventories**

Inventories arestated at the lower of cost (determined on a first-in, first-out basis) ormarket.

**Property,plant and equipment**

Property, plantand equipment are carried at cost less accumulated depreciation. Major renewalsand betterments are charged to the asset accounts while the cost of maintenanceand repairs is charged to expense as incurred. When assets are sold orotherwise disposed of, the cost and accumulated depreciation are removed fromthe respective accounts and the resulting gain or loss is credited or chargedto income. Depreciation is computed on a straight-line basis over 10 to 20years for buildings and improvements, 5 to 10 years for machinery and equipmentand 3 to 5 years for transportation equipment.

**Incometaxes**

Deferred taxes areprovided for items whose financial and tax bases differ. A valuation allowanceis provided against deferred tax assets when it is expected that it is morelikely than not that the related asset will not be fully realized.

The Companyprovides tax reserves for federal, state, local and international exposuresrelating to audit results, tax planning initiatives and complianceresponsibilities. The development of these reserves requires judgments abouttax issues, potential outcomes and timing, and is a subjective estimate. Althoughthe outcome of these tax audits is uncertain, in management’s opinion adequateprovisions for income taxes have been made for potential liabilities emanatingfrom these reviews. If actual outcomes differ materially from these estimates,they could have a material impact on our results of operations.

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN48”). This Statement addresses uncertainty in tax positions recognized in acompany’s financial statements and stipulates a recognition threshold andmeasurement of a tax position taken or expected to be taken in a tax return. FIN48 will apply to the Company’s fiscal year beginning November 3, 2007, withearlier adoption permitted.                TheCompany does not expect this interpretation will have a material impact on theCompany’s results of operations or financial position.

**Stock-basedcompensation**

InDecember 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”)No. 123R, “Share-Based Payment”. SFAS No. 123R requires public companies tomeasure and recognize compensation expense for all share-based payments toemployees, including grants of employee stock options, in the financialstatements based on the fair value at the date of the grant.  TheStatement also clarifies and expands SFAS No. 123’s guidance in several areas,including measuring fair value, classifying an award as equity or as aliability, and attributing compensation cost to reporting periods.  SFASNo. 123R became effective for the Company’s fiscal year ending November 3,2006. The Company has not issued, awarded, granted or entered into anystock-based payment agreements since April 29, 1999. The modified prospectiveadoption of SFAS No. 123R did not have any impact on the Company’s financialcondition or results of operations for fiscal year ended November 3, 2006.

Prior to adoptionof SFAS No. 123R, the Company adopted SFAS No. 123 ‘“Accounting for Stock-BasedCompensation” which allowed the Company to apply the provisions of AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations in accounting for stock-basedcompensation and, therefore, no compensation expense was recognized for itsfixed stock option plans as options are generally granted at fair market valuebased upon the closing price on the date immediately preceding the grantdate.  On December 31, 2002 the FASB issued SFAS No. 148, “Accounting forStock Based Compensation- Transition and Disclosure”, which amended SFAS No.123.  SFAS No. 148 requires more prominent and frequent disclosures aboutthe effects of stock-based compensation.  Accordingly, if compensationexpense for the Company’s stock options had been recognized, based upon thefair value of awards granted, there would have been no impact on the Company’snet income and earnings per share for fiscal year ended November 3, 2006.

25

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Had compensationcost for the Company’s Stock Option Plan been determined based on the fairvalue of the options consistent with FAS 123, during the fiscal years endedOctober 28, 2005 and October 29, 2004, the Company’s net income and earningsper share would have been reduced to the pro forma amounts indicated below:

| ** **                                               | ** ** | **For the year ended** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **October 28,**2005              | ** ** | **October 29,**2004 | ** ** |
| Net income  (loss) as reported                           |       | $                                     | (943       | ) | $ | 24 |   |
| Deduct: Pro  forma compensation expense, net of tax      |       | —                                |       | — |   |
| Pro forma net  income (loss)                             |       | $                                     | (943       | ) | $ | 24 |   |
| 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                             |       | 10,131,570 |   |
| Weighted average shares  outstanding, diluted            |       | 9,994,816                             |       | 10,131,570 |   |

 

The fair value ofcompensatory stock options was estimated using the Black-Scholes option-pricingmodel using the following weighted 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           | % |

 

The followingbalances 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 followingbalances 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 |   |
|                                                                                                                                                                 |            |            |            |                                      |            |                              |            |            |            |                                                    |            |  |  |

 

 Thefollowing balances are reflected as of October 29, 2004:

| ** **                                                                                                                                                      | ** ** | ** ** | ** ** | ** **                           | ** ** | **Options Exercisable** | ** ** | ** ** | ** ** | ** **                                         | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------|------------|------------------------------|------------|------------|------------|----------------------------------------------------|------------|
| **Options Outstanding**                                                                                                                                    | ** ** | ** ** | ** ** | **Weighted average**            | ** ** | **Weighted average**    | ** ** | ** ** | ** ** | ** **                                         | ** ** |
| **Exercise price**                                                                                                                                         | ** ** | **Shares** | ** ** | **remaining life (years)** | ** ** | **exercise price**      | ** ** | **Shares** | ** ** | **Weighted average exercise price** | ** ** |
| $                          10 |       | 250,000    |       | 4.5                                  |       | $                            | 10         |       | 250,000    |                                               | $          | 10 |   |
|                                                                                                                                                                 |            |            |            |                                      |            |                              |            |            |            |                                                    |            |  |  |

 

**Basicand diluted earnings per share**

Basic earnings pershare is calculated based on the weighted average number of shares outstandingfor all periods presented. Diluted earnings per share is calculated based onthe weighted average number of shares outstanding plus shares issuable onconversion or exercise of all potentially dilutive securities (stock options).

 **Foreign currencytransactions**

The Company’sforeign branch located in Canada enters into transactions that are denominatedin a foreign currency. The related transaction gains and losses arising fromchanges in exchange rates are not material and are included in selling, generaland administrative expenses in the consolidated statement of operations in theperiod the transaction occurred.

**Comprehensiveincome (loss)**

Comprehensiveincome (loss) is defined as the change in equity (net assets) of a businessenterprise during the period from transactions and other events andcircumstances from non-owner sources. Comprehensive income (loss) consists ofnet income (loss), the additional minimum pension liability adjustment andunrealized gains on equity securities. The Company’s cost basis in the stock isequal to the fair market value at the date of issuance. During fiscal years2006, 2005 and 2004 the

26

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Company recognized aminimum pension liability in accordance with the provisions of SFAS No. 87 “Employers’Accounting for Pensions”. The impact of this transaction has been recorded as acomponent of shareholders’ equity, net of tax. No effect has been given tothese transactions in the consolidated statement of cash flows.

**Criticalaccounting 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 theprovisions of Statement of Financial Accounting Standards No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets”, (“FAS 144”), the Companyis required to test long-lived assets for recoverability whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. If a impairment is indicated, the Company must measure the fairvalue of assets in accordance with FAS 144 to determine if and when adjustmentsare to be recorded.

The Company’scredit risk is diversified across a broad range of customers and geographicregions. Losses due to credit risk have recently been immaterial althoughlosses in fiscal year 2002 were significant. 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. TheCompany monitors these customers closely to minimize the risk of loss. Sales toWal-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 14.6% of revenues in fiscal year 2004.

Revenues arerecognized upon passage of title to the customer upon product pick-up, shipmentor delivery to customers as determined by applicable contracts. Products aredelivered to customers through the Company’s own fleet or through aCompany-owned direct store delivery system.

The Companyrecords the cash surrender or contract value for life insurance policies as anadjustment of premiums paid in determining the expense or income to berecognized under the contract for the period.

The Company’soperating results are heavily dependent upon the prices paid for raw materials.The marketing of the Company’s value-added products does not lend itself toinstantaneous changes in selling prices. Changes in selling prices arerelatively infrequent and do not compare with the volatility of commoditymarkets.

The above listingis not intended to be a comprehensive list of all the Company’s accountingpolicies. In many cases, the accounting treatment of a particular transactionis specifically dictated by accounting principles generally accepted in theUnited States, with no need for management’s judgment in their application.There are also areas in which management’s judgment in selecting any availablealternative would not produce a materially different result.

**Recentlyissued accounting pronouncements and regulations**

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN48”). This Statement addresses uncertainty in tax positions recognized in acompany’s financial statements and stipulates a recognition threshold andmeasurement of a tax position taken or expected to be taken in a tax return. FIN48 will apply to the Company’s fiscal year beginning November 3, 2007, withearlier adoption permitted. The Company does not expect this interpretationwill have a material impact on the Company’s results of operations or financialposition.

In September 2006,the Securities and Exchange Commission issued SAB No. 108, “Considering theEffects of Prior Year Misstatements when Quantifying Misstatements in CurrentYear Financial Statements”. SAB No. 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 No. 108 is effective forfiscal years ending after November 15, 2006. Although the Company will continueto evaluate the application

27

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of SAB No. 108,management does not currently believe adoption will have a material impact onthe Company’s results of operations or financial position.

In September 2006,the FASB issued Statement of Accounting Standards No. 157, “Fair ValueMeasurements” (SFAS No. 157). This Statement defines fair value, provides aframework for measuring fair value, and expands the disclosures required forfair value measurements. SFAS No. 157 applies to other accountingpronouncements that require fair value measurements; it does not require anynew fair value measurements. SFAS No. 157 is effective for financial statementsfor fiscal years beginning after November 15, 2007, the Company’s first quarterof the 2009 fiscal year, and interim periods within those years. The Companydoes not expect this statement will have a material impact on the Company’sresults of operations or financial position.

In September 2006,the Financial Accounting Standards Board issued FAS 158, “Employers’ Accountingfor Defined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R)”. FAS 158 requires employers torecognize the over- or under-funded status of defined benefit plans and otherpostretirement plans in the statement of financial position and to recognizechanges in the funded status in the year in which the changes occur through comprehensiveincome. In addition, FAS 158 requires employers to measure the funded status ofplans as of the date of the year-end statement of financial position. Therecognition and disclosure provisions of FAS 158 are effective for fiscal yearsending after December 15, 2006 (effective for the Company’s fiscal year endingNovember 2, 2007), while the requirement to measure plan assets and benefitobligations as of a company’s year-end date is effective for fiscal yearsending after December 15, 2008 (effective for the Company’s fiscal year endingOctober 30, 2009). The Company expects the adoption of this statement willmaterially affect other comprehensive income, long-term liabilities andshareholders equity.

**NOTE 2- *Composition of Certain Financial Statement Captions:***

|                                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
| Inventories:                                            |       |     |       |     |       |
| Meat,  ingredients and supplies                         |       | $        | 3,748      |     | $          | 6,433 |   |
| Work in process                                         |       | 2,228    |       | 2,293    |       |
| Finished goods                                          |       | 13,568   |       | 12,598   |       |
|                                                    |       | $        | 19,544     |     | $          | 21,324 |   |
| Property, plant  and equipment:                         |       |     |       |     |       |
| Land                                                    |       | $        | 1,840      |     | $          | 1,840 |   |
| Buildings and  improvements                             |       | 13,233   |       | 13,137   |       |
| Machinery and  equipment                                |       | 39,640   |       | 38,318   |       |
| Asset impairment  reserve                               |       | (54      | )          | (54      | )          |
| Transportation  equipment                               |       | 10,130   |       | 9,996    |       |
| Construction in  process                                |       | 2,193    |       | 2,013    |       |
|                                                    |       | 66,982   |       | 65,250   |       |
| Accumulated  depreciation                               |       | (53,941  | )          | (50,731  | )          |
|                                                    |       | $        | 13,041     |     | $          | 14,519 |   |
|                                                    |       |     |       |     |       |
| Other  non-current assets:                              |       |     |       |     |       |
| Cash surrender  value benefits                          |       | $        | 10,561     |     | $          | 10,142 |   |
| Intangible asset                                        |       | 59       |       | 97       |       |
|                                                    |       | $        | 10,620     |     | $          | 10,239 |   |
|                                                    |       |     |       |     |       |
| Accrued payroll,  advertising and other expenses:       |       |     |       |     |       |
| Payroll,  vacation, payroll taxes and employee benefits |       | $        | 4,297      |     | $          | 3,526 |   |
| Accrued  advertising and broker commissions             |       | 681      |       | 621      |       |
| Property taxes                                          |       | 439      |       | 477      |       |
| Others                                                  |       | 612      |       | 690      |       |
|                                                    |       | $        | 6,029      |     | $          | 5,314 |   |
|                                                    |       |     |       |     |       |
| Current portion  of non-current liabilities:            |       |     |       |     |       |
| Incentive  compensation                                 |       | $        | 217        |     | $          | 414 |   |
| Accrued pension                                         |       | 3,476    |       | 1,800    |       |
| Other accrued  retirement plans                         |       | 510      |       | 507      |       |
| Post retirement  healthcare                             |       | 76       |       | —   |       |
|                                                    |       | $        | 4,279      |     | $          | 2,721 |   |
|                                                    |       |     |       |     |       |
| Non-current  liabilities:                               |       |     |       |     |       |
| Incentive  compensation                                 |       | $        | 340        |     | $          | 395 |   |
| Accrued pension                                         |       | 3,732    |       | 7,984    |       |
| Other accrued  retirement plans                         |       | 3,929    |       | 4,042    |       |
| Post retirement  healthcare                             |       | 513      |       | 439      |       |
|                                                    |       | $        | 8,514      |     | $          | 12,860 |   |

 

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**NOTE 3- *Retirement and Other Benefit Plans:***

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

The Company hasnoncontributory-trusteed defined benefit retirement plans for sales,administrative, supervisory and certain other employees. The benefits underthese plans are primarily based on years of service and compensation levels.The Company’s funding policy is to contribute annually the maximum amountdeductible for federal income tax purposes, without regard to the plans’unfunded current liability. The measurement date for the plan is the Company’sfiscal year end.

Net pension costconsisted of the following:

| ** **                                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                      |       | $        | 1,160      |     | $          | 1,680    |       | $ | 1,435 |   |
| Interest cost                                     |       | 1,922    |       | 1,803    |       | 1,704    |       |
| Expected return  on plan assets                   |       | (1,592   | )          | (1,406   | )          | (1,295   | )          |
| Amortization of  unrecognized loss                |       | 191      |       | 370      |       | 300      |       |
| Amortization of  transition asset (15.2 years)    |       | —   |       | —   |       | (68      | )          |
| Amortization of  unrecognized prior service costs |       | 31       |       | 42       |       | 41       |       |
| Net pension cost                                  |       | $        | 1,712      |     | $          | 2,489    |       | $ | 2,117 |   |

 

   Inthe third quarter of fiscal 2006, the Company froze the defined benefit pensionplan accrued benefits for members employed by the Company withinadministration, sales or supervisory job classification or within anon-bargaining class (the Corporate Group). This action is defined as acurtailment under SFAS No. 88 “Employers’ Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits”and, therefore, the Company recognized a curtailment loss of approximately $8.As a result of this action, net pension costs were reduced in the last fiscalquarter by approximately $667 as compared to the same quarter last year andwill be reduced in future periods.

Net pension cost isdetermined using assumptions as of the beginning of each fiscal year. Weightedaverage assumptions for the fiscal years are as follows:

| ** **                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate                      |       | 6.00     | %          | 6.00     | %          | 6.25     | %          |
| Rate of increase  in salary levels |       | N/A      |       | 3.75     | %          | 3.75     | %          |
| Expected return on plan  assets    |       | 8.00     | %          | 8.00     | %          | 8.00     | %          |

 

The benefitobligation, plan assets, and funded status of these plans as of the fiscalyears ended are as follows:

29

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|                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Change in  benefit obligations:               |       |     |       |     |       |
| Benefit Obligations - beginning of year       |       | $        | 33,215     |     | $          | 33,151 |   |
| Service Cost                                  |       | 1,160    |       | 1,680    |       |
| Interest Cost                                 |       | 1,922    |       | 1,803    |       |
| Actuarial (Gain) Loss                         |       | 348      |       | (2,865   | )          |
| Benefits Paid                                 |       | (965     | )          | (574     | )          |
| Curtailments                                  |       | (5,211   | )          | —   |       |
| Plan Amendments                               |       | 0        |       | 20       |       |
| Benefit Obligations - end of year             |       | 30,469   |       | 33,215   |       |
| Change in plan  assets:                       |       |     |       |     |       |
| Fair value of plan assets - beginning of year |       | 19,440   |       | 17,721   |       |
| Employer Contributions                        |       | 2,757    |       | 991      |       |
| Actual return on plan assets                  |       | 2,029    |       | 1,303    |       |
| Benefits Paid                                 |       | (965     | )          | (574     | )          |
| Fair value of plan assets - end of year       |       | 23,261   |       | 19,441   |       |
| Funded Status of  the plans                   |       | (7,208   | )          | (13,774  | )          |
| Unrecognized  prior service costs             |       | 59       |       | 97       |       |
| Unrecognized net  actuarial loss              |       | 1,867    |       | 7,351    |       |
| Unrecognized net  transition asset            |       | —   |       | —   |       |
| Additional  accrued minimum liability         |       | (1,926   | )          | (3,458   | )          |
| Accrued pension  cost                         |       | $        | (7,208     | )        | $          | (9,784 | ) |

 

The accumulated benefitobligation is $30,469 and $29,225 at November 3, 2006 and October 28, 2005,respectively.

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

|                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Discount rate                      |       | 6.00     | %          | 6.00     | %          |
| Rate of increase in  salary levels |       | N/A      |       | 3.75     | %          |

 

The discount rateused to value the projected benefit obligation was 6.00%, equal to the prioryear. SFAS No. 87 “Employers’ Accounting for Pensions” generally requires thatthe discount rate used in the liability measurement reflect the economicenvironment in which the liability can be settled as of the measurement date. Thediscount rates were based on available corporate bond yields as of themeasurement date to take into account the economic environment at the time. Higherfunding levels, improved investment returns and the freezing of pensionbenefits helped to reduce the minimum liability compared to the prior year.

Plan assets areprimarily invested in marketable equity securities, corporate and governmentdebt securities and are administered by an investment management company. Theplans’ long-term return on assets is based on the weighted-average of the plans’investment allocation as of the measurement date and the published historicalreturns for those types of asset categories, taking into considerationinflation rate forecasts. The compensation increase assumption is based uponhistorical patterns of salary increases and management’s expectation of futuresalary increases for plan participants. The expected Company contribution tothe plan in fiscal year 2007 is $3,476.

The actualallocations as of the fiscal years ended and target allocation for plan assetsare as follows:

| **Asset Class** | ** ** | **2006** | ** ** | **2005** | ** ** | **Target  Asset  Allocation** | ** ** |
|----------------------|------------|----------|------------|----------|------------|-------------------------------|------------|
| Large Cap  Equities  |       | 72.16    | %          | 66.0     | %          | 45.0                          | %          |
| Mid Cap Equities     |       | 0.0      | %          | 0.0      | %          | 7.5                           | %          |
| Small Cap  Equities  |       | 0.0      | %          | 0.0      | %          | 5.0                           | %          |
| International        |       | 0.0      | %          | 0.0      | %          | 7.5                           | %          |
| Fixed Income         |       | 27.44    | %          | 29.8     | %          | 35.0                          | %          |
| Cash                 |       | 0.40     | %          | 4.2      | %          | 0.0                           | %          |
| Total                |       | 100.0    | %          | 100.0    | %          | 100.0                         | %          |

 

30

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Expected paymentsfor the pension benefits are as follows:

 

|                  | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** |
|------------------|------------|-----------------------|------------|-------------------------------------|------------|
| Fiscal 2007      |       | $                     | 958        |                                | $          | 512 |   |
| Fiscal 2008      |       | $                     | 1,057      |                                | $          | 513 |   |
| Fiscal 2009      |       | $                     | 1,122      |                                | $          | 513 |   |
| Fiscal 2010      |       | $                     | 1,168      |                                | $          | 513 |   |
| Fiscal 2011      |       | $                     | 1,233      |                                | $          | 513 |   |
| Fiscal 2012-2016 |       | $                     | 8,069      |                                | $          | 4,166 |   |

 

Net amountsrecognized as of the end of each fiscal year are as follows:

|                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
| Accrued benefit  cost                   |       | $        | (7,208     | )        | $          | (9,784 | ) |
| Intangible asset                        |       | 59       |       | 96       |       |
| Accumulated  other comprehensive income |       | 1,867    |       | 3,361    |       |
|                                    |       | $        | (5,282     | )        | $          | (6,327 | ) |

 

**Non-Qualified SupplementalRetirement Plan for Certain Key Employees**

In fiscal year1991, the Company adopted a non-qualified supplemental retirement plan for certainkey employees. Benefits provided under the plan are equal to 60% of theemployee’s final average earnings, less amounts provided by the Company’sdefined benefit pension plan and amounts available through Social Security.Effective January 1, 1991 the Company adopted a deferred compensation savingsplan for certain key employees. Under this arrangement, selected employeescontribute a portion of their annual compensation to the plan. The Companycontributes an amount to each participant’s account by computing an investmentreturn equal to Moody’s Average Seasoned Bond Rate plus 2%. Employees receivevested amounts upon death, termination or attainment of retirement age. Totalbenefit expense recorded under these plans for fiscal years 2006, 2005 and 2004was $0, $9, and $0, respectively. Benefits payable related to these plans andincluded in other non-current liabilities in the accompanying financialstatements were $3,929 and $4,042 at November 3, 2006 and October 28, 2005,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 $10,561 and $10,142 at November 3, 2006 and October 28, 2005,respectively.

**Incentive Compensation Plan forCertain Key Executives**

The Companyprovides an incentive compensation plan for certain key executives, which isbased upon the Company’s pretax income and return on shareholders’ equity. Thepayment of these amounts is generally deferred over a five-year period. Thetotal amount payable related to this arrangement was $557 and $809 at November3, 2006 and October 28, 2005, respectively. Future payments are approximately$217, $173, $82, $52 and $32 for fiscal years 2007 through 2011, respectively.

**PostretirementHealth Care Benefits for Selected Executive Employees**

The Companyprovides postretirement health care benefits for selected executive employees.The approximate amounts for postretirement health care benefits are $513 and$439 are included in non-current liabilities at November 3, 2006 and October28, 2005, respectively. On January 12, 2004, the Financial Accounting StandardsBoard issued a Staff Position which allows employers to recognize or defer theeffect of the new Medicare Act on their financial statements. The Company hasdeferred the recognition of the subsidy and will reflect it in future OPEBcalculations.

Net periodicpostretirement benefit cost consisted of the following:

|                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Service cost                              |       | $        | 14         |     | $          | 14 |   |
| Interest cost                             |       | 66       |       | 63       |       |
| Return on plan  assets                    |       | 0        |       | 0        |       |
| Amortization of  unrecognized loss        |       | 0        |       | 0        |       |
| Amortization of  prior service cost       |       | 75       |       | 75       |       |
| Amortization of  actuarial (gain) / loss  |       | 11       |       | 15       |       |
| Net periodic  postretirement benefit cost |       | $        | 166        |     | $          | 167 |   |

 

31

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Net periodic postretirement benefit cost is determinedusing assumptions as of the beginning of each fiscal year. Weighted averageassumptions for the fiscal year ended November 3, 2006 are as follows:

|                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Discount rate                         |       | 6.00     | %          | 6.00     | %          |
| Medical trend  rate next year         |       | 10.0     | %          | 11.0     | %          |
| Ultimate trend  rate                  |       | 5.00     | %          | 5.00     | %          |
| Year ultimate trend  rate is achieved |       | 2011     |       | 2011     |       |

 

Effect of a 1% increase in health care cost trend rateon:

|                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Interest cost  plus service cost               |       | $        | 10         |     | $          | 10 |   |
| Accumulated  postretirement benefit obligation |       | $        | 120        |     | $          | 121 |   |

 

Effect of a 1% decrease in health care cost trend rateon:

|                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Interest cost  plus service cost               |       | $        | (9         | )        | $          | (8 | ) |
| Accumulated  postretirement benefit obligation |       | $        | (113       | )        | $          | (101 | ) |

 

The benefitobligation and funded status of this plan as of the fiscal year ended November3, 2006 is as follows:

|                                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Change in  accumulated postretirement benefit obligation: |       |     |       |     |       |
| Benefit Obligations - beginning of year                   |       | $        | 1,143      |     | $          | 1,164 |   |
| Service Cost                                              |       | 14       |       | 14       |       |
| Interest Cost                                             |       | 66       |       | 63       |       |
| Actuarial (Gain) Loss                                     |       | (48      | )          | (61      | )          |
| Benefits Paid                                             |       | (16      | )          | (37      | )          |
| Plan Amendments                                           |       | 0        |       | 0        |       |
| Benefit Obligations - end of year                         |       | 1,159    |       | 1,143    |       |
| Funded Status of  the plans                               |       | 1,159    |       | 1,143    |       |
| Unrecognized  prior service costs                         |       | (372     | )          | (447     | )          |
| Unrecognized net  actuarial loss                          |       | (198     | )          | (257     | )          |
| Unrecognized net  transition asset                        |       | —   |       | —   |       |
| Accrued  postretirement benefit cost                      |       | $        | 589        |     | $          | 439 |   |

 

Expected paymentsfor the postretirement benefits are as follows:

|                  | ** ** | **Postretirement  Benefits** | ** ** |
|------------------|------------|------------------------------|------------|
| Fiscal 2007      |       | $                            | 79         |   |
| Fiscal 2008      |       | $                            | 81         |   |
| Fiscal 2009      |       | $                            | 83         |   |
| Fiscal 2010      |       | $                            | 84         |   |
| Fiscal 2011-2015 |       | $                            | 402        |   |

 

**StockIncentive Plan**

The Company’s 1999Stock Incentive Plan (“the Plan”) was approved by the Board of Directors onJanuary 11, 1999 and 275,000 options were granted on April 29, 1999. Duringfiscal year 2000, 25,000 options were canceled. Under the Plan, 

32

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the maximum aggregatenumber of shares which may be optioned and sold is 900,000 shares of commonstock, subject to adjustment upon changes in capitalization or merger.Generally, options granted under the plan vest in annual installments over fouryears following the date of grant (as determined by the Board of Directors)subject to the optionee’s continuous service. Options expire ten years from thedate of grant with the exception of an incentive stock option granted to anoptionee who owns stock representing more than 10% of the voting power of allclasses of stock of the Company, in which case the term of the option is fiveyears. Options generally terminate three months after termination of employmentor one year after termination due to permanent disability or death. Options aregenerally granted at a fair market value determined by the Board of Directorssubject to the following:

a.)                   With respect tooptions granted to an employee or service provider who, at the time of grantowns stock representing more than 10% of the voting power of all classes ofstock of the Company; the per share exercise price shall be no less than 110%of the fair market value on the date of grant.

b.)                  With respect tooptions granted to an employee or service provider other than described in thepreceding paragraph, the exercise price shall be no less than 100% forincentive stock options and 85% for non-statutory stock options of the fairmarket value on the date of grant.

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

As of November 3, 2006, 250,000 options wereoutstanding at an exercise price of $10.00 per share.

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

                During the fiscal year ended November 3, 2006, theCompany implemented a qualified 401(K) retirement plan (the “Plan”) for itssales, administrative, supervisory and certain other employees. During fiscalyear 2006, the Company made total contributions to the Plan in the amount of $229,000.

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

The provision (benefit)for taxes on income includes the following:

| ** ** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Current:   |       |     |       |     |       |     |       |
| Federal    |       | $        | (171       | )        | $          | (1,262   | )          | $ | 1,174 |   |
| State      |       | 28       |       | (208     | )          | 99       |       |
|       |       | (143     | )          | (1,470   | )          | 1,273    |       |
|       |       |     |       |     |       |     |       |
| Deferred:  |       |     |       |     |       |     |       |
| Federal    |       | 357      |       | 318      |       | (1,358   | )          |
| State      |       | 43       |       | (159     | )          | 100      |       |
|       |       | 400      |       | 159      |       | (1,258   | )          |
|       |       | $        | 257        |     | $          | (1,311   | )          | $ | 15 |   |

 

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

 

| ** **                                                                                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| (Benefit)  provision for federal income taxes at the applicable statutory rate                          |       | $        | 509        |     | $          | (766     | )          | $ | 13 |   |
| (Decrease)  increase in provision resulting from state income taxes, net of federal  income tax benefit |       | 44       |       | (90      | )          | 1        |       |
| Tax reserve  release                                                                                    |       | —   |       | (330     | )          | —   |       |
| Research &  development tax credit                                                                  |       | (154     | )          | —   |       | —   |       |
| Non-taxable life  insurance gain                                                                        |       | (142     | )          | (202     | )          | —   |       |
| Other, net                                                                                              |       | —   |       | 77       |       | 1        |       |
|                                                                                                    |       | $        | 257        |     | $          | (1,311   | )          | $ | 15 |   |

33

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

 

| ** **                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Receivables  allowance            |       | $        | 209        |     | $          | 187 |   |
| Inventory  capitalization         |       | 381      |       | 343      |       |
| Incentive  compensation           |       | 74       |       | 158      |       |
| Franchise tax                     |       | 2        |       | 2        |       |
| Employee  benefits                |       | 1,332    |       | 1,098    |       |
| Other                             |       | (177     | )          | (190     | )          |
| Current tax assets, net           |       | $        | 1,821      |     | $          | 1,598 |   |
| Incentive  compensation           |       | $        | 136        |     | $          | 158 |   |
| Pension and  health care benefits |       | 3,666    |       | 4,834    |       |
| Depreciation                      |       | (445     | )          | (835     | )          |
| Net operating  loss carry-forward |       | —   |       | 310      |       |
| Non-current tax assets, net       |       | $        | 3,357      |     | $          | 4,467 |   |

 

The Company hasdetermined, based on available evidence, that it is more likely than not thatthe deferred tax assets will be realized. No valuation allowance was providedagainst deferred tax assets in the accompanying consolidated financialstatements. The Company recognized a net operating loss carry-forward (beforetax effect) in the fiscal year ended October 28, 2005 in the amount of $912which was fully utilized in the fiscal year ended November 3, 2006.

**NOTE5- *Line of Credit:***

Under the terms ofa revolving line of credit with Bank of America, the Company may borrow up to$2,000 through April 30, 2008. The interest rate is at the bank’s referencerate unless the Company elects an optional interest rate. The borrowingagreement contains various covenants, the more significant of which require theCompany to maintain certain levels of shareholders’ equity and working capital.The Company was in compliance with all provisions of the agreement during the year.There were no borrowings under this line of credit during the year.

**NOTE6- *Contingencies and Commitments:***

The Company leasescertain transportation and computer equipment under operating leases. The termsof the transportation leases provide for annual renewal options and contingentrental payments based upon mileage and adjustments of rental payments based onthe Consumer Price Index. Minimum rental payments were $395 in fiscal year2006, $330 in fiscal year 2005 and $379 in fiscal year 2004. Contingentpayments were approximately $108 in fiscal year 2006, $132 in fiscal year 2005and $153 in fiscal year 2004. Future minimum lease payments are approximately$415 in the each of the years 2006 through 2009 and $395 in 2010.

**NOTE7- *Segment Information:***

The Company hastwo reportable operating segments, Frozen Food Products (the processing anddistribution of frozen products), and Refrigerated and Snack Food Products (theprocessing and distribution of refrigerated meat and other convenience foods).

The Companyevaluates each segment’s performance based on revenues and operating income.Selling and general administrative expenses include corporate accounting,information systems, human resource and marketing management at the corporatelevel. These activities are allocated to each operating segment based onrevenues and/or actual usage.

34

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The followingsegment information is for the years ended November 3, 2006, October 28, 2005,and October 29, 2004:
| **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 before  taxes                           |       | 5,196                          |       | (3,699                                               | )          | —    |       | —          |       | 1,497      |       |
| Provision 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 before taxes                            |       | 5,664                          |       | (7,918                                               | )          | —    |       | —          |       | (2,254     | )          |
| Provision 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 |   |

 
| **2004**                                       | ** ** | **Frozen Food   Products** | ** ** | **Refrigerated  and Snack Food  Products** | ** ** | **Other** | ** ** | **Elimination** | ** ** | **Totals** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------------|------------|-----------|------------|-----------------|------------|------------|------------|
| Sales                                          |       | $                                    | 44,240     |                                                 | $          | 93,625    |       | $               | —     |       | $          | — |   | $ | 137,865 |   |
| Intersegment  sales                            |       | —                               |       | 3,943                                                |       | —    |       | (3,943          | )          | —     |       |
| Net sales                                      |       | 44,240                               |       | 97,568                                               |       | —    |       | (3,943          | )          | 137,865    |       |
| Cost of products  sold, excluding depreciation |       | 25,644                               |       | 68,605                                               |       | —    |       | (3,943          | )          | 90,306     |       |
| Selling, general  and administrative expenses  |       | 13,541                               |       | 30,187                                               |       | —    |       | —          |       | 43,728     |       |
| Depreciation                                   |       | 1,967                                |       | 2,378                                                |       | —    |       | —          |       | 4,345      |       |
| Gain on sale of  equity securities             |       | —                               |       | (553                                                 | )          | —    |       | —          |       | (553       | )          |
|                                           |       | 41,152                               |       | 100,617                                              |       | —    |       | (3,943          | )          | 137,826    |       |
| Income before  taxes                           |       | 3,088                                |       | (3,049                                               | )          | —    |       | —          |       | 39         |       |
| Provision for taxes on income                  |       | 1,173                                |       | (1,158                                               | )          | —    |       | —          |       | 15         |       |
| Net income (loss)                              |       | $                                    | 1,915      |                                                 | $          | (1,891    | )          | $               | —     |       | $          | — |   | $ | 24 |   |
| Total assets                                   |       | $                                    | 12,943     |                                                 | $          | 36,433    |       | $               | 25,566     |       | $          | — |   | $ | 74,942 |   |
| Additions to property,  plant and equipment    |       | $                                    | 211        |                                                 | $          | 3,149     |       | $               | 84         |       | $          | — |   | $ | 3,444 |   |

 

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**NOTE 8- *Unaudited Interim Financial Information***
| ** **                       | ** ** | **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 | ) |

 
| ** **                       | ** ** | **2004**            | ** ** |
|----------------------------------|------------|---------------------|------------|
| ** **                       | ** ** | **January 23** | ** ** | **April 16** | ** ** | **July 9** | ** ** | **October 29** | ** ** |
| ** **                       | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(12 weeks)** | ** ** | **(16 weeks)** | ** ** |
| Net sales                        |       | $                   | 35,322     |   | $ | 30,541 |   | $ | 29,756 |   | $ | 42,246 |   |
| Income (loss)  before taxes      |       | (222                | )          | (336 | ) | (1,005 | ) | 1,602 |   |
| Net income  (loss)               |       | (138                | )          | (209 | ) | (623 | ) | 994 |   |
| Basic earnings (loss)  per share |       | $                   | (0.01      | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | 0.10 |   |

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE**

**Tothe Board of Directors and Shareholders of Bridgford Foods Corporation**

Our audit of the consolidated financial statements referred to in ourreport dated January 27, 2005 also included an audit of the financial statementschedule listed in Item 15(a)(2) of this Form 10-K.  In our opinion, this financial statementschedule presents fairly, in all material respects, the information set forththerein when read in conjunction with the related consolidated financialstatements.
| **/s/ PricewaterhouseCoopers LLP** | ** ** |
|------------------------------------|------------|
| **Orange  County, California**     |
| **January  27, 2005**              |

** **

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**BRIDGFORDFOODS CORPORATION**

**SCHEDULE II**

**VALUATIONAND 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 3, 2006 |       | $                                                  | 468        |   | $ | (277 | ) | $ | (333 | ) | $ | 524 |   |
| Year ended  October 28, 2005 |       | $                                                  | 1,118      |   | $ | (578 | ) | $ | 72 |   | $ | 468 |   |
| Year ended  October 29, 2004 |       | $                                                  | 1,429      |   | $ | (246 | ) | $ | 65 |   | $ | 1,118 |   |
|                         |       |                                               |       |   |   |   |   |   |   |

 
| ** **                   | ** ** | **Promotional Allowances**              | ** ** |
|------------------------------|------------|----------------------------------------------|------------|
| ** **                   | ** ** | **Balance at  Beginning  of year** | ** ** | **Allowance  for Accruals** | ** ** | **Promotions  Incurred** | ** ** | **Balance  at Close of  Period** | ** ** |
| 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 |   |
| Year ended October 29,  2004 |       | $                                            | 1,847      |   | $ | 6,140 |   | $ | 5,619 |   | $ | 2,368 |   |

 

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