~~UNITED STATES~~ SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED ~~SEPTEMBER~~MARCH 3031, ~~2003~~ 2004

Commission File Number 1-10741

PROVENA FOODS INC.

(Exact name of registrant as specified in its charter)


California		95-2782215
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

5010 Eucalyptus Avenue, Chino, California		91710
(Address of principal executive offices)		(ZIP Code)

(909) 627-1082

(Registrant’s telephone number, including area code)

Indicate by checkmark ~~check mark~~ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

~~Yes~~Indicate by xcheck mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). No Yes ¨ No x

~~Indicate~~The bynumber ~~check~~of ~~mark~~shares ~~whether~~of ~~the~~Provena ~~registrant~~Foods isInc. anCommon ~~accelerated~~Stock ~~filer~~outstanding (as ~~defined~~April in29, ~~rule~~2004 ~~12b-2~~was: ~~of the Exchange Act).~~

~~Yes~~Common ~~¨ No~~Stock x3,359,706 shares

The number of shares of Provena Foods Inc. Common Stock outstanding at September 30, 2003 was:

Common Stock 3,198,904

PROVENA FOODS INC.

Form 10-Q Report for the ~~Third~~First Quarter Ended ~~September~~March 3031, ~~2003~~2004

Table of Contents

			Page
Item		Page
PART I.	FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
	Item
1.	Financial Statements	1
	1.	Financial Statements (Unaudited)	1
	Condensed Statements of Operations	1
		Condensed Statements of Operations	1
	Condensed Balance Sheets	2
		Condensed Balance Sheets	2
	Condensed Statements of Cash Flows	3
		Condensed Statements of Cash Flows	3
	Notes to Condensed Financial Statements	4
		Notes to Condensed Financial Statements	4
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
	Results of Operations	6
		Results of Operations	6
	Forward-Looking Statements	6
		Forward-Looking Statements	6
	Swiss American Sausage Co. Meat Division	6
		Swiss American Sausage Co. Meat Division	6
	Royal-Angelus Macaroni Company Pasta Division	6
		Royal-Angelus Macaroni Company Pasta Division	6
	The Company	7
		The Company	7
	Liquidity and Capital Resources	7
		Liquidity and Capital Resources	7
	Commitments and Contingencies	9
		Commitments and Contingencies	9
	Critical Accounting Policies	9
		Critical Accounting Policies	9
	New Accounting Standards	10
		New Accounting Standards	10
3.	Quantitative and Qualitative Disclosures About Market Risk	10
	3.	Quantitative and Qualitative Disclosures About Market Risk	11
4.	Controls and Procedures	10
	4.	Controls and Procedures	11
PART II. OTHER INFORMATION
PART II.	OTHER INFORMATION
1.	Legal Proceedings	11
	1.	Legal Proceedings	11
2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	11
	2.	Changes in Securities and Use of Proceeds	11
3.	Defaults Upon Senior Securities	11
	3.	Defaults Upon Senior Securities	11
4.	Submission of Matters to a Vote of Security Holders	11
	4.	Submission of Matters to a Vote of Security Holders	11
5.	Other Information	11
	5.	Other Information	12
	Common Stock Repurchase and Sale	11
		Common Stock Repurchase and Sale	12
	American Stock Exchange Listing	11
		American Stock Exchange Listing	12
	Cash Dividends Paid	11
		Cash Dividends	12
	Management Stock Transactions	12
		Management Stock Transactions	12
6.	Exhibits and Reports on Form 8-K	12
	6.	Exhibits and Reports on Form 8-K	12
	Signature	12
SIGNATURE			12

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PART I. FINANCIAL INFORMATION

ITEM I.

FINANCIAL STATEMENTS

PROVENA FOODS INC.

Condensed Statements of Operations

(Unaudited)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

Three Months Ended March 31,

2003

2002

2003

2002

2004

2003

Net sales

1112,~~636~~318,~~275~~552

9,~~725~~012,~~909~~341

~~29,877,259~~

~~28,401,176~~

Cost of sales

1011,~~723~~848,~~038~~906

87,~~372~~995,~~080~~233

~~27,048,522~~

~~25,113,962~~

Gross profit

~~913~~469,~~237~~646

1,~~353~~017,~~829~~108

~~2,828,737~~

~~3,287,214~~

Operating expenses:

Distribution

~~422~~504,~~432~~581

~~309~~404,~~689~~806

~~1,214,000~~

~~917,424~~

General and administrative

~~444~~504,~~088~~187

~~569~~479,~~373~~408

~~1,370,793~~

~~1,507,367~~

Operating income

46,717

474,767

243,944

862,423

Operating income (loss)

(539,122

)

132,894

Interest expense, net

(~~117~~123,~~564~~392

)

(~~157~~109,~~705~~388

)

~~(345,586~~

)

~~(419,419~~

)

Other income, net

4865,~~287~~617

6187,~~604~~176

~~203,647~~

~~177,993~~

Earnings (loss) before income taxes

(22596,~~560~~897

)

~~378~~110,~~666~~682

~~102,005~~

~~620,997~~

Income tax expense (benefit)

(9236,~~000~~200

)

~~150~~44,000

~~41,000~~

~~243,857~~

Net earnings (loss)

(13360,~~560~~697

)

~~228~~66,~~666~~682

~~61,005~~

~~377,140~~

Earnings (loss) per share:

Basic

—(.11

)

.0702

~~.02~~

~~.12~~

Diluted

—(.11

)

.0702

~~.02~~

~~.12~~

Shares used in computing earnings (loss) per share:

Basic

3,~~193~~219,~~462~~047

3,~~126~~157,~~630~~764

~~3,175,866~~

~~3,113,173~~

Diluted

3,~~193~~219,~~462~~047

3,~~126~~157,~~630~~764

~~3,175,866~~

~~3,113,173~~

See accompanying Notes to Condensed Financial Statements.

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PROVENA FOODS INC.

Condensed Balance Sheets

(Unaudited)

	September 30,2003			December 31,2002
	March 31, 2004				December 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	~~137~~114,~~957~~940		~~350,433~~	83,094
Accounts receivable, less allowance for doubtful accounts of $9,000 at 2003 and $0 at 2002		4,024,355		2,772,039
Accounts receivable, less allowance for doubtful accounts of $0 at 2004 and 2003		4,001,703			4,002,477
Inventories		4,~~084~~965,~~777~~311		~~2,944,123~~	4,023,118
Prepaid expenses		~~205~~215,~~252~~401		~~41,829~~	157,795
Deferred tax assets		139,130		139,130
Income tax receivable		249,831			13,631
Total current assets		8,591,471		6,247,554
Deferred tax assets		148,486			148,486
Property and equipment, net		16,161,667		15,587,363
Total current assets		9,695,672			8,428,601
Other assets		230,239		232,095
Property and equipment, net		16,386,906			16,464,176
Deferred tax assets, net of current		89,054		89,054
Other assets		343,901			294,682
	$	2526,~~072~~426,~~431~~479		~~22,156,066~~	25,187,459
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit	$	3,~~792~~521,~~344~~690		~~2,922,729~~	382,717
Current portion of long-term debt		~~649~~726,~~888~~628		~~495,285~~	726,628
Current portion of capital lease obligation		48,~~180~~000		~~113,200~~	48,000
Accounts payable		13,~~859~~038,~~554~~759		~~1,293,481~~	3,798,481
Accrued liabilities		2706,~~022,197~~287		~~1,123,138~~	1,357,786
Deferred tax liability		46,394		46,394
Total current liabilities		8,041,364			6,313,612
Income taxes payable		12,570		—
Long-term debt, net of current portion		8,411,781			8,553,803
Total current liabilities		8,431,127		5,994,227
Capital lease obligation, net of current portion		366,288			386,302
Long-term debt, net of current portion		5,500,099		5,903,883
Deferred tax liabilities		320,801			320,801
Capital lease obligation, net of current portion		401,274		372,625
Shareholders’ equity:
Notes payable, net of current portion		729,000		—
Capital stock, no par value; authorized 10,000,000 shares; issued and outstanding 3,359,706 at 2004 and 3,209,706 at 2003		5,343,020			5,139,019
Deferred tax liability, net of current		370,408		370,408
Deferred compensation		(170,000	)		—
Shareholders’ equity:
Retained earnings		4,113,225			4,473,922
Capital stock, no par value; authorized 10,000,000 shares; issued and outstanding 3,198,904 at 2003 and 3,147,087 at 2002		5,123,829		5,059,234
Total shareholders’ equity		9,286,245			9,612,941
Retained earnings		4,516,694		4,455,689
	$	26,426,479			25,187,459
Total shareholders’ equity		9,640,523		9,514,923
	$	25,072,431		22,156,066

See accompanying Notes to Condensed Financial Statements.

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PROVENA FOODS INC.

Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2003			2002
	2004			2003
Cash flows from operating activities:
Net earnings	$	61,005		377,140
Net earnings (loss)	$	(360,697	)	66,682
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Depreciation and amortization		636,863		603,365
Stock based compensation related to employee stock grant		34,001		—
Allowance for doubtful accounts		9,000		91,225
Depreciation and amortization		222,087		199,288
Increase in accounts receivable		(1,261,316	)	(468,475	)
Decrease (increase) in accounts receivable		774		(315,180	)
Increase in inventories		(1942,~~140,654~~193	)	(80628,~~155~~362	)
Increase in prepaid expenses		(~~163~~57,~~423~~606	)	(61428,~~542~~575	)
Increase (decrease) in income taxes payable		12,570		(15,000	)
Increase in income taxes receivable		(236,200	)	—
Decrease (increase) in other assets		1,856		(56,446	)
Increase in other assets		(49,219	)	(9,382	)
Increase in accounts payable		566,073		199,213
Increase (decrease) in accounts payable		(759,722	)	396,788
Increase in accrued liabilities		899,059		301,045
Increase (decrease) in accrued liabilities		(651,499	)	74,788
Decrease in deferred tax assets		—		186,827
Increase in income taxes payable		—		27,179
Net cash provided by (used in) operating activities		(378,967	)	1,077,197
Net cash used in operating activities		(2,800,274	)	(616,774	)
Cash flows from investing activities:
Additions to property and equipment		(1144,~~211,167~~817	)	(85106,~~773~~600	)
Net cash used in investing activities		(1144,~~211,167~~817	)	(85106,~~773~~600	)
Cash flows from financing activities:
Proceeds from (payments on) long-term debt and notes payable		479,819		(389,128	)
Payments on long term debt		(142,022	)	(103,611	)
Payments on capital lease obligation		(3620,~~371~~014	)	(5911,~~181~~847	)
Proceeds from (repayments of) line of credit		869,615		(740,805	)
Proceeds from line of credit		3,138,973		696,430
Proceeds from sale of capital stock		~~64,595~~—		5719,~~839~~694
Net cash provided by (used in) financing activities		1,377,658		(1,131,275	)
Net cash provided by financing activities		2,976,937		600,666
Net decrease in cash and cash equivalents		(212,476	)	(139,851	)
Net increase (decrease) in cash and cash equivalents		31,846		(122,708	)
Cash and cash equivalents at beginning of period		~~350~~83,~~433~~094		~~206~~350,~~777~~433
Cash and cash equivalents at end of period	$	~~137~~114,~~957~~940		66227,~~926~~725
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	~~339~~123,~~980~~392		~~414~~109,~~069~~576
Income taxes	$	~~60,600~~—		7248,~~030~~991

See accompanying Notes to Condensed Financial Statements.

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PROVENA FOODS INC.

Notes to Condensed Financial Statements

~~September~~March 3031, ~~2003~~2004 and ~~2002~~2003 (Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented ifwere such financial statements ~~were~~ prepared in accordance with accounting principles generally accepted in the United States for annual financial statement purposes. These statements should be read in conjunction with the audited financial statements presented in the Company’s Form 10-K for the year ended December 31, ~~2002~~2003. In the opinion of management, the accompanying financial statements reflect all adjustments which are necessary for a fair presentation of the results for the interim periods presented. Such adjustments consisted only of normal recurring items. The results of operations for the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2003~~2004 are not necessarily indicative of results to be expected for the full year.

(2) Inventories

Inventories at ~~September~~March 3031, ~~2003~~2004 and December 31, ~~2002~~2003 consist of:

	2003		2002
	2004		2003
Raw materials	$	1,~~533~~803,~~276~~557	1,~~128~~515,~~576~~118
Work-in-process		1,~~037~~292,~~936~~535	~~705~~951,~~993~~388
Finished goods		1,~~513~~869,~~565~~219	1,~~109~~556,~~554~~612
	$	4,~~084~~965,~~777~~311	24,~~944~~023,~~123~~118

(3) Segment Data

Business segment sales and operating income (loss) for the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2003~~2004 and ~~2002~~2003 and assets at ~~September~~March 3031, ~~2003~~2004 and December 31, ~~2002~~2003 are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended March 31,
	2003			2002		2003		2002
	2004			2003
Net sales to unaffiliated customers:
Swiss American Sausage division	$	10,110,601		8,377,048		25,670,011		24,135,594
Swiss American Sausage Division	$	10,709,333		7,582,769
Royal-Angelus Macaroni division		1,525,674		1,348,861		4,207,248		4,265,582
Royal-Angelus Macaroni Division		1,609,219		1,429,572
Total net sales	$	1112,~~636~~318,~~275~~552		9,~~725~~012,~~909~~341		~~29,877,259~~		~~28,401,176~~
Operating income (loss):
Swiss American Sausage division	$	154,998		646,299		529,829		1,187,268
Swiss American Sausage Division	$	(316,440	)	173,545
Royal-Angelus Macaroni division		(163,256	)	(181,148	)	(432,935	)	(434,633	)
Royal-Angelus Macaroni Division		(257,204	)	(82,907	)
Corporate		5434,~~975~~522		942,~~616~~256		~~147,050~~		~~109,788~~
Operating income	$	46,717		474,767		243,944		862,423
Operating income (loss)	$	(539,122	)	132,894
	March 31, 2004			December 31, 2003
Identifiable assets:
Swiss American Sausage Division	$	20,561,734		19,901,183
Royal-Angelus Macaroni Division		5,143,102		4,908,453
Corporate		721,643		377,823
Total assets	$	26,426,479		25,187,459

	September 30, 2003		December 31, 2002
Identifiable assets:
Swiss American Sausage division	$	19,896,586	17,709,638
Royal-Angelus Macaroni division		4,605,134	3,842,313
Corporate		570,711	604,115
Total assets	$	25,072,431	22,156,066

-4-

(4) ~~Net~~ ~~Earnings~~Stock-Based ~~(Loss)~~Compensation ~~and Earnings (Loss) per Share~~

In accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company has not reported compensation expense for its grants of stock options. Had the Company reported the fair value at the date of grant as compensation expense under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net earnings (loss) would have been the pro forma amounts set forth below. ~~Basic~~For ~~earnings (loss) per share are net earnings (loss) divided by~~ the ~~weighted~~restricted ~~average~~stock ~~number~~grant ofmade ~~common~~in ~~shares outstanding during~~ the current ~~period~~quarter, ~~and~~the ~~diluted~~compensation ~~earnings~~expense ~~(loss)~~reported ~~per share are net earnings (loss) divided~~ by the ~~sum~~Company ofunder ~~the~~APB ~~weighted~~Opinion ~~average plus an incremental number of shares attributable to outstanding options~~No. ~~Options~~25 ~~for~~was ~~107,111 shares were not used for~~ the ~~diluted~~same ~~earnings~~as ~~(loss)~~it ~~calculations~~would ~~below~~have ~~because~~been ~~their~~under ~~effect~~SFAS ~~was~~No. ~~anti-dilutive~~123.

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2003			2002	2003	2002
	2004			2003
Net earnings (loss), as reported	$	(13360,~~560~~697	)	~~228~~66,~~666~~682	~~61,005~~	~~377,140~~
Net stock-based compensation expense		—		—	—	—
Pro forma net earnings (loss)		(13,560	)	228,666	61,005	377,140
Pro forma net earnings		(360,697	)	66,682
Weighted average number of shares - basic		3,193,462		3,126,630	3,175,866	3,113,173
Weighted average number of shares		3,219,047		3,157,764
Incremental shares for options		—		—	—	—
Weighted average number of shares plus incremental shares - diluted		3,193,462		3,126,630	3,175,866	3,113,173
Weighted average plus incremental shares		3,219,047		3,157,764
Earnings (loss) per share: Basic - as reported	$	—		.07	.02	.12
Earnings (loss) per share:
Basic - pro forma	$	—		.07	.02	.12
Basic - as reported	$	(.11	)	.02
Diluted - as reported	$	—		.07	.02	.12
Basic - pro forma	$	(.11	)	.02
Diluted - pro forma	$	—		.07	.02	.12
Diluted - as reported	$	(.11	)	.02
Diluted - pro forma	$	(.11	)	.02

(5) ~~Debt~~ Earnings (Loss) per Share

~~The~~Basic ~~Company~~earnings ~~has~~(loss) ~~short-term~~per ~~and~~share ~~long-term~~are ~~debt~~net ~~agreements~~earnings ~~consisting~~(loss) ofdivided aby ~~line~~the weighted average number of ~~credit,~~common ~~various~~shares ~~equipment~~outstanding ~~loans~~during the period, ~~real~~and ~~estate~~diluted ~~loans~~earnings ~~and~~(loss) ~~industrial~~per ~~development~~share ~~revenue~~are ~~bonds~~net earnings (~~“IDRB”~~loss). ~~The~~divided ~~IDRB~~by ~~debt~~the issum ~~secured~~of bythe aweighted ~~letter~~average plus an incremental number of shares ~~credit~~attributable ~~that~~to ~~expires~~outstanding inoptions. ~~October~~Options ~~2008~~for 107,111 shares were not used for the diluted earnings (loss) calculations below because their effect was anti-dilutive.

Under the line of credit, equipment and real estate loan agreements, the Company is required to meet certain financial and non-financial covenants. The Company was in compliance with the covenants for the quarter ended September 30, 2003, and believes it is probable that it will be in compliance for the next 12 months.

In June 2003, the Company issued a $375,000 short-term note payable bearing interest at 9% per annum and due in December 2003 for the purchase of certain equipment for the pasta division. In September 2003, the Company borrowed an additional $500,000 from the bank for the purchase of the equipment under a short-term note payable bearing interest at 4.75% per annum and due November 1, 2003. The Company anticipates refinancing these notes payable on a long term basis and has a commitment for an $866,750 five-year term loan secured by the equipment bearing interest at 3.65% over a commercial paper rate. Accordingly, the Company has classified these notes payable as long-term in the accompanying September 30, 2003 balance sheet.

-5-

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations	Three Months Ended September 30,			Nine Months Ended September 30,
(Unaudited)	2003		2002	2003	2002
	(amounts in thousands)
Net sales by division:
Swiss American	$	10,111	8,377	25,670	24,135
Royal-Angelus		1,525	1,349	4,207	4,266
Total	$	11,636	9,726	29,877	28,401
Sales in thousands of pounds by division:
Swiss American		6,501	5,985	17,085	16,506
Royal-Angelus		2,991	2,577	8,124	7,910

Results of Operations


	Three Months Ended March 31,
(Unaudited)	2004		2003
	(amounts in thousands)
Net sales by division:
Swiss American	$	10,709	$	7,583
Royal-Angelus		1,610		1,429

Total	$	12,319	$	9,012

Sales in thousands of pounds by division:
Swiss American		6,479		5,275
Royal-Angelus		3,222		2,762

Forward-Looking Statements

The following discussion may contain “forward-looking statements” that express or imply expectations of future performance, developments or occurrences. Actual events may differ materially from these expectations due to uncertainties relating to the economy, competition, demand, commodities, credit markets, energy supplies and other factors.

Swiss American Sausage Co. Meat Division ~~(“Swiss”)~~

Sales by the processed meat division increased 6about 41% in dollars and 423% in pounds in the 1st ~~nine~~three months of ~~2003~~2004 ~~and~~over ~~increased~~the ~~21%~~same inperiod ~~dollars and 9%~~ in ~~pounds in the 3rd quarter of~~ 2003~~, compared to the same periods of 2002~~. Sales in dollars increased proportionately more than ~~sales~~ in pounds because of higher selling prices reflecting higher meat costs. Swiss operated at a $~~529~~316,~~829~~440 ~~profit~~loss ~~for~~in the 1st ~~nine~~quarter ~~months~~ of ~~2003~~2004 compared to a $1173,~~187,268~~ 545 profit for the 1st ~~nine~~quarter ~~months~~ of ~~2002,~~2003. ~~and~~The atprimary acause ~~$154,998~~of ~~profit~~the ~~for~~loss in the ~~3rd~~1st quarter of ~~2003~~2004 ~~compared~~was to a ~~$646~~heightened concern about mad cow disease,~~299~~ ~~profit~~which resulted ~~for~~in a rapid reformulation of products sold at prices which failed to fully reflect the ~~3rd~~increased ~~quarter~~cost of ~~2002~~ingredients and decreased yields of the new formulations. ~~Reduced~~The ~~profits~~concern ~~were~~about ~~caused~~mad-cow ~~primarily~~disease byappears ~~higher~~to ~~workers~~have ~~compensation~~peaked ~~insurance~~and ~~costs,~~returned ~~higher~~to ~~freight~~normal ~~costs~~levels ~~from~~and ~~greater~~Swiss ~~shipping~~operated ~~volume~~at ~~and~~a ~~distances~~profit in March 2004. However, high workers’ compensation cost and meat cost increases outpacing selling price increases are continuing their adverse impact on Swiss, and there is no indication of a reduction in ~~selling~~workers’ ~~prices~~compensation cost for current year or that meat costs will level-off or decline.

Royal-Angelus Macaroni Company Pasta Division ~~(“Royal”)~~

The pasta division’s sales ~~decreased~~increased about ~~1% in dollars but increased 3% in pounds in the 1st nine months of 2003 and increased~~ 13% in dollars and 1617% in pounds in the ~~3rd~~1st quarter of ~~2003,~~2004 compared to the ~~same periods~~1st quarter of ~~2002~~2003. The percentage increases inwere ~~sales~~lower in ~~pounds~~dollars ~~were~~than ~~not matched by proportionate increases~~ in ~~sales~~pounds ~~in dollars~~ because of ~~aggressive~~an ~~pricing~~increased proportion atof ~~Royal~~lower ~~directed~~price-per-pound ~~toward meeting competition and maintaining volume~~sales. Royal operated at a $~~432~~257,~~935~~204 loss ~~for~~ ~~the 1st nine months of 2003 compared to a $434,633 loss~~ for the 1st ~~nine months of 2002 and a $163,256 loss for the 3rd~~ quarter of ~~2003~~2004 compared to a $~~181~~82,~~148~~907 loss for the ~~3rd~~1st quarter of ~~2002~~2003. ~~Although~~Sales ~~there was some improvement in sales in pounds~~ and operating results, ~~Royal~~continue ~~continues~~ to be adversely affected by ~~competition~~intense resulting from increased industry capacity. Some of the causes of the continuing losses were aggressive pricing, the increased cost of an additional salesman and increased workers compensation insurance cost.

-6-

competition in an industry already with an excess capacity experiencing a decrease in demand parallelling the popularity of the Atkins diet. The major cause of the increased operating loss was that in the 1st quarter of 2004 the second long-goods line became operational, depreciation commenced, capitalization of labor ceased, and the line began producing low margin goods but did not reach full capacity. The line is estimated to be 90% operational with trained personnel adequate to operate one shift per day. The line is expected to become 100% operational with trained personnel adequate to operate more than one shift per day during 2004, which is expected to benefit operating results.

The Company

Company net sales were up 5%about ~~in the~~37% ~~1st nine months of 2003 compared to the 1st nine months of 2002~~ and ~~were up 20% in~~ the ~~3rd quarter of 2003 compared to the 3rd quarter of 2002. The~~ Company realized net ~~earnings~~loss of $61379,~~005~~538 ~~for~~in the 1st ~~nine~~quarter ~~months~~ of ~~2003~~2004 compared to net earnings of $~~377~~66,~~140~~682 ~~a year ago and a net loss of $13,560~~ for the ~~3rd~~1st quarter of 2003. ~~compared~~Both divisions contributed to ~~net~~the ~~earnings~~increased ofsales. ~~$228,666~~Both adivisions ~~year~~contributed ~~ago.~~to ~~Swiss~~the ~~accounted~~decline ~~for~~from ~~the~~moderate ~~increased~~net earnings ~~sales~~to ~~and~~a ~~decreased~~substantial ~~earnings~~net loss. The Company’s gross ~~margins~~profit margin for the 1st ~~nine months and 3rd~~ quarter of ~~2003~~2004 ~~were~~was 93.~~5% and 7.~~8%, ~~respectively,~~ compared to 11.63% ~~and 13.9%~~ a year ago. ~~Both~~The ~~divisions~~Company’s ~~contributed~~margin ~~to the~~ decreased ~~Company margins, Royal~~ from ~~aggressive~~a ~~pricing~~year ~~and~~ago ~~Swiss~~because ~~from~~the ~~meat cost increases. Royal’s aggressive pricing reduced Royal’s~~ margins, ~~but~~of ~~resulted~~both indivisions ~~increased~~decreased ~~sales in pounds and smaller losses. Increased volume is regarded as essential to Royal’s return to profitability. At Swiss, meat costs and selling prices increased steadily during~~from the ~~year,~~mad ~~but~~cow ~~resistance~~disease toreformulation ~~selling price increases caused selling price increases to lag behind meat cost increases, reducing margins~~ and ~~profits.~~commencement ~~Meat~~of ~~costs~~operation ~~are~~of ~~not expected to increase indefinitely, and level or falling meat costs should increase~~ the ~~profitability~~second atlong-goods ~~Swiss~~line.

General and administrative ~~expense~~expenses ~~was~~were ~~down~~up about $~~137~~25,000 for the 1st ~~nine months of 2003 and about $125,000 in the 3rd~~ quarter of ~~2003,~~2004 compared to the same ~~periods~~period in ~~2002.~~2003 ~~The~~primarily ~~decreases~~because ~~reflect~~of ~~reductions~~recognition inof ~~health~~a ~~insurance~~ratable ~~costs,~~portion ~~bad~~of ~~debt~~the ~~expense~~stock ~~and~~grant ~~outside~~compensation ~~services~~to Theodore A. Arena, partially offset by ~~increases~~ inreduced ~~dues~~health ~~and~~insurance ~~bank charges~~costs. Distribution ~~expense~~expenses ~~was~~were up about $~~297~~100,000 ~~for~~or ~~the~~25% ~~1st~~on ~~nine~~a ~~months~~37% ~~and~~increase ~~$113,000~~in ~~for~~sales ~~the 3rd quarter~~ because of increased salesman payroll, ~~increased~~ advertising, ~~and~~ freight ~~at Swiss~~ and ~~increased workers compensation insurance costs~~commissions. Net interest expense increased ~~decreased~~ about $7414,000 ~~for~~because of the ~~1st~~increased ~~nine~~bond ~~months~~principal and ~~$40,000~~the ~~for~~equipment on the ~~3rd~~second ~~quarter~~long-goods ofline, ~~2003~~partially ~~because~~offset ofby lower ~~interest~~borrowings ~~rates.~~under ~~Other~~the ~~income~~bank ~~increased~~line ~~for~~of credit in the 1st ~~nine~~quarter ~~months because~~ of ~~insurance~~2004 ~~proceeds from~~versus athe ~~vendor~~1st ~~for~~quarter aof ~~scrapped~~2003. ~~product~~Other income ~~batch, but~~ decreased ~~for~~about ~~the~~$22,000 ~~3rd~~primarily ~~quarter~~ because of ~~reduced~~insurance ~~by-product~~proceeds ~~salvage~~received ~~sales~~in atthe ~~Swiss~~1st quarter of 2003.

Meat plant employees are represented by United Food and Commercial Workers Union, Local 588, AFL-CIO, CLC under a collective bargaining agreement dated April 1, 2002 which expires April 2, 2006. Pasta plant employees are represented by United Food and Commercial Workers Union, Local 1428, AFL-CIO, CLC under a collective bargaining agreement dated October 2, 2002 which expires September 30, 2006. There has been no significant labor unrest at the division’s plants and the Company believes it has a satisfactory relationship with its employees.

Liquidity and Capital Resources

The Company has generally satisfied its normal working capital requirements with funds derived from operations and borrowings under its bank line of credit, which is part of a credit facility with Comerica Bank-California. The line of credit, ~~as modified effective August 5, 2003,~~ is payable on demand, is subject to annual review, and bears interest at a variable annual rate ofwhich is 0.75% over the bank’s “Base Rate.” The maximum amount of the line of credit is the lesser of $4,000,000, or 4030% of eligible inventories plus 80% of eligible receivables, with a limit of $1,~~500~~000,000 for inventories, determined monthly. ~~The inventories percent and limit change to 30% and $1,000,000 at November 2, 2003.~~ At ~~September~~March 3031, ~~2003~~2004 the “Base Rate” was 4.000% per annum, the maximum amount of the line of credit was $43,~~000~~717,~~000~~926 and the Company had $3,~~792~~521,~~344~~690 of borrowings outstanding under the bank line of credit, resulting in $196,236 of borrowings available under the line of credit.

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As part of the credit facility, ~~Comerica~~on ~~Bank-California~~December 30, 2003 Comerica issued a $46,~~060~~378,~~000~~750 5-year letter of credit ~~to support~~ supporting $46,~~000~~300,000 of ~~industrial~~ ~~development~~variable rate demand bonds issued ~~in 1998 for costs relating to~~ the ~~construction~~same ~~of the Company’s meat plant~~date. The bonds bear a variable rate of interest payable monthly and set weekly at a market rate -— 1.1518% per annum at ~~September~~March 3031, ~~2003~~2004. The Company pays a 1.5% per annum fee on the amount of the letter of credit and fees of the bond trustee estimated at 0.5% of the bond principal per year. Monthly payments of bond principal into a sinking fund ~~began~~are ~~May~~about 1$12,900 ~~2000~~per month, ~~totaled~~with ~~$76,700~~annual increases calculated to amortize the bonds over 20 ~~first~~years. ~~year~~Before ~~and~~the ~~increase~~expiration ~~about~~of the first 5~~.6%~~ ~~each~~years, ~~year~~the ~~until~~Company ~~May~~and 1Comerica, ~~2022,~~or ~~when~~another ~~$813~~acceptable financial institution,~~500~~ ofmust ~~remaining~~agree ~~principal~~upon isrenewal ~~payable~~of inthe 18letter ~~equal~~of credit and future monthly principal payments and amortization, or the Company must repay the bonds.

Also as part of the credit facility, the bank made four loans to the Company for the new meat plant, a $1,280,000 real estate loan and three equipment loans totalling $2,614,788. The real estate loan was made in December 1999, bears a fixed rate of interest of 9.1% per annum and is payable in equal monthly payments of principal and interest over its 25 year term. Each equipment loan bears a variable rate of interest and is payable in equal monthly payments of principal plus interest over its term, with issue date, initial amount, term and rate as follows: July 1999, $1,000,000, 7 year, bank’s “Base Rate”; September 1999, $1,200,000, 7 year, bank’s “Base Rate” plus 0.25%; and December 1999, $414,788, 5 year, bank’s “Base Rate” plus 0.75%.

All parts of the credit facility are secured by substantially all of the Company’s assets, including accounts receivable, inventory, equipment and fixtures, the Company’s two pasta buildings and the meat plant, none of which is otherwise encumbered. The credit facility prohibits, without the bank’s consent, dividends, mergers, acquisitions, purchase or disposal of assets, borrowing, granting security interests, and changes of management and requires a tangible net worth greater than $9,~~500~~300,000,; ~~increasing~~a bydebt ~~50%~~to oftangible net ~~income~~worth ~~per~~ratio ~~quarter~~of ~~beginning~~not ~~with~~more than ~~the~~2 ~~quarter~~to ~~ending December 31, 2003~~1; ~~working~~cash ~~capital~~flow coverage not less than $01.25 ~~increasing~~to by1; ~~$200,000~~and ata ~~December~~quick ~~31,~~ratio ~~2003~~of cash and ~~$50,000~~account ~~each quarter~~receivables ~~thereafter;~~to acurrent ~~debt~~liabilities of 0.5 to ~~tangible~~1. ~~net~~The ~~worth~~Company ~~ratio~~was ofin ~~not~~default ~~more~~under ~~than~~the 2;tangible-net-worth and cash -flow -coverage ~~not~~covenants ~~less~~at ~~than~~March ~~1.3.~~31, ~~The~~2004 and ~~Company~~the ~~was~~bank inhas ~~compliance~~waived ~~with~~ the ~~financial~~defaults. ~~covenants~~The atbank ~~September~~has ~~30,~~agreed ~~2003~~to modifications of the covenants and the Company expects to be in compliance atwith ~~December~~all 31of the covenants, ~~2003~~ as modified, for the next 12 months.

~~Cash~~The ~~decreased~~Company ~~$212,476~~purchased ina ~~the~~second ~~1st~~long-goods ~~nine~~line ~~months~~for ofthe ~~2003~~pasta ~~compared~~plant ~~to a $139,851 decrease~~ in ~~the~~2003 ~~1st~~and ~~nine~~financed ~~months~~ part of ~~2002.~~the ~~Operating~~cost ~~activities~~on ~~used~~October ~~$378~~28,~~968~~ of2003 ~~cash~~by ~~primarily~~an ~~from increases in accounts receivable~~$866,750 ~~inventories~~five-year ~~and~~term ~~prepaid~~equipment ~~expenses,~~loan ~~partially~~from ~~offset~~General byElectric ~~net~~Capital ~~earnings,~~Corporation ~~depreciation~~bearing ~~and~~interest ~~amortization,~~at ~~and increases in accounts payable and accrued liabilities~~3.65% ~~Most~~over ofa ~~the~~Federal ~~increase~~Reserve inrate ~~accounts~~and ~~receivable~~payable ~~occurred~~ in ~~the~~equal ~~third~~monthly ~~quarter~~payments ~~from~~of ~~the~~principal ~~increase~~plus ininterest. ~~sales~~The ~~and from customers taking slightly longer to pay, without a material change in the aging of~~second ~~accounts~~line ~~receivable.~~became ~~Inventories~~operational ~~decreased~~ in the ~~third~~1st quarter ~~but are up from December 31, 2002 because~~ of ~~increased~~2004 ~~sales, because both meat~~ and ~~flour~~is ~~costs~~more ~~are~~modern ~~up,~~ and ~~because~~expected Swiss has increased the inventories it carries in anticipation of customers’ needs. Prepaid expenses are up primarily because of a workers compensation insurance deposit. Investing activities used $1,211,166 of cash for additions to ~~property~~produce ~~and~~high ~~equipment,~~quality ~~primarily a second long~~ goods ~~line for Royal, and~~ ~~financing~~faster ~~activities provided $1,377,658 of cash primarily from increased borrowings under the bank line~~ and ~~the~~more ~~notes~~efficiently ~~payable~~than ~~incurred~~Royal’s inexisting ~~the purchase of the long goods~~ line.

Cash and cash equivalents increased $31,846 in the 1st quarter of 2004 compared to a $122,708 decrease in the 1st quarter of 2004. Operating activities used $2,800,274 of cash primarily from the net loss, an increase in inventories and decreases in accounts payable and accrued liabilities, partially offset by depreciation and amortization. The increase in inventories was caused by a build-up of inventories at Swiss to produce and provide product reformulated because of increased concerns about mad cow disease. Investing activities used $144,817 of cash for additions to property and equipment, and financing activities provided $2,976,937 of cash primarily from increased borrowings under the bank line of credit, partially offset by payments on long term debt and the capital lease obligation.

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The Company purchased a second used long goods line for the pasta division in the 2nd quarter of 2003. The line was disassembled and shipped to Royal’s plant with delivery completed in early July 2003. The estimated total cost of the line is approximately $1,000,000 and the line is expected to be operational by the end of 2003. The Company has financed the acquisition of the line with a $375,000 short term note to the seller and a $500,000 short term loan from Comerica and has a commitment for a long-term equipment loan for a major part of the cost that is expected to close in the 4th quarter of 2003. The second line is more modern and is expected to produce high quality goods faster and more efficiently than Royal’s existing line. The addition of a second line will enable Royal to produce two long goods products at the same time and reduce production interruptions for product changes.

Commitments and Contingencies

The following table shows the long-term debt principal and capital lease obligation payments due in the specified periods as of March 31, 2004. The lease payments are estimates because they are proportional to pounds of a product sold.

Three Months EndingDecember 31,

Year Ending December 31,

Nine Months EndingDecember 31,

Year Ending December 31,

(amounts in thousands)

Totals

~~2003~~2004

~~2004~~2005

~~2005~~2006

~~2006~~2007

~~2007~~2008

Thereafter

Long-Term Debt

69,~~879~~139

~~325~~337

~~679~~379

~~610~~281

~~515~~74

~~312~~80

47,~~438~~988

Capital Lease Obligation

~~449~~414

1136

4948

~~245~~186

Totals

79,~~328~~553

~~336~~373

~~728~~427

~~658~~329

~~563~~122

~~360~~128

48,~~683~~174

The Company expects that its operations and bank line of credit will provide adequate working capital to satisfy the normal needs of its operations for the foreseeable future, including cash flow to service its debt. The 1st quarter usually requires higher cash expenditures than any other quarter because of annual retirement benefit contributions and initial insurance premiums.

The Company believes that it has a good relationship with Comerica Bank-California, as evidenced by the bank’s previous over-advances under the line of credit, waivers in prior years of defaults under the financial covenants and modifications of the financial covenants. That relationship is crucial to the Company, because the line of credit is payable on demand, the Company could not make an immediate repayment of the line of credit, and a failure to repay the line after demand would render the entire credit facility in default. As a result, the bank has the power to require that the credit facility be restructured or refinanced.

Critical Accounting Policies

The Securities and Exchange Commission defines a critical accounting policy as one which is both important to the portrayal of the registrant’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical for the Company are determining the allowance for doubtful accounts and valuing inventory.

Allowance for Doubtful Accounts. The Company sells to its customers on credit and grants credit to those who are deemed credit worthy based on the Company’s analysis of their credit history. The Company’s standard payment terms are net 30 days. The Company reviews its accounts receivable balances and the collectibility of those balances on a periodic basis. Based on the Company’s analysis of the length of time that the balances have been outstanding, the pattern of customer payments, its understanding of the general business conditions of its customers and its communications with its customers, the Company estimates the recoverability of those balances. When recoverability is uncertain and the unrecoverable amounts can be reasonably estimated, the Company records bad debt expense and increases the allowance for accounts receivable by the amounts estimated to be unrecoverable. If the data the Company uses to assist in the calculation of the allowance for doubtful accounts does not reflect its future

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customers and its communications with its customers, the Company estimates the recoverability of those balances. When recoverability is uncertain and the unrecoverable amounts can be reasonably estimated, the Company records bad debt expense and increases the allowance for accounts receivable by the amounts estimated to be unrecoverable. If the data the Company uses to assist in the calculation of the allowance for doubtful accounts does not reflect its future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the Company’s future results of operations could be materially affected. At ~~September~~March 3031, ~~2003~~2004, the Company had ano ~~$9,000~~ allowance for doubtful accounts based on the factors stated above. Additionally, based on the Company’s analysis, there is no indication that a material amount of receivables ~~are~~is uncollectible.

Inventory. Inventory is valued at the lower of cost or market, where market is generally the fair value less the cost to sell. The Company reviews the carrying value of its inventory on a periodic basis by determining the market value for the items in inventory and comparing the market value to the carrying value. In instances where the market value is lower than the carrying value, the Company writes down the inventory accordingly. If circumstances change (e.g. unexpected shifts in market demand) there could be a material impact on the net realizable value of the inventory.

Estimates involving critical accounting policies are based on historical data and anticipated future events, and actual results may differ from the Company’s estimates.

New Accounting Standards

~~The~~New ~~following standards~~accounting standards and interpretations are adopted by the Company as they become effective. ~~and,~~In in the opinion of management, ~~have~~recently ~~not~~released ~~had~~standards and interpretations not effective at March 31, 2004, will not have a material effect on the Company’s financial position or results of operations:.

InITEM ~~June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No~~3. ~~146,~~QUANTITATIVE ~~“Accounting~~AND ~~for~~QUALITATIVE ~~Exit~~DISCLOSURE orABOUT ~~Disposal~~MARKET Activities” effective December 31, 2002. SFAS No. 146 addresses the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. RISK

InThe ~~November~~variable ~~2002~~rate demand bonds, the ~~FASB~~bank ~~issued~~line ~~Interpretation~~of ~~(“FIN”) No. 45~~credit, ~~“Guarantor’s~~ ~~Accounting~~ and ~~Disclosure~~the ~~Requirements~~equipment ~~for~~loans ~~Guarantees,~~bear ~~Including~~variable ~~Indirect~~rates ~~Guarantees~~ of ~~Indebtedness~~interest to(see ~~Others”~~Liquidity ~~effective~~and ~~December~~Capital ~~15,~~Resources ~~2002.~~under ~~FIN No~~Item 2. 45Management’s isDiscussion anand ~~interpretation~~Analysis of ~~SFAS~~Financial ~~Nos.~~Condition 5,and 57Results ~~and~~of ~~107~~Operations) ~~and~~which atend ~~rescission~~to ~~of FIN~~follow ~~No.~~market 34interest rates and ~~elaborates~~change onthe Company’s interest expense in the ~~disclosures~~same todirection beas ~~made~~changes byin ainterest ~~guarantor~~rates. A 1% per annum change in ~~its~~the ~~interim~~rate ~~and~~borne ~~annual~~by ~~financial~~the ~~statements~~variable ~~about~~rate ~~its~~demand ~~obligations~~bonds ~~under~~would ~~guarantees~~change ~~issued.~~annual ~~FIN~~interest Noexpense by almost $63,000. 45Assuming ~~also~~an ~~clarifies~~average ~~that~~bank aline ~~guarantor~~of iscredit ~~required~~balance toof ~~recognize~~$3,000,000 atplus ~~the inception~~$1,200,000 average principal balance of aequipment ~~guarantee~~loans, a ~~liability~~1% per ~~for~~annum change in the ~~fair~~rate ~~value~~borne ofby ~~the~~those ~~obligation~~borrowings ~~undertaken~~would change annual interest expense by $42,000.

InITEM ~~December 2002, the FASB issued SFAS No~~4. ~~148,~~CONTROLS ~~“Accounting~~AND for Stock-Based Compensation - Transition and Disclosure” effective December 15, 2002. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation and to require prominent disclosures in both annual and interim financial statements. The required disclosures are included in the notes to the accompanying condensed financial statements. PROCEDURES

InDisclosure ~~January~~Controls ~~2003~~and Procedures. The Company’s management, with the ~~FASB~~participation ~~issued~~of ~~FIN~~the ~~No.~~Company’s 46Chief ~~“Consolidation~~Executive Officer and Chief Financial Officer, has evaluated the effectiveness of ~~Variable~~the ~~Interest~~Company’s ~~Entities”~~disclosure ~~effective~~controls ~~immediately.~~and ~~FIN~~procedures ~~No.~~(as 46defined ~~addresses~~in Rules 13a-15(e) and l5d-15(e) under the ~~consolidation~~Securities ~~by business~~Exchange ~~enterprises~~Act of ~~variable~~1934, ~~interest~~as ~~entities~~amended (the “Exchange Act”)) as ~~defined~~of ~~therein~~the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period,

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Inthe ~~April~~Company’s ~~2003,~~disclosure ~~FASB~~controls ~~issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments~~ and ~~Hedging Activities”~~procedures are effective ~~June~~in 30recording, ~~2003. SFAS No. 149 (i) clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative discussed in paragraph 6(b) of SFAS No. 133~~processing, ~~(ii)~~summarizing ~~Clarifies~~and ~~when a~~reporting, ~~derivative~~on ~~contains~~ a ~~financing~~timely ~~component~~basis, ~~(iii)~~information ~~amends~~required ~~the definition of an underlying~~ to ~~conform~~be itdisclosed toby ~~language~~the ~~used~~Company in ~~FIN~~the ~~No.~~reports ~~45,~~that ~~and~~it ~~(iv)~~files ~~amends~~or ~~certain~~submits ~~other~~under ~~existing~~the ~~pronouncements~~Exchange ~~to result in more consistent reporting of contracts either as derivatives of hybrid instruments~~Act.

InInternal ~~May~~Control ~~2003,~~Over ~~FASB~~Financial ~~issued~~Reporting. ~~SFAS~~The ~~No.~~Company’s ~~150~~management, ~~“Accounting~~ ~~for~~with ~~Certain~~the participation of the Company’s Chief Executive Officer and Chief Financial Officer, ~~Instruments~~also ~~with~~conducted ~~Characteristics~~an evaluation of ~~both~~the ~~Liabilities~~Company’s ~~and~~internal ~~Equity”~~control ~~effective~~over ~~May~~financial ~~31,~~reporting ~~2003.~~to ~~SFAS~~determine ~~No.~~whether ~~150~~any ~~establishes~~changes ~~standards~~occurred ~~for~~during ~~how~~the anCompany’s ~~issuer~~fourth ~~classifies~~fiscal ~~and~~quarter ~~measures~~that ~~certain~~have ~~financial~~materially ~~instruments~~affected, ~~with~~or are reasonably likely ~~characteristics~~to ofmaterially ~~both~~affect, ~~debt~~the ~~and~~Company’s ~~equity~~internal control over financial reporting. Based on that evaluation, the Company’s Chief Executive Officer and ~~requires~~Chief anFinancial ~~issuer~~Officer tohave ~~classify~~concluded ~~certain~~that ~~instruments~~there ashave ~~liabilities~~been inno ~~its~~such ~~balance~~changes ~~sheet~~during the Company’s fourth fiscal quarter.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The industrial development bonds, the bank line of credit, and the equipment loans bear variable rates of interest (see Liquidity and Capital Resources under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations) which tend to follow market interest rates and change the Company’s interest expense in the same direction as changes in interest rates. A 1% per annum change in the rate borne by the industrial development bonds would change annual interest expense by almost $40,000. Assuming an average bank line of credit balance of $3,700,000 plus $1,800,000 average principal balance of equipment loans, a 1% per annum change in the rate borne by those borrowings would change annual interest expense by $55,000.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures within 90 days prior to the filing of this report and have concluded that: there are no significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data; there are no material weaknesses in internal controls; and, there is no fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. There have not been any changes in internal controls or in other factors that could significantly affect internal controls subsequent to the most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS No significant litigation.

ITEM 2. CHANGES IN SECURITIES, ~~AND~~ USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.

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ITEM 5.

OTHER INFORMATION

Common Stock Repurchase and Sale

~~The~~During ~~Company~~the ~~did~~1st ~~not~~three ~~purchase~~months ~~any~~ of ~~its~~2004, ~~shares~~the ~~during~~Company ~~the~~did ~~1st~~not ~~nine~~purchase ~~months~~any shares of ~~2003~~its common stock under its stock repurchase program.

During the 1st ~~nine~~three months of ~~2003~~2004, the Company sold ~~51,817~~no ~~newly issued~~ shares ~~of its common stock~~ under its 1988 Employee Stock Purchase Plan, atbecause anthe ~~average~~plan ~~selling~~was ~~price~~suspended pending the registration of additional ~~$1.25~~shares ~~per~~under ~~share~~a Form S-8 Registration Statement, which occurred on April 9, 2004. From inception of the Plan through ~~September~~March 3031, ~~2003~~2004, employees have purchased a total of ~~720~~731,~~450~~252 shares.

American Stock Exchange Listing

The Company’s common stock trades on the American Stock Exchange under the ticker symbol “PZA”.

Cash Dividends Paid

No cash dividends were paid in in the 1st ~~nine~~quarter ~~months~~ of ~~2003~~2004.

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Management Stock Transactions

No purchases or sales of the Company’s common stock by officers or directors were reported during the ~~3rd~~1st quarter of ~~2003~~2004. On February 26, 2004, a grant of 150,000 shares was made to Theodore A. Arena, the Company’s Chief Executive Officer, under the Company’s Stock Grant Plan.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The only exhibits filed with this report are Exhibit 31 -— Section 302 Certifications and Exhibit 32 -— Section 906 Certifications.

(b) No reports on Form 8-K were filed during the three months ended ~~September~~March 3031, ~~2003~~2004.

SIGNATURE

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.

Date: October 26, 2003			PROVENA FOODS INC.
Date: April 29, 2004	PROVENA FOODS INC.
			By /s/ THOMAS J. MULRONEY
	By	/s/ Thomas J. Mulroney
			Thomas J. Mulroney Vice President and Chief Financial Officer
		Thomas J. Mulroney
		Vice President and Chief Financial Officer

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Filing Compare · PROVENA FOODS INC