##### 



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 1934
  For the quarterly period ended April 3, 2004 OR (  )
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  For the transition period from  to Commission File
Number  0-12800 CUISINE SOLUTIONS, INC.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    52-0948383
(IRS Employer Identification Number)
 85 S Bragg Street, Suite 600, Alexandria, VA 22312   (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 May 18, 2004. Common Stock 0.01 par
value
    
    Number of SharesClass A
    
    15,834,788Class B
    
    None




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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
(Unaudited) April 3,
    
    June 28,2004
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,093,000
    
    
    $
    1,357,000Accounts receivable, trade
    
    
    4,129,000
    
    
    
    3,479,000Inventory
    
    
    4,708,000
    
    
    
    4,056,000Prepaid expenses
    
    
    331,000
    
    
    
    450,000Notes receivable, related party
    
    
    76,000
    
    
    
    32,000Other current assets
    
    
    684,000
    
    
    
    450,000TOTAL CURRENT ASSETS
    
    
    11,021,000
    
    
    
    9,824,000Investments
    
    
    1,149,000
    
    
    
    1,331,000Fixed assets, net
    
    
    5,070,000
    
    
    
    5,264,000Other assets
    
    
    65,000
    
    
    
    9,000TOTAL ASSETS
    
    $
    17,305,000
    
    
    $
    16,428,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    
    1,982,000
    
    
    
    1,970,000Accounts payable and accrued expenses
    
    
    4,770,000
    
    
    
    3,950,000Accrued payroll and related liabilities
    
    
    1,444,000
    
    
    
    1,351,000Total current liabilities
    
    
    8,196,000
    
    
    
    7,271,000Long-term debt, less current portion
    
    
    2,064,000
    
    
    
    1,691,000TOTAL LIABILITIES
    
    
    10,260,000
    
    
    
    8,962,000Stockholders equityCommon StockClass A
Stock - $.01 par value, 20,000,000
shares authorized,
15,834,788 shares issued and
outstanding at April 3, 2004
and 15,834,788 shares issued and
outstanding at June 23, 2003
    
    
    159,000
    
    
    
    159,000Class B
Stock - $.01 par value, 175,000
shares authorized,
none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    26,340,000
    
    
    
    26,284,000Accumulated deficit
    
    
    (20,166,000
    )
    
    
    (19,486,000
    )Accumulated Other Comprehensive IncomeUnrealized gain (loss) on debt and equity
investments
    
    
    52,000
    
    
    
    59,000Cumulative translation adjustment
    
    
    660,000
    
    
    
    450,000TOTAL STOCKHOLDERS EQUITY
    
    
    7,045,000
    
    
    
    7,466,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    17,305,000
    
    
    $
    16,428,000
 See accompanying notes to consolidated
financial statements. F-3




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Third Quarter
    
    Year to DateSixteen Weeks Ended
    
    Forty Weeks EndedApril 3,
    
    April 5,
    
    April 3,
    
    April 5,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    11,169,000
    
    
    $
    7,593,000
    
    
    $
    27,357,000
    
    
    $
    20,614,000Cost of goods sold
    
    
    9,053,000
    
    
    
    6,380,000
    
    
    
    21,943,000
    
    
    
    17,154,000Gross margin
    
    
    2,116,000
    
    
    
    1,213,000
    
    
    
    5,414,000
    
    
    
    3,460,000Selling and administration
    
    
    2,503,000
    
    
    
    2,464,000
    
    
    
    5,619,000
    
    
    
    6,040,000Depreciation and amortization
    
    
    123,000
    
    
    
    151,000
    
    
    
    348,000
    
    
    
    410,000Loss from operations
    
    
    (510,000
    )
    
    
    (1,402,000
    )
    
    
    (553,000
    )
    
    
    (2,990,000
    )Nonoperating income (expense)Investment income
    
    
    19,000
    
    
    
    37,000
    
    
    
    50,000
    
    
    
    105,000Interest expense
    
    
    (53,000
    )
    
    
    (112,000
    )
    
    
    (109,000
    )
    
    
    (211,000
    )Other income (expense)
    
    
    (18,000
    )
    
    
    
    
    
    
    (68,000
    )
    
    
    (2,000
    )Total nonoperating (expense) income
    
    
    (52,000
    )
    
    
    (75,000
    )
    
    
    (127,000
    )
    
    
    (108,000
    )Loss before income tax
    
    
    (562,000
    )
    
    
    (1,477,000
    )
    
    
    (680,000
    )
    
    
    (3,098,000
    )Provision for income tax benefit (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    
    (562,000
    )
    
    
    (1,477,000
    )
    
    
    (680,000
    )
    
    
    (3,098,000
    )Basic and diluted net loss per share:Net loss per common share-basic and diluted
    
    
    ($0.04
    )
    
    
    ($0.09
    )
    
    
    ($0.04
    )
    
    
    ($0.20
    )Weighted average shares outstanding-basic and diluted
    
    
    15,826,931
    
    
    
    15,824,788
    
    
    
    15,825,645
    
    
    
    15,824,788
 See accompanying notes to consolidated financial statements. F-4




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Year to dateForty weeks endedApril 3,
    
    April 5,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (680,000
    )
    
    $
    (3,098,000
    )Adjustments to reconcile net loss to
net cash used in operating activitiesDepreciation and amortization
    
    
    632,000
    
    
    
    744,000Gain on sales of investments
    
    
    (1,000
    )
    
    
    (52,000
    )Stock based compensation
    
    
    49,000
    
    
    
    Changes in assets and liabilities:(Increase) Decrease in accounts receivable trade, net
    
    
    (650,000
    )
    
    
    195,000Increase in inventory
    
    
    (652,000
    )
    
    
    (139,000
    )Decrease in prepaid expenses
    
    
    119,000
    
    
    
    1,000(Decrease) Increase in notes receivable, related party
    
    
    (44,000
    )
    
    
    39,000Increase in other assets
    
    
    (290,000
    )
    
    
    (52,000
    )Increase in accounts payable and accrued expenses
    
    
    820,000
    
    
    
    904,000Increase (Decrease) in accrued payroll and related liabilities
    
    
    93,000
    
    
    
    (38,000
    )Net cash used in operating activities
    
    
    (604,000
    )
    
    
    (1,496,000
    )CASH FLOWS FROM INVESTING ACTIVITIESSale of investments
    
    
    176,000
    
    
    
    970,000Capital expenditures
    
    
    (438,000
    )
    
    
    (831,000
    )Net cash provided by investing activities
    
    
    (262,000
    )
    
    
    139,000CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock
    
    
    7,000
    
    
    
    Borrowing on notes payable
    
    
    971,000
    
    
    
    457,000Payments on notes payable
    
    
    (586,000
    )
    
    
    (293,000
    )Net cash provided by financing activities
    
    
    392,000
    
    
    
    164,000Effect of exchange rates on cash and cash equivalents
    
    
    210,000
    
    
    
    176,000Net decrease in cash and cash equivalents
    
    
    (264,000
    )
    
    
    (1,017,000
    )Cash and cash equivalents, beginning of period
    
    
    1,357,000
    
    
    
    1,958,000CASH and CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,093,000
    
    
    $
    941,000
 See accompanying notes to consolidated financial statements F-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 28, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (19,486,000
    )
    
    $
    59,000
    
    
    $
    450,000
    
    
    $
    7,466,000Issuance of unregistered
common stock
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000Granting of options
    
    
    
    
    
    
    49,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,0002004 net loss
    
    
    
    
    
    
    
    
    
    
    (680,000
    )
    
    
    
    
    
    
    
    
    
    
    (680,000
    )Other comprehensive
income/(loss)Unrealized loss on debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,000
    )
    
    
    
    
    
    
    (7,000
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210,000
    
    
    
    210,000Other comprehensive
income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,000Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477,000
    )Balance, April 3, 2004
    
    $
    159,000
    
    
    $
    26,340,000
    
    
    $
    (20,166,000
    )
    
    $
    52,000
    
    
    $
    660,000
    
    
    $
    7,045,000
 Unrealized GainsAdditional
    
    
    
    
    
    (Losses) on Debt
    
    Cumulative
    
    TotalCommon
    
    Paid-In
    
    Accumulated
    
    and Equity
    
    Translation
    
    StockholdersStock
    
    Capital
    
    Deficit
    
    Investments
    
    Adjustment
    
    EquityBalance, June 29, 2002
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (15,394,000
    )
    
    $
    10,000
    
    
    $
    97,000
    
    
    $
    11,156,0002003 net loss
    
    
    
    
    
    
    
    
    
    
    (3,098,000
    )
    
    
    
    
    
    
    
    
    
    
    (3,098,000
    )Other comprehensive
income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gain on debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,000
    
    
    
    
    
    
    
    31,000Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176,000
    
    
    
    176,000Other comprehensive
income(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207,000Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,891,000
    )Balance, April 5, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (18,492,000
    )
    
    $
    41,000
    
    
    $
    273,000
    
    
    $
    8,265,000
 F-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 2004 and 2003 contain 12 weeks, and
the third quarter contains 16 weeks. 3) Inventory Inventories are valued at the lower of cost, determined by the first-in,
first-out method (FIFO), or market. Included in inventory costs are raw
materials, labor and manufacturing overhead. Inventory consists of: April 3, 2004
    
    June 28, 2003Raw materials
    
    $
    1,462,000
    
    
    $
    1,140,000Frozen product & other finished goods
    
    
    2,725,000
    
    
    
    2,892,000Packing materials & supplies
    
    
    695,000
    
    
    
    449,0004,882,000
    
    
    
    4,481,000Less obsolescence reserve
    
    
    (174,000
    )
    
    
    (425,000
    )$
    4,708,000
    
    
    $
    4,056,000
 4) Dividends - None. 5) 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. 6) Transaction with Related Parties As of April 3, 2004, the Company accrued a liability in the amount of
$267,000 to Food Research Corporation. The liability was previously with
SOMDIAA. 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 Food Research Corporation (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. The accrual at April 3, 2004 includes
coverage for previous years benefits. 7




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##### 



On June 12, 2001, the Company signed an agreement with Farmers Market
Landhandel GMBH, Inversiones Continex Limitada, and Iso Tech Holding Limitada
to create a joint venture to build a sous-vide processing facility in Chile.
The purpose of the facility would be to produce high quality, value priced
whitefish, shellfish and salmon products in Chile for the Global Retail and
Foodservice markets. That agreement was terminated, however, the parties
continued to develop the facility in Chile and have agreed that Cuisine
Solutions, Inc. will continue to hold 10% of the total outstanding shares of
Cuisine Solutions Chile S.A. A marketing agreement to market certain sous-vide
products was signed between 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 August 2003. The facility is scheduled to open in June 2004. On October 22, 2003, the Company entered into a six month term loan in the
amount of $500,000 with Food Investors Corporation (FIC) to provide short
term working capital necessary to expand operations for fiscal year 2004. The
loan accrues interest of 5% per annum and is payable upon maturity. In April
2004, FIC agreed to extend the loan to October 22, 2004. Total outstanding
borrowings on the loan at April 3, 2004 were $455,000. 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, which bears interest of 5% per annum, requires
payment of interest on a quarterly basis beginning in April 2004, and provides
for 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. 7) Income (Loss) Per Share Basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per common share also includes
common equivalent shares 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 2,252,730 and
1,680,375 for the 40 weeks ended April 3, 2004, and April 5, 2003,
respectively, and 2,760,074 and 1,680,375 for the 16 weeks ended April 3, 2004,
and April 5, 2003, respectively. The assumed exercise of the Companys
outstanding stock options are not included in the calculation as the effect
would be anti-dilutive. 8) 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 accordingly associated
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 option 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. 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
net loss and basic and diluted net loss per common share would have been as
follows: 8




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##### 



Apr. 3, 2004
    
    Apr. 5, 2003Net loss applicable to common shareholders
    
    $
    (680,000
    )
    
    $
    (3,098,000
    )Add: Stock-based compensation expense
included in reported net loss
    
    $
    49,000
    
    
    
    Less: Total stock-based compensation expense
determined under the fair value method
    
    $
    (202,000
    )
    
    $
    (128,000
    )Pro forma net loss
    
    $
    (833,000
    )
    
    $
    (3,226,000
    )Loss per common share:Basic and diluted  as reported
    
    $
    (0.04
    )
    
    $
    (0.20
    )Basic and diluted  pro forma
    
    $
    (0.05
    )
    
    $
    (0.20
    )Weighted average common shares outstanding:Basic and diluted
    
    
    15,825,645
    
    
    
    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. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities and
the reported amounts of revenue and expenses. Judgments and assessments of
uncertainties are required in applying the Companys accounting policies in
many areas. Actual results may differ from such estimates. The Company recognizes revenue at the time products are shipped to the
customers. Reserves against customer receivables are established as necessary,
based upon an evaluation of the customers current financial condition and past
experience and relationship. Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
requires management judgments regarding the future operating and disposition
plans for underperforming assets, and estimates of expected realizable values
for assets to be sold. Long-lived assets are assessed for possible impairment
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable, or whenever management has committed to a plan to
dispose of the assets. Assets to be held and used affected by such an
impairment loss are depreciated or amortized at their new carrying amount over
the remaining estimated useful life; assets to be sold or otherwise disposed of
are not subject to further depreciation or amortization. Management determines
the depreciable lives based on estimates of the period over which the assets
will be of economic benefit to the Company and management periodically reviews
the remaining depreciable lives based upon actual experience and expected
future utilization. Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market. Included in inventory costs are raw materials,
labor and manufacturing overhead. Obsolete or unusable inventories are
reflected at their estimated realizable values. The Company accounts for corporate income taxes in accordance with SFAS No.
109, Accounting for Income Taxes, which requires and asset and liability
approach. This approach results in the recognition of deferred tax assets
(future tax benefits) and liabilities for the expected future tax consequences
of temporary timing differences between the book carrying amounts and the tax
basis of assets and liabilities. Future tax benefits are subject to a valuation
allowance to the extent of the likelihood that the deferred tax assets may not
be realized. The Company has fully reserved its deferred tax asset as a result
of recurring losses and current projections of future operating results. 10




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##### 



RESULTS OF OPERATIONS Revenue in the third quarter of fiscal 2004 increased from $7,593,000 to
$11,169,000, a 47.1% increase compared to the same quarter of the previous
fiscal year primarily due to stronger sales in all sales channels in the USA.
Retail sales in the USA increased 267.1%, the national restaurant chain (New
Business) channel in the USA grew 186.5%, while Foodservice gained 55.4%,
compared to the third quarter of Fiscal 2003. Cuisine Solutions, Inc. reported a decrease in net loss of $915,000 or 62%
from $1,477,000 to $562,000 for the third quarter Fiscal 2004 compared to the
same quarter the previous fiscal year. The decrease in net loss was primarily
due to a 47.1% increase in sales and a 74.4% increase in gross margin while
selling and administration expenses remained comparable. NET SALES Third quarter 2004 revenue of $11,169,000 increased as described above by
47.1% compared to the previous fiscal years third quarter revenue of
$7,593,000. USA sales grew 71.8% compared to the same quarter Fiscal 2003.
Information as to Cuisine Solution sales by geographical locations are as
follows (Norway inter-company sales are eliminated): Q3 Fiscal 2004
    
    Q3 Fiscal 2003
    
    $ Change
    
    % ChangeUSA
    
    $
    6,916,000
    
    
    $
    4,026,000
    
    
    $
    2,890,000
    
    
    
    71.8
    %Norway
    
    
    256,000
    
    
    
    130,000
    
    
    
    126,000
    
    
    
    96.9
    %France
    
    
    3,997,000
    
    
    
    3,437,000
    
    
    
    560,000
    
    
    
    16.3
    %Total Net Sales
    
    $
    11,169,000
    
    
    $
    7,593,000
    
    
    $
    3,576,000
    
    
    
    47.1
    %
 USA SALES Fiscal year 2004 third quarter sales in the USA increased $2,890,000 to
$6,916,000, a 71.8% increase from the previous fiscal year third quarter sales
of $4,026,000. Cuisine Solutions USA Fiscal Years 2004 and 2003 third quarter sales by
sales channel are as follows: Q3 FY04
    
    Q3 FY03
    
    $ Change
    
    % ChangeFood Service
    
    $
    1,786,000
    
    
    $
    1,149,000
    
    
    $
    637,000
    
    
    
    55.4
    %On Board Services
    
    
    2,579,000
    
    
    
    2,050,000
    
    
    
    529,000
    
    
    
    25.8
    %Retail
    
    
    1,762,000
    
    
    
    480,000
    
    
    
    1,282,000
    
    
    
    267.1
    %Military
    
    
    216,000
    
    
    
    147,000
    
    
    
    69,000
    
    
    
    46.9
    %New Business/NRC
    
    
    573,000
    
    
    
    200,000
    
    
    
    373,000
    
    
    
    186.5
    %Total
    
    $
    6,916,000
    
    
    $
    4,026,000
    
    
    $
    2,890,000
    
    
    
    71.8
    %
 Third quarter fiscal 2004 sales to the USA Foodservice channel increased
55.4% in the USA to $1,786,000 from the previous year third quarter sales of
$1,149,000. The increase was driven by increased sales of low carb menu items
to hotels and convention centers. Also, occupancy rates were higher and
businesses held more banquet events compared to the previous year. The
Foodservice channel focuses sales efforts on key accounts and large events, and
uses distributors to manage lower volume opportunities. 11




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##### 



Management has and will continue to employ further cost reduction programs and
product line changes to meet the changing needs of this channel. Fiscal 2004 third quarter sales to the On Board services channel totaled
$2,579,000 versus previous year third quarter sales of $2,050,000, an increase
of $529,000 or 25.8%. Sales to the On Board Services channel increased in third
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 third quarter of fiscal 2004 increased $1,282000 to
$1,762,000 from $480,000 an increase of 267.1% compared to the same period of
the previous fiscal year due to the additional product roll-out of premium
branded and private label frozen food products to North-American retailers. Military sales for the third quarter 2004 increased 46.9% to $216,000 from
$147,000 compared to the same period in fiscal 2003 primarily due to slightly
increased demand from the US Navy carriers. Navy sales are conducted through an
arrangement with a broker. The Company is further supporting the growing
opportunity for this sales channel has dedicated a direct sales person to focus
on the US Army, Air Force and Marine Corps. New Business (National Restaurant Chain) sales for the third quarter of
fiscal year 2004 totaled $573,000, up from $200,000 from fiscal 2003. The sales
increase of $373,000 is attributed to increased sales to national restaurant
chains. The Company will further pursue its role as a supplier for national
restaurant chains that have determined that the Companys product quality and
ease of use makes an attractive alternative for providing promotional menu
items. NORWAY SALES During the third quarter of fiscal 2004, total Norwegian sales volume
decreased 11.7% to 6,761,000 Norwegian Kroner from 7,657,000 Norwegian Kroner
for the third quarter of fiscal 2003. The sales amount converted to US Dollars
amounted to $996,000 in the third quarter of fiscal 2004 and $1,089,000 during
the third quarter of fiscal 2003 before the elimination of inter-company
balances. Also, Cuisine Solutions started using salmon from its new partners
in Chile. 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 74.4% compared to
88.9% for the same period in the previous fiscal year. Total production and
inter-company sales measured in US Dollars were down 8.5% during the third
quarter of fiscal 2004 versus the same period in the previous year. Total Norwegian sales before inter-company eliminations in both US dollars and
Norwegian Kroners were as follows: Fiscal 2004
    
    Fiscal 2003Norway Q3 Sales
    
    Norway Q3 Sales
    
    $ Change
    
    % ChangeSales in US Dollars
    
    
    996,000
    
    
    
    1,089,000
    
    
    
    (93,000
    )
    
    
    (8.5
    %)Sales in Norwegian Kroners
    
    
    6,761,000
    
    
    
    7,657,000
    
    
    
    (896,000
    )
    
    
    (11.7
    %)Average Exchange Rate
    
    
    6.788
    
    
    
    7.031
 12




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##### 



FRANCE SALES The total fiscal year 2004 third quarter sales in US Dollars were
$3,997,000 versus previous year sales of $3,437,000, an increase of $560,000 or
16.3%. Sales in EURO during the same period were 3,207,000 versus 3,243,000
respectively, a decrease of 1.1%. The differences are due to the US dollar-EURO
fluctuations in the exchange rate for the respective periods and slower sales
in the retail private label packaged products. Cuisine Solutions Frances fiscal year 2004 third quarter sales compared
to prior year third quarter and respective exchange rates are as follows: Fiscal 2004
    
    Fiscal 2003France Q3 Sales
    
    France Q3 Sales
    
    $ Change
    
    % ChangeSales in US Dollars
    
    
    3,997,000
    
    
    
    3,437,000
    
    
    
    560,000
    
    
    
    16.3
    %Sales in EURO
    
    
    3,207,000
    
    
    
    3,243,000
    
    
    
    (36,000
    )
    
    
    (1.1
    %)Average Exchange Rate
    
    
    0.802
    
    
    
    0.943
 Cuisine Solutions France Fiscal Year 2004 third quarter sales by sales
channel were as follows: Q3 FY04
    
    Q3 FY03
    
    $ Change
    
    % ChangeFood Service
    
    $
    1,582,000
    
    
    $
    1,260,000
    
    
    $
    322,000
    
    
    
    25.6
    %On Board Services
    
    
    495,000
    
    
    
    393,000
    
    
    
    102,000
    
    
    
    26.0
    %Retail
    
    
    1,902,000
    
    
    
    1,761,000
    
    
    
    141,000
    
    
    
    8.0
    %New Business
    
    
    18,000
    
    
    
    23,000
    
    
    
    (5,000
    )
    
    
    (21.7
    %)Total
    
    $
    3,997,000
    
    
    $
    3,437,000
    
    
    $
    560,000
    
    
    
    16.3
    %
 The Food Service and On Board Services channels in France grew over 25%
compared to the same quarter of Fiscal 2003 is largely due to positive currency
exchange rates, stronger sales to restaurants and airlines, and improved
product mix in those channels. GROSS MARGINS A comparison of net sales, gross margin percentages and losses from
operations follows: Quarter EndedApril 3, 2004
    
    April 5, 2003
    
    % Change(Dollars in thousands)Net Sales
    
    $
    11,169
    
    
    $
    7,593
    
    
    
    47.1
    %Gross margin
    
    
    2,116
    
    
    
    1,213
    
    
    
    74.4
    %Gross margin percentage
    
    
    18.9
    %
    
    
    16.0
    %Net Loss
    
    $
    (562
    )
    
    $
    (1,477
    )
    
    
    (62.0
    %)
 Gross margins increased 74.4% compared to the third quarter fiscal year
2003 due primarily to lower cost of goods sold because of manpower efficiencies
and lower raw material cost associated with a higher volume in sales. Gross margin in the USA increased from 18.2% to 23.5% 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 13




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##### 



remained approximately 18% as expected and Norway gross margin decreased from
-12.8% to -25.9%. Cuisine Solutions management is confident that continued
larger sales volume and continued cost management will result in higher gross
margins. Selling and Administrative Expenses A comparison of selling and general administrative costs follows: Quarter EndedApril 3, 2004
    
    April 5, 2003(Dollars in thousands)Selling and administrative
costs
    
    $
    2,503
    
    
    $
    2,464
 A comparison of selling and general administrative costs by plant was as
follows: Q3 Fiscal 2004
    
    Q3 Fiscal 2003
    
    $ Change
    
    % ChangeUSA
    
    $
    1,895,000
    
    
    $
    1,932,000
    
    
    $
    (37,000
    )
    
    
    (1.9
    %)Norway
    
    
    5,000
    
    
    
    13,000
    
    
    
    (8,000
    )
    
    
    (61.5
    %)France
    
    
    603,000
    
    
    
    519,000
    
    
    
    84,000
    
    
    
    16.1
    %Total SG&A Expenses
    
    $
    2,503,000
    
    
    $
    2,464,000
    
    
    $
    39,000
    
    
    
    1.6
    %
 Selling and administrative expenses increased $39,000 or 1.6% in the third
quarter of fiscal 2004 compared to the third quarter of fiscal 2003. Expenses
as a percent of sales were reduced to 22% in the third quarter of fiscal 2004
versus 32.5% in fiscal 2003. The decrease as a percent of sales was due to the
continuous cost management and reduction of personnel in our Alexandria, VA.,
headquarters, as well as tying incentive compensation plans to performance. Depreciation and Amortization Depreciation and amortization decreased $31,000 to $224,000 for the third
quarter of fiscal year 2003, compared with $255,000 for the same period a year
ago. This decrease is related to equipment reaching its useful life and
correspondingly has been fully depreciated. Non-operating Income and Expense Investment income consists of returns 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 $30,000 for the sixteen weeks ended April 3, 2004. Provision for Taxes No provision for income taxes was made during the third quarter of fiscal
2004 given the Companys history of losses. 14




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##### 



Forty Weeks Ended April 3, 2004 compared to Forty Weeks Ended April 5, 2003 RESULTS OF OPERATIONS Revenue for the first three quarters of fiscal 2004 increased from
$20,614,000 to $27,357,000, a 32.7% increase compared to the same three
quarters of the previous fiscal year primarily due to stronger sales in all
sales channels in the USA. Retail sales in the USA increased 197.6%, the
national restaurant chain (New Business) channel, grew 115%, while Foodservice
gained 27.7%, compared to the first three quarters of Fiscal 2003. Cuisine Solutions, Inc. reported a decrease in net loss of $2,418,000 or
78.1% from $3,098,000 to $680,000 for the first three quarters of Fiscal 2004
compared to the same quarters the previous fiscal year. The decrease in net
loss was primarily due to a 32.7% increase in sales and a 5.6% increase in
gross margin while achieving a 7.0% decrease in selling and administration
expenses. NET SALES Revenue for the first three quarters fiscal year to date 2004 increased
from $20,614,000 to $27,357,000, a 32.7% increase compared to same period the
previous year primarily due to a significant increase in sales in all three
Cuisine Solutions regions as compared to the same fiscal 2003 YTD sales. The
strongest growth was in the US with a 38.6% growth largely due to increases in
sales in the Retail and National Restaurant Chain channels. A summary of the
Companys operations by region and by business channel is shown below. Fiscal quarter YTD sales by region are as follows (Norway inter-company sales
are eliminated): YTD Fiscal 2004
    
    YTD Fiscal 2003
    
    $ Change
    
    % ChangeUSA
    
    $
    16,452,000
    
    
    $
    11,870,000
    
    
    $
    4,582,000
    
    
    
    38.6
    %Norway
    
    
    946,000
    
    
    
    776,000
    
    
    
    170,000
    
    
    
    219
    %France
    
    
    9,959,000
    
    
    
    7,968,000
    
    
    
    1,991,000
    
    
    
    25.9
    %Total Net Sales
    
    $
    27,357,000
    
    
    $
    20,614,000
    
    
    $
    6,743,000
    
    
    
    32.7
    %
 USA SALES Fiscal YTD USA sales by business channel are as follows: YTD Fiscal 2004
    
    YTD Fiscal 2003
    
    $ Change
    
    % ChangeFoodservice
    
    $
    4,242,000
    
    
    $
    3,322,000
    
    
    $
    920,000
    
    
    
    27.7
    %On Board Services
    
    
    6,826,000
    
    
    
    6,180,000
    
    
    
    646,000
    
    
    
    10.5
    %Retail
    
    
    3,285,000
    
    
    
    1,104,000
    
    
    
    2,181,000
    
    
    
    197.6
    %Military
    
    
    867,000
    
    
    
    691,000
    
    
    
    176,000
    
    
    
    25.5
    %New Business/NRC
    
    
    1,232,000
    
    
    
    573,000
    
    
    
    659,000
    
    
    
    115.0
    %Total
    
    $
    16,452,000
    
    
    $
    11,870,000
    
    
    $
    4,582,000
    
    
    
    38.6
    %
 Fiscal 2004 YTD Foodservice sales increased $920,000 to $4,242,000 from the
previous fiscal YTD sales of $3,322,000. The increase is attributed to
increased sales to hotels and convention centers as the economy continues to
recover further from the last two years. 15




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##### 



Fiscal 2004 YTD On Board Service sales increased $646,000 to $6,826,000 from
the previous fiscal YTD sales of $6,180,000. The increase is attributed to the
recovery of sales to the US airlines and passenger rails, primarily in the
second and third quarters. Fiscal 2004 YTD retail sales increased $2,181,000 to $3,285,000 from the
previous fiscal YTD sales of $1,104,000. The increase was attributable to the
continued product roll-out of premium branded and private label frozen food
products to North-American retailers. Fiscal 2004 YTD Military sales increased $176,000 to $867,000 from the previous
fiscal YTD sales of $691,000. The increase is attributed to the increase in
sales to US Navy carriers during the first quarter. Fiscal 2004 YTD New Business sales increased $659,000 to $1,232,000 from the
previous fiscal YTD sales of $573,000. The increase is attributed to growth in
sales to national restaurant chains. NORWAY SALES Total fiscal year 2004 YTD Norwegian sales before inter-company eliminations in
both US dollars and Norwegian Kroners were as follows: Fiscal 2004
    
    Fiscal 2003YTD Norway Q3 Sales
    
    YTD Norway Q3 Sales
    
    Change
    
    % ChangeSales in US Dollars
    
    
    3,316,000
    
    
    
    2,972,000
    
    
    
    344,000
    
    
    
    11.6
    %Sales in Norwegian
Kroners
    
    
    23,394,000
    
    
    
    21,708,000
    
    
    
    1,686,000
    
    
    
    7.8
    %Average Exchange Rate
    
    
    7.055
    
    
    
    7.304
 The fiscal YTD sales from Norway in US Dollars increased 11.6% due to the
greater demand for salmon primarily in France during the first two quarters.
The sales in Norwegian Knoner increased by 7.8%. The higher US Dollars sales
value resulted from the increase in the value of the Norwegian Kroner to the US
Dollar during the reporting period. FRANCE SALES Fiscal year 2004 YTD Sales from France in US dollar and Euro are as follows: Fiscal 2004
    
    Fiscal 2003YTD France Q3 Sales
    
    YTD France Q3 Sales
    
    Change
    
    % ChangeSales in US Dollars
    
    
    9,959,000
    
    
    
    7,968,000
    
    
    
    1,991,000
    
    
    
    25.0
    %Sales in EURO
    
    
    8,399,000
    
    
    
    7,828,000
    
    
    
    571,000
    
    
    
    7.3
    %Average Exchange Rate
    
    
    0.843
    
    
    
    0.982
 The fiscal YTD sales in US dollars from Cuisine Solutions France increased
$1,991,000 to $9,959,000 from the previous fiscal YTD sales of $7,968,000. The
fiscal YTD sales in EURO increased 571,000 to 8,399,000 from the previous
fiscal YTD sales of 7,828,000. The increase in sales was primarily driven by
higher food service and retail sales of private label packaged products to a
French retailer. Sales in US dollars increased from the increase in the value
of the EURO to the US Dollar during the reporting period. 16




---



##### 



Fiscal Year 2004 year to date sales from France by sales channel were as
follows: YTD Q3 FY04
    
    YTD Q3 FY03
    
    $ Change
    
    % ChangeFood Service
    
    $
    3,866,000
    
    
    $
    3,157,000
    
    
    $
    709,000
    
    
    
    22.5
    %On Board Services
    
    
    1,413,000
    
    
    
    1,266,000
    
    
    
    147,000
    
    
    
    11.6
    %Retail
    
    
    4,655,000
    
    
    
    3,499,000
    
    
    
    1,156,000
    
    
    
    33.0
    %New Business
    
    
    25,000
    
    
    
    46,000
    
    
    
    (21,000
    )
    
    
    (-45.7
    %)Total
    
    $
    9,959,000
    
    
    $
    7,968,000
    
    
    $
    1,991,000
    
    
    
    25.0
    %
 The Food Service, On Board Service, and Retail channels continue to grow as
compared to the first three quarters of Fiscal 2003. This is largely due to an
improved economy in France as well as the growing acceptance of an innovative
product mix in all three channels. GROSS MARGINS A comparison of net sales, gross margin percentages and losses from
operations follows: Year to DateApril 3, 2004
    
    April 5, 2003
    
    % Change(Dollars in thousands)Net Sales
    
    $
    27,357
    
    
    $
    20,614
    
    
    
    32.7
    %Gross margin
    
    
    5,414
    
    
    
    3,460
    
    
    
    56.5
    %Gross margin percentage
    
    
    19.8
    %
    
    
    16.8
    %Net Loss
    
    $
    (680
    )
    
    $
    (3,098
    )
    
    
    (78.1
    %)
 Total consolidated gross margins increased to 19.8% for fiscal 2004 third
quarter compared with 16.8% a year ago due to the Companys ability to maintain
a higher production volume during the period. Management is confident that the
absorption of fixed cost due to continued larger sales volume and continued
cost management will result in higher gross margins. Selling and Administrative Expenses Year to DateApril 3, 2004
    
    April 5, 2003(Dollars in thousands)Selling and administrative
costs
    
    $
    5,619
    
    
    $
    6,040
 Selling and administrative expenses decreased $421,000 or 7.0% during
fiscal YTD 2004 compared to the fiscal 2003. Expenses as a percent of sales
were 20.5% for fiscal YTD 2004 versus 29.3% in fiscal YTD 2003. The decrease
was due to aggressive cost management, which resulted in reduction of sales and
administrative staffs. Additionally, changes were made to compensation plans
to ensure that payments to be made under such plans based upon overall company
performance. Selling and administrative expenses included a $295,000 bad debt
charge in the second quarter of fiscal year 2004 due to the insolvency of one
of its On Board Services distributors in the USA. Depreciation and Amortization Depreciation and amortization decreased $112,000 to $632,000 for fiscal
YTD 2004, compared with $744,000 for the same period a year ago. The decrease
is related to equipment becoming fully depreciated. 17




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##### 



Non-operating Income and Expense Investment income consists of returns 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. For
YTD fiscal year 2004, the Company realized a gain of $1,000 on the sale of
investments. Also included in the Non-operation Income and Expense is foreign exchange
losses of $62,000 for the forty weeks ended April 3, 2004. At April 3, 2004 the Company had borrowings of $4,046,000, bearing
interest at rates ranging from 3.3% to 6.6%. These borrowings include
$2,410,000 in debt from the Companys Norwegian subsidiary. Currently Norway
has outstanding principal of $1,232,000 for the capital lease on a building and
$1,178,000 outstanding under the working capital line of credit with Den norske
Bank. 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 $110,000 and the total outstanding principal amounts to
$162,000 at April 3, 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 EURO 190,000 or $234,000 US
dollars. This loan bears interest of 5.7% and is due in October 2012. The
current portion of this loan is $18,000 and the total outstanding principal
amounts to $206,000 at April 3, 2004. In March 2003, Cuisine Solutions France
entered into a five year term loan to further expand the facility in the amount
of EURO 280,000 or $344,000. This loan bears interest of 3.3% and is due in
June 2008. The current portion of this loan is $64,000 and the total
outstanding principal amounts to $292,000 at April 3, 2004. On October 22,
2003, the Company entered into a six month term loan in the amount of $500,000
with Food Investors Corporation (FIC) to provide short term working capital
necessary to expand operations for fiscal year 2004. The loan bears interest of
5% per annum and was payable upon maturity. In April 2004, the loan was
extended to October 22, 2004. Total outstanding principal was $455,000 at April
3, 2004. In addition, on November 10, 2003, the Company entered into a
three-year term loan in the amount of $500,000 with Food Research Corporation
(FRC) to provide short term working capital necessary to expand operations.
The loan bears interest of 5% 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. Provision for Taxes No provision for income taxes was made during the third quarter of fiscal
2004 given the Companys history of losses. 18




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##### 



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 engage in forward contracts for Norway
shipments to the USA where these shipments are predictable with the objective
of protecting planned profit margins. The USA 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 fiscal year 2004, the sales to
the On Board Services channel, primarily airline and railroad accounts, were
33.6% of total revenues. Sales to the Foodservice Industry was 29.9%, primarily
to hotel, restaurants and banquets, and 29.9% of sales was to the Retail
channel. Management has also placed increased focus on the National
Restaurants Chain and military channels in the USA. Liquidity and Capital Resources At April 3, 2004, the Companys combined total of cash and short-term
investment balances was $1,093,000, compared with $1,357,000 at June 28 2003.
This decrease is the result of the year-to-date operating loss, and payments on
debt obligations. Additionally, the Company held long term investments of
$1,149,000 and $1,331,000 at April 3, 2004 and June 28, 2003, respectively.
Long term investments 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 2004 second quarter. Net cash used by operations amounted to $400,000 for 2004, compared to
cash used of $1,320,000 for 2003. Cash in the amount of $438,000 was used by
investment in new production equipment while the sale of investments provided
$182,000. Financing activities provided net cash of $392,000 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 April 3, 2004, the Company used the maximum amount available
under line of credit which is currently $1,092,000. Future Prospects During the remainder of fiscal year 2004, the Companys strategy will
involve efforts to grow each channel with the highest priority on building the
Cuisine Solutions brand and growing the existing retail customer base for
pre-prepared frozen entrees and deli items. Foodservice The Foodservice channel will continue to manage the hotel restaurant menu
program while 19




---



##### 



working to reduce distribution costs of shipping direct to hotels. The fiscal
2004 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 Foodservice channel will be focusing on these
accounts. Demand for foodservice products in France increased significantly
during the past two years and we expect further growth for fiscal 2004 due to
continued customer satisfaction with the quality and variety of products
offered by the Company. Customers in the Foodservice 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. On Board Services On Board Services was highly affected by the slowdown of the travel
industry over the past two years. However, close customer focus has started to
show positive results during the last two quarters. Cuisine Solutions will
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 USA and
in Europe. As the airline and related support industries consolidate their
workforces, management is exploring every opportunity to provide the airlines
with high quality first class and business class meals, greater potential
flexibility and less labor. The Company is developing the Buy-on-Board meal
program with several airlines and anticipates the launch of the program towards
the end of fiscal year 2004. There is still instability and risk associated
with this market and management is taking a cautious approach with its business
partners. Cuisine Solutions has had stronger sales in the commuter rail
industry over the last quarter. Retail Management initiated a strategic effort into retail sales in order to
diversify the sales channels of the Company and to provide the opportunity for
large volume sales that would increase the efficiency of the total Company
product line. Retail objectives for fiscal year 2004 include the further
penetration into the USA in-store deli of targeted retailers as well as the
further product rollout of premium frozen retail products into the USA and
French market. The benefit of retail sales includes high volume potential,
economies of scale from production and lower distribution and administrative
cost per sales order. Cuisine Solutions also sees great value in the creation
of Cuisine Solutions as a brand for the upscale frozen food market. Military Cuisine Solutions has been actively marketing the military beyond the US
Navy carrier market. During the second quarter of fiscal 2004, it was
announced by the Army that two of the Cuisine Solutions products (frozen) will
be on the Unitized Group Rations-A (UGR-A) menu and Concept of Operations
(CONOPS) menu for feeding troops in field kitchens. Although the Cuisine
Solutions products were chosen as two of the 14 menu items for the UGRA program
and the two items have been added to the CONOPS menu, there is no guarantee
that the military will ultimately buy the products from Cuisine Solutions. The
Army estimates that it will begin ordering from Cuisine Solutions during the
fourth quarter of fiscal 2004 or first quarter of fiscal 2005. National Restaurant Chains (New Business) Cuisine Solutions has been working with restaurant chains to provide the
chains current recipes in a fully cooked, frozen sous-vide format. Cuisine
Solutions believes there may be benefits in highlighting our protein offerings
for the growing low Carbohydrate market, and our sauces and pasta lines.
Management is adding sales personnel to the channel to further exploit the
growing opportunities. France 20




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Cuisine Solutions France has experienced sales growth during the last
three years, contributing to the Companys cash flow since its acquisition in
1999. Management will continue with its strategic sales plan to expand the
selling efforts not only in France but in other European countries, especially
in Germany and the United Kingdom. Cuisine Solutions France will continue to
pursue additional product line expansion into the On Board Services and retail
markets and attempt to increase its market share and product awareness. 21




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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 EURO. 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 41% of the
Companys sales. The net assets of the subsidiaries are approximately 47% of
the Companys net 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 few customers in
retail 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-run The travel industry, and specifically the airlines, has been a major
source of Cuisine Solutions revenue and formal business strategy. Although the
economic situation with the airlines and travel industry is believed to be
improving, Management cannot forecast the continuing stability of the
industries. Cuisine Solutions will position itself to provide maximum value to
our airline and travel related partners during these turbulent times. 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. 22




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CUISINE SOLUTIONS, INC. PART II: OTHER INFORMATION Item 1. Legal Proceedings. At the end of fiscal year 2002, the Company has 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 the loan of
$763,000, and in addition the 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. On November 7, 2002, AquaCuisine, Inc, a California company, with
principal place of business in the State of Idaho, signed a promissory note to
pay Cuisine Solutions $196,952 plus interest for payment on returned items.
AquaCuisine has stopped making payments on the promissory note and on December
18, 2003, Cuisine Solutions filed suit in the United States District Court for
the Eastern District of Virginia to demand judgment against AquaCuisine for
approximately $106,000 plus attorney fees. AquaCuisine also owes Cuisine
Solutions approximately $16,000 on another account. The judge ruled against
AcquaCuisine and ordered payment in full plus legal fees. Cuisine Solutions is
vigorously pursuing collection on the judgment in the State of Idaho. Cuisine
Solutions has already established a reserve for the entire Note in the past,
and believes the ultimate outcome of this matter will not have a material
adverse affect on the Company or its current operations. In November 2003, Sage Enterprises announced to its suppliers that it was
liquidating the assets of its airline distribution business and freezing all of
its assets until after the liquidation and payments to secured creditors. The
obligations of Sage included $295,000 in payables to Cuisine Solutions.
Cuisine Solutions has explored legal options to recover the money including the
filing of a demand letter for the return of all items Sage had received with
the 10 days prior to the liquidation. Cuisine Solutions is a member of an
unofficial committee of unsecured creditors being represented by the legal firm
Holland & Knight LLP. On February 13, 2004, four of the unsecured creditors
filed a petition in the United States Bankruptcy Court forcing SAGE into
involuntary Chapter 7 bankruptcy. Cuisine Solutions will try to recover all
that it is due, but the Company is not currently optimistic about the chances
for any recovery. The Company reserved the entire account due from Sage during
the quarter ended December 13, 2003. 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 20th annual meeting of shareholders was held on October 22,
2003 in Alexandria, Virginia at the Hilton Alexandria Mark Center. The
following individuals were re-elected 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 and Mr. Robert van Roijen. Item 5. Other Events and Regulation FD Disclosure 23




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Cuisine Solutions recently appointed Mr. Hugues Prince, age 48, to the
Board of Directors. Mr. Prince was the Managing Director of DeliFrance Asia
since its inception in 1981. DeliFrance Asia was owned by the JLV Group, the
majority shareholder of Cuisine Solutions. DeliFrance Asia was listed on the
Singapore Stock exchange (1996) with more than 180 retail outlets, bakeries,
and restaurants in seven Asian countries. It was acquired by Prudential Asset
Management Asia Ltd (PAMA) in 1999. Mr. Prince is currently a consultant and
group advisor to the Cuisine Solutions majority shareholder. Mr. Prince has
also served on the Cuisine Solutions Advisory Board since January 2003. 24




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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: May 18, 2004
    
    By:
    
    /s/ Stanislas VilgrainStanislas VilgrainChief Executive OfficerBy:
    
    /s/ Y. Tristan KuoY. Tristan KuoVice President of Finance,Treasurer andCorporate Secretary
 25