**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

 

**Quarterly Report Under Section 13 or 15(d)**

**of the Securities Exchange Act of 1934**

 

**For TheQuarterly Period Ended September 30, 2004**

 

**Commission File Number: 001-31816**

 

**Centennial Specialty Foods Corporation**

(Exact name of registrant as specified in its charter as amended)

 
| **Delaware**                                                    | ** ** | **55-0825751**                    |
|-----------------------------------------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of incorporation  or organization) |       | (IRS Employer Identification No.) |
|                                                            |       |                              |
| **10700 E. Geddes Ave. #170  Centennial, Colorado**             |       | **80112**                         |
| (Address of principal executive offices)                        |       | (Zip Code)                        |
|                                                            |       |                              |
| **(303) 292-4018**                                              |
| (Registrant’s telephone number, including area code)       |

 

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

 

Yes ý   No  o

 

Numbershares of common stock outstanding at the latest practicable date: October 29,2004: 5,050,000.

 

 

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**INDEX**

 
| Part  I - Financial Information |                                                                                          |
|---------------------------------|-----------------------------------------------------------------------------------------------|
|                            |                                                                                          |   |   |
|                            | Item  1 - Financial Statements                                                                |   |
|                            |                                                                                          |   |   |
|                            |                                                                                          | Consolidated Balance Sheets  as of September 30, 2004 (Unaudited) and December 31, 2003 |   |
|                            |                                                                                          |   |   |
|                            |                                                                                          | Consolidated  Unaudited Statements of Operations for the Three Months Ended September 30,  2004 and September 30, 2003 and the Nine Months Ended September 30, 2004 and  September 30, 2003 |   |
|                            |                                                                                          |   |   |
|                            |                                                                                          | Consolidated  Unaudited Statements of Cash Flows for the Nine Months Ended September 30,  2004 and September 30, 2003 |   |
|                            |                                                                                          |   |   |
|                            |                                                                                          | Notes to  Consolidated Unaudited Financial Statements |   |
|                            |                                                                                          |   |   |
|                            | Item  2 - Management’s Discussion and Analysis or Plan of Operation                      |   |
|                            |                                                                                          |   |   |
|                            | Item 3 – Controls and  Procedures                                                        |   |
|                            |                                                                                          |   |   |
| Part II - Other Information     |                                                                                          |
|                            |                                                                                          |   |   |
|                            | Item 1 – Legal Proceedings                                                               |   |
|                            |                                                                                          |   |   |
|                            | Item  2 – Changes in Securities and Small Business Issuer Purchase of Equity  Securities |   |
|                            |                                                                                          |   |   |
|                            | Item 3 – Defaults Upon  Senior Securities                                                |   |
|                            |                                                                                          |   |   |
|                            | Item  4 – Submission of Matters to a Vote of the Security Holders                        |   |
|                            |                                                                                          |   |   |
|                            | Item 5 – Other  Information                                                              |   |
|                            |                                                                                          |   |   |
|                            | Item 6 –  Exhibits and Reports on Form 8-K                                               |   |
|                            |                                                                                          |   |   |
| Signature Page                  |                                                                                          |

 

Exhibits

 

Exhibit 31.1 - Rule 13a-14(a)Certification of CEO

 

Exhibit 31.2 - Rule 13a-14(a)Certification of CFO

 

Exhibit32.1 - Section 1350 Certification

 

Exhibit32.2 - Section 1350 Certification

 

Exhibit 10.24 - Amendment No. 1 to Loanand Security Agreement withHeartland Bank dated March 26, 2004.

 

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**CENTENNIAL SPECIALTY FOODS CORPORATION ANDSUBSIDIARY**

 

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                                  | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **Assets**                                                                                                                                                  |       |                    |       |                   |       |
| ** **                                                                                                                                                  |       |                    |       |                   |       |
| Current assets                                                                                                                                              |       |                    |       |                   |       |
| Cash and cash equivalents                                                                                                                                   |       | $                       | 132,347    |                   | $          | 6,076,479 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $25,483 and $25,483, respectively                                                           |       | 561,504                 |       | 303,848                |       |
| Other receivable                                                                                                                                            |       | 57,497                  |       | —                 |       |
| Inventory, net                                                                                                                                              |       | 2,090,419               |       | 1,043,540              |       |
| Prepaid expenses                                                                                                                                            |       | 92,264                  |       | 186,086                |       |
| Total current assets                                                                                                                                        |       | 2,934,031               |       | 7,609,953              |       |
|                                                                                                                                                        |       |                    |       |                   |       |
| Non-current assets                                                                                                                                          |       |                    |       |                   |       |
| Property, plant and equipment, net                                                                                                                          |       | 5,967,891               |       | 6,112,215              |       |
| Goodwill, net                                                                                                                                               |       | 1,634,079               |       | 1,634,079              |       |
| Other assets                                                                                                                                                |       | 63,549                  |       | 70,000                 |       |
| Other long-term receivable                                                                                                                                  |       | —                  |       | 170,000                |       |
| Total non-current assets                                                                                                                                    |       | 7,665,519               |       | 7,986,294              |       |
|                                                                                                                                                        |       |                    |       |                   |       |
| Total assets                                                                                                                                                |       | $                       | 10,599,550 |                   | $          | 15,596,247 |   |
|                                                                                                                                                        |       |                    |       |                   |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                              |       |                    |       |                   |       |
| ** **                                                                                                                                                  |       |                    |       |                   |       |
| Current liabilities                                                                                                                                         |       |                    |       |                   |       |
| Accounts payable – trade                                                                                                                               |       | $                       | 391,635    |                   | $          | 1,022,268 |   |
| Accrued liabilities                                                                                                                                         |       | 620,957                 |       | 578,134                |       |
| Accrued dividends payable                                                                                                                                   |       | —                  |       | 172,603                |       |
| Related party payable                                                                                                                                       |       | —                  |       | 365,394                |       |
| Current portion of long-term debt                                                                                                                           |       | —                  |       | 750,250                |       |
| Note payable – stockholder                                                                                                                             |       | —                  |       | 908,900                |       |
| Total current liabilities                                                                                                                                   |       | 1,012,592               |       | 3,797,549              |       |
|                                                                                                                                                        |       |                    |       |                   |       |
| Long-term debt ($2,603,572 available under  $5,000,000 line of credit)                                                                                      |       | 2,396,428               |       | 3,503,454              |       |
| Deferred tax liability                                                                                                                                      |       | 214,418                 |       | 530,662                |       |
| Total long-term liabilities                                                                                                                                 |       | 2,610,846               |       | 4,034,116              |       |
| Total liabilities                                                                                                                                           |       | 3,623,438               |       | 7,831,665              |       |
|                                                                                                                                                        |       |                    |       |                   |       |
| Commitments and contingencies                                                                                                                               |       |                    |       |                   |       |
|                                                                                                                                                        |       |                    |       |                   |       |
| Stockholders’ equity                                                                                                                                   |       |                    |       |                   |       |
| Preferred stock (liquidation preference  $10,500,000), 3,000,000 shares authorized, 2,000,000 shares issued and  outstanding, $5 stated value, 10% dividend |       | 2,334,785               |       | 2,334,785              |       |
| Common stock, $0.0001 par value, 20,000,000  shares authorized, 5,050,000 shares issued and outstanding                                                     |       | 505                     |       | 505                    |       |
| Additional paid-in capital                                                                                                                                  |       | 5,794,036               |       | 5,794,036              |       |
| Accumulated deficit                                                                                                                                         |       | (1,153,214              | )          | (364,744               | )          |
| Total stockholders’ equity                                                                                                                             |       | 6,976,112               |       | 7,764,582              |       |
|                                                                                                                                                        |       |                    |       |                   |       |
| Total liabilities and stockholders’ equity                                                                                                             |       | $                       | 10,599,550 |                   | $          | 15,596,247 |   |

 

See notes to consolidated financialstatements.

 

1

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**CENTENNIAL SPECIALTY FOODS CORPORATION ANDSUBSIDIARY**

 

**ConsolidatedUnaudited Statements of Operations**

 
| ** **                                                    | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                    | ** ** | **2004**                                      | ** ** | **2003**                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Net sales                                                     |       | $                                             | 1,192,169  |                                         | $          | 1,258,037 |   | $ | 3,266,716 |   | $ | 3,672,253 |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Cost of goods sold                                            |       | 796,849                                       |       | 835,223                                      |       | 2,416,739 |   | 2,378,067 |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Gross profit                                                  |       | 395,320                                       |       | 422,814                                      |       | 849,977 |   | 1,294,186 |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Selling,  general and administrative expenses                 |       | 666,000                                       |       | 675,513                                      |       | 1,978,698 |   | 1,488,971 |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Loss from operations                                          |       | (270,680                                      | )          | (252,699                                     | )          | (1,128,721 | ) | (194,785 | ) |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Other income (expense)                                        |       |                                          |       |                                         |       |   |   |   |   |
| Interest expense                                              |       | (40,531                                       | )          | (126,820                                     | )          | (183,759 | ) | (383,135 | ) |
| Rent income                                                   |       | 152,475                                       |       | 158,580                                      |       | 457,766 |   | 475,742 |   |
| Total other income                                            |       | 111,944                                       |       | 31,760                                       |       | 274,007 |   | 92,607 |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Loss before income taxes                                      |       | (158,736                                      | )          | (220,939                                     | )          | (854,714 | ) | (102,178 | ) |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Income tax benefit – deferred                            |       | 58,732                                        |       | —                                       |       | 316,244 |   | — |   |
| Income tax benefit – pro forma                           |       | —                                        |       | 82,000                                       |       | — |   | 38,000 |   |
| Total income tax benefit                                      |       | 58,732                                        |       | 82,000                                       |       | 316,244 |   | 38,000 |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Net loss                                                      |       | $                                             | (100,004   | )                                            | $          | (138,939 | ) | $ | (538,470 | ) | $ | (64,178 | ) |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Net loss before preferred stock dividends                     |       | $                                             | (100,004   | )                                            | $          | (138,939 | ) | $ | (538,470 | ) | $ | (64,178 | ) |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Preferred stock dividends - paid                              |       | —                                        |       | —                                       |       | (250,000 | ) | — |   |
| Preferred stock dividends - arrears                           |       | (250,000                                      | )          | —                                       |       | (500,000 | ) | — |   |
| Total preferred stock dividends                               |       | (250,000                                      | )          | —                                       |       | (750,000 | ) | — |   |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Net loss available to common shareholders                     |       | $                                             | (350,004   | )                                            | $          | (138,939 | ) | $ | (1,288,470 | ) | $ | (64,178 | ) |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Basic and diluted net loss per common share                   |       | $                                             | (0.07      | )                                            | $          | (0.04 | ) | $ | (0.26 | ) | $ | (0.02 | ) |
|                                                          |       |                                          |       |                                         |       |   |   |   |   |
| Basic and diluted weighted average common  shares outstanding |       | 5,050,000                                     |       | 3,500,000                                    |       | 5,050,000 |   | 3,500,000 |   |

 

See notes to consolidated financialstatements.

 

2

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**CENTENNIAL SPECIALTY FOODS CORPORATION ANDSUBSIDIARY**

 

**Consolidated Unaudited Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2004**                                     | ** ** | **2003** | ** ** |
|                                                                                         |       |                                         |       |   |   |
| Cash flows from operating activities                                                         |       |                                         |       |   |   |
| Net loss                                                                                     |       | $                                            | (538,470   | ) | $ | (102,178 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities              |       |                                         |       |   |   |
| Depreciation and amortization                                                                |       | 176,666                                      |       | 176,879 |   |
| Deferred income taxes                                                                        |       | (316,244                                     | )          | — |   |
| Changes in assets and liabilities                                                            |       |                                         |       |   |   |
| Accounts and other receivables                                                               |       | (315,153                                     | )          | 100,401 |   |
| Inventory                                                                                    |       | (1,046,879                                   | )          | 280,074 |   |
| Prepaid expenses                                                                             |       | 93,822                                       |       | (12,775 | ) |
| Other long-term assets                                                                       |       | —                                       |       | (479,602 | ) |
| Accounts payable – trade                                                                |       | (630,633                                     | )          | (47,468 | ) |
| Accrued liabilities                                                                          |       | 42,823                                       |       | (116,746 | ) |
| Related party payable                                                                        |       | (195,394                                     | )          | — |   |
|                                                                                         |       | (2,190,992                                   | )          | (99,237 | ) |
| Net cash used by operating activities                                                        |       | (2,729,462                                   | )          | (201,415 | ) |
|                                                                                         |       |                                         |       |   |   |
| Cash flows from investing activities                                                         |       |                                         |       |   |   |
| Purchase of property, plant and equipment                                                    |       | (18,220                                      | )          | (32,200 | ) |
| Net cash used in investing activities                                                        |       | (18,220                                      | )          | (32,200 | ) |
|                                                                                         |       |                                         |       |   |   |
| Cash flows from financing activities                                                         |       |                                         |       |   |   |
| Net proceeds from revolving line of credit                                                   |       | 2,396,428                                    |       | — |   |
| Payments on long-term debt                                                                   |       | (4,253,704                                   | )          | (83,894 | ) |
| Proceeds from note payable - stockholder                                                     |       | —                                       |       | 35,000 |   |
| Payments on note payable - stockholder                                                       |       | (908,900                                     | )          | — |   |
| Payment of financing costs                                                                   |       | (7,671                                       | )          | — |   |
| Proceeds from the issuance of stock                                                          |       | —                                       |       | 140 |   |
| Payment of preferred stock dividends                                                         |       | (422,603                                     | )          | — |   |
| Net cash used by financing activities                                                        |       | (3,196,450                                   | )          | (48,754 | ) |
|                                                                                         |       |                                         |       |   |   |
| Net decrease in cash                                                                         |       | (5,944,132                                   | )          | (282,369 | ) |
|                                                                                         |       |                                         |       |   |   |
| Cash and cash equivalents - beginning of  period                                             |       | 6,076,479                                    |       | 379,545 |   |
|                                                                                         |       |                                         |       |   |   |
| Cash and cash equivalents - end of period                                                    |       | $                                            | 132,347    |   | $ | 97,176 |   |
|                                                                                         |       |                                         |       |   |   |
| **Supplemental Disclosure of Cash Flow  Information:**                                       |       |                                         |       |   |   |
| ** **                                                                                   |       |                                         |       |   |   |
| Interest Paid                                                                                |       | $                                            | 323,706    |   | $ | 297,653 |   |
|                                                                                         |       |                                         |       |   |   |
| **Supplemental Disclosure of Non-Cash  Investing and Financing Activities:**                 |       |                                         |       |   |   |
| ** **                                                                                   |       |                                         |       |   |   |
| Assignment of note receivable to major  stockholder in satisfaction of related party payable |       | $                                            | 170,000    |   | $ | — |   |

 

See notes to consolidated financial statements.

 

3

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**CENTENNIAL SPECIALTY FOODS CORPORATION ANDSUBSIDIARY**

 

**Notes toUnaudited Financial Statements**

 

**Note 1 - Description of Business andSummary of Significant Accounting Policies**

 

Centennial Specialty FoodsCorporation (Centennial) is a holding company that was formed under Delawarelaw in February 2003 for the purpose of acquiring Stokes Ellis Foods, Inc. andits wholly owned subsidiary Stokes Canning Company (collectively Stokes).  Effective October 29, 2003, Centennialacquired Stokes concurrent with its initial public offering.  From inception through October 29, 2003,Centennial’s activities consisted of planning its initial public offering aswell as developing plans for operations subsequent to the public offering.  The only sources of capital for Centennialwere advances made by Stokes and proceeds from the public offering.

 

Stokes Ellis Foods, Inc. was aholding company formed under Delaware law in August 1998 for the purpose ofacquiring Stokes Canning Company.  StokesEllis Foods, Inc. was formerly known as Lewis Foods, Inc. until it changed itsname in May 2003.

 

Stokes Canning Company was formed in1974 under Colorado law.  It markets,sells and distributes branded ethnic Southwestern canned sauces and foodproducts in the Mexican food segment of the domestic food industry.  The products are sold through superstores,club stores and grocery retailers throughout Colorado, Arizona, California anda small number of major metropolitan markets in adjoining states.  Centennial’s operations are conducted fromits facilities located in Centennial, Colorado.

 

Principlesof Consolidation

 

The accompanying consolidatedfinancial statements include the accounts of Centennial Specialty FoodsCorporation, Stokes Ellis Foods, Inc. and subsidiary, Stokes Canning Company(collectively the Company).  Allintercompany accounts and transactions have been eliminated in consolidation.

 

Thepurchase of Stokes has been accounted for as a reorganization of companiesunder common control in accordance with Statement of Financial AccountingStandards (SFAS) No. 141, in a manner similar to reverse acquisitionaccounting.  After completion of thepublic offering and issuance of preferred stock, the former sole stockholder ofStokes has voting control of approximately 58.2% of the outstanding capitalstock of Centennial.  For this reason,Stokes Ellis Foods and Centennial are treated as being under common control forfinancial statement reporting purposes. Accordingly, no goodwill has been recorded as a result of this businesscombination.  In addition, theConsolidated Statements of Operations and Consolidated Statements of Cash Flowshave been consolidated for the three and nine months ended September 30, 2003under the provisions of FASB Interpretation No. 46.

 

Reclassifications

 

Certainprior period amounts have been reclassified to conform to current yearpresentation.

 

Interim Financial Information

 

The interim consolidatedfinancial statements are unaudited and reflect all adjustments (consisting onlyof normal recurring adjustments), which are, in the opinion of management,necessary for a fair presentation of the financial position and operatingresults for the interim periods.  Theconsolidated results of operations for the three and nine months endedSeptember 30, 2004 and 2003 are not necessarily indicative of the results ofthe entire year.  The consolidatedfinancial statements included herein are presented in accordance with therequirements of Form 10-QSB and consequently do not include all of thedisclosures normally made in the Company’s annual Form 10-KSB filing.  These consolidated financial statementsshould be read in conjunction with the financial statements and notes theretocontained in the Company’s Form 10-KSB for the year ended December 31, 2003.

 

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect amounts reported

 

4

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in the consolidatedfinancial statements and the accompanying notes and the reported amounts of netsales and expenses.  Actual results coulddiffer from those estimates.

 

Concentrations of Credit Risk

 

The Company grants credit in thenormal course of business to customers in the United States. The Companyperiodically performs credit analysis and monitors the financial condition ofits customers to reduce credit risk.

 

The Company had five customers thataccounted for 25%, 17%, 13%, 13% and 12% of total sales for the three monthsended September 30, 2004 and three customers that accounted for 32%, 18% and11% of total sales for the three months ended September 30, 2003.  These five customers accounted for 36%, 12%,5%, 12% and 9% of total accounts receivable at September 30, 2004.

 

The Company had four customers thataccounted for 27%, 16%, 13% and 13% of total sales for the nine months endedSeptember 30, 2004 and three customers that accounted for 27%, 16% and 12% oftotal sales for the nine months ended September 30, 2003.  These four customers accounted for 50%, 11%,0.1% and 8% of total accounts receivable at December 31, 2003.

 

Income Taxes

 

The Company provides for income taxesutilizing the liability method.  Underthe liability method, current income tax expense or benefit represents incometaxes expected to be payable or refundable for the current period.  Deferred income taxes are recognized for thetax consequences in future years as a result of differences between the tax andfinancial reporting bases of assets and liabilities and for the expected futuretax benefit to be derived from tax credit and loss carry-forwards.  Valuation allowances are established whennecessary to reduce deferred tax assets to the amounts management believes aremore likely than not to be realized in future tax returns.  Tax rate changes are reflected in the periodsuch changes are enacted.

 

Prior to the effective date of itsinitial public offering, the Company elected to be treated as a subchapter Scorporation for income tax purposes. Accordingly, taxable income and losses of the Company prior to thepublic offering is reported on the income tax returns of the Company’sstockholders.  Included in theconsolidated statements of operations until the public offering in 2003, arepro forma income tax adjustments computed using the statutory rates in effect,which represent the federal and state tax provisions that would have beenrequired had the Company been taxed as a C-corporation for the entire year.  The Company’s effective statutory rate basedon pre-tax income on a pro forma basis would have been 37% for the three andnine months ended September 30, 2003.

 

Advertising Costs

 

The Company expenses advertisingcosts as incurred.  Advertising expensefor the three months ended September 30, 2004 and 2003 were $115,428 and$27,027, respectively, and for the nine months ended September 30, 2004 and2003 were $290,816 and $71,493, respectively.

 

Billbackdiscounts, Promotional allowances, Cash discounts and Slotting fees

 

The Company offers various discountsand promotional allowances to customers. These amounts are recorded as a decrease to sales in the periodincurred.  The Company offered performancebased billback discounts during the three and nine months ended September 30,2004 in which retailers are given discounts once products are sold throughstore registers.  In addition, theCompany pays slotting fees to customers to obtain shelf space in retail locations.  These one-time fees are non-refundable andare netted against sales in the period incurred.

 

5

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Discounts, promotional allowances andslotting fees are summarized below for the three and nine months endedSeptember 30, 2004 and 2003.

 
| ** **                       | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|----------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                       | ** ** | **2004**                                      | ** ** | **2003**                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                             |       |                                          |       |                                         |       |   |   |   |   |
| Billback discounts               |       | $                                             | 173,720    |                                         | $          | 24,280 |   | $ | 261,212 |   | $ | 59,126 |   |
| Promotional allowances           |       | 154,158                                       |       | 183,883                                      |       | 378,197 |   | 532,254 |   |
| Cash discounts                   |       | 24,243                                        |       | 22,366                                       |       | 65,929 |   | 63,455 |   |
| Total discounts and Allowances   |       | 352,121                                       |       | 230,529                                      |       | 705,338 |   | 654,835 |   |
| Slotting Fees                    |       | 22,710                                        |       | 13,472                                       |       | 480,997 |   | 18,817 |   |
| Total adjustments to gross sales |       | $                                             | 374,831    |                                         | $          | 244,001 |   | $ | 1,186,335 |   | $ | 673,652 |   |

 

**Note 2 - Long-Term Debt**

 

In March2004, the Company obtained a $5,000,000 senior revolving line of credit.  The revolving line of credit matures December31, 2006 and accrues interest at the bank’s base rate plus 1.5%, or 6.5% atSeptember 30, 2004.  The borrowing baseis limited to the sum of 70% of the appraised value of the production plant,75% of eligible accounts receivable and 50% of finished goods inventory.  Based upon these allowable percentages, theCompany had $2,603,572 in funds available under the revolving line of credit atSeptember 30, 2004.  The facility callsfor an unused revolver commitment fee of 0.5% per annum which is paid quarterlyin an amount equal to the average daily unused portion of the revolving creditfacility times 0.5% per annum.  Thefacility is secured by a first mortgage on the production building.  The facility is also secured by substantiallyall assets of the Company, including accounts receivable and inventory, and anassignment of the co-packing agreement with its supplier.  The facility is also subject to certainrestrictive covenants.

 

In March2004, the Company used proceeds from this revolver to retire the notes payableto individuals and note payable to stockholder discussed in Note 3.  In addition, the Company retired the existingfirst mortgage note payable to a bank using initial public offering proceeds.

 

Long-termdebt consists of the following at:

 
| ** **                                                            | ** ** | **September 30, 2004** | ** ** | **December 31, 2003** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| Revolving line of credit payable to bank.                             |       | $                      | 2,396,428  |                  | $          | — |   |
| Mortgage payable to a bank.  Paid in full during 2004.           |       | —                 |       | 3,503,454             |       |
| Notes payable to two individuals.  Paid in full during 2004.     |       | —                 |       | 335,250               |       |
| Notes payable to various individuals.  Paid in full during 2004. |       | —                 |       | 415,000               |       |
|                                                                  |       | 2,396,428              |       | 4,253,704             |       |
| Less current portion                                                  |       | —                 |       | (750,250              | )          |
|                                                                  |       | $                      | 2,396,428  |                  | $          | 3,503,454 |   |

 

At September 30, 2004, theCompany had consolidated net worth of $6,976,112 which was below its bank’srequired covenant level at the end of each quarter of $7,000,000.  The Company’s bank waived this requirementfor the quarter ended September 30, 2004.

 

**Note 3 - Note Payable - Stockholder**

 

TheCompany had previously entered into a note with the majority stockholder of theCompany with interest at 12% per annum. The note matured February 2004. The balance at December 31, 2003 was $908,900.  There was $106,260 of accrued interestoutstanding on this note as of December 31, 2003.  In March 2004, the Company repaid

 

6

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thestockholder all outstanding principal of $908,900 and accrued interest of$129,866 through proceeds from a new senior revolving line of credit describedin Note 2.

 

**Note 4 - Commitments andContingencies**

 

Plant and Equipment Lease

 

In January 2001, the Company enteredinto a lease agreement with a lessee, the Company’s sole supplier and unrelatedparty, to lease the Company’s production plant and equipment.  The lessee is using the production plant andequipment to perform co-packing and warehousing operations for both the Companyand other non-related entities.  Underthe terms of the lease, the Company is to receive monthly payments ofapproximately $53,000, which includes property taxes and insurance.  The lease expires the later of January 26,2006 or expiration or termination of the Co-Pack and Warehousing Agreementwhich has a current expiration of January 26, 2010.

 

The Company and the lessee are alsoparties to a Lease Override Agreement which requires additional payments basedon profitability, as defined in the agreement, of the lessee’s co-packing andwarehousing operations.  As of December31, 2003, the Company had recorded a note receivable of $170,000 for suchadditional payments to be received from the lessee related to the lessee’sfiscal year ended June 30, 2003.  Thisadditional payment was due to the Company’s majority stockholder as such incomewas earned by Stokes prior to its acquisition by the Company.  Accordingly, a payable to the Company’smajority stockholder of $170,000 was also recorded at December 31, 2003.  During June 2004, the Company recordedapproximately $57,000 of additional rent income related to its share of thelessee’s estimated operating profits from its co-packing and warehousingoperations for the fiscal year ended June 30, 2004.  The final amount due the Company is basedupon the lessee’s audited financials which were not finalized at September 30,2004.  For the period July 1, 2004through September 30, 2004, it is estimated that the additional rent incomebased on profitability due the Company was not significant and, therefore, noamount was accrued as of September 30, 2004.

 

Contract Amendments

 

TheCompany and its lessee amended certain terms of the existing Lease and LeaseOverride Agreements in March 2004.  Aspart of these amendments, the Company agreed to receive payment due from itslessee for additional rent owed under the Lease Override Agreement for thetwelve months ended June 30, 2003 in the form of a $170,000 notereceivable.  The note receivable maturesNovember 1, 2004, but may be extended to April 30, 2006.  Interest does not begin accruing untilcertain events occur, after which point the note will accrue interest at 7% perannum payable quarterly.  In March 2004,this note was assigned to the Company’s majority stockholder in fullsatisfaction of the related $170,000 liability to the stockholder.

 

Co-Pack and Warehousing Agreement

 

Inconjunction with the plant and equipment lease, the Company entered into aCo-Pack and Warehousing Agreement with the same lessee.  Under the terms of the agreement, the lesseewill produce, package, and warehouse the products the Company sells anddistributes.  As part of the agreement,the Company must purchase 585,053 12-pack (15 oz.) equivalent cases of productduring each contract year or pay a shortage fee of $0.80 for every 12-pack (15oz.) equivalent case short.  The Companyrecorded shortage fees of $81,874 and $16,841 for the contract years ended June30, 2004 and 2003, respectively.  TheCompany recorded an estimated $6,400 in shortage fees for the three monthsended September 30, 2004.  The Companymust also pay a $0.033 per case fee per month if storage of product based uponthe pack plan exceeds 30 days due to the Company’s shipping schedule.  The agreement has a current expiration dateof January 26, 2010, but is automatically renewed for one additional year atJune 30 of each year unless either party elects to terminate the renewalfeature.

 

Dependency on Supplier

 

Asdiscussed above, one supplier manufactures all of the Company’s products.  If there were to be an interruption in thedelivery of products from the supplier, the Company could suffer a significantdisruption to its operations that

 

7

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mayhave a material effect on its financial condition and results ofoperations.  In the event of aninterruption in the delivery of products from the supplier, the Companybelieves it can have its products produced elsewhere.

 

Purchase Commitments

 

TheCompany had outstanding purchase commitments for finished inventory as ofSeptember 30, 2004 and December 31, 2003 of $450,483 and $926,849,respectively.  The Company also had anoutstanding purchase commitment as of September 30, 2004 of $248,000 for dicedgreen chile, the primary ingredient in its green chile sauces.

 

Other Matters

 

InJune 2004, the lessee asserted an unquantified claim of misrepresentation bythe Company’s outside legal counsel related to the Contract Amendment describedabove.  The lessee also asserted a demandclaim in June 2004 for approximately $400,000 against the Company related topayment of costs associated with a wastewater treatment project at the Denverproduction plant.  The Company believessuch project costs are the responsibility of the lessee, as the wastewatertreatment is an operating permit issue which is the responsibility of thelessee under the terms of the lease.

 

InJuly 2004, the Company entered into a Memorandum of Understanding (“MOU”) withthe lessee which included the possible sale of the Company’s production plantand equipment to the lessee.  Under theterms of the MOU, all prior claims between the Company and the lessee would bereleased.  The Company and the lessee havenot reached definitive agreements under the terms of the MOU; however, bothparties are continuing negotiations towards reaching a written agreement, whichmay or may not include the sale of the plant and equipment, and settlement ofoutstanding issues and claims.  TheCompany’s management and its outside legal counsel dispute the lessee’s claimsand believe they are without merit.

 

Operating Lease

 

InMay 2004, the Company entered into a lease agreement with an unaffiliated partyfor office space for its headquarters in Centennial, Colorado.  Under the terms of the lease, the Companymust make monthly lease payments which range from $3,319 to $3,793 per monthfor a term of three years.

 

**Note 5 - Related Party Transactions**

 

Asof December 31, 2003, the Company recorded a related party payable totaling$365,394.  This payable representssubchapter S corporation earnings prior to October 29, 2003, which are owed tothe majority stockholder.  Such earningsinclude additional rent totaling $170,000 due under the production facilitylease and Stokes operating income totaling $195,394.  The Company made a partial payment of$175,000 to the majority stockholder associated with this related party payablein January 2004.  In addition, theCompany assigned the note receivable of $170,000 due from its supplier to themajority stockholder in March 2004 and paid the remaining $20,394 in June 2004.

 

**Note 6 – Preferred Stock Dividends**

 

TheCompany’s board of directors did not declare preferred stock dividends for thethree months ended June 30, 2004 or the three months ended September 30, 2004 inorder to preserve the Company’s consolidated net worth.  As the preferred stock dividends arecumulative dividends, $500,000 of dividends will be placed in arrearageincreasing the original $10,000,000 liquidation preference on the preferredstock to $10,500,000.

 

8

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**Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS ORPLAN OF OPERATION**

 

*The following discussion and analysis should be readin conjunction with the consolidated financial statements of Centennial and thenotes thereto included elsewhere in this report on Form 10-QSB. Some ofthe information contained in this discussion and analysis or set forthelsewhere in this Form 10-QSB, including information with respect to our plansand strategies for our business, includes forward-looking statements thatinvolve risk and uncertainties.**  (See the section titled “Forward-LookingStatements” for a more complete discussion).*

 

**OVERVIEW**

 

We area specialty branded food company that is implementing its strategy to expandits distribution and sales of ethnic Southwestern sauces and food products inthe growing Mexican food segment of the domestic food industry. Our Stokes andEllis labels, two Southwestern brands, are each now nearly 100 years oldand are well-recognized in our primary market of Colorado. Our best-sellingproducts are our Stokes green chile sauces, offered in five varieties, four ofwhich maintain the top four retail sales rankings in the Mexican sauce categoryin Colorado and all which are ranked among the 25 best selling Mexican foodproducts retailed in Colorado, according to IRI, an independent market researchfirm. Our products are currently sold in leading grocery retailers, superstoresand club stores such as Kroger, Safeway, Wal-Mart, Sam’s Club, Albertson’s andCostco, through locations in Colorado, Arizona, California and a small numberof major metropolitan markets in adjoining states.

 

**CONSOLIDATEDRESULTS OF OPERATIONS**

 

Thefollowing table sets forth, for the three and nine months ended September 30,2004 and 2003, the percentage of net sales represented by the specified itemsincluded in our unaudited consolidated statements of operations.  We have included this comparison because webelieve it provides a more meaningful basis for period-to-period comparisons.This financial data should not be viewed as a substitute for our historicalconsolidated results of operations determined in accordance with generallyaccepted accounting principles and does not purport to be indicative of futureresults of operations. 

 
| ** **                                    | ** ** | **Consolidated**       | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                    | ** ** | **September 30,**      | ** ** | **September 30,** | ** ** |
| ** **                                    | ** ** | **2004**               | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                          |       |                   |       |   |   |   |   |   |   |
| Net sales                                     |       | 100.0                  | %          | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods sold                            |       | 66.8                   |       | 66.4 |   | 74.0 |   | 64.8 |   |
| Gross profit                                  |       | 33.2                   |       | 33.6 |   | 26.0 |   | 35.2 |   |
| Selling, general and administrative  expenses |       | 55.9                   |       | 53.7 |   | 60.6 |   | 40.5 |   |
| Income (loss) from operations                 |       | (22.7                  | )          | (20.1 | ) | (34.6 | ) | (5.3 | ) |
| Total other income                            |       | 9.4                    |       | 2.5 |   | 8.4 |   | 2.5 |   |
| Income tax benefit (expense)                  |       | 4.9                    |       | 6.5 |   | 9.7 |   | 1.0 |   |
| Net income (loss)                             |       | (8.4                   | )%         | (11.0 | )% | (16.5 | )% | (1.8 | )% |

 

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*Net Sales*

 

Ournet sales are comprised of gross sales reduced by promotional allowances,billback discounts, cash discounts and slotting fees.  The following table sets forth thesecomponents to provide a more thorough understanding of net sales.

 
| ** **                                                                 | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                 | ** ** | **2004**                                      | ** ** | **2003**                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                       |       |                                          |       |                                         |       |   |   |   |   |
| Sales – Stokes                                                        |       | $                                             | 1,158,703  |                                         | $          | 944,285 |   | $ | 3,288,020 |   | $ | 2,614,650 |   |
| Sales – Ellis                                                         |       | 408,297                                       |       | 557,753                                      |       | 1,165,031 |   | 1,686,822 |   |
| Sales – Green’s Farm (1)                                         |       | —                                        |       | —                                       |       | — |   | 44,433 |   |
| Gross sales                                                                |       | 1,567,000                                     |       | 1,502,038                                    |       | 4,453,051 |   | 4,345,905 |   |
| Less:  Promotional allowances,  billback discounts and cash discounts |       | 352,121                                       |       | 230,529                                      |       | 705,338 |   | 654,835 |   |
| Net sales before slotting fees                                             |       | 1,214,879                                     |       | 1,271,509                                    |       | 3,747,713 |   | 3,691,070 |   |
| Less:   Slotting fees                                                 |       | 22,710                                        |       | 13,472                                       |       | 480,997 |   | 18,817 |   |
|                                                                       |       |                                          |       |                                         |       |   |   |   |   |
| Net sales                                                                  |       | $                                             | 1,192,169  |                                         | $          | 1,258,037 |   | $ | 3,266,716 |   | $ | 3,672,253 |   |

 

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(1)  Discontinued product line in 2003.

 

•                  **Sales - Stokes** – Sales of our Stokes green chile saucesincreased $0.2 million or 22.7% for the three months ended September 30, 2004over the same period in 2003. This increase was a result of our expansionefforts and reflects the addition of a new customer in California and limitedreorders received from customers in California and Arizona.  Our expansion efforts have been slowed due toa number of residual factors associated with the four and one-half monthSouthern California grocery workers strike which was not resolved until firstquarter 2004.  For example, retailershave been slow to achieve full shelf distribution of our products at theirstores and some retailers who received our products during the second quarterof 2004 did not have their shelves fully stocked until September 2004.  Accordingly, sales of our products in theCalifornia market were adversely impacted for the three months ended September30, 2004.

 

During the three months ended September 30, 2004, weconducted a number of “in-store” demonstrations, distributed coupons and placednewspaper advertisements throughout new markets.  We received favorable responses fromconsumers who tasted our products, received redemption on coupons distributedand increased consumer sales volume through advertisements placed withretailers.  Beginning in October 2004, weare launching our “consumer trial program” whereby we will give Californiaretailers additional promotional allowances and discounts on our products inorder to obtain favorable shelf prices to attract consumer trial of ourproducts.  We believe this consumer trialprogram will provide a number of benefits. First, we believe it will provide for a better utilization of resourcescompared to traditional marketing efforts, as we expect to have broader productexposure to more consumers with retailer advertisements and promotionsassociated with this campaign.  Secondly,it will offer us a “mass sampling” campaign whereby consumers will be able topurchase our products at an attractive introductory price.  We are hopeful that this consumer trialprogram will expand consumer trial and ultimate repurchase since it is ourbelief that once a consumer tries our premium Stokes green chile sauces theywill continue to buy our product. Finally, we have recently completed all work on our label redesign andhave produced inventory using the new label. As part of this campaign, we are introducing the new label into theCalifornia market.  We expect thisconsumer trial program will run for approximately three months at each of ourretailers’ stores

 

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in California. Since some programs do not begin until November 2004, the consumer trialprogram may run until February 2005 in some locations.  As a result of implementing this consumertrial program, we believe sales of our premium Stokes green chile sauces shouldincrease over the next 3 to 6 months.

 

Sales of our Stokes green chile sauces increased $0.7million or 25.8% for the nine months ended September 30, 2004 over the sameperiod in 2003. This increase reflects our expansion efforts into Californiaand Arizona.  As of September 30, 2004,we have sold our green chile sauces to Kroger, Safeway and Albertsonsaffiliates in Arizona, Southern California and Northern California as well as anumber of independent grocers and distributors representing an increase of over1,700 stores compared to the same period in 2003.  We are now seeing full distribution of ourproducts to these retailers and believe sales of Stokes products shouldincrease over the next 3 to 6 months as a result of this full distribution aswell as implementation of our consumer trial program.

 

•                  **Sales – Ellis** – Sales of our Ellis branded productscontinued to decrease as a result of our efforts to reduce sales of low-marginproducts.  Cost increases from oursupplier as well as strong price competition in the commodity productscategory, in which many Ellis products are classified, have resulted in some ofthe Ellis products no longer generating positive sales margins within certainmarkets and customers.  We made aconcerted effort to eliminate sales of such products within those markets andcustomers, which has resulted in decreased sales of Ellis Products.  Sales of our Ellis products decreased $0.1million or 26.8% for the three months ended September 30, 2004 compared to thesame period in 2003.

 

Sales of our Ellisbranded products decreased $0.5 million or 30.9% for the nine months endedSeptember 30, 2004 compared to the same period in 2003. We anticipate sales ofour Ellis products will continue to decrease somewhat throughout 2004 ascompared to 2003 as we continue to focus on our core, higher-marginproducts.  We expect to continue offeringthe Ellis line of products to markets and customers that achieve positive salesmargins.  We also expect to pursue newsales opportunities of Ellis branded products that can be achieved on apositive-margin basis.

 

•                  **Promotional allowances,billback discounts and cash discounts** – Promotional allowances and discounts increased $0.1million or 52.7% for the three months ended September 30, 2004 compared to thesame period in 2003.

 

Promotional allowances and discounts increased $0.05million, or 7.7%, for the nine months ended September 30, 2004 compared to thesame period in 2003.

 

These increases were primarily attributable to anincrease in our billback discount reserve on sales made prior to September 30,2004 whereby we offered additional billback allowances to retailers on productpreviously sold to them and in their inventory. This increase in the billback discount reserve was required as a resultof the consumer trial program we are launching in California beginning inOctober 2004 which requires us to provide the retailers increased promotionalbillback discounts in order to obtain the desired shelf price.  We expect promotional allowances and billbackdiscounts will increase during the remainder of 2004 to the extent we aresuccessful in implementing our consumer trial program throughout California.

 

•                  **Net sales before slottingfees** – Netsales before slotting fees decreased $.06 million for the three months endedSeptember 30, 2004 compared to the same period in 2003.  This decrease was primarily a result ofreduced sales of the Ellis line of products as well as the increase to thebillback discount reserve required as a result of the consumer trial program weare implementing in California beginning in October 2004.  We sold 77,986 cases of product in the threemonths ended September 30, 2004 compared to 82,423 cases in the same period in2003.  This decrease in cases sold reflectsour focus on the core Stokes green chile sauces while reducing low margin salesof the Ellis branded products. Average net sales price before slotting fees forthe three months ended September 30, 2004 increased approximately$0.09 per case over the same period in 2003.

 

Net sales before slotting fees increased $0.06 millionfor the nine months ended September 30, 2004 compared to the same period in2003.  This increase was attributable toour expansion efforts in Arizona

 

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and California, but the increase was negatively impactedby reduced sales of the Ellis line of products as well as the increase to thebillback discount reserve required as a result of the consumer trial program weare implementing in California beginning in October 2004.  We sold 227,040 cases of product in the ninemonths ended September 30, 2004 compared to 246,243 cases in the same period in2003.  This decrease in cases soldreflected our focus on the premium Stokes green chile sauces while reducingsales of low margin Ellis branded products. Average net sales price before slotting fees for the nine months endedSeptember 30, 2004 increased approximately $1.50 per case over the sameperiod in 2003.  This was furtherindicative of our sales focus on higher margin products, specifically, thepremium Stokes green chile sauces.  Weexpect net sales before slotting fees to increase throughout the remainder offiscal 2004 as we implement our consumer trial program in the Californiamarket; however, this increase will be negatively impacted by the increasedpromotional allowances and billback discounts we offer retailers through thisprogram.

 

•                  **Slotting fees** – Slotting fees increased slightly forthe three months ended September 30, 2004 compared to the same period in 2003as we were able to slot our products into an additional retailer in theCalifornia market.

 

Slotting fees increased significantly during the ninemonths ended September 30, 2004 primarily as a result of our expansion into theCalifornia market. We paid slotting fees totaling $0.5 million to obtainshelf space in retail grocery stores in new markets compared to a nominalamount in the same period in 2003.  Wedid not actively pursue slotting new items in 2003 prior to our public offeringdue to our focus on developing consumer and brand programs.  We are now spending a portion of the proceedsfrom our initial public offering toward payment of slotting fees to obtainshelf space in grocery stores. We anticipate we will continue to pay slottingfees over the next 18 to 24 months as we continue executing our expansionstrategy.

 

•                  **Net sales**- Net sales for the three months endedSeptember 30, 2004 decreased $0.07 million compared to the same period in2003.  This decrease was primarilyattributable to the increase in the billback discount reserve required for theconsumer trial program slated to begin in October 2004 throughout theCalifornia market.

 

Net sales for the nine months ended September 30, 2004decreased $0.4 million compared to the same period in 2003.  This decrease was primarily a result of $0.5million in slotting fees paid in 2004 to obtain shelf space in retail grocerystores in expansion markets.  We expectnet sales will increase during the remainder of 2004 as we implement ourconsumer trial program in the California market; however, any increase will benegatively impacted by the increased promotional allowances and billbackdiscounts we offer retailers through this program.

 

*Gross profit*

 

Grossprofit decreased $0.03 million, or 6.5% for the three months ended September30, 2004 compared to the same period in 2003. In addition, gross profit as a percentage of net sales decreased 0.4% to33.2% for the three months ended September 30, 2004 compared to the same periodin 2003.  This decrease in gross profitand gross profit as a percentage of sales was primarily attributable to theincrease in the billback discount reserve required as a result of our consumertrial program we are launching in California beginning in October 2004.

 

Grossprofit decreased $0.4 million, or 34.3% for the nine months ended September 30,2004 and decreased 9.2% to 26.0% as a percentage of net sales compared to thesame period in 2003.  These decreaseswere primarily attributable to $0.5 million in slotting fees paid and theincrease to the billback discount reserve. The consumer trial program we are launching in October 2004 will have anegative impact on our gross profit as a percentage of net sales during theremainder of 2004 due to the increased promotional allowances and billbackdiscounts we will offer retailers through this program.  However, it is our longer term goal toincrease sales and gross profit significantly as a result of this program.

 

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*Cost of goods sold*

 

Costof goods sold decreased $0.04 million for the three months ended September 30,2004 compared to the same period in 2003 even though gross sales increasedduring the period. As a percentage of net sales, our cost of goods soldincreased slightly to 66.8% in the three months ended September 30, 2004 from66.4% in the same period in 2003.  Thisincrease was primarily attributable to an increase in the billback discountreserve during the three months ended September 30, 2004 which was partiallyoffset by an emphasis on higher profit, key products being sold, which directlyreduces cost of goods sold as a percentage of net sales.

 

Costof goods sold increased $0.04 million for the nine months ended September30, 2004 compared to the same period in 2003. As a percentage of net salesbefore slotting fees, cost of goods sold were 64.5% for the nine months endedSeptember 30, 2004 compared to 64.3% for the same period in 2003.  As a percentage of net sales, our cost ofgoods sold increased to 74.0% for the nine months ended September 30, 2004 from64.8% in the same period in 2003.  Thisincrease was primarily attributable to $0.5 million of slotting fees paid andthe increase to the billback discount reserve during the nine months endedSeptember 30, 2004 which were both recorded as a reduction of sales.  This increase was partially offset by anemphasis on higher profit, key products being sold, which directly reduces costof goods sold as a percentage of net sales. We expect that our cost of goods sold will increase on an absolute basisin future periods as we increase sales through our planned expansion.

 

*Selling, general and administrative expenses*

 

Selling,general and administrative expenses decreased slightly for the three monthsended September 30, 2004 compared in the same period in 2003. This decrease wasprimarily comprised of a decrease in consulting fees which was offset by anincrease in costs associated with being a public company, which includedirectors and officers insurance, shareholder relations and accounting andlegal fees.  Legal fees also increaseddue to a proposed transaction with our tenant and sole supplier.

 

Selling,general and administrative expenses increased $0.5 million, or 32.9%, to$2.0 million for the nine months ended September 30, 2004 from$1.5 million in the same period in 2003. This increase was attributable toincreased selling and marketing spending of $0.3 million in the nine monthsended September 30, 2004 associated with our expansion into new markets.  Further, directors and officers insurance,shareholder relations and accounting and legal fees increased $0.4 as a resultof additional costs associated with being a public company.  These increases were offset by a decrease of$0.2 million in consulting fees.  Weexpect selling, general and administrative expenses to remain flat during theremainder of 2004 as compared to the quarter ended September 30, 2004.

 

Recentlyenacted and proposed changes in the laws and regulations affecting publiccompanies, including the provisions of the Sarbanes-Oxley Act of 2002 and rulesproposed by the SEC, could result in increased administrative costs to us as werespond to their requirements. The new rules could make it more difficult forus to obtain certain types of insurance, including director and officerliability insurance, and we may be forced to accept reduced policy limits andcoverage or incur substantially higher costs to obtain coverage we consider tobe adequate. The impact of these events could also make it more difficult forus to attract and retain qualified persons to serve on our board of directors,our board committees, or as executive officers. We cannot predict or estimatethe amount of the additional costs we may incur or the timing of such costs.

 

*Income (loss) from operations*

 

Lossfrom operations remained relatively flat for the three months ended September30, 2004 compare to the same period in 2003.

 

Lossfrom operations increased $0.9 million to $1.1 million for the nine monthsended September 30, 2004 compared to the same period in 2003. This increase wasprimarily attributable to slotting fees of $0.5 million and an increase inselling, general and administrative expenses of $0.5 million.

 

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*Other income and (expenses)*

 

Otherincome consisted of rental income, supplier EBITDA sharing income andproduction shortfall fees, all of which are related to the Building andEquipment Lease and Co-Pack and Warehousing Agreements with Hoopeston FoodsDenver Corporation (Hoopeston).  Otherincome remained constant at $0.15 million for the three months ended September30, 2004 and 2003 and primarily represents rental income.

 

Otherincome remained constant at $0.5 million for the nine months ended September30, 2004 and 2003.  In June 2004, werecorded additional rent income of approximately $57,000 which represented ourestimated share of Hoopeston’s EBITDA for their fiscal year ended September 30,2004.  In addition, during June 2004, werecorded production shortfall fees of approximately $82,000 related to Hoopeston’sfiscal year ended September 30, 2004.

 

Otherexpenses were comprised entirely of interest expense and decreased $0.1 millionfor the three months ended September 30, 2004 compared to the same period in2003.  Other expenses decreased $0.2million for the nine months ended September 30, 2004 compared to the sameperiod in 2003.  These decreases were adirect result of retiring the mortgage on our production plant using initialpublic offering proceeds and repaying loans from our majority stockholder andother individual lenders using lower interest rate funds from our revolvingline of credit we obtained in March 2004.

 

*Net loss before income taxes*

 

Netloss before income taxes decreased $0.06 million to a $0.16 million lossbefore income taxes for the three months ended September 30, 2004. Thisdecrease was primarily attributable to reduced interest expense of $0.1million.

 

Netloss before income taxes increased $0.8 million for the nine months endedSeptember 30, 2004 compared to the same period in 2003. This increase wasprimarily attributable to $0.5 million in slotting fees paid to secure shelfspace in expansion markets and increased selling, general and administrativeexpenses of $0.5 million.  These increaseswere offset by a decrease in interest expense of $0.2 million.

 

*Income tax expense*

 

Wehave included pro forma income tax adjustments computed using the statutoryrates in effect for the three and nine months ended September 30, 2003 whichrepresent the federal and state tax provisions that would have been requiredhad the Company been taxed as a C-corporation during that period.  The increase in income tax benefit of $0.3million for the nine months ended September 30, 2004 was directly attributableto lower income before taxes.

 

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**LIQUIDITYAND CAPITAL RESOURCES**

 

**CashRequirements**

 

Thefollowing data summarizes our contractual obligations and commitments as ofSeptember 30, 2004: 

 
| ** **                         | ** ** | **Payments due by periods** | ** ** |
|------------------------------------|------------|-----------------------------|------------|
| ** **                         | ** ** | ** **                  | ** ** | **Within** | ** ** | **Years** | ** ** | **Years** | ** ** | **After** | ** ** |
| ** **                         | ** ** | **Total**                   | ** ** | **1 Year** | ** ** | **2 and 3** | ** ** | **4 and 5** | ** ** | **5 Years** | ** ** |
| ** **                         | ** ** | **(In thousands)**          | ** ** |
| Contractual obligations:           |       |                        |       |   |   |   |   |   |   |   |   |
| Long-term debt                     |       | $                           | 2,441      |   | $ | — |   | $ | 2,441 |   | $ | — |   | $ | — |   |
| Operating leases                   |       | 111                         |       | 41 |   | 70 |   | — |   | — |   |
| Purchase obligations               |       | 698                         |       | 698 |   | — |   | — |   | — |   |
| Production obligations             |       | 2,459                       |       | 431 |   | 936 |   | 936 |   | 156 |   |
| Total contractual cash obligations |       | $                           | 5,709      |   | $ | 1,170 |   | $ | 3,447 |   | $ | 936 |   | $ | 156 |   |

 

*Long-termdebt: *Long-term debt at September 30, 2004 consisted of $2.4million in advances under our $5.0 million senior revolving line of creditobtained in March 2004 which matures December 31, 2006. We intend to use thisline of credit to fund our working capital requirements.  As of September 30, 2004, we have $2.6million available under this line of credit to fund further market expansionand operations.

 

*Operatingleases: *Operating leases at September 30, 2004 consisted of anoffice space lease for our headquarters in Centennial, Colorado.

 

*Purchaseobligations: *Purchase obligations above include $0.45million of costs of inventory items we have requested and authorized Hoopestonto produce for us as of September 30, 2004 which have not been billed to us byHoopeston.  The product has not beenbilled to us because Hoopeston has either not yet produced the inventory or, ifproduct has been produced, it has not been released from its 10 day productionhold.  Purchase obligations also includean outstanding purchase commitment with an unaffiliated party as of September30, 2004 of $0.25 million for diced green chile, the primary ingredient in ourgreen chile sauces.

 

*Productionobligations: *Production obligations represent minimumproduction requirements under our co-pack contract with Hoopeston.  We are required to purchase a minimum of585,053 cases from Hoopeston in any contract year.  If we fall below the 585,053 case minimum,then we are required to pay a penalty of $0.80 for each case by which we fallshort of the 585,053 case minimum.  As wehave production completed by Hoopeston, this shortfall production obligation isreduced.  We paid Hoopeston $81,871 and$16,841 in shortfall penalties for the contract years ended June 30, 2004 and2003, respectively.

 

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*Capitalexpenditures: *We do not currently anticipate anysignificant capital expenditure requirements during the next twelve months.

 

**Sourcesand Uses of Cash**

 

Ourprincipal sources of liquidity as of September 30, 2004 consisted of $0.1million in cash and cash equivalents and $2.6 million available under oursenior revolving line of credit.  Wegenerate cash through product sales and lease of our plant and equipment.  We require capital to finance inventory andaccounts receivable, pay slotting fees to grocery chain retailers, payoperating costs, pay interest on our existing debt obligations and paydividends on our preferred stock.  Webelieve we have sufficient cash and liquidity available to meet our operatingand expansion needs for at least the next twelve months.

 

*Operating: *Net cash used by operating activities was$2.8 million for the nine months ended September 30, 2004, consistingprimarily of $0.9 million loss before taxes generated from payment of slottingfees of $0.5 and payment of public company costs of $0.5, financing of accountsreceivable, build-up of inventory for our expansion into new markets, build-upof inventory in order to mitigate the risk of an interruption in supply due touncertainties with our sole supplier, payment of aged accounts payable toHoopeston in order to avoid finance charges, payment of accrued interest onshareholder and other individual lenders notes and payment of related partypayable outstanding at December 31, 2003.

 

*Financing: *Net cash used by financing activities was $3.2 millionfor the nine months ended September 30, 2004 and was comprised of payoff of alloutstanding long-term debt using proceeds from the initial public offering andrevolving line of credit, as well as payment of preferred stock dividends forthe fourth quarter of 2003 and first quarter of 2004.

 

Weentered into a senior credit agreement with Heartland Bank in March 2004 forborrowings up to an aggregate amount of $5.0 million.  Under the senior credit agreement, the lenderhas advanced us $2.4 million through a senior secured revolving creditfacility, which was used to retire promissory notes payable to variousindividuals, including our majority stockholder. At the same time we obtainedthe senior revolving line of credit, we also retired the existing firstmortgage on our production facility, then totaling $3.5 million, using proceedsof our initial public offering. The senior secured revolving credit facilitymatures on December 31, 2006.

 

Borrowingsunder this facility bear interest, payable monthly, at the bank’s base rateplus 1.5%; however, the rate will never be lower than 5.5% per annum.  At September 30, 2004, the interest rate was6.5% per annum.  Under the terms of therevolver, we can borrow up to the sum of 70% of the appraised value of theproduction facility owned by us, 75% of eligible accounts receivable and 50% offinished goods inventory.  The facilityalso calls for an unused revolver commitment fee of 0.5% per annum which ispaid quarterly in an amount equal to the average daily unused portion of therevolving credit facility times 0.5% per annum.

 

We mayprepay borrowings under the senior credit agreement in whole or in part, inminimum amounts and subject to other conditions set forth in the amended andrestated senior credit agreement. We are required to make mandatory prepaymentsto the lender from:

 

•   the net cash proceeds from asset sales inparticular circumstances specified in the senior credit agreement; and

 

•   the net cash proceeds from new debt issuancesin particular circumstances specified in the senior credit agreement.

 

Ourobligations under the revolving credit line are secured by a first mortgage onthe production plant, a security interest in substantially all of our assetsand an assignment of our co-packing agreement with Hoopeston.

 

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Thesenior credit agreement includes two financial covenants. We cannot permit,without the bank’s approval, at the end of each fiscal quarter:

 

•   our consolidated net worth (stockholders’equity less treasury stock plus declared and unpaid preferred stock dividends)to be less than $7 million;

 

•   our ratio of consolidated senior debt serviceplus dividends paid to consolidated EBITDA for the trailing four quarters toexceed the ratio of 1.5 to 1.  Complianceunder this covenant does not commence until the quarter ending September 30,2004 and only then includes the trailing quarters beginning with the quarterending September 30, 2004.  Furthermore,compliance under this covenant only applies to the extent the total outstandingprincipal balance under the revolving credit facility has exceeded $3million.  This covenant was notapplicable at September 30, 2004 since we have not exceeded $3 million inborrowings under this line of credit.

 

Thesenior credit agreement also contains customary covenants, including limitationson Centennial’s ability to incur debt, and events of default, including achange of control, as defined in the senior credit agreement. The senior creditagreement also limits Centennial’s ability to pay dividends under specifiedcircumstances.

 

AtSeptember 30, 2004, our consolidated net worth was $6,976,112 which wasslightly below our bank’s required covenant level at the end of each quarter of$7,000,000.  This requirement was waivedby the bank for the quarter ended September 30, 2004.  We intend to continue to monitor ourcompliance with the $7,000,000 covenant. In the event we are below the required level at a future date, we expectto work closely with the bank to waive or amend the required consolidated networth covenant.

 

Ourboard of directors did not declare any preferred stock dividends for the threemonths ended June 30, 2004 or September 30, 2004 in order to preserve ourconsolidated net worth.  Preferred stockdividends will be placed in arrearage as they are cumulative dividends.  Our board of directors has determined it willnot declare any preferred stock dividends until we have adequate consolidatednet worth to maintain compliance with the $7,000,000 consolidated net worthcovenant in our bank loan agreements.

 

**DebtInstruments, Guarantees and Related Covenants**

 

Exceptas otherwise described in this Form 10-QSB, we have no debt instruments,guarantees or related covenants.

 

**CashManagement**

 

Webelieve that cash on hand, $2.6 million in cash availability under our seniorrevolving line of credit and cash flow from operations will be adequate for usto meet our anticipated working capital requirements for at least12 months. Although the line of credit adds to our financial flexibility,we do not anticipate that we will need to utilize the full amount available tomeet our cash needs over the next 12 months.  The interest rate on the revolving line ofcredit was 6.5% at September 30, 2004 which was considerably below the 12% ratewe were charged by our majority stockholder and the 10% to 12% rates we werecharged by the other individual lenders before we repaid these loans usingproceeds from the revolving line of credit in March 2004.  Following our initial public offering, wewere able to attain lower interest rates based upon our improvedliquidity.  These payoffs resulted ininterest expense savings of $0.1 million for the three months ended September30, 2004.

 

**Other**

 

Fromtime to time, we may evaluate potential acquisitions of complementary companiesor brands in the ordinary course of business. We have no current plans,agreements, commitments or understandings, and are not

 

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currently engaged in negotiations concerning any suchtransaction. Any such acquisition would be made using our stock, sellingadditional shares of our stock or by incurring or assuming additional debt.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Ourconsolidated financial statements were prepared in conformity with accountingprinciples generally accepted in the United States. Certain of our accountingpolicies, including the estimated lives of our depreciable assets and theevaluation of assets for impairment, require that management apply significantjudgment in defining the appropriate assumptions integral to financialestimates. Judgments are based on historical experience, terms of existingarrangements, industry trends and information available from outside sources,as appropriate. However, by their nature, judgments are subject to an inherentdegree of uncertainty and, therefore, actual results could differ from ourestimates. As of and for the three and nine months ended September 30, 2004 and2003, management does not believe there are any highly uncertain matters orother underlying assumptions that would have a material effect on our financialposition or results of operations if actual results differ from our estimates.We believe the following critical accounting policies affect our moresignificant judgments and estimates used in the preparation of our consolidatedfinancial statements.

 

***Revenuerecognition***

 

Wegenerate revenues from sales of our products to grocery chains, superstores andclub stores, as well as wholesalers that sell in turn to these customers. Netsales represent gross revenues less estimated returns, promotional allowancesand billback discounts. Revenues from the sale of our products to our customersare recognized at the time of shipment. When a food broker assists in the saleof products to grocery chains, superstores, or club stores, the food brokerdoes not take title to our products and shipment takes place only as directedby the customer. Wholesalers take title to products they purchase and direct uswhen to make shipment. Most retailers and wholesalers have the right to returnproducts to us that are damaged, beyond their shelf life or are discontinued.Such returns were approximately 1% of net sales for the three and nine monthsended September 30, 2004 and 2003. Management monitors returns on a regularbasis and as we implement our sales initiatives, we may increase our estimatesfor damaged, expired shelf life or discontinued products subject to return.Although we have legal rights to deny our retailers the right to returnproducts that are salable, as a practical matter we could be forced to acceptreturns from retailers that insisted on returning products to us.

 

Wehave the right to return any spoiled or contaminated products to Hoopeston forcredit. These returns have been immaterial in the past.

 

Foodmanufacturers, including us, have historically paid promotional allowances andoffered “billback” discounts to grocery retailers, food service companies andwholesalers. Billback discounts are generally offered for monthly or quarterlypurchases of food or beverage products reaching predetermined volumes. Theseallowances and discounts may be permissible if in writing and so long as thefood manufacturer does not engage in discriminatory or unfair pricing inviolation of applicable antitrust law. The SEC has announced formalinvestigations and informal inquiries of accounting practices at severalnational food service companies and wholesalers that are centered on thepayment of, and accounting treatment given to, promotional allowances andbillback discounts. We estimate that less than 5% of our sales for the threeand nine months ended September 30, 2004 were to food service companies.Shipments to wholesalers account for approximately 20% of our sales. We are notcurrently aware of any regulatory inquiry involving promotional allowances orbillback discounts offered by us to our limited base of food service customersor wholesalers and we believe promotional allowances and billback discounts wehave paid in the past conformed to applicable law. We have paid promotional allowances,as well as slotting allowances to secure shelf space in grocery stores, andhave offered billback discounts to customers in the past. We expect to offersuch allowances and discounts in the future to customers that customarily seeksuch allowances and discounts, in a manner consistent with applicable antitrustand other laws. These promotional allowances, billback discounts and slottingfees are netted against revenues in the period incurred.

 

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InNovember 2001, the Emerging Issues Task Force, or EITF, of the FinancialAccounting Standards Board (FASB) issued EITF 01-09, “Accounting forConsideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products),” codifying certain other previously issued EITFpronouncements. This pronouncement requires that discounts such as off-invoicepromotions and coupons, and amounts paid to retailers to advertise a company’sproducts such as fixed trade promotions, be recorded as a reduction of sales.We are recording our off-invoice promotions and fixed trade promotions amountsas a reduction of sales in accordance with the EITF. EITF 01-09 neitherprevents nor allows for capitalization of slotting fees. Slotting fees are paidto obtain shelf space in retail locations and such fees are netted againstrevenue as they are incurred. Slotting fees that were netted were negligiblefor the three months ended September 30, 2004 and $0.5 million for the ninemonths ended September 30, 2004 and were negligible for the same periods in2003. We may incur additional slotting fees during the remainder of fiscal 2004as we implement our planned sales efforts.

 

TheEITF has reached a consensus with respect to Issue No. 00-14, “Accountingfor Certain Sales Incentives,” including point of sale coupons, rebates andfree merchandise. The consensus included a conclusion that the value of suchsales incentives that results in a reduction of the price paid by the customershould be netted against sales and not classified as a sales or marketingexpense. We have classified current and prior period coupon expense as areduction of sales and include free merchandise in cost of goods sold asrequired by this EITF consensus.

 

***Accounts Receivable***

 

Themajority of our trade accounts receivable are due from large, national grocerychains.  We assess the recoverability oftrade accounts receivable based on estimated losses resulting from theinability of customers to make required payments. Our estimates are based onthe aging of accounts receivable balances and historical write-off experience,net of recoveries. We review trade accounts receivable for recoverabilityregularly and whenever events or circumstances, such as deterioration in thefinancial condition of a customer, indicate that additional allowances might berequired. We have historically not had to write-off material accountsreceivable, although this is subject to change.

 

***Inventories and related allowancefor slow-moving, excess, discontinued and shelf life expired inventory***

 

Inventoriesare stated at the lower of cost, on a first-in, first-out basis, or marketvalue and are reduced by an allowance for slow-moving, excess, discontinued,shelf life expired inventories and an estimate for re-label costs associated withintroduction of our newly redesigned label. Our estimate for such allowance isbased on our management’s review of inventories on hand compared to estimatedfuture usage and demand for our products. If actual future usage and demand forour products are less favorable than those projected by our management,inventory write-downs may be required. We closely monitor our inventory andrelated shelf lives and have historically rarely experienced occurrences ofobsolete inventory or returns of products that have exceeded their shelf life.

 

***Long-Lived Assets***

 

TheCompany depreciates long-lived assets principally by the straight-line methodover the estimated useful lives of these assets. Estimates of useful lives arebased on the nature of the underlying assets as well as the Company’sexperience with similar assets. Estimates of useful lives can differ fromactual useful lives due to the inherent uncertainty in making these estimates,particularly in the Company’s significant long-lived assets such as land improvements,buildings and equipment. Factors such as the conditions in which the assets areused, availability of capital to replace assets and frequency of maintenancecan influence the useful lives of these assets. The Company incurreddepreciation expense of approximately $0.2 million for the nine monthsended September 30, 2004 and 2003.

 

TheCompany reviews long-lived assets to be held and used for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. If an evaluation of recoverability is required, the estimatedtotal undiscounted future cash flows directly associated with the asset iscompared to the

 

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asset’s carrying amount. If this comparison indicatesthat there is an impairment, the amount of the impairment is calculated bycomparing the carrying value to discounted future cash flows expected to resultfrom the use of the asset and its eventual disposition or comparable marketvalues, depending on the nature of the asset.

 

***Accounting for Goodwill and Other Intangible Assets***

 

InJune 2001, the FASB issued Statement of Financial Accounting StandardsNo. 142, or SFAS No. 142, “Goodwill and Other Intangible Assets.”This pronouncement continues to require recognition of goodwill and otheridentifiable intangible assets with indeterminate lives as long-term assets,but requires such assets to be tested for impairment using a fair value-basedapproach. Our ownership interest in Stokes Canning Company has been reflectedat the cost basis of Stokes Canning Company which included goodwill, and doesnot reflect any adjustment to record the fair value of the assets. We areobligated to evaluate the carrying value of goodwill for impairment in futureperiods in accordance with SFAS No. 142. The assessment of impairment isbased on the estimated undiscounted future cash flows from operating activitiescompared with the carrying value of the assets. If the undiscounted future cashflows are less than the carrying value, a write-down will be recorded, measuredby the amount of the difference between the carrying value and the estimatedfair value of the asset. We have determined that there was no impairmentnecessary as of September 30, 2004.

 

***Accruals for estimated liabilities***

 

Accrualsfor estimated liabilities resulting from the normal course of business will berecorded in the period in which the liability arises. The adequacy of theseaccruals will be evaluated periodically and revised as necessary based on eventsand circumstances present at the time, known facts, historical experience andother relevant considerations.

 

***Research and development***

 

Researchand development expenses include costs associated with the formulation,development, and testing of our Stokes and Ellis products. Research anddevelopment costs are expensed as incurred and included in selling, general andadministrative expenses.  Such costs werenominal in each of the three and nine months ended September 30, 2004 and 2003.

 

***Income taxes***

 

StokesEllis Foods and Centennial previously elected for federal and state income taxpurposes to be treated as subchapter S corporations under the Internal RevenueCode and comparable state tax laws. The completion of the initial publicoffering caused the automatic conversion of Centennial from subchapter Scorporation to a C corporation. Any subchapter S corporation income taxbenefits or detriments of Stokes Ellis Foods, Inc. have accrued to thepre-initial public offering stockholders and do not belong to us.

 

Deferredincome taxes are recognized for the income tax effect of temporary differencesbetween financial statement carrying amounts and the income tax bases of assetsand liabilities. The Company regularly reviews its deferred income tax assets todetermine whether future taxable income will be sufficient to realize thebenefits of these assets. A valuation allowance is provided for deferred incometax assets for which it is deemed more likely than not that future taxableincome will not be sufficient to realize the related income tax benefits fromthese assets. The amount of the net deferred income tax asset that isconsidered realizable could, however, be adjusted if estimates of futuretaxable income are adjusted.

 

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**RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

 

InJanuary 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidationof Variable Interest Entities—an Interpretation of ARB No. 51.” Thisinterpretation addresses consolidation by business enterprises of entities inwhich equity investors do not have the characteristics of a controllingfinancial interest or do not have sufficient equity at risk for the entity tofinance its activities without additional subordinated financial support fromother parties. Variable interest entities are required to be consolidated bytheir primary beneficiaries if they do not effectively disperse risks amongparties involved. The primary beneficiary of a variable interest entity is theparty that absorbs a majority of the entity’s expected losses and receives amajority of its expected residual returns. The consolidation requirements ofthis interpretation apply immediately to variable interest entities createdafter January 31, 2003 and apply to existing entities in the first fiscalyear or interim period beginning after June 15, 2003. Certain newdisclosure requirements apply to all financial statements issued afterJanuary 31, 2003. In December 2003, the FASB issued a revised version ofFIN 46 “FIN46R”. Among other things, the revision clarifies the definition of avariable interest entity, exempts most entities that are businesses from thescope of FIN 46 and delays the effective date of the revised standard to nolater than the end of the first reporting period ending after December 15, 2003for special purpose entities and March 15, 2004 for all other types ofentities.  We do not expect the adoptionof this interpretation to have a material impact on our financial position orresults of operations.

 

InApril 2003, the FASB issued SFAS No. 149, “Amendment of SFASNo. 133 on Derivative Instruments and Hedging Activities.” SFASNo. 149 amends and clarifies accounting for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities under SFAS No. 133. Adoption of SFAS No. 149 didnot have a material impact on the Company’s consolidated financial statements.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity.”SFAS No. 150 establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances). Many ofthese instruments were previously classified as temporary equity. Thisstatement is effective for financial instruments entered into or modified afterMay 31, 2003, and otherwise effective at the beginning of the firstinterim period beginning after June 15, 2003. Adoption of SFASNo. 150 did not have a material impact on the Company’s consolidatedfinancial statements.

 

**MARKETRISK**

 

Ourinterest income is sensitive to changes in the general level of U.S. interestrates. Our cash balances are maintained in demand deposit accounts andshort-term instruments. Due to the nature of these instruments, we haveconcluded that we have no material market risk exposure due to fluctuatinginterest rates. Our senior revolving credit facility provides for variable rateinterest. If interest rates increase, our operating results could be adverselyaffected.

 

We mayalso encounter market risks arising from fluctuations in commodity prices andfuel costs. We do not currently utilize hedging, swap, derivatives or otherinstruments to mitigate these market risks. Changes in commodity prices havethe greatest potential to materially impact our business. Although Hoopeston seeksto buy commodities and ingredients from a number of domestic suppliers, adverseweather or poor harvests in one region of the country often have materialimpacts on commodities prices elsewhere. As a result, we expect that we willcontinue to encounter material market risks from changes in commodity andingredient prices. We may seek to manage this risk in the future by enteringinto futures contracts but believe that our sales volume must increasesignificantly before we would use futures contracts. In addition, some types ofcommodities may be available from limited sources or collectively account for asmall portion of our product ingredients, meaning that we cannotcost-effectively mitigate the risk of price changes for these ingredients.

 

Becausedelivery costs are a significant expense to us, fluctuations in fuel prices maymaterially impact our business.  Dieselfuel costs have recently risen to historic highs, and supply and demandimbalances appear to exist

 

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that may support continued high diesel fuelcosts.  If diesel fuel costs remain atcurrent high levels or continue to rise, common carriers used by us will likelyincrease freight rates or impose fuel surcharges, either of which wouldincrease our delivery costs, perhaps substantially.  As a practical matter, it may be difficult orimpossible for us to recover these costs through price increases or surchargespassed along to our customers.

 

Increasesin prices of raw materials and energy, including commodities such as steel andenergy sources such as natural gas, are expected to impact costs of rawmaterials for our industry.  We werenotified during the first quarter of 2004 that Hoopeston’s can supplier hasimplemented a 6% price increase for cans that it ships to Hoopeston, whichHoopeston expects to pass on to us in the near future.  Additionally, as our co-pack agreement withHoopeston is a “cost plus” contract, increases in natural gas prices willimpact the production costs that we must pay to Hoopeston.  We anticipate that our production andmanufacturing costs, as well as those paid by other companies in our industry,will be increasing through 2004 due to these factors.  To the extent produce growers are also ableto pass on increases in cost of growing, harvesting and delivering produce usedin our products, our raw material costs and the raw material costs paid by ourcompetitors may also increase.  If wecannot raise product prices to our customers in amounts sufficient to recoverthese increased costs, our margins and results of operations may be materiallyadversely impacted.  We cannot assurethat we will be able to raise our prices in amounts sufficient to offset,wholly or partially, increased costs we may incur.

 

We donot have transactions, arrangements or relationships with “special purpose”entities and do not have any off-balance sheet debt other than the operatinglease for office space at our Centennial, Colorado headquarters. We have notguaranteed any financial obligations of third parties.

 

**Seasonalityand Inflation**

 

Our operations exhibit some seasonality as sales generally increase inpromotional periods and may decrease slightly in post-promotional periods. Wedo not believe that inflation has had a material impact on our financialposition or results of operations, although it may do so in the future due tocertain factors discussed above. Our quarterly results of operations mayfluctuate during a fiscal year or from year to year as a result of any of thefactors described under “Forward-Looking Statements.”

 

**OTHERMATTERS**

 

**LesseeItems**

 

In July 2004, we entered into a Memorandum of Understanding (“MOU”)with our lessee which included the possible sale of our production plant andequipment to the lessee.  Under the termsof the MOU, all prior claims between us and the lessee would be released andcertain amendments made to our Co-pack Agreement with the lessee.  We have not reached definitive agreementsunder the terms of this MOU; however, both parties are continuing negotiationstoward reaching a written agreement, which may or may not include sale of theplant and equipment, and settlement of all the outstanding issues.

 

In the event we are unable to resolve our differences, we expect tovigorously defend the previously disclosed unquantified claim ofmisrepresentation by our outside legal counsel related to the ContractAmendment from March 2004 and the demand claim for approximately $400,000against us related to payment of costs associated with a wastewater treatment projectat the Denver production plant raised by our lessee and pursue ourcounterclaims against the lessee.  We areworking with our lessee to resolve these issues surrounding these claims;however, we cannot assure we will be able to resolve these claims.  If we do not resolve these claims, resultingevents could materially adversely impact our production, financial conditionand operating results.

 

We donot control our lessee or the production decisions it makes at our plant.  If our lessee becomes unable to timelyproduce our sauces and foods for any reason, or if our lessee determines tocease operations for any reason, we could experience significant disruptions inour operations or in our ability to supply our customers with products.  We have undertaken certain measures in orderto mitigate part of the impact from the risk of an interruption in

 

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supply in the event our sole supplier does not timelyproduce our products.  These measuresinclude, among other things, identifying an alternative supplier for ourproducts, building-up inventory levels and storing inventory in independentthird party warehouses.  We believe thesemeasures will help with supply of our products in the event of an interruption insupply from our existing sole supplier. We could also be materially adversely impacted by our lessee’s inabilityto pay future monthly rents or additional payments based on profitability, asdefined in the lease override agreement. Any sustained interruption in production of our products for any reason,or in our lessee’s ability to produce our products, could materially injure ourbusiness.

 

If ourlessee is inefficient in its operation of our plant or if the lessee were tolose a major customer, the cost of our products could increase as ourco-packing arrangement is a cost plus agreement.  We are not currently aware of the potentialloss of any of our lessee’s customers. However, we cannot assure that ourlessee will maintain its existing customer base or profitably operate our plantwhich could result in significant increases in our product costs.  We believe alternative suppliers for ourproducts are available and could mitigate the impact of increased costs fromour supplier.

 

**Dependenceon Material Customers and Suppliers**

 

Ourbusiness depends on a limited number of material customers and suppliers. Theloss of a material customer would have a material adverse impact on ouroperating results. Our customers can generally stop purchasing products from usat any time and on minimal or no notice. Likewise, Hoopeston purchasesingredients from suppliers using purchase orders and neither we nor Hoopestonhave any long-term arrangements with suppliers. Our production agreement withHoopeston currently expires January 26, 2010, with automatic one yearextensions at the end of each contract year unless either party elects toterminate the renewal feature. Hoopeston may terminate the production agreementon written notice, as we are also permitted to do, in the event of a material breachcontinuing after written notice that is not cured or waived.

 

In thethree months ended September 30, 2004, we derived approximately 80% of oursales from six customers, Kroger, Safeway, Wal-Mart, Sam’s Club, Albertson’sand Associated Foods, which was up from 67% in fiscal 2003.  The increase was due to the addition of newstores in our expansion markets which are covered by these customers. We expectthat each of these customers will account for in excess of 10% of our sales duringthe year ending December 31, 2004. The loss of any of these customerswould have a significant negative impact on our business and results ofoperations.  Additionally, should marketevents occur that impact our key customers, we may face increased costs ofdoing business with these customers, including higher promotion levels andadvertising costs.  Such cost increaseswould adversely impact our operating margins.

 

Hoopestondepends on a limited number of significant suppliers for our products. Thesesuppliers are growers and can manufacturers or their representatives who supplyproduce, commodities and cans to make our products. We believe that alternatesources of supply are available if a relationship with one of these supplierswas terminated. Supply disruptions could adversely impact our results ofoperations if alternate sources of supply are unavailable on short notice, ifat all. Hoopeston purchases cans and labels for our products from two suppliersand we believe that alternate sources of supply for these materials can belocated on relatively short notice.

 

Hoopestoncurrently relies on two suppliers for purchases of green chiles used in ourproducts. Although Hoopeston has not experienced any difficulty in obtaininggreen chiles from these suppliers, a sustained interruption in the supply ofgreen chiles for any reason would seriously harm our business. Neither we norHoopeston have contracts with these suppliers extending past one year, so theprice of green chiles sold to us or Hoopeston for use in our products mayincrease from year to year or the quantity of green chiles supplied could becurtailed at any time. Difficulties in obtaining green chiles or the impositionof import quotas on agricultural products generally or green chiles in particularcould also materially harm our business or increase the production costs we payto Hoopeston.

 

**GroceryWorker Strikes**

 

Thefour and one-half month Southern California grocery worker strike has had asignificant impact on the retailers in Southern California.  The strike delayed our ability to efficientlyand effectively get our products

 

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placed on the retailers’ shelves due to retailerstaffing constraints.  Certain of thelargest retailers in the Colorado market are in current negotiations with theColorado grocery worker’s union.  Thegrocery workers have delayed a possible strike which was initially targeted tobegin on September 11, 2004.  The partiesare continuing their negotiations, but we cannot be assured the strike will beavoided.  In the event the workersstrike, sales of our products could be negatively impacted in our largestmarket as the retailers may not have staffing to keep the shelves adequatelystocked.  Furthermore, some groceryshoppers may be reluctant to cross picket lines to shop at the retailers’stores which could reduce our sales.

 

**ConsumerAcceptance of Our Products**

 

We arebeginning to see an increase in consumer purchases of our products in our newmarkets as our products are reaching full shelf distribution and throughincreased exposure from previous marketing efforts.  We are launching our consumer trial program,along with other marketing efforts, which seek to increase consumer trial ofour products through a reduced introductory price at the shelf.  However, we cannot be assured that thismarketing program, or subsequent marketing efforts, will be successful ingenerating continued, sustainable sales levels in new markets.  In the event we are unable to sustain acceptablesales volumes in the next 6 to 9 months, some retailers in our new markets coulddiscontinue some or all of our products. With the assistance of our broker network, we believe we could negotiatethis with the retailers, but we cannot control the retailers’ ultimatedecisions.  In the event any of ourproducts are discontinued in any of the stores in our new markets, sales of ourStokes green chile products will be negatively impacted.

 

**RelatedParty Transactions**

 

During 2003, we received advances from our majority stockholder thattotaled $0.035 million. We used proceeds from these advances to fund ourworking capital requirements since we had no senior revolving credit facilityat that time. In March 2004, we repaid the advances from our majority stockholderusing proceeds from the senior revolving line of credit. These advances werenot repaid using proceeds of the initial public offering.

 

**FORWARD-LOOKINGSTATEMENTS**

 

Certainstatements included in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” including “ - Critical AccountingPolicies and Estimates,” “ - Results of Operations,” “ - Recent AccountingPronouncements,” and “Liquidity and Capital Resources,” and elsewhere in thisreport are “forward-looking statements” within the meaning of the SecuritiesAct of 1933 and the Securities Exchange Act of 1934, as amended by the PrivateSecurities Litigation Reform Act of 1995 (the “Reform Act”). Forward-lookingstatements include our expectations with respect to industry growth trends,effect of changes in the retail grocery industry on our sales, use of estimatesfor revenue recognition, other estimates used for accounting purposes,corporate cost structure, our entry into new markets, our ability to obtain newgrocery, superstore and club store customers and expanding our sales toexisting and new customers, our ability to secure and keep shelf spaceallocated to our products, the impact of operational and financial difficultiesexperienced with Hoopeston and related increases in our costs of production,effect of adoption of recent accounting pronouncements, overall operatingresults and the availability of capital.

 

Forward-lookingstatements are not statements of historical fact. Forward-looking statementsinvolve risks, uncertainties and other factors that may cause our or ourindustry’s actual results, levels of activity, performance or achievements tobe materially different from any future results, levels of activity,performance or achievements expressed or implied by these forward-lookingstatements.  You can identifyforward-looking statements by terminology such as “may,” “should,” “project,” “would,”“could,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “continue”or the negative of these terms or other comparable terms.

 

Althoughwe believe that the statements we have made are based on reasonableassumptions, they are based on current information and beliefs and,accordingly, we can give no assurance that its expectations will be achieved.

 

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In addition, these statements are subject tofactors that could cause actual results to differ materially from thosesuggested by the forward-looking statements. These factors include, but are notlimited to, factors identified under the caption “Factors That May AffectFuture Operating Results, Financial Condition or Business” in our Form 10-KSBfor the year ended December 31, 2003, and the factors described in this Form10-QSB. All forward-looking statements attributable to us are expresslyqualified by the cautionary statements set forth in such factors.  We caution you not to place undue reliance onour forward-looking statements. Except as required by law, we do not intend toupdate or revise any of our forward-looking statements to conform thesestatements to actual results.

 

**Item 3.  Controls and Procedures**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed by us in the reports that we file orsubmit to the Securities and Exchange Commission under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified by the Commission’s rules and forms, and thatinformation is accumulated and communicated to our management, including ourprincipal executive officer and principal financial officer (who we refer to inthis periodic report as our Certifying Officers), as appropriate to allowtimely decisions regarding required disclosure. Our management evaluated, withthe participation of our Certifying Officers, the effectiveness of ourdisclosure controls and procedures as of September 30, 2004, pursuant toRule 13a-15(b) under the Exchange Act. Based upon that evaluation, ourCertifying Officers concluded that, as of September 30, 2004, our disclosurecontrols and procedures were effective.

 

Therewere no changes in our internal control over financial reporting that occurredduring our quarter ended September 30, 2004 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

**PART II — OTHER INFORMATION**

 

Item1.  LegalProceedings

 

None

 

Item2.  Changes in Securities and SmallBusiness Issuer Purchases of Equity Securities

 

Use ofProceeds

 

Weregistered and sold 1,550,000 shares of our common stock to the public at anaggregate offering price of $7.75 million, or $5.00 per share, pursuant to aregistration statement that was declared effective on October 29, 2003.  The offering was completed and hasterminated.  The lead underwriter of theoffering was J.P. Turner, L.L.C.

 

25

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Net proceeds to us were$5.79 million after deduction of underwriters’ commissions and other issuancecosts.  Through September 30, 2004, weapplied our net proceeds as follows:

 
| ** **                                 | ** ** | **Intended use of  proceeds** | ** ** | **Actual use of proceeds  through September 30,  2004** | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                 | ** ** | **(in millions)**             | ** ** | **(in millions)**                                       | ** ** |
| Retirement of plant mortgage               |       | $                             | 3.60       |                                                    | $          | 3.60 |   |
| Payment of slotting fees                   |       | .81                           |       | .49                                                     |       |
| Marketing, advertising and promotion costs |       | .95                           |       | .95                                                     |       |
| Working capital                            |       | .43                           |       | .43                                                     |       |
|                                       |       | $                             | 5.79       |                                                    | $          | 5.47 |   |

 

Item3.   Defaults Upon Senior Securities

 

Wehave $500,000 of preferred stock dividends in arrears as our board of directorsdid not declare any preferred stock dividends for the three months ended June30, 2004 or the three months ended September 30, 2004 in order to preserve ourconsolidated net worth.  The preferredstock dividends will be placed in arrearage as they are cumulative dividends;however, our board of directors will not declare and we will not pay anypreferred stock dividends until we have adequate consolidated net worth tomaintain our consolidated net worth covenant with our bank.

 

Item4.  Submission of Matters to a Vote of theSecurity Holders

 

TheCompany’s annual meeting of stockholders was held Monday, August 23, 2004.  The items submitted to stockholders for votewere as follows:

 

1.             The election of four nominees to serve onthe Company’s board of directors during 2004 and until the Company’s nextannual meeting.

 

The vote tabulation with respect to each nominee wasas follows:

 

| ** **              | ** ** | **Common**    | ** ** | **Common**   | ** ** |
|-------------------------|------------|---------------|------------|--------------|------------|
| ** **              | ** ** | **Shares**    | ** ** | **Shares**   | ** ** |
| ** **              | ** ** | **Voted For** | ** ** | **Withheld** | ** ** |
|                    |       |          |       |         |       |
| Jeffrey R. Nieder       |       | 4,729,798     |       | 8,714        |       |
| Robert A. Beckwith, Jr. |       | 4,725,798     |       | 12,714       |       |
| Gerald J. Laber         |       | 4,738,512     |       | —       |       |
| Michael R. Kaskie       |       | 4,738,512     |       | —       |       |

 

| ** **              | ** ** | **Preferred** | ** ** | **Preferred** | ** ** |
|-------------------------|------------|---------------|------------|---------------|------------|
| ** **              | ** ** | **Shares**    | ** ** | **Shares**    | ** ** |
| ** **              | ** ** | **Voted For** | ** ** | **Withheld**  | ** ** |
|                    |       |          |       |          |       |
| Jeffrey R. Nieder       |       | 2,000,000     |       | —        |       |
| Robert A. Beckwith, Jr. |       | 2,000,000     |       | —        |       |
| Gerald J. Laber         |       | 2,000,000     |       | —        |       |
| Michael R. Kaskie       |       | 2,000,000     |       | —        |       |

 

There were no solicitations in opposition to thenominees.

 

26

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2.             Proposal Number Two – amendment of ourcertificate of incorporation to reduce the authorized shares of our commonstock from 47,000,000 shares of commons stock, par value $0.0001 per share, to20,000,000 shares of common stock, par value $0.0001 per share was approved andratified.

 

| ** ** | ** ** | **Common** | ** ** | **Preferred** | ** ** |
|------------|------------|------------|------------|---------------|------------|
| ** ** | ** ** | **Shares** | ** ** | **Shares**    | ** ** |
|       |       |       |       |          |       |
| For        |       | 4,089,452  |       | 2,000,000     |       |
| Against    |       | 14,650     |       | —        |       |
| Abstain    |       | 1,280      |       | —        |       |

 

3.             Proposal Number Three – adoption of the2004 Stock Incentive Plan under which 500,000 shares of our common stock willbe set aside for future issuance was approved and ratified.

 

| ** ** | ** ** | **Common** | ** ** | **Preferred** | ** ** |
|------------|------------|------------|------------|---------------|------------|
| ** ** | ** ** | **Shares** | ** ** | **Shares**    | ** ** |
|       |       |       |       |          |       |
| For        |       | 3,427,901  |       | 2,000,000     |       |
| Against    |       | 100,237    |       | —        |       |
| Abstain    |       | 1,880      |       | —        |       |

 

4.             Proposal Number Four - ratification ofthe audit committee’s selection of Ehrhardt Keefe Steiner & Hottman PC asour independent auditors for the fiscal year ending December 31, 2004 wasapproved and ratified.

 

| ** ** | ** ** | **Common** | ** ** | **Preferred** | ** ** |
|------------|------------|------------|------------|---------------|------------|
| ** ** | ** ** | **Shares** | ** ** | **Shares**    | ** ** |
|       |       |       |       |          |       |
| For        |       | 4,815,657  |       | 2,000,000     |       |
| Against    |       | 6,945      |       | —        |       |
| Abstain    |       | 2,780      |       | —        |       |

 

Item 5.  Other Information

 

None

 

Item6.  Exhibits

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                             |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1.4*           |       | Form of Indemnification  Agreement, effective at the closing of the purchase of Stokes Ellis Foods, by  and among James E. Lewis, Janis M. Lewis and Centennial Specialty Foods  Corporation.               |
| 2.1.6*           |       | Merger Agreement, to be  effective at the closing of the acquisition of Stokes Ellis Foods, by and  between Stokes Ellis Foods, James E. Lewis, Janis M. Lewis and Centennial  Specialty Foods Corporation. |
| 3.1*             |       | Certificate of  Incorporation of Centennial Specialty Foods Corporation.                                                                                                                                    |
| 3.2*             |       | Bylaws of Centennial  Specialty Foods Corporation.                                                                                                                                                          |
| 3.3*             |       | Amended and Restated  Certificate of Incorporation of Centennial Specialty Foods Corporation, as  filed with the Delaware Secretary of State on October 22, 2003.                                           |
| 3.4*             |       | Certificate of Merger  of Stokes Ellis Foods and Centennial Specialty Foods Corporation, as  survivor, as filed with the Delaware Secretary of State on November 3, 2003.                                   |
| 4.1*             |       | Specimen certificate  for shares of Common Stock, $0.0001 par value per share, of Centennial  Specialty Foods Corporation.                                                                                  |
| 4.2*             |       | Form of Warrant for the  purchase of Common Stock issued to J.P. Turner & Company, L.L.C. on                                                                                                            |

 

27

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| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                      |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       | completion of the  initial public offering.                                                                                                                                                                          |
| 4.3*             |       | Form of Lock-Up  Agreement between J.P. Turner & Company, L.L.C. and the officers,  directors and 5% or more stockholders of Centennial Specialty Foods  Corporation.                                            |
| 10.1*            |       | Lease Agreement, dated  January 26, 2001, by and between Hoopeston Foods Denver Corp. and Stokes  Canning Company.                                                                                                   |
| 10.1.1*          |       | Schedules to Lease  Agreement.                                                                                                                                                                                       |
| 10.2*            |       | Equipment Lease, dated  January 26, 2001, by and between Hoopeston Foods Denver Corp. and Stokes  Canning Company.                                                                                                   |
| 10.2.1*          |       | Schedules to Equipment  Lease.                                                                                                                                                                                       |
| 10.3*            |       | Exclusive License  Agreement, dated January 26, 2001, by and between Hoopeston Foods Denver  Corp. and Stokes Canning Company.                                                                                       |
| 10.4*@           |       | Co-Pack and Warehousing  Agreement, dated January 26, 2001, by and between Hoopeston Foods Denver  Corp. and Stokes Canning Company.                                                                                 |
| 10.4.1*@         |       | Schedules and Exhibits  to Co-Pack and Warehousing Agreement.                                                                                                                                                        |
| 10.5*@           |       | Lease Override  Agreement, dated January 26, 2001, by and between Hoopeston Foods Denver  Corp. and Stokes Canning Company.                                                                                          |
| 10.6*            |       | EBITDA Committee  Agreement, dated January 26, 2001, by and between Hoopeston Foods Denver  Corp. and Stokes Canning Company.                                                                                        |
| 10.6.1*@         |       | Schedules to EBITDA  Committee Agreement                                                                                                                                                                             |
| 10.7*            |       | Amendment Agreement,  dated March 15, 2004, by and between Hoopeston Foods Denver Corp. and Stokes  Canning Company.                                                                                                 |
| 10.7.1*          |       | Hoopeston Foods Denver  Corp. subordinated note.                                                                                                                                                                     |
| 10.7.2*          |       | Subordination,  Attornment and Non-Disturbance Agreement between Hoopeston Foods Denver  Corp., Stokes Canning Company and Heartland Bank.                                                                           |
| 10.9*+           |       | Employment Agreement,  effective March 1, 2003, by and between Centennial Specialty Foods  Corporation and Jeffrey R. Nieder.                                                                                        |
| 10.10*+          |       | Employment Agreement,  effective March 1, 2003, by and between Centennial Specialty Foods  Corporation and Robert A. Beckwith.                                                                                       |
| 10.11*           |       | Form of Escrow Agreement  among Centennial Specialty Foods Corporation, the officers and directors of  Centennial Specialty Foods Corporation, J.P. Turner & Company, L.L.C. and  Corporate Stock Transfer, Inc. |
| 10.12*           |       | Lease Agreement, dated  February 1, 2003, by and between HQ Global Workplaces and Centennial  Specialty Foods Corporation.                                                                                           |
| 10.13*           |       | Charter of our Audit  Committee.                                                                                                                                                                                     |
| 10.14*           |       | Charter of our  Nominating Committee.                                                                                                                                                                                |
| 10.15*           |       | Charter of our  Compensation Committee.                                                                                                                                                                              |
| 10.16*           |       | Charter of our  Disclosure Committee.                                                                                                                                                                                |
| 10.17*           |       | Form of Director and  Officer Indemnification Agreement.                                                                                                                                                             |
| 10.18*+          |       | 2003 Non-Employee  Directors’ Stock Option Plan.                                                                                                                                                                |
| 10.19*           |       | Professional Services  Agreement, dated August 28, 2003, by and between Centennial Specialty Foods  Corporation and Sterling Rice Group, Inc.                                                                        |
| 10.20.3*         |       | Loan and Security  Agreement, dated March 15, 2004, by and between Heartland Bank, Centennial  Specialty Foods Corporation and Stokes Canning Company                                                                |
| 10.21*           |       | Separation Agreement  dated effective September 18, 2003 by and between J. Michael Miller and  Centennial Specialty Foods Corporation.                                                                               |
| 10.22*           |       | Form of Promotional  Share Escrow Agreement by and among the officers and certain stockholders of  Centennial Specialty Foods Corporation and Centennial Specialty Foods  Corporation.                               |
| 10.23*+          |       | 2004 Stock Incentive  Plan                                                                                                                                                                                           |
| 10.24#           |       | Amendment No. 1 to Loan  and Security Agreement                                                                                                                                                                      |
| 11.1             |       | Statement Re:  Computation of per Share Earnings (see  financial statements)                                                                                                                                    |
| 31.1#            |       | Rule 13a-14(a)  Certification of Chief Executive Officer of Centennial Specialty Foods Corporation.                                                                                                                  |
| 31.2#            |       | Rule 13a-14(a)  Certification of Chief Financial Officer of Centennial Specialty Foods  Corporation.                                                                                                                 |
| 32.1#            |       | Section 1350  Certifications                                                                                                                                                                                         |
| 32.2#            |       | Section 1350  Certifications                                                                                                                                                                                         |
| 99.1*            |       | Code of Ethics of  Centennial Specialty Foods Corporation.                                                                                                                                                           |

 

28

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#                             Filed herewith

 

*                             Previously filed.

 

+                             Identifies each management contract or compensatory plan or arrangement

 

@                        Certain confidential portions of this Exhibit were omitted by means ofredacting a portion of the text (the “Omitted Text”). The full text of thisExhibit will be filed separately with the Secretary of the Commission with theOmitted Text pursuant to the Registrant’s Application Requesting ConfidentialTreatment under Rule 406 under the Securities Act.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Exchange Act, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|               | CENTENNIAL  SPECIALTY FOODS CORPORATION |
|--------------------|-----------------------------------------|
|               |                                    |   |
| November  15, 2004 | By:                                     | /s/  JEFFREY  R. NIEDER |   |
|               |                                    | Jeffrey  R. Nieder, |
|               |                                    | *Chief Executive Officer* |
|               |                                    |   |
|               |                                    |   |
|               | CENTENNIAL  SPECIALTY FOODS CORPORATION |
|               |                                    |
| November  15, 2004 | By:                                     | /s/  DOUGLAS  L. EVANS |   |
|               |                                    | Douglas  L. Evans, |
|               |                                    | *Chief Financial Officer* |
|                    |                                         |  |  |  |

 

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