**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10-Q**
| x                                                      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                   |                                                                                               |
| **For the  quarterly period ended September 30, 2006** |
| ** **                                             |
| **or**                                                 |
| ** **                                             |                                                                                               |
| o                                                      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from            to**

**Commission File Number: 333-119336**

**The Wornick Company**(Exact name of registrant as specified in its charter)

| **Delaware**                                           |   | **30-0225741**                        |
|--------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of                       |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                        |   |                                  |
|                                                   |   |                                  |
| **4701  Creek Road, Suite 200, Cincinnati, Ohio** |   | **45242**                             |
| (Address of  principal executive offices)              |   | (Zip code)                            |

 

**(513) 794-9800** (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. o  Yes    x  No

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

Large acceleratedfiler  o   Accelerated filer  o   Non-accelerated filer  x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes    x    No

As of November 10, 2006,the registrant had one share of common stock, par value $0.01 per share,outstanding.

 

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**The Wornick Company****Table of Contents**
| **PART I - FINANCIAL  INFORMATION**                                                                                                             | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                                                            |       |       |
| Item 1.  Financial Statements (unaudited)                                                                                                       |       |       |
| Unaudited Consolidated  Balance Sheets at December 31, 2005 and September 30, 2006                                                              |       |       |
|                                                                                                                                            |       |       |
| Unaudited Consolidated  Statements of Operations for the Thirteen Weeks and the Thirty-Nine Weeks  Ended October 1, 2005 and September 30, 2006 |       |       |
|                                                                                                                                            |       |       |
| Unaudited Consolidated  Statements of Cash Flows for the Thirty-Nine Weeks Ended October 1, 2005 and  September 30, 2006                        |       |       |
|                                                                                                                                            |       |       |
| Notes to  Unaudited Consolidated Financial Statements                                                                                           |       |       |
|                                                                                                                                            |       |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                            |       |       |
|                                                                                                                                            |       |       |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                                                             |       |       |
|                                                                                                                                            |       |       |
| Item 4. Controls  and Procedures                                                                                                                |       |       |
|                                                                                                                                            |       |       |
| Forward-Looking  Statements                                                                                                                     |       |       |
|                                                                                                                                            |       |       |
| **PART II - OTHER  INFORMATION**                                                                                                                | ** ** | ** ** |
|                                                                                                                                            |       |       |
| Item 1. Legal  Proceedings                                                                                                                      |       |       |
|                                                                                                                                            |       |       |
| Item  1A. Risk Factors                                                                                                                          |       |       |
|                                                                                                                                            |       |       |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                                            |       |       |
|                                                                                                                                            |       |       |
| Item 3.  Defaults Upon Senior Securities                                                                                                        |       |       |
|                                                                                                                                            |       |       |
| Item 4.  Submission of Matters to a Vote of Security Holders                                                                                    |       |       |
|                                                                                                                                            |       |       |
| Item 5. Other  Information                                                                                                                      |       |       |
|                                                                                                                                            |       |       |
| Item  6. Exhibits                                                                                                                               |       |       |
|                                                                                                                                            |       |       |
| Signatures                                                                                                                                      |       |       |

** **

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**PART I**—**FINANCIAL INFORMATION**

**Item 1.**  **Financial Statements.**

**TheWornick Company****Consolidated Balance Sheets****(Unaudited)**
| ** **                                       | ** ** | **December 31, 2005** | ** **  | **September 30, 2006** | ** ** |
|--------------------------------------------------|------------|---------------------------------|-------------|----------------------------------|------------|
| **Assets**                                       |       |                            |        |                             |       |
| Current assets                                   |       |                            |        |                             |       |
| Cash and cash equivalents                        |       | $                               | 17,330,761  |                             | $          | — |   |
| Trade accounts receivable, net                   |       | 19,186,813                      |        | 19,284,589                       |       |
| Inventories                                      |       | 27,954,296                      |        | 25,315,279                       |       |
| Prepaid expenses and other current assets        |       | 625,975                         |        | 996,171                          |       |
| Deferred income taxes                            |       | 1,403,035                       |        | 491,924                          |       |
|                                             |       |                            |        |                             |       |
| Total current assets                             |       | 66,500,880                      |        | 46,087,963                       |       |
| Property and  equipment, net                     |       | 42,914,227                      |        | 49,036,499                       |       |
| Goodwill                                         |       | 77,573,207                      |        | 77,573,207                       |       |
| Intangible assets,  net                          |       | 17,128,127                      |        | 13,607,191                       |       |
| Other noncurrent  assets                         |       | 5,054,735                       |        | 4,632,451                        |       |
|                                             |       |                            |        |                             |       |
| Total assets                                     |       | $                               | 209,171,176 |                             | $          | 190,937,311 |   |
| **Liabilities  and Stockholder’s Equity**   |       |                            |        |                             |       |
| Current  liabilities                             |       |                            |        |                             |       |
| Book overdraft                                   |       | $                               | —      |                             | $          | 1,870,192 |   |
| Trade accounts payable                           |       | 19,802,450                      |        | 12,676,387                       |       |
| Accrued expenses                                 |       | 8,331,770                       |        | 3,619,124                        |       |
| Accrued interest                                 |       | 6,276,896                       |        | 2,869,791                        |       |
| Taxes payable                                    |       | 977,237                         |        | —                           |       |
| Total current liabilities                        |       | 35,388,353                      |        | 21,035,494                       |       |
| Line of credit                                   |       | —                          |        | 12,000,000                       |       |
| Deferred income  taxes                           |       | 4,022,627                       |        | 4,363,165                        |       |
| Other  liabilities                               |       | 433,848                         |        | 737,689                          |       |
| Long-term debt                                   |       | 125,000,000                     |        | 125,000,000                      |       |
| Total liabilities                                |       | 164,844,828                     |        | 163,136,348                      |       |
| **Commitments  and Contingencies**               |       |                            |        |                             |       |
| Stockholder’s  equity                       |       |                            |        |                             |       |
| Common stock                                     |       | —                          |        | —                           |       |
| Additional paid-in capital                       |       | 37,732,680                      |        | 37,813,899                       |       |
| Retained earnings (deficit)                      |       | 6,593,668                       |        | (10,012,936                      | )          |
| Total stockholder’s equity                  |       | 44,326,348                      |        | 27,800,963                       |       |
| Total  liabilities and stockholder’s equity |       | $                               | 209,171,176 |                             | $          | 190,937,311 |   |

 

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

3

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**TheWornick Company****Consolidated Statements of Operations****(Unaudited)**
| ** **                                   | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|----------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                   | ** ** | **October 1, 2005**           | ** ** | **September 30,  2006**               | ** ** | **October 1, 2005** | ** ** | **September 30,  2006** | ** ** |
|                                         |       |                               |       |                                  |       |   |   |   |   |
| Net sales                                    |       | $                                  | 56,731,139 |                                  | $          | 66,425,514 |   | $ | 159,956,301 |   | $ | 184,899,130 |   |
| Cost of sales                                |       | 43,699,206                         |       | 57,297,565                            |       | 132,501,162 |   | 167,294,986 |   |
| Gross (loss) profit                          |       | 13,031,933                         |       | 9,127,949                             |       | 27,455,139 |   | 17,604,144 |   |
| Selling, general and administrative expenses |       | 5,807,460                          |       | 5,863,205                             |       | 15,289,094 |   | 22,292,056 |   |
| Operating (loss) profit                      |       | 7,224,473                          |       | 3,264,744                             |       | 12,166,045 |   | (4,687,912 | ) |
| Other (expense) income                       |       |                               |       |                                  |       |   |   |   |   |
| Interest expense                             |       | (3,638,583                         | )          | (3,660,850                            | )          | (10,781,637 | ) | (10,511,089 | ) |
| Interest income                              |       | 26,545                             |       | 46,719                                |       | 125,479 |   | 110,088 |   |
| Other (expense) income,  net                 |       | (97,354                            | )          | (252,190                              | )          | (124,579 | ) | (407,163 | ) |
| Total other (expense)  income                |       | (3,709,392                         | )          | (3,866,321                            | )          | (10,780,737 | ) | (10,808,164 | ) |
| (Loss) income before income taxes            |       | 3,515,081                          |       | (601,577                              | )          | 1,385,308 |   | (15,496,076 | ) |
| Provision for income taxes                   |       | 360,621                            |       | 161,103                               |       | 1,320,791 |   | 1,110,528 |   |
| Net (loss) income                            |       | $                                  | 3,154,460  |                                  | $          | (762,680 | ) | $ | 64,517 |   | $ | (16,606,604 | ) |

 

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

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**TheWornick Company****Consolidated Statements of Cash Flows****(Unaudited)**
| ** **                                                                                   | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                   | ** ** | **October 1, 2005**         | ** ** | **September 30, 2006** | ** ** |
| **Cash flows from operating  activities**                                                    | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net income (loss)                                                                            |       | $                                     | 64,517     |   | $ | (16,606,604 | ) |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                                  |       |   |   |
| Depreciation of  property and equipment                                                      |       | 2,907,021                             |       | 6,178,242 |   |
| Amortization of  intangibles and bond issuance cost                                          |       | 4,033,037                             |       | 3,691,158 |   |
| Loss on disposal  of assets                                                                  |       | —                                |       | 93,521 |   |
| Deferred tax  asset                                                                          |       | —                                |       | 911,111 |   |
| Deferred tax  liability                                                                      |       | 1,368,000                             |       | 340,538 |   |
| Compensation for  stock options                                                              |       | 32,415                                |       | 81,219 |   |
| Changes in  assets and liabilities                                                           |       |                                  |       |   |   |
| Trade accounts  receivable                                                                   |       | (6,499,060                            | )          | (97,776 | ) |
| Inventories                                                                                  |       | (1,684,225                            | )          | 2,639,017 |   |
| Prepaid expenses  and other current assets                                                   |       | (198,293                              | )          | (370,196 | ) |
| Other noncurrent  assets                                                                     |       | (71,858                               | )          | 276,164 |   |
| Trade accounts  payable and accrued expenses                                                 |       | 10,476,022                            |       | (11,838,709 | ) |
| Accounts payable  change in book overdraft                                                   |       | 1,718,496                             |       | 1,870,192 |   |
| Accrued interest                                                                             |       | (3,964,843                            | )          | (3,407,105 | ) |
| Taxes payable                                                                                |       | (51,950                               | )          | (977,237 | ) |
| Other  liabilities                                                                           |       | —                                |       | 303,841 |   |
| Net cash  provided by (used in) operating activities                                         |       | 8,129,279                             |       | (16,912,624 | ) |
| **Cash flows from investing  activities**                                                    | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Capital expenditures                                                                         |       | (11,024,135                           | )          | (12,418,137 | ) |
| Net cash used in  investing activities                                                       |       | (11,024,135                           | )          | (12,418,137 | ) |
| **Cash flows from financing  activities**                                                    | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Borrowings on line of  credit                                                                |       | —                                |       | 24,100,000 |   |
| Payments on line of credit                                                                   |       | —                                |       | (12,100,000 | ) |
| Net cash  provided by financing activities                                                   |       | —                                |       | 12,000,000 |   |
| Net decrease in  cash and cash equivalents                                                   |       | (2,894,856                            | )          | (17,330,761 | ) |
| **Cash and cash equivalents**                                                                | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Beginning of period                                                                          |       | 3,289,030                             |       | 17,330,761 |   |
| End of period                                                                                |       | $                                     | 394,174    |   | $ | — |   |

 

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

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**THEWORNICK COMPANYNotes to Unaudited Consolidated Financial Statements**

As usedin this Form 10-Q, the terms “we,” “us,” and “our” mean The Wornick Company,unless the context indicates otherwise.

**1.   Description of Business**

TheWornick Company, a Delaware corporation (the “Company” ), an acquisitionvehicle formed by The Veritas Capital Fund II L.P., and its general partner,Veritas Capital Management II, L.L.C. (collectively “Veritas”), entered into anAsset Purchase and Sale Contract with The Wornick Company, a Nevada corporation(the “Predecessor”), and its subsidiaries, The Wornick Company Right AwayDivision, a Nevada corporation, The Wornick Company Right Away Division, L.P.,a Texas limited partnership, and Right Away Management Corporation, a Texascorporation, that was consummated on June 30, 2004 (the “Acquisition Date’’),and resulted in the purchase by the Company and its subsidiaries, and in thesale by the Predecessor and its subsidiaries, of the business of thePredecessor and its subsidiaries as a going concern, including substantiallyall of the operating assets of the Predecessor and its subsidiaries (the “Acquisition”).

TheCompany produces, packages and distributes extended shelf-life foods, bothshelf stable and frozen, in flexible pouches and semi-rigid containers,primarily for the U.S. Department of Defense (the “DoD”) and commercialcustomers, as well as for its own consumer-branded products. The Companysupplies to the DoD Meals Ready-to-Eat (“MREs”), Unitized Group Rations-A (“UGR-As”)and the polymeric trays used in the Unitized Group Rations-Heat &Serve program.

TheCompany has two operating segments: the Right Away Division (“RAD”) and thePrepared Foods Division (“PFD”). RAD is located in Texas and primarily sellsits product to the DoD. PFD is located in Ohio and also sells directly to theDoD as well as to commercial branded food companies and inter-segment sales toRAD.

**2.  Liquidity**

Our principal source ofliquidity is cash flow generated from operations, current cash balances andavailable borrowings under our revolving loan agreement (the “Revolving LoanAgreement”) with our bank that provides the Company with $15.0 million ofrevolving loan financing through June 30, 2009, with an additionalrevolving credit facility of $10.0 million available upon bankapproval.  Amounts outstanding againstthe Revolving Loan Agreement are subject to a borrowing base calculation and asof November 10, 2006, our most recent calculation suggests that we havesufficient assets to support the full $25.0 million borrowing under theRevolving Loan Agreement.  Interest onamounts outstanding under the Revolving Loan Agreement will vary at afluctuating rate per annum that is equal to the prime rate (7.25% atDecember 31, 2005 and 8.25% at September 30, 2006) as published daily by TheWall Street Journal.    As ofNovember 10, 2006 we had no remaining available balances under the existing$15.0 million Revolving Loan Agreement.

Amountsdue under the Senior Secured Notes and the Revolving Loan Agreement are subjectto an intercreditor agreement. The Company is required to meet certainfinancial covenants related primarily to minimum working capital amounts,minimum working capital ratios, minimum profitability and minimum net worthcalculations. As of September 30, 2006, we were in compliance with allfinancial covenants.  However, based on our most recent financialforecast, it is probable that we will violate our covenant requiring positiveoperating profit at December 31, 2006.

Aviolation of this financial covenant or one of our other financial covenants oneither the intercreditor agreement or our Revolving Loan Agreement could causeus also to be in default on our other agreements, including the indenturesgoverning our Senior Secured Notes and our 13.875% senior PIK notes due 2011 (the “Senior PIK Notes”) of our ParentCompany.  In the event we were to violate our minimum profitabilitycovenant or any of our other financial covenants, we would seek to resolve theissue either by satisfying the covenant within the allotted period or byobtaining the appropriate waivers.  If we are unable to mitigate thecovenant violation within the allotted period or to obtain waivers, we would bein default under the Revolving Loan Agreement allowing the bank and the holdersof our Senior Secured Notes to declare the outstanding debt on the RevolvingLoan Agreement and 

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SeniorSecured Notes and the Revolving Loan Agreement immediately payable. In thatevent, we would seek alternative forms of financing which may not be availableto us on satisfactory terms, or at all. Our failure to obtain alternate financing would materially and adverselyaffect our financial condition, operating results and liquidity position.

**3.   Basis of Presentation**

Theaccompanying unaudited interim consolidated financial statements, also referredto as our interim or unaudited “consolidated financial statements,” have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and the instructionsto Form 10-Q and Article 10 of Regulation S-X under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”).  Accordingly, theydo not include all of the information and footnotes normally included in financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America. In the opinion of management, the interimconsolidated financial statements reflect all adjustments of a normal recurringnature considered necessary for a fair presentation of the results for theperiods presented.  Operating results for interim periods are notnecessarily indicative of results that may be expected for the fiscal year as awhole.  The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets, liabilities, revenues, expenses and related disclosures atthe date of the financial statements and during the reporting period. Actual amounts could differ from these estimates.  These unaudited interimconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements for the year ended December 31,2005 and notes thereto included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2005, filed with theSecurities and Exchange Commission (the “SEC”) on March 31, 2006.

Following are the dates represented by each periodreported in these financial statements:

“Thirteen Weeks Ended October 1, 2005”:  July 3,2005 – October 1, 2005

“Thirteen Weeks Ended September 30, 2006”:  July2, 2006 – September 30, 2006“Thirty-Nine Weeks Ended October 1, 2005”:  January 1, 2005 – October 1,2005

“Thirty-NineWeeks Ended September 30, 2006”:  January 1, 2006 – September 30, 2006.

**4.   Recently Issued Accounting Standards**

In September 2006, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No.157, *Fair Value Measurements* (“SFASNo. 157”). SFAS No. 157 defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair value measurements.SFAS No. 157 is effective for us as of January 1, 2008 and we are evaluatingthe effect of adoption.

In September 2006, the FASB Staff Position No. AUGAIR-1, *Accounting for Planned MajorMaintenance Activities*. The staff position prohibits theaccrue-in-advance method of accounting for planned major maintenance activitiesand requires disclosure of the method of accounting for these activities. Weaccount for all maintenance costs using the direct-expense method, wherebycosts are recorded in the income statement in the same period that they areincurred. This staff position has no effect on our financial position, resultof operations or liquidity.

In September 2006, the Securities and ExchangeCommission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements in Current Year Financial Statements.”  SAB No. 108 was issued to address diversityin practice in quantifying financial statement misstatements.  Current practice allows for the evaluation ofmateriality on the basis of either (1) the error quantified as the amount bywhich the current year income statement was misstated (“rollover method”) or(2) the cumulative error quantified as the cumulative amount by which thecurrent year balance sheet was misstated (“iron curtain method”).  The guidance provided by SAB No. 108 requiresboth methods to be used in evaluating materiality (“dual approach”).  SAB No. 108 permits companies to initiallyapply its provisions either by (1) restating prior financial statements as ifthe dual approach had always been used or (2) recording the cumulative effectof initially applying the “dual approach” as adjustments to the carrying valueof assets and liabilities as of January 1, 2006 with an offsetting adjustmentrecorded to the opening balance of retained earnings.  The adoption of SAB No. 108 is not expectedto have a material impact on the Company’s financial position, results ofoperations or cash flows.

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In July 2006, the FASB issued Financial InterpretationNo. 48, *Accounting for Uncertainty in IncomeTaxes*(“FIN 48”). FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition, measurement anddisclosure of uncertain tax positions taken, or expected to be taken, in a taxreturn. FIN 48 is effective for us as of January 1, 2007 and we are evaluatingthe effect of adoption.

**5.   Restructuring and Other Related Charges**

OnFebruary 6, 2006, the Company announced plans to relocate the assemblyoperations of its RAD Division in McAllen, Texas to the Company’s Cincinnati,Ohio location in order to better position the Company’s production and assemblyoperations from a geographical standpoint, simplify logistics and reduce costand delivery times to customers. The Company anticipates that its consolidationwill be completed during the fourth quarter of 2006.

TheCompany anticipates that total pretax charges incurred to complete therestructuring will be approximately $4.1 million. Of the $4.1 million,$1.3 million will be paid out to the 244 employees (under pay-to-stayseverance arrangements) currently located at the McAllen, Texas assemblyfacilities.  We anticipate that all of these employees will be terminatedupon completion of the consolidation. The remaining expenses are related toaccelerated depreciation on property and equipment of approximately $2.8million, which the Company anticipates will be abandoned upon its exit from theMcAllen facilities.  During the thirteenweeks and thirty-nine weeks ended September 30, 2006, the Company recordedtotal pretax charges of $1,216,996, and $3,950,027, respectively, all of whichwas recorded in the RAD segment. Of the $1,216,996 and $3,950,027 in pretaxcharges, $272,387 and $1,156,065 were included in selling, general andadministrative expenses, during the thirteen and thirty-nine weeks endedSeptember 30, 2006, respectively.  These costs were incurred forpay-to-stay severance arrangements for employees, 159 of whom had beenterminated as of September 30, 2006, and $944,609 and $2,793,962 for thethirteen and thirty-nine weeks ended September 30, 2006 respectively, wererelated to accelerated depreciation on assets to be abandoned included in costof goods sold.

Asummary of the costs incurred relating to the restructuring plan is as follows:
| ** **           | ** ** | ** **     | ** ** | ** **  | ** ** | **Non-Cash** | ** ** | ** **   | ** ** | ** **    | ** ** |
|----------------------|------------|----------------|------------|-------------|------------|--------------|------------|--------------|------------|---------------|------------|
| ** **           | ** ** | **12/31/2005** | ** ** | **Charges** | ** ** | **Charges**  | ** ** | **Payments** | ** ** | **9/30/2006** | ** ** |
| Asset  write-downs   |       | $              | —     |        | $          | 2,793,962    |       | $            | (2,793,962 | )             | $          | — |   | $ | — |   |
| Employee cost        |       | —         |       | 1,156,065   |       | —       |       | (236,500     | )          | 919,565       |       |
| Remaining  Liability |       | $              | —     |        | $          | 3,950,027    |       | $            | (2,793,962 | )             | $          | (236,500 | ) | $ | 919,565 |   |

 

**6.   Supplemental BalanceSheet Information**

**Inventories**

Asummary of inventories is as follows:
|                 | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-----------------|------------|-----------------------|------------|------------------------|------------|
| ** **      | ** ** | **2005**              | ** ** | **2006**               | ** ** |
| Raw materials   |       | $                     | 17,389,308 |                   | $          | 14,165,910 |   |
| Work in process |       | 1,593,696             |       | 64,270                 |       |
| Finished goods  |       | 8,971,292             |       | 11,085,099             |       |
|            |       | $                     | 27,954,296 |                   | $          | 25,315,279 |   |

** **

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**Property and Equipment, Net**

Asummary of property and equipment, net is as follows:
| ** **                                       | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                       | ** ** | **2005**              | ** ** | **2006**               | ** ** |
|                                             |       |                  |       |                   |       |
| Leasehold  improvements                          |       | $                     | 1,784,800  |                   | $          | 7,090,223 |   |
| Machinery and  equipment                         |       | 30,166,266            |       | 46,651,360             |       |
| Office  equipment, fixtures and vehicles         |       | 2,640,021             |       | 4,660,266              |       |
| Construction in  progress                        |       | 14,005,059            |       | 2,416,013              |       |
|                                             |       | 48,596,146            |       | 60,817,862             |       |
| Less:  Accumulated depreciation and amortization |       | 5,681,919             |       | 11,781,363             |       |
|                                             |       | $                     | 42,914,227 |                   | $          | 49,036,499 |   |

 

Depreciationexpense for the thirty-nine weeks ended October 1, 2005 and September 30, 2006was $2,907,021 and $6,178,242, respectively.  (See Note 5 for furtherdetails regarding accelerated depreciation charges.)

**7.   Intangible Assets**

Inconnection with the Acquisition described in Note 1, a portion of thepurchase price was allocated to identifiable intangible assets related to thevalue of long-term customer supply contracts in place at the AcquisitionDate.  The original value of these contracts was $24,170,000, and theiruseful lives range from three to eight years.  Aggregate accumulatedamortization of intangibles at December 31, 2005 and September 30, 2006amounted to $7,041,873 and $10,562,809, respectively.  Expense related toamortization of intangible assets for the thirty-nine weeks ended September 30,2006 amounted to $3,520,936.

Scheduledamortization of these assets is as follows:
| October 1, 2006 through  December 31, 2006 |   | $         | 1,173,644  |   |
|--------------------------------------------|--------|-----------|------------|--------|
| 2007                                       |   | 4,627,918 |       |
| 2008                                       |   | 4,856,248 |       |
| 2009                                       |   | 2,421,226 |       |
| 2010                                       |   | 496,296   |       |
| Thereafter                                 |   | 31,859    |       |
|                                       |   | $         | 13,607,191 |   |

 

**8.   Notes Payable and Long-Term Debt**

Asummary of long-term debt at December 31, 2005 and September 30, 2006 isas follows:
|                                                                                                                  | ** ** | **December 31,** | ** **  | **September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|------------------------|------------|
| ** **                                                                                                       | ** ** | **2005**              | ** **  | **2006**               | ** ** |
| Revolving Loan  Agreement, due 2009 (7.25% and 8.25% at December 31, 2005 and September 30,  2006, respectively) |       | $                     | —      |                   | $          | 12,000,000 |   |
|                                                                                                             |       |                  |        |                   |       |
| 10-7/8% Senior  Secured Notes, due 2011                                                                          |       | 125,000,000           |        | 125,000,000            |       |
|                                                                                                             |       |                  |        |                   |       |
| Less: Current  maturities                                                                                        |       | —                |        | —                 |       |
| Long-term debt,  excluding current maturities                                                                    |       | $                     | 125,000,000 |                   | $          | 137,000,000 |   |

 

TheCompany has a revolving loan agreement (the “Revolving Loan Agreement”) thatprovides the Company $15.0 million of revolving loan financing throughJune 30, 2009, with an additional revolving credit facility of$10.0 million becoming available upon the occurrence of certain events.Amounts outstanding under the Revolving Loan Agreement ($0 at December 31,2005 and $12,000,000 at September 30, 2006) are due June 30, 2009 and 

9

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amountsoutstanding are subject to limitations as determined by a calculated borrowingbase.  As of November 10, 2006, we had outstanding borrowings of $15.0million against the Revolving Loan Agreement.  Our most recent calculationof our borrowing base suggests we have sufficient assets to support the full$25.0 million borrowing available under the Revolving Loan Agreement, includingthe additional $10.0 million revolving credit facilities.

Intereston amounts outstanding under the Revolving Loan Agreement will vary at afluctuating rate per annum that is equal to the prime rate (7.25% atDecember 31, 2005 and 8.25% at September 30, 2006) as published daily by TheWall Street Journal. Amounts outstanding under the Revolving Loan Agreementare collateralized by substantially all of the operating assets of the Companyand its subsidiaries. The lien on such collateral is senior to the lien on thecollateral that secures the 10-7/8% senior secured notes due 2011 (the “SeniorSecured Notes”).  Interest expense incurred on the Senior Secured Notesand the Revolving Loan Agreement for the thirty-nine weeks ended September 30,2006 was $10,162,401 and $269,074, respectively.

TheSenior Secured Notes are collateralized by substantially all assets and otherproperty of the Company and its subsidiaries. The lien on such collateral,however, is subordinate to the lien on the collateral securing the RevolvingLoan Agreement. Interest on the Senior Secured Notes is payable semi-annually.

Amountsdue under the Senior Secured Notes and the Revolving Loan Agreement are subjectto an intercreditor agreement. The Company is required to meet certainfinancial covenants related primarily to minimum working capital amounts,minimum working capital ratios, minimum profitability and minimum net worthcalculations. As of September 30, 2006, we were in compliance with allfinancial covenants.  However, based on our most recent financialforecast, it is probable that we could violate one or more of our financialcovenants at December 31, 2006.

Aviolation of our financial covenants on either the intercreditor agreement orour Revolving Loan Agreement could cause us to be in default on our otheragreements, including the indentures governing our Senior Secured Notes andour  13.875% senior PIK notes due 2011(the “Senior PIK Notes”) of our parent , TWC Holding LLC (the “Parent Company”). In the event we were to violate any of our financial covenants, we would seekto resolve the issue either by satisfying the covenant within the allottedperiod or by obtaining the appropriate waivers.  If we are unable tomitigate the covenant violation within the allotted period or unable to obtainwaivers, the outstanding debt on the Senior Secured Notes and the RevolvingLoan Agreement would become payable.

OnFebruary 11, 2005, our Parent Company and its wholly-owned financesubsidiary, TWC Holding Corp., co-issued the Senior PIK Notes in the approximate aggregate principal amount of$62,259,000 with a discount of approximately $36,259,000. The Senior PIK Notesearn interest at the rate of 13.875% per annum, mature on August 15, 2011and are unsecured obligations of the Parent Company and TWC Holding Corp.Neither the Company nor any of its subsidiaries guaranteed the Senior PIKNotes. The Senior PIK Notes limit the Company’s ability to incur additionalindebtedness, to pay dividends, to make other distributions, to make certaininvestments and to sell certain assets or merge with or into other companies.Because our Parent Company is a holding company with no operations,because it has only its investment in the Company and because TWC Holding Corp.has no independent operations or assets, future cash flows or assets of theCompany through 2011 may be required to service the $62.3 million Senior PIKNotes upon their maturity.

**9.   Income Taxes**

The Company provides forincome taxes utilizing the asset liability method, whereby current income taxexpense or benefit represents income taxes expected to be payable or refundablefor the current period. Deferred income taxes are recognized for the taxconsequences in future years as a result of differences between the tax and financialreporting bases of assets and liabilities and for the expected future taxbenefit to be derived from tax credits and loss carryforwards. Valuationallowances are established when necessary to reduce deferred tax assets to theamount management believes is more likely than not to be realized in future taxreturns. Tax rate changes are reflected in the period such changes areenacted.  Differences between thestatutory rate and effective rate are the result of valuation allowances ondeferred tax assets and deferred tax liabilities resulting from the indefinitereversal period related to goodwill.

10

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**10.   Share-Based Compensation Plan**

OnJanuary 1, 2006, the Company adopted Statement of Financial AccountingStandards No. 123 (Revised 2004), “*Share-BasedPayments*” (“SFAS No. 123R”), using the prospective adoptionmethod, which requires the application of the accounting standard  on thefirst day of the Company’s fiscal year 2006 for grants issued or modifiedsubsequent to the date of adoption, January 1, 2006.  The adoption of thisnew accounting standard had no impact on the Company’s consolidated financialstatements for the thirteen and thirty-nine weeks ended September 30, 2006since there were no new awards issued or modified during this period.

The ParentCompany has two classes of membership interests, Class A interests andClass B interests. Certain members of the Company’s management and outsidedirectors have received Class B interests. The Class B interests aresubject to a five-year vesting schedule with any unvested interestreverting to the holders of Class A interests. Because these Class Binterests were issued to members of management and directors of the Company,these awards are considered to be compensatory to the Company over the vestingperiod. Compensation expense related to these awards was $38,635 and $81,219,respectively, for the thirteen and thirty-nine weeks ended September 30, 2006.

**11.   Operating Segment Information**

TheCompany has two operating segments: RAD and PFD. RAD is located in Texasand primarily sells its product to the DoD. PFD is located in Ohio and also sells directly to the DoD as well as tocommercial branded food companies and inter-segment sales to RAD.  Management evaluates segment performancebased on several factors, including operating profit.

Duringthe thirty-nine weeks ended September 30, 2006, the RAD segment incurred$3,950,027 of restructuring related charges.

The Company’s net sales by product line for theperiods indicated are as follows:
| ** **                                   | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|----------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| **(in thousands of dollars)** | ** ** | **October 1, 2005**      | ** ** | **September 30, 2006**      | ** ** | **October 1, 2005** | ** ** | **September 30, 2006** | ** ** |
| DoD Net Sales                                |       |                               |       |                                  |       |   |   |   |   |
| Meals Ready-to-Eat (“MRE”)         |       | $                                  | 25,200     |                                  | $          | 25,683 |   | $ | 83,964 |   | $ | 77,752 |   |
| Unitized Group Rations-A (“UGR-A”) |       | 13,842                             |       | 19,800                                |       | 36,143 |   | 45,916 |   |
| Military other                               |       | 3,785                              |       | 1,672                                 |       | 7,319 |   | 4,067 |   |
| Total DoD net sales                          |       | 42,827                             |       | 47,155                                |       | 127,426 |   | 127,735 |   |
| Co-manufactured                              |       | 11,741                             |       | 15,810                                |       | 28,515 |   | 51,899 |   |
| Specialty and  Other                         |       | 2,163                              |       | 3,460                                 |       | 4,015 |   | 5,265 |   |
|                                         |       | $                                  | 56,731     |                                  | $          | 66,425 |   | $ | 159,956 |   | $ | 184,899 |   |

 

Duringthe thirty-nine weeks ended October 1, 2005 and September 30, 2006, the Companyhad one major customer, the DoD, which accounted for approximately $127,426,000and $127,735,000, or 79.7% and 69.1%, of net revenue, respectively. Approximately $12,631,000, or 62.1%, and $6,525,000, or 33.8%, of netreceivables were attributable to the DoD at October 1, 2005 and September 30,2006, respectively.

11

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Unauditedreportable operating segment financial information for the thirteen weeks endedOctober 1, 2005 and September 30, 2006 is as follows:
| ** **                  | ** ** | ** **  | ** ** | ** **        | ** ** | **Operating** | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
|-----------------------------|------------|-------------|------------|-------------------|------------|---------------|------------|-------------------|------------|-------------|------------|------------------|------------|
| ** **                  | ** ** | **Trade**   | ** ** | **Inter-Segment** | ** ** | **Profit**    | ** ** | **Depreciation/** | ** ** | **Total**   | ** ** | **Capital**      | ** ** |
| **Operating  Segments**     | ** ** | **Revenue** | ** ** | **Revenue**       | ** ** | **(Loss)**    | ** ** | **Amortization**  | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
|                        | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| ** **                  | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| **Right Away Division**     | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | $           | 40,020,057 |              | $          | —        |       | $                 | 8,588,604  |        | $          | 547,962          |       | $ | 32,594,130 |   | $ | 252,041 |   |
| September 30, 2006          |       | 42,860,632  |       | 3,765,356         |       | 6,133,651     |       | 1,285,490         |       | 20,803,255  |       | 190,664          |       |
| **Prepared Foods Division** | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | 16,711,081  |       | 7,986,602         |       | 3,045,671     |       | 1,621,412         |       | 73,898,785  |       | 3,586,410        |       |
| September 30, 2006          |       | 23,564,882  |       | 3,535,891         |       | 1,653,135     |       | 1,996,539         |       | 99,931,307  |       | 5,273,076        |       |
| **Corporate segment**       | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | —      |       | —            |       | (4,409,802    | )          | 170,700           |       | 106,600,443 |       | —           |       |
| September 30, 2006          |       | —      |       | —            |       | (4,522,042    | )          | 147,191           |       | 83,829,259  |       | —           |       |
| **Eliminations**            |       |        |       |              |       |          |       |              |       |        |       |             |       |
| October 1, 2005             |       | —      |       | (7,986,602        | )          | —        |       | —            |       | (23,776,059 | )          | —           |       |
| September 30, 2006          |       | —      |       | (7,301,247        | )          | —        |       | —            |       | (13,626,510 | )          | —           |       |
| **Total Company**           | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | 56,731,138  |       | —            |       | 7,224,473     |       | 2,340,074         |       | 189,317,299 |       | 3,838,451        |       |
| September 30, 2006          |       | 66,425,514  |       | —            |       | 3,264,744     |       | 3,429,220         |       | 190,937,311 |       | 5,463,740        |       |
|                             |            |             |            |                   |            |               |            |                   |            |             |            |                  |            |  |  |  |  |  |  |

 

Includedin the total assets of the Corporate segment is approximately $77.6 millionof goodwill, which is tested annually for impairment.  The recoverabilityof goodwill is based upon the fair value of the reporting segments, which isdetermined by a discounted cash flow analysis.  For our analysis, goodwillwas allocated to RAD and PFD at the Acquisition Date in the respective amountsof $28.9 million and $48.6 million.  The Company completed its annualimpairment test of goodwill and determined that there was no impairment atDecember 31, 2005. We are unaware of any events that may have triggered theneed for an interim assessment between our assessment date and issuance of ourForm 10-Q for the thirty-nine weeks ended September 30, 2006.

Unauditedreportable operating segment financial information for the thirty-nine weeksended October 1, 2005 and September 30, 2006 is as follows:
| ** **                  | ** ** | ** **  | ** **  | ** **        | ** ** | **Operating** | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
|-----------------------------|------------|-------------|-------------|-------------------|------------|---------------|------------|-------------------|------------|-------------|------------|------------------|------------|
| ** **                  | ** ** | **Trade**   | ** **  | **Inter-Segment** | ** ** | **Profit**    | ** ** | **Depreciation/** | ** ** | **Total**   | ** ** | **Capital**      | ** ** |
| **Operating  Segments**     | ** ** | **Revenue** | ** **  | **Revenue**       | ** ** | **(Loss)**    | ** ** | **Amortization**  | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
|                        | ** ** | ** **  | ** **  | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
|                        |       |        |        |              |       |          |       |              |       |        |       |             |       |
| **Right Away Division**     | ** ** | ** **  | ** **  | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | $           | 122,615,594 |              | $          | —        |       | $                 | 20,666,404 |        | $          | 1,612,241        |       | $ | 32,594,130 |   | $ | 427,366 |   |
| September 30, 2006          |       | 123,376,897 |        | 3,765,356         |       | 12,570,623    |       | 4,045,665         |       | 20,803,255  |       | 294,503          |       |
| **Prepared Foods Division** | ** ** | ** **  | ** **  | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | 37,340,707  |        | 28,106,199        |       | (2,018,861    | )          | 4,815,717         |       | 73,898,785  |       | 10,596,769       |       |
| September 30, 2006          |       | 61,522,233  |        | 20,115,485        |       | 981,741       |       | 5,653,513         |       | 99,931,307  |       | 12,123,634       |       |
| **Corporate segment**       | ** ** | ** **  | ** **  | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | —      |        | —            |       | (6,481,498    | )          | 512,100           |       | 106,600,443 |       | —           |       |
| September 30, 2006          |       | —      |        | —            |       | (18,240,276   | )          | 170,222           |       | 83,829,259  |       | —           |       |
| **Eliminations**            | ** ** | ** **  | ** **  | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | —      |        | (28,106,199       | )          | —        |       | —            |       | (23,776,059 | )          | —           |       |
| September 30, 2006          |       | —      |        | (23,880,841       | )          | —        |       | —            |       | (13,626,510 | )          | —           |       |
| **Total Company**           | ** ** | ** **  | ** **  | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| October 1, 2005             |       | 159,956,301 |        | —            |       | 12,166,045    |       | 6,940,058         |       | 189,317,299 |       | 11,024,135       |       |
| September 30, 2006          |       | 184,899,130 |        | —            |       | (4,687,912    | )          | 9,869,400         |       | 190,937,311 |       | 12,418,137       |       |
|                             |            |             |             |                   |            |               |            |                   |            |             |            |                  |            |  |  |  |  |  |  |

 

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**12.         Consolidating Financial Information**

Thefollowing information presents the unaudited consolidating balance sheets atDecember 31, 2005 and September 30, 2006, the unaudited consolidatingstatements of operations for the thirteen and thirty-nine weeks ended October1, 2005 and September 30, 2006, and the unaudited consolidating statements ofcash flows for the thirty-nine weeks ended October 1, 2005 and September 30,2006, respectively.

Consolidatingbalance sheet at December 31, 2005 (unaudited):
| ** **                                       | ** ** | ** **  | ** **  | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** **  |
|--------------------------------------------------|------------|-------------|-------------|----------------|------------|------------------|------------|-------------|-------------|
| ** **                                       | ** ** | **Parent**  | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** **  |
| **Assets**                                       |       |        |        |           |       |             |       |        |        |
| Current assets                                   |       |        |        |           |       |             |       |        |        |
| Cash and cash equivalents                        |       | $           | 509,176     |           | $          | 16,821,585       |       | $           | —      |   | $ | 17,330,761 |   |
| Trade accounts receivable                        |       | 4,891,849   |        | 14,294,964     |       | —           |       | 19,186,813  |        |
| Interdivision receivables                        |       | 3,784,303   |        | (3,784,303     | )          | —           |       | —      |        |
| Inventories                                      |       | 12,043,759  |        | 15,910,537     |       | —           |       | 27,954,296  |        |
| Prepaid expenses and other current assets        |       | 234,304     |        | 391,671        |       | —           |       | 625,975     |        |
| Deferred income taxes                            |       | 1,403,035   |        | —         |       | —           |       | 1,403,035   |        |
| Total current assets                             |       | 22,866,426  |        | 43,634,454     |       | —           |       | 66,500,880  |        |
| Investments in  subsidiary guarantors            |       | 38,298,917  |        | —         |       | (38,298,917      | )          | —      |        |
| Property and  equipment, net                     |       | 36,850,845  |        | 6,063,382      |       | —           |       | 42,914,227  |        |
| Goodwill                                         |       | 77,573,207  |        | —         |       | —           |       | 77,573,207  |        |
| Intangible  assets, net                          |       | 14,563,125  |        | 2,565,002      |       | —           |       | 17,128,127  |        |
| Other noncurrent  assets                         |       | 4,884,798   |        | 169,937        |       | —           |       | 5,054,735   |        |
| Total assets                                     |       | $           | 195,037,318 |           | $          | 52,432,775       |       | $           | (38,298,917 | ) | $ | 209,171,176 |   |
| **Liabilities  and Stockholder’s Equity**   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** **  |
| Current  liabilities                             |       |        |        |           |       |             |       |        |        |
| Trade accounts payable                           |       | $           | 9,743,912   |           | $          | 10,058,538       |       | $           | —      |   | $ | 19,802,450 |   |
| Accrued expenses                                 |       | 4,256,450   |        | 4,075,320      |       | —           |       | 8,331,770   |        |
| Accrued interest                                 |       | 6,276,896   |        | —         |       | —           |       | 6,276,896   |        |
| Taxes payable                                    |       | 977,237     |        | —         |       | —           |       | 977,237     |        |
| Total current liabilities                        |       | 21,254,495  |        | 14,133,858     |       | —           |       | 35,388,353  |        |
|                                             |       |        |        |           |       |             |       |        |        |
| Deferred income  tax                             |       | 4,022,627   |        | —         |       | —           |       | 4,022,627   |        |
| Other  liabilities                               |       | 433,848     |        | —         |       | —           |       | 433,848     |        |
| Long-term debt,  excluding current maturities    |       | 125,000,000 |        | —         |       | —           |       | 125,000,000 |        |
| Total liabilities                                |       | 150,710,970 |        | 14,133,858     |       | —           |       | 164,844,828 |        |
| Stockholder’s  equity                       |       |        |        |           |       |             |       |        |        |
| Common stock                                     |       | —      |        | —         |       | —           |       | —      |        |
| Additional paid-in capital                       |       | 37,732,680  |        | 26,624,729     |       | (26,624,729      | )          | 37,732,680  |        |
| Retained earnings                                |       | 6,593,668   |        | 11,674,188     |       | (11,674,188      | )          | 6,593,668   |        |
| Total stockholder’s equity (deficit)        |       | 44,326,348  |        | 38,298,917     |       | (38,298,917      | )          | 44,326,348  |        |
| Total  liabilities and stockholder’s equity |       | $           | 195,037,318 |           | $          | 52,432,775       |       | $           | (38,298,917 | ) | $ | 209,171,176 |   |

 

13

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Consolidatingbalance sheet at September 30, 2006 (unaudited):
| ** **                                       | ** ** | ** **  | ** **  | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** **  |
|--------------------------------------------------|------------|-------------|-------------|----------------|------------|------------------|------------|-------------|-------------|
| ** **                                       | ** ** | **Parent**  | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** **  |
| **Assets**                                       |       |        |        |           |       |             |       |        |        |
| Current assets                                   |       |        |        |           |       |             |       |        |        |
| Trade accounts receivable                        |       | $           | 14,325,359  |           | $          | 4,959,230        |       | $           | —      |   | $ | 19,284,589 |   |
| Interdivision receivables                        |       | (7,861,157  | )           | 7,861,157      |       | —           |       | —      |        |
| Inventories                                      |       | 22,866,522  |        | 2,448,757      |       | —           |       | 25,315,279  |        |
| Prepaid expenses and other current assets        |       | 411,046     |        | 585,125        |       | —           |       | 996,171     |        |
| Deferred income taxes                            |       | 491,924     |        | —         |       | —           |       | 491,924     |        |
| Total current assets                             |       | 30,233,694  |        | 15,854,269     |       | —           |       | 46,087,963  |        |
|                                             |       |        |        |           |       |             |       |        |        |
| Investments in  subsidiary guarantors            |       | 13,626,510  |        | —         |       | (13,626,510      | )          | —      |        |
| Property and equipment,  net                     |       | 46,198,010  |        | 2,838,489      |       | —           |       | 49,036,499  |        |
| Goodwill                                         |       | 77,573,207  |        | —         |       | —           |       | 77,573,207  |        |
| Intangible  assets, net                          |       | 11,659,688  |        | 1,947,503      |       | —           |       | 13,607,191  |        |
| Other noncurrent  assets                         |       | 4,469,457   |        | 162,994        |       | —           |       | 4,632,451   |        |
| Total assets                                     |       | $           | 183,760,566 |           | $          | 20,803,255       |       | $           | (13,626,510 | ) | $ | 190,937,311 |   |
| **Liabilities  and Stockholder’s Equity**   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** **  |
| Current  liabilities                             |       |        |        |           |       |             |       |        |        |
| Book overdrafts                                  |       | $           | 342,205     |           | $          | 1,527,987        |       | $           | —      |   | $ | 1,870,192 |   |
| Trade accounts payable                           |       | 8,948,474   |        | 3,727,913      |       | —           |       | 12,676,387  |        |
| Accrued expenses                                 |       | 1,698,279   |        | 1,920,845      |       | —           |       | 3,619,124   |        |
| Accrued interest                                 |       | 2,869,791   |        | —         |       | —           |       | 2,869,791   |        |
| Total current liabilities                        |       | 13,858,749  |        | 7,176,745      |       | —           |       | 21,035,494  |        |
|                                             |       |        |        |           |       |             |       |        |        |
| Line of credit                                   |       | 12,000,000  |        | —         |       | —           |       | 12,000,000  |        |
| Deferred income  taxes                           |       | 4,363,165   |        | —         |       | —           |       | 4,363,165   |        |
| Other  liabilities                               |       | 737,689     |        | —         |       | —           |       | 737,689     |        |
| Long-term debt,  excluding current maturities    |       | 125,000,000 |        | —         |       | —           |       | 125,000,000 |        |
| Total liabilities                                |       | 155,959,603 |        | 7,176,745      |       | —           |       | 163,136,348 |        |
| Stockholder’s  equity                       |       |        |        |           |       |             |       |        |        |
| Common stock                                     |       | —      |        | —         |       | —           |       | —      |        |
| Additional paid-in capital                       |       | 37,813,899  |        | 26,624,729     |       | (26,624,729      | )          | 37,813,899  |        |
| Retained earnings (deficit)                      |       | (10,012,936 | )           | (12,998,219    | )          | 12,998,219       |       | (10,012,936 | )           |
| Total stockholder’s equity (deficit)        |       | 27,800,963  |        | 13,626,510     |       | (13,626,510      | )          | 27,800,963  |        |
| Total  liabilities and stockholder’s equity |       | $           | 183,760,566 |           | $          | 20,803,255       |       | $           | (13,626,510 | ) | $ | 190,937,311 |   |

 

14

----

Consolidatingstatement of operations for the thirteen weeks ended October 1, 2005(unaudited):
| ** **                                        | ** ** | ** ** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------|------------|----------------|------------|------------------|------------|------------|------------|
| ** **                                        | ** ** | **Parent** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                              |       |       |       |           |       |             |       |       |       |
| Net sales                                         |       | $          | 24,697,684 |           | $          | 40,020,057       |       | $          | (7,986,602 | ) | $ | 56,731,139 |   |
| Cost of sales                                     |       | 21,443,261 |       | 30,242,547     |       | (7,986,602       | )          | 43,699,206 |       |
| Gross (loss) profit                               |       | 3,254,423  |       | 9,777,510      |       | —           |       | 13,031,933 |       |
| Selling, general  and administrative expenses     |       | 4,618,554  |       | 1,188,906      |       | —           |       | 5,807,460  |       |
| Operating (loss) profit                           |       | (1,364,131 | )          | 8,588,604      |       | —           |       | 7,224,473  |       |
| Other (expense)  income                           |       |       |       |           |       |             |       |       |       |
| Interest expense                                  |       | (3,638,583 | )          | —         |       | —           |       | (3,638,583 | )          |
| Interest income                                   |       | 4,761      |       | 21,784         |       | —           |       | 26,545     |       |
| Executive/administrative (expense) income         |       | 15,842,002 |       | (15,842,002    | )          | —           |       | —     |       |
| Other (expense)income, net                        |       | (101,354   | )          | 4,000          |       | —           |       | (97,354    | )          |
| Equity in earnings (loss) of subsidiary guarantor |       | (7,227,614 | )          | —         |       | 7,227,614        |       | —     |       |
| Total other (expense) income                      |       | 4,879,212  |       | (15,816,218    | )          | 7,227,614        |       | (3,709,392 | )          |
| (Loss) income  before income taxes                |       | 3,515,081  |       | (7,227,614     | )          | 7,227,614        |       | 3,515,081  |       |
| Provision for  income taxes                       |       | 360,621    |       | —         |       | —           |       | 360,621    |       |
| Net (loss)  income                                |       | $          | 3,154,460  |           | $          | (7,227,614       | )          | $          | 7,227,614  |   | $ | 3,154,460 |   |

 

Consolidatingstatement of operations for the thirteen weeks ended September 30, 2006(unaudited):
| ** **                                        | ** ** | ** ** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------|------------|----------------|------------|------------------|------------|------------|------------|
| ** **                                        | ** ** | **Parent** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|                                              |       |       |       |           |       |             |       |       |       |
| Net sales                                         |       | $          | 27,100,773 |           | $          | 46,625,988       |       | $          | (7,301,247 | ) | $ | 66,425,514 |   |
| Cost of sales                                     |       | 25,465,383 |       | 39,133,429     |       | (7,301,247       | )          | 57,297,565 |       |
| Gross (loss) profit                               |       | 1,635,390  |       | 7,492,559      |       | —           |       | 9,127,949  |       |
| Selling, general  and administrative expenses     |       | 4,504,297  |       | 1,358,908      |       | —           |       | 5,863,205  |       |
| Operating (loss) profit                           |       | (2,868,907 | )          | 6,133,651      |       | —           |       | 3,264,744  |       |
| Other (expense)  income                           |       |       |       |           |       |             |       |       |       |
| Interest expense                                  |       | (3,661,830 | )          | 980            |       | —           |       | (3,660,850 | )          |
| Interest income                                   |       | 42,976     |       | 3,743          |       | —           |       | 46,719     |       |
| Executive/administrative (expense) income         |       | 15,583,779 |       | (15,583,779    | )          | —           |       | —     |       |
| Other (expense)income, net                        |       | (251,450   | )          | (740           | )          | —           |       | (252,190   | )          |
| Equity in earnings (loss) of subsidiary guarantor |       | (9,446,145 | )          | —         |       | 9,446,145        |       | —     |       |
| Total other (expense) income                      |       | 2,267,330  |       | (15,579,796    | )          | 9,446,145        |       | (3,866,321 | )          |
| (Loss) income  before income taxes                |       | (601,577   | )          | (9,446,145     | )          | 9,446,145        |       | (601,577   | )          |
| Provision for  income taxes                       |       | 161,103    |       | —         |       | —           |       | 161,103    |       |
| Net (loss)  income                                |       | $          | (762,680   | )              | $          | (9,446,145       | )          | $          | 9,446,145  |   | $ | (762,680 | ) |

 

15

----

Consolidatingstatement of operations for the thirty-nine weeks ended October 1, 2005(unaudited):
| ** **                                        | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** **  |
|---------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------|-------------|
| ** **                                        | ** ** | **Parent**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** **  |
| ** **                                        | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **  | ** **  |
| Net sales                                         |       | $           | 65,446,906 |           | $          | 122,615,594      |       | $           | (28,106,199 | ) | $ | 159,956,301 |   |
| Cost of sales                                     |       | 62,681,340  |       | 97,926,021     |       | (28,106,199      | )          | 132,501,162 |        |
| Gross (loss) profit                               |       | 2,765,566   |       | 24,689,573     |       | —           |       | 27,455,139  |        |
| Selling, general  and administrative expenses     |       | 11,265,925  |       | 4,023,169      |       | —           |       | 15,289,094  |        |
| Operating (loss) profit                           |       | (8,500,359  | )          | 20,666,404     |       | —           |       | 12,166,045  |        |
| Other (expense)  income                           |       |        |       |           |       |             |       |        |        |
| Interest expense                                  |       | (10,781,543 | )          | (94            | )          | —           |       | (10,781,637 | )           |
| Interest income                                   |       | 15,339      |       | 110,140        |       | —           |       | 125,479     |        |
| Executive/administrative (expense) income         |       | 25,723,152  |       | (25,723,152    | )          | —           |       | —      |        |
| Other (expense) income, net                       |       | (267,383    | )          | 142,804        |       | —           |       | (124,579    | )           |
| Equity in earnings (loss) of subsidiary guarantor |       | (4,803,898  | )          | —         |       | 4,803,898        |       | —      |        |
| Total other (expense) income                      |       | 9,885,667   |       | (25,470,302    | )          | 4,803,898        |       | (10,780,737 | )           |
| Income (Loss)  before income taxes                |       | 1,385,308   |       | (4,803,898     | )          | 4,803,898        |       | 1,385,308   |        |
| Provision for  income taxes                       |       | 1,320,791   |       | —         |       | —           |       | 1,320,791   |        |
| Net (loss)  income                                |       | $           | 64,517     |           | $          | (4,803,898       | )          | $           | 4,803,898   |   | $ | 64,517 |   |

 

Consolidatingstatement of operations for the thirty-nine weeks ended September 30, 2006(unaudited):
| ** **                                        | ** ** | ** **  | ** **  | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** **  |
|---------------------------------------------------|------------|-------------|-------------|----------------|------------|------------------|------------|-------------|-------------|
| ** **                                        | ** ** | **Parent**  | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** **  |
| ** **                                        | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** **  |
| Net sales                                         |       | $           | 81,637,718  |           | $          | 127,142,253      |       | $           | (23,880,841 | ) | $ | 184,899,130 |   |
| Cost of sales                                     |       | 80,811,106  |        | 110,364,721    |       | (23,880,841      | )          | 167,294,986 |        |
| Gross (loss) profit                               |       | 826,612     |        | 16,777,532     |       | —           |       | 17,604,144  |        |
| Selling, general  and administrative expenses     |       | 18,085,147  |        | 4,206,909      |       | —           |       | 22,292,056  |        |
| Operating (loss) profit                           |       | (17,258,535 | )           | 12,570,623     |       | —           |       | (4,687,912  | )           |
| Other (expense)  income                           |       |        |        |           |       |             |       |        |        |
| Interest expense                                  |       | (10,510,318 | )           | (771           | )          | —           |       | (10,511,089 | )           |
| Interest income                                   |       | 61,548      |        | 48,540         |       | —           |       | 110,088     |        |
| Executive/administrative (expense) income         |       | 37,291,678  |        | (37,291,678    | )          | —           |       | —      |        |
| Other (expense) income, net                       |       | (408,042    | )           | 879            |       | —           |       | (407,163    | )           |
| Equity in earnings (loss) of subsidiary guarantor |       | (24,672,407 | )           | —         |       | 24,672,407       |       | —      |        |
| Total other (expense) income                      |       | 1,762,459   |        | (37,243,030    | )          | 24,672,407       |       | (10,808,164 | )           |
| (Loss) income  before income taxes                |       | (15,496,076 | )           | (24,672,407    | )          | 24,672,407       |       | (15,496,076 | )           |
| Provision for  income taxes                       |       | 1,110,528   |        | —         |       | —           |       | 1,110,528   |        |
| Net (loss)  income                                |       | $           | (16,606,604 | )              | $          | (24,672,407      | )          | $           | 24,672,407  |   | $ | (16,606,604 | ) |

 

16

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Consolidatingstatement of cash flows for the thirty-nine weeks ended October 1, 2005(unaudited):
| ** **                                                                                  | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------|------------|
| ** **                                                                                  | ** ** | **Parent**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
| **Cash  flows from operating activities**                                                   | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Net (loss)  income                                                                          |       | $           | 64,517     |           | $          | (4,803,898       | )          | $           | 4,803,898  |   | $ | 64,517 |   |
| Adjustments to  reconcile net income to net cash provided by (used-in) operating activities |       |        |       |           |       |             |       |        |       |
| Depreciation of property and equipment                                                      |       | 1,912,280   |       | 994,741        |       | —           |       | 2,907,021   |       |
| Amortization of intangibles and bond issuance cost                                          |       | 3,415,537   |       | 617,500        |       | —           |       | 4,033,037   |       |
| Equity in earnings of subsidiary guarantors                                                 |       | 4,803,898   |       | —         |       | (4,803,898       | )          | —      |       |
| Deferred tax liability                                                                      |       | 1,368,000   |       | —         |       | —           |       | 1,368,000   |       |
| Compensation expense for stock options                                                      |       | 32,415      |       | —         |       | —           |       | 32,415      |       |
| Changes in assets and liabilities                                                           |       |        |       |           |       |             |       |        |       |
| Trade accounts receivable                                                                   |       | (1,468,965  | )          | (5,030,095     | )          | —           |       | (6,499,060  | )          |
| Interdivisional receivables/payables, net                                                   |       | 1,645,895   |       | (1,645,895     | )          | —           |       | —      |       |
| Inventories                                                                                 |       | (4,229,789  | )          | 2,545,564      |       | —           |       | (1,684,225  | )          |
| Prepaid expenses and other current assets                                                   |       | (90,296     | )          | (107,997       | )          | —           |       | (198,293    | )          |
| Other noncurrent asset                                                                      |       | (54,594     | )          | (17,264        | )          | —           |       | (71,858     | )          |
| Trade accounts payable and accrued                                                          |       |        |       |           |       |             |       |        |       |
| expenses                                                                                    |       | 4,410,694   |       | 6,065,328      |       | —           |       | 10,476,022  |       |
| Accounts payable change in book overdraft                                                   |       | 1,718,496   |       | —         |       | —           |       | 1,718,496   |       |
| Accrued interest                                                                            |       | (3,964,843  | )          | —         |       | —           |       | (3,964,843  | )          |
| Taxes payable                                                                               |       | (51,950     | )          | —         |       | —           |       | (51,950     | )          |
| Net cash used in operating activities                                                       |       | 9,511,295   |       | (1,382,016     | )          | —           |       | 8,129,279   |       |
| **Cash  flows from investing activities**                                                   | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Capital  expenditures                                                                       |       | (10,596,769 | )          | (427,366       | )          | —           |       | (11,024,135 | )          |
| Net cash used in investing activities                                                       |       | (10,596,769 | )          | (427,366       | )          | —           |       | (11,024,135 | )          |
| Net decrease in cash and cash equivalents                                                   |       | (1,085,474  | )          | (1,809,382     | )          | —           |       | (2,894,856  | )          |
| **Cash  and cash equivalents**                                                              | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Beginning of  period                                                                        |       | 1,085,474   |       | 2,203,556      |       | —           |       | 3,289,030   |       |
| End of period                                                                               |       | $           | —     |           | $          | 394,174          |       | $           | —     |   | $ | 394,174 |   |

 

17

----

Consolidatingstatement of cash flows for the thirty-nine weeks ended September 30, 2006(unaudited):
| ** **                                                                                  | ** ** | ** **  | ** **  | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------|-------------|----------------|------------|------------------|------------|-------------|------------|
| ** **                                                                                  | ** ** | **Parent**  | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
| **Cash  flows from operating activities**                                                   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Net (loss)  income                                                                          |       | $           | (16,606,604 | )              | $          | (24,672,407      | )          | $           | 24,672,407 |   | $ | (16,606,604 | ) |
| Adjustments to  reconcile net income to net cash provided by (used-in) operating activities |       |        |        |           |       |             |       |        |       |
| Depreciation of property and equipment                                                      |       | 2,750,076   |        | 3,428,166      |       | —           |       | 6,178,242   |       |
| Amortization of intangibles and bond issuance cost                                          |       | 3,073,659   |        | 617,499        |       | —           |       | 3,691,158   |       |
| Fixed asset transfers                                                                       |       | (91,230     | )           | 91,230         |       | —           |       | —      |       |
| Loss on disposal of assets                                                                  |       | 93,521      |        | —         |       | —           |       | 93,521      |       |
| Equity in earnings of subsidiary guarantors                                                 |       | 24,672,407  |        | —         |       | (24,672,407      | )          | —      |       |
| Deferred tax asset                                                                          |       | 911,111     |        | —         |       | —           |       | 911,111     |       |
| Deferred tax liability                                                                      |       | 340,538     |        | —         |       | —           |       | 340,538     |       |
| Compensation expense for stock options                                                      |       | 81,219      |        | —         |       | —           |       | 81,219      |       |
| Changes in assets and liabilities                                                           |       |        |        |           |       |             |       |        |       |
| Trade accounts receivable                                                                   |       | (9,433,510  | )           | 9,335,734      |       | —           |       | (97,776     | )          |
| Interdivisional receivables/payables, net                                                   |       | 11,645,460  |        | (11,645,460    | )          | —           |       | —      |       |
| Inventories                                                                                 |       | (10,822,763 | )           | 13,461,780     |       | —           |       | 2,639,017   |       |
| Prepaid expenses and other current assets                                                   |       | (176,742    | )           | (193,454       | )          | —           |       | (370,196    | )          |
| Other noncurrent asset                                                                      |       | 269,221     |        | 6,943          |       | —           |       | 276,164     |       |
| Trade accounts payable and accrued                                                          |       |        |        |           |       |             |       |        |       |
| expenses                                                                                    |       | (3,353,609  | )           | (8,485,100     | )          | —           |       | (11,838,709 | )          |
| Accounts payable change in book overdraft                                                   |       | 342,205     |        | 1,527,987      |       | —           |       | 1,870,192   |       |
| Accrued interest                                                                            |       | (3,407,105  | )           | —         |       | —           |       | (3,407,105  | )          |
| Taxes payable                                                                               |       | (977,237    | )           | —         |       | —           |       | (977,237    | )          |
| Other liabilities                                                                           |       | 303,841     |        | —         |       | —           |       | 303,841     |       |
| Net cash used in operating activities                                                       |       | (385,542    | )           | (16,527,082    | )          | —           |       | (16,912,624 | )          |
| **Cash  flows from investing activities**                                                   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Capital  expenditures                                                                       |       | (12,123,634 | )           | (294,503       | )          | —           |       | (12,418,137 | )          |
| Net cash used in investing activities                                                       |       | (12,123,634 | )           | (294,503       | )          | —           |       | (12,418,137 | )          |
| **Cash  flows from financing activities**                                                   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Borrowings on  line of credit                                                               |       | 24,100,000  |        | —         |       | —           |       | 24,100,000  |       |
| Payments on line  of credit                                                                 |       | (12,100,000 | )           | —         |       | —           |       | (12,100,000 | )          |
| Net cash provided by financing activities                                                   |       | 12,000,000  |        | —         |       | —           |       | 12,000,000  |       |
| Net decrease in cash and cash equivalents                                                   |       | (509,176    | )           | (16,821,585    | )          | —           |       | (17,330,761 | )          |
| **Cash  and cash equivalents**                                                              | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| Beginning of  period                                                                        |       | 509,176     |        | 16,821,585     |       | —           |       | 17,330,761  |       |
| End of period                                                                               |       | $           | —      |           | $          | —           |       | $           | —     |   | $ | — |   |

 

18

----

**Item 2.   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

**Our Company**

We area leading supplier of individual and group military field rations to theDepartment of Defense (the “DoD”). We specialize in the production, packagingand distribution of extended shelf-life, shelf stable and frozen foods inflexible pouches and semi-rigid containers. With over 30 years of experience inthe food manufacturing and food processing businesses, we believe we have areputation for superior quality and service in developing and producing uniquemeal solutions for the military and for the consumer and foodservice markets.We are a primary supplier to the DoD of Meals Ready-to-Eat (the “MREs”),Unitized Group Rations-A (the “UGR-As”) and the polymeric trays (the “Tray-Packs”)used in the Unitized Group Rations-Heat & Serve program. Our customersalso include Kraft Foods, Inc. (“Kraft”), Gerber Products Company  (“Gerber”),the Quaker Oats Company (“Quaker”), Delmonte Food Company (“Delmonte”) and theCanadian Ministry of Defense.

Throughour co-manufacturing program, which began in 1998, we manufacture a variety ofextended shelf-life products for leading branded food companies, includingDelmonte, Gerber, Keefe, Kraft, Quaker and other co-manufacturing customers.These products are marketed and sold by our customers into their retail andfoodservice channels under nationally recognized brands. We target brandedcompanies that are leaders in their respective categories and have products thatalign well with our core competencies in heat seal and thermostabilizedproducts. Many of these products require us to use a combination of ourexisting manufacturing equipment and newly purchased equipment, the cost ofwhich is partially borne by our contracted co-manufacturing customers. Ourco-manufacturing program utilizes many of the technologies and processes thatwe have developed for our military business.

OnMarch 30, 2006, we were notified by the Defense Supply Center Philadelphia (the“DSCP”) that the Company had been awarded a 25% share level in the MRE-26-to-30DoD contract that runs from fiscal 2006 through 2010.  Most recently, ourshare of similar MRE contracts has been 35%.  While this share level isbelow historical levels, we do not anticipate that it will have a significantimpact on our results of operations or cash flows, because we expect increasedrevenues during fiscal 2006 through 2010 from other military-type contracts andfrom other co-manufacturing and branded businesses.

On June 6, 2006, the Company entered into a series ofagreements with Advocacy and Resources Corporation, a Tennessee Not-For-ProfitCorporation (“AARC”), and its affiliate ARC Diversified, Inc., also a TennesseeNot-For-Profit Corporation (“ARCDI” and collectively, “AARC”). In theagreement, AARC agreed to transfer its rights and obligations under itsexisting UGR-A contract # SPM300-04-D-Z215 with the DSCP.  In exchange forthese rights, the Company executed an exclusive service agreement with AARCwhereby AARC agreed to provide UGR-A assembly services to the Company on afixed fee basis. These agreements are subject to pending approval by theDSCP.  Since the execution of these agreements, AARC has filed forbankruptcy, and therefore, we do not anticipate that these agreements willgenerate additional UGR-A CONUS (Continental United States) revenues.

**Restructuring**

On February 6, 2006, the Company announced plansto relocate the assembly operations of its Right Away Division (“RAD”) inMcAllen, Texas to the Company’s Cincinnati, Ohio location in order to betterposition the Company’s production and assembly operations from a geographicalstandpoint, simplify logistics and reduce cost and delivery times to customers.

Through September 30, 2006, our RAD facility accountedfor $123.4 million in Military revenue associated with the final assembly ofMREs, UGR-As and our other military products such as TOTM, Bakery and HDRexcluding inter-company sales of $3.8 million. As of October 28, 2006, all of this assembly and production has beentransferred to our Prepared Foods Division (“PFD”) in Cincinnati, Ohio.  

As of October 28, 2006 we have incurred $4.0 millionof the $4.1 million of restructuring expenses accounted for under Statement ofFinancial Accounting Standard No. 146, Accounting for Cost Associated with Exitand Disposal Activities (“SFAS No. 146”) which have been described in moredetail in note 5 to our consolidated financial statements.  In addition to restructuring expensesaccounted for under SFAS 146, we have recorded additional one-time expensesassociated with the consolidation project in the amount of $1.3.  These expenses are associated withnon-capitalizable project consulting expenses of $0.3 million, travel relatedexpenditures of $0.1 million, relocation and hiring costs of $0.3 million, andtransportation and temporary storage of RAD inventory and property andequipment of $0.6 million. 

As of October 28, 2006 we had incurred $9.0 millionfor capital expenditures.  Of the $9.0million, in capital expenditures, $5.3 million relates to leaseholdimprovements for the new assembly facility, $3.1 million for machinery andequipment and $0.6 million for furniture and fixtures.  Due to the delay in space becoming availableto us and the current liquidity situation as disclosed in Note 2 to ourconsolidated financial statements, a portion of any remaining leasehold andfurniture and fixtures expenditures may be delayed.

As ofOctober 28, 2006 all operations have ceased in McAllen, Texas and all full-timeand temporary employees have been terminated. To assist with the closure of McAllen, Texas we retained the services oftwo former employees on a part-time basis through year end 2006.  We currently have three remaining leasedfacilities in McAllen, Texas with an approximate monthly expense of $148,000for rent and property taxes.   During thefourth quarter 2006, we began to actively seek exiting these facilities andbelieve that two of the three leases will be fully exited prior to December 31,2006.  If we are unable to exit theseleases prior to December 31, 2006, we will be required to record additionalrestructuring charges for these lease obligations less the realizable value ofany sublease payments we can reasonably expect to receive.  We are currently in the process of evaluatingthe potential for any remaining lease liabilities at year end, and as such,have not determined the fair market value of those liabilities at this time. Webelieve that any other remaining expenses related to the closure of McAllenwill not be significant for the remainder of fiscal 2006 and do not anticipateany material impact on our fiscal 2007 operating performance related toMcAllen, Texas operations.

 

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**Results of Operations**

Theamounts provided below have been rounded and are therefore approximates thatmay or may not fully agree with the information provided for in the financialstatements.  In addition, the results forthe periods described are not necessarily indicative of results to be achievedfor the full year.

**Comparison of the thirteen weeks ended September 30, 2006 tothe thirteen weeks ended October 1, 2005**

***Net Sales*.**  Our net sales for the thirteen weeks ended September 30, 2006 were $66.4million, an increase of approximately $9.7 million, or 17.1%, compared to netsales of $56.7 million for the thirteen weeks ended October 1, 2005. The increase in net sales resulted from (i) increased co-manufacturing sales of$4.1 million, (ii) increased military sales of $4.3 million, and (iii)increased branded sales of $1.3 million. The increase in co-manufacturing salesof $4.1 million was attributable to $3.4 million in new co-manufacturingbusiness initiatives with Nutrisystem, Inc. which was added during the fourthquarter of 2005 and increased sales to existing co-manufacturing customers Kraftand Gerber of $3.4 million.  Theseco-manufacturing increases were offset by $2.1 million for the discontinuanceof our co-manufacturing contract with Delmonte and approximately $0.9 millionin lower sales to other existing co-manufacturing customers during the thirteenweeks ended September 30, 2006.  Theincrease in military sales of $4.3 million was primarily related to increasedsales of UGR-A OCONUS (outside the Continental United States) orders of $6.0million which were offset by decreases in other military sales.  The increase in specialty sales was driven bythe launch of our Eversafe brand which was partially offset by lower sales ofother specialty products and the discontinuance of our Homestyle Express andAsian Sytle Select brands in the third quarter of 2005.

***Gross Profit.*** Our gross profit for the thirteen weeks ended September 30 2006, was $9.1million, a decrease of approximately $3.9 million, or 30.0%, compared togross profit of $13.1 million for the thirteen weeks ended October 1, 2005. Asa percentage of net sales, our gross profit was 13.7% and 23.0% for thethirteen weeks ended September 30, 2006 and October 1, 2005,respectively.  Gross profit was unfavorably impacted by accelerateddepreciation of approximately $0.9 million of the McAllen facilities due to theconsolidation, unfavorable production variances of approximately $2.8 million,of which $1.0 million is related to our co-manufacturing business, $1.0 millionis related to military and $0.8 is related to our branded products business.  Of the $2.8 million in unfavorable productionvariances $1.0 million is related to unfavorable labor usage and $1.8 millionin unfavorable material pricing and usage. Of the $1.0 million in unfavorable usage variances, approximately $0.6million was related to military products and start-up production in Cincinnatirunning concurrently with production in McAllen.  The remaining labor variances are related toco-manufacturing variances on our Gerber line as additional less efficientlines were utilized to meet customer demand and Kraft quality issues thatoccurred and were resolved during the third quarter of 2006.  Of the $1.8 million in unfavorable pricingand material usage variances, $0.5 million is related to co-manufacturingcustomers Kraft and Keefe, $0.5 million is related to military UGR-As and $0.8million is related to unfavorable pricing and usage on production of our newEversafe brand.  The remaining decreasein gross profit is attributable to approximately $0.7 million lostcontribution margin on military Tray-Pack sales due to the delay of the awardwhich was offset by higher margins earned on our specialty products ofapproximately $0.6 million due to the introduction of our Eversafe brand.

***Selling, General and Administrative Expenses.*** Our selling, general and administrative expenses for the thirteen weeks endedSeptember 30, 2006 were $5.9 million, representing an increase of less than$0.1 million, compared to 

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selling,general and administrative expenses of $5.8 million for the thirteen weeksended October 1, 2005.  This increase was primarily the result ofapproximately $0.3 million in severance expenses for employee pay-to-stayseverance arrangements associated with the shutdown of our McAllen, Texasassembly facilities, offset by decreased headcount at our corporateheadquarters.

***Operating Profit***.  For the thirteen weeks ended September 30, 2006, we earned an operating profitof approximately $3.3 million, a decrease of $4.0 million compared to ouroperating profit of $7.2 million for the thirteen weeks ended October 1, 2005.

***Interest Expense.*** Our interest expense for the thirteen weeks ended September 30, 2006 wasapproximately $3.7 million, representing an increase of less than $0.1 millioncompared to interest expense of approximately $3.6 million for the thirteenweeks ended October 1, 2005. The minor increase in interest expense isprimarily the result of increased interest expense incurred on our line ofcredit borrowing offset by the timing of interest expense on our senior securednotes.

***Interest Income.*** Our interest income for the thirteen weeks ended September 30, 2006 wasapproximately $47,000, representing a increase of approximately $20,000compared to interest income of approximately $27,000 for the thirteen weeksended October 1, 2005. The increase in interest income is due to larger averagedaily balances maintained in our operating accounts during the thirteen weeksended September 30, 2006 as compared to average daily balances for the thirteenweeks ended October 1, 2005.

***Other Expense, Net.*** Our other expense, net for the thirteen weeks ended September 30, 2006 wasapproximately $252,000, representing an increase of expenses of approximately$155,000 compared to other expense, net of approximately $97,000 for thethirteen weeks ended October 1, 2005.  The increase in other expense isprimarily attributable to increased bank charges and loss on disposal of assetsin 2006 that did not occur during the thirteen weeks ended October 1, 2005.

***Provision For Income Taxes.*** Expenses related to federal, state and local taxes for the thirteen weeks endedSeptember 30, 2006 was approximately $161,000 compared to approximately$361,000 for the thirteen weeks ended October 1, 2005.   The decreasein tax expense is due to federal refunds of taxes paid in the prior year.  No tax benefit has been recognized associatedwith the operating losses as management believes that it is more likely thannot that these tax benefits will not be realized based on the existinguncertainty whether the Company will generate future taxable income due toongoing additional tax deductions related to goodwill amortization. As such, wehave recorded approximately $161,000 of additional valuation allowance on netdeferred tax assets associated with the indefinite reversal period related togoodwill amortization.

***Net Loss.***  As aresult of the foregoing, we incurred a net loss of approximately $0.8 millionfor the thirteen weeks ended September 30, 2006, a decrease in net income ofapproximately $3.9 million compared to net income of approximately $3.2 millionfor the thirteen weeks ended October 1, 2005.

**Comparison of the thirty-nine weeks ended September 30, 2006to the thirty-nine weeks ended October 1, 2005**

***Net Sales.***  Our net sales for the thirty-nine weeks ended September 30, 2006 were $184.9million, an increase of approximately $24.9 million, or 15.6%, compared to netsales of $160.0 million for the thirty-nine weeks ended October 1, 2005. Theincrease in net sales resulted primarily from (i) increasedco-manufacturing net sales of approximately $23.4 million, of whichapproximately $10.0 million was attributable to increased sales volumes toexisting co-manufacturing customers while $13.3 million was attributable to newco-manufacturing projects; (ii) increased net sales to the DoD of approximately$0.3 million, which consisted of a $9.8 million increase in UGR-A sales, a $6.2million decrease in MRE sales and a $3.3 million decrease in other militarysales.  The remaining change in our salesfor the thirty-nine weeks ended September 30, 2006 is related to minor changesin our branded other product sales of $1.2 million attributable to the launchof our Eversafe brand and offset by discontinued sales of our Homestyle Expressand Asian Sytle Select brands.

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***Gross Profit*.** Our gross profit for the thirty-nine weeks ended September 30, 2006 was $17.6million, representing a decrease of approximately $9.8 million, or 35.9%,compared to gross profit of $27.4 million for the thirty-nine weeks endedOctober 1, 2005, respectively.  As a percentage of net sales, our grossprofit was 9.5% and 17.2% for the thirty-nine weeks ended September 30, 2006and October 1, 2005, respectively.  The decrease in gross profit wascaused by; (i) a decrease in gross profit on sales to the DoD, of approximately$7.2 million, due to (a) $2.8 million in accelerated depreciation expense onthose fixed assets that we intend to abandon upon the completion of the McAllenconsolidation, (b) $1.4 million of gross margin impact due to the sales mix ofMREs and UGR-As, (c) $1.2 million due to the continued delay of the fiscal 2006Tray-Pack award, (d) approximately $0.7 million in unfavorable material use andprice variances largely associated with UGR-A sales, (e) approximately $0.7million in unfavorable labor variances primarily attributable to MRE productionstart-up in Cincinnati running concurrently with production in McAllen and (f)$0.4 million due to product mix on other military products and MRE volumevariances, (ii) $4.8 million in decreased gross profits on sales ofco-manufacturing products due to (a) $2.3 million in decreased gross margin dueto higher product cost on additional sales volumes, (b) $1.6 million inunfavorable variances related to material price and usage and (c) $0.9 millionin unfavorable labor use variances.  Ofthe total production variances of $2.5 million, $1.4 million is related tostart-up inefficiencies on our Gerber line and approximately $0.5 million isrelated to quality issues with our Kraft contract due to additional costincurred related to higher microbe counts primarily during the third quarter offiscal 2006. These decreases in gross profit were positively offset by highergross profit earned on our specialty brands of approximately $2.2 million, primarilyas a result of the current year launch of our Eversafe brand and discontinuanceof the Homestyle Express and Asian Sytle Select brands in the prior year.

***Selling, General and AdministrativeExpenses.***   Our selling, general andadministrative expenses for the thirty-nine weeks ended September 30, 2006 were$22.3 million, an increase of $7.0 million, or 45.8%, compared to selling,general and administrative expenses of approximately $15.3 million for thethirty-nine weeks ended October 1, 2005. Our selling, general andadministrative expenses increased over the prior period due to additional (i)severance cost of approximately $1.2 million for employee pay-to-stay severancearrangements associated with our McAllen facilities which were offset by approximately$1.0 million of reduced expenditures due to headcount transfers to ourcorporate office and other reduced selling, general and administrativeexpenses; (ii) employee-related cost of $2.4 million for increased headcount,salary, wages and benefits at our corporate facility; (iii) severance andemployee recruiting cost of approximately $0.4 million; (iv) project expensesof $1.2 million; (v) sales, advertising and promotional cost of approximately$0.8 million; (vi) travel related expenditures primarily in support of salesand the McAllen consolidation of approximately $0.4 million; (vii) increasedconsulting and professional fees of approximately $1.1 million; and (viii)additional cost in support of our corporate facility of approximately $0.5 million.

***Operating Profit (Loss) .*** Our loss from operations was approximately $4.7 million for the thirty-nineweeks ended September 30, 2006, a decrease of approximately $16.9 millioncompared to operating profit of approximately $12.2 million for the thirty-nineweeks ended October 1, 2005.

***Interest Expense.*** Our interest expense for the thirty-nine weeks ended September 30, 2006 wasapproximately $10.5 million, representing a decrease of approximately $0.3million, compared to interest expense of approximately $10.8 million for thethirty-nine weeks ended October 1, 2005. The decrease in interest expense isprimarily the result of increased interest expense incurred on our line ofcredit borrowing offset by timing of interest expense on our senior secured notes.

***Interest Income.*** Our interest income for the thirty-nine weeks ended September 30, 2006 wasapproximately $0.1 million, a decrease of approximately $15,000 compared tointerest income of approximately $0.1 million for the thirty-nine weeks endedOctober 1, 2005. The decrease in interest income is due to higher interestearned on average daily balances maintained in fiscal 2005 as compared tofiscal 2006.

***Other Expense, Net.*** Our other expense, net for the thirty-nine weeks ended September 30, 2006 wasapproximately $0.4 million, representing an increase of approximately $0.3million, compared to other expense of $0.1 million for the thirty-nine weeksended October 1, 2005. The increase in other expense, net is attributable to novalue engineering income being earned in fiscal 2005 as compared to fiscal 2006and further increased by losses on disposal of assets and higher bank fees infiscal 2006.

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***Provision For Income Taxes.*** Expenses related to federal, state and local taxes for the thirty-nine weeks endedSeptember 30, 2006 were approximately $1.1 million compared to approximately$1.3 million for the thirty-nine weeks ended October 1, 2005. The decreasein tax expense is largely attributable to refunds on federal income taxes forfiscal 2005.  During the current year, notax benefit has been recognized associated with the operating losses asmanagement believes that it is more likely than not that these tax benefitswill not be realized based on the existing uncertainty whether the Company willgenerate future taxable income due to ongoing additional tax deductions relatedto goodwill amortization. As such, we have recorded approximately $1.1 millionof additional valuation allowance on net deferred tax assets associated withthe indefinite reversal period related to goodwill amortization.

***Net Loss.**** *As a result of the foregoing, weincurred a net loss of approximately $16.6 million for the thirty-nine weeksended September 30, 2006, an increase in net loss of approximately $16.7million compared to net profit of approximately $0.1 million for thethirty-nine weeks ended October 1, 2005.

**Operating Segment Results**

**Comparison of the thirteen weeks ended September 30, 2006 tothe thirteen weeks ended October 1, 2005**

***Net Sales.* **Netsales for our RAD segment for the thirteen weeks ended September 30, 2006increased by approximately $2.8 million (excluding inter-segment sales ofapproximately $3.8 million for the thirteen weeks ended September 30, 2006)compared to the thirteen weeks ended October 1, 2005 primarily due to increasedsales to the DoD.  This increase resulted from a $6.0 million increase inUGR-A sales, which were offset by a $3.8 million increase in MRE sales whichshipped from our new MRE assembly operations in Cincinnati and approximately$0.6 million in increased military other and other sales.

Netsales for our PFD segment for the thirteen weeks ended September 30, 2006increased approximately $6.9 million (excluding inter-segment sales ofapproximately $3.5 million and $8.0 million for the thirteen weeks endedSeptember 30, 2006 and October 1, 2005, respectively) compared to the thirteenweeks ended October 1, 2005 primarily due to: (i) an increase inco-manufacturing sales of approximately $4.1 million as described above; (ii)increased sales of our specialty products of approximately $1.6 millionprimarily as a result of the launch of our Eversafe brand which was partiallyoffset by discontinued sales of our Homestyle Express and Asian Sytle Selectbrands in the prior year and (iii) net increased sales of military productsprimarily associated with approximately $3.8 million in MREs shipped from ournew assembly facility in Cincinnati, which were offset by the delay in theTray-Pack award of approximately $2.1 million and lower UGR-A product sales of$0.5 million.

***Operating Profit.*** Profit from operations for our RAD segment for the thirteen weeks endedSeptember 30, 2006 decreased by approximately $2.5 million compared to thethirteen weeks ended October 30, 2005.  Included in the decreased operatingprofit are restructuring charges of approximately $1.2 million related topay-to-stay severance arrangements and accelerated depreciation, as discussedin Note 5 to the unaudited consolidated financial statements.  Theremaining decrease is attributable to decreased margins earned on MREs shippedout of our Cincinnati facility during the third quarter and lower profitmargins earned on product mix.

Profitfrom operations for our PFD segment for the thirteen weeks ended September 30,2006 decreased $1.4 million compared to the thirteen weeks ended October 1,2005 primarily due to: (i) $1.0 million in unfavorable production variancesincurred on co-manufacturing contracts; and (ii) lower contribution marginsearned on co-manufacturing contracts of approximately $1.0 million, which wereonly partially offset by margins earned on MRE shipments from the CincinnatiMRE assembly facility.

**Comparison of the thirty-nine weeks ended September 30, 2006to the thirty-nine weeks ended October 1, 2005**

Netsales for our RAD segment for the thirty-nine weeks ended September 30,2006 increased $0.8 million compared to the thirty-nine weeks endedOctober 1, 2005 (excluding inter-segment sales of $3.8 million forthe thirty-nine weeks ended September 30, 2006) because of $13.8 decreasedsales of MRE’s from RAD segment offset by higher UGR-A sales of$9.8 million and $4.8 of other military and other specialty an scrapsales.

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Netsales for the PFD segment for the thirty-nine weeks ended September 30, 2006increased approximately $24.2 million compared to the thirty-nine weeks endedOctober 1, 2005 (excluding inter-segment sales of $20.1 million and $28.1million for the thirty-nine weeks ended September 30, 2006 and October 1, 2005,respectively)  due to (i) an increase inco-manufacturing net sales of approximately $23.4 million; (ii) $3.8million of MRE sales formerly included in our RAD segment and (iii) increasedsales of our other branded products of $0.9 million.

***Operating Profit.***    Profit from operations decreased by approximately $8.1 million for the RADsegment for the thirty-nine weeks ended September30, 2006 compared to thethirty-nine weeks ended October 1, 2005. This decrease in profit fromoperations was primarily the result of approximately $2.8 million in accelerateddepreciation expenses related to our decision to relocate our assemblyoperations from McAllen, Texas to Cincinnati, Ohio and approximately $1.2 inexpenses related to pay-to-stay severance arrangements.  The remainingdecrease was due to lower prices earned on MRE-25 surge orders, the lowerprices of which occurred in the first five months of fiscal 2006, coupled withthe delay in shipments of MRE-26 base contracts and MRE shipments that occurredout of our new assembly facility in Cincinnati.

Profitfrom operations increased by approximately $3.0 million for the PFD segment forthe thirty-nine weeks ended September 30, 2006 compared to the thirty-nineweeks ended October 1, 2005.  The increase in operating profit wasprimarily attributable to selling, general and administrative expenses that arenow being recorded at the corporate facility.  These selling, general andadministrative expenses are consolidated for presentation in our financialstatements but are segregated in Note 10 to the unaudited consolidatedfinancial statements.  Gross profit decreased approximately $0.2 millionlargely because of gross margin impact due to higher cost of production on newco-manufacturing sales of approximately $2.3 million and unfavorable productionvariances on co-manufacturing products of approximately $2.5 million, whichwere offset by: (i) higher co-manufacturing volumes; (ii) gross profit earnedon MRE sales from our new MRE assembly facility and (iii) a return toprofitability on our specialty brands as a result of our Eversafe brand launchin June of 2006 coupled with the exit from the grocery aisles of our HomestyleExpress and Asian Sytle Select brands.

**Liquidity and Capital Resources**

Thefollowing table summarizes our net cash provided by or (used in) our operatingactivities, investing activities and financing activities and our capitalexpenditures for thirty-nine weeks ended September 30, 2006 and October 1,2005:
|                                  | ** ** | **Thirty-Nine Weeks**    | ** ** | **Thirty-Nine Weeks**       | ** ** |
|----------------------------------|------------|-------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Ended**                     | ** ** | **Ended**                        | ** ** |
| ** **                       | ** ** | **October 1, 2005** | ** ** | **September 30, 2006** | ** ** |
| Net cash  provided by (used-in): |       |                          |       |                             |       |
| Operating activities             |       | $                             | 8,129,279  |                             | $          | (16,912,624 | ) |
| Investing activities             |       | (11,024,135                   | )          | (12,418,137                      | )          |
| Financing activities             |       | —                        |       | 12,000,000                       |       |
| Capital expenditures             |       | (11,024,135                   | )          | (12,418,137                      | )          |
|                                  |            |                               |            |                                  |            |  |  |

 

***Operating Activities*.** Net cash (used in) provided by operating activities was approximately ($16.9)million and $8.1 million for the thirty-nine weeks ended September 30,2006 and October 1, 2005, respectively. Cash generated from operating activitiesdecreased during the first thirty-nine weeks of 2006 as compared to 2005 dueprimarily to inefficient operational performance, payments made againstoutstanding current trade accounts payable, bond interest payment and taxes andoffset by reduced levels of inventory and float of approximately $11.7million.  Additional negative impactresulted from lower expenditures related to our consolidation efforts andproject expenditures that were not capitalized and lower margins earned onsales as a result of unfavorable production variances discussed above.

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***Investing Activities*.** Net cash used in investing activities was approximately $12.4 million and $11.0million for the thirty-nine weeks ended September 30, 2006 and October 1, 2005,respectively and primarily attributable to capital expenditures in support ofadditional capacity and improvement of both military and co-manufacturing linesas well as infrastructure.

***Financing Activities***.  Net cash provided by financing activities was approximately $12.0 million and$0 for the thirty-nine weeks ended September 30, 2006 and October 1, 2005,respectively.  Sources of financing were obtained from net borrowing of$12.0 million on our Revolving Loan Agreement.

As ofNovember 10, 2006, we had outstanding borrowings of $15.0 million against ourRevolving Loan Agreement. Significant uses of cash during the third quarter of2006 and the weeks of October 2006 included payment on the Senior Secured Notesof approximately $6.8 million, purchases with an associated material cost ofapproximately $12.5 million to support UGR-A sales orders that shipped duringAugust, build out of our new assembly facilities located adjacent to ourmanufacturing facility in Cincinnati, Ohio of approximately $5.5 million.  The timing and size of these expendituresrequired that we borrow significantly against our Revolving Loan Agreement aspayments on our military contracts were significantly delayed due to technicalreceiving and processing issues by the DoD.

Ourcurrent cash flow and financial statement forecast for the remainder of fiscal2006 suggest that we will still have remaining unrepaid borrowings against theRevolving Loan Agreement in the approximate amount of $4.0 million and mayrequire additional borrowings to fund our January 2007 bond interestpayment.  As of September 30, 2006, wewere in compliance with all financial covenants.  However, based on ourrecent financial forecast, it is probable that we will violate our covenant requiringpositive operating profit at December 31, 2006.

Aviolation of this financial covenant or one of our other financial covenants oneither the intercreditor agreement or our Revolving Loan Agreement could causeus also to be in default on our other agreements, including the indenturesgoverning our Senior Secured Notes and our 13.875% senior PIK notes due 2011 (the “Senior PIK Notes”) of our ParentCompany.  In the event we were to violate our minimum profitabilitycovenant or any of our other financial covenants, we would seek to resolve theissue either by satisfying the covenant within the allotted period or byobtaining the appropriate waivers.  If we are unable to mitigate thecovenant violation within the allotted period or to obtain waivers, theoutstanding debt on the Senior Secured Notes and the Revolving Loan Agreementwould become payable. In that event, we would seek alternative forms offinancing which may not be available to us on satisfactory terms, or atall.  Our failure to obtain financingwould materially and adversely affect our financial condition, operatingresults and liquidity position.

***Long-Term Debt Expenditures*.**  In connection with our $125 million Senior Secured Notes and our Revolving Loan Agreement, we will continue to incur significant debt servicepayments including interest in future years. Total cash interest paymentsrelated to the Senior Secured Notes will be approximately $13.6 million onan annual basis. We incurred approximately $10.5 million of interest expense(including bond amortization cost) relating to the Senior Secured Notes and ourworking capital facilities in the thirty-nine week period ended September 30,2006. To the extent we have borrowings outstanding under our Revolving LoanAgreement, we will have additional cash interest payments. Our borrowingsagainst our Revolving Loan Agreement was $12.0 million at September 30, 2006.

Theindenture governing the Senior Secured Notes, and our Revolving Loan Agreement,impose significant operating and financial restrictions on us. Theserestrictions limit or prohibit, among other things, our ability to incuradditional indebtedness, repay indebtedness prior to stated maturities, paydividends on or redeem or repurchase our stock, issue capital stock, makeinvestments, create liens, sell certain assets or merge with or into othercompanies, enter into certain transactions with stockholders and affiliates,make capital expenditures, sell stock in our subsidiaries and restrictdividends, distributions or other payments from our subsidiaries. In addition,our new Revolving Loan Agreement requires us to meet certain financial ratiosand financial condition tests. At September 30, 2006, we were in compliancewith all covenants related to our Senior Secured Notes and Revolving LoanAgreement.

OnFebruary 11, 2005, our Parent Company and its wholly-owned financesubsidiary, TWC Holding Corp., co-issued their Senior PIK Notes, in theapproximate aggregate principal amount of $62,259,000 net of a discount ofapproximately $36,259,000. The Senior PIK Notes earn interest at the rate of13.875% per annum, mature on 

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August 15,2011 and are unsecured obligations of the Parent Company and TWC Holding Corp.Neither the Company nor any of its subsidiaries guaranteed the Senior PIKNotes. The Senior PIK Notes limit our ability to incur additional indebtedness,pay dividends, make other distributions, make certain investments, certainassets or merge with or into other companies. Because our ParentCompany is a holding company with no operations and has only itsinvestment in the Company and because TWC Holding Corp. has no independentoperations or assets, future cash flows or assets of the Company through 2011may be required to service the $62.3 million Senior PIK Notes, upon theirmaturity.

Weexpect our remaining capital expenditures in 2006 to be approximately$3.5 million, primarily related to support plant renewal andconsolidations, efficiency improvements and expansion of our co-manufacturingbusiness.

Ourprincipal sources of liquidity are cash flow generated from operations andborrowings under our Revolving Loan Agreement.  As of September 30, 2006,we had borrowings under the Revolving Loan Agreement of $12.0 million.  Inaddition to fluctuations in business volume, cash flows from operations areaffected by contract terms for billing and collection. Our liquidity will alsocontinue to be dependent on a number of other factors, including the timing ofcollection on our contract receivables, processing of weekly and bi-weeklypayroll and associated taxes and payments to our suppliers. Our principal usesof cash will meet debt service requirements, finance our capital expendituresand provide working capital. Our future operating performance and ability toextend or refinance our indebtedness will be dependent on future economicconditions and financial, business and other factors that are beyond ourcontrol.

**Off-BalanceSheet Arrangements.**  Wedo not have transactions or relationships with variable interest entities, anddo no have any off-balance sheet financing other than normal operating leases.

**Item 3.   Quantitative andQualitative Disclosures About Market Risk.**

We areexposed to market risk, primarily from the impact of interest rate changes onour  use of variable rate debt which was$12.0 million at September 30, 2006. Our exposure to market risks from foreigncurrency and commodity price fluctuations is limited since all of our fiscalyear 2006 and 2005 purchases and sales are denominated in U.S. dollars andsince raw commodities do not comprise a significant percentage of our costs.Other than with respect to our sales to the Canadian military, we generally donot have exposure to foreign currency risk. In addition, because our customarycontract terms pass through increases in the costs of commodities underlying ourproducts to our customers, we generally do not have exposure to commodity pricerisk. Other than with respect to potential hedges on sales to the Canadianmilitary, we do not hedge our exposure to foreign currency or commodity pricerisk. We do not hold any derivatives for trading or speculative purposes.Changes in the fair value of derivatives are recorded in current earnings alongwith the change in the fair value of the underlying hedged item.

All ofour outstanding bank debt bears interest at variable interest rates tied to theprime interest rate. The use of variable rate debt to finance our operationsand capital improvements exposes us to variability in interest payments due tochanges in interest rates. We had limited exposure to variable rates atSeptember 30, 2006. We believe that a hypothetical 1% increase in interestrates on our variable rate debt for a one-year period would have had nosignificant impact on our net income.

**Item 4.   Controls andProcedures.**

**a.  Evaluation of Disclosure Controls and Procedures**Our management, with the participation of our Chief Executive Officer and ourChief Financial Officer, has evaluated our disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and 15d-15(e) of the ExchangeAct).  Based on that evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that, as of the end of the period covered bythis report, our disclosure controls and procedures were effective to ensurethat information required to be disclosed in reports that we file or submitunder the Exchange Act are: (1) recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms; and(2) accumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisionsregarding required disclosure.

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**b.* *Changesin Internal Controls**

Therehave been no changes in our internal controls over financial reporting thathave occurred during the thirty-nine weeks ended September 30, 2006  thathave materially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

**FORWARD-LOOKINGSTATEMENTS**

Thisreport includes “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements are thosethat do not relate solely to historical fact. Forward-looking statementsinclude, but are not limited to, any statement that may predict, forecast, indicateor imply future results, performance, achievements or events, includingstatements about our confidence in our prospects and strategies; ourdevelopment and expansion plans and expectations for the future; competitivepressures and trends in our industry; and general economic conditions.  In addition to statements which areforward-looking by reason of context, the words “believe,” “anticipate,” “expect,”“estimate,” “intend,” “project,” “plan,” “will,” or words or phrases of similarmeaning identify forward-looking statements.

Theseforward-looking statements reflect our current views with respect to futureevents and are based on assumptions and subject to risks and uncertainties,including, but not limited to, economic, competitive and governmental factorsoutside of our control, that may cause actual results to differ materially fromtrends, plans or expectations set forth in the forward-looking statements andthat may adversely affect us. It is not possible for us to predict all of theseuncertainties, nor can we assess the extent to which any factor, or combinationof factors, may cause actual results to differ from those contained inforward-looking statements, including the list of risks outlined below in “RiskFactors.”  We assume no obligation toupdate our forward-looking statements.

**PART II—OTHERINFORMATION**

**Item1.   Legal Proceedings.**

Duringthe thirty-nine weeks ended September 30, 2006, there were no material changesto the Company’s previously disclosed legal proceedings. Additionally, we are,and from time to time may be, a party to routine legal proceedings incidentalto the operation of our business. The outcome of any pending or threatenedproceedings is not expected to have a material adverse effect on our financialcondition, operating results or cash flows, based on our current understandingof the relevant facts. Legal expenses incurred related to these contingenciesare expensed as incurred.

**Item 1A.   Risk Factors.**

Therehave been no material changes in risk factors from those described in Part I,Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2005, filed with the SEC on March 31,2006.  Some of the risks which may berelevant to the Company include:

·                  the adequacy ofthe Company’s liquidity and capital resources;

·                  the Company’sability to meet the terms of the Revolving Loan Agreement, including thefinancial covenants;

·                  the Company’scontracts with the U.S. government;

·                  the U.S.Department of Defense’s budget in general and the U.S. military activity inparticular;

·                  the Company’sability to implement our co-manufacturing plans;

·                  competitivepressures and trends in the Company’s industry;

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·                  risks related tothe Company’s Senior Secured Notes and Revolving Loan Agreement (including thevalue of collateral);

·                  changes inprevailing interest rates; and

·                  legalproceedings and regulatory matters.

**Item2.   Unregistered Sales of Equity Securities and Use of Proceeds.**

None.

**Item3.   Defaults Upon Senior Securities.**

None.

**Item4.   Submission of Matters to a Vote of Security Holders.**

None.

**Item5.   Other Information.**

OnNovember 8, 2006, the operating agreement governing TWC Holding LLC, the solestockholder of the Wornick Company, was amended, effective as of the dates indicatedin the amendments filed with this Form 10-Q. Amendments No. 4 and 5 reflect the relinquishment of the Class Bmembership interests of Kevin Mooi and Jon Geisler, respectively.  Amendment No. 6 reflects the award of Class Bmembership interests to Tara Burke, John Gutzwiller and Michael DeVaudreuil andtheir admission as newly admitted members of TWC Holding LLC.

**Item 6.    Exhibits.**
| No.    | ** ** | **Description**                                                                                         |
|--------|------------|---------------------------------------------------------------------------------------------------------|
| 3.1    |       | Amendment No. 4 to the Limited Liability Company  Operating Agreement of TWC Holding LLC                |
|   |       |                                                                                                    |
| 3.2    |       | Amendment No. 5 to the Limited Liability Company  Operating Agreement of TWC Holding LLC                |
|   |       |                                                                                                    |
| 3.3    |       | Amendment No. 6 to the Limited Liability Company  Operating Agreement of TWC Holding LLC                |
|   |       |                                                                                                    |
| 31.1   |       | Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
|   |       |                                                                                                    |
| 31.2   |       | Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
|   |       |                                                                                                    |
| 32.1   |       | Certification of the Chief Executive Officer  pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
|   |       |                                                                                                    |
| 32.2   |       | Certification of the Chief Financial Officer  pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |

** **

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**Signatures**

Pursuantto the requirements of the Securities and Exchange Act of 1934, the Registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                          | THE WORNICK COMPANY |
|--------------------------|---------------------|
|                     | (Registrant)        |
|                     |                |   |
| Date: November  14, 2006 | By:                 | /s/ MICHAEL M. THOMPSON |
|                     |                | Michael M. Thompson |
|                     |                | President and Chief Executive Officer |
|                     |                | (Principal Executive Officer) |
|                     |                |   |
| Date: November  14, 2006 | By:                 | /s/ BRIAN A. LUTES |
|                     |                | Brian A. Lutes |
|                     |                | Chief Financial Officer and Treasurer |
|                     |                | (Principal Financial Officer and |
|                     |                | Principal Accounting Officer) |

 

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