SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q

~~March~~(Mark ~~31,~~One) ~~June~~[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ~~2000~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________ to ________ Commission File Numbers 333-23893; 333-23893-01; 333-23893-02; 333-23893-03 -------------------------- ~~Current~~CFP ~~assets:~~HOLDINGS, ~~Cash~~INC. ~~and~~(Exact ~~cash~~Name ~~equivalents~~of $Registrant ~~606~~as $Specified ~~713~~in ~~Accounts~~Its ~~receivable,~~Charter) ~~net~~Delaware of2013 ~~allowance~~95-4413619 ~~for~~(State ~~doubtful~~or ~~accounts~~Other Jurisdiction of ~~$782,000~~(Primary ~~and~~Standard ~~$1,091,000~~Industrial at(I.R.S. ~~March~~Employer ~~31,~~Incorporation ~~2000~~or ~~and~~Organization) ~~June~~Classification ~~30,~~Code ~~2000,~~Number) ~~respectively~~Identification ~~23,578~~Number) 21CFP GROUP,~~522~~ ~~Inventories~~INC. ~~23,897~~(Exact ~~31,123~~Name ~~Prepaid~~of ~~expenses~~Registrant ~~and~~as ~~other~~Specified ~~current~~in ~~assets~~Its ~~412~~Charter) ~~824~~Delaware 2013 95-~~--------------------------------~~4616486 ~~Total~~(State ~~current~~or ~~assets~~Other ~~48,493~~Jurisdiction ~~54,182~~of ~~Property~~(Primary ~~and~~Standard ~~equipment,~~Industrial ~~net~~(I.R.S. ~~33,465~~Employer ~~33,397~~Incorporation ~~Costs~~or inOrganization) ~~excess~~Classification ofCode ~~net~~Number) ~~assets~~Identification ~~acquired,~~Number) ~~net~~CUSTOM ~~62,022~~FOOD 61PRODUCTS,~~165~~ ~~Intangible~~INC. ~~and~~(Exact ~~other~~Name ~~assets,~~of ~~net~~Registrant ~~4,172~~as ~~3,880~~Specified ~~---------------------------------~~in ~~Total~~Its $Charter) ~~148,152~~California $2013 ~~152,624~~95-3760291 ~~=================================~~(State ~~LIABILITIES~~or ~~AND~~Other ~~STOCKHOLDERS'~~Jurisdiction ~~DEFICIENCY~~of ~~Current~~(Primary ~~liabilities:~~Standard ~~Current~~Industrial ~~portion~~(I.R.S. ofEmployer ~~long-term~~Incorporation ~~debt~~or $Organization) ~~1,043~~Classification $Code ~~777~~Number) ~~Accounts~~Identification ~~payable~~Number) 11QFAC,~~923~~ ~~11,467~~LLC ~~Accrued~~(Exact ~~expenses~~Name ~~and~~of ~~other~~Registrant ~~current~~as ~~liabilities~~Specified ~~5,291~~in ~~8,529~~Its Charter) Delaware 2013 23-~~--------------------------------~~2999998 ~~Total~~(State ~~current~~or ~~liabilities~~Other ~~18,257~~Jurisdiction ~~20,773~~of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number) -------------------------~~--------~~ ~~Long~~5501 ~~term~~Tabor ~~debt~~Road ~~156~~Philadelphia,~~890~~ ~~160~~PA 19120 (Address,~~648~~ ~~---------------------------------~~Including ~~Commitments~~Zip ~~and~~Code ~~contingencies~~of ~~Redeemable~~Registrant's ~~common~~Principal ~~stock~~Executive ~~1,839~~Offices) 1215-288-0888 (Registrant's telephone number,~~839~~ including area code) -------------------------~~--------~~ ~~Stockholders'~~Indicate ~~deficiency:~~by ~~Preferred~~check ~~stock,~~mark ~~$.01~~whether ~~par~~the ~~value;~~registrant ~~6,472~~(1) ~~shares~~has ~~authorized,~~filed ~~none~~all ~~issued~~reports ~~and~~required ~~outstanding~~to ~~Voting~~be ~~common~~filed ~~stock~~by -Section ~~Class~~13 A,or ~~$.01~~15(d) ~~par~~of ~~value;~~the ~~100,000~~Securities ~~shares~~Exchange ~~authorized,~~Act ~~3,196~~of ~~3,196~~1934 ~~14,705~~during ~~shares~~the ~~issued~~preceding ~~and~~12 ~~outstanding~~months ~~Nonvoting~~(or ~~common~~for ~~stock~~shorter -period ~~Class~~that A,the ~~$.01~~registrant ~~par~~was ~~value;~~required ~~25,000~~to ~~shares~~file ~~authorized,~~such 2reports),~~330~~ ~~2,280 9,959~~ and ~~9,859~~ (~~inclusive of 1,350 shares classified as redeemable common stock~~2) ~~shares~~has ~~issued~~been ~~and~~subject ~~outstanding~~to atfiling ~~March~~requirements ~~31,~~for ~~2000~~the ~~and~~past ~~June~~90 ~~30,~~days. ~~2000,~~[X] ~~respectively~~YES ~~Nonvoting~~[ ~~common~~] ~~stock~~NO -Indicate ~~Class~~the B,number ~~$.01~~of ~~par value; 25,000~~ shares ~~authorized,~~outstanding ~~912~~of ~~918~~each ~~3,865~~of ~~and~~the ~~3,886~~issuer's ~~shares~~classes ~~(inclusive~~ of 2common stock,~~162~~ ~~shares classified~~ as ~~redeemable~~of ~~common~~the ~~stock)~~latest ~~shares~~practicable ~~issued~~date. ~~and~~Class ~~outstanding~~Outstanding at ~~March~~September ~~31, 2000 and June~~ 30, 2000, ~~respectively~~----- ~~Stockholders' notes receivable (637) (635) Accumulated deficit (34,635) (36,395)~~ --------------------------------- ~~Total~~Voting ~~stockholders'~~Common ~~deficiency~~Stock ~~(28~~- Class A,~~834)~~ ~~(30~~$.01 par value 14,~~636)~~705 Non-~~--------------------------------~~voting ~~Total~~common $Stock ~~148~~- Class A,~~152~~ $.01 ~~152,624~~par ~~=================================~~value ~~See~~9,859 ~~accompanying~~Non-voting ~~notes~~common toStock ~~consolidated~~- ~~financial~~Class ~~statements~~B $.01 par value 3,886

CFP Group, Inc. and Subsidiaries FORM 10-Q INDEX

~~Three~~Part ~~Months~~I. ~~Ended~~Financial ~~June~~Information ~~30,~~Page ~~June~~# ~~30, 1999 2000~~ ---- ---- ~~Cash~~Item ~~flows from operating activities: Net income (loss) $ 216 $ (~~1~~,760)~~. ~~Adjustments~~Financial toStatements ~~reconcile~~Consolidated ~~net~~Balance ~~income~~Sheets ~~(loss)~~- to3 ~~net~~March ~~cash used in operating activities: Depreciation and amortization 1~~31,~~836~~ ~~2,130~~2000 ~~Amortization of deferred financing costs~~ and ~~original~~September ~~issue discount 288 297 Changes in assets and liabilities: Accounts receivable 1~~30,~~033~~ ~~2,056~~2000 ~~Inventories~~Consolidated ~~(2,103)~~Statements ~~(7,226)~~of ~~Prepaid~~Operations ~~expenses~~- ~~and~~4 ~~other~~Three ~~current~~months ~~assets~~ended ~~(619)~~September ~~(412) Accounts payable (2~~30,~~091)~~ ~~(456)~~2000 ~~Accrued expenses~~ and ~~other~~1999 ~~current~~Consolidated ~~liabilities~~Statements ~~1,142~~of ~~3,238~~Cash ~~---------------------------------~~Flows ~~Net cash used in operating activities (298) (2,133)~~ -~~--------------------------------~~ ~~Cash flows from investing activities: Acquisition of property and equipment (403) (1,205) Other assets (721) (~~5) ~~---------------------------------~~Three ~~Net~~months ~~cash~~ended ~~used~~September ~~in investing activities (1~~30,~~124)~~ ~~(1,210)~~2000 ~~---------------------------------~~and ~~Cash~~1999 ~~flows~~Notes ~~from~~to ~~financing~~Consolidated ~~activities:~~Financial ~~Borrowings~~Statements ~~under~~6 ~~revolving~~Item ~~loan facility 3,978 54,794 Repayment of revolving loan facilities (~~2~~,000)~~. ~~(53,467)~~Management's ~~Proceeds~~Discussion ~~from equipment loan 2,604 Repayment of long-term debt~~ and ~~capitalized~~Analysis ~~lease obligations (248) (439) Sale~~ of ~~Common~~10 ~~Stock~~Financial 6Condition ~~Purchase~~and ofResults ~~Common Stock (50) Collection~~ of ~~shareholder~~Operations ~~notes~~Item ~~receivable~~3. 12Quantitative 2and ~~---------------------------------~~Qualitative ~~Net~~Disclosures ~~cash~~about ~~provided~~market byrisk ~~financing~~15 ~~activities~~Part ~~1,742~~II. ~~3,450~~Other ~~---------------------------------~~Information ~~Net~~Item ~~increase~~6. inExhibits ~~cash~~and ~~320~~Reports ~~107~~on ~~Cash,~~Form ~~beginning of period 1,820 606~~ 8-~~--------------------------------~~K ~~Cash,~~16 ~~end~~Signatures of17 ~~period~~Exhibit $ 2,140 $ 713 ================================= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 707 $ 1,163 Income taxes $ 344 $ 90 See accompanying notes to consolidated financial statements.Index

2 Part I Financial Information Item 1. Financial Statements CFP GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousand, Except Share Data) (UNAUDITED) ASSETS

March 31, ~~June~~September 30, 2000 2000 ------------------------------------ ~~(In~~Current ~~Thousands)~~assets: ~~Senior~~Cash ~~notes~~and ~~payable,~~cash ~~interest~~equivalents at$ ~~11.625%~~606 ~~payable semiannually, principal due~~ $ ~~115~~1,~~000~~052 $Accounts ~~115~~receivable,~~000~~ ~~January~~net ~~2004~~of ~~Term~~allowance ~~note~~for ~~payable~~doubtful toaccounts aof ~~bank~~$782,000 ~~interest~~and at$269,000 ~~a reference rate (9.25%~~ at ~~June~~March 3031, 2000) orand ~~Eurodollar~~September ~~rate (6.44% at June~~ 30, 2000~~) plus 2.25%~~, ~~interest~~respectively ~~payable monthly~~23,578 ~~principal payable on May 1~~18,817 ~~2002~~Inventories 1023,~~000~~897 1022,~~000~~601 ~~Revolving~~Prepaid ~~loan~~expenses ~~payable~~and toother acurrent ~~bank,~~assets ~~interest~~412 at1,478 a------------------------------------ ~~reference~~Total ~~rate~~current ~~(9.25%~~assets at48,493 ~~June 30~~43,948 ~~2000)~~Property orand ~~Eurodollar~~equipment, ~~rate~~net ~~(6.44% at June 30~~33,465 ~~2000) plus 2.25%~~32,828 ~~interest~~Costs ~~payable~~in ~~monthly,~~excess ~~expires~~of ~~May~~net 1assets acquired, ~~2002~~net 1762,~~815~~022 1960,~~142~~309 ~~Term~~Intangible ~~note~~and ~~payable~~other toassets, anet ~~bank~~4,172 ~~interest~~3,586 at------------------------------------ aTotal ~~reference~~$ ~~rate~~148,152 ~~(9.25%~~$ ~~at June 30~~140,671 ~~2000)~~==================================== orLIABILITIES ~~Eurodollar~~AND ~~rate~~STOCKHOLDERS' ~~(6.44%~~DEFICIENCY atCurrent ~~June~~liabilities: ~~30,~~Current ~~2000)~~portion ~~plus~~of ~~2.25%,~~long-term ~~interest~~debt ~~payable~~$ ~~monthly~~1,043 ~~principal quarterly at~~ $89 1,~~285.72,~~507 ~~principal~~Accounts payable ~~January through February 2006 2~~11,~~143~~923 210,~~054~~157 ~~Revenue~~Accrued ~~bond~~expenses ~~payable~~and toother acurrent ~~government~~liabilities ~~financing authority~~5,291 ~~interest at a reference rate (6.75% at June 30~~5,175 ~~2000)~~------------------------------------ ~~not~~Total tocurrent ~~exceed~~liabilities 18%,257 ~~payable monthly~~16,839 ~~principal~~------------------------------------ ~~payable~~Long ~~annually~~term atdebt ~~$100~~156,~~000~~890 ~~increasing to $400~~164,~~000~~875 ~~through~~------------------------------------ ~~December~~Commitments ~~2014~~and ~~3,952~~contingencies ~~3,952~~Redeemable ~~Notes~~common ~~payable~~stock ~~to a government agency~~1,839 ~~interest at 2%~~1,839 ~~payable~~------------------------------------ ~~monthly~~Stockholders' ~~through~~deficiency: ~~April~~Preferred ~~2012~~stock, ~~collateralized~~$.01 inpar avalue; ~~second~~6,472 ~~position~~shares onauthorized, ~~the~~none ~~Company's~~issued ~~Philadelphia~~and ~~facility~~outstanding ~~1,433~~Voting ~~1,423~~common ~~Note~~stock ~~payable~~- toClass ~~a government agency~~A, ~~interest at 0~~$.5%01 ~~payable~~par ~~monthly~~value; ~~beginning~~100,000 ~~February~~shares ~~1999~~authorized, ~~through~~3,196 ~~July~~3,196 ~~2005~~14,705 ~~principal~~shares issued and ~~interest~~outstanding ~~payable~~Nonvoting incommon ~~equal~~stock ~~monthly~~- ~~installments~~Class ~~from~~A, ~~August~~$.01 ~~2005~~par ~~through~~value; ~~January 2012~~25,000 ~~collateralized~~shares inauthorized, a2,330 ~~shared~~2,280 ~~third~~9,959 ~~position~~and on9,859 ~~the~~(inclusive ~~Company's~~of ~~Philadelphia facility~~ 1,~~000~~350 ~~1,000~~shares ~~Notes~~classified ~~payable~~as toredeemable acommon ~~government~~stock) ~~agency,~~shares ~~interest~~issued atand ~~5.25%~~outstanding ~~payable~~at ~~monthly~~March ~~with~~31, ~~principal~~2000 ~~through~~and ~~March~~September ~~2012~~30, ~~collateralized~~2000, inrespectively aNonvoting ~~shared~~common ~~first~~stock ~~position~~- onClass ~~the~~B, ~~Company's~~$.01 ~~Philadelphia~~par ~~facility.~~value; ~~640~~25,000 ~~630~~shares ~~Notes~~authorized, ~~payable~~912 to918 a3,865 ~~government~~and ~~agency~~3,886 ~~interest~~shares at(inclusive of 2%,162 ~~payable~~shares ~~with~~classified ~~principal~~as ~~monthly~~redeemable ~~through~~common ~~April~~stock) ~~2001~~shares ~~104~~issued 86and ~~Capital~~outstanding ~~lease~~at ~~obligations~~March ~~payable~~31, in2000 ~~varying~~and ~~monthly~~September ~~installments~~30, ~~through 2021~~2000, ~~collateralized~~respectively byStockholders' ~~buildings~~notes ~~and~~receivable ~~equipment.~~(637) 5(635) Accumulated deficit (34,~~846~~635) 8(48,~~138~~641) ------------------------------------ Total ~~157,933~~stockholders' ~~161,425~~deficiency ~~Less current portion~~ (128,~~043~~834) (~~777~~42,882) ----------------------------------- ~~Long~~-~~term~~ ~~debt~~Total $ ~~156~~148,~~890~~152 $ ~~160~~140,~~648~~671 ==================================== See accompanying notes to consolidated financial statements.

3 CFP GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands) (UNAUDITED)

Three Months Ended ~~June~~Six Months Ended ------------------ ---------------- September 30, ~~2000~~September ~~(In~~30, ~~Thousands)~~September ~~Custom~~30, ~~Quality~~September ~~Corporate~~30, ~~Foods~~1999 ~~Foods~~2000 ~~and~~1999 ~~Other~~2000 ~~Eliminations~~---- ~~Total~~---- ---- ---- Sales $ 51,206 $ 51,765 $ 98,679 $ 102,141 Cost of sales 41,730 52,241 80,032 97,012 ------------- ----------- ------------ ----------- ~~Net~~Gross ~~sales~~profit to(loss) ~~external~~9,476 ~~customers~~(2,476) ~~$25~~18,~~296~~647 ~~$25~~5,~~079~~129 ~~$50~~Selling,~~375~~ ~~Interest~~general ~~expense~~and ~~286~~administrative ~~152~~expenses $4,~~368~~357 45,~~806~~045 ~~Depreciation~~8,952 ~~and amortization expense 307 1~~9,~~752~~524 71------------- ~~2,130~~----------- ~~Segment~~------------ ~~income~~----------- Income (loss) from operations 25,~~871~~119 ~~409~~ (~~158~~7,521) 39,~~122~~695 ~~Long-lived~~(4,395) ~~assets~~Interest 31expense 4,~~211~~484 784,~~902~~724 ~~108~~8,~~458~~822 ~~$(120~~9,~~129~~529 ------------- ----------- ------------ ----------- Income (loss) ~~98,442~~before ~~Total~~provision ~~segments~~for ~~assets~~income ~~49,538~~taxes ~~114~~635 (12,~~719~~245) ~~108~~873 (13,~~496~~934) Provision for income taxes 55 6 77 82 ------------- ----------- ------------ ----------- Net income (~~120~~loss) $ 580 $ (12,~~129~~251) ~~152~~$ 796 $ (14,~~624~~006) ~~Capital~~============= ~~expenditures~~=========== ~~230~~============ ~~975~~=========== ~~1,205~~See accompanying notes to consolidated financial statements.

4 CFP GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (UNAUDITED)

~~Three~~Six Months Ended ~~June~~Sept. 30, Sept. 30, 1999 2000 ---- ---- Cash flows from operating activities: Net income (Inloss) ~~Thousands~~$ 796 $(14,006) ~~Custom~~Adjustments ~~Quality~~to ~~Corporate~~reconcile ~~Foods~~net ~~Foods~~(loss) income to net cash provided by operating activities: Depreciation and ~~Other~~amortization ~~Eliminations~~3,663 ~~Total~~4,313 Amortization of deferred financing costs and original issue discount 597 592 Changes in assets and liabilities: Accounts receivable (1,180) 4,761 Inventories (5,546) 1,296 Prepaid expenses and other current assets (439) (1,067) Accounts payable (1,935) (1,768) Accrued expenses and other current liabilities (2,151) (114) ------------- ------------- Net cash provided by (used in) operating activities (6,195) (5,993) ------------- ------------- Cash flows from investing activities: Acquisition of property and equipment (3,870) (1,962) Other assets 1,021 (5) ------------- ------------- Net ~~sales~~cash toused ~~external~~in ~~customers~~investing ~~$21,573~~activities ~~$25~~(2,~~900~~849) ~~$47~~(1,~~473~~967) ~~Interest~~------------- ~~expense~~------------- ~~233~~Cash ~~123~~flows $3from financing activities: Borrowings under revolving loan facility 34,~~982~~515 4112,~~338~~322 ~~Depreciation~~Repayment ~~and~~of ~~amortization~~revolving ~~expense~~loan ~~364~~facilities 1(25,~~401~~985) 71(105,596) 1Proceeds from issuance of long-term debt - 2,~~836~~603 ~~Segment~~Repayment ~~income~~of long-term debt and capitalized lease obligations (~~loss~~497) (881) Proceeds from ~~operations~~sale of common stock - 6 Collection of shareholder notes receivable 98 2~~,978~~ ~~1,756~~Purchase of common stock (~~158~~193) ~~4,576~~(50) ~~Long~~-~~lived~~------------ ~~assets~~------------- ~~27,264~~Net 85cash provided by financing activities 7,~~476~~938 ~~116~~8,~~905~~406 $------------- ------------- Net increase (~~129~~decrease) in cash (1,~~040~~106) ~~100~~446 Cash,~~605~~ ~~Total~~beginning ~~segments~~of ~~assets~~period 411,~~303~~820 ~~107~~606 ------------- ------------- Cash,~~799~~ ~~117~~end of period $ 714 $ 1,~~351~~052 ~~(129~~============= ============= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 8,~~040)~~245 ~~137~~$ 8,~~413~~910 ~~Capital~~Income ~~expenditures~~taxes ~~226~~$ ~~898~~401 ~~1,124~~$ 96 See accompanying notes to consolidated financial statements.

5 CFP GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of CFP Group, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included, including variances identified in the tracking of inventory at both internal and outside locations. (See Note 7) Operating results for the period are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying financial statements include the results of CFP Group, Inc. ("CFP Group") and its wholly owned subsidiary CFP Holdings, Inc. ("CFP Holdings"), and CFP Holdings' wholly owned subsidiaries Custom Food Products, Inc. ("Custom Foods") and QFAC, LLC. ("Quality Foods"). The consolidated financial statements as presented herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. (the "Form 10-K") The Company's fiscal year is the 52 or 53-week period ending on the Saturday nearest to March 31. For simplicity of presentation, the Company has described the interim periods-end and year-end herein as September 30 and March 31, respectively. NOTE 2: DEBT COVENANT The Company incurred substantial indebtedness in connection with the financing of the acquisition of Quality Foods and is highly leveraged. As of September 30, 2000 the Company had total consolidated indebtedness (including capitalized lease obligations) of approximately $166.4 million and a stockholders' deficiency of $42.5 million. The outstanding debt primarily relates to $115.0 million outstanding principal amount of 11.625% Senior Notes due 2004 (the "Senior Notes") and borrowings under a $45.0 million loan and security agreement (the "Credit Facility"), referenced in the Form 10-K. During the quarter ended September 30, 2000, the Company was not in compliance with respect to leverage, availability and certain other covenants associated with the Credit Facility. In addition, the Company is in violation with respect to covenants associated with its Capital Lease Agreement with CIT (Capital Lease Agreement.) Company is required to make an interest payment on the Senior Notes of $6.7 million in January and July each year. The Company is 6 currently in discussions with its lenders and equity partners regarding future cash requirements and current covenant violations. Based on discussions with the leaders under its Senior Credit Facility and lenders under its Capital Lease Agreement, the Company has been granted a temporary waiver. The Company continues to work with its lenders to finalize and execute documentation for long term waivers of non-compliance. Failure to resolve liquidity issues could have a material adverse effect on the future operational results of the Company. The Company's ability to make scheduled payments of interest or to refinance its indebtedness will depend on its future operating performance and cash flows, which are subject to prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors, many of which are beyond its control, as well as the availability of borrowings under the Credit Facility or successor facilities. If the Company is unable to generate sufficient cash flows from operations in the future to service its indebtedness, it will be required to refinance all or a portion of its existing indebtedness, or to obtain additional financing, or to obtain further waivers of non-compliance with its existing lenders, or obtain additional equity investment. There can be no assurance that any such refinancing would be possible or that any additional debt or equity financing could be obtained. The inability to make scheduled interest payments, refinance its debt, or obtain additional financing would have a material adverse effect on the Company. NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." As amended by SFAS No. 137 and SFAS No. 138, SFAS No. 133 is effective for financial statements issued for all fiscal years beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value. The Company is in the process of evaluating the effect that this new standard will have on its financial statements. In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 101, which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. In March 2000, the SEC released SAB No. 101A, which delayed for one quarter the implementation date of SAB No. 101 for registrants with fiscal years beginning between December 16, 1999 and March 15, 2000. In June 2000, the SEC released SAB No. 101B, which delayed the implementation date of SAB No. 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company is evaluating what impact, if any, SAB No. 101 may have on its consolidated financial statements. NOTE 4: INVENTORIES Inventories consisted of the following: March 31, September 30, 2000 2000 (In Thousands) ------------------------------------- Raw materials $ 8,279 $ 8,152 Work-in-process 5,602 3,936 Finished goods 10,384 12,982 ----------------- ------------------- Total 24,265 25,070 Reserve (368) (2,469) ----------------- ------------------- Inventories, net $ 23,897 $ 22,601 ================= =================== 7 NOTE 5: LONG-TERM OBLIGATIONS Long-term obligations consisted of the following:

NOTE 6: SEGMENT INFORMATION The Company does not maintain separate stand-alone financial statements prepared in accordance with generally accepted accounting principles for each of its operating segments. In accordance with SFAS 131, the Company has prepared the following tables that present information related to each operating segment included in internal management reports. 8

9 Note 7: INVENTORY ADJUSTMENTS The Company in an effort to increase efficiency in operations continuously evaluates procedures. As the Company began the implementation of new information systems, standard testing of system accuracy began to show significant operational yield differences. Through these processes, the Company identified differences between its perpetual inventory and physical inventory. The Company has recorded a $7.5 million one-time charge, comprised of $5.2 million in perpetual inventory adjustments and a $2.3 million adjustment to inventory reserves and determined its causes as follows: i) increased usage of raw material and work in process, due to variations in manufacturing process specifications, ii) an under reporting of raw material usage resulted in differences between the perpetual and physical inventories, and iii) improper handling and rotation of both raw materials and finished goods. In an effort to contain the situation and reduce the risk of future exposure, the Company performed complete inventory tests of all facilities, implemented new systems and controls for daily tracking of inventory, as well as created a new logistics department separate from operations to control and monitor the process. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Notes thereto included herein. With the exception of the reported actual results, the information presented herein contains predictions, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, and achievements of the Company to differ materially from those expressed or implied by such forward-looking statements. Although the Company believes its plans, intentions and expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that such plan, intentions, expectations, objects or goals will be achieved. Important factors that could cause actual results to differ materially from those included in the forward-looking statements include but are not limited to those set forth in the Company's Form 10-K Annual Report for the year ended March 31, 2000 and Form 10-Q Quarterly Report for the first quarter of fiscal year 2001. General The following is management's discussion and analysis of certain significant factors, which have affected the Company's financial position, and operating results during the periods included in the accompanying consolidated financial statements. During the period, the Company identified variances in the tracking of inventory at both internal and outside locations. The Company recorded a $7.5 million one-time charge and determined its causes as follows: i) increased usage of raw material and work in process, due to 10 variations in manufacturing process specifications, ii) an under reporting of raw material usage resulted in differences between the perpetual and physical inventories, and iii) improper handling and rotation of both raw materials and finished goods. Results of Operations Three months ended September 30, 2000 compared to three months ended September 30, 1999. Net Sales. Net sales increased by $.6 million or 1.1% to $51.8 million for the three-month period ended September 30, 2000 from $51.2 million for the same period in 1999. The increase in net sales dollars is directly correlated to the increase in pounds sold. Total pounds sold for the quarter, increased 0.8 million or 2.6% to 31.8 million pounds compared to the prior period of 31.0 million pounds. The increase in pounds sold and consequently sales dollars is predominately due to growth in the Company's Arby's business line, increasing 1.1 million pounds and $1.5 million in net sales dollars in the current period versus the same period ended 1999. The Company also has experienced growth in its pre-cooked product line. In addition, net sales in the quarter ended September 30, 2000 were reduced by $650,000 of additional sales allowances. The Company, in evaluating outstanding accounts receivable balances, determined that reserve balances were not sufficient to support outstanding customer discounts taken under standard sales terms. The adjustment was taken against sales as the Company continues to do business with these customers. The Company has implemented procedures to evaluate customer deductions on an ongoing basis to reduce the risk of future exposures. The net sales price excluding the above-mentioned sales adjustment remained constant at an average of $1.65 per pound in comparing the quarter ended September 30, 2000 versus September 30, 1999. The Company continues to develop new products and formulas in an effort to better serve customers and remain at the forefront of competition. Gross Profit/ (Loss). Gross profit decreased to a $2.5 million loss for the three months ended September 30, 2000 from a gross profit of $9.5 million or 18.5% of net sales for the three months ended September 30, 1999. The loss for the current period is the result of a one-time adjustment to inventory of $7.5 million comprised of $5.2 million in perpetual inventory adjustments and a $2.3 million adjustment to inventory reserves. During the current quarter, the Company identified variances in the tracking of inventory at both internal and outside locations. The Company recorded a total $7.5 million one-time inventory charge and determined its causes as follows: i) increased usage of raw material and work in process, due to variations in manufacturing process specifications, ii) an under reporting of raw material usage resulted in differences between the perpetual and physical inventories, and iii) improper handling and rotation of both raw materials and finished goods. In an effort to rectify the situation and reduce the risk of future exposure, the Company performed complete inventory tests of all facilities, implemented new systems and controls for daily tracking of inventory, created a new logistics department separate 11 from operations to control and monitor the process. In addition, the Company is currently implementing policies and procedures as a result of work performed by New York Consulting Partners. Excluding the inventory adjustment, the decrease in gross profit is a result of higher raw material costs associated with meat purchases. Anticipating the increase in raw material cost, the Company instituted sales price increases in the first quarter of the current fiscal year. Management expects the full benefit being realized in the 3rd and 4th quarters of the current fiscal year. The increase in sales of the Arby's product line, a lower margin product, also reduced gross profit. In conjunction with increased demand for product, the Company has experienced higher overtime and labor costs, which reduced gross profit for the current period. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $5.0 million for the three months ended September 30, 2000 from $4.4 million for the three months ended September 30, 1999. The increase is due primarily to $427,000 in professional fees in the current quarter pertaining to New York Consulting Partners. Income (Loss) from Operations. Income from operations decreased to a loss of $7.5 million for the three-month period ended September 30, 2000 from income from operations of $5.1 million for the three-month period ended September 30, 1999. The decrease is directly related to the increase in raw material costs and sales volume mix, coupled with the $7.5 million inventory adjustment and additional sales allowances of $650,000, and increased professional fees of $427,000. Interest Expense. Interest expense increased slightly to $4.7 million for the three-month period ended September 30, 2000 from $4.5 million for the three-month period ended September 30, 1999. The increase is primarily due to increased borrowings under the Company's revolving credit facility. Provision for Income Taxes. Provision for income taxes remained minimal at $6,000 for the quarter ended September 30, 2000 compared to $55,000 for the quarter ended September 30, 1999, relates to state income taxes. Net (Loss) Income. A net loss of $12.3 million was incurred for the three months ended September 30, 2000 versus net income of $580,000 for the three months ended September 30, 1999. The net loss for the period is directly related to the decrease in gross margin, as a result of inventory and sales adjustments and higher raw material costs, coupled with the increases in SG&A and interest costs. Six months ended September 30, 2000 compared to six months ended September 30, 1999. Net Sales. Net sales increased by $3.5 million or 3.5% to $102.1 million for the six-month period ended September 30, 2000 from $98.7 million for the same period in 1999. The increase in net sales dollars is directly correlated to the increase in pounds sold. Total pounds sold for the six months increased 3.3 million or 5.5% to 62.6 million pounds compared to the prior period of 59.3 million pounds. The increase in pounds sold and consequently sales dollars is predominately due to growth in the Company's Arby's business line, increasing 3.6 million pounds and $4.9 million in net sales dollars in the current period versus the same period ended 1999. The Company has also experienced growth in its pre-cooked product line. The sales volume shift has resulted in a $0.02 decrease in the average sales price per pound to $1.64 per 12 pound. The Company has implemented price increases earlier in the fiscal year, which is expected to have a positive impact on average sales prices through the fiscal year end. Net sales also reflect the additional sales allowances of $650,000 as discussed above. The Company, in evaluating outstanding accounts receivable balances, determined that reserve balances were not sufficient to support outstanding customer discounts taken under standard sales terms. The adjustment was taken against sales as the Company continues to do business with these customers. Gross Profit/ (Loss). Gross profit decreased $13.5 million to $5.1 million or 5.0% of net sales for the six months ended September 30, 2000 from $18.6 million or 18.9% of net sales for the six months ended September 30, 1999. The decreases reflect the effect of an adjustment to inventory of $7.5 million comprised of $5.2 million in perpetual inventory adjustments and a $2.3 million adjustment to inventory reserves. During the quarter ended September 30, 2000, the Company identified variances in the tracking of inventory at both internal and outside locations. The Company recorded the $7.5 million one-time charge and determined its causes as follows: i) increased usage of raw material and work in process, due to variations in manufacturing process specifications, ii) an under reporting of raw material usage resulted in differences between the perpetual and physical inventories, and iii) improper handling and rotation of both raw materials and finished goods. In an effort to rectify the situation and reduce the risk of future exposure, the Company performed complete inventory tests of all facilities, implemented new systems and controls for daily tracking of inventory, and created a new logistics department separate from operations to control and monitor the process. Additionally, higher raw material costs associated with meat purchases at the Company's Philadelphia, PA facility added to cost of sales compared with the prior period. Anticipating the higher raw material costs, the Company instituted sales price increases in the first quarter. Management expects the full benefit being realized in the 3rd and 4th quarters of the current fiscal year. The Company has experienced a shift in product mix to the Company's Arby's product line which generally, is a lower margin product. Therefore adding to cost of sales on a percentage basis over prior year. The Company continues to make operational improvements and continues to employ lower cost formulization strategies to combat higher raw material costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $9.5 million for the six months ended September 30, 2000 from $9.0 million for the six months ended September 30, 1999. The increase is due primarily to $427,000 in professional fees in the current year pertaining to New York Consulting Partners. Income (Loss) from Operations. Income from operations decreased to $4.4 million loss for the six-month period ended September 30, 2000 from a $9.7 million gain for the six-month period ended September 30, 1999. The decrease is directly related to the inventory adjustment of $7.5 million and the $650,000 sales allowance adjustment, coupled with the increase in raw material costs and sales volume mix. Interest Expense. Interest expense increased to $9.5 million for the six-month period ended September 30, 2000 from $8.8 million for the six-month period ended September 30, 1999. The increase is primarily due to increased borrowings under the Company's revolving credit facility. Provision for Income Taxes. Provision for income taxes remained stable at $82,000 for the six months ended September 30, 2000 compared to $77,000 for the six months ended September 30, 1999. 13 Net (Loss) Income. A net loss of $14.0 million was incurred for the six months ended September 30, 2000 versus net income of $796,000 for the six months ended September 30, 1999. The net loss for the period is directly related to the decrease in gross margin, as a result of higher cost of sales, inclusive of the $7.5 million inventory adjustment, the $650,000 sales allowances adjustment, coupled with the increase in SG&A for professional fees and interest costs. Liquidity and Financial Resources The Company's total consolidated indebtedness at September 30, 2000 was $166.4 million compared to $157.9 million at September 30, 1999. The increase from prior year is due primarily to increased borrowings under the Company's $45.0 million Loan and Security Agreement ("Credit Agreement") with a financial institution providing for revolving credit loans ("Revolver") and term loan options. Borrowings under the Credit Agreement bear interest at floating rates. Interest payments on the 11 5/8% Senior Notes represent significant obligations of the Company. The Senior Notes require semi-annual interest payments of approximately $6.7 million in January and July of each year. Generally, the Company's primary sources of liquidity are cash flows from operations and borrowings under the Revolver. The Revolver provides for borrowings up to $45.0 million, subject to a borrowing base and other limitations, including amounts outstanding under term loans, letters of credit and other borrowing instruments. The Company anticipates that its working capital requirements, capital expenditures and debt service requirements will be satisfied through a combination of cash flows from operations and funds available under the Credit Facility. During the quarter ended September 30, 2000, the Company was not in compliance with respect to leverage, availability and certain other covenants associated with the Credit Facility. Specifically, based on the borrowing base and other limitations, the Company was overdrawn by $1.5 million under the Revolver at the quarter end September 30, 2000. In addition, the Company is in violation with respect to covenants associated with its Capital Lease Agreement with CIT (Capital Lease Agreement.) The Company is currently working with its lenders and equity sponsors to resolve the default status. Based on discussions with the lenders under its Senior Credit facility and lenders under its Capital Lease Agreement, the Company has been granted a temporary waiver. The Company continues to work with its lenders to finalize and execute documentation for long term waivers of non-compliance. The Company is in compliance with the terms of its indenture, for its Senior Notes. The covenants are measured on a twelve-month rolling basis. Therefore, the Company will need to obtain waivers of non-compliance from its lenders on a go-forward basis. Currently the Company's liquidity is a function of the Company's ability to control cash and to reduce the outstanding Revolver balance. Failure to obtain waivers could have a material adverse effect on future operating results. The Company is currently scheduled to make an interest payment on the senior subordinated notes of $6.7 million in January 2001. The Company expects to solve liquidity issues, however, no assurance can be given that the Company will be able to do so on an economic basis. Failure to resolve liquidity issues could have a material adverse effect on the future operational results of the Company. 14 The Company's ability to make scheduled payments of interest or to refinance its indebtedness will depend on its future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors, many of which are beyond its control, as well as the availability of borrowings under the Credit Facility or successor facilities. If the Company is unable to generate sufficient cash flow from operations in the future to service its indebtedness, it will be required to refinance all or a portion of its existing indebtedness, or to obtain additional financing, or obtain further waivers of non-compliance with existing lenders, or require additional equity infusion. There can be no assurance that any such refinancing would be possible or that any additional debt or equity financing could be obtained. The inability to obtain additional financing would have a material adverse effect on the Company. For the six months ended September 30, 2000, cash used in operations totaled $6.0 million; compared to $6.2 million cash used in operations for the six months ended September 30, 1999. Cash used in operations is driven by the net loss of $14.0 million. Depreciation and amortization represented a source of cash of $4.3 million. Working Capital provided $3.1 million in cash primarily due to decreases in accounts receivable of $4.8 million and decreases in inventory of $1.3 million, offset by increases in prepaid accounts and decreases in accounts payable of $1.1 million and $1.8 million respectively. Cash used in investing activities was approximately $2.0 million for the six months ended September 30, 2000, and is a result of additional capital expenditures, compared to $3.9 million in capital expenditures for the comparable period ending September 30, 1999. Cash provided by financing activities totaled $8.4 million for the six months ended September 30, 2000 compared to $7.9 million for the same period ended 1999. The increase is primarily due to increased borrowings under the Credit Facility. At September 30 2000, the Company's total debt, net of cash was $165.3 million. Debt levels have increased, driven by an increase in working capital requirements, and lower earnings as a result of the above-mentioned factors. Item 3. Quantitative and Qualitative Disclosures about market risk. Long-term Debt The Company's exposure to market risk for changes in interest rates relates primarily to the Company's current and future debt obligations, which have not changed materially from those disclosed in the Company's Form 10-K for the year ended March 31, 2000. 15 Part II Other Information Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K have been filed during the quarter ended September 30, 2000. Reference is made to the Company's Annual Report on Form 10-K and the exhibits filed therewith. The exhibits filed as part of this form are listed below: Exhibit No. Description ----------- ----------- 27 Financial Data Schedule 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CFP Group, Inc. CFP Holdings, Inc. Custom Food Products, Inc. QFAC, LLC. November 13, 2000 /s/ Ronald J. Gallo ---------------------------------- Ronald J. Gallo Senior Vice President and Chief Financial Officer 17

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