NOTE

The Company and Summary of Significant Accounting Policies:

Bridgford Foods Corporation was organized in

1952.

We originally began operations in

1932

as a retail meat market in San Diego, California and evolved into a meat wholesaler for hotels and restaurants, a distributor of frozen food products, a processor and packer of meat, and a manufacturer and distributor of frozen food products for sale on a retail and wholesale basis. For more than the past

five

years we and our subsidiaries have been primarily engaged in the manufacturing, marketing and distribution of an extensive line of frozen, refrigerated, and snack food products throughout the United States.

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

Use of estimates and assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the respective reporting periods. Actual results could differ from those estimates. Amounts estimated related to liabilities for pension benefits, self - insured workers’ compensation and employee healthcare benefits are subject to inherent uncertainties and these estimated liabilities

may

ultimately settle at amounts which

may

vary from current estimates. Other areas with underlying estimates include realization of deferred tax assets, cash surrender or contract value of life insurance policies, promotional allowances and the allowance for doubtful accounts and inventory reserves. Management believes its current estimates are reasonable and based on the best information available at the time.

We test long - lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount

may

not be recoverable. If an impairment is indicated, we measure the fair value of assets to determine if and when adjustments are recorded.

Subsequent events

Management has evaluated events subsequent to

October

28,

2016

through the date the accompanying consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events that

may

require adjustment of and/or disclosure in such financial statements. Based on its review, no material events were identified that require adjustment to the financial statements or additional disclosure.

Concentrations of credit risk

Our credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial. The carrying amount of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate fair market value due to the short maturity of these instruments. We maintain cash balances at financial institutions, which

may

at times exceed the amounts insured by the Federal Deposit Insurance Corporation. Management does not believe there is significant credit risk associated with these financial institutions. The provision for doubtful accounts receivable is based on historical trends and current collectability risk.

We have significant accounts receivable with a few large, well known customers which, although historically secure, could be subject to material risk should these customers’ operations suddenly deteriorate. Sales to Wal - Mart® comprised

34.8%

of revenues in fiscal

2016

and

35.6%

of total accounts receivable was due from Wal - Mart® at

October

28,

2016.

Sales to Dollar General® comprised

7.8%

of revenues in fiscal

2016

and

24.5%

of total accounts receivable was due from Dollar General® at

October

28,

2016.

Sales to Wal - Mart® comprised

31.4%

of revenues in fiscal

2015

and

42.6%

of total accounts receivable was due from Wal - Mart® at

October

30,

2015.

Business segments

Our company and its subsidiaries operate in

two

business segments - the processing and distribution of frozen foods products, and the processing and distribution of snack food products. See Note

to the Consolidated Financial Statements for further information.

Fiscal year

We maintain our accounting records on a

week fiscal basis ending on the Friday closest to

October

31.

As part of the regular accounting cycle, fiscal years

2016

and

2015

each included

weeks.

Revenues

Revenues are recognized upon passage of title to the customer, typically upon product pick - up, shipment or delivery to customers. Products are delivered to customers primarily through our own long - haul fleet or through a Company owned direct store delivery system. These delivery costs,

$3,456

and

$3,663

for fiscal years

2016

and

2015,

respectively, are included in selling, general and administrative expenses in the accompanying consolidated financial statements.

We record promotional and returns allowances based on recent and historical trends. Revenue is recognized as the net amount estimated to be received after deducting estimated amounts for discounts, trade allowances and product returns. Promotional allowances, including customer incentive and trade promotion activities, are recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and redemption rates. Promotional allowances deducted from sales for fiscal years

2016

and

2015

were

$8,578

and

$8,881,

respectively.

Advertising expenses

Advertising and other promotional expenses are recorded as selling, general and administrative expenses. Advertising expenses for fiscal years

2016

and

2015

were

$2,055

and

$1,861,

respectively.

Cash and cash equivalents

We consider all investments with original maturities of

three

months or less to be cash equivalents. Cash equivalents include money market funds and treasury bills. Cash equivalents totaled

$6,985

October

28,

2016

and

$5,842

October

30,

2015.

All material cash and cash equivalents at

October

28,

2016

were held at Wells Fargo Bank N.A.

Fair value measurements

We classify levels of inputs to measure the fair value of financial assets as follows:

•	Level 1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

•	Level 2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

•	Level 3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available.

The hierarchy noted above requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.

The Company does not have any assets or liabilities measured at fair value on a recurring or non - recurring basis for the years ended

October

28,

2016

and

October

30,

2015.

Inventories

Inventories are valued at the lower of cost (which approximates actual cost on a

first

- in,

first

- out basis) or market. Costs related to warehousing, transportation and distribution to customers are considered when computing market value. Inventories include the cost of raw materials, labor and manufacturing overhead. We regularly review inventory quantities on hand and write down any excess or obsolete inventories to net realizable value. An inventory reserve is created when potentially slow - moving or obsolete inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production requirements, and lower than expected customer demand could result in additional obsolete or slow - moving inventory that cannot be sold or must be sold at reduced prices and could result in additional reserve provisions.

Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Major renewals and improvements are charged to the asset accounts while the cost of maintenance and repairs is charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is credited or charged to income. Depreciation is computed on a straight - line basis over

years for buildings and improvements,

years for machinery and equipment, and

years for transportation equipment.

Capital leases

Leased property and equipment that meet capital lease criteria are capitalized at the lower of the present value of the minimum payments required under the lease or the fair value of the asset at inception of the lease and are included within property, plant and equipment on the consolidated balance sheet. Obligations under capital leases are accounted for as current and

noncurrent liabilities on the consolidated balance sheet. Amortization is calculated on a straight - line method based upon the shorter of the estimated useful life of the asset or the lease term.

Life insurance policies

We record the cash surrender value or contract value for life insurance policies as an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period. The cash surrender value is included in other non - current assets in the accompanying consolidated balance sheets.

Income taxes

Deferred taxes are provided for items whose financial and tax bases differ. A valuation allowance is provided against deferred tax assets when it is expected that it is more likely than not that the related asset will not be fully realized. The determination as to whether or not a deferred tax asset can be fully realized is subject to a significant degree of judgment, based at least partially upon a projection of future taxable income, which takes into consideration past and future trends in profitability, customer demand, supply costs, and multiple other factors, none of which are predictable.

We provide tax accruals for federal, state and local exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these accruals requires judgments about tax issues, potential outcomes and timing. (See Note

to the Consolidated Financial Statements). Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations.

Stock - based compensation

We measure and recognize compensation expense for all share - based payments to employees, including grants of employee stock options, in the financial statements based on the fair value at the date of the grant. We have not issued, awarded, granted or entered into any stock - based payment agreements since

April

29,

1999.

Comprehensive income

Comprehensive income consists of net income and additional minimum pension liability adjustments.

Recently issued accounting pronouncements and regulations

May

2014,

the FASB issued ASU

2014

“Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current U.S. GAAP. The guidance presents steps for comprehensive revenue recognition that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance becomes effective for annual reporting periods beginning after

December

15,

2017,

including interim periods within that reporting period.

July

2015,

the FASB issued ASU

2015

“Simplifying the Measurement of Inventory”. The guidance is part of the “Simplification Initiative” to identify and re - evaluate areas where the generally accepted accounting principles

may

be complex and cumbersome to apply. The guidance will require that inventory be stated at the lower of cost and net realizable value as opposed to the lower of cost or market. Net realizable value is the estimated selling price for the inventory less completion, disposal and transportation costs. The guidance becomes effective for fiscal years beginning after

December

15,

2016.

The Company already values inventory by the proposed method.

November

2015,

the FASB issued ASU

2015

17,

“Balance Sheet Classification of Deferred Taxes”. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after

December

2016

with early adoption permitted. The Company applied this guidance to its current fiscal year ending

October

28,

2016.

Adoption of this guidance had no material impact on the results of operations or financial position.

February

2016,

the FASB issued ASU

2016

02,

“Leases”. The guidance requires both operating and capital leases to be recognized on the balance sheet. The guidance becomes effective for annual reporting periods beginning after

December

15,

2018

with early adoption permitted. The adoption of this guidance is not expected to have a material impact on consolidated financial statements.

March

2016,

the FASB issued ASU No.

2016

08,

“Revenue from Contracts with Customers (Topic

606):

Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, providing guidance regarding the application of ASU

2014

when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In

April

2016,

the FASB issued ASU No.

2016

10,

“Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing”, which clarifies the identification of performance obligations and the licensing implementation guidance. In

May

2016,

the FASB further issued ASU No.

2016

12,

“Revenue from Contracts with Customers: Narrow - Scope Improvements and Practical Expedients” providing guidance in certain narrow areas and adding some practical expedients. The effective dates for these updates are the same as the effective date for ASU No.

2014

09,

which is the Company’s fiscal year

2019

and interim periods therein. The Company is currently evaluating these statements and their impact on the Company’s results of operations, financial position, and disclosures.

October

2016,

the FASB issued ASU

2016

16,

“Income Taxes – Classification of Certain Cash Receipts and Cash Payments”. The guidance involves

eight

specific cash flow issues and aims to unify accounting for these transactions. The guidance becomes effective for annual reporting periods beginning after

December

15,

2017

with early adoption permitted. The Company is currently evaluating this guidance and its impact on its results of operations or financial position.