THE COMPANY

Armanino Foods of Distinction, Inc. (the "Company"), is a Colorado corporation incorporated in 1986. The Company is currently engaged in the production and marketing of upscale and innovative frozen and refrigerated food products, including pesto and other sauces, stuffed and flat pasta products, focaccia, cooked meat and poultry products and garlic spread/dip products.

The Company's business began in 1978 as Armanino Frozen Foods, a division of Armanino Marketing Corp., which started producing frozen pesto sauce. In January 1987, substantially all of the business conducted by Armanino Frozen Foods division was transferred to Armanino Foods of Distinction, Inc., a Delaware corporation ("Armanino-Delaware"). In February 1988, Armanino-Delaware was acquired by the Company in a stock exchange transaction in which Armanino-Delaware became a wholly-owned subsidiary of the Company. In December 1990, Armanino-Delaware was merged into the Company.

In August 2001, the Company purchased from Pan Ready Foods, Inc., the machinery and equipment and proprietary formulations which allowed Pan Ready to produce and distribute cooked meat and poultry product lines. Contemporaneously, the Company entered into agreements with Swiss American Sausage Co., a division of Provena Foods, Inc., which provides for Swiss American to manufacture for the Company, utilizing the equipment the Company purchased from Pan Ready, the Company's own proprietary cooked meat product lines as well as the product lines purchased from Pan Ready Foods.

In October 2002, the Company acquired the assets of East Bay Natural Foods which consisted of equipment, related proprietary formulations and processes and other intellectual property. The Company paid $100,000 for the acquired assets. The product line, sold under the name "Garlic Zing[R], is a natural "vegan" substitute for mayonnaise-based spreads. The Garlic Zing[R] line serves as a refrigerated product extension of the Company's pesto sauce line and is being marketed in supermarkets and other retail outlets under the Armanino label. The Company is manufacturing the product line in its Hayward plant.

In April 1990, the Company effected a one for six reverse split of the shares of the Company's Common Stock outstanding; in April 1991, the Company effected a one for fifteen reverse split of the shares of the Company's Common Stock outstanding; in June 1998, the Company effected a one for 300 reverse split immediately followed by a 300 for one forward split of the shares of the Company's Common Stock outstanding; and in January 1999, the Company effected a one for five reverse split of the shares of the Company's Common Stock outstanding, and in June 2001, the Company effected a two for one forward split of the outstanding shares of Common Stock. All financial and share data in this Report gives retroactive effect to the reverse and forward splits.

The Company is the owner of 100% of the issued and outstanding stock of AFDI, Inc., a California corporation and a wholly owned subsidiary of the Company, which currently conducts no business.

On March 10, 2005 the Company announced that its board of directors had unanimously approved the termination of the registration of the Company's common stock under Section 12(g) of the Securities and Exchange Act of 1934 by the filing of a Form 15-Certification and Notice of Termination. The Company intends to make the filing on or about May 13, 2005. As a consequence of such filing the Company's obligations to file periodic reports with the Securities and Exchange Commission will be immediately suspended and the Company's common stock will no longer be traded on NASDAQ. The Company expects that its common stock will continue to be quoted through the Pink Sheets Electronic Quotation Service, although the Company can make no assurance that the Company's stock will be quoted on such Service. The Company does not plan to file a Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005.

The Company is eligible to file Form 15 because as of December 31, 2004 it had fewer than 500 shareholders of record and as of December 31, 2002, 2003 and 2004 had less than $10 million in assets. Although following deregistration the Company will no longer be required to file Securities and Exchange Commission Forms 10-KSB, 10-QSB, 8-K and proxy statements, the Company intends to continue to have its financial statements audited and expects to make quarterly and annual financial and other information publicly available.

The Company's corporate offices are presently located at 30588 San Antonio Street, Hayward, California 94544, and its telephone number is (510)441-9300.

PRODUCTS

The Company's line of frozen products presently includes pesto sauces, stuffed pastas and pasta sheets as well as value-added specialty Italian pastas, focaccia, cooked meat and poultry products. These products are marketed through a network of food brokers and sold to retail and foodservice distributors, club type stores and industrial accounts. Several of these products are sold under two (2) separate labels, namely the Italian Holiday[R] label, which services the retail customers and the Bay City[R] brand label, which serves retail meat and deli customers, as well as foodservice customers in the western region of the U.S. The Company's line of refrigerated products include the Garlic Zing[R] product line which is sold only under the Garlic Zing[R] label only to retail customers in the Western region of the U.S. at this time. The products and the labels they bear are identified as such in each product's category described below.

The Company presently markets a line of pesto sauces which are available in seven varieties: Basil, Classic Ligurian Basil, Cilantro, Dried Tomato-Garlic, Roasted Red Bell Pepper, Artichoke, and Chipotle, as well as a white sauce and a mushroom sauce, all of which are packaged under the Armanino label. The Basil pesto sauce is available to the Company's retail, foodservice and industrial customers, and the Dried Tomato Garlic, Roasted Red Bell Pepper, Cilantro, Classic Ligurian Basil, Artichoke and Chipotle pesto sauces and the white and mushroom sauces are available to foodservice industrial customers only.

The Company markets several lines of frozen pastas, namely stuffed pastas and pasta sheets, cooked and uncooked.

The Company's line of frozen stuffed pastas, both cooked and uncooked, includes meat, chicken, lobster, shrimp, butternut squash, pumpkin and cheese ravioli and jumbo cheese, jumbo mushroom and jumbo chicken rosemary ravioli; jumbo cheese/spinach green dough ravioli; cheese raviolini; meat filled,

tricolor cheese and cheese tortellini; and tri-color cheese and cheese capelletti, manicotti and stuffed shells. The meat and cheese ravioli and tri-color and cheese tortellini are available to the Company's retail and foodservice customers. The chicken ravioli is available to the Company's retail customers only. The afore-mentioned stuffed pasta products, as well as potato gnocchi and pasta sheets, are available to the Company's foodservice customers only. All of these products are sold under the Armanino brand label.

The Company's frozen cooked meat and poultry product line presently consists of cooked meatballs, beef, pork and veal patties, chicken nuggets, chicken strips, chicken patties and uncooked beef liver. The meatball line consists of three varieties namely beef, turkey-beef and Italian-style (beef) meatballs. The beef meatballs are available to retail and foodservice customers under the Armanino label. The turkey-beef meatballs are available to the Company's retail customers only and the Italian-style meatballs are available to the Company's foodservice customers only, both under the Armanino label. The chicken strips and chicken nuggets are available to retail customers under the Bay City label. All other cooked and uncooked meat and poultry products are available to foodservice customers only in the Western region of the U.S. under the Armanino label.

The Company's line of Garlic Zing[R] refrigerated products, which may be used as a sandwich spread, dip or topping, includes five (5) flavors, namely Original, Tomato Basil, Roasted Red Bell Pepper, Jalapeno and Dill. These products are available to the Company's retail customers in the Western region of the U.S. under the Garlic Zing[R] label.

The Company developed a value-added formulated version of several meat and poultry products. These value-added products are sold to retail meat and deli customers as well as to the Company's foodservice customers in the western region of the U.S. under the Bay City[R] label.

The Company presently markets a plain frozen focaccia. The focaccia is available in 1/4 sheets (1/4 sheet is approximately eight inches by twelve inches), precooked frozen and sold to foodservice customers.

NEW PRODUCTS

During the second quarter of 2005, the Company plans to introduce organic frozen pesto products. The Company will continue to research the addition of sauces, sandwich spreads/dressings and stuffed pasta products to enhance the foodservice and retail lines of products in the future.

MANUFACTURING OPERATIONS

Beginning in January, 1991, the Company manufactured frozen pesto sauce at its facilities in South San Francisco, California. In August 1994, the operation was transferred to the Company's new facilities in Hayward, California. Prior to 1991, an independent company manufactured and packaged this product for the Company. The Company made the decision to begin its own manufacturing operations based on its need to gain control of its production costs, production quality and its production schedule in order to better meet the needs of its customers.

Shortly following completion of its move to the Hayward location, the Company began in-house production of its ravioli line of products.

In 1997, the Company expanded its manufacturing operations to include multi-purpose manufacturing and assembly equipment for entree line items, lasagna, cannelloni and manicotti; pasta sheets and specialty pastas such as tortellini and tortelloni. To complement this line further, kettles were also purchased to manufacture cooked sauces for this line as well as a refrigeration system for quick cooling of product. New packaging equipment was also acquired.

In 1998, the Company streamlined the pasta product line (such as tortellini and raviolini) by moving the production of these products from the entree line to the ravioli line. The move increased manufacturing capacity and efficiency of both lines.

In 1999, the Company purchased a new oil storage tank and packaging equipment to complement the pesto production operation, thereby increasing production efficiencies and improving manufacturing costs. The Company also purchased a second tortellini machine and additional ravioli dies in order to meet customer demands. The oil storage tank was placed into service during the first quarter of 2000, and the new pasta equipment items were placed into service during the second quarter of 2000.

In the first quarter of 2000, the Company determined that it would be more feasible to discontinue the in-house production of the specialty type pasta line of products and concentrate its efforts on the manufacture of its ravioli and tortellini line of products due to the increased demands for these products by its customers. The Company continues to market the specialty pasta products; however, they are manufactured for the Company by an outside source under a co-pack arrangement.

In 2001, the Company purchased equipment to further automate its pasta production operation thereby increasing the manufacturing capacity of pasta products to better meet the needs of its customers.

In October 2002, the Company expanded its manufacturing operation to include the addition of machinery and equipment purchased as part of the Company's acquisition of assets from East Bay Natural Foods for the manufacture of Garlic Zing[R] sandwich spread/dip/topping "vegan" line of products.

Additionally, during the fourth quarter of 2002, as a result of the Company's decision to discontinue its entree line, the Company physically removed and disposed of the machinery and equipment associated with the entree line to allow the Company to utilize the space to accommodate the Garlic Zing[R] operation and improve its existing pasta operations.

In 2003, The Company acquired a second bowl chopper as a back up for its pesto sauce line.

The annual production rate of products varies as does the capacity of the equipment, depending on the type of product being produced. The Company believes that its equipment has sufficient capacity to meet its production needs for at least the next twelve months.

The Company's line of frozen meatballs was formerly manufactured by Pan Ready (formerly Spun Steak) of South San Francisco, California. The Company had an agreement with Pan Ready pursuant to which that company manufactured these products based on the Company's proprietary formulas at a set price, as well as Pan Ready's products on a "private label" basis at a set price. Pan Ready had agreed to keep the Company's proprietary recipes confidential.

In May 2001, the Company entered into an agreement with Pan Ready, which was consummated in August 2001. Under the agreement, the Company acquired machinery and equipment, product formulations and other intellectual property from Pan Ready which permits the Company to manufacture and distribute certain cooked meat and poultry products which Pan Ready had been manufacturing and distributing, in part through the Company. The agreement with Pan Ready was in part attributable to Pan Ready's decision to discontinue operations. In conjunction with the Pan Ready transaction, the Company entered into a Manufacturing and Packaging Agreement and a License Agreement with Swiss American Sausage Co. of Lathrop, California, a subsidiary of Provena Foods, Inc. Swiss American is a manufacturer of processed meat products serving the pizza market and foodservice distributors. Under the multi-year License Agreement the Company installed machinery and equipment which it had purchased from Pan Ready into Swiss American's Lathrop plant in exchange for the payment of a license fee. At the same time, the Company and Swiss American entered into a multi-year Manufacturing and Packaging Agreement. Under the agreement, Swiss American is utilizing the machinery and equipment licensed to it by the Company to produce the Company's proprietary meat and poultry products at agreed upon prices and pursuant to the Company's proprietary formulations and specifications. Swiss American has agreed to keep the Company's recipes, formulations and specifications confidential.

The Company's focaccia products are manufactured for the Company by Maggiora Bakery ("Maggiora") in Richmond, California. The Company entered into an agreement with Maggiora pursuant to which that company will manufacture and package these products based on the Company's proprietary formulas at a set price. Maggiora has agreed to keep the Company's recipes confidential.

Certain stuffed pasta products are manufactured for the Company by Marzetti Frozen Pasta, Inc. ("Marzetti") of Altoona, Ohio. The Company has an agreement with Marzetti pursuant to which that company manufactures and packages certain of their products on a "private-label" basis at a set price for the Company.

Certain specialty stuffed pastas and flat pasta products are manufactured for the Company by Il Pastaio ("Il Pastaio") of San Francisco, California. The Company has an agreement with Il Pastaio pursuant to which that company manufactures and packages certain of their products on a "private-label" basis at a set price for the Company.

The Company's potato gnocchi product is manufactured for the Company by San Francisco Pasta of Hayward, CA. The Company has an agreement with San Francisco Pasta pursuant to which that company manufactures and packages this product on a "private-label" basis at a set price for the Company.

Certain uncooked meat products are manufactured for the Company by Skylark ("Skylark") of Omaha, Nebraska. The Company has an agreement with Skylark pursuant to which that company manufactures and packages certain of their products on a "private-label" basis at a set price for the Company.

All products manufactured by outside sources are produced on a "co-pack" or "completed-cost" basis, except for the cost of branded packaging and labeling which are borne by the Company. The manufacturer makes all arrangements to purchase and inspect raw materials, schedule actual production, and initiate movement of all finished goods to a warehouse designated by the Company.

Quality assurance is monitored continually by the manufacturer during processing for temperature, color, flavor, consistency, net weight and integrity of packaging.

With regard to the production of frozen pesto sauces and pasta products at the Company's own facilities, the Company is responsible for the supervision of the above-mentioned quality assurance measures and has employed its own in-house quality control personnel to assure that the Company's processing and sanitation compliances are met. The Company also performs process analysis as well as microbiological analysis and nutritional calculations of its in-house production, and uses a Modesto, California laboratory firm to assist in this testing, as needed. The Company completed its Hazard Analysis and Critical Control Points ("HACCP") program, required by USDA regulations. The Company implemented this program subsequent to receiving approval of the program by the U.S.D.A. in January 1999. In addition to the Company's HACCP program, the Company has had in place since 1996, a Recall Plan. This plan is updated, as needed or warranted, and mock recalls are performed on a periodic basis.

During 2000, the Company was certified by the Islamic Food and Nutritional Council of America as a Halal (products produced in compliance with the requirements of the Islamic dietary code) approved facility. However, during 2002, the Company did not renew its Halal certification due to a low response to this feature, and is no longer a certified Halal approved facility.

All raw materials are purchased from approved suppliers by manufacturers on contract where specific requirements on quality, size, and packing medium must be met, or on a spot market basis where prior specifications have been met or qualified by testing.

DISTRIBUTION AND MARKETING

The Company's products are marketed through a network of food brokers and sold to retail, foodservice, club-type stores, and industrial accounts. During the third quarter of 1998, the Company appointed DOT Foods to distribute the Company's line of products to new and existing customers on a non-exclusive national basis. DOT Foods is a master distributor servicing both regional and national distributors. Approximately 39% of the Company's sales were handled by DOT Foods during each of the years 2004 and 2003.

For the year 2004, two (2) independent brokers, namely, Herspring, Inc. and Progressive Marketing accounted for 16% and 10%, respectively, of the sales of the Company.

For the year 2003, two (2) independent brokers, namely, Herspring, Inc. and Enhance Marketing accounted for 17% and 10%, respectively, of the sales of the Company.

The loss of brokers or distributors who represent a significant amount of sales could have a materially adverse effect on the business of the Company. However, the Company believes that once brokers or distributors have established accounts with customers such as supermarket chains, the termination of a broker or distributor will not generally affect sales to such customers when another broker or distributor serving the area is available, or the Company is able to take over marketing responsibilities.

RAW MATERIALS

The Company primarily uses basil, vegetables, canola oil, eggs, dairy products, cooked and uncooked meat and poultry, dried tomatoes, bread crumbs, flour, garlic, herbs and spices in the production of its products. There are ample supplies of these raw materials and the Company anticipates no raw material supply shortages in the foreseeable future.

COMPETITION

The Company faces substantial competition in its business. Because many of the Company's products are sold frozen, they have a relatively shorter shelf life and are more expensive than many competing dried products and products packed in cans or jars. Although these types of competing products are marketed by some companies which have significantly greater financial and other resources than those of the Company, including advertising budgets, the Company markets its products on the basis of quality and natural ingredients rather than price.

With respect to other frozen food manufacturers, the Company believes that its products are highly competitive with other frozen products in pricing and quality. However, the Company faces stiff competition in the area of on-going promotional support, and the Company has found it difficult to convince new accounts to change their established suppliers. The Company may also face competition from future entrants into the industry.

There is no assurance that the Company's products will meet with public acceptance in new markets. The Company believes that the Company has achieved name recognition nationally with emphasis in the West Coast Region.

EMPLOYEES

As of March 15, 2005, the Company employed 38 persons on a full-time basis and one on a part-time basis. The Company also presently uses two to five persons on a full-time basis, as needed, from a temporary employment service.

PATENTS AND TRADEMARKS

Although the Company's formulas and recipes are not subject to patent protection, the Company treats these as proprietary and uses confidentiality agreements as appropriate in an attempt to protect such formulas and recipes. To date, the Company has not encountered any difficulties in keeping its formulas and recipes confidential, and has not been required to enforce its confidentiality agreements.

The Company uses the name "Armanino" as a trademark for its products. However, no trademark application has been filed for Armanino.

In November 1995, the Company received a trademark registration for the mark Italian Holiday[R] from the U.S. Patent and Trademark office. This trademark was used by the Company on certain of its frozen stuffed pasta products and meatball products. The Company currently uses this trademark on its value-added line of pasta and meatball products only.

In August 1998, the Company received a trademark registration for the mark Pasta Regina from the U.S. Patent & Trademark Office. The Company previously used this mark on certain of its flat and filled pastas, including ravioli and tortellini sold to foodservice, industrial and retail accounts. The Company abandoned the Pasta Regina trademark in November 2003.

In January 2003, the Company received a trademark registration to use the mark "Bay City[R]" from the U.S. Patent and Trademark office. This trademark is currently being used by the Company on certain of its frozen value-added cooked meat and poultry products only.

As a result of the acquisition of the Garlic Zing[R] product line from East Bay Natural Foods, the Company now holds the rights to this trademark with the U.S. Patent and Trademark office. In October 2003, the Company received two (2) trademark registrations to use the marks "Garlic Zing" [R] and "May Shmayo" [R] from the U.S. Patent and Trademark Office. This trademark is currently used by the Company on its refrigerated line of sandwich spread/dip/topping "vegan" products only.

GOVERNMENT REGULATION

The Company's current manufacturing operations are regulated by the United States Department of Agriculture ("USDA") as well as state and local authorities. The Company is subject to various regulations with respect to cleanliness, maintenance of food production equipment, food handling and storage, and is subject to on-site inspections. Under various statues and regulations, the regulatory agencies prescribe requirements and establish standards for quality, purity and labeling. The finding of a failure to comply with one or more regulatory requirements can result in a variety of sanctions, including the stopping of production, monetary fines and/or the compulsory recall of products. However, the Company believes that in the event any such violations were found to exist, the Company could seek compensation from the manufacturer of the cited product on products not manufactured by the Company since the manufacturer is responsible for processing, manufacturing, packaging and labeling such products. Nevertheless, there can be no assurance that the Company would be successful in recovering such compensation.