Liquidity and Capital Resources (in thousands except per share amounts)

Net cash used by operating activities was $2,826 in fiscal year 2006. Net cash provided by operating activities was $15 in fiscal year 2005. Gross accounts receivable balances increased $436 in 2006 and decreased $2,243 in 2005. The balance in 2006 increased slightly due to strong sales in the fourth quarter of the fiscal year in the frozen food segment offset by lower unit sales volume in the
refrigerated and snack food segment in the same period. The balance in 2005 decreased due to lower overall sales levels in the fourth quarter and improved collection trends compared to the prior year. The Company purchased $7,700 and $4,500 in auction rate securities in the fiscal years ended November 3, 2006 and October 28, 2005, respectively. Inventories decreased $1,780 in fiscal year
2006 primarily due to the sale of ingredient inventories not immediately required for a significant production line under development but not complete at the end of the fiscal year and a slight decline in overall commodity costs. The Company’s refrigerated and snack food products segment has continued development of a new major production line that was originally scheduled for completion in the fourth quarter of fiscal year 2005. A successful production run was completed in October 2006 and this product was test marketed to consumers on a limited basis in November 2006. To date this product has been well received however field testing continues. Early production runs have confirmed the need for additional heating capacity in the oven in order to attain desired rates of production. This expected project completion date has been moved forward into fiscal year 2008 until satisfactory results are achieved. Inventories increased $4,445 in fiscal year 2004 due to significant beef ingredient inventories being stored in anticipation of the start up of the new production line in the first half of fiscal year 2005 and higher valuations due to commodity cost increases. Accounts payable balances were consistent with the current business cycle. Accrued payroll, advertising and other expenses increased $714 in 2006 primarily as a result of the funding pattern of self-insured workers’ compensation claims. The current portion of non-current liabilities increased $1,558 and decreased $553 in 2006 and 2005, respectively. The increases in both 2006 and 2005 were due to a higher anticipated funding of the pension liability in 2006 and 2007.
Included in the current portion of non-current liabilities is $3,476 related to the anticipated contribution required in fiscal years 2007. The minimum pension liability related to the Company’s defined benefit pension plan decreased to $1,926 at November 3, 2006 compared to $3,458 at October 28, 2005. In the third quarter of fiscal 2006, the Company froze the defined benefit pension plan accrued benefits for members employed by the Company within administration, sales or supervisory job classification or within a nonbargaining class (the Corporate Group) contributing to the decrease in the minimum pension liability. This action is defined as a curtailment under SFAS No. 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits” and, therefore, the Company recognized a curtailment loss of approximately $8. As a result of this action, net pension costs were reduced in the last fiscal quarter by approximately $667 as compared to the same quarter last year and will be reduced in future periods. The net tax effected amount of this liability is included in shareholders’ equity as an “accumulated comprehensive loss” in the Statement of Shareholders’ Equity and Other Comprehensive Income (Loss).

The Company’s capital improvement expenditures increased $298 in 2006 and decreased $1,412 in 2005 compared to the prior year. Overall capital spending has declined in recent years and significant capital expenditures related to the Dallas high rise freezer and the new Statesville bread plant reached the end of their depreciation periods on certain major equipment. As a result, depreciation expense declined in the current year. Cash and cash equivalents increased $3,025 in 2006 and decreased $2,383 in 2005. Net cash flow improved in 2006 and 2005 primarily as a result of lower inventory requirements, lower expenditures for property, plant and equipment and lower income tax payments. Working capital decreased $215 in 2006 and increased $161 in 2005.

Working capital decreased in 2006 primarily as the result of a significant increase pension contributions required for the Company’s defined benefit pension plans, with current funding requirements increasing by $1,674 compared to the prior year. Off-setting this working capital decrease decrease were higher earnings levels compared to the prior year. Working capital increased in 2005 primarily as a result of lower inventory requirements, lower expenditures for property, plant and equipment and an increase in refundable income taxes. The Company has remained free of interest-bearing debt for twenty consecutive years. The Company maintains a line of credit with Bank of America that expires April 30, 2008. Under the terms of this line of credit, the Company may borrow up to $2,000 at an interest rate equal to the bank’s reference rate, unless the Company elects an optional interest rate. The borrowing agreement contains various covenants, the more significant of which require the Company to maintain certain levels of shareholders’ equity and working capital. The Company was in compliance with all provisions of the agreement during the 2006 fiscal year and there were no borrowings under this line of credit during such period. Management is of the opinion that the Company’s strong financial position and its capital resources are sufficient to provide for its operating needs and capital expenditures for fiscal 2008.

Off-Balance Sheet Arrangements

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

Contractual Obligations (in thousands)

The Company has remained free of interest bearing long-term debt for twenty consecutive years and had no other longterm debt or other contractual obligations except for leases. The Company leases certain transportation equipment under operating leases. Future minimum lease payments are approximately (in thousands):

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Exhibit: 21.1 23.1 23.2 31.1 31.2 32.1 32.2