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 ~~MARCH~~JUNE 3130, 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)


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 ¨~~

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

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ofwhether ~~Provena~~the ~~Foods~~registrant ~~Inc.~~is ~~Common~~an ~~Stock~~accelerated ~~outstanding~~filer (as ~~April~~defined ~~29,~~in ~~2004~~rule ~~was:~~12b-2 of the Exchange Act).

~~Common~~Yes ¨ No x ~~Stock 3,359,706 shares~~

The number of shares of Provena Foods Inc. Common Stock outstanding at July 29, 2004 was:

Common Stock 3,391,049

PROVENA FOODS INC.

Form 10-Q Report for the ~~First~~Second Quarter Ended ~~March~~June 3130, 2004

Table of Contents

Item		Page
~~PART I. FINANCIAL INFORMATION~~	PART I. FINANCIAL INFORMATION
1.	Financial Statements (Unaudited)	1
	Condensed Statements of Operations	1
	Condensed Balance Sheets	2
	Condensed Statements of Cash Flows	3
	Notes to Condensed Financial Statements	4
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	67
	Results of Operations	67
	Forward-Looking Statements	67
	Swiss American Sausage Co. Meat Division	67
	Royal-Angelus Macaroni Company Pasta Division	67
	The Company	78
	Liquidity and Capital Resources	79
	Commitments and Contingencies	9
	Critical Accounting Policies	11
	Critical Accounting Policies	9
	New Accounting Standards	12
	New Accounting Standards	10
3.	Quantitative and Qualitative Disclosures About Market Risk	12
3.	Quantitative and Qualitative Disclosures About Market Risk	10
4.	Controls and Procedures	13
4.	Controls and Procedures	10
	PART II. OTHER INFORMATION
PART II. OTHER INFORMATION
1.	Legal Proceedings	13
1.	Legal Proceedings	11
2.	Changes in Securities	13
2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	11
3.	Defaults Upon Senior Securities	13
3.	Defaults Upon Senior Securities	11
4.	Submission of Matters to a Vote of Security Holders	13
4.	Submission of Matters to a Vote of Security Holders	11
5.	Other Information	14
5.	Other Information	11
	Common Stock Repurchase and Sale	14
	Common Stock Repurchase and Sale	11
	American Stock Exchange Listing	14
	American Stock Exchange Listing	11
	Cash Dividends	14
	Cash Dividends Paid	11
	Management Stock Transactions	14
	Management Stock Transactions	12
6.	Exhibits and Reports on Form 8-K	14
6.	Exhibits and Reports on Form 8-K	12
	Signature	14
	Signature	12

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PART I. FINANCIAL INFORMATION

ITEM I.

FINANCIAL STATEMENTS

PROVENA FOODS INC.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	Three Months EndedJune 30,					Six Months EndedJune 30,
	2004			2003		2004		2003
Net sales	$	1211,~~318~~802,~~552~~338		9,~~012~~228,~~341~~643		24,120,890		18,240,984
Cost of sales		11,~~848~~288,~~906~~075		78,~~995~~330,~~233~~251		23,136,981		16,325,484
Gross profit		~~469~~514,~~646~~263		1898,~~017,108~~392		983,909		1,915,500
Operating expenses:
Distribution		~~504~~405,~~581~~428		~~404~~386,~~806~~762		910,009		791,568
General and administrative		~~504~~477,~~187~~056		~~479~~447,~~408~~297		981,243		926,705
Operating income (loss)		(~~539~~368,~~122~~221	)	~~132~~64,~~894~~333		(907,343	)	197,227
Interest expense, net		(~~123~~126,~~392~~659	)	(~~109~~118,~~388~~634	)	(250,051	)	(228,022	)
Other income, net		6546,~~617~~818		8768,~~176~~184		112,435		155,360
Earnings (loss) before income taxes		(~~596~~448,~~897~~062	)	~~110~~13,~~682~~883		(1,044,959	)	124,565
Income tax expense (benefit)		(~~236~~149,~~200~~300	)	446,000		(385,500	)	50,000
Net earnings (loss)	$	(~~360~~298,~~697~~762	)	667,~~682~~883		(659,459	)	74,565
Earnings (loss) per share:
Basic	$	(.1109	)	~~.02~~—		(.20	)	.02
Diluted	$	(.1109	)	~~.02~~—		(.20	)	.02
Shares used in computing earnings (loss) per share:
Basic		3,~~219~~248,~~047~~532		3,~~157~~175,~~764~~981		3,233,789		3,166,923
Diluted		3,~~219~~248,~~047~~532		3,~~157~~175,~~764~~981		3,233,789		3,166,923

See accompanying Notes to Condensed Financial Statements.

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PROVENA FOODS INC.

Condensed Balance Sheets

(Unaudited)

	March 31, 2004			December 31, 2003
	June 30,2004			December 31,2003
Assets
Current assets:
Cash and cash equivalents	$	~~114~~103,~~940~~800		83,094
Accounts receivable, less allowance for doubtful accounts of $0 at 2004 and 2003		4,001,703		4,002,477
Accounts receivable, less allowance for doubtful accounts of $3,000 at 2004 and $0 at 2003		3,843,979		4,002,477
Inventories		4,~~965~~634,~~311~~402		4,023,118
Prepaid expenses		~~215~~22,~~401~~976		157,795
Income tax receivable		~~249~~291,~~831~~000		13,631
Deferred tax assets		148,486		148,486
Total current assets		9,~~695~~044,~~672~~643		8,428,601
Property and equipment, net		16,~~386~~280,~~906~~767		16,464,176
Other assets		~~343~~305,~~901~~626		294,682
	$	2625,~~426~~631,~~479~~036		25,187,459
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit	$	32,~~521~~960,~~690~~348		382,717
Current portion of long-term debt		~~726~~8,~~628~~995,371		726,628
Current portion of capital lease obligation		48,000		48,000
Accounts payable		32,~~038~~660,~~759~~985		3,798,481
Accrued liabilities		~~706~~1,~~287~~267,758		1,357,786
Total current liabilities		815,~~041~~932,~~364~~462		6,313,612
Long-term debt, net of current portion		~~8,411,781~~—		8,553,803
Capital lease obligation, net of current portion		~~366~~348,~~288~~626		386,302
Deferred tax liabilities		320,801		320,801
Shareholders’ equity:
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
Capital stock, no par value; authorized 10,000,000 shares; issued and outstanding 3,383,514 at 2004 and 3,209,706 at 2003		5,373,351		5,139,019
Deferred compensation		(~~170~~158,~~000~~667	)	—
Retained earnings		43,~~113~~814,~~225~~463		4,473,922
Total shareholders’ equity		9,~~286~~029,~~245~~147		9,612,941
	$	2625,~~426~~631,~~479~~036		25,187,459

See accompanying Notes to Condensed Financial Statements.

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PROVENA FOODS INC.

Condensed Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net earnings (loss)	$	(~~360~~659,~~697~~459	)	6674,~~682~~565
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Stock based compensation related to employee stock grant		34,001		—
Stock-based compensation related to employee stock grant		45,333		—
Depreciation and amortization		~~222~~451,~~087~~366		~~199~~402,~~288~~575
Decrease (increase) in accounts receivable		774		(315,180	)
Provision for allowance for doubtful accounts		3,000		—
Increase in inventories		(942,193	)	(628,362	)
Decrease (increase) in accounts receivable		155,498		(374,477	)
Increase in prepaid expenses		(57,606	)	(428,575	)
Increase in inventories		(611,284	)	(1,371,049	)
Increase in income taxes receivable		(236,200	)	—
Decrease (increase) in prepaid expenses		134,819		(171,913	)
Increase in other assets		(49,219	)	(9,382	)
Increase in income taxes receivable		(277,369	)	—
Increase (decrease) in accounts payable		(759,722	)	396,788
Increase in other assets		(10,944	)	(3,763	)
Increase (decrease) in accrued liabilities		(651,499	)	74,788
Increase (decrease) in accounts payable		(1,137,496	)	462,827
Increase in income taxes payable		—		27,179
Increase (decrease) in accrued liabilities		(90,028	)	457,660
Net cash used in operating activities		(2,800,274	)	(616,774	)
Increase in income taxes payable		—		39,570
Net cash used in operating activities		(1,996,564	)	(484,005	)
Cash flows from investing activities:
Additions to property and equipment		(~~144~~267,~~817~~957	)	(~~106~~904,~~600~~162	)
Net cash used in investing activities		(~~144~~267,~~817~~957	)	(~~106~~904,~~600~~162	)
Cash flows from financing activities:
Payments on long term debt		(142,022	)	(103,611	)
Payments on debt		(285,060	)	(292,007	)
Payments on capital lease obligation		(2037,~~014~~676	)	(1124,~~847~~085	)
Proceeds from line of credit		32,~~138~~577,~~973~~631		~~696~~1,~~430~~077,271
Proceeds from sale of capital stock		—30,332		1942,~~694~~549
Net cash provided by financing activities		2,976,937		600,666
Proceeds from note payable		—		375,000
Net increase (decrease) in cash and cash equivalents		31,846		(122,708	)
Net cash provided by financing activities		2,285,227		1,178,728
Net increase (decrease) in cash and cash equivalents		20,706		(209,439	)
Cash and cash equivalents at beginning of period		83,094		350,433
Cash and cash equivalents at end of period	$	~~114~~103,~~940~~800		~~227~~140,~~725~~994
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	~~123~~250,~~392~~051		~~109~~228,~~576~~290
Income taxes	$	—		~~48,991~~—

See accompanying Notes to Condensed Financial Statements.

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PROVENA FOODS INC.

Notes to Condensed Financial Statements

~~March~~June 3130, 2004 and 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 ~~were~~if 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, 2003. In the opinion of management, the ~~accompanying~~ 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 six months ended ~~March~~June 3130, 2004 are not necessarily indicative of results to be expected for the full year.

(2) Inventories

Inventories at ~~March~~June 3130, 2004 and December 31, 2003 consist of:

	2004		2003
Raw materials	$	1,~~803~~407,~~557~~302	1,515,118
Work-in-process		1,~~292~~309,~~535~~355	951,388
Finished goods		1,~~869~~917,~~219~~745	1,556,612
	$	4,~~965~~634,~~311~~402	4,023,118

(3) Segment Data

Business segment sales and operating income (loss) for the three months and six months ended ~~March~~June 3130, 2004 and 2003 and assets at ~~March~~June 3130, 2004 and December 31, 2003 are as follows:

	Three Months Ended March 31,
	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004		2003
Net sales to unaffiliated customers:
Swiss American Sausage Division	$	10,709,333		7,582,769
Swiss American Sausage division	$	10,311,649		7,976,641		21,020,982		15,559,410
Royal-Angelus Macaroni Division		1,609,219		1,429,572
Royal-Angelus Macaroni division		1,490,689		1,252,002		3,099,908		2,681,574
Total net sales	$	1211,~~318~~802,~~552~~338		9,~~012~~228,~~341~~643		24,120,890		18,240,984
Operating income (loss):
Swiss American Sausage Division	$	(316,440	)	173,545
Swiss American Sausage division	$	(105,643	)	201,286		(422,083	)	374,831
Royal-Angelus Macaroni Division		(257,204	)	(82,907	)
Royal-Angelus Macaroni division		(230,420	)	(186,772	)	(487,624	)	(269,679	)
Corporate		34(32,~~522~~158	)	4249,~~256~~819		2,364		92,075
Operating income (loss)	$	(~~539~~368,~~122~~221	)	~~132~~64,~~894~~333		(907,343	)	197,227
	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


	June 30, 2004		December 31, 2003
Identifiable assets:
Swiss American Sausage division	$	20,154,088	19,901,183
Royal-Angelus Macaroni division		4,908,174	4,908,453
Corporate		568,774	377,823

Total assets	$	25,631,036	25,187,459

(4) Stock-Based Compensation

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. For the restricted stock grant made in 2004, the compensation expense reported by the Company under APB Opinion No. 25 was the same as it would have been under SFAS No. 123.


	Three Months Ended June 30,				Six Months Ended June 30,
	2004			2003	2004		2003
Net earnings (loss), as reported	$	(298,762	)	7,883	(659,459	)	74,565
Less: Total stock-based employee compensation expense determined under fair value based method		—		—	—		—

Pro forma net earnings (loss)		(298,762	)	7,883	(659,459	)	74,565

Earnings per share:
Basic - as reported	$	(.09	)	—	(.20	)	.02

Basic - pro forma	$	(.09	)	—	(.20	)	.02

Diluted - as reported	$	(.09	)	—	(.20	)	.02

Diluted - pro forma	$	(.09	)	—	(.20	)	.02

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(4) Stock-Based Compensation

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. For the restricted stock grant made in the current quarter, the compensation expense reported by the Company under APB Opinion No. 25 was the same as it would have been under SFAS No. 123.

	Three Months Ended March 31,
	2004			2003
Net earnings (loss), as reported	$	(360,697	)	66,682
Net stock-based compensation expense		—		—
Pro forma net earnings		(360,697	)	66,682
Weighted average number of shares		3,219,047		3,157,764
Incremental shares for options		—		—
Weighted average plus incremental shares		3,219,047		3,157,764
Earnings (loss) per share:
Basic - as reported	$	(.11	)	.02
Basic - pro forma	$	(.11	)	.02
Diluted - as reported	$	(.11	)	.02
Diluted - pro forma	$	(.11	)	.02

(5) Earnings (Loss) per Share

Basic earnings (loss) per share are net earnings (loss) divided by the weighted average number of common shares outstanding during the period, and diluted earnings (loss) per share are net earnings (loss) divided by the sum of the weighted average plus an incremental number of shares attributable to outstanding dilutive options. Options for 107,111 shares were not used for the diluted earnings (loss) calculations ~~below~~ because their effect was ~~anti-dilutive~~antidilutive in the periods presented.

(6) Debt

The Company has a credit facility with Comerica Bank which governs all of the Company’s borrowings and letters of credit between the bank and the Company. 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 the Company to meet certain financial covenants. The Company was not in compliance with certain covenants at June 30, 2004, but received a waiver from the bank for the June 30, 2004 covenant violations.

However, without revision to the credit facility’s financial covenants, the Company believes it will fail to met certain financial covenants at measurement dates that are within one year from the balance sheet date. Therefore, the Company has classified $2,091,471 of outstanding debt at June 30, 2004 under the credit facility as a current liability because it is probable that the bank will have the ability to call the obligations within twelve months from June 30, 2004.

Additionally, the Company has classified as a current liability $6,300,000 outstanding variable rate demand bonds because they are supported by a letter of credit governed by the credit facility. A default under the credit facility allows the bank to require a cash security deposit from the Company in the amount of the bank’s potential liability under the letter of credit. The Company has also classified as a current liability an equipment loan with General Electric Capital Corporation of $603,900 because the loan contains a cross-default provision that encompasses the credit facility, which makes it probable that General Electric Capital Corporation will have the ability to call the loan within twelve months from June 30, 2004.

(7) Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated fair value. The Company determines fair value using estimates of undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

The Company’s evaluation of the recoverability of property and equipment includes estimates of future cash flows that are expected to arise as a direct result of the use and eventual disposition of the assets. A significant part of the estimation process involves estimating future operating cash flows and the fair value of the property and equipment at the eventual disposition date. The Company has recently incurred operating losses and the return to profitability may depend in part on factors outside the Company’s control (see note (8) to the unaudited condensed financial statements). Future property and equipment impairment charges may result if actual cash flows, or changes in estimates of cash flows, from the use and eventual disposition of the property and equipment vary from the estimates used to support the value of the assets at each reporting date.

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(8) Liquidity

The Company has experienced material operating losses and negative operating cash flows for the first two quarters of 2004. The Company’s ability to fund its reasonably foreseeable working capital, capital expenditure and debt service requirements for the next twelve months from cash on hand, funds from operations and its bank line of credit will require improvement in the Company’s operating results and operating cash flow and the willingness of Comerica Bank to waive defaults expected under financial covenants. The Company is aggressively pursuing improvements in its cash flow and operating results, including specific steps directed at conserving cash, increasing margins and reducing costs and is committed to take all feasible actions to achieve these goals. The Company believes that its efforts will succeed in enabling it to meet its cash requirements, improve its financial position and satisfy the bank. However, there is a risk that factors unforeseeable by or beyond the control of the Company may cause the bank to resort to one or more of its options or remedies. Such options or remedies could include increasing the interest rate on the bank’s loans, requiring the Company to engage outside business advisors, requiring changes intended to improve cash flow or results of operations, declaring its loans due and payable and foreclosing against the Company’s assets. The factors not foreseeable or controllable by the Company include, for example, uncertainties relating to the strength of the economy, the intensity of competition, demand for products, market prices for commodities and energy costs. The accompanying unaudited financial statements do not include any adjustments that might result from the outcome of these uncertainties.

(9) Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, determining the allowance for doubtful accounts and valuing inventory and deferred tax assets. Actual results could differ from those estimates and assumptions.

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ITEM 2.

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

Results of Operations

	Three Months EndedMarch 31,
	Three Months EndedJune 30,				Six Months EndedJune 30,
(Unaudited)	2004		2003
	2004		2003		2004		2003
	(amounts in thousands)
(Unaudited)	(amounts in thousands)
Net sales by division:
Swiss American	$	10,~~709~~312	$	7,~~583~~977	$	21,021	$	15,559
Royal-Angelus		1,~~610~~490		1,~~429~~252		3,100		2,682
Total	$	1211,~~319~~802	$	9,~~012~~229	$	24,121	$	18,241
Sales in thousands of pounds by division:
Swiss American		6,~~479~~067		5,~~275~~309		12,546		10,584
Royal-Angelus		32,~~222~~959		2,~~762~~317		6,181		5,133

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 about 4135% in dollars and 2319% in pounds in the 1st ~~three~~six months of 2004 ~~over~~and ~~the~~increased ~~same~~29% ~~period~~in dollars and 14% in pounds in the 2nd quarter of 2004, compared to the same periods of 2003. Sales in dollars increased proportionately more than in pounds because of higher selling prices reflecting higher meat costs. Swiss operated at a $~~316~~422,~~440~~083 loss infor the 1st ~~quarter~~six months of 2004 compared to a $~~173~~374,~~545~~831 profit for the 1st six ~~quarter~~months of 2003., ~~The~~and ~~primary~~at ~~cause~~a of$105,643 ~~the~~ loss infor the ~~1st~~2nd quarter of 2004 ~~was~~compared to a ~~heightened concern about mad cow disease~~$201,286 ~~which resulted~~profit infor athe ~~rapid~~2nd ~~reformulation~~quarter of ~~products~~2003. ~~sold~~The atlosses ~~prices~~were ~~which~~caused ~~failed~~primarily toby ~~fully~~meat ~~reflect the increased~~ cost ofincreases ~~ingredients~~which ~~and~~outpaced ~~decreased~~selling ~~yields~~price ofincreases, ~~the~~exacerbated ~~new~~by ~~formulations.~~high workers ~~The~~compensation ~~concern~~insurance ~~about~~costs, ~~mad-cow disease appears to have peaked~~ and ~~returned~~increasing ~~to normal~~freight ~~levels~~costs. ~~and~~Although ~~Swiss~~meat ~~operated~~costs atleveled-off aduring ~~profit~~the in2nd ~~March 2004. However~~quarter, ~~high~~they ~~workers’~~did ~~compensation~~not ~~cost~~decline and ~~meat~~remained ~~cost~~high ~~increases~~relative ~~outpacing~~to ~~selling~~the ~~price~~same ~~increases~~period ~~are~~a ~~continuing~~year ~~their~~ago. ~~adverse~~Swiss ~~impact~~has onbeen ~~Swiss,~~attempting ~~and~~to ~~there~~raise isits noselling prices ~~indication~~to offully ~~a reduction~~reflect inthe ~~workers’~~high ~~compensation~~level ~~cost~~of ~~for~~meat ~~current~~costs ~~year~~but oris ~~that~~constrained ~~meat~~by ~~costs~~competition ~~will~~and ~~level-off~~resistance orto ~~decline~~price increases.

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

The pasta division’s sales increased about 1316% in dollars and 1720% in pounds in the 1st ~~quarter~~half of 2004 ~~compared~~and toincreased ~~the~~19% ~~1st quarter of 2003. The percentage increases were lower~~ in dollars ~~than~~and 28% in pounds ~~because~~in ~~of an increased proportion of lower price-per-pound sales. Royal operated at a $257,204 loss for~~ the ~~1st~~2nd quarter of 2004, compared to ~~a $82,907 loss for the 1st quarter of 2003. Sales and operating results continue to be adversely affected by intense~~

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~~competition~~ the insame anperiods ~~industry~~of ~~already~~2003. ~~with~~The angreater ~~excess~~percent ~~capacity~~increases ~~experiencing~~in apounds ~~decrease~~than indollars ~~demand~~reflect ~~parallelling~~an ~~the~~increased ~~popularity~~ proportion of ~~the~~lower ~~Atkins~~price-per-pound ~~diet.~~sales ~~The~~and ~~major~~aggressive pricing ~~cause~~directed oftoward ~~the~~meeting ~~increased~~competition ~~operating~~and ~~loss~~increasing ~~was~~volume. ~~that~~Royal inoperated at a $487,624 loss for the 1st ~~quarter~~half of 2004 ~~the~~compared ~~second~~to ~~long-goods~~a ~~line became operational~~$269,679 ~~depreciation~~loss ~~commenced,~~for ~~capitalization~~1st half of ~~labor~~2003 ~~ceased~~and a $230,420 ~~and~~loss for the ~~line~~2nd ~~began~~quarter ~~producing~~of ~~low~~2004 ~~margin~~compared to a $186,772 ~~goods~~loss ~~but~~for ~~did~~the ~~not~~2nd ~~reach~~quarter ~~full~~of ~~capacity~~2003. ~~The~~Operating ~~line~~results iscontinue ~~estimated~~ to be ~~90%~~adversely ~~operational~~affected by intense competition in an industry with ~~trained~~excess ~~personnel~~capacity ~~adequate~~experiencing toa ~~operate~~decrease ~~one~~in ~~shift~~demand ~~per~~parallelling ~~day~~the popularity of the Atkins diet. ~~The~~Contributing to increased operating losses in 2004 was that depreciation of the second long-goods line iscommenced ~~expected~~and tocapitalization ~~become~~of ~~100%~~installation-labor ceased. The line is operational ~~with~~and ~~trained~~producing ~~personnel~~high-volume ~~adequate~~low-margin togoods ~~operate~~and, ~~more~~although ~~than~~Royal’s ~~one~~sales are ~~shift~~increasing, ~~per~~they ~~day~~have ~~during~~not ~~2004,~~reached a level which isutilizes ~~expected~~the tofull ~~benefit~~capacity ~~operating~~of ~~results~~the line.

The Company

Company ~~net~~ sales were up ~~about 37~~32% in the 1st half of 2004 compared to the 1st half of 2003 and were up 28% in the 2nd quarter of 2004 compared to the 2nd quarter of 2003. The Company ~~realized~~incurred ~~net~~a loss of $~~379~~659,~~538~~459 infor the 1st ~~quarter~~half of 2004 compared to net earnings of $6674,~~682~~565 a year ago and a loss of $298,762 for the ~~1st~~2nd quarter of ~~2003.~~2004 ~~Both~~compared ~~divisions~~to ~~contributed~~net toearnings ~~the~~of ~~increased~~$7,883 ~~sales~~a year ago. Both divisions contributed to the ~~decline~~increases ~~from~~in ~~moderate~~sales ~~net earnings~~and todecreases ain ~~substantial~~earnings ~~net~~in ~~loss~~both periods. The Company’s gross ~~profit~~margins ~~margin~~ for the 1st ~~quarter~~half and 2nd quarter of 2004 ~~was~~were 34.81% and 4.4%, respectively, compared to 1110.35% and 9.7% a year ago. ~~The~~ Company’s ~~margin~~margins ~~decreased~~declined ~~from~~because amargins ~~year~~at ~~ago~~both divisions declined, at Swiss because ~~the~~price ~~margins~~increases fell short of ~~both~~meat ~~divisions~~cost ~~decreased~~increases ~~from the~~and ~~mad~~at ~~cow~~Royal ~~disease~~because ~~reformulation~~of aggressive pricing and ~~commencement~~increasing sales of ~~operation~~low-margin ofhigh-volume ~~the~~goods ~~second~~to ~~long~~increase volume in an industry with over-~~goods~~capacity ~~line~~and decreased demand.

General and administrative ~~expenses~~expense ~~were~~was up ~~about~~ $2554,~~000~~538 for the 1st half of 2004 and up $29,759 in the 2nd quarter of 2004, compared to the same ~~period~~periods in 2003, primarily because of recognition of a ratable portion of the stock grant compensation to Theodore A. Arena, partially offset by reduced health insurance costs. Distribution ~~expenses~~expense ~~were~~was up ~~about~~$118,441 for the 1st half and $~~100~~18,~~000~~666 orfor ~~25%~~the on2nd aquarter ~~37%~~compared ~~increase~~to the same periods in ~~sales~~2003, because of increased salesman payroll, advertising, freight and commissions, but increased proportionately less than the increases in sales. Net interest expense increased ~~about~~$22,029 for the 1st half of 2004 and increased $148,~~000~~025 for the 2nd quarter of 2004 because of the increased bond principal, ~~and~~ the equipment loan on the second long-goods line, ~~partially~~and ~~offset~~increased ~~by lower~~ borrowings under the ~~bank~~ line of credit ~~in the 1st quarter of 2004 versus the 1st quarter of 2003~~. Other income decreased ~~about $22,000~~ primarily because of insurance proceeds received in the 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 is payable on demand, is subject to annual review, and bears interest at a variable annual rate which 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 30% of eligible inventories plus 80% of eligible receivables, with a limit of $1,000,000 for inventories, determined monthly. At March 31, 2004 the Base Rate was 4.0% per annum, the maximum amount of the line of credit was $3,717,926 and the Company had $3,521,690 of borrowings outstanding under the bank line of credit, resulting in $196,236 of borrowings available under the line of credit.

-7-

As part of the credit facility, on December 30, 2003 Comerica issued a $6,378,750 5-year letter of credit supporting $6,300,000 of variable rate demand bonds issued the same date. The bonds bear a variable rate of interest payable monthly and set weekly at a market rate — 1.18% per annum at March 31, 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 are about $12,900 per month, with annual increases calculated to amortize the bonds over 20 years. Before the expiration of the first 5 years, the Company and Comerica, or another acceptable financial institution, must agree upon renewal of the letter 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 $9,300,000; a debt to tangible net worth ratio of not more than 2 to 1; cash flow coverage not less than 1.25 to 1; and a quick ratio of cash and account receivables to current liabilities of 0.5 to 1. The Company was in default under the tangible-net-worth and cash-flow-coverage covenants at March 31, 2004 and the bank has waived the defaults. The bank has agreed to modifications of the covenants and the Company expects to be in compliance with all of the covenants, as modified, for the next 12 months.

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.

-8-

~~Commitments~~Liquidity and ~~Contingencies~~Capital Resources

The ~~following~~Company has ~~table~~generally ~~shows~~satisfied ~~the~~its ~~long-term~~normal ~~debt~~working ~~principal~~capital requirements with funds derived from operations and ~~capital~~borrowings ~~lease~~under ~~obligation~~its ~~payments~~bank ~~due~~line inof ~~the~~credit, ~~specified~~which ~~periods~~is part of a credit facility with Comerica Bank. The line of credit, as modified effective June 18, 2004, is payable on demand, is subject to annual review, and bears interest at a variable annual rate of ~~March~~1.25% 31(increased from 0.75%) over the bank’s “Base Rate.” The maximum amount of the line of credit is the lesser of $4,000,000, or: 30% of eligible inventories plus 80% of eligible receivables, with a limit of $1,000,000 for inventories, determined monthly, plus the sum of $600,000 until August 1, 2004, minus a reserve of up to $500,000 at the bank’s discretion until the Company achieves a cash flow coverage of at least 1.25 to 1. The ~~lease~~amount ~~payments~~of ~~are~~a ~~estimates~~$600,000 ~~because~~letter ~~they~~of ~~are~~credit ~~proportional~~from the bank, increasing to ~~pounds~~$900,000 in October 2004, supporting the Company’s obligations to pay workers’ compensation claims and post reserves is applied in reduction of the maximum borrowings under the line of credit. The fee for the letter of credit is 2% per annum of the amount thereof. At June 30, 2004 the “Base Rate” was 4.00% per annum, the maximum amount of the line of credit was $3,400,000 and the Company had $2,960,348 of borrowings under the bank line of credit. Under the credit facility as modified effective June 18, 2004, the Company is required to submit an updated forecast for 2004 and to engage a ~~product~~third ~~sold~~party cost consultant satisfactory to the bank.

	Nine Months EndingDecember 31,			Year Ending December 31,
(amounts in thousands)	Totals		2004	2005	2006	2007	2008	Thereafter
Long-Term Debt	$	9,139	337	379	281	74	80	7,988
Capital Lease Obligation		414	36	48	48	48	48	186
Totals	$	9,553	373	427	329	122	128	8,174

As part of the credit facility, on December 30, 2003 Comerica issued a $6,378,750 5-year letter of credit supporting $6,300,000 of variable rate demand bonds issued the same date. The bonds bear a variable rate of interest payable monthly and set weekly at a market rate — 1.4% per annum at June 30, 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 are about $12,900 per month, with annual increases calculated to amortize the bonds over 20 years. Before the expiration of the first 5 years, the Company and Comerica, or another acceptable financial institution, must agree upon renewal of the letter of credit and future monthly principal payments and amortization, or the Company must repay the bonds at that time.

~~The~~Also as part of the credit facility, Comerica made four loans to the Company ~~expects~~for ~~that~~the ~~its operations~~meat plant, a $1,280,000 real estate loan and ~~bank~~three ~~line~~equipment ofloans ~~credit~~totalling $2,614,788. ~~will~~The ~~provide~~real ~~adequate~~estate ~~working~~loan ~~capital~~was tomade ~~satisfy~~in ~~the~~December ~~normal~~1999, ~~needs~~bears a fixed rate of ~~its~~interest ~~operations~~of ~~for~~9.1% ~~the~~per ~~foreseeable~~annum ~~future,~~and ~~including~~is ~~cash~~payable ~~flow~~in toequal ~~service~~monthly payments of principal and interest over its ~~debt~~25 year term. ~~The~~Each ~~1st~~equipment ~~quarter~~loan ~~usually~~bears ~~requires~~a ~~higher~~variable ~~cash~~rate ~~expenditures~~of ~~than~~interest ~~any~~and ~~other~~is ~~quarter~~payable ~~because~~in equal monthly payments of ~~annual~~principal ~~retirement~~plus ~~benefit~~interest ~~contributions~~over ~~and~~its term, with issue date, initial ~~insurance~~amount, ~~premiums~~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%.

~~The~~All ~~Company~~parts ~~believes~~of ~~that~~the itcredit ~~has~~facility aare ~~good~~secured ~~relationship~~by ~~with~~substantially ~~Comerica~~all ~~Bank-California~~of the Company’s assets, asincluding ~~evidenced~~accounts byreceivable, ~~the~~inventory, ~~bank~~equipment and fixtures, the Company’s ~~previous~~two ~~over-advances~~pasta ~~under~~buildings and the ~~line~~meat plant, none of which is otherwise encumbered. The credit facility prohibits, ~~waivers~~without inthe ~~prior~~bank’s ~~years~~consent, dividends, mergers, acquisitions, purchase or disposal of ~~defaults~~assets, ~~under~~borrowing, ~~the~~granting ~~financial~~security ~~covenants~~interests, and ~~modifications~~changes of management and requires, at the ~~financial~~end ~~covenants.~~of ~~That~~each ~~relationship~~month, isa ~~crucial~~tangible tonet ~~the~~worth ~~Company~~greater than $9,300,000; ~~because~~a ~~the~~debt ~~line~~to tangible net worth ratio of ~~credit~~not ismore ~~payable~~than on2 ~~demand,~~to ~~the~~1; ~~Company~~cash ~~could~~flow coverage not ~~make~~less anthan ~~immediate~~1.06 ~~repayment~~to of1; ~~the~~and ~~line~~a quick ratio of ~~credit,~~cash and aaccount ~~failure~~receivables to ~~repay~~ ~~the~~current ~~line~~liabilities ~~after~~of ~~demand~~0.5 ~~would~~to ~~render~~1. ~~the~~The ~~entire~~Company ~~credit~~was ~~facility~~ in default. Asunder athe ~~result,~~tangible-net-worth ~~the~~and ~~bank~~cash-flow-coverage ~~has~~covenants ~~the~~at ~~power~~April to30, ~~require~~2004, ~~that~~May ~~the~~31, ~~credit~~2004 ~~facility~~and beJune ~~restructured~~30, or2004 ~~refinanced~~and the bank has waived the defaults.

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

-9-

~~ability~~The toCompany ~~collect~~does ~~outstanding~~not ~~receivables,~~expect ~~additional~~to ~~provisions~~be ~~for~~in ~~doubtful~~compliance ~~accounts~~with ~~may~~the befinancial ~~needed~~covenants ~~and~~at all times during the ~~Company’s~~ ~~future~~next ~~results~~twelve ofmonths and ~~operations~~there ~~could~~can be ~~materially~~no ~~affected.~~assurance Atthat ~~March~~the ~~31,~~bank ~~2004,~~will ~~the~~continue ~~Company~~to ~~had~~waive nodefaults ~~allowance~~rather ~~for~~than ~~doubtful~~declare ~~accounts~~the ~~based~~obligations onunder the ~~factors~~credit ~~stated~~facility ~~above~~currently due and payable. ~~Additionally,~~As ~~based~~a onresult, the Company’s ~~analysis,~~real ~~there~~estate isand noequipment loans from the bank and ~~indication~~the ~~that~~variable arate ~~material~~demand ~~amount~~bonds ofare ~~receivables~~reflected isas ~~uncollectible~~current liabilities rather than long-term debt in the June 30, 2004 financial statements.

The Company purchased a second long-goods line for the pasta plant in 2003 and financed part of the cost on October 28, 2003 by an $866,750 five-year term equipment loan from General Electric Capital Corporation bearing interest at 3.65% over a Federal Reserve rate and payable in equal monthly payments of principal plus interest. The second line became operational in the 1st quarter of 2004 and is more modern and expected to produce high quality goods faster and more efficiently than Royal’s other line. Because a cross-default provision in the loan results in the loan being in default when the credit facility is in default, it is also reflected as a current liability rather than as long-term debt in the June 30, 2004 financial statements.

Cash increased $20,706 in the 1st half of 2004 compared to a $209,439 decrease in the 1st half of 2003. Operating activities used $1,996,564 of cash primarily from the net loss, increases in inventories, income taxes receivable and other assets, and decreases in accounts payable and accrued liabilities, partially offset by depreciation and amortization and decreases in accounts receivable and prepaid expenses. Inventories increased on increased sales. Accounts payable decreased from a high level of accounts payable and a low level of borrowing under the bank line at December 31 , 2003. Investing activities used $267,957 of cash for additions to property and equipment and financing activities provided $2,285,227 of cash primarily from increased borrowing under the bank line.

The Company believes that it has a good relationship with Comerica Bank as evidenced by the bank’s over-advances under the line of credit and waivers of defaults under the financial covenants. That relationship is crucial to the Company, since the Company does not expect to be in compliance with the financial covenants and a default permits the bank to declare the obligations under the credit facility currently due and payable. Even without a default under a financial covenant, 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.

The Company believes that it is probable that it will fail to meet the financial covenants during the next twelve months. In the event of a default which the bank declines to waive, the bank could accelerate its loans by declaring the line of credit and its real estate and equipment loans immediately due and payable and requiring a cash security deposit from the Company equal to the bank’s potential liability under the letter of credit supporting the variable rate demand bonds. The Company would be unable to repay the debt and make the cash deposit and the bank could commence foreclosure against the Company’s assets securing the credit facility. The Company believes that before the bank would resort to acceleration and foreclosure, it would take more moderate steps, such as increasing the interest rates on its loans on the basis that the Company is less credit worthy or requiring that the Company engage additional outside consultants and make changes in its operations directed at improving the Company’s cash flow and results of operations. The bank might also demand that the Company refinance the credit facility with another lender. The Company has not explored the possibility of refinancing the credit facility under current conditions and has no reason to believe that such a refinancing is feasible.

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The Company believes that improvements in the Company’s cash flow and operating results are crucial to the Company’s financial stability and its relationship with the bank and is aggressively pursuing these objectives. To improve cash flow, the Company is directing its efforts toward minimizing inventories, accounts receivable and capital expenditures. To improve operating results which also improve cash flow, Swiss has implemented price increases at the risk of losing sales and Royal has pursued high volume sales to utilize its excess capacity. The Company has reduced the number of its employees and is reducing the number of its workers compensation claims through injury prevention programs, which should reduce future workers compensation costs. The Company is considering eliminating the contribution to its SEP-IRA plan for 2004 at a savings of about $400,000 and requiring that non-union employees contribute to the cost of health insurance. Additional cost- saving steps may be taken on recommendation of a third-party cost consultant engaged by the Company at the instance of the bank.

There can be no assurance that the Company will be able to improve its cash flow and operating results sufficient to improve the Company’s financial condition and its relationship with the bank, but the Company is committed to take all feasible actions directed toward achieving these goals.

Critical Accounting Policies

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 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 June 30, 2004, the Company had a $3,000 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 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~~-11- ~~involving critical accounting policies are based on historical data and anticipated future events, and actual results may differ from the Company’s estimates.~~

Impairment of Long-Lived Assets. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated fair value. The Company determines fair value using estimates of undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Use of Estimates. The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, determining the allowance for doubtful accounts and valuing inventory and deferred tax assets. Actual results could differ from those estimates and assumptions.

New Accounting Standards

New accounting standards and interpretations are adopted by the Company as they become effective. In the opinion of management, recently released standards and interpretations not effective at ~~March~~June 3130, 2004, will not have a material effect on the Company’s financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE ~~DISCLOSURE~~DISCLOSURES ABOUT MARKET RISK

The variable rate demand 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 variable rate demand bonds would change annual interest expense by almost $63,000. Assuming an average bank line of credit balance of $3,000,000 plus $1,200,000 average principal balance of equipment loans, a 1% per annum change in the rate borne by those borrowings would change annual interest expense by $42,000.

~~ITEM~~-12- ~~4. CONTROLS AND PROCEDURES~~

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and l5d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of 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,

-10-

~~the~~ITEM ~~Company’s~~4. ~~disclosure~~CONTROLS ~~controls~~AND and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. PROCEDURES

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and l5d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of 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, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Internal Control Over Financial Reporting. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that there have been no such changes during the Company’s fourth fiscal quarter.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS No significant litigation.

ITEM 2. CHANGES IN SECURITIES, ~~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.~~

The Company held its annual meeting of shareholders on Tuesday, April 27, 2004, at 11:00 a.m. at the Company’s principal office. Shareholders representing 2,655,019 or 82.7% of the 3,209,706 shares entitled to vote were present in person or by proxy, with 200,920 broker non-votes. The following persons were nominated and elected directors, with votes for, withheld from specified nominees, or without authority to vote for directors, as indicated:


Nominee	For	Withheld	Without Authority
Theodore L. Arena	2,611,362	5,804	37,853
Santo Zito	2,616,166	1,200	37,853
Louis A. Arena	2,617,066	100	37,853
Joseph W. Wolbers	2,612,562	4,604	37,853
John M. Boukather	2,612,562	4,604	37,853

-13-

ITEM 5.

OTHER INFORMATION

Common Stock Repurchase and Sale

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

During the 1st ~~three~~half ~~months~~ of 2004, the Company sold no23,808 newly issued shares of its common stock under its 1988 Employee Stock Purchase Plan, ~~because~~at ~~the~~an ~~plan~~average ~~was~~selling ~~suspended~~price ~~pending the registration~~ of ~~additional~~ ~~shares~~$1.27 ~~under~~per ~~a Form S-8 Registration Statement, which occurred on April 9, 2004~~share. From inception of the Plan through ~~March~~June 3130, 2004, employees have purchased a total of ~~731~~755,~~252~~060 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 ~~quarter~~six months of 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 ~~1st~~2nd quarter of 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~~following exhibits are filed with this report: ~~are~~Exhibit 14.2 - Code of Conduct and Ethics; 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 ~~March~~June 3130, 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: April 29, 2004	PROVENA FOODS INC.
Date: July 29, 2004			PROVENA FOODS INC.
	By	~~/s/ Thomas J. Mulroney~~	By	/s/ Thomas J. Mulroney
		~~Thomas J. Mulroney~~		Thomas J. Mulroney
		~~Vice President and Chief Financial Officer~~		Vice President and Chief Financial Officer

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