**UNITED STATESSECURITIES 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 March 31, 2005**

 

**Commissionfile number: 001-31816**

 

**Centennial Specialty Foods Corporation**

(Exact name of small business issuer asspecified in its charter)

 
| **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**                                             |
| (Issuer’s telephone number)                                |

 

Check whether the issuer (1) filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý    No o

 

Number shares of common stock outstanding at the latest practicable date:February 28, 2005: 5,050,000.

 

Transitional Small Business DisclosureFormat:  Yes o    No ý

 

 

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**INDEX**

 
| PART I – FINANCIAL INFORMATION                                      |                                                                                                                     |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                                                                          |                                                                                                                     |   |
| Item 1 –  Financial Statements                                           |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
|                                                                          | Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and  December 31, 2004                            |   |
|                                                                          |                                                                                                                     |   |
|                                                                          | Consolidated Unaudited Statements of  Operations for the Three Months Ended March 31, 2005 and March 31,  2004 |   |
|                                                                          |                                                                                                                     |   |
|                                                                          | Consolidated Unaudited Statements of Cash  Flows for the Three Months Ended March 31, 2005 and March 31, 2004  |   |
|                                                                          |                                                                                                                     |   |
|                                                                          | 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 – Unregistered Sales of Equity  Securities and Use of Proceeds    |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| 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                                                        |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| Signature  Page                                                               |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| Exhibits                                                                      |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| Exhibit 31.1 – Rule 13a-14(a) Certification of CEO        |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| Exhibit 31.2 – Rule 13a-14(a) Certification of CFO        |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| Exhibit 32.1  – Section 1350 Certification of CEO              |                                                                                                                     |
|                                                                          |                                                                                                                     |   |
| Exhibit 32.2  – Section 1350 Certification of CFO              |                                                                                                                     |
|                                                                               |                                                                                                                          |  |  |

 

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**CENTENNIALSPECIALTY FOODS CORPORATION AND SUBSIDIARY**

 

**ConsolidatedBalance Sheets**

** **
| ** **                                                                                                                                                                                 | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                 |       |                     |       |                        |       |
| Current  assets                                                                                                                                                                            |       |                     |       |                        |       |
| Cash and  cash equivalents                                                                                                                                                                 |       | $                        | 157,411    |                        | $          | 415,597 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $25,483                                                                                                                    |       | 232,595                  |       | 341,671                     |       |
| Income taxes  receivable                                                                                                                                                                   |       | 14,478                   |       | 14,478                      |       |
| Inventory,  net                                                                                                                                                                            |       | 1,903,418                |       | 1,894,927                   |       |
| Prepaid  expenses                                                                                                                                                                          |       | 138,332                  |       | 153,219                     |       |
| Total  current assets                                                                                                                                                                      |       | 2,446,234                |       | 2,819,892                   |       |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| Non-current  assets                                                                                                                                                                        |       |                     |       |                        |       |
| Property,  plant and equipment, net                                                                                                                                                        |       | 5,862,646                |       | 5,914,186                   |       |
| Goodwill,  net                                                                                                                                                                             |       | 1,634,079                |       | 1,634,079                   |       |
| Other assets                                                                                                                                                                               |       | 49,427                   |       | 56,488                      |       |
| Total  non-current assets                                                                                                                                                                  |       | 7,546,152                |       | 7,604,753                   |       |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| Total assets                                                                                                                                                                               |       | $                        | 9,992,386  |                        | $          | 10,424,645 |   |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                             |       |                     |       |                        |       |
| ** **                                                                                                                                                                                 |       |                     |       |                        |       |
| Current  liabilities                                                                                                                                                                       |       |                     |       |                        |       |
| Accounts  payable – trade                                                                                                                                                             |       | $                        | 226,143    |                        | $          | 394,830 |   |
| Accrued  liabilities                                                                                                                                                                       |       | 683,178                  |       | 800,473                     |       |
| Total  current liabilities                                                                                                                                                                 |       | 909,321                  |       | 1,195,303                   |       |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| Long-term  debt                                                                                                                                                                            |       | 2,478,720                |       | 2,436,387                   |       |
| Deferred tax  liability                                                                                                                                                                    |       | 7,226                    |       | 77,015                      |       |
| Total  long-term liabilities                                                                                                                                                               |       | 2,485,946                |       | 2,513,402                   |       |
| Total  liabilities                                                                                                                                                                         |       | 3,395,267                |       | 3,708,705                   |       |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| Commitments  and contingencies                                                                                                                                                             |       |                     |       |                        |       |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| Stockholders’  equity                                                                                                                                                                 |       |                     |       |                        |       |
| Preferred  stock (liquidation preference $11,000,000 and $10,750,000, respectively),  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                                                                                                                                                                       |       | (1,532,207               | )          | (1,413,386                  | )          |
| Total  stockholders’ equity                                                                                                                                                           |       | 6,597,119                |       | 6,715,940                   |       |
|                                                                                                                                                                                       |       |                     |       |                        |       |
| Total liabilities  and stockholders’ equity                                                                                                                                           |       | $                        | 9,992,386  |                        | $          | 10,424,645 |   |

 

See notes to unauditedconsolidated financial statements.

 

1

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**CENTENNIALSPECIALTY FOODS CORPORATION AND SUBSIDIARY**

** **

**ConsolidatedUnaudited Statements of Operations**

 
| ** **                                                    | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                    | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
|                                                          |       |                                           |       |   |   |
| Net sales                                                     |       | $                                              | 948,955    |   | $ | 1,127,483 |   |
|                                                          |       |                                           |       |   |   |
| Cost of  goods sold                                           |       | 714,133                                        |       | 746,175 |   |
|                                                          |       |                                           |       |   |   |
| Gross profit                                                  |       | 234,822                                        |       | 381,308 |   |
|                                                          |       |                                           |       |   |   |
| Selling,  general and administrative expenses                 |       | 535,097                                        |       | 577,688 |   |
|                                                          |       |                                           |       |   |   |
| Loss from  operations                                         |       | (300,275                                       | )          | (196,380 | ) |
|                                                          |       |                                           |       |   |   |
| Other income  (expense)                                       |       |                                           |       |   |   |
| Interest  expense                                             |       | (46,916                                        | )          | (112,005 | ) |
| Rent income                                                   |       | 158,581                                        |       | 158,581 |   |
| Total other  income                                           |       | 111,665                                        |       | 46,576 |   |
|                                                          |       |                                           |       |   |   |
| Loss before  income taxes                                     |       | (188,610                                       | )          | (149,804 | ) |
|                                                          |       |                                           |       |   |   |
| Income tax  benefit – deferred                           |       | 69,789                                         |       | 55,428 |   |
| Total income  tax benefit                                     |       | 69,789                                         |       | 55,428 |   |
|                                                          |       |                                           |       |   |   |
| Net loss                                                      |       | $                                              | (118,821   | ) | $ | (94,376 | ) |
|                                                          |       |                                           |       |   |   |
| Net loss  before preferred stock dividends                    |       | $                                              | (118,821   | ) | $ | (94,376 | ) |
|                                                          |       |                                           |       |   |   |
| Preferred  stock dividends – paid                        |       | —                                         |       | (250,000 | ) |
| Preferred  stock dividends – arrears                     |       | (250,000                                       | )          | — |   |
| Total  preferred stock dividends                              |       | (250,000                                       | )          | (250,000 | ) |
|                                                          |       |                                           |       |   |   |
| Net loss  available to common shareholders                    |       | $                                              | (368,821   | ) | $ | (344,376 | ) |
|                                                          |       |                                           |       |   |   |
| Basic and  diluted net loss per common share                  |       | $                                              | (0.07      | ) | $ | (0.07 | ) |
|                                                          |       |                                           |       |   |   |
| Basic and  diluted weighted average common shares outstanding |       | 5,050,000                                      |       | 5,050,000 |   |

 

See notes to unauditedconsolidated financial statements.

 

2

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**CENTENNIALSPECIALTY FOODS CORPORATION AND SUBSIDIARY**

 

**Consolidated Unaudited Statements of CashFlows**

 
| ** **                                                                                    | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
|                                                                                          |       |                                           |       |   |   |
| **Cash  flows from operating activities:**                                                    |       |                                           |       |   |   |
| Net loss                                                                                      |       | $                                              | (118,821   | ) | $ | (94,376 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities               |       |                                           |       |   |   |
| Depreciation  and amortization                                                                |       | 60,514                                         |       | 54,189 |   |
| Deferred  income taxes                                                                        |       | (69,789                                        | )          | (55,428 | ) |
| Changes in  assets and liabilities                                                            |       |                                           |       |   |   |
| Accounts and  other receivables                                                               |       | 109,076                                        |       | 65,004 |   |
| Inventory                                                                                     |       | (8,491                                         | )          | (866,246 | ) |
| Prepaid  expenses                                                                             |       | 14,887                                         |       | 21,995 |   |
| Accounts  payable – trade                                                                |       | (168,687                                       | )          | (404,901 | ) |
| Accrued  liabilities                                                                          |       | (117,295                                       | )          | (250,480 | ) |
| Related  party payable                                                                        |       | —                                         |       | (175,000 | ) |
|                                                                                          |       | (179,785                                       | )          | (1,610,867 | ) |
| Net cash  used by operating activities                                                        |       | (298,606                                       | )          | (1,705,243 | ) |
|                                                                                          |       |                                           |       |   |   |
| **Cash  flows from investing activities:**                                                    |       |                                           |       |   |   |
| Purchase of  property, plant and equipment                                                    |       | (1,913                                         | )          | (16,781 | ) |
| Net cash  used in investing activities                                                        |       | (1,913                                         | )          | (16,781 | ) |
|                                                                                          |       |                                           |       |   |   |
| **Cash  flows from financing activities:**                                                    |       |                                           |       |   |   |
| Net proceeds  from revolving line of credit                                                   |       | 42,333                                         |       | 2,052,698 |   |
| Payments on  long-term debt                                                                   |       | —                                         |       | (4,253,704 | ) |
| Payments on  note payable - stockholder                                                       |       | —                                         |       | (908,900 | ) |
| Payment of  financing costs                                                                   |       | —                                         |       | (7,671 | ) |
| Payment of  preferred stock dividends                                                         |       | —                                         |       | (172,603 | ) |
| Net cash  provided (used) by financing activities                                             |       | 42,333                                         |       | (3,290,180 | ) |
|                                                                                          |       |                                           |       |   |   |
| Decrease in  cash and cash equivalents                                                        |       | (258,186                                       | )          | (5,012,204 | ) |
|                                                                                          |       |                                           |       |   |   |
| Cash and  cash equivalents at beginning of period                                             |       | 415,597                                        |       | 6,076,479 |   |
|                                                                                          |       |                                           |       |   |   |
| **Cash and  cash equivalents at end of period**                                               |       | $                                              | 157,411    |   | $ | 1,064,275 |   |
|                                                                                          |       |                                           |       |   |   |
| **Supplemental  Disclosure of Cash Flow Information:**                                        |       |                                           |       |   |   |
| ** **                                                                                    |       |                                           |       |   |   |
| Interest  Paid                                                                                |       | $                                              | 43,716     |   | $ | 249,216 |   |
|                                                                                          |       |                                           |       |   |   |
| **Supplemental  Disclosure of Non-Cash Investing and Financing Activities:**                  |       |                                           |       |   |   |
| ** **                                                                                    |       |                                           |       |   |   |
| Accrual of  preferred stock dividends                                                         |       | $                                              | —     |   | $ | 250,000 |   |
| Assignment  of note receivable to major stockholder in satisfaction of related party  payable |       | $                                              | —     |   | $ | 170,000 |   |

 

See notes to unauditedconsolidated financial statements.

 

3

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**CENTENNIALSPECIALTY FOODS CORPORATION AND SUBSIDIARY**

 

**Notes to Unaudited ConsolidatedFinancial Statements**

 

**Note 1 -Description of Business and Summary of Significant Accounting Policies**

 

CentennialSpecialty Foods Corporation (Centennial) is a holding company that was formedunder Delaware law in February 2003 for the purpose of acquiring StokesEllis Foods, Inc. and its wholly owned subsidiary Stokes Canning Company(collectively Stokes).  Effective October 29,2003, Centennial acquired Stokes concurrent with its initial public offering.

 

StokesEllis Foods, Inc. was a holding company incorporated in the state ofDelaware during August 1998, for the purpose of acquiring Stokes CanningCompany.  Stokes Ellis Foods, Inc.was formerly known as Lewis Foods, Inc. until it changed its name in May 2003.

 

StokesCanning Company was formed in 1974 under Colorado law.  It markets, sells and distributes brandedethnic Southwestern canned sauces and food products in the Mexican food segmentof the domestic food industry.  Theproducts are currently sold through superstores, club stores, and groceryretailers throughout Colorado, Arizona, California and a small number of majormetropolitan markets in adjoining states. Centennial’s operations are conducted from its facilities located inCentennial, Colorado.

 

Principlesof Consolidation

 

Theaccompanying consolidated financial statements include the accounts ofCentennial Specialty Foods Corporation, Stokes Ellis Foods, Inc. andsubsidiary, Stokes Canning Company (collectively the Company).  All intercompany accounts and transactionshave been eliminated in consolidation.

 

Interim Financial Information

 

The interim consolidated financial statements areunaudited and reflect all adjustments (consisting only of normal recurringadjustments), which are, in the opinion of management, necessary for a fairpresentation of the financial position and operating results for the interimperiods.  The consolidated results ofoperations for the three months ended March 31, 2005 and 2004 are notnecessarily indicative of the results of the entire year.  The consolidated financial statementsincluded herein are presented in accordance with the requirements of Form 10-QSBand consequently do not include all of the disclosures normally made in theCompany’s annual Form 10-KSB filing. These consolidated financial statements should be read in conjunctionwith the financial statements and notes thereto contained in the Company’s Form 10-KSBfor the year ended December 31, 2004.

 

The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions thataffect amounts reported in the consolidated financial statements and theaccompanying notes and the reported amounts of net sales and expenses.  Actual results could differ from thoseestimates.

 

Concentrationsof Credit Risk

 

TheCompany grants credit in the normal course of business to customers in theUnited States. The Company periodically performs credit analysis and monitorsthe financial condition of its customers to reduce credit risk.

 

TheCompany had four customers that accounted for 27%, 21%, 17% and 9% of totalsales for the three months ended March 31, 2005 and four customers thataccounted for 22%, 20%, 13% and 9% of total sales for the three months ended March 31,2004.  These four customers accounted for36%, 16%, 13% and 11% of total accounts receivable at March 31, 2005.

 

4

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IncomeTaxes

 

TheCompany provides for income taxes utilizing the liability method.  Under the liability method, current incometax expense or benefit represents income taxes expected to be payable orrefundable for the current period. Deferred income taxes are recognized for the tax consequences in futureyears as a result of differences between the tax and financial reporting basesof assets and liabilities and for the expected future tax benefit to be derivedfrom tax credit and loss carry-forwards. Valuation allowances are established when necessary to reduce deferredtax assets to the amounts management believes are more likely than not to berealized in future tax returns.  Tax ratechanges are reflected in the period such changes are enacted.

 

FairValue of Financial Instruments

 

Thecarrying amounts of financial instruments including cash, receivables,prepaids, accounts payable and accrued expenses are carried at cost, whichmanagement believes approximates fair value because of the short-term maturityof these instruments.

 

Thecarrying amount of the revolving line of credit approximates fair value as of March 31,2005 as the interest rate on this instrument approximates market interestrates.

 

Revenue Recognition

 

TheCompany recognizes revenue upon the shipment of canned food products to thecustomer.  Provisions are made forestimated product returns and sales allowances.

 

Billbackdiscounts, Promotional allowances, Cash discounts and Slotting fees

 

TheCompany offers various discounts and promotional allowances to customersincluding billback discounts in which retailers are given discounts onceproducts are sold through store registers. These discounts and allowances are recorded as a decrease to sales inthe period incurred.  For the threemonths ended March 31, 2005, the Company recorded an allowance forpotential return of product by California retailers, representing approximately550 stores, which have discontinued the Company’s products.  In addition, the Company pays slotting feesto customers to obtain shelf space in retail locations.  These one-time fees are non-refundable andare netted against sales in the period incurred.  Slotting fees for the three months ended March 31,2005 represent amounts charged by an existing retail customer in California forplacement of additional items on store shelves. The retail customer initially represented no slotting fees would becharged.  The Company is pursuingrepayment of these slotting fees which were deducted by the retailer, but isnot certain the deductions will be repaid.

 

Discounts,promotional allowances and slotting fees are summarized below for the threemonths ended March 31, 2005 and 2004.

 
| ** **                        | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|------------------------------------------------|------------|
| ** **                        | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
|                              |       |                                           |       |   |   |
| Billback  discounts               |       | $                                              | 90,300     |   | $ | 27,339 |   |
| Promotional  allowances           |       | 90,215                                         |       | 94,904 |   |
| Cash  discounts                   |       | 22,655                                         |       | 18,957 |   |
| Total  discounts and allowances   |       | 203,170                                        |       | 141,200 |   |
| Slotting  Fees                    |       | 86,000                                         |       | 30,907 |   |
| Total  adjustments to gross sales |       | $                                              | 289,170    |   | $ | 172,107 |   |

 

5

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Shipping Expense

 

Shipping and handling expenseis comprised of costs to store, move, prepare and ship product to customers andhas been included in cost of goods sold.

 

AdvertisingCosts

 

The Company expensesadvertising costs as incurred. Advertising expense for the three months ended March 31, 2005 and2004 were $41,204 and $50,787, respectively.

 

Basic and Diluted Loss Per Common Share

 

In accordance with SFAS No. 128*Earnings per Share*, basic earnings(loss) per share are computed based upon the weighted average number of commonshares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution tobasic earnings (loss) per share that could occur upon the conversion orexercise of dilutive securities, options, warrants or other similar items tocommon shares using the treasury stock method based upon the weighted-averagefair value of the Company’s common shares outstanding during the period.  As the Company has incurred a net lossavailable to common shareholders for the three months ended March 31, 2005and 2004, the Company has excluded the effects of the common shares issuableupon the exercise of warrants or stock options since their effect isanti-dilutive.

 

StockBased Compensation

 

TheCompany has adopted both SFAS No. 123 *Accounting for Stock-BasedCompensation*, which requires disclosure of the fair value and othercharacteristics of stock options, and SFAS No. 148 *Accountingfor Stock-Based Compensation — Transition and Disclosure*, whichrequires more prominent disclosure about the effects of an entity’s accountingpolicy decision with respect to stock based compensation on reported net income.  The Company has chosen under the provisionsof SFAS No. 123 to continue using the intrinsic-value method of accountingfor employee stock compensation in accordance with Accounting Principles BoardOpinion No. 25 *Accounting for StockIssued to Employees* (APB 25). Accordingly, no compensation cost has been recorded for the stock optionplans.  Had compensation cost for theCompany’s option plan been determined based on the fair value at the grant datefor awards consistent with the provisions of SFAS No. 123, the Company’snet loss and basic and diluted loss per common share would have been changed tothe pro forma amounts indicated below:

 
| ** **                                                                | ** ** | **For the three months ended  March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
|                                                                      |       |                                           |       |   |   |
| Net loss  available to common shareholders – as reported             |       | $                                              | (368,821   | ) | $ | (344,376 | ) |
| Employee  stock-based compensation determined under the fair value method |       | (51,820                                        | )          | — |   |
|                                                                      |       |                                           |       |   |   |
| Pro forma  net loss available to common shareholders                      |       | $                                              | (420,641   | ) | $ | (344,376 | ) |
|                                                                      |       |                                           |       |   |   |
| Basic and  diluted loss per common share – as reported               |       | $                                              | (0.07      | ) | $ | (0.07 | ) |
| Basic and  diluted loss per common share – pro forma                 |       | $                                              | (0.08      | ) | $ | (0.07 | ) |

 

Pro forma information regarding net loss is required by SFAS No. 123and has been determined as if the Company had accounted for its stock optionsunder the fair value method of SFAS No. 123.  The fair value of each option grant wasestimated on the date of grant using the Black-Scholes option pricing modelwith the following weighted average assumptions as of February 28,2005:  Approximate risk-free rate of3.61%, average expected life of 10 years, dividend yield of 0% and volatilityof 55.42%.

 

6

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RecentlyIssued Accounting Pronouncements

 

In December 2004, the FASB issued SFAS No. 123(R), *Share Based Payment*, which replaces SFAS No. 123, *Accounting for Stock Based Compensation*, and supersedes APBOpinion No. 25, *Accounting for StockIssued to Employees*.  TheCompany expects to adopt SFAS No. 123(R) on January 1, 2006.  Among other items, the new standard willrequire the Company to expense future stock options issuances in the financialstatements.  Pro forma disclosure is nolonger an alternative.

 

**Note 2 -Long-Term Debt**

 

At March 31, 2005 and December 31, 2004, long-termdebt consisted of advances under a senior revolving line of credit.  The revolving line of credit matures December 31,2006 and accrues interest at the bank’s base rate plus 1.5%, or 7% at March 31,2005.  The borrowing base is limited tothe sum of 70% of the appraised value of the production plant, 75% of eligibleaccounts receivable and 50% of finished goods inventory.  Based upon these allowable percentages andthe amended credit limit, the Company had $1,521,280 in funds available underthe revolving line of credit at March 31, 2005.  The facility calls for an unused revolvercommitment fee of 0.5% per annum which is paid quarterly in an amount equal tothe average daily unused portion of the revolving credit facility times 0.5%per annum.  The facility iscollateralized by a first mortgage on the production building and underlyingland.  The facility is alsocollateralized by substantially all assets of the Company, including accountsreceivable and inventory, and an assignment of the co-packing agreement withits supplier.  The facility is alsosubject to certain restrictive covenants.

 

In March 2005, the Companyand its bank amended the existing loan and security agreement.  The material terms of the amendment are asfollows:

 

•                  The total amountavailable under the revolving line of credit was reduced to $4,000,000 untilthe Company attains consolidated net worth of $7,000,000 for two consecutivequarter ends and minimum debt service coverage ratio is met for two consecutivequarterly measurement periods.

•                  The minimum consolidated net worth covenantwas reduced to $6,400,000 for periods subsequent to December 31,2004.  The minimum consolidated net worthcovenant will be a continuous measurement rather than at quarter end.

•                  Dividends or distributions on the capitalstock of the Company will not be allowed until the consolidated net worth ofthe Company reaches $7,000,000. Thereafter, dividends will be allowed only to the extent of one-half ofnet income.

•                  Unless the Company requests loan availabilityin excess of $4,000,000, the minimum debt service ratio will not be activateduntil the quarter ending December 31, 2005.

 

As of March 31, 2005, theCompany exceeded its minimum consolidated net worth covenant requirement by$197,119.  The Company will closelymonitor its consolidated net worth and compliance with this covenant.

 

**Note 3 –Preferred Stock Dividends**

 

The Company’s board ofdirectors did not declare preferred stock dividends for the three months ended March 31,2005 as the Company’s net worth was below the bank’s $7,000,000 requirement fordistribution of dividends.  As thepreferred stock dividends are cumulative dividends, an additional $250,000 ofdividends has been placed in arrearage increasing the total dividends inarrears to $1,000,000. Accordingly, the original $10,000,000 liquidationpreference on the preferred stock has been increased to $11,000,000.

 

7

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**Note 4 –Commitments and Contingencies**

 

Purchase Commitments

 

The Company had outstanding purchase commitments for finishedinventory as of March 31, 2005 and December 31, 2004 of approximately$40,000 and approximately $262,000, respectively.  The Company also had an outstanding purchasecommitment as of March 31, 2005 of $248,000 for diced green chile, the primaryingredient in its green chile sauces.

 

Co-Packand Warehousing Agreement

 

In conjunction with its plant and equipment lease, theCompany entered into a Co-Pack and Warehousing Agreement with the samelessee.  Under the terms of theagreement, the lessee will produce, package, and warehouse the products theCompany sells and distributes.  As partof the agreement, the Company must purchase 585,053 12-pack (15 oz.) equivalentcases of product during each contract year or pay a shortage fee of $0.80 forevery 12-pack (15 oz.) equivalent case short. During the year ended December 31, 2004, the Company recorded anestimated $251,000 in shortage fees related to the contract year ending June 30,2005 as the Company determined it would not meet the required throughputrequirement as a result of current inventory levels.  The Company must also pay a $0.033 per casefee per month if storage of product based upon the pack plan exceeds 30 daysdue to the Company’s shipping schedule. The agreement expires January 26, 2010.

 

Other Matters

 

In February 2005, the Company’s tenant and sole supplierfiled a lawsuit in Adams Country Colorado District Court against the Company’swholly owned subsidiary, Stokes Canning Company (“Stokes”), seeking to recoverapproximately $400,000 in costs paid by tenant for construction of a wastewatertreatment system at the plant owned by Stokes. Additionally, the tenant contends that the costs of certain futureimprovements for the facility should be paid for by Stokes.  The Company contends that the costs for thewastewater treatment project as well as future improvements for the facilityare the responsibility of the tenant and disputes the tenant’s claims.  The Company will vigorously defend any andall claims by the tenant.  In March 2005,the Company filed various counterclaims against the Company’s tenant and solesupplier.

 

In March 2005, the Company receiveda notice from the staff of The Nasdaq Stock Market (the “Staff”) stating thatthe bid price for the Company’s common stock had closed below the minimum $1.00per share requirement for continued inclusion pursuant to Marketplace Rule 4310(c)(4) (the“Rule”).  In accordance with the Rule,Nasdaq informed the Company that it will have until August 29, 2005 toregain compliance with the Rule.  Inorder to regain compliance with the Rule, the bid price for the Company’scommon stock must close at, or above, $1.00 per share for at least 10consecutive business days.  If compliancewith the Rule is not demonstrated by August 29, 2005, the Company maybe provided an additional 180 calendar days by Nasdaq to regain compliance ifit meets the initial listing requirements as set forth in Marketplace Rule 4310(c),except for bid price.  If the Company isnot eligible for an additional compliance period, the Nasdaq staff will providewritten notification that the Company’s securities will be delisted.  At that time the Company may appeal theNasdaq staff’s determination to delist its securities to a ListingQualifications Panel.

 

8

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**Item2.  Management’s Discussion and Analysisor Plan of Operation**

 

*The followingdiscussion and analysis should be read in conjunction with the unauditedconsolidated financial statements of Centennial and the notes thereto includedelsewhere in this report on Form 10-QSB. Some of the information containedin this discussion and analysis or set forth elsewhere in this Form 10-QSB,including information with respect to our plans and strategies for ourbusiness, includes forward-looking statements that involve risk anduncertainties.**  (See the section titled “Forward-LookingStatements” for a more complete discussion).*

 

**OVERVIEW**

 

We are a *specialty* branded food company seeking to expanddistribution and sales of our 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 yearsold and are well-recognized in our primary market of Colorado. Our best-sellingproducts are our Stokes Green Chile Sauces, offered in five varieties,four of which are ranked in retail sales as the most popular Mexicansauces in Colorado and which are among the 25 best selling Mexican foodproducts retailed in Colorado, according to Information Resources, Inc.,an independent market research firm. Our products are currently sold in leadinggrocery retailers, superstores and club stores such as Kroger, Safeway,Wal-Mart, Sam’s Club, Albertson’s and Costco, through locations primarily inColorado, Arizona, California and in a small number of major metropolitanmarkets in adjoining states.  Sales ofour products in Colorado continue to be strong, where, as noted above, oursauces are the market leaders.  In theCalifornia market, which was the significant part of our 2004 expansion plan,sales of our products have been very slow and some of our products have beendiscontinued in that market.

 

**CONSOLIDATED RESULTS OF OPERATIONS**

 

The following table sets forth, for the threemonths ended March 31, 2005 and 2004, the percentage of net salesrepresented by the specified items included in our unaudited consolidatedstatements of operations.  We haveincluded this comparison because we believe it provides a more meaningful basisfor period-to-period comparisons. This financial data should not be viewed as asubstitute for our historical consolidated results of operations determined inaccordance with generally accepted accounting principles and does not purportto be indicative of future results of operations.

 
| ** **                                    | ** ** | **Consolidated  Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                      | ** ** | **2004** | ** ** |
|                                          |       |                                          |       |   |   |
| Net sales                                     |       | 100.0                                         | %          | 100.0 | % |
|                                          |       |                                          |       |   |   |
| Cost of  goods sold                           |       | 75.3                                          |       | 66.2 |   |
| Gross profit                                  |       | 24.7                                          |       | 33.8 |   |
| Selling,  general and administrative expenses |       | 56.4                                          |       | 51.2 |   |
| Income  (loss) from operations                |       | (31.6                                         | )          | (17.4 | ) |
| Total other  income                           |       | 11.8                                          |       | 4.1 |   |
| Income taxes  (expense)                       |       | 7.4                                           |       | 4.9 |   |
|                                          |       |                                          |       |   |   |
| Net income  (loss)                            |       | (12.5                                         | )%         | (8.4 | )% |

 

9

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*Net**Sales*

 

Our net sales are comprised of gross sales reducedby promotional allowances, billback discounts, cash discounts and slottingfees.  The following table sets forththese components to provide a more thorough understanding of net sales.

 
| ** **                                                           | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                           | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
|                                                                 |       |                                           |       |   |   |
| Sales –  Stokes                                                 |       | $                                              | 928,302    |   | $ | 899,089 |   |
| Sales –  Ellis                                                  |       | 309,823                                        |       | 400,501 |   |
| Gross sales                                                          |       | 1,238,125                                      |       | 1,299,590 |   |
| Less:  Promotional allowances, billback discounts and cash discounts |       | 203,170                                        |       | 141,200 |   |
| Net sales  before slotting fees                                      |       | 1,034,955                                      |       | 1,158,390 |   |
| Less:  Slotting fees                                                 |       | 86,000                                         |       | 30,907 |   |
|                                                                 |       |                                           |       |   |   |
| Net sales                                                            |       | $                                              | 948,955    |   | $ | 1,127,483 |   |

 

•                  **Sales****–****Stokes** – Sales of our Stokes green chile sauces increasedslightly for the three months ended March 31, 2005 over the same period in2004. This increase reflects limited orders received from customers inCalifornia.  Sales of our products in theCalifornia market continue to be very slow. We have been discontinued at three retailers in the California marketwhich represent approximately 550 stores. We do not anticipate any significant future sales to remaining customersin the California market and our products may be discontinued by the 6remaining customers representing approximately 1,200 stores unless consumersales of our products substantially increase.

 

•                  **Sales – Ellis** – Sales of our Ellis branded products continued to decrease as aresult of our efforts to reduce sales of low-margin products.  Cost increases from our supplier as well asstrong price competition in the commodity products category, in which manyEllis products are classified, have resulted in some of the Ellis products nolonger generating positive sales margins within certain markets andcustomers.  We made a concerted effort toeliminate sales of such products within those markets and customers, which hasresulted in decreased sales of Ellis Products. Sales of our Ellis products decreased $0.1 million or 22.6% for thethree months ended March 31, 2005 compared to the same period in 2004.

 

•                  **Promotional allowances,billback discounts and cash discounts** – Promotional allowances and discounts increased$0.05 million or 44.9% for the three months ended March 31, 2005 comparedto the same period in 2004.    Thisincrease was attributable to increased reserves related to potential return ofproduct by California retailers due to our products being discontinued at threeretailers in the California market which represent approximately 550stores.  If remaining customers in theCalifornia market discontinue our products, we may incur additional costsassociated with product returns from these customers.

 

•                  **Net sales before slottingfees** – Netsales before slotting fees decreased $0.12 million for the three months ended March 31,2005 compared to the same period in 2004. This decrease was primarily a result of reduced sales of the Ellis lineof products as well as the increased reserves related to our products beingdiscontinued at certain retailers in the California market.

 

•                  **Slotting fees** – Slotting fees increased $0.05 millionfor the three months ended March 31, 2005 compared to the same period in2004.  This is as a result of an existingretail customer in the California market deducting slotting fees for placementof additional items in which the retailer had previously represented slottingfees would not be charged.  We arepursuing repayment of these slotting fee deductions from the retailer, butcannot be sure we will be successful in obtaining repayment.

 

10

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•                  **Net sales**– Net sales for the three months ended March 31,2005 decreased $0.2 million compared to the same period in 2004.  This decrease was primarily attributable toincreased reserves required for potential return of discontinued products inthe California market as well as increased slotting fees paid to placeadditional products into an existing retailer in the California market.

 

*Gross profit*

 

Gross profit decreased $0.15 million, or 38.4% forthe three months ended March 31, 2005 compared to the same period in2004.  This decrease in gross profit wasprimarily attributable to the increased reserves required for potential returnof discontinued products in the California market as well as increased slottingfees.  In addition, we incurred anunusual amount of damaged product charges which increased our cost ofsales.  We are disputing these damagecharges, but we are not certain that these deductions will be repaid by theretailer that deducted these charges from their payment.

 

Gross profit as a percentage of net sales beforeslotting fees decreased 5% to 31% for the three months ended March 31,2005 as compared to the same period in 2004. This decrease was attributable to the increase in cost of sales as aresult of retailer damage charges and the increase in the reserve for returns.

 

*Selling, general andadministrative expenses*

 

Selling, general and administrative expensesdecreased $0.05 million for the three months ended March 31, 2005 comparedto the same period in 2004. This decrease was primarily comprised of a decreasein selling and marketing spending which was offset by an increase in legal feesassociated with the lawsuit with our tenant and sole supplier.

 

Recently enacted and proposed changes in the lawsand regulations affecting public companies, including the provisions of theSarbanes-Oxley Act of 2002 and rules proposed by the SEC, will result inincreased audit fees and administrative costs to us as we respond to theirrequirements.  The SEC’s recentannouncement delays the effective date of compliance under Rule 404 of theSarbanes-Oxley Act for us until the year ending December 31, 2006. The newrules could make it more difficult for us to obtain certain types ofinsurance, including director and officer liability insurance, and we may beforced to accept reduced policy limits and coverage or incur substantiallyhigher costs to obtain coverage we consider to be adequate. The impact of theseevents could also make it more difficult for us to attract and retain qualifiedpersons to serve on our board of directors, our board committees, or asexecutive officers.  At this point, wecannot estimate the amount of additional costs we will incur.

 

*Loss from operations*

 

Loss from operations increased $0.1 million for thethree months ended March 31, 2005 over the same period in 2004.  This increase was primarily attributable toincreased reserves for product return and slotting fees.

 

*Other income and(expenses)*

 

Other income consisted of production facilityincome.  Production facility incomeincluded rental income and EBITDA sharing income, which was reduced byproduction shortfall fees, all of which are related to the Lease Agreement andCo-Pack & Warehousing Agreement with Hoopeston.  Production facility income remained flat forthe three months ended March 31, 2005 compared to the same period in 2004as we did not record any EBITDA sharing income or production shortfall feeduring these periods.  We previouslyrecorded approximately $0.25 million of production shortfall fees in the yearended December 31, 2004 related to the contract year ending June 30,2005.  Our tenant and sole supplier hasinformed us that they do not anticipate any EBITDA sharing income for thecontract year ending June 30, 2005.

 

11

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Other expenses were comprised entirely of interestexpense and decreased $0.07 million for the three months ended March 31,2005 compared to the same period in 2004. This decrease was a direct result of retiring certain long-term debtusing initial public offering proceeds and repaying loans from our majoritystockholder and other individual lenders using lower interest rate funds fromour revolving line of credit we obtained in March 2004.

 

*Net loss beforeincome taxes*

 

Net loss before income taxes increased$0.05 million for the three months ended March 31, 2005 compared tothe same period in 2004 primarily as a result of the reasons set forth above.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Our principal sources of liquidity as of March 31,2005 consisted of $0.2 million in cash and cash equivalents and $1.5 millionavailable under our senior revolving line of credit.  We generate cash through product sales andlease of our plant and equipment.  Werequire capital to finance inventory and accounts receivable, pay slotting feesto grocery chain retailers, pay operating costs, pay interest on our existingdebt obligations and pay dividends on our preferred stock.  We believe we have sufficient cash andliquidity available to meet our operating needs, with the exception ofpreferred stock dividends which have been restricted by our bank, for at leastthe next twelve months. However, if we were to incur significant operatinglosses during the next twelve months resulting in a consolidated net worth ofless than $6.4 million, the bank could restrict access to the line of creditavailability due to a covenant default. Accordingly, our liquidity would beimpaired.

 

*Operating: *Net cash used by operating activities was$0.3 million for the three months ended March 31, 2005, consistingprimarily of payment of current and accrued slotting fees of $0.1 and paymentof legal and public company costs of $0.1 and payment of accrued expenses.

 

*Financing: *Netcash provided by financing activities was $0.04 million for the three monthsended March 31, 2005 and was comprised of advances under our seniorrevolving line of credit to pay interest on the line of credit.

 

Our board of directors did not declare any preferredstock dividends for the three months ended March 31, 2005.  Preferred stock dividends will be placed inarrearage as they are cumulative dividends. Terms of our amended revolving line of credit prohibit us from payingdividends until we reach $7,000,000 in consolidated net worth.

 

12

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**CONTRACTUAL OBLIGATIONS AND COMMITMENTS**

 

The following data summarizes our contractualobligations and commitments as of March 31, 2005: 

 
| ** **                          | ** ** | **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                     |       | $                           | 2,479      |   | $ | — |   | $ | 2,479 |   | $ | — |   | $ | — |   |
| Operating  leases                   |       | 91                          |       | 42 |   | 49 |   | — |   | — |   |
| Purchase  obligations               |       | 288                         |       | 288 |   | — |   | — |   | — |   |
| Production  obligations             |       | 2,464                       |       | 592 |   | 936 |   | 936 |   | — |   |
|                                |       |                        |       |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations |       | $                           | 5, 322     |   | $ | 922 |   | $ | 3,464 |   | $ | 936 |   | $ | — |   |

 

*Long-term debt: *Long-term debt at March 31, 2005consisted of $2.5 million in advances under our senior revolving line ofcredit. We intend to use this line of credit to fund our working capitalrequirements.  In March 2005, weamended our loan and security agreement for this line of credit with ourbank.  As a result of this amendment, thetotal amount available under the line of credit was reduced from $5.0 millionto $4.0 million until certain covenant levels are achieved.  As of March 31, 2005, we had $1.5million available under the line of credit to fund operations.  The amendment also reduced our net worthcovenant requirement to $6.4 million.  AtMarch 31, 2005, we were in compliance with this covenant.  We will continue to monitor our compliancewith this covenant and expect that operating results, including any productionshortfall penalties we may have to pay our sole supplier for the contract yearending June 30, 2006, will be determinative of whether we continue to meetthis requirement.  In the event webelieve we could have difficulty in meeting this requirement, we intend to meetwith our bank to seek a reduction or waiver of the requirement.  We cannot assure that we will continue tomeet this net worth requirement or could obtain a satisfactory reduction orwaiver of it.

 

*Operating leases: *Operating leases at March 31, 2005consisted of an office space lease for our headquarters in Centennial,Colorado.

 

*Purchase obligations: *Purchase obligations above include $0.04million of costs of inventory items we have requested and authorized Hoopestonto produce for us as of March 31, 2005 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 5 day productionhold.  Purchase obligations also include anoutstanding purchase commitment with an unaffiliated party as of March 31,2005 of $0.25 million for diced green chile, the primary ingredient in ourgreen chile sauces.

 

13

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*Production obligations: *Production obligations represent minimum productionrequirements 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 expect shortfall penaltieswill be incurred for the contract year ending June 30, 2005 and, accordingly,we accrued approximately $251,000 of such penalties during the year ended December 31,2004.

 

We do not anticipate any significant capitalexpenditure requirements for the next twelve months.

 

**Debt Instruments, Guarantees and RelatedCovenants**

 

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

 

**RISK ANDUNCERTAINTIES**

 

**ExploringAlternatives**

 

Our Board of Directors has authorized an explorationof strategic alternatives to maximize value for our shareholders.  Given the poor performance in the Californiamarket, we are evaluating our business plan and beginning to review otheralternatives, which may include other financing arrangements, mergers, acquisitionsand joint ventures.  While we believe wehave sufficient liquid resources available to continue our current operations,we recognize that any further significant expansion will require greatercapital resources than we currently have available.  In addition, the costs of maintaining a publiccompany in today’s environment are significant for a small company, especiallygiven the Sarbanes-Oxley reporting requirements.  Accordingly, we have begun preliminarydiscussions with various groups to review other alternatives to grow or enhanceour operations; however, no definitive plans or agreements have been reached.

 

**Lessee Items**

 

In February 2005, our tenant and sole supplier,Hoopeston, filed a lawsuit in Adams County Colorado District Court against ourwholly owned subsidiary, Stokes Canning Company (“Stokes”), seeking to recovercosts the tenant paid for construction of a wastewater treatment system at theplant owned by Stokes.  Additionally, thetenant contends that the costs of certain future improvements for the facilityshould be paid for by Stokes.  We believethat the costs for the wastewater treatment project as well as futureimprovements for the facility are the responsibility of the tenant and wedispute the tenant’s claims.  We willvigorously defend any and all claims by the tenant.

 

In March 2005, we answered the Hoopeston lawsuitand filed various counterclaims as part of that answer.  The counterclaims relate to certain breachesof contract by Hoopeston regarding the series of agreements originally enteredinto on January 26, 2001, as amended.

 

We do not control our lessee or the productiondecisions it makes at our plant.  If ourlessee becomes unable to timely produce our sauces and foods for any reason, orif our lessee determines to cease operations for any reason, we could experiencesignificant disruptions in our operations or in our ability to supply ourcustomers with products.  We haveundertaken certain measures in order to mitigate part of the impact from therisk of an interruption in supply in the event our sole supplier does nottimely produce our products.  Thesemeasures include, among other things, identifying an alternative supplier forour products, 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 interruptionin supply 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.

 

14

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If our lessee is inefficient in its operation of ourplant or if the lessee were to lose a major customer, the cost of our productscould increase as our co-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.

 

**FORWARD-LOOKINGSTATEMENTS**

 

Certain statements includedin “Management’s Discussion and Analysis or Plan of Operation,” including“Results of Operations,” “Liquidity and Capital Resources,” “ContractualObligations and Commitments,” “Risk and Uncertainties” 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”).  In connection with the “safe harbor”provisions of the Reform Act, we caution readers regarding certainforward-looking statements contained in this report.  Forward-looking statements include ourexpectations with respect to industry growth trends, effect of changes in theretail grocery industry on our sales, use of estimates for revenue recognition,other estimates used for accounting purposes, corporate cost structure, our entry into new markets, our abilityto obtain new grocery, superstore and club store customers and expanding oursales to existing and new customers, our ability to secure and keep shelf spaceallocated to our products, the impact of operational and financialdifficulties experienced with Hoopeston and related increases in our costs ofproduction, effect of adoption of recent accounting pronouncements, overalloperating results and the availability of capital.

 

Forward-looking statements are not statements ofhistorical fact. Forward-looking statements involve risks, uncertainties andother factors that may cause our or our industry’s actual results, levels ofactivity, performance or achievements to be materially different from anyfuture results, levels of activity, performance or achievements expressed orimplied by these forward-looking statements.  You can identify forward-looking statements by terminology such as“may,” “should,” “project,” “would,” “could,” “believe,” “expect,”“anticipate,” “estimate,” “intend,” “plan,” “continue” or the negative of theseterms or other comparable terms.

 

Although we believe that the statements wehave made are based on reasonable assumptions, they are based on currentinformation and beliefs and, accordingly, we can give no assurance that itsexpectations will be achieved.  Inaddition, these statements are subject to factors that could cause actualresults to differ materially from those suggested by the forward-lookingstatements. These factors include, but are not limited to, factors identifiedunder the caption “Factors That May Affect Future Operating Results,Financial Condition or Business” in our Form 10-KSB for the year ended December 31,2004, and other factors described in this Form 10-QSB. All forward-lookingstatements attributable to us are expressly qualified by the cautionarystatements set forth in such factors.  Wecaution you not to place undue reliance on our forward-looking statements.Except as required by law, we do not intend to update or revise any of ourforward-looking statements to conform these statements to actual results.

 

**Item 3.  Controls and Procedures**

 

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed by us in thereports that we file or submit to the Securities and Exchange Commission underthe Securities Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified by the Commission’s rules andforms, and that information is accumulated and communicated to our management,including our principal executive officer and principal financial officer (whowe refer to in this periodic report as our Certifying Officers), as appropriateto allow timely decisions regarding required disclosure. Our managementevaluated, with the participation of our Certifying Officers, the effectivenessof our disclosure

 

15

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controls and procedures as of March 31, 2005, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of March 31, 2005, our disclosure controls and procedures wereeffective.

 

There were no changes in our internal control overfinancial reporting that occurred during our quarter ended March 31, 2005that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

**PART II— OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

In February 2005, our tenant and sole supplier,Hoopeston, filed a lawsuit in Adams County Colorado District Court against ourwholly owned subsidiary, Stokes Canning Company (“Stokes”), seeking to recoverapproximately $400,000 in costs the tenant paid for construction of a wastewatertreatment system at the plant owned by Stokes. Additionally, the tenant contends that the costs of certain futureimprovements for the facility should be paid for by Stokes.  We believe that the costs for the wastewatertreatment project as well as future improvements for the facility are theresponsibility of the tenant and we dispute the tenant’s claims.  We will vigorously defend any and all claimsby the tenant.

 

In March 2005, we answered the Hoopeston lawsuitand filed various counterclaims as part of that answer.  The counterclaims relate to certain breachesof contract by Hoopeston regarding the series of agreements originally enteredinto on January 26, 2001, as amended.

 

**Item 2.  Unregistered Sales ofEquity Securities and Use of Proceeds**

 

None

 

**Item 3.   Defaults Upon SeniorSecurities**

 

We have $1,000,000 ofpreferred stock dividends in arrears as our board of directors did not declareany preferred stock dividends for the three month periods ended June 30,2004, September 30, 2004, December 31, 2004 or March 31,2005.  The preferred stock dividends willbe placed in arrearage as they are cumulative dividends; however, our board ofdirectors will not declare and we will not pay any preferred stock dividendsuntil we have adequate consolidated net worth to maintain our consolidated networth covenant with our bank.

 

**Item 4.  Submission of Matters toa Vote of the Security Holders**

 

None

 

**Item 5.  Other Information**

 

None

 

16

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**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 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.                                                                                                                                                                                |

 

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                            |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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                                                                                                                                       |
| 10.25*               |       | Amendment No. 2 to Loan and Security  Agreement                                                                                                                                       |
| 10.26*+              |       | Employment Agreement, effective February 28,  2005, by and between Centennial Specialty Foods Corporation and Douglas L.  Evans.                                                      |
| 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 Certification                                                                                                                                                            |
| 32.2#                |       | Section 1350 Certification                                                                                                                                                            |
| 99.1*                |       | Code of Ethics of Centennial Specialty Foods  Corporation.                                                                                                                                 |

 

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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 of redacting  a portion of the text (the “Omitted Text”). The full text of this Exhibit will  be filed separately with the Secretary of the Commission with the Omitted  Text pursuant to the Registrant’s Application Requesting Confidential  Treatment under Rule 406 under the Securities Act. |

 

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**SIGNATURES**

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|              | CENTENNIAL SPECIALTY FOODS CORPORATION |
|-------------------|----------------------------------------|
|              |                                   |
| May 16, 2005 | By:                                    | /s/  JEFFREY R. NIEDER |
|              |                                   | Jeffrey R. Nieder*Chief Executive Officer* |
|              |                                   |   |
|              |                                   |   |
|              | CENTENNIAL SPECIALTY FOODS CORPORATION |
|              |                                   |
| May 16, 2005 | By:                                    | /s/  DOUGLAS L. EVANS |
|              |                                   | Douglas L. Evans*Chief Financial Officer* |

 

19

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