##### 



Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 (Mark One) [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the
quarterly period ended September 18, 2004
 OR [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission File Number 0-12800 CUISINE SOLUTIONS, INC.  DELAWARE
    
    52-0948383(State or other jurisdiction of
    
    (IRS Employer Identification Number)incorporation or organization)
 85 S Bragg Street, Suite 600, Alexandria, VA 22312
(Address of principal executive offices) (Zip Code) (Registrants telephone number, including area code) (703) 270-2900 Indicate by 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 the number of shares outstanding of each of the issuers classes of
common stock as of October 25, 2004. Common Stock 0.01 par value
    
    Number of SharesClass A
    
    15,918,788Class B
    
    None
 1




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##### 



CUISINE SOLUTIONS, INC. PART I: FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the United States
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of the Company, all adjustments necessary for the fair presentation
of the Companys results of operations, financial position and changes therein
for the periods presented have been included. 2




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS September 18,
    
    June 26,2004
    
    2004(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,919,000
    
    
    $
    1,491,000Trade accounts receivable, net
    
    
    3,712,000
    
    
    
    3,837,000Inventory, net
    
    
    6,320,000
    
    
    
    5,641,000Prepaid expenses
    
    
    215,000
    
    
    
    140,000Notes receivable, related party
    
    
    58,000
    
    
    
    58,000Other current assets
    
    
    351,000
    
    
    
    390,000TOTAL CURRENT ASSETS
    
    
    12,575,000
    
    
    
    11,557,000Investments
    
    
    1,128,000
    
    
    
    1,114,000Property and Equipment, net
    
    
    4,884,000
    
    
    
    4,993,000Other assets
    
    
    5,000
    
    
    
    46,000TOTAL ASSETS
    
    $
    18,592,000
    
    
    $
    17,710,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    
    3,769,000
    
    
    
    2,133,000Accounts payable and accrued expenses
    
    
    4,658,000
    
    
    
    5,438,000Accrued payroll and related liabilities
    
    
    1,256,000
    
    
    
    1,427,000Total current liabilities
    
    
    9,683,000
    
    
    
    8,998,000Long-term debt, less current portion
    
    
    2,060,000
    
    
    
    2,140,000TOTAL LIABILITIES
    
    
    11,743,000
    
    
    
    11,138,000Stockholders equityCommon stock - $.01 par value, 20,000,000 shares authorized,
15,918,788 and 15,834,788 shares issued and outstanding
at September 18, 2004 and June 26, 2004, respectively.
    
    
    159,000
    
    
    
    159,000Class B Stock - $.01 par value, 175,000 shares authorized,
none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    26,502,000
    
    
    
    26,380,000Accumulated deficit
    
    
    (20,328,000
    )
    
    
    (20,490,000
    )Accumulated Other Comprehensive IncomeUnrealized gain on debt and equity investments
    
    
    31,000
    
    
    
    17,000Cumulative translation adjustment
    
    
    485,000
    
    
    
    506,000TOTAL STOCKHOLDERS EQUITY
    
    
    6,849,000
    
    
    
    6,572,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    18,592,000
    
    
    $
    17,710,000
 See accompanying notes to consolidated financial statements. 3




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) First QuarterTwelve Weeks EndedSep 18,
    
    Sep 20,2004
    
    2003NET SALES
    
    $
    8,735,000
    
    
    $
    7,102,000Cost of goods sold
    
    
    6,787,000
    
    
    
    5,905,000GROSS MARGIN
    
    
    1,948,000
    
    
    
    1,197,000Selling and administration
    
    
    1,629,000
    
    
    
    1,242,000Depreciation and amortization
    
    
    100,000
    
    
    
    114,000INCOME (LOSS) FROM OPERATIONS
    
    
    219,000
    
    
    
    (159,000
    )Nonoperating income (expense)Investment income
    
    
    14,000
    
    
    
    17,000Interest expense
    
    
    (60,000
    )
    
    
    (31,000
    )Other expense
    
    
    (11,000
    )
    
    
    (8,000
    )TOTAL NON-OPERATING EXPENSE
    
    
    (57,000
    )
    
    
    (22,000
    )Earnings (Loss) before income taxes
    
    
    162,000
    
    
    
    (181,000
    )Provision fo income taxes
    
    
    
    
    
    
    NET EARNINGS (LOSS)
    
    
    162,000
    
    
    
    (181,000
    )Basic and diluted earnings (loss) per share:Earnings (loss) per common share-basic and diluted
    
    $
    0.01
    
    
    
    ($0.01
    )Weighted average shares outstanding-basic
    
    
    15,846,169
    
    
    
    15,824,588Common stock equivalents
    
    
    1,317,674
    
    
    
    Weighted average shares outstanding-diluted
    
    
    17,163,843
    
    
    
    15,824,588
 See accompanying notes to consolidated financial statements. 4




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Year to dateTwelve weeks endedSep 18,
    
    Sep 20,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet earnings (Loss)
    
    $
    162,000
    
    
    $
    (181,000
    )Adjustments to reconcile net earnings (loss) to
net cash used in operating activitiesDepreciation and amortization
    
    
    194,000
    
    
    
    206,000Stock based compensation
    
    
    42,000
    
    
    
    Changes in assets and liabilities:Decrease (Increase) in accounts receivable trade
    
    
    125,000
    
    
    
    (139,000
    )Increase in inventory
    
    
    (679,000
    )
    
    
    (152,000
    )(Increase) Decrease in prepaid expenses
    
    
    (75,000
    )
    
    
    147,000Decrease in notes receivable, related party
    
    
    
    
    
    
    6,000Decrease in other assets
    
    
    80,000
    
    
    
    41,000(Decrease) Increase in accounts payable and accrued expenses
    
    
    (780,000
    )
    
    
    51,000Decrease in accrued payroll and related liabilities
    
    
    (171,000
    )
    
    
    (193,000
    )Net cash used in operating activities
    
    
    (1,102,000
    )
    
    
    (214,000
    )CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (85,000
    )
    
    
    (37,000
    )Net cash used in investing activities
    
    
    (85,000
    )
    
    
    (37,000
    )CASH FLOWS FROM FINANCING ACTIVITIESNet borrowings on Line-of-credit
    
    
    2,024,000
    
    
    
    Payments on notes payable
    
    
    (468,000
    )
    
    
    (444,000
    )Proceeds from issuance of common stock
    
    
    80,000
    
    
    
    Net cash provided by (used in) financing activities
    
    
    1,636,000
    
    
    
    (444,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    449,000
    
    
    
    (695,000
    )Effect of exchange rate on cash
    
    
    (21,000
    )
    
    
    (47,000
    )Cash and cash equivalents, beginning of period
    
    
    1,491,000
    
    
    
    1,357,000CASH and CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,919,000
    
    
    $
    615,000
 See accompanying notes to consolidated financial statements 5




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##### 



Cuisine Solutions, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited) Unrealized GainsAdditional
    
    
    
    
    
    (Losses) on Debt
    
    Cumulative
    
    TotalCommon
    
    Paid-In
    
    Accumulated
    
    and Equity
    
    Translation
    
    StockholdersStock
    
    Capital
    
    Deficit
    
    Investments
    
    Adjustment
    
    EquityBalance, June 26, 2004
    
    $
    159,000
    
    
    $
    26,380,000
    
    
    $
    (20,490,000
    )
    
    $
    17,000
    
    
    $
    506,000
    
    
    $
    6,572,000Exercise of common stock options
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000Stock-based compensation
    
    
    
    
    
    
    42,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,000First quarter 2005 net earnings
    
    
    
    
    
    
    
    
    
    
    162,000
    
    
    
    
    
    
    
    
    
    
    
    162,000Other Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gain on debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,000
    
    
    
    
    
    
    
    14,000Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,000
    )
    
    
    (21,000
    )Other Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,000
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,000Balance, September 18, 2004
    
    $
    159,000
    
    
    $
    26,502,000
    
    
    $
    (20,328,000
    )
    
    $
    31,000
    
    
    $
    485,000
    
    
    $
    6,849,000
 Unrealized GainsAdditional
    
    
    
    
    
    (Losses) on Debt
    
    Cumulative
    
    TotalCommon
    
    Paid-In
    
    Accumulated
    
    and Equity
    
    Translation
    
    StockholdersStock
    
    Capital
    
    Deficit
    
    Investments
    
    Adjustment
    
    EquityBalance, June 28, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (19,486,000
    )
    
    $
    59,000
    
    
    $
    450,000
    
    
    $
    7,466,000First quarter 2004 net loss
    
    
    
    
    
    
    
    
    
    
    (181,000
    )
    
    
    
    
    
    
    
    
    
    
    (181,000
    )Other Comprehensive LossUnrealized loss on debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )
    
    
    
    
    
    
    (11,000
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,000
    )
    
    
    (47,000
    )Other Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,000
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (239,000
    )Balance, September 20, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (19,667,000
    )
    
    $
    48,000
    
    
    $
    403,000
    
    
    $
    7,227,000
 6




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##### 



Cuisine Solutions, Inc. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1) Financial Statements The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the United States
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of the Company, all adjustments necessary for the fair presentation
of the Companys results of operations, financial position and changes therein
for the periods presented have been included. 2) Fiscal Periods The Company utilizes a 52/53 week fiscal year which ends on the last Saturday
in June. The first, second and fourth quarters, of fiscal years 2005 and 2004
contain 12 weeks, and the third quarters contains 16 weeks. 3) Inventory Inventories are valued at the lower of cost, determined by the first-in,
first-out method (FIFO), or market. Inventory consists of: September 18, 2004
    
    June 26, 2004Raw materials
    
    $
    1,721,000
    
    
    $
    1,663,000Frozen product & other finished goods
    
    
    3,880,000
    
    
    
    3,409,000Packing materials & supplies
    
    
    890,000
    
    
    
    731,0006,491,000
    
    
    
    5,803,000Less obsolescence reserve
    
    
    (171,000
    )
    
    
    (162,000
    )$
    6,320,000
    
    
    $
    5,641,000
 4) Commitments and Contingencies From time to time, the Company is engaged in ordinary and routine litigation
incidental to its business. Management does not anticipate that any amounts
that it may be required to pay by reason thereof will have a material effect on
the Companys financial position or results of operations. 5) Transactions with Related Parties As of September 18, 2004, the Company had an accrued liability of $263,000
payable to Food Research Corporation (FRC). The liability was previously
payable to SOMDIAA and was assumed by FRC. SOMDIAA is a holding company which
is majority owned by Secria, S.A. and Secria Europe, S.A. Both enterprises are
owned by the Jean-Louis Vilgrain family (JLV); and FRC is owned by Secria
Europe, S.A. SOMDIAA provides the administration of French Social Security
healthcare and retirement plans for individuals who work within the JLV group.
The primary portion of the accrual is related to amounts billed from SOMDIAA
for separate health and retirement plans for the President of the Company and
two other non-officer key employees. 7




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On June 12, 2001, the Company signed an agreement to create a partnership to
build a sous-vide processing facility in Chile. The intended purpose of the
facility is to produce high quality, value priced whitefish, shellfish and
salmon products in Chile for the Global Retail and Foodservice markets. Cuisine
Solutions, Inc. would sell the Norwegian facility to the Chilean Group for
approximately $3,900,000, the sole investment required to own 48% of the new
joint venture, Cuisine Solutions Chile. The agreement was terminated without
any prejudice between the partners during fiscal year 2003 due to
administrative difficulties. However, the parties continued to develop the
facility in Chile and agreed that the Company will hold 10% of the total shares
of Cuisine Solutions Chile S.A. An agreement to market certain sous-vide
products was signed by the parties in June 2003 and a commercial agreement to
commit to the purchase of certain raw materials from Cuisine Solutions Chile
was signed in fiscal year 2004. The plant began operations in August 2004. Food Investors Corporation (FIC) and FRC are owned by the JLV Group. On
October 22, 2003, the Company entered into a six month term loan in the amount
of $500,000 with FIC to provide short term working capital necessary to expand
operations for fiscal year 2004. The loan accrued interest at 5% per annum and
was payable upon maturity. In October 2004, the loan was extended to April 22,
2005. Total outstanding principal was $354,000 at September 18, 2004. In
addition, on November 10, 2003, the Company entered into a three-year term loan
in the amount of $500,000 with FRC to provide short term working capital
necessary to expand operations. The loan bears interest of 6% per annum and is
payable upon maturity. Under this loan, Cuisine Solutions was required to pay
interest on a quarterly basis beginning in April 2004, with a balloon payment
for the total amount due three years from the origination of the loan. On July 10, 2004 the Company entered into an agreement with the Bank of Charles
Town in West Virginia for a $2,500,000 line of credit to finance its working
capital requirements in the US. The line of credit is secured by the Companys
US accounts receivable and inventory and further guaranteed and secured with
real estate owned by FRC. This line of credit bears an interest rate of 0.5%
over the prime interest rate (5.25% at September 18, 2004) and is renewable on
September 1, 2005. As of September 18, 2004, the outstanding principal was
$2,024,000. 6) Earnings (Loss) Per Share Basic earnings (loss) per common share is computed by dividing earnings (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per common share also includes common stock equivalents
outstanding during the period if dilutive. The Companys common stock
equivalents consist of stock options. The weighted average number of shares
outstanding related to stock options was 2,910,946 and 1,539,500 for the 12
weeks ended September 18, 2004, and September 20, 2003, respectively. For the
twelve weeks ended September 18, 2004 and September 20, 2003, 79,000 and
1,539,500 common stock options were not included in the diluted earnings per
share calculations as the effect would be anti-dilutive. 7) Accounting for stock-based compensation The Company accounts for employee stock option grants using the intrinsic value
method in accordance with Accounting Principles Board (APB) Opinion No. 25
Accounting for Stock Issued to Employees and related interpretations.
Accordingly, compensation expense, if any, is measured as the excess of the
underlying stock price over the exercise price on the date of grant. The
Company complies with the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123 Accounting for Stock Based Compensation,
as amended by SFAS No. 148 Accounting for Stock-Based CompensationTransition
and Disclosure which requires pro-forma disclosure of compensation expense
associated with stock options under the fair value method. 8




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##### 



Had compensation cost been recognized based on the fair values of options at
the grant dates consistent with the provisions of SFAS No. 123, the Companys
earnings (loss) and basic and diluted earnings (loss) per common share would
have been as follows: Sep. 18, 2004
    
    Sep. 20, 2003Net earnings (loss) applicable to common shareholders
    
    $
    162,000
    
    
    $
    (181,000
    )Add: Stock-based employee compensation cost included
in reported net earnings (loss)
    
    $
    42,000
    
    
    
    Less: Total stock-based compensation expense
determined under the fair value method
    
    $
    (73,000
    )
    
    $
    (42,000
    )Pro forma net earnings (loss)
    
    $
    131,000
    
    
    $
    (223,000
    )Earnings (Loss) per common share:Basic and diluted  as reported
    
    $
    0.01
    
    
    $
    (0.01
    )Basic and diluted  pro forma
    
    $
    0.01
    
    
    $
    (0.01
    )Weighted average common shares outstanding-basic
    
    
    15,846,169
    
    
    
    15,824,788Common stock equivalents
    
    
    1,317,674
    
    
    
    Weighted average common shares outstanding-diluted
    
    
    17,163,843
    
    
    
    15,824,788
 9




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations This filing contains forward-looking statements within the meaning of
Section 27A of The Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. Those statements reflect the
intent, belief or current expectations of the Company and members of the
management team. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risk and uncertainties and that actual results may differ materially from those
contemplated by such forward-looking statements reflecting changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time. RESULTS OF OPERATIONS Revenue in the first quarter of fiscal 2005 increased $1,633,000 from
$7,102,000 to $8,735,000, a 23.0% increase compared to the same quarter of the
previous fiscal year due primarily to stronger sales in most of sales channels
in the US. US Military sales rose by 196.6%, retail sales improved 99.6%, and
the National Restaurant Chain channel grew 68.9%, compared to the first quarter
of fiscal 2004. Cuisine Solutions, Inc. reported net earnings of $162,000 for the first quarter
of fiscal year 2005 compared to a net loss of $181,000 a year ago. The increase
in net earnings was primarily due to a 23.0% increase in sales and a 62.7%
increase in gross margin. NET SALES First quarter 2005 revenue of $8,735,000 increased, as described above, by
23.0% compared to the previous fiscal years first quarter revenue of
$7,102,000. USA sales grew 43.2% compared to the same quarter in fiscal year
2004. Information as to Cuisine Solution sales by geographical locations are
as follows (Norway inter-company sales are eliminated): Q1 Fiscal 2005
    
    Q1 Fiscal 2004
    
    $Change
    
    %ChangeUSA
    
    $
    5,980,000
    
    
    $
    4,175,000
    
    
    $
    1,805,000
    
    
    
    43.2
    %Norway
    
    
    32,000
    
    
    
    368,000
    
    
    
    (336,000
    )
    
    
    (91.3
    %)France
    
    
    2,723,000
    
    
    
    2,559,000
    
    
    
    164,000
    
    
    
    6.4
    %Total Net Sales
    
    $
    8,735,000
    
    
    $
    7,102,000
    
    
    $
    1,633,000
    
    
    
    23.0
    %
 US SALES Fiscal year 2005 first quarter sales in the US increased $1,805,000 to
$5,980,000, a 43.2% increase from the previous fiscal year first quarter sales
of $4,175,000. Cuisine Solutions US Fiscal Years 2005 and 2004 first quarter sales by sales
channel are as follows: Q1 FY05
    
    Q1 FY04
    
    $Change
    
    %ChangeFood Service
    
    $
    1,041,000
    
    
    $
    1,081,000
    
    
    $
    (40,000
    )
    
    
    (3.7
    %)On Board Services
    
    
    2,701,000
    
    
    
    2,136,000
    
    
    
    556,000
    
    
    
    26.5
    %Retail
    
    
    567,000
    
    
    
    284,000
    
    
    
    283,000
    
    
    
    99.6
    %Military
    
    
    1,237,000
    
    
    
    417,000
    
    
    
    820,000
    
    
    
    196.6
    %National Restaurant Chain
    
    
    434,000
    
    
    
    257,000
    
    
    
    177,000
    
    
    
    68.9
    %Total
    
    $
    5,980,000
    
    
    $
    4,175,000
    
    
    $
    1,805,000
    
    
    
    43.2
    %
 10




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##### 



The only channel that did not report a first quarter fiscal year 2005 gain as
compared to the same quarter of fiscal year 2004 was in the Food Service
channel. Food Service revenue was 3.7% or $40,000 less than the same quarter
of fiscal year 2004. The small decrease was due to lower than expected hotel
sales of the Cuisine Solutions low carbohydrate menu items. The first quarter
is consistently the slowest time for the Food Service channel as there are
fewer banquets and business conferences. Fiscal year 2005 first quarter sales from the On Board Services channel totaled
$2,701,000 compared to previous year first quarter sales of $2,136,000, an
increase of $556,000 or 26.5%. Sales to the On Board Services channel increased
in the first quarter as US airlines and passenger rails continued their
recovery from the last two years. The On Board Services channel continued to
increase the numbers of passengers, and food products are returning with some
carriers who discontinued them in late 2001. Retail sales for the first quarter of fiscal 2005 increased $283,000 (or 99.6%)
to $567,000 from $284,000, compared to the same period of the previous fiscal
year due primarily to the additional product roll-out of Cuisine Solutions
branded frozen food items to North-American retailers. Military sales for the first quarter 2005 increased 196.6% to $1,237,000 from
$417,000 compared to the same period in fiscal 2004 primarily due to the
increased demand from the US Navy. Also, Cuisine Solutions began delivering
items for the Army Field Rations program called the Unitized Group Rations A
(UGRA) menu. The US Army began to supply these products to locations such as
Iraq and Afghanistan in the second quarter of fiscal year 2005. National Restaurant Chain sales for the first quarter of fiscal year 2005
totaled $434,000, up from $257,000 in fiscal 2004. The sales increase of
$177,000 (or 68.9%) is attributed to increased sales to existing national
restaurant chain customers as well as limited sales to new customers. The
Company will further pursue its role as a supplier for national restaurant
chains who have determined that the Companys product quality and ease of use
makes an attractive alternative for providing promotional menu items. NORWAY SALES Total Norwegian sales before inter-company eliminations in both US dollars and
Norwegian Kroners were as follows: Fiscal 2005
    
    Fiscal 2004Norway Q1 Sales
    
    Norway Q1 Sales
    
    $Change
    
    %ChangeSales in US Dollars
    
    
    564,000
    
    
    
    1,068,000
    
    
    
    (504,000
    )
    
    
    (47.2
    %)Sales in Norwegian Kroners
    
    
    3,879,000
    
    
    
    7,862,000
    
    
    
    (3,983,000
    )
    
    
    (50.7
    %)Average Exchange Rate
    
    
    6.878
    
    
    
    7.361
 During the first quarter of fiscal 2005, total Norwegian sales volume decreased
50.7% to 3,879,000 Norwegian Kroner from 7,862,000 Norwegian Kroner for the
first quarter of fiscal 2004. Such sales expressed in US Dollars were $564,000
for the first quarter of fiscal 2005 and $1,068,000 for the first quarter of
fiscal 2004 before the elimination of inter-company sales. Inter-company sales
from Cuisine Solutions Norway are eliminated and reported as sales from either
Cuisine Solutions France or Cuisine Solutions USA. Inter-company sales to the
USA and France account for 94.3% compared to 65.6% for the same period in the
previous fiscal year. Total production and inter-company sales measured in US
Dollars were down 47.2% during the first quarter of fiscal 2005 versus the same
period in the previous year. 11




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Subsequent to June 26, 2004, management began a process of evaluating the
continued operation of the Norway facility. Although a formal plan to
discontinue operations in Norway has not been formally discussed and approved
by the Board of Directors, management has taken certain actions to facilitate
such a plan. Currently, the Company has curtailed production and has provided
employees notice of termination as required by local law. A formal decision to
discontinue operations is expected to be made by the end of October, 2004.
However, there can be no assurance that such an action will be approved.
Cuisine Solutions began production of salmon with its Chilean partners in Chile
in August 2004. The results of future sales will be included in the US or
France sales channels based upon in which region the products are sold. FRANCE SALES Cuisine Solutions Frances fiscal year 2005 first quarter sales compared to
prior year first quarter and respective exchange rates are as follows: Fiscal 2005
    
    Fiscal 2004France Q1 Sales
    
    France Q1 Sales
    
    $Change
    
    %ChangeSales in US Dollars
    
    
    2,723,000
    
    
    
    2,560,000
    
    
    
    163,000
    
    
    
    6.4
    %Sales in Euros
    
    
    2,229,000
    
    
    
    2,278,000
    
    
    
    (49,000
    )
    
    
    (2.2
    %)Average Exchange Rate
    
    
    0.819
    
    
    
    0.890
 The total fiscal year 2005 first quarter sales in US Dollars were $2,723,000
versus previous year sales of $2,560,000, an increase of $163,000 or 6.4%.
Sales in Euros during the same period were
2,229,000 versus 2,278,000
respectively, a decrease of 2.2%. The differences are due to the US dollar-EURO
fluctuations in the exchange rate for the respective periods and slower summer
sales for the retail private label packaged products. Cuisine Solutions France fiscal year 2005 first quarter sales by sales channel
were as follows: Q1 FY05
    
    Q1 FY04
    
    $Change
    
    %ChangeFood Service
    
    $
    1,170,000
    
    
    $
    902,000
    
    
    $
    268,000
    
    
    
    29.7
    %On Board Services
    
    
    515,000
    
    
    
    473,000
    
    
    
    42,000
    
    
    
    8.9
    %Retail
    
    
    1,015,000
    
    
    
    1,180,000
    
    
    
    (165,000
    )
    
    
    (14.0
    %)New Business
    
    
    23,000
    
    
    
    5,000
    
    
    
    18,000
    
    
    
    360.0
    %Total
    
    $
    2,723,000
    
    
    $
    2,560,000
    
    
    $
    163,000
    
    
    
    6.4
    %
 The On Board Services channel in France grew almost 8.9% compared to the same
quarter of Fiscal 2004 largely due to and stronger sales to airlines with
improved product mix in that channel and positive currency exchange rates.
Food Service sales grew $268,000 (or almost 30%) to $1,170,000 compared to the
first quarter of fiscal year 2004, while retail sales decreased $165,000
compared to fiscal year 2004 largely due slower summer private label items
sales. 12




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GROSS MARGINS A comparison of net sales, gross margin and net earnings (loss) from operations
follows: Quarter EndedSep. 18, 2004
    
    Sep. 20, 2003
    
    % Change(Dollars in thousands)Net Sales
    
    $
    8,735
    
    
    $
    7,102
    
    
    
    23.0
    %Gross margin
    
    
    1,948
    
    
    
    1,197
    
    
    
    62.7
    %Gross margin percentage
    
    
    22.3
    %
    
    
    16.9
    %Net earnings (loss)
    
    $
    162
    
    
    $
    (181
    )
 Gross margin increased 62.7% compared to the first quarter fiscal year 2004 due
primarily to significantly higher sales accompanied by lower overhead cost in
relation to those sales. Cuisine Solutions has strategically built other sales
channels over the past few years to include military and retail accounts and
meals for passenger rail lines, and has seen consistent results in its French
subsidiary. Gross margin as a percentage of sales should continue to increase
as sales improve and certain costs remain fixed. Gross margin in the US increased from 21.1% to 25.0% as a percentage of sales
due to the Companys ability to maintain a higher production volume during the
period. The gross margin in France increased from 16.4% to 19.6% due to lower
overhead cost in relation to those sales. Cuisine Solutions management is
confident that continued larger sales volume, cost management and production
planning will result in high gross margins. Selling and Administrative Expenses A comparison of selling and administrative costs follows: Quarter EndedSep. 18, 2004
    
    Sep. 20, 2003(Dollars in thousands)Selling and administrative
costs
    
    $
    1,629
    
    
    $
    1,242
 A comparison of selling and administrative costs by plant was as follows: Q1 Fiscal 2005
    
    Q1 Fiscal 2004
    
    $Change
    
    %ChangeUSA
    
    $
    1,257,000
    
    
    $
    933,000
    
    
    $
    324,000
    
    
    
    34.7
    %Norway
    
    
    
    
    
    
    9,000
    
    
    
    (9,000
    )
    
    
    (100.0
    %)France
    
    
    372,000
    
    
    
    300,000
    
    
    
    72,000
    
    
    
    24.0
    %Total SG&A Expenses
    
    $
    1,629,000
    
    
    $
    1,242,000
    
    
    $
    387,000
    
    
    
    31.2
    %
 Selling and administrative expenses increased $387,000 or 34.7% in the first
quarter of fiscal 2005 compared to the first quarter of fiscal 2004. Expenses
as a percentage of sales increased to 18.6% in the first quarter of fiscal 2005
comparable to the 17.5% in same the quarter of fiscal year 2004. The increase
is mainly attributed to additional sales related expenses and the need to add
sales and administrative personnel to handle the 43.2% sales growth in US.
Management will continue to monitor such costs to ensure that they are aligned
with future business volume. 13




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Depreciation and Amortization Depreciation and amortization decreased $12,000 to $194,000 for the first
quarter of fiscal year 2005, compared with $206,000 for the same period in
2004. This decrease is related to certain equipment becoming fully depreciated. Non-operating Income and Expense Investment income consists of income earned on funds invested in corporate
bonds and treasury bills. Management maintains these funds in a trust account
with the majority of the funds invested in government securities. Interest expense relates to the borrowings of the Companys Norwegian and
French subsidiaries, including the Norwegian capital lease, as well as USA
operations short-term borrowings. Also included in the Non-operation Income and Expense is foreign exchange
losses of $5,000 and $6,000 for the twelve weeks ended September 18, 2004 and
September 20, 2003, respectively. At September 18, 2004, the Company had borrowings of $5,829,000, bearing
interest at rates ranging from 3.3% to 6.6%. These borrowings include
$2,285,000 of debt related to the Companys Norwegian subsidiary. Currently,
Norway has lease obligations of $1,155,000 on a capital lease for a building
and $1,074,000 outstanding on a working capital overdraft line of credit with
Den norske Bank. The overdraft facility is secured by a letter of credit
posted by the U.S. operations banking institution that is renewed
semi-annually. Long term investments of $1,128,000 and a $25,000 cash deposit
have been pledged as collateral to secure the letter of credit. In December 2000, Cuisine Solutions France entered into a five-year capital
lease obligation for a cooking machine with an initial principal amount of
$435,000 and 6% interest on the outstanding balance of the loan. The current
portion of this loan is $90,000 and the outstanding principal totals $110,000
at September 18, 2004. In October 2002, Cuisine Solutions France entered into a
ten year term loan to finance the acquisition of land and a building to be used
as a distribution plant in the amount of 190,000 or $217,000. This loan
bears interest of 5.7% and is due in October 2012. The current portion of this
loan is $18,000 and the outstanding principal totals $198,000 at September 18,
2004. In March 2003, Cuisine Solutions France entered into a five year term
loan to further expand the facility. This loan bears interest of 3.3% and the
outstanding principal totals $261,000 at September 18, 2004, with a current
portion of $64,000. In June 2004, Cuisine Solutions France entered into a four
year term loan to finance its new computer server and packaging line equipment
in the amount of 57,000 or $69,000. The loan bears interest of 3.95% and
the total outstanding principal is $65,000 at September 18, 2004, with a
current portion of $15,000. On October 22, 2003, the Company entered into a six month term loan in the
amount of $500,000 with FIC to provide short term working capital necessary to
expand US operations for fiscal year 2004. The loan accrued interest at 5% per
annum and was payable upon maturity. In October 2004, the loan was extended to
April 22, 2005. Total outstanding principal was $354,000 at September 18,
2004. In addition, on November 10, 2003, the Company entered into a three-year
term loan in the amount of $500,000 with FRC to provide short term working
capital to its US operations. The loan bears interest of 6% per annum and is
payable upon maturity. Under this loan, Cuisine Solutions pays interest on a
quarterly basis beginning in April 2004, with a balloon payment for the total
amount due three years from the origination of the loan. FIC and FRC are 100
percent owned by Cuisine Solutions majority shareholder, the JLV group. On July 10, 2004, the Company entered into an agreement with the Bank of
Charles Town in West Virginia for a $2,500,000 line of credit to finance its
working capital requirements in the US. The line of credit is secured by the
Companys US accounts receivable and inventory and further guaranteed by FRC
and secured by real estate owned by FRC. This line of credit bears an interest
rate of 0.5% over the prime interest rate, or 5.25% as of September 18, 2004,
and is renewable on September 1, 2005. The outstanding principal was
$2,024,000 as of September 18, 2004. 14




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##### 



Provision for Taxes No provision for income taxes was recorded during the first quarter of fiscal
2005 given the Companys history of losses. Management will continue to
evaluate the Companys ability to benefit from its deferred tax assets. Impact of Inflation and the Economy Variations in labor and ingredient costs can significantly affect the Companys
operations. Many of the Companys employees are paid hourly rates related to,
but generally higher than the federal minimum rates. The Companys sales pricing structure allows for the fluctuation of raw
material prices. As a result, market price variations do not significantly
affect the gross margin realized on product sales. Customer sensitivity to
price changes can influence the overall sales of individual products. In the
event of accelerated commodity price increases, the Company may suffer a
short-term loss since customers cannot accept multiple price changes in short
periods of time. The Company will continue to investigate larger purchase
contracts for key raw materials where pricing to the customer can also be
contracted. The Companys costs of its Norwegian subsidiary are denominated in Norwegian
Kroner. Sales of products from its Norwegian subsidiary are made in the
currency of the purchasing jurisdiction and are subsequently recorded in
Norwegian Kroner. The Company does not engage in forward contracts for Norway
shipments to the US since these shipments are not predictable. The US
subsidiary does not purchase product from France and therefore, does not have
any exposure to foreign exchange other than translation adjustments during
consolidations. In an effort to increase diversification to lower the impact of various
economic events, management has re-focused its efforts to diversify sales for a
more even mix between sales channels. During the first quarter of fiscal year
2005, the sales to the On Board Services channel, primarily airline and
railroad accounts, were 36.5% of total revenues. Sales to the Foodservice
Industry was 26.4%, primarily to hotel, restaurants and banquets, and 17.9% of
sales was to the Retail channel. Military sales, to both the US Army and Navy,
accounted for 14.0% of the total sales in the first quarter of fiscal year
2005. Management has also placed increased focus on the National Restaurants
Chain in the US. Liquidity and Capital Resources At September 18, 2004, the Companys combined total cash and short-term
investment balances was $1,919,000, compared with $1,491,000 at June 26, 2004.
The increase is primarily the result of borrowings against the line of credit
approximately $2,024,000, net of payments made on notes payable of $468,000 and
cash used in operations of $1,102,000. Additionally, the Company held long
term investments of $1,128,000 and $1,191,000 at September 18, 2004 and June
26, 2004, respectively. Long term investments and a cash deposit of $25,000 are
used as collateral for the Standby Letter of Credit to secure the overdraft
facility of the Norwegian subsidiary. There is no other restriction on cash
balances at the end of the fiscal 2005 first quarter. Net cash used by operations amounted to $1,102,000 for first quarter fiscal
2005, compared to cash used of $214,000 for the same period in fiscal 2004. In
first quarter 2005, the Company used $679,000 to increase its inventory in
preparation for its peak season in the second quarter. Cash in the amount of
$85,000 was used by investing activities, largely due to the investment in new
production equipment. Financing activities provided net cash of $1,636,000 from
new borrowings. The Companys Norwegian subsidiary has secured a working capital commitment for
its liquidity needs in Norway in the form of an overdraft facility. As of
September 18, 2004, the Company had an outstanding balance of $1,074,000 under
the line of the credit. 15




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##### 



Future Prospects Cuisine Solutions anticipates strong growth in sales in the US and moderate
growth in France during fiscal year 2005. Efforts will be made to grow all
channels in both the US and France as a hedge against a disruption in any one
channel in any geographic location. Food Service The Food Service channel will continue to manage the hotel, resort and
convention center restaurant and banquet menu programs while working to reduce
distribution costs of shipping direct to the facilities. The fiscal 2005
strategy involves the continued penetration into large key national accounts,
banquet centers and casinos. Demand has been growing in the US for Low
Carbohydrate items, and the Food Service channel will be focusing on these
items. Demand for food service products in France increased significantly
during the past two years and we expect further growth for fiscal year 2005 due
to continued customer satisfaction with the quality and variety of products
offered by the Company. Customers in the Food Service sales channel place high
value on the labor savings, quality, consistency, and food safety associated
with Cuisine Solutions products. Management will work to find new growth
strategies for this channel including adding sales personnel where appropriate
and improving distribution to our customers. On Board Services On Board Services was highly affected by the slowdown of the travel industry
after September 2001. However, close customer focus has shown very positive
results over the last year. Cuisine Solutions will continue to pursue growth
by increasing the number of items sold to each of its customers working
directly and indirectly with the airlines and railways in the US and in Europe.
As the airline and related support industries search for more options to reduce
costs and consolidate their workforces, management is exploring opportunities
with each airline to provide them with high quality, fully cooked first class
and business class meals that provide greater potential flexibility and less
labor to the customers. There is still instability and risk associated with
this market and management is taking a cautious approach with its business
partners. Cuisine Solutions has also experienced increased sales in the
commuter rail industry over the last year which is expected to continue. Retail Fiscal 2004 showed significant growth in the Companys retail sales program,
particularly with the club retailers, and it is beginning to allow the Company
to capture the high volume benefits of US retail without the marketing
investment usually required in doing business with US retailers. Cuisine
Solutions is also beginning to gain brand awareness from its premium frozen
foods sales. Cuisine Solutions will continue to introduce new product
offerings to retail in fiscal 2005 and hopes to see significant growth in this
channel during the fiscal year. Military The US Military channel for the Navy continues to be managed via a
broker/distributor, adding very little in terms of sales and administrative
expenses. The Company has been working for over a year to place items into the
Army Unitized Group Rations A (UGR-A) program. Two Cuisine Solutions items
were tested and selected for a 14 entrée rotating menu which began in October
2004. Cuisine Solutions will very likely place the same two products on the
Army 21 day cycle Concept of Operations (CONOPS) menu for overseas military
operations dining halls. There is no guarantee that the Army will purchase the
items from the Company, but the UGR-A menu started in October of fiscal year
2005 and could lead to strong growth in this channel. The Company will also
attempt to place its products on other US military menus during fiscal year
2005. 16




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##### 



National Restaurant Chains The Company will further pursue its role as a supplier to national restaurant
chains in both the US and France who have found that the Companys product
quality and ease of use makes an attractive alternative for providing new and
promotional menu items. The Company is also focusing on items that are very
difficult for a restaurant chain to prepare because of complexity or long
cooking times. Our items also help the chains ensure consistency of those
products across locations. The Company had significant sales growth in this
channel in the US during fiscal year 2004, and has added one additional sales
person to this channel to help increase its growth in 2005. Although the
Companys products are of relatively high cost for many chains, management
believes there is a significant untapped market for our upscale fully cooked
products for the same reasons such products are appealing to hotels and
resorts. 17




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##### 



Item 3.
Quantitative and Qualitative Disclosures About Market Risk The principal market risks (i.e. the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed are Interest rates, foreign
exchange rates, sales and marketing. Interest rate exposure: The Companys exposure to market risk for changes in interest rates relates
primarily to the Companys investment and debt portfolio. The Company has not
used derivative financial instruments in its investment portfolio. The Company
places its investments with high quality issuers. A portion of the debt
portfolio has fluctuating interest rates, which change with changes in the
market. Foreign Currency Risk: The majority of the Companys sales are denominated in U.S. dollars, thereby
limiting the Companys risk to changes in foreign currency rates. The Norwegian
subsidiarys sales are denominated in Norwegian Kroner while the French
subsidiary reports in Euros. As currency exchange rates, translation of the
income statements of the Norway and French operations into U.S. dollars affects
year-over-year comparability of operating results. Sales, which are subject to
these foreign currency fluctuations, are currently 31.5% of the Companys
sales. The total assets of the subsidiaries are approximately 34.8% of the
Companys total assets. The Company does not enter into hedges to minimize
volatility of reported earnings because it does not believe it is justified by
the exposure or the cost. Sales and Marketing Risks: Cuisine Solution is introducing and rolling-out new product lines into the
Retail sector. Cuisine Solutions Management has put significant focus on the
opportunities available in the retail sector and the success rate will be
contingent upon market acceptance of the product line, price points and
execution of its marketing strategy. Another risk includes fewer customers in
the retail channel totaling larger percentages of the overall Cuisine Solutions
revenue. The company is also focusing on the US military and National
Restaurant Chains coupled with Retail as a hedge against further disruption to
the travel industry which may or may not be successful for Cuisine Solutions in
the long term. The travel industry, and specifically the airlines, has been a major source of
Cuisine Solutions revenue and formal business strategy. Management cannot
forecast the continuing stability of the industry. Cuisine Solutions will
position itself to provide maximum value to our airline and travel related
partners during these turbulent times. Although Cuisine Solutions items have been selected for the Army UGR-A program,
and will likely be added to the CONOPS program, there is no guarantee that the
Army will buy from Cuisine Solutions and there is no volume guarantee or
guarantee the items will stay on the menu. The potential volumes would also
decrease as the US military returns to a peacetime environment. Item 4. Controls
and Procedures Within 90 days prior to the date of this report, Management carried out an
evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures, pursuant to Exchange Act Rule 13a-14 and
15d-14. Based on the foregoing, the Principal Executive Officer, the Chief
Operating Officer and Principal Financial Officer concluded that the Companys
disclosure controls and procedures are effective to timely alert them to any
material information relating to the Company that must be included in the
Companys periodic SEC filings. In addition, there have been no significant
changes in the Companys internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the most
recent evaluation. 18




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##### 



CUISINE SOLUTIONS, INC. PART II: OTHER INFORMATION Item 1. Legal Proceedings. At the end of fiscal year 2002, the Company filed a civil lawsuit in the
Federal District Court of Brasilia against the controlling partner in the joint
venture, Cuisine Solutions do Brasil Ltda, as a result of the Brazilian
partners failure to disclose financial information and operating results of
Cuisine Solutions do Brasil Ltda to Cuisine Solutions Inc. according to both
the joint venture agreement and Brazilian law. The Company claims full recovery
of the amounts owed by Cuisine Solutions do Brasil Ltda, including a loan of
$763,000, and management and administrative fees of $895,000 according to the
Joint Venture agreement with the Brazilian Partner. Such amounts have been
fully reserved for in prior years. The managing directors of Cuisine Solutions
do Brasil Ltda, Jose Sanchez Aguayo and Rodrigo Sanchez, were named as nominal
defendants in the lawsuit. Due to the current stage of the filed lawsuit,
management cannot predict a judgment and the ultimate outcome from this
lawsuit. There are no other material pending legal proceedings, other than ordinary,
routine litigation incidental to the Companys business, to which the Company
is a party or to which any of its property is subject. Management does not
believe that any amounts it may be required to pay by reason thereof will have
a material effect on the Companys financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders The Companys 21st annual meeting of shareholders will be held on October 26,
2004 in Alexandria, Virginia at the Hilton Alexandria Mark Center. The
following individuals are on the ballot to serve as Directors for a period of
one year and until their successors are elected and qualify: Jean-Louis
Vilgrain (Chairman), Stanislas Vilgrain (President & CEO), Sebastien Vilgrain,
Mr. Charles McGettigan Mr. Hugues Prince, and Mr. Robert van Roijen. 19




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized. CUISINE SOLUTIONS, INC.Date: October 25, 2004
    
    By:
    
    /s/Stanislas VilgrainStanislas VilgrainChief Executive OfficerBy:
    
    /s/Y. Tristan KuoY. Tristan KuoVice President of Finance,Treasurer and Corporate Secretary
 20