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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 FORM 10-K (MARK ONE)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 [FEE REQUIRED]FOR THE FISCAL YEAR ENDED: June 26, 2004TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 [NO FEE REQUIRED]FOR THE TRANSITION PERIOD FROM ___________________ TO ______________________ COMMISSION FILE NUMBER: 0-12800 CUISINE SOLUTIONS, INC.  Delaware
    
    52-0948383(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
    
    (I.R.S. EMPLOYER
IDENTIFICATION NO.)85 South Bragg Street, Suite 600, Alexandria, VA
    
    22312(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
    
    (ZIP CODE)
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 270-2900 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGETITLE OF EACH CLASS
    
    ON WHICH REGISTEREDNone
    
    None
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:Common Stock, par value $.01 per Share
(TITLE CLASS) 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledefinitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on September
17, 2004 as reported on the NASDAQ/OTC Bulletin Board Market Quotation System,
was approximately $2,929,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. As of September 17, 2004, there were 15,834,788 shares outstanding of the
Registrants Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following document are incorporated by reference in Part III and
IV (Item 14) of this Form 10-K Report: the definitive Proxy Statement for
Registrants 2004 Annual Meeting of Stockholders to be filed with the Security
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year to which this report relates. Exhibit Index is located on page 19. 1




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PART I ITEM 1. BUSINESS FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Cuisine Solutions produces and markets prepared foods to the Food Service
Industry to include sales channels such as airlines, passenger trains, harbor
cruise lines, retail, military, retail in-store delis and frozen food, national
restaurant chains, and hotel banquets. GENERAL Cuisine Solutions has been providing high quality entrees to the Foodservice
market for over thirteen years. The company is recognized in the market place
as having the highest quality frozen food product line in the world. Cuisine Solutions unique use of sous-vide processing allows Cuisine Solutions
to produce high quality entrees and sauces for use in hotel banquets,
restaurants, first class and business class meal service and retail frozen
foods and prepared products for retail in-store delis. The Cuisine Solutions strategy began in 1988 when as Vie de France, management
recognized the growing trend and future demand for high quality prepared foods
at value prices. In addition to quality, management also saw the growing need
for prepared foods that reduced the use of chemical preservatives to enhance
flavor and shelf life. The special cooking process involved in the preparation of Cuisine Solutions
products use chef developed recipes and only the finest quality ingredients.
The cooking process involves slowly cooking the products for a longer period of
time than most food companies and at lower cooking temperatures. This special
process is a culmination of culinary art and food science in that it requires
precise controls of the cooking process, and each precise control is applied to
each individual recipe. This process involved a decade of research and
development to produce the wide range of high quality products currently
offered by Cuisine Solutions. This entire process is managed through
computerized cooking equipment under the supervision of culinary professionals. What does this mean to the market place? Todays consumer trends are moving
heavily towards fast food and convenience. What has suffered in the meantime is
culinary quality and nutrition. The trend also includes an increased demand for
high quality, unique ethnic recipes and diet recipes such as low carbohydrate
products. The Cuisine Solutions center of the plate proteins, sauces, pasta, and rice
products enables foodservice providers requiring exceptional quality to
purchase fully cooked, high quality products from Cuisine Solutions as an
alternative to preparing products from scratch. Cuisine Solutions products also enable foodservice providers to provide a wide
range of products and eliminate the need for raw materials and logistics,
especially for last minute events. Our products help reduce the labor required
to prepare food products, increase food safety by reducing manual product
handling, reduce yield losses, and provide consistent portion sizes. In addition to the above benefits, Cuisine Solutions products do not require
additional preservatives normally found in prepared foods due to our unique
cooking process. This makes our products especially attractive to foodservice
establishments, national restaurant chains, retailer of frozen and in-store
deli prepared foods, and health care facilities, as well as large upscale event
caterers. Supported by the best and most experienced technical team in this cooking
technology and enhanced by the collaboration of some of the best culinary chefs
in the industry, Cuisine Solutions provides unique value to the market place
with its quality consistent products. It gives the struggling, overworked,
understaffed foodservice operators expanded menu lines, labor savings,
flexibility, serving time reduction, reduced yield losses and increased food
safety. The Company has strategically positioned itself to be a high quality provider
of prepared foods, with unique product capabilities at competitive market
prices with three operating production facilities in Europe and in the USA. Cuisine Solutions has a strong presence in both North America and Europe,
having the unique capability to service targeted airlines to and from Europe. A significant part of the Cuisine Solutions strategy is to locate production
facilities in places where finished goods are in demand, as well as in
countries that are the most efficient source of quality raw materials such as
Norway for salmon, and Chile for salmon, white fish, and other seafood. The Company maintains manufacturing facilities in the United States, Norway and
France. A new facility with a Euro-Chilean
partnership opened in Chile in August 2004. 2




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Cuisine Solutions, US:Cuisine Solutions operates a thirty-nine thousand square feet manufacturing
facility located in Alexandria, Virginia. The facility is U.S. Department of
Agriculture (USDA) and Hazard Critical Control Point (HACCP) certified,
and has the ability to produce the complete range of Cuisine Solutions
products including a high volume enrobed pasta line.Cuisine Solutions France:Acquired by Cuisine Solutions in 1999, Cuisine Solutions France is
strategically located a short drive North from Paris in Louviers, France.
This fifteen thousand square feet HACCP certified facility produces a full
range of traditional French recipes for the European foodservice market as
well as the French retail market. The recently expanded facility can produce
all of Cuisine Solutions products and has retail packaging capabilities.
Cuisine Solutions France is the training area for many Cuisine Solutions
Operations Managers since the facility has the most collective experience
using the sous-vide process, and adheres to strict culinary discipline, a
culture that is passed on to all of our facilities.Cuisine Solutions Norway:Cuisine Solutions operates a sixteen thousand square feet facility located on
a fjord in Hjelmeland, Norway. The award winning facility produces fully
cooked salmon in a variety of sizes and flavors. This HACCP certified
facility uses only the highest quality Norwegian Salmon in its facility, and
produces product that is shipped to North America, Europe and Scandinavia.Cuisine Solutions Chile:In June 2001 Cuisine Solutions entered into a joint venture agreement with a
Euro-Chilean partnership that will build a processing facility in Chile to
produce a wide range of seafood items. The sous-vide process works
exceptionally well with seafood, and management believes that the proximity
to the source of high quality, lower cost materials should provide Cuisine
Solutions with a significant advantage in regard to both product quality and
cost. The original agreement was terminated without any prejudice between the
partners during the third quarter of fiscal year 2003 due to administrative
difficulties. A new trade agreement was signed between the partners
subsequent to the end of fiscal year 2003 whereby Cuisine Solutions has 10%
ownership in Cuisine Solutions Chile and exclusive marketing right in the US
and most of Europe. The facility started production in August 2004. Cuisine Solutions had been growing consistently since fiscal year 1998, until
the events of September 11, 2001 negatively impacted the travel industry, which
is a major source of the Companys revenue, particularly the airlines and hotel
and banquet sales channels. Since fiscal 2001, Cuisine Solutions has been able
to successfully reduce administrative and other costs through the elimination
of positions and certain expenses. The Company has focused it efforts on
increasing sales in all of its channels as well as improving margins from
improved procurement of raw materials and greater production and distribution
efficiencies. Cuisine Solutions currently distributes products through the following sales
channels: On Board Services: Airlines, Railroad and Cruise Lines;
Foodservice: Hotel banquets, Convention Centers, Sport Stadiums and other
Special Events such as the Superbowl, and the Olympics;
Retail: Supermarket In-Store Deli, Premium frozen packaged foods;
Military: Sales through distributors supplying the US military;
Restaurant Chains: local & national. The On Board Services (OBS) channel includes customers that provide
transportation services to the general public and serve meals. With
chef-created high quality fully cooked pasteurized products and the ability to
make changes quickly and easily, Cuisine Solutions has become the preferred
supplier to the worlds top airlines for their business and first class
services. Airlines and On Board Service caterers also recognize the value of
Cuisine Solutions global presence, which allows them to design high-class
menus for the United States market from Europe and South America. The ability
to create high quality meals in three continents gives Cuisine Solutions a
strong competitive edge in the development of standardized quality meals for
non-USA and USA airlines with flight routes departing from South America and
Europe. Most US carriers are now working with Cuisine Solutions and the Company
is developing commercial relations with large European and South American
airlines and caterers. The Company is also the supplier of choice for national
railroad companies in the US and France. Focused effort and services towards
this market has allowed Cuisine Solutions to increase its market share. The On
Board Services channel experienced consistent growth over the past years, until
the negative impact of the September 11, 2001 terrorist attacks in the USA
resulted in extremely limited business travel during the subsequent months,
which had been a major source of Cuisine Solutions sales revenue via sales to
the airlines and the hotel banquet industries. The airline industry continues
to have financial troubles with at least one pending and several rumored
potential bankruptcies, but the number of passengers traveling continues to
increase as well as demand for Cuisine Solutions products. Cuisine Solutions
reputation for high quality products and services along with its international
presence has allowed the Company to rebound 3




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in this channel as the airline industry recovers. Cuisine Solutions will
continue to seek to strengthen the business relationships with most of the
major US airlines and passenger rail lines through providing continued value,
service and flexible solutions depending upon the current demand in the
industry. Cuisine Solutions won the coveted Mercury Award in February 2004,
the most prestigious award for in-flight catering sponsored by the
International Flight Catering Associations (IFCA) and the International
Inflight Food Service Association (IFSA). The Foodservice sales channel serves products to hotel banquets, hotel
restaurants, sports stadiums, large special event caterers, and national
restaurant chains. Cuisine Solutions products are attractive for foodservice
operators who are often understaffed and overworked, as it improves both their
revenue capability and their meal costs. Revenue capability for operators
improves as Cuisine Solutions products and menu services enhance and enlarge
food operators menu offerings, increases their table rotation through faster
delivery of meals, and improves the quality, safety and consistency of their
menu offerings. Cuisine Solutions products facilitate the offerings of special
menu and promotions programs, which result in higher customer headcount and a
higher average check per customer. The cost of meals is reduced for the food
operator as Cuisine Solutions products and technical services reduce labor
cost and yield losses, and lower utility and equipment use time. Cuisine
Solutions products also offer a unique method of controlling portion costs and
recipe execution. Pre-prepared entrees also offer additional savings in kitchen
space, equipment, capital investment and leasehold improvement costs. There are many prepared foodservice manufacturers in the industry, but most can
be classified as large processors with mass production and lower quality
associated with mass produced frozen foods. They operate large, heavily
capitalized facilities, providing very little flexibility, variety and
responsiveness to the market place. Smaller manufacturers can provide more
flexibility and variety, but are limited in capacity, and do not have global
expansion opportunities. Cuisine Solutions indirect competitors do not utilize
sous-vide technology, as it involves significant R&D in addition to specialized
equipment and equipment knowledge. In fiscal 2004, Cuisine Solutions achieved
continued penetration into key national accounts, banquet centers and casinos.
Many new Cuisine Solutions items are now on large hotel chain, resorts,
casino, and banquet menus. The most positive trend for the Company has been
with the low carbohydrate programs that are being implemented. Cuisine
Solutions will continue its focus on national accounts in fiscal 2005 and also
focus on improved distribution methods to ensure that requested products are
available throughout the US and Europe. Customers in the Foodservice sales
channel place a high value on the labor savings, quality, consistency and food
safety associated with Cuisine Solutions products. Management believes this
value increases in the current economic and political situation challenging
todays business environment. Cuisine Solutions initiated its strategic involvement in the retail sales
channel upon completion of the acquisition of the French subsidiary, Cuisine
Solutions France, in December 1999. Cuisine Solutions France has been achieving
considerable success with its retail partnership with French retailers in the
packaged, premium private label category. Cuisine Solutions France has had
consistent sales growth in the previous years in the retail channel. French
consumers are demanding when it involves food quality. Cuisine Solutions
believes that it offers better quality, consistency, cost reduction
opportunities and higher food safety levels, as well as the culinary expertise
to help the retailer enhance product selections and seasonal varieties. To
evaluate retail opportunities in the US, Cuisine Solutions initiated a strategy
to introduce its product line to US retailers via the in-store deli market. The
marketing strategy enabled Cuisine Solutions to take advantage of the quality,
consistency, cost and safety benefits provided to the Companys Foodservice
customers and initiate in-store deli programs in the US with minimal additional
marketing investment. The deli program also recognized by retail frozen food
executives which resulted in the first packaged product line sold in the US
under the Cuisine Solutions Brand. The Company plans to continue these efforts
as the retail market trends show increasing demand for high quality, value
priced items that are simple to prepare in both the retail store and in the
home of consumers. Awareness of the Cuisine Solution brand in retail is growing
with the increasing number of products on shelves, particularly in the retail
club, member-only warehouse, systems. Retail objectives for fiscal year 2005
include further penetration into the US in-store delis of targeted retailers as
well as continued planned national roll-outs of premium frozen retail products
into the US market. Military sales to date have been primarily through distributors to the US armed
forces with an emphasis on the US Navy. Military sales for the Navy continue to
be managed via a broker/distributor. The Company has placed specific objectives
for the broker and eliminated a commission compensation structure, invoicing
the broker directly for all orders and placing the responsibility for inventory
and accounts receivable management on the broker/distributor. The military
channel showed some growth in fiscal 2004 due to increased sales to the Navy.
However, Cuisine Solutions expects sales to significantly grow in this channel
as the Army has selected two of the products for its field rations program.
The program is scheduled to start in October of 2005. The Cuisine Solutions
product line is ideal for situations that call for long shelf life, high
quality, easy preparation and high levels of food safety. National Restaurant Chain (NRC) sales, which represent most of the sales in
what we refer to as New Business in our 2004 quarterly filings, have shown
strong growth during the fiscal year. Like the foodservice channel, restaurant
chains are constantly struggling to find experienced labor and to reduce costs.
Cuisine Solutions has the ability to duplicate restaurant recipes and provide
the chain with the consistency that it needs across its operations. Cuisine
Solutions also can provide products to fill-out a restaurant chains menu.
Often a chain specializes in a certain type of food, but it still must offer
variety to the customers who do not want the specialties. Cuisine Solutions,
with over 150 products, can provide products for these chains to choose from.
Cuisine Solutions believes the consumer trend toward upscale casual restaurant
chain dining will continue to increase in fiscal year 2005 and that Cuisine
Solutions products are well-suited to meet the market demand. 4




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Cuisine Solutions, Inc. was incorporated in the State of Delaware in 1974. Its
principal executive offices are located at 85 South Bragg Street, Suite 600,
Alexandria, VA 22312 and its telephone number at that location is (703)
270-2900. The Company desires to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Therefore, this report
contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, the reliance on key customers,
fluctuations in operating results and other risks detailed from time to time in
the Companys filings with the Securities and Exchange Commission. These risks
could cause the Companys actual results for 2004 and beyond to differ
materially from those expressed in any forward looking statements made by, or
on behalf of, the Company. BACKGROUND The Company commenced operations in 1972 as a wholesale producer of French
bread for daily delivery to the Washington, DC area. The Company expanded its
markets throughout the 1970s. In fiscal year 1979, the Company, then known as
Vie de France Corporation, began offering its product through Company-owned
retail bakeries where the products could be freshly baked throughout the day.
During the 1980s, the Company expanded its frozen dough product line and
developed processes to facilitate the baking of these products at the
point-of-sale. As of May 1994, the Company owned and operated 31 retail units.
The Company sold the Bakery Division and the Restaurant Division to Vie de
France Bakery Yamazaki, Inc. in 1991 and 1994, respectively. The Company began development of the Culinary Division business in 1987, in
conjunction with research previously performed by Nouvelle Carte France, a
related French company. As a result of the growth in the application of high
quality frozen products in Europe, the Board authorized the establishment of
the Vie de France Culinary Corporation for the express purpose of the research
into and development of high quality frozen products for the U.S. market. This
Company was formed in 1987, and was later merged into Vie de France
Corporation. In 1989, construction began on a 30,000 square foot plant in
Alexandria, Virginia designed to manufacture its sous-vide product line under
the trade name Vie de France Culinary. The Culinary plant began operations in
May 1990, and later expanded into a 39,000 square feet building. The Company
constructed a manufacturing facility in Norway, and initiated production in
August 1994. The primary focus of the Norwegian facility was to supply the
Company with all salmon products. During fiscal years 1991 through 1996, the Culinary Division successfully built
its sales. The sales volume went from zero to over $2 million in fiscal year
1991, and by fiscal year 1996 to $16 million. During fiscal year 1997, the
Company restructured its sales organization to develop a focused sales and
marketing strategy. The Company embarked on strategic marketing campaigns to
educate the market place to the advantages of sous-vide processing and increase
awareness of the existence of the Company and its product line. During this
first year of the strategic marketing effort and re-organization, fiscal year
1997 sales declined to about $14 million. In fiscal year 1998 the Company
continued its reorganization while sales remained steady at $14 million, and in
fiscal year 1999, sales increased to over $20 million, an increase of
approximately 48%. In 1998, the Company entered into a joint venture to construct a manufacturing
facility in Brasilia, Brazil to service airlines in the Mercusor markets, our
European retail customers that have a strong presence in Brazil, and to provide
low cost poultry and beef product exports to the European markets. The
Brazilian facility established regular operations at the beginning of fiscal
year 2002. Towards 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. Due to the continued
lack of cooperation from the Brazilian partner, the inability to obtain any
financial disclosures and the joint venture partners termination of Cuisine
Solutions Inc. business activity in Brazil, Cuisine Solutions, Inc wrote off
100% of its investment in Brazil in fiscal year 2002. In 1999, the Company acquired the French company, Nouvelle Carte, to supply
airline customers in Europe as well as supply global foodservice and retail
customers. During fiscal year 2000, sales increased to $36 million, an
increase of 30.2% over fiscal 1999. Fiscal year 2001 sales slightly increased
over $36 million while fiscal year 2002 sales decreased by 21% to $29 million
due to the economic downturn during fiscal year 2002 precipitated largely by
the terrorist attacks in the USA on September 11, 2001 and the subsequent
negative impact on the travel industry. Fiscal year 2003 sales decreased by 3%
to $28 million primarily due to the decreased revenue of the Military, the On
Board Services and the Foodservice channel in the USA. Fiscal year 2004 sales finished above pre-September 11, 2001 levels of
$36,721,000. The Company had growth in all five Cuisine Solutions channels and
believes that the prospects for growth in fiscal year 2005 are positive for all
five channels. Fiscal year 2005 will also bring a new source of salmon and
other white fish raw material from a new sous-vide plant in Chile that opened
in August 2004 whereby Cuisine Solutions has 10% ownership and exclusive
marketing rights for the sous-vide products in the US and most of Europe. 5




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PRODUCTS The Company develops, produces and markets chef-created fully cooked, fully
prepared entrees and sauces. The products are high quality items without the
high-end price since they can be produced in large volumes. The product line
consists of items not usually available to our customers such as Osso Buco,
Chilean Sea Bass, Beef Wellington, Lamb Shanks and Stuffed Pork Chops as well
as staple items such as plain and stuffed chicken breasts. The Company also
offers a large line of sauces as well as enrobed pasta and rice products. The
precise cooking process of sous-vide allows the Company to prepare a perfect
duck breast, rack of lamb or veal chop. The combination of the unique cooking
process, the internal culinary expertise and international distribution has
been critical to the Companys strategy to date. The sous-vide cooking process involves preparing a product with the required
spices, vacuum sealing the product, and cooking the product under water for
precise times at precise temperatures. This precision in time and temperature
allows the Company to produce the exact specification on any protein item
produced. The process is controlled by computerized systems, and each item is
exact every time. The cooking process also provides an eighteen-month shelf
life on most protein items without the need for any food additives or
preservatives. The product has enormous application with health conscience
retailers and health care organizations due to the omission of additives in our
products. The Company packages its products in two ways, Foodservice packs and Retail
carton packs. Most Foodservice pack products are vacuum-sealed and frozen in
either single or multi-serving packaging and then case-packed. Single-pack
items provide maximum customer flexibility, while multi-serving packs provide
additional efficiency and economy for large-scale preparations. The US and
French facility packages retail cartons for the frozen and refrigerated retail
sales area for retail supermarkets. DISTRIBUTION The majority of Company sales are frozen products shipped throughout the US and
Europe. Cuisine Solutions Norway has in the past provided much of the salmon
products globally while France and the USA produce non-salmon products for
Europe and the US respectively. All products are shipped frozen except for some
retail sales in France, which are refrigerated. The French retail sales are all
final sales, and the retailer bears the risk for any unsold product. The French
facility maintains one additional third party warehouse for storage, while the
US facility maintained four third party outside warehouses at the end of fiscal
year 2004. Most of the warehouses were created to support the Foodservice sales
requirements for short lead times and product availability. The Company can
quickly and easily add or subtract additional outside warehouses when and where
it is deemed necessary. The Company sells one hundred percent of its product through its own sales
personnel located in either France or the US. These sales can be to
distributors who, in turn, sell our products to end-users. Norway does not
have a sales force. Norwegian products are sold to either France or the US as
inter-company sales, or sold by the sales team to ship directly from Norway to
customers located in Europe. This will be the same for the Chilean operation.
US sales are mostly to US markets, and French sales to European markets. RAW MATERIAL STATUS The Company historically purchased its raw materials from a number of different
suppliers at spot market prices except for US poultry, which is purchased by
contract. The practice of spot market purchasing and bidding out to suppliers
does not allow the Company to take advantage of annual low prices in certain
commodity markets, nor does it allow the Company to develop strategic
partnerships with suppliers. Since systems now provide forecast capabilities
and the related material requirements, the Company engages in a more strategic
approach to procurement and has developed strategic purchasing programs. During
fiscal year 2004, the prices of many raw materials increased significantly.
The greatest impact was in the poultry market where raw material prices
increased significantly, to record highs. This, in turn, lowered Cuisine
Solution margins as we could not quickly increase our prices. Poultry raw
material prices are expected to return from record highs to lower levels in
fiscal year 2005. However, there were many negative raw material reports
during fiscal year 2004 that caused large fluctuations in supply and demand
such as reports of mad cow disease, bird flu, and toxins in farm raised salmon.
Cost of raw materials is Cuisine Solutions largest cost, and therefore,
management is participating directly in the procurement process in fiscal 2005. PATENTS AND TRADEMARKS AND OTHER ITEMS IMPORTANT TO OPERATING SEGMENTS The Company believes that its Cuisine Solutions, Inc. and Vie de France
Corporation trademarks are important to its business success. Accordingly, it
takes the necessary steps to protect them. During fiscal year 1998 the Company
assured the protection of such marks by transferring the ownership of all
trademarks it owns to Cuisine Solutions, Inc. in addition to maintaining the
Vie de France Corporation trademark. The Company and Vie de France Bakery
Yamazaki, Inc. entered into a Trademark and Service Mark License Agreement in
1991 and, in conjunction with the sale of the Restaurant Division, amended and
restated this agreement. In 1997, the Company secured the use of a packaging
trademark called MicroRoast and MicroRoti to be used in the U.S. and
European market, respectively. This new packaging is designed for use in
microwave ovens and imparts a roasted quality to our value-added entrees. 6




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During fiscal year 2002, the Company secured in Europe and in the USA the
service trade mark Your Culinary Partner and Votre Partenaire Culinaire
which is being used in our global advertising campaign. The Company has many
other trademarks that it believes requires protection. For example, in fiscal
2004 Cuisine Solutions trademarked Enrobed to protect our new enrobed pasta
line of products. Cuisine Solutions continually reviews the trademarks to
determine whether there is value in paying the fees associated with maintaining
marks. CUSTOMER DEPENDENCY The Companys largest customers in fiscal year 2003 were two airline
distributors that bought product from the Company based upon related demand
from airline customers. One of those companies declared bankruptcy in Cuisine
Solutions second quarter of fiscal 2004 and Cuisine Solutions was required to
write-off approximately $295,000 of bad debts during that quarter. Management
made the decision in the first quarter of fiscal year 2004 to reduce its
dependency on that distributor and the loss was significantly lower than it
would have been during fiscal year 2004. Cuisine Solutions has had a large
proportion of its business with travel related customers. In FY 2004, Cuisine
Solutions continued a concerted effort to diversify into retail, national
restaurant chains, and the US military. Growth in those areas continues to
reduce the Companys dependency on the travel industry. Management believes
that Cuisine Solutions revenue will continue to grow in the non-travel related
channels. Management believes that the growth in the military channel in
fiscal 2005 will produce a strong hedge for the Company in the event of a
terror related incident to the travel industry. However, there is still risk
for the Company as much of our planned growth for fiscal year 2005 includes
growth in the travel related channels. The Foodservice and national restaurant chain channels consist of a wide base
of hotel banquet and convention centers in a decentralized purchase decision
environment and management believes that no single customer can have a material
impact on the total Company revenues. Retail has a smaller base of customers
that create most of the demand for the packaged food lines. The largest of the
retail customers purchase decisions are also decentralized and so the loss of
a single customer should not have a material impact. Cuisine Solutions
decision to diversify the US military sales to include the Army in fiscal year
2004 was made to both grow the channel and reduce dependency on the Navy. SEASONALITY The seasonality of the hotel banquet industry, in which sales demand typically
peaks in September through December, and March through June, no longer has a
major impact on the total Company due to growing sales of the other sales
channels. However Cuisine Solutions retail product channel demand has had some
seasonal impact as the demand decreases for fully cooked products during summer
grilling season. COMPETITION The Company considers itself to be a leader in the sous-vide product line
within the food service industry in the US. At present, limited competition
exists within the US frozen wholesale component of this product line. Other
firms exist in France within the retail and refrigerated components of the
sous-vide prepared foods. As such, the Company primarily competes for sales
against food service providers in the frozen and raw segment, rather than
against other sous-vide suppliers. The Company offers value-added products, but
must offer these products in a price range that makes it economically
advantageous for its users to convert from other methods of food preparation. The Company believes its products can successfully compete against these other
methods in price, product performance and convenience. The Company also offers
implementation and menu development services, as well as equipment to its
customers as another means of building sales. The Company depends upon its
product development, marketing, and menu items as a means of maintaining its
leadership position within the sous-vide industry. RESEARCH & DEVELOPMENT The Company invested $261,000, $240,000, and $395,000 in research and
development activities in fiscal years 2004, 2003 and 2002, respectively. The
Company maintains a staff of experienced culinary and food science
professionals in order to provide the marketplace with innovative products on a
continuous basis. The international staffing in the US and in France provides
the Company with the latest in culinary trends on both sides of the Atlantic.
The French facility provides a source of dedicated culinary professionals since
the French culinary training is known for its dedication to the art of
perfection with regard to food preparation. REGULATIONS The Company is subject to various Federal, state and local laws affecting its
business, including health, sanitation and safety regulations. The U.S. plant
operates under USDA supervision over the handling and labeling of its products.
The Company believes its operations comply in all material respects with
applicable laws and regulations. In addition to USDA standards, all subsidiary
facilities are HACCP certified. 7




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The Companys production facilities in Norway and France meet European
Community standards and regulations. The Norwegian products, along with certain
raw materials, are subject to import regulations. EMPLOYEES The Company employs approximately 230 people including full-time and part-time
workers and corporate staff. GEOGRAPHIC SALES The Companys sales are primarily focused in the United States with sales in
the U.S. representing 58.9%, 56.4% and 63.2% of total sales for fiscal years
2004, 2003 and 2002, respectively. ITEM 2. PROPERTIES The Company owns the French facility and property, and leases its US office and
its USA and Norwegian manufacturing facilities. The French facility is located
in Louviers, France and is approximately 15,000 square feet. The U.S. plant,
located in Alexandria, Virginia, is approximately 39,000 square feet. The
Norway plant, located in Hjelmeland, Norway, is approximately 16,000 square
feet. The Companys Norway plant is structured as a twenty-year capital lease
whereby the Company will own the facility at the end of the lease term on
August 31, 2014. These facilities are not fully utilized and are suitable for
current operations and are expected to meet the product demand for fiscal year
2005. The Company owns substantially all of the equipment used in its
facilities. Lease commitments and future minimum lease payments are included in
Managements Discussion and Analysis of Financial Condition and Results of
Operations and in Note 11 to the Consolidated Financial Statements, which is
included in this Form 10-K. ITEM 3. LEGAL PROCEEDINGS During fiscal 1999, the Company became a partner in a limited liability
company, Cuisine Solutions do Brasil Ltda, with a Brazilian partner, Sanoli
Indsutria E Commercio Alimentacao Ltda, which has built a manufacturing
facility and is marketing product in the Mercusor market. Cuisine Solutions
Inc. owns 39% of this Brazilian joint venture. The Company contributed
technology to the partnership in lieu of a cash contribution. The Company
performed management services to assist with the design and construction of the
manufacturing facility as well as ongoing management service for operations,
research and development, marketing and administrative support. The Companys investment in Cuisine Solutions do Brasil Ltda consisted of
advances, Accounts Receivables for services performed and a loan in the amount
of $763,000 that was granted to the Joint Venture Partner during fiscal year
2001. The loan bears interest at the London Interbank Offered Rate (LIBOR)
plus spread accepted by the Central Bank of Brazil at the time of repayment.
The loan was to be repaid within one year and was in default at June 28, 2003. 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, 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 seeks full recovery of the amounts owed by Cuisine
Solutions do Brasil Ltda, including the loan of $763,000, and management and
administrative fees of $895,000 according to the joint venture agreement. 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 the outcome of
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 None. 8




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##### 



PART II ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER
MATTERS COMMON STOCK The Companys capital stock is divided into two classes: Common Stock and Class
B Stock. The Class B Stock, which is reserved for issuance to employees under
stock options plans, is identical in all respects to the Common Stock except
that the holders thereof have no voting rights unless otherwise required by
law. The Companys Common Stock is traded in the over-the-counter (OTC) market
under the symbol CUIS. The following table sets forth for the quarters
indicated the high and low sales prices per share as reported on the OTC
Bulletin Board: Year ended June 26, 2004
    
    High
    
    LowFirst Quarter
    
    $
    .780
    
    
    $
    .510Second Quarter
    
    
    1.400
    
    
    
    .600Third Quarter
    
    
    1.350
    
    
    
    .950Fourth Quarter
    
    
    1.850
    
    
    
    1.050Year ended June 28, 2003
    
    High
    
    LowFirst Quarter
    
    $
    .760
    
    
    $
    .300Second Quarter
    
    
    .510
    
    
    
    .240Third Quarter
    
    
    .800
    
    
    
    .200Fourth Quarter
    
    
    .800
    
    
    
    .280Year ended June 29, 2002
    
    High
    
    LowFirst Quarter
    
    $
    1.250
    
    
    $
    .880Second Quarter
    
    
    1.070
    
    
    
    .550Third Quarter
    
    
    .900
    
    
    
    .250Fourth Quarter
    
    
    .800
    
    
    
    .500
 As of September 17, 2004 there were approximately 578 holders of record of the
Companys Common Stock. No dividends were paid during fiscal year 2004, 2003 and 2002. The information required under this Item 5 about equity compensation plans is
shown in the Proxy Statement for its annual meeting for fiscal 2004 to be filed
with the Securities and Exchange Commission under Regulation 14A, under the
caption Executive Compensation and such information is incorporated herein by
reference On November 30, 1998, the Company was notified by NASDAQ that its common stock
no longer met the minimum $1.00 bid requirement to be included in the NASDAQ
National Market and was delisted. The Companys common stock currently trades
on the OTC Bulletin Board. 9




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##### 



ITEM 6. SELECTED FINANCIAL DATA FIVE YEAR SUMMARY
(in thousands, except per share amounts) 2004
    
    2003
    
    2002
    
    2001
    
    2000Net Sales
    
    $
    36,721
    
    
    $
    27,812
    (3)
    
    $
    28,616
    (3)
    
    $
    36,138
    
    
    $
    35,810Loss from operations (1)
    
    
    (876
    )
    
    
    (4,022
    )
    
    
    (4,944
    )
    
    
    (660
    )
    
    
    (2,313
    )Net loss (2)
    
    
    (1,004
    )
    
    
    (4,092
    )
    
    
    (6,027
    )
    
    
    (861
    )
    
    
    (1,980
    )Loss from operations per share
    
    
    (0.06
    )
    
    
    (0.25
    )
    
    
    (0.31
    )
    
    
    (0.04
    )
    
    
    (0.16
    )Net loss per share
    
    
    (0.06
    )
    
    
    (0.26
    )
    
    
    (0.38
    )
    
    
    (0.06
    )
    
    
    (0.13
    )Total assets
    
    
    17,710
    
    
    
    16,428
    
    
    
    18,197
    
    
    
    22,761
    
    
    
    24,357Long term debt, including
current portion
    
    
    4,273
    
    
    
    3,661
    
    
    
    2,924
    
    
    
    2,582
    
    
    
    2,449Stockholders Equity
    
    
    6,572
    
    
    
    7,466
    
    
    
    11,156
    
    
    
    16,514
    
    
    
    17,392Dividends per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Includes amortization of $95 and subsequent impairment of pre-operating capitalized web site development cost of $619 in 2002(2)
    
    Includes loss in equity from investment in Brazil of $997 in 2002 and $661 in 2001 respectively.(3)
    
    Loss in sales attributable to 9/11/2001 tragedy and resulting impact to the travel industry.
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING ESTIMATES A summary of the Companys significant accounting policies is included in Note
1 to the Consolidated Financial Statements, included in this report. Management
believes that the application of these policies on a consistent basis enables
the Company to provide the users of the financial statements with useful and
reliable information about the Companys operating results and financial
condition. 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. Recent Accounting Pronouncements In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. FIN No. 46 addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
primary economic beneficiary as a result of their variable economic interests.
Currently the Company has no variable interest entities, and therefore the adoption FIN No. 46
did not have a material impact on the Companys financial statements. In April 2003, FASB issued SFAS 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS 149 amends and clarifies accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 149 is generally effective
for derivative instruments, including derivative instruments embedded in
certain contracts, entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. Currently the
Company has no derivative
instruments, and therefore the adoption of SFAS 149 did not have a material
impact on the Companys financial position or results of operations. 10




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##### 



In May 2003, FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that those
instruments be classified as liabilities (or assets in certain circumstances)
in statements of financial position. SFAS 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities all of whose shares are mandatory redeemable. SFAS 150 is generally
effective for all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Currently the Company has no financial instruments with
characteristics of both liabilities and equity, and therefore the adoption of
SFAS 150 did not have a material impact on the Companys financial position or
results of operations. Impairment of Long-Lived Assets 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 to make judgments regarding the future operating and
disposition plans for underperforming assets, and estimates of expected
realizable values for assets to be sold. The application of SFAS No. 144 has
affected the amounts and timing of charges to operating results in recent
years. 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. Allowance for Doubtful Accounts Trade receivables are reported in the consolidated balance sheets net of the
allowance for doubtful accounts. Generally, the Company considers receivables
past due 30 days subsequent to the billing date. The Company performs ongoing
credit evaluations of its customers and generally extends credit without
requiring collateral. The Company maintains an allowance for doubtful accounts,
which is determined based on historical experience and managements
expectations of future losses. Generally, losses have historically been within
managements expectations. As of June 26, 2004 and June 28, 2003, the Company
maintained an allowance for doubtful accounts of approximately $68,000 and
$62,000, respectively. Inventory Reserves 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. Management evaluates inventory levels on a
regular basis and establishes reserves to reflect inventory at its estimated
realizable value. Valuation Allowance 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. RESULTS OF OPERATIONS NET SALES Net sales by region for fiscal year 2004 and 2003 are as follows (Norway
inter-company sales are eliminated): Year EndedJune 26, 2004
    
    June 28, 2003
    
    $ Change
    
    % ChangeUSA
    
    $
    21,641,000
    
    
    $
    15,698,000
    
    
    $
    5,943,000
    
    
    
    37.9
    %France
    
    $
    13,693,000
    
    
    $
    10,929,000
    
    
    $
    2,764,000
    
    
    
    25.3
    %Norway
    
    $
    1,387,000
    
    
    $
    1,185,000
    
    
    $
    202,000
    
    
    
    17.0
    %Total Net Sales
    
    $
    36,721,000
    
    
    $
    27,812,000
    
    
    $
    8,909,000
    
    
    
    32.0
    %
 11




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##### 



Fiscal year 2004 revenue of $36,721,000 reflects a consolidated sales increase
of 32.0% from fiscal year 2003 revenue of $27,812,000. Revenue for fiscal year
2002 was $28,616,000. The increase in sales in FY 2004 was attributable to a
37.9% increase in US sales and a 25.3% increase in sales from France compared
to fiscal year 2003. All five sales channels in the US grew in revenue in
fiscal year 2004 as well as all three sales channels in France. Norway
operations had a 17.0% increase in non-intercompany sales, however, its gross
sales in US dollars decreased by 3.6% while gross sales in Norwegian Kroner
decreased by 6.5%. Approximately 68.8% of the sales from Cuisine Solutions
Norway are inter-company sales to the USA and French entities, and eliminated
during the financial consolidation process. The Companys sales of high-quality foods are sold to airlines, retail
supermarkets, hotel and convention center restaurants and banquets, passenger
rail lines and harbor cruise lines restaurants, restaurant chains, and the US
military. In fiscal year 2004 US sales accounted for 58.9% of total revenue
compared to 56.4 % of total revenue in fiscal year 2003, while France and
Norway accounted for 37.3% and 3.8 % in fiscal year 2004 and 39.3% and 4.3%,
and 31.0% and 2.3% in fiscal 2003 and 2002 respectively after eliminating
inter-company sales. Norway produces product for both France and the US and
total Norwegian salmon production accounted for approximately 7.7% of total
Company sales in fiscal year 2004 as compared to 11.0% and 8.4% in fiscal year
2003 and 2002 respectively. Net sales by sales channel for fiscal year 2004 and 2003 are as follows: Year EndedJune 26, 2004
    
    June 28, 2003
    
    $Change
    
    %ChangeFood Service
    
    $
    11,277,000
    
    
    $
    9,250,000
    
    
    $
    2,027,000
    
    
    
    21.9
    %On Board Services
    
    
    12,793,000
    
    
    
    10,459,000
    
    
    
    2,333,000
    
    
    
    22.3
    %Retail
    
    
    10,005,000
    
    
    
    6,453,000
    
    
    
    3,553,000
    
    
    
    55.1
    %Military
    
    
    1,047,000
    
    
    
    904,000
    
    
    
    144,000
    
    
    
    15.9
    %New Business/National Restaurant Chains
    
    
    1,599,000
    
    
    
    746,000
    
    
    
    852,000
    
    
    
    114.2
    %Total
    
    $
    36,721,000
    
    
    $
    27,812,000
    
    
    $
    8,909,000
    
    
    
    32.0
    %
 The Companys net sales increased by 32.0% to $36,721,000 in fiscal year 2004
as compared to $27,812,000 in fiscal 2003 and from $28,616,000 in fiscal 2002
due to the improved economy and the successful implementation of new Cuisine
Solutions sales strategies resulting in higher demand and sales of the
products. The current year sales increases were in all Cuisine Solutions sales
channels and were driven by the improving economy, particularly in the US, and
greater consumer demand for upscale fully cooked products. Fiscal year 2004 On
Board Services and Foodservices sales increased by 22.3% and 21.9%,
respectively. Military sales increased by 15.9% while the Retail channel and
restaurant chains channel sales grew by 55.1% and 114.2% respectively during
fiscal 2004. Cuisine Solutions USAs fiscal year 2004 and 2003 sales by sales channel are as
follows: Year EndedJune 26, 2004
    
    June 28, 2003
    
    $Change
    
    %ChangeFood Service
    
    $
    5,842,000
    
    
    $
    4,425,000
    
    
    $
    1,417,000
    
    
    
    32.0
    %On Board Services
    
    
    9,558,000
    
    
    
    8,224,000
    
    
    
    1,334,000
    
    
    
    16.2
    %Retail
    
    
    3,595,000
    
    
    
    1,399,000
    
    
    
    2,196,000
    
    
    
    157.0
    %Military
    
    
    1,047,000
    
    
    
    904,000
    
    
    
    143,000
    
    
    
    15.8
    %New Business/ National Restaurant Chains
    
    
    1,599,000
    
    
    
    746,000
    
    
    
    853,000
    
    
    
    114.3
    %Total
    
    $
    21,641,000
    
    
    $
    15,698,000
    
    
    $
    5,943,000
    
    
    
    37.8
    %
 Net sales grew by 37.8% in the US in fiscal year 2004 as compared to fiscal
year 2003. Net Sales increased by more than 15% in each of the five sales
channels in the US in fiscal year 2004 as compared to fiscal year 2003. This
is primarily due to increased product demand resulting from a more diversified
sales focus on each of the channels and the improvement in the US economy. 12




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##### 



Cuisine Solutions Frances fiscal year 2004 and 2003 sales by sales channel are
as follows: Year EndedJune 26, 2004
    
    June 28, 2003
    
    $Change
    
    %ChangeFood Service
    
    $
    5,222,000
    
    
    $
    4,199,000
    
    
    $
    1,023,000
    
    
    
    24.4
    %On Board Services
    
    
    2,061,000
    
    
    
    1,676,000
    
    
    
    385,000
    
    
    
    23.0
    %Retail
    
    
    6,410,000
    
    
    
    5,054,000
    
    
    
    1,356,000
    
    
    
    26.8
    %Total
    
    $
    13,693,000
    
    
    $
    10,929,000
    
    
    $
    2,764,000
    
    
    
    25.3
    %
 Net sales grew by 25.3% in the France in fiscal year 2004 as compared to fiscal
year 2003. Net Sales increased by more than 23% in each of the three sales
channels in the France in fiscal year 2004 as compared to fiscal year 2003.
This is primarily due to increased product demand. Cuisine Solutions Norways fiscal year 2004 and 2003 sales by sales channel are
as follows (excluding inter-company sales): Year EndedJune 26, 2004
    
    June 28, 2003
    
    $Change
    
    %ChangeFood Service
    
    $
    213,000
    
    
    $
    626,000
    
    
    
    ($413,000
    )
    
    
    -66.0
    %On Board Services
    
    
    1,174,000
    
    
    
    559,000
    
    
    
    615,000
    
    
    
    110.0
    %Total
    
    $
    1,387,000
    
    
    $
    1,185,000
    
    
    $
    202,000
    
    
    
    17.1
    %
 Direct sales for the Norwegian facility grew by 17.1% primarily as a result of
increased demand for salmon products to new airline customers. Food Service
sales declined in Norway in fiscal 2004 as a result of more direct sales of
the Norwegian products by the French operation, as well as a decrease in demand
resulting from magazine articles describing potential health risks from
consuming farm raised salmon. GROSS MARGIN Gross margin increased 60.5% in fiscal year 2004 compared to fiscal year 2003.
Gross margin as a percent of sales increased to 21.6% for fiscal 2004 compared
to 17.8% in fiscal 2003, and 16.4% in fiscal 2002. Gross margin increased due
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
continue to increase as more fixed costs are being absorbed. A comparison of net sales, gross margin percentages and net losses from
operations for fiscal year 2004, 2003 and 2002 follows: Year EndedJune 26, 2004
    
    June 28, 2003
    
    June 29, 2002Net Sales
    
    $
    36,721,000
    
    
    $
    27,812,000
    
    
    $
    28,616,000Gross margin
    
    $
    7,926,000
    
    
    $
    4,937,000
    
    
    $
    4,688,000Gross margin percentage
    
    
    21.6
    %
    
    
    17.8
    %
    
    
    16.4
    %Net Loss
    
    $
    (1,004,000
    )
    
    $
    (4,092,000
    )
    
    $
    (6,027,000
    )
 Net loss for fiscal year 2004 was reduced by $3,088,000 or 75.5% from
$4,092,000 in fiscal year 2003 to $1,004,000 in fiscal year 2004. Net loss in
fiscal 2002 was $6,027,000. This reduction in loss is due primarily to a
slight reduction in selling and administrative expenses to $8,665,000 in fiscal
2004 from $8,757,000 and $8,702,000 in Fiscal 2003 and 2002 respectively while
increasing sales significantly due to greater product demand. 13




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##### 



Net income (loss) by regions are as follows: Year EndedJune 26, 2004
    
    June 28, 2003
    
    June 29, 2002USA
    
    $
    (701,000
    )
    
    $
    (3,498,000
    )
    
    $
    (6,092,000
    )France
    
    $
    358,000
    
    
    $
    139.000
    
    
    $
    85,000Norway
    
    $
    (661,000
    )
    
    $
    (733,000
    )
    
    $
    (19,000
    )Total Net Income (loss)
    
    $
    (1,004,000
    )
    
    $
    (4,092,000
    )
    
    $
    (6,026,000
    )
 Cuisine Solutions US reduced its net loss in fiscal year 2004 by $2,797,000 or
80.0% from $3,498,000 in fiscal year 2003 to $701,000 in fiscal year 2004.
This reduction is due primarily to a 10% reduction in selling and
administration expenses and a 74.8% increase in gross margin. US losses in
fiscal year 2002 were $6,092,000. Cuisine Solutions France had its fifth consecutive profitable year since the
acquisition by Cuisine Solutions in 1999, increasing profits in fiscal year
2004 by $219,000, or 157.6%, from fiscal year 2003. Profits in France in
fiscal year 2003 and 2002 were $139,000 and $85,000 respectively. In spite of
the lackluster economy during the last three years in Europe, the French
subsidiary reported profitable results and double-digit growth in the
Foodservice channel in France. Management credits both the thirty-five hour
work week rule and its impact on labor cost in France for the increase in
demand for the Foodservice channel as well as aggressive cost control for the
delivery of a positive net income in France. Cuisine Solutions Norway recorded a loss of$661,000 in fiscal year 2004
compared to a loss of $733,000 for fiscal year 2003 and a loss of $19,000 in
fiscal year 2002. The loss was due to the decreased demand of the Norway
product line after the economic slowdown and concerns raised about farm raised
salmon; consequently fixed overhead costs were spread over smaller production
quantities, which resulted in higher cost of sales and lower net results. The
Company placed the Norwegian operations under the management of Cuisine
Solutions France to implement initiatives to improve operating results and
liquidity of the subsidiary. 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 discussed and approved by the
Board of Directors, management has taken certain actions to facilitate such a plan.
In September, 2004 the Company curtailed production and gave employees notice of
termination as required by local law. A formal decision to discontinue operations
is expected to be made in October, 2004. However, there can be
no assurance that such an action will be approved. SELLING AND ADMINISTRATION EXPENSES Selling and administration costs as a percentage of sales were 23.6% in fiscal
2004, 31.5% in fiscal 2003, 30.4% in fiscal 2002. The percentage decrease in
selling and general administrative expenses from fiscal 2004 versus fiscal 2003
is a result of cost of continued cost cutting by management and the significant
increase in sales. Selling and administration costs in fiscal 2004 also
included a $295,000 write-off resulting from the bankruptcy of one of our
airline distributors. DEPRECIATION AND AMORTIZATION The fiscal year 2004 depreciation and amortization expense decreased by $55,000
over fiscal year 2003 to $952,000 as a result of an increased amount of
machinery and equipment becoming fully depreciated during 2004. The portions
of depreciation and amortization expense that are included in the cost of goods
sold are $783,000 and $750,000 in fiscal year 2004 and 2003, respectively. NON-OPERATING INCOME AND EXPENSE The Company held long term investments of $1,114,000 and $1,331,000 at June 26,
2004 and June 28, 2003 respectively. Management maintains these funds in a
trust account with the majority of the funds invested in government securities.
The Company realized a gain of $3,000 and $67,000 on the sale of investments
during fiscal year 2004 and 2003, respectively. The non-operating expense for fiscal 2004 of $110,000 was primarily due to
interest expenses relating to the borrowings of the Companys Norwegian and
French subsidiaries, including the Norwegian capital lease, which was partially
offset by investment income from funds invested in corporate bonds and treasury
bills. IMPACT OF INFLATION AND THE ECONOMY Inflation 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. However, most customers require a sixty-day notice
for price changes in order to update their internal systems and evaluate the
impact of price changes. Therefore, in the event of a continuous accelerated
commodity price increase, the Company must either absorb the price increase
during that sixty day period or discontinue sales to the customer, and risk
losing the long term business relationship. 14




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##### 



LIQUIDITY AND CAPITAL RESOURCES The Company held cash and cash equivalents of $1,491,000 and $1,357,000 at June
26, 2004 and June 28, 2003 respectively. Additionally, the Company held long
term investments of $1,114,000 and $1,331,000 at June 26, 2004 and June 28,
2003 respectively. Long term investments of $1,114,000 and $25,000 cash in
deposit secure the overdraft credit facility of the Norwegian subsidiary at
June 26, 2004. Cash flows from operations was essentially break-even for fiscal year 2004,
which was an improvement over the prior year cash flow deficit from operations
of approximately $1.9 millions. This improvement is a direct result of revenue
growth and cost cutting initiatives affected in fiscal year 2003. The Company made capital expenditures of $681,000 and $1,150,000 during fiscal
year 2004 and 2003, respectively. During fiscal years 2004 and 2003, the EURO
gained about 12% and 15% of its value versus the US Dollar, which made these
investments more expensive when converted to US Dollars. At June 26, 2004, the Company had borrowings of $4,273,000, bearing interest at
rates ranging from 3.3% to 6.6%. These borrowings include $2,370,000 in debt of
the Companys Norwegian subsidiary. Currently Norway has an outstanding
principal of $1,196,000 for the capital lease on the building in Norway and
$1,098,000 outstanding under a working capital overdraft line of credit with
Den norske Bank. The overdraft facility increased during the fiscal year from
$1,047,000 to $1,098,000. 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 $1,114,000 and a $25,000 cash deposit
are used 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 $98,000 and the total outstanding principal amounts to
$131,000 at June 26, 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 total outstanding principal amounts to $202,000 at
June 26, 2004. In March 2003, Cuisine Solutions France entered into a five year
term loan to further expand the facility in the amount of 280,000 or $320,000.
This loan bears interest of 3.3% and the total outstanding principal amounts to
$277,000 at June 26, 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 $69,000 at June 26, 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 $424,000 at June 26, 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. In June 10, 2004, the Company
entered into an additional $300,000 six month working capital loan with Food
Investors Corporation (FIC). The loan bears interest of 6% per annum,
payable at maturity, or 90 days after close of a company line of credit, and
will mature on December 10, 2004. The outstanding balance principal was
$300,000 at June 26, 2004. 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 will be secured by
the Companys US accounts receivable and inventory and further guaranteed with
a real estate owned by Food Research Corporation (FRC). This line of credit
bears an interest rate of 0.5% over the prime interest rate. 15




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##### 



Contractual Obligations and Commercial Commitments The Companys significant contractual obligations as of June 26, 2004 are for
debt and operating leases. Debt by year of maturity and future rental payments
under operating lease agreements are presented below. As of June 26, 2004, the
Company has an outstanding balance on its line of credit for the Norwegian
subsidiary in the amount of $1,097,000 but does not have any purchase
obligations. The Company has not engaged in off-balance sheet financing,
commodity contract trading or significant related party transactions besides
the accrued amount of $257,000 to SOMDIAA related to health and retirement
plans for certain employees. Contractual Obligations
    
    
    
    
    
    Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    After 5Total
    
    Year
    
    1-3 years
    
    4-5 years
    
    yearsNotes payable  current
    
    $
    1,958,000
    
    
    $
    1,958,000
    
    
    
    
    
    
    
    
    
    
    
    Notes payable  long term
    
    
    988,000
    
    
    
    
    
    
    
    839,000
    
    
    
    149,000
    
    
    
    Capital lease
    
    
    1,327,000
    
    
    
    175,000
    
    
    
    204,000
    
    
    
    197,000
    
    
    
    751,000Operating lease
    
    
    1,345,000
    
    
    
    376,000
    
    
    
    675,000
    
    
    
    294,000
    
    
    
    
 LIQUIDITY AND OPERATIONS The
Companys cash position increased in fiscal year 2004. Assuming that there
are no significant changes to the Companys business plan, management also
anticipates generating cash flow positive results during fiscal year 2005.
Management believes that the combination of cash on hand, cash flows from
operations, available credit facilities, and outside funding if required will
provide sufficient liquidity to meet the Companys ongoing cash requirements.
With the restructuring of US operations in May 2003 and the increase in sales
in fiscal year 2004, Management has taken steps that it believes were necessary
to improve the Companys ability to meet its cash flow needs for fiscal year
2004 and thereafter. Management closely reviews the Companys operations and
plans and will implement additional cost cutting programs to reduce the
Companys operating expenses further if necessary. However, there can be no
assurance that the Company can or will obtain sufficient funds from operations
or from additional financings on terms acceptable to the Company. FUTURE PROSPECTS During fiscal year 2004, the Company continued its focus on the existing sales
channels obtaining further penetration into the airline industry, obtaining a
large portion of the market share of the passenger rail market, and gaining a
larger share of the hotel and convention center restaurant, room service, and
banquet business. The Company also focused on expanding as a retail supplier
via the in-store-deli market as well as supplier for premium frozen food
products, and also growth in the national restaurant chain and military
channels. The goal was to continue to be diversified into multiple channels so
if there is a disruption in one or more channels, the Company would not suffer
the way it did after the September 11, 2001 tragedy. The Company will
continue to focus on retail, restaurant chain, and military channels to achieve
the growth in these newer channels in fiscal year 2005. Although there was significant growth in fiscal 2004, the Company believes that
it only has a small fraction of the potential business in what the Company
considers an early adopter market for its products. The Company sees growing
demand for its products as consumers continue to demand convenience and quality
and operators do not have or cannot afford to pay the skilled workers necessary
to supply the variety and quantity of food products demanded by their
customers. The Company will continue to expand its sales efforts in the airline business
in fiscal 2005 by a continued push for new US accounts and a new focus on the
European airline market. While there are increased concerns in the market
place, management will continue to strengthen the business relationships with
most of the major airlines, passenger rail lines and harbor cruise lines
through continued value and increase in service by offering flexible solutions
upon the current demand in the industry. The Company will continue to focus its efforts on large foodservice contractors
and event planners rather than sales to individual smaller hotels. Demand for
foodservice products in the US increased significantly during fiscal 2004 and
continued growth is expected for fiscal 2005 due to the continued customer
satisfaction with the quality and variety of products offered by Cuisine
Solutions. Foodservice operators in France are forced to deal with the
thirty-five hour work week constraint and have discovered that the Cuisine
Solutions product line offers a solution to the limited availability and
higher cost of labor created as a result of the mandatory work hour rules.
Customers in the Foodservice sales channel place high value on the labor
savings, quality, consistency and food safety associated with Cuisine Solutions
product. Management believes this value increases in the current economic and
political situation challenging todays business environment. In the meantime,
Management has and will continue to initiate aggressive cost reduction programs
and product line changes to meet the changing needs of the industry. The
Company will focus on
trying new distribution methods in fiscal 2005 to improve its ability to get
its products to all the national account customers. 16




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##### 



The Retail Sales channel was formally created during fiscal year 2000 with the
objective of penetrating the In-Store Deli category of major North American
retailers. The sales channel and related growth is following a strategy plan
for large volume opportunities with high quality products. Cuisine Solutions is
providing retailers with a heat and serve program that allows supermarkets to
upgrade the variety and quality of meals offered. The Company is working with
retailers to develop the best methodology to execute larger scale roll-outs of
the program and has already introduced the idea to some of the largest
retailers in the US. The Company has also placed premium private label products
successfully into the retail industry, which is experiencing a significant
increase in frozen food sales versus the traditional demand for fresh products.
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. The US Military channel continues to be managed via a broker/distributor,
adding very little in terms of sales and administrative expenses. Sales in this
channel for fiscal 2004 did grow with the Navy, but the goal is increasing the
product penetration to other parts of the over $7 billion annual US military
food budget. The Company has been working for 1 1/2 years 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 to start in
October, 2004. There is no guarantee that the Army will purchase the items
from the Company, but the menu is scheduled to start in early fiscal 2005 and
could lead to significant growth in this channel. The Company will also
attempt to get its product on other US military menus during fiscal 2005. The Company will further pursue its role as a supplier for national restaurant
chains that have found that the Companys products quality and ease of use
makes an attractive alternative for providing promotional menu items. The
Company had significant sales growth in this channel in fiscal 2004, and has
added one additional sales person to this channel to help increase its growth
in 2005. Although the Companys products are high in 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 the
hotel and resort restaurants. ITEM 7A. 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 that change with changes in the
market. Information about the Companys investment portfolio is set forth in
Footnote 6 of Item 15 of the Form 10-k. Foreign Currency Rate Exposure: International operations constitute 41.1% of fiscal year 2004 Company sales.
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 change, translation of
the income statements of the Norway and French operations into U.S. dollars
affects year-over-year comparability of operating results. Sales that are
subject to these foreign currency fluctuations are approximately 41% of the
Companys sales. The net assets of the subsidiaries are approximately 44% 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. Information about the Companys foreign currency
translation policy is set forth in Footnote 1 of Item 15 of this Form 10-K. Sales and Marketing Risks: The future performance of the Companys efforts will depend on a number of
factors. One is the complete recovery of the travel industry, and specifically
the airlines, which have been a major source of Cuisine Solutions revenue and
formal business strategy. The others involve the introduction and roll-out of
new product lines into the Retail sector restaurant chains and the military.
Although the economic situation with the airlines is believed to be temporary,
Management cannot forecast the length and total impact of the current economic
cycle. Cuisine Solutions will position itself to provide maximum value to our
airline partners during this difficult period and remain prepared to resume
business growth when the industry recovers. Cuisine Solutions Management has
placed additional focus on the opportunities available in the retail sector and
the other channels and the success rate will be contingent upon market
acceptance of the product line, price points and execution of its marketing
strategy. 17




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##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is included at Item 15(a)(1) and (2). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None ITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures The information required under this Item 9A is shown in the Proxy Statement to
be filed under Regulation 14A, under the caption Compliance with Section 16(a)
of the Securities and Exchange Act of 1934., and such information is
incorporated herein by reference Changes in internal control over financial reporting There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date the Company carried out this evaluation. 18




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##### 



PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required under this Item 10 is shown in the Proxy Statement to
be filed under Regulation 14A, under the caption Election of Directors, and
such information is incorporated herein by reference. EXECUTIVE OFFICERS The following list and narrative sets forth the name and age of each present
executive officer of the Company, all positions held by the person with the
Company, the year in which the person first became an officer, and the
principal occupations of each person named. Name
    
    Age
    
    Office held with Company
    
    SinceStanislas Vilgrain
    
    
    45
    
    
    Chief Executive Officer
    
    
    1994Thomas L. Gregg
    
    
    40
    
    
    President, US
    
    
    2004Yuyun Tristan Kuo
    
    
    49
    
    
    Vice President of Finance and Corporate Treasurer
And Corporate Secretary
    
    
    2004Gerard Bertholon
    
    
    44
    
    
    Vice President of Sales;President of FIVELEAF
    
    
    2002
 Mr. Vilgrain was appointed Chief Executive Officer in October 1993, having
served as President and Chief Operating Officer since June 1991 and as a
director since 1991. He served as President of the Vie de France Culinary
Division from July 1987 to June 1991. Previously, he was employed by Vie de
France Corporation as Director of Staff Operations from August 1986 through
June 1987. He was Manager of the Vie de France Corporations San Francisco
bakery from January 1986 through August 1986, after having served as Assistant
Manager of the Denver bakery from July 1984 through December 1985. Prior to
joining Vie de France Corporation, he was Assistant to the Director of Research
& Development for the Bakery Division of Grands Moulins de Paris from June 1983
to July 1984, and was Regional Manager of Operations and Sales from July 1982
through May 1983 for O.F.U.P., a publication distributor in Paris, France. Mr. Gregg was appointed to President, US of Cuisine Solutions, Inc. in January
2004. Mr. Gregg previously ran his own private investment firm, MacGregor
Capital LLC from 2002  2004. During that period, Mr. Gregg served as an
Advisor and on the Advisory Board of Cuisine Solutions from January 2003 -
2004. From 1991  2001 Mr. Gregg served as CEO of 3-G International, Inc.
(3GI), a network security software company. 3GI was sold to RSA Security in
2001. Mr. Kuo was appointed Vice President of Finance in January 2004. The Board
appointed Mr. Kuo Secretary and Treasurer in March 2004. Prior to that, Mr.
Kuo was the Companys Corporate Controller since December 2002. Prior to that,
Mr. Kuo served as Vice President of Information Systems of Zinc Corporation of
America from 2001 to 2002 and CIO and Controller of Wise Metals Group, the
largest independent aluminum sheet producer in the US, from 1991 to 2001. Mr. Bertholon joined Cuisine Solutions in August 1989 as Director of Research &
Development then VP of International Sales in 1997 and VP of Marketing in
December 2000. Mr. Bertholon was appointed President for FIVELEAF in January
2002. He has over 27 years of experience and recognition in the international
foodservice industry. Prior to joining the Company, Mr. Bertholon was an
Executive Chef for 9 years in the United States. Mr. Bertholons current titles
in the Company are Corporate Chef, Vice President of Sales, and President of
FIVELEAF. CODE OF ETHICS The information required under this Item 10 is disclosed in the Proxy Statement
to be filed under Regulation 14A, under the caption Code of Ethics, and such
information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required under this Item 11 is shown in the Proxy Statement to
be filed under Regulation 14A, under the caption Executive Compensation, and
such information, except for the information required by Item 402(k) and Item
402(l) of Regulation
S-K, is incorporated herein by reference. 19




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##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this Item 12 is shown in the Proxy Statement to
be filed under Regulation 14A, under the caption Voting Securities and
Principal Holders Thereof, and such information is incorporated herein by
reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under this Item 13 is shown in the Proxy Statement to
be filed under Regulation 14A, under the caption Certain Transactions, and
such information is incorporated herein by reference. PART IV ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this Item 14 is disclosed in the Proxy Statement
to be filed under Regulation 14A, under the caption Principal Accountant Fees
and Services, and such information is incorporated herein by reference. 20




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##### 



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K (a) Index to Financial Statements Page(1) Financial StatementsReport of Independent Registered Public Accounting Firm
Grant Thornton LLP as of and for the year ended June 26,
2004, June 28, 2003 and June 29, 2002
    
    
    24Consolidated Balance Sheets  June 26, 2004 and June 28, 2003
    
    
    25Consolidated Statement of Operations  Fiscal Years
Ended June 26, 2004, June 28, 2003 and June 29, 2002
    
    
    26Consolidated Statement of Changes in Stockholders
Equity  Fiscal Years Ended June 26, 2004, June 28, 2003
and June 29, 2002
    
    
    27Consolidated Statement of Cash Flows  Fiscal Years
Ended June 26, 2004, June 28, 2003 and June 29, 2002
    
    
    28Notes to Consolidated Financial Statements
    
    
    29(2) Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    42
 All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. (3) Exhibits: The following exhibits are incorporated in this report by reference from
identically numbered exhibits to the Companys Amendment to its Annual Report
for the year ended June 27, 1992 on Form 8 dated February 26, 1993: ExhibitNo.
    
    Description of Exhibit3-A
    
    The Certificate of Incorporation of the Company, as amended to date.3-B
    
    The By-Laws of the Company, as amended to date.
 The following exhibits are incorporated in this report by reference from an
identically numbered exhibit to the Companys Annual Report on Form 10-K for
the year ended June 29, 1991: 10.46
    
    The Companys Proxy Statement for a Special
Meeting of Stockholders, dated June 7, 1991,
together with a conformed copy of the Asset
Purchase Agreement between Cuisine Solutions, Inc.
and Vie de France Bakery Yamazaki, Inc. dated May
7, 1991.
 21




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##### 



The following exhibits are incorporated in this report by reference from the
Companys two Registration Statements on Form S-8, dated April 5, 1993: 10.52
    
    The Companys 1986 Stock Option Plan, as amended.10.53
    
    The Companys 1992 Stock Option Plan.10.54
    
    The Companys 1999 Stock Option Plan.
 The following exhibits are filed as exhibits to this report in the indicated
sections. 10.55
    
    Employment Agreement of Y. Tristan Kuo dated December 15, 2003.10.56
    
    Employment Agreement of Thomas L. Gregg dated January 1, 2004.10.57
    
    Amendment No.1 to Loan Agreement with FIC
dated October 22, 2003; previously filed as Exhibit (31.10.1)
to the Companys Form 10-Q for the fiscal quarter ended
December 15, 2003, and herein incorporated by reference.10.58
    
    Loan Agreement with FIC adopted June 10, 2004.10.59
    
    Credit Agreement with Bank of Charles Town adopted June 25,2004.23
    
    Consent of Independent Accountants.31.1
    
    Written statement of Chief Executive Officer and Chief Financial Officer
pursuant to section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Written statement of Chief Executive Officer and Chief Financial Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
 (b) Exhibits: Exhibits required to be filed in response to this paragraph of Item 13 are
listed above in subparagraph (a)(3). (c) Financial Statement Schedule: Schedules and reports thereon by independent accountants required to be filed
in response to this paragraph of Item 13 are listed in Item 13(a)(2). 22




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. CUISINE SOLUTIONS, INC.
                    (Registrant)By:
    /s/ Stanislas VilgrainStanislas VilgrainChief Executive Officer
(Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Jean-Louis Vilgrain
Jean-Louis Vilgrain
    
    Chairman of the Board
    
    September 24, 2004/s/ Stanislas Vilgrain
Stanislas Vilgrain
    
    Chief Executive Officer
    
    September 24, 2004/s/ Sebastien Vilgrain
Sebastien Vilgrain
    
    Director
    
    September 24, 2004/s/ Charles McGettigan
Charles McGettigan
    
    Director
    
    September 24, 2004/s/ Robert van Roijen
Robert van Roijen
    
    Director
    
    September 24, 2004/s/ Hugues Prince
Hugues Prince
    
    Director
    
    September 24, 2004/s/ Yuyun Tristan Kuo
Yuyun Tristan Kuo
    
    VP of Finance, Treasurer
and Corporate Secretary (Principal
Financial and Accounting Official)
    
    September 24, 2004
 23




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##### 



Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
CUISINE SOLUTIONS, INC.: We have audited the accompanying consolidated balance sheets of Cuisine
Solutions, Inc., and subsidiaries as of June 26, 2004 and June 28, 2003, and
the related consolidated statements of operations, changes in stockholders
equity and cash flows for each of the three years in the period ended June 26,
2004. In connection with our audits of the consolidated financial statements we
also have audited the financial statement schedule for each of the three years
in the period ended June 26, 2004 as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits. We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cuisine Solutions,
Inc., and subsidiaries as of June 26, 2004 and June 28, 2003, and the results
of their operations, and their cash flows for each of the three years in the
period ended June 26, 2004, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule for each of the three years in the period ended
June 26, 2004, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. GRANT THORNTON LLP Vienna, Virginia
September 14, 2004 24




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##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS June 26,
    
    June 28,2004
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,491,000
    
    
    $
    1,357,000Trade accounts receivable, net
    
    
    3,837,000
    
    
    
    3,479,000Inventory
    
    
    5,641,000
    
    
    
    4,056,000Prepaid expenses
    
    
    140,000
    
    
    
    450,000Notes receivable, related party
    
    
    58,000
    
    
    
    32,000Other current assets
    
    
    390,000
    
    
    
    450,000TOTAL CURRENT ASSETS
    
    
    11,557,000
    
    
    
    9,824,000Investments, non current
    
    
    1,114,000
    
    
    
    1,331,000Fixed assets, net
    
    
    4,993,000
    
    
    
    5,264,000Other assets
    
    
    46,000
    
    
    
    9,000TOTAL ASSETS
    
    $
    17,710,000
    
    
    $
    16,428,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    
    2,133,000
    
    
    
    1,970,000Accounts payable and accrued expenses
    
    
    5,438,000
    
    
    
    3,950,000Accrued payroll and related liabilities
    
    
    1,427,000
    
    
    
    1,351,000Total current liabilities
    
    
    8,998,000
    
    
    
    7,271,000Long-term debt, less current portion
    
    
    2,140,000
    
    
    
    1,691,000TOTAL LIABILITIES
    
    
    11,138,000
    
    
    
    8,962,000Commitments and Contingencies
    
    
    
    
    
    
    Stockholders equityCommon stock  $.01 par value, 20,000,000 shares authorized,
15,834,788 and 15,824,788 shares issued and outstanding
at June 26, 2004 and June 28, 2003, respectively.
    
    
    159,000
    
    
    
    159,000Class B Stock  $.01 par value, 175,000 shares authorized,
none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    26,380,000
    
    
    
    26,284,000Accumulated deficit
    
    
    (20,490,000
    )
    
    
    (19,486,000
    )Accumulated Other Comprehensive IncomeUnrealized gain on debt and equity investments
    
    
    17,000
    
    
    
    59,000Cumulative translation adjustment
    
    
    506,000
    
    
    
    450,000TOTAL STOCKHOLDERS EQUITY
    
    
    6,572,000
    
    
    
    7,466,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    17,710,000
    
    
    $
    16,428,000
 See accompanying notes to consolidated financial statements. 25




---



##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS Year EndedJune 26,
    
    June 28,
    
    June 29,2004
    
    2003
    
    2002Net sales
    
    $
    36,721,000
    
    
    $
    27,812,000
    
    
    $
    28,616,000Cost of goods sold
    
    
    28,795,000
    
    
    
    22,875,000
    
    
    
    23,928,000Gross margin
    
    
    7,926,000
    
    
    
    4,937,000
    
    
    
    4,688,000Selling and administration
    
    
    8,665,000
    
    
    
    8,757,000
    
    
    
    8,702,000Depreciation and amortization
    
    
    169,000
    
    
    
    257,000
    
    
    
    377,000Impairment of FIVELEAF asset
    
    
    
    
    
    
    
    
    
    
    619,000Other operating income
    
    
    (32,000
    )
    
    
    (55,000
    )
    
    
    (66,000
    )Loss from operations
    
    
    (876,000
    )
    
    
    (4,022,000
    )
    
    
    (4,944,000
    )Non operating income (expense)Investment income
    
    
    66,000
    
    
    
    143,000
    
    
    
    172,000Interest expense
    
    
    (211,000
    )
    
    
    (263,000
    )
    
    
    (195,000
    )Loss in equity from investment in Brazil
    
    
    
    
    
    
    
    
    
    
    (997,000
    )Other income (expense)
    
    
    35,000
    
    
    
    66,000
    
    
    
    (49,000
    )Total non-operating income (expense)
    
    
    (110,000
    )
    
    
    (54,000
    )
    
    
    (1,069,000
    )Loss before income taxes
    
    
    (986,000
    )
    
    
    (4,076,000
    )
    
    
    (6,013,000
    )Provision for income tax expense
    
    
    (18,000
    )
    
    
    (16,000
    )
    
    
    (14,000
    )Net loss
    
    $
    (1,004,000
    )
    
    $
    (4,092,000
    )
    
    $
    (6,027,000
    )Basic and diluted net loss per common share:Net loss per common share
    
    $
    (0.06
    )
    
    $
    (0.26
    )
    
    $
    (0.38
    )Weighted average shares outstanding
    
    
    15,827,755
    
    
    
    15,824,788
    
    
    
    15,824,588
 See accompanying notes to consolidated financial statements. 26




---



##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY Retained
    
    
    
    
    
    Unrealized GainsAdditional
    
    Earnings
    
    Cumulative
    
    (Losses) on Debt
    
    
    
    
    
    TotalCommon
    
    Paid-In
    
    (Accumulated
    
    Translation
    
    and Equity
    
    Treasury
    
    Stockholders'Stock
    
    Capital
    
    Deficit)
    
    Adjustment
    
    Investments
    
    Stock
    
    EquityBalance, June 30, 2001
    
    $
    157,000
    
    
    $
    28,333,000
    
    
    $
    (9,367,000
    )
    
    $
    (455,000
    )
    
    $
    (107,000
    )
    
    $
    (2,047,000
    )
    
    $
    16,514,000Issuance of unregistered
common stock
    
    $
    2,000
    
    
    $
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and treasury shares
    
    
    
    
    
    
    (2,047,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,047,000
    
    
    
    2002 net loss
    
    
    
    
    
    
    
    
    
    
    (6,027,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,027,000
    )Other Comprehensive IncomeUnrealized gains on debt
and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,000
    
    
    
    
    
    
    
    117,000Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552,000
    
    
    
    
    
    
    
    
    
    
    
    552,000Other ComprehensiveIncome/(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    669,000Comprehensive Income/(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,358,000
    )Balance, June 29, 2002
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (15,394,000
    )
    
    $
    97,000
    
    
    $
    10,000
    
    
    $
    
    
    
    $
    11,156,0002003 net loss
    
    
    
    
    
    
    
    
    
    
    (4,092,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,092,000
    )Other Comprehensive Income
Unrealized gains on debt
and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,000
    
    
    
    
    
    
    
    49,000Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,000
    
    
    
    
    
    
    
    
    
    
    
    353,000Other ComprehensiveIncome/(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402,000Comprehensive Income/(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,690,000
    )Balance, June 28, 2003
    
    $
    159,000
    
    
    $
    26,284,000
    
    
    $
    (19,486,000
    )
    
    $
    450,000
    
    
    $
    59,000
    
    
    $
    
    
    
    $
    7,466,000Exercise of common stock options
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000Stock-based compensation
    
    
    
    
    
    
    89,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,0002004 net loss
    
    
    
    
    
    
    
    
    
    
    (1,004,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,004,000
    )Other Comprehensive IncomeUnrealized losseson debt
and equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,000
    )
    
    
    
    
    
    
    (42,000
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,000
    
    
    
    
    
    
    
    
    
    
    
    56,000Other ComprehensiveIncome/(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,000Comprehensive Income/(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (990,000
    )Balance, June 26, 2004
    
    $
    159,000
    
    
    $
    26,380,000
    
    
    $
    (20,490,000
    )
    
    $
    506,000
    
    
    $
    17,000
    
    
    $
    
    
    
    $
    6,572,000
 See accompanying notes to consolidated financial statements. 27




---



##### 



CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS Year EndedJune 26,
    
    June 28,
    
    June 29,2004
    
    2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,004,000
    )
    
    $
    (4,092,000
    )
    
    $
    (6,027,000
    )Adjustments to reconcile net loss to net cash (used) provided
by operating activitiesDepreciation and amortization
    
    
    952,000
    
    
    
    1,007,000
    
    
    
    1,255,000Loss (Gain) on sale of investments
    
    
    3,000
    
    
    
    (67,000
    )
    
    
    Loss in equity from investment in Brazil
    
    
    
    
    
    
    
    
    
    
    944,000Stock based compensation
    
    
    89,000
    
    
    
    
    
    
    
    Changes in assets and liabilities, net of
effects of non-cash transactions:(Increase) decrease in trade accounts receivable, net
    
    
    (358,000
    )
    
    
    (207,000
    )
    
    
    1,644,000(Increase) decrease in inventory
    
    
    (1,585,000
    )
    
    
    363,000
    
    
    
    1,982,000Decrease (increase) in prepaid expenses
    
    
    310,000
    
    
    
    (159,000
    )
    
    
    5,000(Increase) decrease in notes receivable, related party
    
    
    (26,000
    )
    
    
    11,000
    
    
    
    417,000Decrease in other assets
    
    
    23,000
    
    
    
    26,000
    
    
    
    849,000Increase in accounts payable
and accrued expenses
    
    
    1,488,000
    
    
    
    1,139,000
    
    
    
    45,000Increase in accrued payroll and related liabilities
    
    
    76,000
    
    
    
    45,000
    
    
    
    410,000Decrease in other accrued taxes
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Net cash (used) provided by operating activities
    
    
    (32,000
    )
    
    
    (1,934,000
    )
    
    
    1,521,000CASH FLOWS FROM INVESTING ACTIVITIESSale of investments
    
    
    172,000
    
    
    
    1,393,000
    
    
    
    Capital expenditures
    
    
    (681,000
    )
    
    
    (1,150,000
    )
    
    
    (1,230,000
    )Net cash (used) provided by investing activities
    
    
    (509,000
    )
    
    
    243,000
    
    
    
    (1,230,000
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock
    
    
    7,000
    
    
    
    
    
    
    
    Borrowings on notes payable
    
    
    1,322,000
    
    
    
    1,309,000
    
    
    
    691,000Payments on notes payable
    
    
    (710,000
    )
    
    
    (572,000
    )
    
    
    (349,000
    )Net cash provided by financing activities
    
    
    619,000
    
    
    
    737,000
    
    
    
    342,000Net increase (decrease) in cash and cash equivalents
    
    
    78,000
    
    
    
    (954,000
    )
    
    
    633,000Effect of exchange rate on cash
    
    
    56,000
    
    
    
    353,000
    
    
    
    552,000Cash and cash equivalents, beginning of period
    
    
    1,357,000
    
    
    
    1,958,000
    
    
    
    773,000CASH and CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,491,000
    
    
    $
    1,357,000
    
    
    $
    1,958,000SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during the year for:Interest
    
    $
    111,000
    
    
    $
    263,000
    
    
    $
    196,000Income taxes, net
    
    $
    
    
    
    $
    
    
    
    $
    Non-cash activitiesEquipment purchased under capital lease
    
    $
    
    
    
    $
    152,000
    
    
    $
    87,000Unrealized (loss) gain on debt and equity investments
    
    $
    (42,000
    )
    
    $
    49,000
    
    
    $
    117,000
 See accompanying notes to consolidated financial statements 28




---



##### 



CUISINE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company develops, produces and markets chef-created fully cooked, fully
prepared entrees and sauces for the banquet, airline, passenger rail service,
retail, military and restaurant industries. The Company services the airlines in both the US and Europe. The Norwegian and
French facilities distribute product throughout Europe servicing the
Foodservice customers through distributors and Cuisine Solutions France, a
French manufacturer and distributor of sous-vide products. Norway production
supplies most salmon sales in the US and France. PRINCIPLES OF CONSOLIDATION The financial statements include the accounts of Cuisine Solutions, Inc. and
its subsidiaries, Cuisine Solutions Norway (CSI Norway) and Cuisine Solutions
France, (collectively the Company). All significant inter-company
transactions have been eliminated in the financial statements. The consolidated financial statements include 100% of the assets, liabilities,
revenues, expenses, income, loss and cash flows of Cuisine Solutions, Inc. and
all companies in which Cuisine Solutions, Inc. has a controlling voting
interest (subsidiaries), as if Cuisine Solutions, Inc. and its subsidiaries
were a single company. Significant inter-company accounts and transactions
between the consolidated companies have been eliminated. Investments in companies in which Cuisine Solutions, Inc. has significant
influence, but less than a controlling voting interest, are accounted for using
the equity method. Under the equity method, only Cuisine Solutions, Inc.
investment in and amounts due to and from the equity investee are included in
the consolidated balance sheet; only Cuisine Solutions, Inc.s share of the
investees earnings is included in the consolidated operating results; and only
the dividends, cash distributions, loans other cash received from the investee,
less any additional cash investments, loan repayments or other cash paid to the
investee, are included in the consolidated cash flows. The Companys
investment in Cuisine Solutions do Brasil Ltda was written-off in 2002 (see
also Note 14). Currently, the Company has no other equity method investments. FISCAL YEAR The Company utilizes a 52/53 week fiscal year which ends on the last Saturday
in June. USE OF 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 and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. REVENUE RECOGNITION The Company recognizes revenue at the time products are shipped to its
customers, with the exception of some of its United States airline
distributors. For U.S. airline distributors that purchase salmon products
directly from the Companys Norway facility, the Company recognizes revenue
when the customer receives the products. SEGMENT REPORTING The Company operates only in one business segment, the Food Service Industry. CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with original maturities
of three months or less. As of June 26, 2004 and June 28, 2003, $927,000 and $1,067,000 respectively
were held in foreign financial institutions. 29




---



##### 



INVESTMENTS Investment securities consist of U.S. Treasury, mortgage-backed instruments,
corporate debt and equity securities. The Company has classified its
investments as available-for-sale. Securities classified as available for
sale include securities which could be sold in response to changes in interest
rates or for general liquidity needs. Such securities are carried at estimated
fair value with unrealized gains or losses recorded as a Other Comprehensive
Income in the Statement of Stockholders Equity. The specific identification
method is used to record gains and losses on investment transactions. INVENTORY 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. At the end of fiscal year 2004, the Company had inventory reserves of $162,000. FIXED ASSETS Machinery, equipment, furniture and fixtures are depreciated using the
straight-line method over estimated useful lives which range from two to ten
years. Leasehold improvements are amortized using the straight-line method over
the shorter of the term of the leases which range from four to twenty years, or
the estimated useful life of the improvement. Expenditures for maintenance and repairs are charged to expense, and
significant improvements are capitalized. Maintenance and repairs charged to
expense approximated $512,000 in 2004, $398,000 in 2003 and $362,000 in 2002. Included in fixed assets are assets located in Europe, totaling approximately
$3,415,000 and $3,492,000 as of June 26, 2004 and as of June 28, 2003,
respectively. WEB SITE DEVELOPMENT COSTS The Company capitalizes web site development costs in accordance with EITF 00-2
Accounting Web Site Development Costs and therefore adopted AICPA SOP No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, as the company plans to use the web site internally. SOP No. 98-1
requires that certain external costs and internal payroll and payroll-related
costs be capitalized during the application development and implementation
stages of a software development project and amortized over the softwares
useful life. Training and research and development costs are to be expensed as
incurred. In fiscal 2004, the company modified its website.
Approximately $23,000 was capitalized as a result of such
modifications and is being amortized over 3 years. SHIPPING AND HANDLING COSTS Shipping and handling costs are expensed when incurred and are classified as
cost of goods sold in the accompanying income statement. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred and totaled $261,000,
$240,000, and $395,000 for the years ended June 26, 2004, June 28, 2003, and
June 29, 2002, respectively. These expenses were included in the Selling and
Administration expenses in the financial statements. INCOME AND OTHER TAXES The Company computes income taxes using the asset and liability method whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is established
against such assets where management is unable to conclude more likely than not
that such asset will be realized. 30




---



##### 



IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 144, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(Statement 144), on June 29, 2002 (fiscal year 2002). Statement 144 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amounts of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. In fiscal year 2002, the Company
recorded an impairment charge of $619,000 relating to capitalized web site
development costs of FIVELEAF.com. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for employee stock option grants using the intrinsic
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 only 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 using 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
changed to the following pro forma amounts: June 26,
    
    June 28,
    
    June 29,2004
    
    2003
    
    2002Net loss applicable to common shareholders
    
    $
    (1,004,000
    )
    
    $
    (4,092,000
    )
    
    $
    (6,027,000
    )Add: Stock-based employee compensation cost,Net of taxes, included in reported net loss
    
    
    89,000
    
    
    
    
    
    
    
    Less: Total stock-based compensation expense
determined under the fair value method
    
    $
    (72,000
    )
    
    $
    (171,000
    )
    
    $
    (193,000
    )Pro forma net loss
    
    $
    (987,000
    )
    
    $
    (4,263,000
    )
    
    $
    (6,220,000
    )Earnings per common share:Basic and diluted  as reported
    
    $
    (0.06
    )
    
    $
    (0.26
    )
    
    $
    (0.38
    )Basic and diluted  pro forma
    
    $
    (0.06
    )
    
    $
    (0.27
    )
    
    $
    (0.39
    )Weighted average common shares outstanding:Basic and diluted
    
    
    15,827,755
    
    
    
    15,824,788
    
    
    
    15,824,588
 EARNINGS PER SHARE Basic earnings (loss) per common share are computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per common share also include common stock
equivalents outstanding during the period if dilutive. The Company had
1,979,241 common stock equivalents, primarily stock options, for the year ended
June 24, 2004. For the fiscal years ended June 26, 2004, June 28, 2003 and
June 29, 2002, the assumed exercise of the Companys common stock equivalents
are not included in the calculation as the effect would be anti-dilutive. FOREIGN CURRENCY TRANSLATION The statements of operations of the Companys Norwegian and French subsidiaries
(the Subsidiaries) have been translated to U.S. dollars using the average
currency exchange rates in effect during the year. The Subsidiaries balance
sheet has been translated using the currency exchange rate as of the end of the
fiscal year. The impact of currency exchange rate changes on the translation of
the Subsidiarys balance sheet is reflected as a component of Other
Comprehensive Income (Loss) in the Statement of Changes in stockholders
equity. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
(Statement 130). Statement 130 establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
The Company adopted the provisions of the statement during fiscal year 1999.
Components of other comprehensive income include foreign currency translation
gains and losses and unrealized gains and losses on debt and equity securities.
Comprehensive income is shown on the consolidated statement of changes in
stockholders equity. 31




---



##### 



FAIR VALUE OF FINANCIAL INSTRUMENTS Under Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, effective for fiscal years that end after
December 15, 1996, the Company is required to provide fair value disclosures of
its financial instruments. The Company estimates the fair value of its
financial instruments using the following methods and assumptions: (1) quoted
market prices, when available, are used to estimate the fair value of
investments in marketable debt and equity securities; (2) carrying amounts in
the balance sheet approximate fair value for cash, notes receivable and short
term borrowings. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. FIN No. 46 addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
primary economic beneficiary as a result of their variable economic interests.
Currently the Company has no variable interest entities, and therefore the adoption FIN No. 46
did not have a material impact on the Companys financial statements. In April 2003, FASB issued SFAS 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS 149 amends and clarifies accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 149 is generally effective
for derivative instruments, including derivative instruments embedded in
certain contracts, entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. Currently the
Company has no derivative
instruments, and therefore the adoption of SFAS 149 did not have a material
impact on the Companys financial position or results of operations. In May 2003, FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that those
instruments be classified as liabilities (or assets in certain circumstances)
in statements of financial position. SFAS 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities all of whose shares are mandatory redeemable. SFAS 150 is generally
effective for all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Currently the Company has no financial instruments with
characteristics of both liabilities and equity, and therefore the adoption of
SFAS 150 did not have a material impact on the Companys financial position or
results of operations. NOTE 2  LIQUIDITY AND OPERATIONS The Company held cash and short-term investments of $1,491,000 and $1,357,000
at June 26, 2004 and June 28, 2003 respectively. Additionally, the Company held
long term investments of $1,114,000 and $1,331,000 at June 26, 2004 and June
28, 2003 respectively. Long term investments of $1,114,000 and $25,000 cash in
deposit secure the overdraft credit facility of the Norwegian subsidiary at
June 26, 2004. The Company experienced a minor decrease in its liquidity in fiscal year 2004
as the Company planned its higher inventory level to meet the demand from the
increased sales. The inventory and accounts receivable increases coincided with
the increase in accounts payable. The turnover of such inventory and
collection of related receivables should result in an improved cash position in
2005. The
Companys cash position increased in fiscal year 2004. Assuming that there
are no significant changes to the Companys business plan, management also
anticipates generating cash flow positive results during fiscal year 2005.
Management believes that the combination of cash on hand, cash flows from
operations, available credit facilities, and if required outside funding will
provide sufficient liquidity to meet the Companys ongoing cash requirements.
With the restructuring of US operations in May 2003 and the increase in sales
in fiscal year 2004, Management has taken steps that it believes were necessary
to improve the Companys ability to meet its cash flow needs for fiscal year
2004 and thereafter. Management closely reviews the Companys operations and
plans and will implement additional cost cutting programs to reduce the
Companys operating expenses further if necessary. However, there can be no
assurance that the Company can or will obtain sufficient funds from operations
or from additional financings on terms acceptable to the Company. 32




---



##### 



NOTE 3  ACCOUNTS RECEIVABLE Accounts Receivable consisted of: June 26, 2004
    
    June 28, 2003TRADE ACCOUNTS RECEIVABLE
    
    $
    3,905,000
    
    
    $
    3,541,000ALLOWANCE FOR DOUBTFUL ACCOUNTS
    
    
    (68,000
    )
    
    
    (62,000
    )TRADE ACCOUNTS RECEIVABLE, NET
    
    $
    3,837,000
    
    
    $
    3,479,000
 The Company provides allowances for estimated credit losses, product returns,
spoilage, and adjustments at a level deemed appropriate to adequately provide
for known and inherent risks related to such accounts. The allowances are based
on reviews of individual accounts by customer, their financial conditions, and
other factors that deserve recognition in estimating potential losses. While
management uses the best information available in making its determination, the
ultimate recovery of recorded accounts, notes, and other receivables is also
dependent on future economic and other conditions that may be beyond
managements control. NOTE 4  INVENTORY Inventory consisted of the following: June 26, 2004
    
    June 28, 2003RAW MATERIAL
    
    $
    1,663,000
    
    
    $
    1,140,000FROZEN PRODUCT & OTHER FINISHED GOODS
    
    
    3,409,000
    
    
    
    2,892,000PACKAGING
    
    
    731,000
    
    
    
    449,0005,803,000
    
    
    
    4,481,000LESS OBSOLESCENCE RESERVE
    
    
    (162,000
    )
    
    
    (425,000
    )$
    5,641,000
    
    
    $
    4,056,000
 NOTE 5  FIXED ASSETS The components of fixed assets were as follows: June 26, 2004
    
    June 28, 2003LAND
    
    $
    108,000
    
    
    $
    102,000BUILDING
    
    
    2,537,000
    
    
    
    2,385,000BUILDING UNDER CAPITAL LEASE
    
    
    1,838,000
    
    
    
    1,699,000MACHINERY & EQUIPMENT
    
    
    12,303,000
    
    
    
    11,707,000MACHINERY & EQUIPMENT UNDER CAPITAL LEASE
    
    
    592,000
    
    
    
    556,000LEASEHOLD IMPROVEMENTS
    
    
    2,323,000
    
    
    
    2,323,000FURNITURES & FIXTURES
    
    
    232,000
    
    
    
    232,000COMPUTER SOFTWARE
    
    
    1,088,000
    
    
    
    1,041,000CONSTRUCTION IN PROGRESS
    
    
    20,000
    
    
    
    18,00021,041,000
    
    
    
    20,063,000LESS ACCUMULATED DEPRECIATION AND AMORTIZATION
    
    
    (15,053,000
    )
    
    
    (13,829,000
    )LESS ACCUMULATED AMORTIZATION ON CAPITAL LEASES
    
    
    (995,000
    )
    
    
    (970,000
    )$
    4,993,000
    
    
    $
    5,264,000
 33




---



##### 



NOTE 6  INVESTMENTS The Companys investments are classified as available-for-sale. These
securities are carried at estimated fair value and unrealized gains and losses
are reported as a component of Other Comprehensive Income in the Statement of
Changes in stockholders equity. During fiscal year 2004, the Company realized
gains of $3,000 on the sale of investments. At June 26, 2004, the Companys
long-term investments secure a letter of credit from the U.S. operations
banking institution to collateralize the overdraft facility of the Companys
Norwegian subsidiary with Den norske Bank. The following is a summary of the Companys investments at June 26, 2004: ESTIMATEDUNREALIZED
    
    
    
    FAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUEU.S. Government agencies
    
    $
    953,000
    
    
    $
    15,000
    
    
    $
    
    
    
    $
    968,000Corporate debt
    
    
    143,000
    
    
    
    2,000
    
    
    
    
    
    
    
    146,000Total investments
    
    $
    1,096,000
    
    
    $
    17,000
    
    
    $
    
    
    
    $
    1,114,000
 The following is a summary of the Companys investments at June 28, 2003: UNREALIZED
    
    ESTIMATEDFAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUEU.S. Government agencies
    
    $
    953,000
    
    
    $
    77,000
    
    
    $
    
    
    
    $
    1,030,000Corporate debt
    
    
    319,000
    
    
    
    
    
    
    
    (18,000
    )
    
    
    301,000Total investments
    
    $
    1,272,000
    
    
    $
    77,000
    
    
    $
    (18,000
    )
    
    $
    1,331,000
 NOTE 7  DEBT Debt, at June 26, 2004 and June 28, 2003 was as follows: 2004
    
    2003PRINCIPAL
    
    PRINCIPALLENDER
    
    DESCRIPTION
    
    MATURITY
    
    OUTSTANDING
    
    OUTSTANDINGDen norske Bank
    
    Overdraft Facility
    
    Six months, renewable
    
    $
    1,097,000
    
    
    $
    1,534,000SND
    
    Term Loan
    
    February 1, 2006
    
    
    77,000
    
    
    
    108,000Hjelmeland Kommune
    
    Capital Lease
    
    June 1, 2014
    
    
    1,196,000
    
    
    
    1,221,000CDN
    
    Term Loan
    
    September 25, 2003
    
    
    -
    
    
    
    33,000NORBAIL
    
    Capital Lease
    
    November 20, 2005
    
    
    131,000
    
    
    
    238,000CDN
    
    Term Loan
    
    October 22, 2012
    
    
    202,000
    
    
    
    207,000BNP Paribas
    
    Term Loan
    
    March 6, 2008
    
    
    277,000
    
    
    
    320,000Emprunt CIN 57 KE
    
    Term Loan
    
    June 15, 2008
    
    
    69,000
    
    

FIC
    
    Term Loan
    
    October 22, 2004
    
    
    424,000
    
    

FIC
    
    Term Loan
    
    December 10, 2004
    
    
    300,000
    
    

FRC
    
    Term Loan
    
    November 10, 2006
    
    
    500,000
    
    

Total
Less current portion
    
    
    4,273,000
2,133,000
    
    
    
    3,661,000
1,970,000Non-current portion
    
    $
    2,140,000
    
    
    $
    1,691,000
 The Company believes that the carrying values of the amounts outstanding under
the above debt instruments approximate fair value based upon their maturity
dates and interest rates that approximate market rates for such debt
instruments. The Companys Norwegian subsidiary secured a working capital commitment for its
liquidity needs in Norway in the form of an overdraft facility from Den norske
Bank (DnB). Borrowings under the overdraft facility are limited to a maximum
of $1,097,000, with a floating interest rate equal to the prevailing Norwegian
overnight funds rate plus two percentage points. The Den norske Bank overdraft
facility interest rate at June 26, 2004 and June 28, 2003 was 4.0% and 6.6%,
respectively. The overdraft facility is secured by a letter of credit posted by
the U.S. operations banking institution that is renewed semi-annually. The
letter of credit is secured by $1,114,000 in long-term investments and $25,000
in cash deposit at June 26, 2004. 34




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##### 



Statens Narings-OgDistriktutvikiingsfond (SND), a governmental development
agency in Norway, issued to CSI Norway, an eight-year term loan that requires
the Company to continue to operate its plant facility. The loan has a variable
interest rate which at June 26, 2004 and June 28, 2003 was 5.9 % and 6.5%,
respectively, and is required to be repaid through sixteen semi-annual payments
of principal and interest which began August 1, 1996 and end on February 1,
2006. The Norwegian subsidiary entered into a twenty-year capital lease obligation
with an initial principal amount of $1,205,000 and with quarterly payments of
$36,000, including principal and interest. At the end of the lease term,
ownership of the facility will transfer to the Norwegian subsidiary. The
Company has issued no guarantees with respect to this lease. In December 2000, Cuisine Solutions France entered into a five-year capital
lease obligation with an initial principal amount of $435,000 and with monthly
payments of $10,400 for the first year, $9,565 for the second year and $8,321
for the third and fourth year with 6% per annum interest on the outstanding
balance of the loan. The lease is related to a cooking machine which can be
purchased at a bargain price at the end of the lease term. The current portion
of this loan is $98,000 and the total outstanding principal balance amounts to
$131,000 at June 26, 2004. In October 2002, Cuisine Solutions France entered into a ten year term loan
with Credit du Nord (CDN) to finance the acquisition of land and a building
for a distribution plant in the amount of 190,000 ($231,000). This loan bears
interest of 5.7% and is due in October 2012. The current portion of this loan
is $18,000 and the total outstanding principal amounts to $202,000 at June 26,
2004. In March 2003, Cuisine Solutions France entered into a five year term loan with
BNP Paribas, a French based international commercial bank, to further expand
the facility in the amount of 280,000 ($340,000). This loan bears interest of
3.3% and the total outstanding principal amounts to $277,000 at June 26, 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 $69,000 at June 26, 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 $424,000 at June 26, 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. In June 10, 2004, the Company
entered into an additional $300,000 six month working capital loan with Food
Investors Corporation (FIC). The loan bears interest of 6% per annum,
payable at maturity, and will mature on December 10, 2004. The outstanding
balance principal was $300,000 at June 26, 2004. FIC and FRC are 100 percent
owned by Cuisine Solutions majority shareholder, the JLV group. Debt maturities during the next five fiscal years on an aggregate basis at June
26, 2004 were as follows: 2005
    
    $
    2,133,0002006
    
    
    303,0002007
    
    
    740,0002008
    
    
    244,0002009
    
    
    110,000Thereafter
    
    
    743,000Total
    
    $
    4,273,000
 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 will be secured by
the Companys US accounts receivable and inventory and further guaranteed with
a real estate owned by Food Investors Corporation (FIC). This line of credit
bears an interest rate of 0.5% over the prime interest rate. NOTE 8  STOCKHOLDERS EQUITY The Companys capital stock is comprised of two classes: Common Stock and Class
B Stock. The Class B Stock, which is reserved for issuance to employees under
stock option plans, is identical in all respects to the Common Stock except
that the holders thereof have no voting rights unless otherwise required by
law. There are no shares of Class B Stock outstanding. 35




---



##### 



NOTE 9  INCOME TAXES The composition of the provision for income taxes attributable to operations
was: Year EndedJune 26, 2004
    
    June 28, 2003
    
    June 29, 2002Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    Foreign
    
    
    18,000
    
    
    
    16,000
    
    
    
    14,000State
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    
    16,000
    
    
    
    3,000Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Income tax expense(benefit)
    
    $
    18,000
    
    
    $
    16,000
    
    
    $
    14,000
 The differences between amounts computed by applying the statutory federal
income tax rates to income from operations and the total income tax benefit
applicable to operations were as follows: Year EndedJune 26, 2004
    
    June 28, 2003
    
    June 29, 2002Federal tax benefit at statutory rates
    
    $
    (238,000
    )
    
    $
    (1,209,000
    )
    
    $
    (2,072,000
    )Income (Loss) from foreign operations
    
    
    (103,000
    )
    
    
    (202,000
    )
    
    
    22,000State income taxes, net
    
    
    (60,000
    )
    
    
    (249,000
    )
    
    
    (362,000
    )France minimum taxes
    
    
    18,000
    
    
    
    16,000
    
    
    
    14,000Period effect of change in valuation allowance
    
    
    387,000
    
    
    
    1,764,000
    
    
    
    2,267,000Permanent differences
    
    
    13,000
    
    
    
    (104,000
    )
    
    
    8,000Other, net
    
    
    1,000
    
    
    
    
    
    
    
    137,000Total
    
    $
    18,000
    
    
    $
    16,000
    
    
    $
    14,000
 Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant components of deferred tax assets are as follows: Year EndedJune 26, 2004
    
    June 28, 2003Deferred Tax AssetsNet operating loss carryforward: USA
    
    $
    5,875,000
    
    
    $
    5,502,000Net operating loss carryforward: Norway
    
    
    1,220,000
    
    
    
    955,000Net operating loss carryforward: France
    
    
    744,000
    
    
    
    887,000Capital Loss carryforward
    
    
    141,000
    
    
    
    141,000Foreign other
    
    
    74,000
    
    
    
    74,000Inventory adjustment
    
    
    124,000
    
    
    
    220,000Basis difference in investments
    
    
    755,000
    
    
    
    732,000Property and equipment
    
    
    330,000
    
    
    
    344,000Other
    
    
    81,000
    
    
    
    102,000Total deferred tax assets
    
    
    9,344,000
    
    
    
    8,957,000Less valuation allowance
    
    
    (9,344,000
    )
    
    
    (8,957,000
    )Net deferred tax assets
    
    
    
    
    
    
    Deferred tax liabilities
    
    
    
    
    
    
    Net deferred income tax
    
    $
    
    
    
    $
    
 36




---



##### 



The Company has provided a valuation allowance against its deferred tax assets
since the realization of these tax benefits cannot be reasonably assured. The
net changes in total valuation allowance for the years ended June 26, 2004 and
June 28, 2003 were an increase of $387,000 and $1,764,000, respectively. The
portions of the valuation allowance for which subsequently recognized tax
benefits will increase shareholders equity was $8,000. The foreign net operating loss carry-forward can only be used to offset taxable
income in the country where the carry-forward was generated. These operating
loss carry-forwards are available to offset future foreign income, if any,
through 2014. At June 26, 2004, the Company has net operating loss carry-forwards for US
federal and state income tax purposes of $14,688,000 which are available to
offset future federal and state taxable income, if any, through 2024. NOTE 10  EMPLOYEE BENEFITS The Company sponsors a qualified employee savings plan under which employees
who meet certain minimum age and service requirements are eligible to
participate. The Company matches one-third of the first 6% of eligible
employees voluntary contributions to the plan. The Company expensed $25,050,
$26,230 and $29,726 in fiscal years 2004, 2003 and 2002, respectively, for
contributions to the savings and profit sharing plan. In fiscal year 1994, the Company implemented a non-qualified employee savings
plan under which senior management employees were eligible to participate. The
Company matches one-third of the first 6% of eligible employees voluntary
contributions to the plan. The Companys matching contribution is limited to 6%
of the combined contributions into both the qualified and the non-qualified
plan. The Company expensed $1,410, $3,352, and $7,562 for fiscal year 2004,
2003 and 2002 respectively. The Company eliminated this plan in fiscal 2004,
liquidated the investments, and returned the proceeds to the participants. The Company expensed $30,000, $216,000 and $78,400 for a separate health and
retirement plan for the President of the Company and two other non-Officer but
key employees in fiscal years 2004, 2003 and 2002 respectively. The amount
expensed in fiscal year 2003 included coverage for previous years benefits
after all related costs were identified during fiscal year 2004. We refer to
Transactions with related Parties for further disclosure of these benefits. During fiscal year 1993, the Company established, upon stockholder approval,
the 1992 Stock Option Plan which provides for up to 300,000 shares of the
Companys Common Stock to be made available to employees at various prices as
established by the Board of Directors at the date of grant. During fiscal year
1997 the Company amended its 1992 Stock Option Plan to increase the number of
shares in its plan from 300,000 to 1,300,000. During fiscal year 1998 the
Company amended its 1992 Stock Option Plan to increase the number of shares in
its plan from 1,300,000 to 1,753,000 upon majority shareholder approval. During fiscal year 2000, the Company adopted the 1999 stock option plan that
which provides for up to 2,600,000 shares of the Companys Common Stock to be
made available to employees and directors at various prices as established by
the Board of Directors of the Company. As of June 26, 2004, there are 457,884
shares are available for future option grants under the plans. The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2004, 2003 and 2002 as follows: June 26, 2004
    
    June 28, 2003
    
    June 29, 2002Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Risk-free interest rate
    
    
    4.5
    %
    
    
    4.3
    %
    
    
    4.6
    %Expected life (in years)
    
    
    10
    
    
    
    6
    
    
    
    6Expected volatility
    
    
    96
    %
    
    
    116
    %
    
    
    108
    %
 37




---



##### 



The following summarizes stock option activity under all of the Companys
plans: 2004
    
    2003
    
    2002WEIGHTED-AVERAGE
    
    
    
    
    
    WEIGHTED-AVERAGE
    
    
    
    
    
    WEIGHTED-AVERAGEFIXED OPTIONS
    
    SHARES
    
    EXERCISE PRICE
    
    SHARES
    
    EXERCISE PRICE
    
    SHARES
    
    EXERCISE PRICEOUTSTANDING AT BEGINNING OF YEAR
    
    
    1,914,500
    
    
    
    1.11
    
    
    
    2,348,500
    
    
    
    1.17
    
    
    
    1,836,000
    
    
    
    1.26GRANTED
    
    
    1,089,616
    
    
    
    0.89
    
    
    
    232,500
    
    
    
    0.25
    
    
    
    670,000
    
    
    
    0.85CANCELED
    
    
    
    
    
    
    
    
    
    
    (82,500
    )
    
    
    0.58
    
    
    
    
    
    
    
    EXERCISED
    
    
    (10,000
    )
    
    
    0.70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FORFEITED
    
    
    (100,500
    )
    
    
    1.65
    
    
    
    (584,000
    )
    
    
    1.09
    
    
    
    (157,500
    )
    
    
    1.14OUTSTANDING AT END OF YEAR
    
    
    2,893,616
    
    
    
    1.01
    
    
    
    1,914,500
    
    
    
    1.11
    
    
    
    2,348,500
    
    
    
    1.17OPTIONS EXERCISABLE AT YEAR-END
    
    
    1,979,241
    
    
    
    
    
    
    
    1,539,500
    
    
    
    
    
    
    
    1,680,875WEIGHTED-AVERAGE FAIR VALUE OF
OPTIONS GRANTED DURING THE YEAR
    
    $
    0.90
    
    
    
    
    
    
    $
    0.22
    
    
    
    
    
    
    $
    0.71TOTAL OPTION LIFE
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10% EXERCISABLE
    
    
    68
    %
    
    
    
    
    
    
    80
    %
    
    
    
    
    
    
    72
    %AVERAGE YEARS EXERCISABLE
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3AVERAGE REMAINING CONTRACTUAL LIFE
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7
 The following table summarizes information about stock options outstanding
at June 26, 2004: Stock Options Outstanding
    
    Stock Options ExercisableNumber
    
    Weighted-Average
    
    
    
    
    
    NumberOutstanding
    
    Remaining
    
    Weighted-Avg
    
    Exercisable
    
    Weighted-AvgRANGE OF EXERCISE PRICES
    
    at 6/26/04
    
    Contractual Life
    
    Exercise Price
    
    at 6/26/04
    
    Exercise Price$0.01 TO $0.24
    
    
    74,616
    
    
    
    9.52
    
    
    $
    0.01
    
    
    
    74,616
    
    
    $
    0.01$0.25 TO $0.6561
    
    
    158,750
    
    
    
    8.32
    
    
    $
    0.25
    
    
    
    80,000
    
    
    $
    0.25$0.6562 TO $1.03
    
    
    1,533,750
    
    
    
    6.46
    
    
    $
    0.87
    
    
    
    755,625
    
    
    $
    0.81$1.031 TO $1.37
    
    
    607,500
    
    
    
    6.18
    
    
    $
    1.14
    
    
    
    550,000
    
    
    $
    1.14$1.38 TO $1.50
    
    
    438,000
    
    
    
    3.07
    
    
    $
    1.38
    
    
    
    438,000
    
    
    $
    1.38$1.51 TO $2.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $2.01 TO $2.50
    
    
    25,000
    
    
    
    1.67
    
    
    $
    2.38
    
    
    
    25,000
    
    
    $
    2.38$3.01 TO $3.50
    
    
    56,000
    
    
    
    0.76
    
    
    $
    3.40
    
    
    
    56,000
    
    
    $
    3.40
 The following table summarizes information about stock options outstanding at
June 28, 2003: Stock Options Outstanding
    
    Stock Options ExercisableNumber
    
    Weighted-Average
    
    
    
    
    
    NumberOutstanding
    
    Remaining
    
    Weighted-Avg
    
    Exercisable
    
    Weighted-AvgRANGE OF EXERCISE PRICES
    
    at 6/28/03
    
    Contractual Life
    
    Exercise Price
    
    at 6/28/03
    
    Exercise Price$0.25 TO $0.6561
    
    
    190,000
    
    
    
    9.33
    
    
    $
    0.25
    
    
    
    47,500
    
    
    $
    0.25$0.6562 TO $1.03
    
    
    645,000
    
    
    
    7.12
    
    
    $
    0.77
    
    
    
    456,250
    
    
    $
    0.74$1.031 TO $1.37
    
    
    530,000
    
    
    
    6.35
    
    
    $
    1.14
    
    
    
    498,750
    
    
    $
    1.14$1.38 TO $1.50
    
    
    438,000
    
    
    
    4.14
    
    
    $
    1.38
    
    
    
    425,500
    
    
    $
    1.38$1.51 TO $2.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $2.01 TO $2.50
    
    
    25,000
    
    
    
    3.75
    
    
    $
    2.38
    
    
    
    25,000
    
    
    $
    2.38$3.01 TO $3.50
    
    
    56,000
    
    
    
    1.83
    
    
    $
    3.40
    
    
    
    56,000
    
    
    $
    3.40$3.51 TO $4.00
    
    
    30,500
    
    
    
    0.52
    
    
    $
    3.94
    
    
    
    30,500
    
    
    $
    3.94
 The following table summarizes information about stock options outstanding
at June 29, 2002: Stock Options Outstanding
    
    Stock Options ExercisableNumber
    
    Weighted-Average
    
    
    
    
    
    NumberOutstanding
    
    Remaining
    
    Weighted-Avg
    
    Exercisable
    
    Weighted-AvgRANGE OF EXERCISE PRICES
    
    at 6/29/02
    
    Contractual Life
    
    Exercise Price
    
    at 6/29/02
    
    Exercise Price$0.6562 TO $1.030
    
    
    932,500
    
    
    
    8.19
    
    
    $
    0.77
    
    
    
    505,000
    
    
    $
    0.71$1.031 TO $1.37
    
    
    817,500
    
    
    
    7.29
    
    
    $
    1.13
    
    
    
    601,875
    
    
    $
    1.12$1.38 TO $1.50
    
    
    449,000
    
    
    
    5.13
    
    
    $
    1.38
    
    
    
    424,500
    
    
    $
    1.38$1.51 TO $2.00
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    $2.01 TO $2.50
    
    
    41,500
    
    
    
    0.96
    
    
    $
    2.38
    
    
    
    41,500
    
    
    $
    2.38$3.01 TO $3.50
    
    
    66,000
    
    
    
    2.83
    
    
    $
    3.38
    
    
    
    66,000
    
    
    $
    3.38$3.51 TO $4.00
    
    
    42,000
    
    
    
    1.51
    
    
    $
    3.94
    
    
    
    42,000
    
    
    $
    3.94
 38




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##### 



NOTE 11  COMMITMENTS The Company leases office and plant space under operating leases, which expire
on various dates through 2008. Certain leases provide for escalations in rent
based upon increases in the lessors annual operating costs or the consumer
price index. Future minimum lease payments under these agreements at June 26,
2004 were as follows: Fiscal Year2005
    
    $
    376,0002006
    
    
    332,0002007
    
    
    343,0002008
    
    
    294,000$
    1,345,000
 Rent expense for operations approximated $422,000, $428,000 and $457,000 for
fiscal years 2004, 2003 and 2002, respectively. NOTE 12  TRANSACTIONS WITH RELATED PARTIES The Company receives consulting services under an agreement with Food Investors
Corporation (FIC). FIC is 100 percent owned by Cuisine Solutions majority
shareholder, the JLV group. Pursuant to the consulting agreement, FIC provides
services related to management, planning, strategy development and pursing
worldwide interests of the Company. This agreement is renewable annually.
During fiscal year 2003, the Company suspended the consulting agreement with
Food Investors Corporation as a cost saving measure. This resulted in a $36,000
savings during the fourth quarter of fiscal 2003 since the quarterly payment
was withheld. The suspended agreement is subject to future evaluation by the
Board of Directors of the Company. The amount paid by the Company to FIC for
fiscal year 2003 and 2002 was $108,000 and $144,000, respectively The Company has recorded an accrued liability in the amount of $257,000 to
SOMDIAA at June 26, 2004. 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 Group) 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 but key employees. The total accrual at June
26, 2004 includes coverage for previous years benefits. On June 12, 2001, the Company signed an agreement to create a partnership 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. 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 continue to develop the
facility in Chile and agreed that the Company will hold 10% of the total shares
of Cuisine Solutions Chile S.A. A new marketing agreement to market certain
sous-vide products has been signed between the parties in June 2003 and a
commercial agreement to commit to the purchase of certain raw materials from
Cuisine Solutions Chile has been signed subsequent to the end of fiscal year
2003. The plant began operations in August 2004. 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 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 $424,000 at June 26, 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 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. In June 10, 2004, the Company
entered into an additional $300,000 six month working capital loan with FIC.
The loan bears interest of 6% per annum, payable at maturity, or 90 days after
the close of a company line of credit, and will mature on December 10, 2004.
The outstanding balance principal was $300,000 at June 26, 2004. On July 10, 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 will be secured by the Companys US
accounts receivable and inventory and further guaranteed with a real estate
owned by FRC. This line of credit bears an interest rate of 0.5% over the
prime interest rate and matures September 1, 2005. 39




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##### 



NOTE 13  SALES TO MAJOR CUSTOMERS Due to the decentralized purchase decision process of customers within the
Foodservice, retail, military and restaurant chain channels, Management does
not believe any single customer creates a dependency relationship. The On Board Services channel did not have sales to any one customer that
represented 10% of the total business in fiscal year 2004. One airline
distributor had represented 12.7% and 11.4% of sales in fiscal year 2003 and
2002 respectively. The Companys largest customers in Fiscal year 2003 were two airline
distributors that bought product from the Company based upon related demand
from airline customers. One of those companies declared bankruptcy in Cuisine
Solutions second quarter of Fiscal 2004 and Cuisine Solutions wrote-off
approximately $295,000 of bad debt during that quarter. Cuisine Solutions
Management had made the decision in the first quarter of fiscal year 2004 to
reduce its dependency on that distributor and the loss was significantly lower
than it would have been during fiscal year 2004. Cuisine Solutions has had a
large proportion of its business with travel related customers. In FY 2004,
Cuisine Solutions continued a concerted effort to diversify into retail,
national restaurant chains, and the US military. Growth in those areas
continues to reduce the Companys dependency on the Travel industry.
Management expects that Cuisine Solutions will continue to grow in the
non-travel related channels. Management believes that the growth in the
military channel in fiscal 2005 will produce a strong hedge for the Company in
the event of a terror related incident to the travel industry. However, there
is still risk for the Company as much of the planned growth for fiscal year
2005 includes growth in the travel related segments. The Foodservice and national restaurant chain channel consists of a wide base
of hotel banquet and convention centers in a decentralized purchase decision
environment and no single customer can have a material impact on the total
Company. Retail has a smaller base of customers that create most of the
demand for the packaged food lines. The largest of the retail customers
purchase decisions are also decentralized and so the loss of a single customer
should not have a material impact. Cuisine Solutions decision to diversify US
military sales to include the Army in fiscal year 2004 was not only to grow the
channel, but also to reduce dependency on the Navy. Foreign sales accounted for approximately 41.0%, 43.6%, and 36.8% of total
sales in fiscal years 2004, 2003 and 2002, respectively. NOTE 14  LITIGATION 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. We refer to Legal Proceedings
in Part I of this Form 10-K. 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. NOTE 15  SUBSEQUENT EVENT 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 discussed and approved by the
Board of Directors, management has taken certain actions to facilitate such a plan.
In September, 2004 the Company curtailed production and gave employees notice of
termination as required by local law. A formal decision to discontinue operations
is expected to be made in October, 2004. However, there can be
no assurance that such an action will be approved. 40




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##### 



NOTE 16  QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) In managements opinion, the interim financial data below reflects all
adjustments necessary to fairly state the results of the interim period
presented. All adjustments are of a normal recurring nature necessary for a
fair presentation of the information for the periods presented. Results of any
one or more quarters are not necessarily indicative of annual results or
continuing trends. (in thousands, except per share amounts)FISCAL YEAR 2004 QUARTERS ENDEDSeptember 20, 2003
    
    December 13, 2003
    
    April 3, 2004
    
    June 26, 2004Total revenue
    
    $
    7,102
    
    
    $
    9,086
    
    
    $
    11,169
    
    
    $
    9,364Gross margin
    
    
    1,197
    
    
    
    2,101
    
    
    
    2,116
    
    
    
    2,512Net loss
    
    
    (181
    )
    
    
    63
    
    
    
    (562
    )
    
    
    (324
    )Net loss per share (basic and diluted)
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.06
    )
 FISCAL YEAR 2003 QUARTERS ENDEDSeptember 21, 2002
    
    December 14, 2002
    
    April 5, 2003
    
    June 28, 2003Total revenue
    
    $
    6,423
    
    
    $
    6,598
    
    
    $
    7,593
    
    
    $
    7,198Gross margin
    
    
    1,096
    
    
    
    1,151
    
    
    
    1,213
    
    
    
    1,477Net loss
    
    
    (774
    )
    
    
    (847
    )
    
    
    (1,477
    )
    
    
    (994
    )Net loss per share (basic and diluted)
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.10
    )
    
    $
    (0.06
    )
 FISCAL YEAR 2002 QUARTERS ENDEDSeptember 22, 2001
    
    December 15, 2001
    
    April 6, 2005
    
    June 29, 2002Total revenue
    
    $
    7,335
    
    
    $
    6,235
    
    
    $
    7,654
    
    
    $
    7,392Gross margin
    
    
    1,537
    
    
    
    632
    
    
    
    949
    
    
    
    1,570Net loss
    
    
    (881
    )
    
    
    (1,477
    )
    
    
    (1,779
    )
    
    
    (1,890
    )Net loss per share (basic and diluted)
    
    $
    (0.06
    )
    
    $
    (0.09
    )
    
    $
    (0.11
    )
    
    $
    (0.12
    )
 41




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##### 



SCHEDULE II
CUISINE SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Balance at
    
    Additions
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    charged to
    
    Reduction of
    
    
    
    
    
    End ofof Period
    
    operations
    
    allowance
    
    write-offs
    
    PeriodYear ended June 29, 2002Allowance for doubtful accounts
    
    $
    108,000
    
    
    $
    112,000
    (2)
    
    $
    
    
    
    $
    52,000
    
    
    $
    168,000Allowance for sales rebates earned,
not yet taken
    
    $
    198,000
    
    
    $
    61,000
    
    
    $
    10,000
    
    
    $
    249,000
    
    
    $
    Allowance for obsolete inventory
    
    $
    103,000
    
    
    $
    475,000
    (1)
    
    $
    
    
    
    $
    74,000
    
    
    $
    504,000Year ended June 28, 2003Allowance for doubtful accounts
    
    $
    168,000
    
    
    $
    118,000
    
    
    $
    216,000
    (3)
    
    $
    8,000
    
    
    $
    62,000Allowance for obsolete inventory
    
    $
    504,000
    
    
    $
    215,000
    (1)
    
    $
    41,000
    
    
    $
    253,000
    
    
    $
    425,000Year ended June 26, 2004Allowance for doubtful accounts
    
    $
    62,000
    
    
    $
    301,000
    (3)
    
    $
    
    
    
    $
    295,000
    
    
    $
    68,000Allowance for obsolete inventory
    
    $
    425,000
    
    
    $
    106,000
    (1)
    
    $
    311,000
    
    
    $
    58,000
    
    
    $
    162,000
 (1)
    
    Additional reserves for obsolete inventory(2)
    
    Additional allowance for doubtful accounts(3)
    
    Reclassification to Other Current Assets
   42