UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K

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|                                                               |                                                                             
|-------------------------------------------------------------- | ----------------------------------------------------------------------------
|ü                                                              | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE    
|                                                               | ACT OF 1934                                                                 
|For the fiscal year ended: June 28, 2008                      
|or                                                            
|                                                               |                                                                             
|                                                               | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|                                                               | ACT OF 1934                                                                 
|For the transition period from: _____________ to _____________



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[cuisinesolutions10k001.jpg]

CUISINE SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)



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|--------------------------------- | ------------ | -------------------
|DELAWARE                          | 1-32439      | 52-0948383         
|(State or Other Jurisdiction      | (Commission  | (I.R.S. Employer   
|of Incorporation or Organization) | File Number) | Identification No.)

85 South Bragg Street, Suite 600, Alexandria, VA 22312

(Address of Principal Executive Office) (Zip Code)

(703) 270-2900

(Registrants telephone number, including area code)



(Former name or former address, if changed since last report)

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|Securities registered pursuant to Section 12(b) of the Act:
|                                                            |                  |                                          
|Title of each class                                         |                  | Name of each exchange on which registered
|Common Stock - $.01 par value per share                     |                  | American Stock Exchange                  
|                                                            |                  |                                          
|Securities registered pursuant to Section 12(g) of the Act:
|                                                            |                  |                                          
|NONE                                                       
|                                                            | (Title of Class) |                                          

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|Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     
|                                                                                                                             |  | Yes | ü | No
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|Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
|                                                                                                                             |  | Yes | ü | No



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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ü | Yes |   | No                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this 
chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|information statements incorporated by reference in Part III of this Form 10-K or any amendment to this                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ü |    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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|Large accelerated filer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |     |   | Accelerated filer         |   | 
|Non-accelerated filer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |     |   | Smaller reporting company | ü | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  
|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Yes | ü | No                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  
|State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter.

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 December 15, 2007 as reported on the American Stock Exchange, was approximately $23,801,000. 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.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.

As of September 15, 2008, there were 17,449,194 shares outstanding of the Registrant's common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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|DOCUMENTS INCORPORATED BY REFERENCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
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|Portions of the Registrants Proxy Statement relating to the Registrants 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K as indicated herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        















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TABLE OF CONTENTS



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|-------- | ---------------------------------------------------------------------------------------------- | ----
|         |                                                                                                | Page
|PART I   |                                                                                                |     
|Item 1.  | Business                                                                                       | 1   
|Item 1A. | Risk Factors                                                                                   | 3   
|Item 1B. | Unresolved Staff Comments                                                                      | 6   
|Item 2.  | Properties                                                                                     | 6   
|Item 3.  | Legal Proceedings                                                                              | 6   
|Item 4.  | Submission of Matters to a Vote of Security Holders                                            | 6   
|         |                                                                                                |     
|PART II  |                                                                                                |     
|Item 5.  | Market for The Registrants Common Equity and Related Stockholder Matters                      | 7   
|Item 7.  | Managements Discussion and Analysis of Financial Condition and Results of Operations          | 8   
|Item 8.  | Financial Statements and Supplementary Data                                                    | 12  
|Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           | 12  
|Item 9A. | Controls and Procedures                                                                        | 12  
|Item 9B. | Other Information                                                                              | 13  
|         |                                                                                                |     
|PART III |                                                                                                |     
|Item 10. | Directors, Executive Officers and Corporate Governance                                         | 14  
|Item 11. | Executive Compensation                                                                         | 14  
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 14  
|Item 13. | Certain Relationships and Related Transactions, and Director Independence                      | 14  
|Item 14. | Principal Accountant Fees and Services                                                         | 14  
|         |                                                                                                |     
|PART IV  |                                                                                                |     
|Item 15. | Exhibits and Financial Statement Schedules                                                     | 15  









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PART I



ITEM 1.

BUSINESS



Unless the context otherwise requires, when used in this report, the terms Cuisine Solutions, the Company, we and us refer to Cuisine Solutions, Inc. and its subsidiaries and joint ventures: FiveLeaf, Inc., Cuisine Solutions France refers to the Companys wholly-owned French subsidiary Cuisine Solutions, S.A.S., and Cuisine Solutions Chile refers to Cuisine Solutions Chile, S.A., a corporation in which the Company owns a minority interest.



General Development of Business



Cuisine Solutions, Inc. was incorporated in the State of Delaware in 1974. We commenced operations in 1972 as a wholesale producer of French bread for daily delivery to the Washington, D.C. area. We expanded our business into new geographic markets throughout the 1970s.  In fiscal year 1979, then known as Vie de France Corporation, we began offering our product through Company-owned retail bakeries where the products could be freshly baked throughout the day. During the 1980s, we expanded our frozen dough product line and developed processes to facilitate the baking of these products at the point-of-sale. As of May 1994, we owned and operated 31 retail units. We sold the Bakery Division and the Restaurant Division to Vie de France Bakery Yamazaki, Inc. in 1991 and 1994, respectively, and changed our name to Cuisine Solutions, Inc.



We began development of the Culinary Division business in 1987, in conjunction with research previously performed by Nouvelle Carte France, a related French company. Due to the growth in high quality frozen products in Europe, our Board of Directors authorized the establishment of the Culinary Division for the express purpose of the research into and development of high quality frozen products for the U.S. market. In 1989, construction began on a plant in Alexandria, Virginia designed to manufacture our sous-vide product line and began operations in May 1990.  In 1999, we acquired the French company, Nouvelle Carte France, to supply airline customers in Europe as well as to supply global foodservice and retail customers.



We listed our common stock on the American Stock Exchange on February 24, 2005 under the ticker symbol FZN.



In fiscal year 2005, we obtained a new source of salmon and other white fish raw material from Cuisine Solutions Chile, a company in which we have a 10% minority interest.  They own and operate a sous-vide plant in Chile that opened in August 2004. We have exclusive marketing rights in the U.S. and most of Europe for the sous-vide products produced by Cuisine Solutions Chile.

In May 2006, we purchased a new production location in Le Pertre, France and in June 2007 we announced a 60% increase in U.S. manufacturing operations.



Description of Business



We produce and market premium, fully-cooked, frozen and prepared foods to a variety of channels and geographic regions.  We believe that we are recognized in the market place as having the highest quality frozen food product line in the world.   Our motto is:  exceptional food for exceptional events with ultimate convenience.



The phrase sous-vide means under vacuum in French. While the words have taken on broad meaning, the original authentic usage is derived from a process that we pioneered and refined by our French operations. Sous-vide is a unique and gentle method of cooking which allows the cellular structure of food to remain intact while also pasteurizing the product. The food's natural moisture and juices are retained, preserving its flavor, aroma, and nutrients. Natural flavors are so enhanced that far less seasoning, especially salt, is required. Natural fibers soften and dissolve, leaving proteins, such as beef, tender enough to cut with a fork. The food is not only improved in taste, it retains its nutritional content; a fact that is very important in today's health conscious society. As an added benefit, measurable shrinkage of sous-vide products is 10% or less compared to 20% or more on some conventionally cooked products.  This entire process is managed through computerized cooking equipment under the supervision of culinary professionals.  Heating of our food is easy and can be accomplished with any kitchen oven.



Major Product Classes



The sous-vide process places fresh ingredients in a sealed, protected environment where they are slow cooked at a low and precise temperature to achieve maximum flavor, texture and quality. During the cooking process, the food is also pasteurized, and all forms of vegetative bacteria are destroyed. Once the food is cooked, the package is quickly chilled in nearly freezing water and flash frozen. Flash freezing minimizes crystallization and therefore eliminates the deterioration of the food.



We have an enrobed pasta line with automated packaging equipment that produces a pasta product that provides the customer with a pasta and sauce combination that only needs to be heated in order to serve.











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Our offerings also include appetizers and desserts. In May of 2006 we purchased a plant in Le Pertre, France, where we installed the new line for the production of Mini Deliss desserts and Mini Savories hors doeuvres. These appetizers and mini desserts are an important part of Cuisine Solutions' growing repertoire of premium frozen foods.



Our products do not require additional preservatives normally found in prepared foods due to our unique cooking process. Our management believes that this makes our products especially attractive to any foodservice establishment.



Supported by what we believe to be 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, we provide unique value to the market place with our quality consistent products. We offer the struggling, overworked and understaffed foodservice operators expanded menu lines, potential labor savings, flexibility, serving time reduction, reduced yield losses and increased food safety.



We have positioned ourself as a high quality provider of prepared foods, with unique product capabilities at competitive market prices.



Manufacturing



We have manufacturing sites in Alexandria, VA, Louviers and Le Pertre, France and a minority interest in a facility in Puerto Montt, Chile that produces Atlantic salmon, whitefish and shellfish.



Distribution



Most of our sales are frozen products shipped throughout the U.S. and Europe. We produce a diversified product mix for Europe and the U.S., while we fulfill much of our international distribution of salmon through products produced by Cuisine Solutions Chile. All products are shipped frozen except for some retail sales in France, which are shipped refrigerated. We maintained one additional third-party warehouse for storage in France and five third-party outside warehouses in the U.S. at the end of fiscal year 2008. Most of the warehouses were secured to meet the demands of foodservice customers for short lead times and product availability. We can quickly and easily add or reduce outside warehouses when and where it is deemed necessary.



We sell 100% of our product through our own sales personnel located in either Europe or the U.S.  These sales are either made directly to end-users or indirectly through distributors who generally take possession and then re-sell our products to end-users.



We currently distribute 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 Olympics.

·

Retail: Supermarket in-store deli, premium frozen packaged foods.

·

Military: Naval carriers, Army field feeding, and military dining halls and clubs.

·

National Restaurant Chains: Casual dining multi-unit restaurants.



Raw Material Status



In fiscal year 2009, we intend to seek greater cost savings by negotiating with our suppliers for further price reductions due to increased purchasing volumes and buying at favorable times during the year when certain raw materials are in less demand or the supply is greater.  Due to recent economic difficulties we have seen raw material prices generally rise and are less cyclical than in the past.



Trademarks



We believe that our trademarks are important to our business success. Accordingly, we take steps we believe are necessary to protect these trademarks. For example, we secured, in Europe and in the U.S., the service trademark "Your Culinary Partner" and "Votre Partenaire Culinaire", which is being used in our international advertising campaign.  We continually review the trademarks to determine whether there is value in paying the fees associated with maintaining registered trademarks.



Customer Dependency



During fiscal year 2008 and 2007, PWC/Agility, a distributor to the U.S. Military represented 13.7% and 4.4%, respectively, of our total revenue.  Ocean Direct, a distributor to the U.S. Army represented 1.1% and 10.7%, respectively, of our total revenue and a retail customer, Costco, accounted for 8.8% and 15.3% , respectively, of our total revenue during fiscal year 2008 and 2007.



Competition



We consider ourself to be the leader in upscale fully cooked frozen food with our sous-vide product line within the foodservice





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industry in the U.S.  At present, limited but growing competition exists within the U.S. frozen wholesale component of this product line, however, many firms exist in Europe within the retail and refrigerated components of the sous-vide prepared foods. As such, we primarily compete for sales against foodservice providers in the frozen and raw segment, rather than against other upscale frozen or sous-vide suppliers.



We try to develop products that are non-comparable, so we can determine the market price, while we also believe our products can successfully compete with other comparable products in price when product quality, value and convenience are considered.  We also offer implementation and menu development services, as well as equipment selections to our customers as another means of building sales.  We depend on our product development, marketing, and menu items as a means of maintaining our leadership position within the sous-vide industry.



Research & Development



We spent $1,067,000 and $909,000 in research and development expenses in fiscal years 2008 and 2007, respectively. We maintain a staff of experienced culinary and food science professionals in order to provide the marketplace with innovative products on a continuous basis. Our chefs and scientists in the U.S. and Europe provide us with the latest in culinary trends from around the world.



Regulations



We are subject to various Federal, state and local laws affecting our business, including health, sanitation and safety regulations. U.S. Department of Agriculture (USDA), Food Safety and Inspection Service (FSIS) group and the Food and Drug Administration (FDA) have promulgated specific regulations containing requirements for the processing of certain meat and poultry products.  FSIS permits establishments to develop total quality control (TQC) systems.  TQC systems encompass all aspects of product processing and must include procedures for raw material control; the nature and frequency of tests to be made; the critical check or control points to be addressed; the nature of charts and other records that will be used; the length of time such charts and records will be maintained; the nature of deficiencies the system is designed to identify and control; the parameters or limits that will be used; and the points at which corrective action will occur and the nature of such corrective action -- ranging from the least to the most severe.  All of our facilities follow the Hazard Analysis Critical Control Points (HACCP) program and are audited by international third-party auditors such as NSF-Cook and Thurber, Steritech or SGS.  In addition, our France facilities comply with International Food Standards (IFS) as well as the British Retail Consortium (BRC).  We believe our operations comply in all material respects with applicable laws and regulations.  We were recently approved to sell meat to the European Marketplace.



Employees

As of June 28, 2008 we employed approximately 354 persons, including 347 full-time employees and 7 part-time employees and corporate staff.  We believe that our relations with our employees are good.



ITEM 1A.

RISK FACTORS



The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, performance or financial condition in the future.



We are exposed to a number of risks associated with food production, any of which could result in a material adverse effect on us.



We face all of the risks inherent in the production and distribution of frozen food products, including contamination, adulteration, spoilage, and the associated risks of product liability litigation, which may occur even with an isolated event.  Although our modern production facilities have obtained governmental approvals that we believe are required for their operations, and we employ what we believe are the necessary processes and equipment in order to insure food safety, there can be no assurance that our procedures will be adequate to prevent the occurrence of such events.  Claims alleging problems with our products, whether or not successful, would likely be expensive to defend, distract managements attention and could potentially expose us to significant liabilities.  Although we maintain insurance to protect ourselves against such liabilities, these policies are subject to exclusions and limitations, and there can be no assurance that such insurance would be sufficient to satisfy such liabilities.  In any event, regardless of the merit or ultimate success of any claims, such accusations could significantly harm our reputation, thereby leading to a material adverse effect on our sales and results of operations.



As a food company, we are required to comply with many federal, state and local laws and regulations, and the failure to comply with applicable laws could have a material adverse impact on our reputation and results of operations.







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Our facilities and products are subject to many laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug Administration, and other federal, state, local, and foreign governmental agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality, and safety of food products. Our failure to comply with applicable laws and regulations could subject us to administrative penalties and injunctive relief, civil remedies, including fines, injunctions and recalls of our products, and negative publicity.



We do not enter into long term contracts with our customers, and the loss of one or more significant customers could have a material adverse impact on our business, results of operations and financial condition.

A large portion of our revenue has traditionally come from the supply of our products to travel-related customers. In fiscal year 2002 and 2003, our sales declined tremendously as the travel-related industries experienced a major set back in the wake of the September 11, 2001 terrorist attacks. Since fiscal 2004, we have made a concerted effort to diversify our sales into other sales channels. Growth in those areas continues to reduce our dependency on the travel industry. However, the success in implementing this diversification strategy might not limit or eliminate the risk of concentration of sales to certain number of customers. In fiscal 2007 and 2006, one Military distributor and one Retail customer became our two largest customers. Generally, we do not enter into long term supply contracts with our customers and, as a result, these customers may generally discontinue purchasing our products at any time. For example, we cannot guarantee that the Army will continue to purchase items from us.



Moreover, because we sell to the government indirectly through a number of prime contractors, if governmental investigations or audits uncover improper or illegal activities by a prime contractor to whom we sell our products, or if the Military sales to a prime contractor are discontinued or decreased, then our revenue and results of operations may be negatively impacted.   We are aware that one prime contractor through which we sell our products is the subject of a governmental investigation.  To date, we have not been adversely impacted as a result of the investigation, however, this or other similar investigations or audits may have a material adverse effect on our revenues and results of operations in the future.



Fluctuation in the availability and price of raw materials may increase our operating costs, resulting in an adverse impact on our margins.



We purchase certain raw materials that are subject to availability and price fluctuations caused by factors beyond our control, including seasonality, market demand, inflation, weather and environmental conditions, currency fluctuations and other factors.  While the movements of raw material costs and the fluctuation of availability are uncertain in fiscal 2009, we continue to develop strategic purchasing programs to purchase our raw materials from a number of different suppliers internationally with annual arrangements.  However, the implementation of these strategies might not effectively limit or eliminate the exposure to a decline in operating results due to changes in raw material prices and availability.  Therefore, we cannot assure you that future costs and availability fluctuations in raw material will not have a negative impact on our margins, and we may be unable to raise the prices of our products to offset these increased costs in the short-term or at all.  As a result, our business, financial position or results of operations may be materially and adversely affected.  Changes in governmental and agricultural regulations and programs may also impact our ability to source products internationally.



The markets in which we compete are highly competitive.



The food industry is highly competitive.  While we currently face little direct competition in the U.S. from very large competitors in the premium, fully cooked, frozen food market, these potential competitors could choose to enter our markets.  Such companies are larger and have access to significantly greater financial, managerial, sales, technical and other resources than us.  If large food companies elect to enter the premium markets in which we compete, they could outspend us and decrease our market share and potentially drive down prevailing prices in these markets, which would have a material adverse impact on our business, results of operations and financial condition.  Within Europe we face direct sous-vide competition from a number of manufacturers.  Many of these are similar or larger in size and compete directly in the same markets of Food Service, On Board Services and Retail channels in Europe.



The market for our common stock is characterized by relatively low trading volume, and high trading volume could result in a significant decline in our stock price.



The market for our common stock is characterized by low and somewhat sporadic trading volume, which has extreme price volatility.  A large volume of stock being sold into the market at any one time or over a short period of time, or the perception that such events will occur, could cause our stock price to rapidly decline.



The market price of our common stock may fluctuate significantly for reasons beyond our control and potentially unrelated to our performance.



The market price and marketability of our common stock may from time to time be significantly affected by numerous factors, including many over which we have no control and that may not be directly related to us. These factors include the following:







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price and volume fluctuations in the stock market from time to time, which are often unrelated to the operating performance of particular companies;

·

significant volatility in the market price and trading volume of shares of food companies, which is not necessarily related to the operating performance of these companies;

·

changes in regulatory policies;

·

changes in our earnings or variations in our operating results;

·

any shortfall in our revenue or net income or any increase in losses from levels expected by securities analysts;

·

departure of our key personnel;

·

operating performance of companies comparable to us;

·

general economic trends and other external factors;

·

loss of one or more of our significant customers; and

·

loss of a major funding source.



Fluctuations in the trading prices of our shares may adversely affect the liquidity of the trading market for the shares and, if we seek to raise capital through future equity financings, our ability to raise such equity capital.



Our future financial performance is subject to a number of additional uncertainties, any of which could have a material adverse impact on our business, results of operations and financial condition.



Our ability to generate cash to meet our expenses and debt service obligations and to otherwise reduce our debt as anticipated will depend on our future performance, which will be affected by financial, business, economic, legislative, regulatory and other factors, including potential changes in consumer preferences, the success of product and marketing innovation and pressure from competitors. Many of these factors are beyond our control. Any factor that negatively affects our results of operations, including our cash flow, may also negatively affect our ability to pay the principal and interest on our outstanding debt.  If we are unable to reduce our debt as anticipated, our interest expense could be materially higher than anticipated and our financial performance could be adversely affected.  If we do not have enough cash to pay our debt service obligations, we may be required to amend our credit facility or indentures, refinance all or part of our existing debt, sell assets, incur additional indebtedness or raise equity. We cannot assure you that we will be able, at any given time, to take any of these actions on terms acceptable to us or at all.



Our foreign operations subject us to a number of risks.



In fiscal year 2008, 34.6% of our sales were generated in foreign countries.  Our foreign operations are subject to the risks described in this section, as well as risks related to fluctuations in the value of the U.S. dollar as compared to the local currencies, economic and political uncertainties in such countries.  Our subsidiaries conduct their business in local currency and, for purposes of financial reporting, their results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period.  During times of a strengthening U.S. dollar, our reported revenues and operating income will be reduced because the local currency will be translated into fewer U.S. dollars.  As a result, the foreign exchange fluctuations could adversely affect our profitability.



We depend on common carriers to deliver our products, and the disruption of such delivery channels could have an adverse impact on our ability to deliver our products to market.



Logistics and other transportation-related costs have a significant impact on our earnings and results of operations.  We use multiple forms of transportation to bring our products to market. These include trucks, planes, rail cars, and ships.  Disruption to the timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel, regulations affecting the industry, or labor shortages in the transportation industry, could have an adverse effect on our ability to serve our customers, and could have a material adverse effect on our financial performance.



Increases in interest rates may have an adverse impact on our profitability.



Increases in interest rates can make it more difficult and expensive to obtain the funds needed to operate our businesses.  As of June 28, 2008 we had no outstanding short-term borrowings on our $7,500,000 and $6,000,000 lines of credit which accrue interest at a variable rate based on prevailing interest rates (4.71% as of June 28, 2008).  We have not used derivative financial instruments to hedge our interest rate exposure.  Increases in interest rates would increase our interest expense and adversely affect our results of operations. Therefore, we cannot assure that future interest rate increases and borrowings will not have a negative impact on our business, financial position or operating results.



Members of the Vilgrain family and their affiliates control a majority of our common stock and are able to exert significant control over our future direction.



Members of the Vilgrain family and their affiliates together control approximately 56.2% of our outstanding common stock.  As a result, these stockholders, if they act together, are able to exert significant influence, as a practical matter, on all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Additionally, three





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members of the Vilgrain family serve on our board of directors, including Stanislas Vilgrain, who also serves as our Chief Executive Officer and President and Mr. Jean-Louis Vilgrain who serves as our Chairman of the Board. As a result, this concentration of ownership and representation on our board of directors and management may delay, prevent or deter a change in control, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of us or our assets and might reduce the market price of our common stock.



Force majeure events, such as terrorist attacks, other acts of violence or war, political instability and health epidemics may adversely affect us.



Terrorist attacks, war, and political instability, along with health epidemics, may disrupt our ability to generate revenues.  These events may negatively affect our ability to maintain sales revenue and to develop new business relationships.  Moreover, because a significant and growing part of our revenues is derived from sales to customers outside of the United States, terrorist attacks, war and international political instability anywhere may decrease international demand for our products and inhibit customer development opportunities abroad, disrupt our supply chain, or impair our ability to deliver our products, which could materially adversely affect our net revenues or results of operations.  Any of these events may also disrupt global financial markets and precipitate a decline in the price of our common stock.



ITEM 1B.

UNRESOLVED STAFF COMMENTS



None.



ITEM 2.

PROPERTIES



We own our French facilities and properties, and lease our U.S. office and manufacturing facilities. One of the French facilities is located in Louviers, France and is approximately 15,000 square feet.  In May 2006, we purchased a new production facility in Le Pertre, France with approximately 46,000 square feet. The U.S. plant is located in Alexandria, Virginia.  In June 2006, we entered into a new lease agreement with the existing landlord to lease approximately 18,000 additional square feet at the same location which expanded the manufacturing facility from approximately 48,000 square feet to 66,000 square feet. We own substantially all of the equipment used in our 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 8 to the Consolidated Financial Statements, which is included elsewhere in this report. We believe that our current owned and leased properties are sufficient to meet our needs for the foreseeable future.



ITEM 3.

LEGAL PROCEEDINGS



In 1999, we became a minority partner and provided management services toward a Brazilian joint venture.  Over the next several years, we also contributed advances, accounts receivable for services performed and extended a loan.  At the end of fiscal year 2002, we filed a civil lawsuit in the Federal District Court of Brasilia against the controlling partner in this 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.  We continue to seek 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.  At the time of filing this Form 10-K, this case is still pending for mediation and/or a court hearing; therefore, management is unable to predict any possible outcome.  We have not accrued any potential income, gain or expense related to this matter.



There are no other material pending legal proceedings, other than ordinary, routine litigation incidental to the Companys business, to which the Company or its subsidiaries 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.





6



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PART II



ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the American Stock Exchange (AMEX) under the symbol FZN. The following table shows, for the periods indicated, the high and low common stock closing prices as quoted on AMEX. Such quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.



|                                   |  |      |      |     |  |   |      | 
|---------------------------------- |  | ---- | ---- | --- |  | - | ---- | 
|                                   |  | High |      | Low
|Fiscal Year Ended June 30, 2007:   |  |      |      |     |  |   |      | 
|First Quarter  September 16, 2006 |  | $    | 5.44 |     |  | $ | 4.55 | 
|Second Quarter  December 9, 2006  |  |      | 5.99 |     |  |   | 4.75 | 
|Third Quarter  March 31, 2007     |  |      | 8.04 |     |  |   | 5.13 | 
|Fourth Quarter  June 30, 2007     |  |      | 7.83 |     |  |   | 5.56 | 
|Fiscal Year Ended June 28, 2008:   |  |      |      |     |  |   |      | 
|First Quarter  September 22, 2007 |  | $    | 6.47 |     |  | $ | 4.99 | 
|Second Quarter  December 15, 2007 |  |      | 6.10 |     |  |   | 4.12 | 
|Third Quarter  April 5, 2008      |  |      | 4.35 |     |  |   | 2.85 | 
|Fourth Quarter  June 28, 2008     |  |      | 3.15 |     |  |   | 1.94 | 



As of September 10, 2008, there were approximately 524 record holders of our common stock.  We currently intend to retain all available funds and future earnings, if any, for use in the operation and expansion of our business.  We did not repurchase any shares of common stock in the fourth quarter of fiscal 2008.



Dividends



No dividends were paid during fiscal year 2008 or 2007. Any future determination as to the payment of dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, restriction in our credit facilities and other factors deemed relevant to the Board of Directors.



Recent Sales of Unregistered Securities



There were no unregistered sales of securities during the fiscal year ended June 28, 2008.



Securities Authorized for Issuance under Equity Compensation Plans



The following table provides certain information with respect to all of the Companys equity compensation plans in effect as of June 28, 2008:

Equity Compensation Plan Information

|                                                           |  |                                                                                                 |                                                                                 |  |                                                                                                                                          |      |  |   |           | 
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | - | --------- | 
|Plan Category                                              |  | Number of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights
(a) | Weighted-average
exercise price
of outstanding
options, warrants
and rights
(b) |  | Number of securities
remaining available
for issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
|Equity compensation plans approved by security holders     |  |                                                                                                 | 3,854,500                                                                       |  | $                                                                                                                                        | 1.34 |  |   | 1,885,597
|Equity compensation plans not approved by security holders |  |                                                                                                 | 0                                                                               |  | 0                                                                                                                                        |      |  | 0
|Total                                                      |  |                                                                                                 | 3,854,500                                                                       |  | $                                                                                                                                        | 1.34 |  |   | 1,885,597







7



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ITEM 7.

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



You should read the following discussion in conjunction with the audited consolidated financial statements and the accompanying notes included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties and assumptions. Our actual results and the timing of events may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed in Risk Factors and elsewhere in this Form 10-K and those listed in other documents we have filed with the Securities and Exchange Commission(the SEC).

CRITICAL ACCOUNTING POLICIES



A summary of our significant accounting policies is included in Note 1 to the Consolidated Financial Statements, included elsewhere in this report. Management believes that the application of these policies on a consistent basis enables us to provide the users of the financial statements with useful and reliable information about our operating results and financial condition.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods reported.  Judgments and assessments of uncertainties are required in applying our accounting policies in the areas of allowance for doubtful accounts, inventory obsolescence reserve and income taxes.  We base our judgments and estimates on historical experience and other assumptions that we believe are reasonable.  Actual results could materially differ from those estimates.



Trade receivables are reported in the consolidated balance sheets net of the allowance for doubtful accounts. Generally, we consider receivables past due 30 days subsequent to the billing date.  We perform ongoing credit evaluations of our customers and generally extend credit without requiring collateral.  We maintain an allowance for doubtful accounts, which is determined based on historical collection experience or changes in the financial condition of our customers.  As these factors change, our allowance for doubtful accounts may change in subsequent accounting periods.  Generally, losses have historically been within managements expectations and have not been significant.  As of June 28, 2008 and June 30, 2007, we maintained an allowance for doubtful accounts of approximately $413,000 and $373,000, or 4.8% and 6.0% of gross accounts receivable, respectively.



We determine the inventory obsolescence reserve based on managements historical experience and establish reserves against inventory according to the age of the product. Additional reserves are sometimes established as a result of lack of marketability or changes in customer consumption patterns.  Managements judgment is necessary in determining the realizable value of those products to arrive at the proper obsolescence reserve.  Total inventory obsolescence reserve as of June 28, 2008 and June 30, 2007 were $469,000 and $256,000 or 4.0% and 1.7% of total inventory, respectively.



We account for corporate income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires an 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. We had a net operating loss carry-forward for U.S. Federal and state income tax purposes of approximately $15,450,000 as of June 28, 2008.



RECENT ACCOUNTING PRONOUNCEMENTS



In June 2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation (FIN) No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 is effective for fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts recognized after the adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. Effective July 1, 2007, we adopted the provisions of FIN 48 and the effect of the adoption was not material.



In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations(SFAS 141R). SFAS 141R clarifies the information that a reporting entity provides in its financial reports about a business combination and it replaces SFAS No. 141. SFAS 141R revises the method of accounting for a number of aspects of business combinations, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activities of acquired businesses. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting beginning on or after December 15, 2008.







8



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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157). This standard establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. On February 12, 2008, the FASB issued Staff Position No. SFAS 157-2,  Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for non-financial assets and liabilities to fiscal years beginning after November 15, 2008.  We have not yet assessed the impact of adopting SFAS 157.



In December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160). SFAS 160 requires noncontrolling (minority) interests to be reported as a component of equity on the balance sheet, to include all earnings of a consolidated subsidiary in consolidated results of operations and to treat all transactions between an entity and noncontrolling interest as equity transactions between the parties. SFAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years. SFAS 160 will be effective for us during our fiscal year beginning June 28, 2009.  We have not yet assessed the impact of adopting SFAS 160.



In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities(SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 and is intended to provide users of financial statements with an enhanced understanding of (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161 is effective for the Company beginning June 28, 2009. We are currently evaluating the provisions of SFAS 161 to determine the impact on its consolidated financial statements.  We have not yet assessed the impact of adopting SFAS 161.



In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS shall be effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with General Accepted Accounting Principles. We have not yet assessed the impact of adopting SFAS 162.



In May 2008, the FASB also issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts(SFAS 163). SFAS 163 relates to recognition and measurement of premium revenue and claim liabilities and to disclosures. The premium revenue recognition approach for a financial guarantee insurance contract links premium revenue recognition to the amount of insurance protection and the period in which it is provided. The recognition approach for a claim liability relating to a financial guarantee insurance contract requires that an insurance enterprise recognize a claim liability when the insurance enterprise expects, based on the present value of expected net cash outflows to be paid under the insurance contract discounted using a risk-free rate, that a claim loss will exceed the unearned premium revenue. An insurance enterprise is required to provide expanded disclosures about financial guarantee insurance contracts. Those disclosures would focus, in part, on the information included in the risk-management activities used by the insurance enterprise to evaluate credit deterioration in its insured financial obligations. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008.  We have not yet assessed the impact of adopting SFAS 163.



RESULTS OF OPERATIONS



Fiscal year ended June 28, 2008 (52 weeks) compared to fiscal year ended June 30, 2007 (53 weeks)



NET SALES



|                     |  |               |            |  |               |   |            |          |  |  |       |  
|-------------------- |  | ------------- | ---------- |  | ------------- | - | ---------- | -------- |  |  | ----- | -
|By Geographic Region |  | June 28,
2008 |            |  | June 30,
2007 |   |            | % change | 
|USA Sales            |  | $             | 57,255,000 |  |               | $ | 55,866,000 |          |  |  | 2.5   | %
|Europe Sales         |  |               | 29,535,000 |  |               |   | 24,150,000 |          |  |  | 22.3  | %
|Rest of World Sales  |  |               | 689,000    |  |               |   | 315,000    |          |  |  | 118.7 | %
|Net Sales            |  | $             | 87,479,000 |  |               | $ | 80,331,000 |          |  |  | 8.9   | %



|                  |  |               |            |  |               |   |            |          |  |  |      |  
|----------------- |  | ------------- | ---------- |  | ------------- | - | ---------- | -------- |  |  | ---- | -
|                  |  | June 28,
2008 |            |  | June 30,
2007 |   |            | % change | 
|Existing products |  | $             | 69,002,000 |  |               | $ | 63,603,000 |          |  |  | 8.5  | %
|New products      |  |               | 18,477,000 |  |               |   | 16,728,000 |          |  |  | 10.5 | %
|Net Sales         |  | $             | 87,479,000 |  |               | $ | 80,331,000 |          |  |  | 8.9  | %







9



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|                          |  |               |            |  |               |   |            |          |  |  |      |   
|------------------------- |  | ------------- | ---------- |  | ------------- | - | ---------- | -------- |  |  | ---- | --
|By Channel                |  | June 28,
2008 |            |  | June 30,
2007 |   |            | % change | 
|On Board Services         |  | $             | 24,637,000 |  |               | $ | 19,385,000 |          |  |  | 27.1 | % 
|Food Service              |  |               | 14,621,000 |  |               |   | 13,693,000 |          |  |  | 6.8  | % 
|Retail                    |  |               | 21,665,000 |  |               |   | 23,766,000 |          |  |  | (8.8 | %)
|Military                  |  |               | 17,864,000 |  |               |   | 17,612,000 |          |  |  | 1.4  | % 
|National Restaurant Chain |  |               | 8,692,000  |  |               |   | 5,875,000  |          |  |  | 47.9 | % 
|Net Sales                 |  | $             | 87,479,000 |  |               | $ | 80,331,000 |          |  |  | 8.9  | % 



Net Sales of $87,479,000 for fiscal year 2008 increased $7,148,000, or 8.9%, over prior fiscal year sales of $80,331,000.  We do not have any defined segments since all of our products are produced similarly despite the sales channel or area of distribution.  Our new product sales rose to $18,477,000 in fiscal year 2008 from prior fiscal year 2007 new product sales of $16,728,000, a 10.5% increase.  These new product sales are defined as sales over the first year of introduction.  For fiscal year 2008 we had gains in all sales channels other than retail, with our largest channel, On Board Services, increasing by 27.1% over prior fiscal year 2007, a gain of approximately $5.3 million.  Retail net sales decreased over $2.1 million, or 8.8%, reflecting the loss of promotions to Costco, offset partially by gains in other retail customers.  While we consider new products and channel information helpful to the reader we cannot forecast any particular trends for our sales as a result of such information.  Our sales cycle can run over one year in certain markets before recognizing a sale.

GROSS MARGIN

The gross margin decreased this fiscal year 2008 to 20.6%, compared to the prior fiscal year 2007 of 22.7%. This margin reduction can be attributed to higher raw materials costs, increases in raw materials due solely to a weak U.S. dollar, fuel surcharges, increases in facility expansion and increased costs associated with new product introductions.  While we strive to attain a 30% gross margin target, our sales growth and new product introductions are below target margins.  At this time we are unable to project whether our margins will increase or decrease due to the current economic situation both in the U.S. and Europe.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased in fiscal year 2008 to $1,067,000 from prior fiscal year 2007 of $909,000, a 17.4% increase.  These expenses represented 5.8% and 5.4%, respectively, of the amount of new products sold in the past year.  Much of research and development occurs well before an actual sale and the cycle can last over one year in certain markets.  The increase is primarily related to increased salaries from additional staff and travel expenses.

SELLING AND MARKETING EXPENSES

Our sales and marketing teams are focused on customers primarily in the U.S. and Europe.  Expenses for fiscal year 2008 increased $509,000 to $8,197,000, or 6.6%, over prior fiscal year 2007 expenses of $7,688,000 (selling and marketing expenses represented 9.3% and 9.5% of revenue for fiscal 2008 and 2007, respectively).  This increase was primarily related to increased costs due to our new Spain office of $498,000 and increased consulting costs of $168,000.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for fiscal year 2008 increased $2,550,000 to $8,601,000, or 42%, over prior fiscal year 2007 expenses of $6,051,000 (general and administrative expenses represented 9.8% and 7.5% of revenue for fiscal 2008 and 2007, respectively).  Most of this increase was related to costs associated with personnel reductions in France of $590,000, legal fees and public company expenses of $397,000, increased staff salaries in the U.S. of $350,000, new system expenses of $209,000 and travel expense increases of $92,000.

NON-OPERATING INCOME AND EXPENSE

Non-operating expense decreased to $189,000 in fiscal year 2008 from $208,000 in fiscal year 2007, due primarily to the increases in interest expense of $196,000 relating to increased borrowings in France, offset by other income increases of $206,000 from fees for training and consulting.

INCOME BEFORE INCOME TAXES



Income before income taxes in fiscal year 2008 of $8,000 decreased from fiscal year 2007 of $3,359,000, a decrease of $3,351,000.  This decrease is primarily related to lower margin percentage principally from higher raw material costs resulting in approximately $1,750,000 decrease in related margins, increases in Selling and Marketing expenses related to increased revenue and General Administrative expenses related to higher costs from personnel reductions, public company expenses and improvements to infrastructure.







10



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INCOME TAXES

The effective income tax rate was (450.0)% and (156.3)% in fiscal years 2008 and 2007, respectively.  In fiscal year 2007, as a result of positive earnings in recent years, the effective income tax rate differed from the applicable mixed statutory rate of approximately 38.0% primarily due to the Companys current year release of valuation allowances of $7,258,000 resulting in a (194.3)% reduction in effective tax.



NET INCOME

Net income decreased $8,681,000 to $44,000 for fiscal year 2008 from $8,725,000 in fiscal year 2007.  This decrease is primarily related to the release in the prior year of the valuation allowance in the amount of $5,249,000 as well as lower margin percentage principally from higher raw material costs resulting in approximately a $1,750,000 decrease in potential margins, increases in Selling and Marketing relevant to increased revenue and General and Administrative expenses relevant to higher costs from personnel reductions, public company expenses and improvements to infrastructure.



IMPACT OF INFLATION AND THE ECONOMY



Inflation in labor and ingredient costs can significantly affect the Company's operations. In fiscal 2008, many of the Companys employees were 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 and fuel costs.  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 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.



LIQUIDITY AND CAPITAL RESOURCES



Selected financial ratios at the end of fiscal years 2008 and 2007 are as follows:

|                          |  |          |      |   |          |  |      |  
|------------------------- |  | -------- | ---- | - | -------- |  | ---- | -
|                          |  | June 28, |      |   | June 30, | 
|                          |  | 2008     |      |   | 2007     | 
|Liquidity Ratios          |  |          |      |   |          | 
|Current ratio             |  |          | 2.1  |   |          |  | 1.9  |  
|Receivables turnover      |  |          | 12.4 |   |          |  | 14.3 |  
|Days sales in receivables |  |          | 34.4 |   |          |  | 26.6 |  
|Inventory turnover        |  |          | 10.5 |   |          |  | 5.1  |  
|Days sales in inventory   |  |          | 59.4 |   |          |  | 88.6 |  
|Leverage Ratio            |  |          |      |   |          |  |      |  
|Long-term debt to equity  |  |          | 26.6 | % |          |  | 27.2 | %
|Operating Ratios          |  |          |      |   |          |  |      |  
|Return on investment      |  |          | 0.2  | % |          |  | 37.7 | %
|Return on assets          |  |          | 0.1  | % |          |  | 21.1 | %



Cash, cash equivalents, and short-term marketable securities were $1,016,000 at the end of fiscal year 2008 compared to $546,000 at the end of fiscal year 2007 due primarily to the reduction of working capital line of credit balance to zero and improved results in France.



During fiscal 2008, net cash provided by operating activities was $3,427,000 compared to $242,000 in fiscal 2007. The increase in net cash by operating activities was primarily due to changes in working capital items, including: decreases in inventory of $4,216,000, which were partially offset by increases in accounts receivable of $1,907,000 and accounts payable and accrued expenses of $1,520,000.



Net cash used in investing activities was $2,461,000 in fiscal year 2008, compared to $5,242,000 in fiscal year 2007. The decrease was due primarily to the previous year expansion activities at the U.S. facility, including increased capacity as well as additional production related expenses in France.  Current year projects were general in nature.  Projected capital expenditures for fiscal year 2009 are estimated to be between $3,000,000 and $5,000,000.



Net cash used in financing activities was $580,000 in fiscal 2008 compared to net cash provided by financing activities of $3,356,000 in fiscal 2007.  This decrease was primarily a result of the Company paying down certain debts.



On June 15, 2007, the Company entered into two separate lines of credit with Branch Banking and Trust Company (BB&T) with a total maximum borrowing amount of $13.5 million.  Both lines of credit bear an annual interest rate of LIBOR plus 2.25%. The first line of credit, with a maximum borrowing amount of $7.5 million and a maturity date of June 15, 2009, is secured by our accounts





11



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receivables and inventory; while the second line of credit, with a maximum borrowing amount of $6 million and a maturity of June 15, 2010, is guaranteed by Food Investors Corporation (FIC), an affiliate of ours, and secured by real estate owned by FIC.  As of June 28, 2008, there was $0 outstanding on either line of credit with a current interest rate of 4.71%.



CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS



Our significant contractual obligations as of June 28, 2008 were for debt, asset retirement obligation, and capital and operating leases. Debt by year of maturity and future rental payments under operating lease agreements are presented below. We have not engaged in commodity contract trading or significant related party transactions.



|                         |  |       |            |  |                        |   |           |             |  |   |             |  |  |                   |           |  |  |   |           | 
|------------------------ |  | ----- | ---------- |  | ---------------------- | - | --------- | ----------- |  | - | ----------- |  |  | ----------------- | --------- |  |  | - | --------- | 
|                         |  |       |            |  | Payments Due by Period |  
|Contractual Obligations  |  | Total |            |  | Less than
year         |   |           | 1 - 3 years |  |   | 4 - 5 years |  |  | More
than 5 years |          
|Debt payable  current   |  | $     | 1,950,000  |  |                        | $ | 1,950,000 |             |  | $ |           |  |  | $                 |         |  |  | $ |         | 
|Debt payable  long term |  |       | 5,671,000  |  |                        |   |         |             |  |   | 2,433,000   |  |  |                   | 1,262,000 |  |  |   | 1,976,000 | 
|Capital leases           |  |       | 22,000     |  |                        |   | 5,000     |             |  |   | 13,000      |  |  |                   | 4,000     |  |  |   |         | 
|Operating leases         |  |       | 4,719,000  |  |                        |   | 809,000   |             |  |   | 1,277,000   |  |  |                   | 1,254,000 |  |  |   | 1,380,000 | 
|Interest                 |  |       | 762,000    |  |                        |   | 199,000   |             |  |   | 279,000     |  |  |                   | 128,000   |  |  |   | 155,000   | 
|Total                    |  | $     | 13,124,000 |  |                        | $ | 2,963,000 |             |  | $ | 4,002,000   |  |  | $                 | 2,648,000 |  |  | $ | 3,511,000 | 



Assuming that there are no significant changes to our business plan, management also anticipates generating positive cash flow from operations during fiscal year 2009.  Management believes that the combination of cash on hand, cash flows from operations and available credit facilities will provide sufficient liquidity to meet our ongoing cash requirements for the foreseeable future.



OFF-BALANCE SHEET ARRANGEMENTS



We did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K, as of June 28, 2008.



ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The information required by this Item 8 is included in Item 15 of this Form 10-K.



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



Our management evaluated, with the participation of our principal executive officer and our principal financial officer, the effectiveness of the disclosure controls and procedures as of the end of the period covered by this annual report.  Based on that evaluation, the principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures, as required by Rules 13a-15(e) and 15d-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act) the Company has evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms.



Managements Report on Internal Control Over Financial Reporting



Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.





12



---



Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.



We have completed our evaluation and testing of our internal control over financial reporting as required by Section 404 of Sarbanes-Oxley and Item 308T(a) of Regulation S-K (Internal Control Report). Under the supervision and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of June 28, 2008. In making this assessment, we used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management has concluded that our internal control over financial reporting was effective as of June 28, 2008.



This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting.  Management was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.



Limitations on Effectiveness of Controls



Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.  Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by managements override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



Changes in Internal Control Over Financial Reporting



There have been no changes in the Companys internal control over financial reporting that occurred during the quarter ended June 28, 2008 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.



ITEM 9B.

OTHER INFORMATION



Not applicable.





13



---

PART III



We will file a definitive Proxy Statement for our 2008 Annual Meeting of Stockholders (the 2008 Proxy Statement) with the SEC pursuant to Regulation 14A not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K.  Only those sections of the 2008 Proxy Statement that specifically address the items set forth herein are incorporated by reference.



ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The information required to be included in this Item 10 will be set forth in the 2008 Proxy Statement under the captions Election of Directors, Executive Officers, Section 16 Compliance and Code of Ethics and is incorporated in this report by reference.



ITEM 11.

EXECUTIVE COMPENSATION



The information required to be included in this Item 11 is hereby incorporated by reference from the 2008 Proxy Statement under the caption Executive Compensation.



ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The information required to be included in this Item 12 will be set forth in the 2008 Proxy Statement under the caption Security Ownership of Certain Beneficial Owners and Management and is incorporated in this report by reference.



ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



The information required to be included in this Item 13 will be set forth in the 2008 Proxy Statement under the caption Certain Related-Person Transactions and Independence of the Board of Directors and is incorporated in this report by reference.



ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information required to be included in this Item 14 will be set forth in the 2008 Proxy Statement under the caption Principal Accountant Fees and Services and is incorporated in this report by reference.





14



---

PART IV



ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a)

Index to Financial Statements





(1)

Financial Statements



Report of Independent Registered Public Accounting Firm BDO Seidman, LLP as of and for the year ended June 28, 2008 and June 30, 2007



Consolidated Balance Sheets as of June 28, 2008 and June 30, 2007.

Consolidated Statements of Income for the Fiscal Years Ended June 28, 2008 and June 30, 2007

Consolidated Statements of Changes in Stockholders' Equity and Other Comprehensive Income for the Fiscal Years Ended June 28, 2008 and June 30, 2007



Consolidated Statements of Cash Flows for the Fiscal Years Ended June 28, 2008 and June 30, 2007

Notes to Consolidated Financial Statements



(2)

Financial Statement Schedule:



Schedule II - Valuation and Qualifying Accounts and Reserves



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:



|        |  |                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                      
|Number  |  | Description                                                                                                          
|3.1     |  | Second Amended and Restated Certificate of Incorporation (1)                                                         
|        |  |                                                                                                                      
|3.2     |  | Amended and Restated By-laws. (2)                                                                                    
|        |  |                                                                                                                      
|4.1     |  | Restricted Stock Unit Agreement, dated August 18, 2008, by between Stanislas Vilgrain and the Company. (3)           
|        |  |                                                                                                                      
|4.2     |  | Restricted Stock Unit Agreement, dated August 18, 2008, by between Ronald Zilkowski and the Company. (3)             
|        |  |                                                                                                                      
|4.3     |  | Restricted Stock Unit Agreement, dated August 18, 2008, by between L. Felipe Hasselmann and the Company. (3)         
|        |  |                                                                                                                      
|4.4     |  | Restricted Stock Unit Agreement, dated August 18, 2008, by between Gerard Bertholon and the Company. (3)             
|        |  |                                                                                                                      
|10.1*   |  | The Company's 1992 Stock Option Plan. (4)                                                                            
|        |  |                                                                                                                      
|10.2*   |  | The Company's 1999 Stock Option Plan. (4)                                                                            
|        |  |                                                                                                                      
|10.3    |  | 2007 Equity Incentive Plan (1)                                                                                       
|        |  |                                                                                                                      
|10.4    |  | Executive Compensation Plan for Fiscal Year 2008 (2)                                                                 
|        |  |                                                                                                                      
|10.5    |  | Loan and Security Agreement, dated June 15, 2007 by and between Branch Banking and Trust Company and the Company. (5)
|10.6    |  | Promissory Note, dated June 15, 2007 by and between Branch Banking and Trust Company and the Company. (5)            
|10.7    |  | Loan Agreement, dated June 15, 2007 by and between Branch Banking and Trust Company and the Company. (5)             
|10.8    |  | Security Agreement, dated June 15, 2007 by and between Branch Banking and Trust Company and the Company. (5)         
|10.9    |  | Sublease Agreement, dated May 21, 2008, by and between Honeywell Technology Solutions, Inc. and the Company. (6)     
|10.10   |  | Loan Contract dated, April 19, 2006 with Credit Industriel de Normandie. (7)                                         
|10.11   |  | Loan Contract dated, May 23, 2006 with BNP Paribas. (8)                                                              
|10.12   |  | Lease and Lease Addendum No. 1 to Lease with Duke Shirley LLC, dated June 7, 2006. (9)                               
|        |  |                                                                                                                      





15



---



|     |  |                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------
|21.1 |  | Subsidiaries of the Company                                                                                                     
|     |  |                                                                                                                                 
|23.1 |  | Consent of BDO Seidman LLP, Independent Registered Public Accounting Firm.                                                      
|     |  |                                                                                                                                 
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                             
|     |  |                                                                                                                                 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                             
|     |  |                                                                                                                                 
|32.1 |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

___

* denotes management contract, compensatory plan or arrangement.



(1) Incorporated by reference to exhibit 3.1 of the Registrants Form 8-K filed with the SEC on October 31, 2007.

(2) Incorporated by reference to exhibit 3.1 of the Registrants Form 8-K filed with the SEC on February 13, 2008.

(3) Incorporated by reference to exhibits 10.1 through 10.4 of the Registrants Form 8-K filed with the SEC on August 20, 2008.

(4) Incorporated by reference from the Registrants two Registration Statements on Form S-8, dated April 5, 1993.

(5) Incorporated by reference to exhibit the exhibit in the preceding parenthetical of the Registrants Form 8-K filed with the SEC on June 15, 2007.

(6) Incorporated by reference to exhibit 10.1 of the Registrants Form 8-K filed with the SEC on July 31, 2008.

(7) Incorporated by reference to exhibit 10.61 of the Registrants Form 8-K filed with the SEC on April 25, 2006.

(8) Incorporated by reference to exhibit 10.62 of the Registrants Form 8-K filed with the SEC on May 30, 2006.

(9) Incorporated by reference to exhibit 10.63 of the Registrants Form 8-K filed with the SEC on June 13, 2006.

(b) Exhibits:

Exhibits required to be filed in response to this paragraph of Item 15 are listed above in subparagraph (a)(3).



(c) Financial Statement Schedule:

Schedules and reports thereon by independent registered public accountants required to be filed in response to this paragraph of Item 15 are listed in Item 15(a)(2).





16



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity and on the date indicated.



| |                         |                                       | 
| | ----------------------- | ------------------------------------- | 
| | CUISINE SOLUTIONS, INC. |                                      
| |                         | (Registrant)                          | 
| |                         |                                       | 
| | By:                     | /s/ STANISLAS VILGRAIN                | 
| |                         | Stanislas Vilgrain                    | 
| |                         | Chief Executive Officer and President | 
| |                         | (Principal Executive Officer)         | 

Date: September 16, 2008



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/ STANISLAS VILGRAIN    |  | Chief Executive Officer and President                      |  | September 16, 2008
|Stanislas Vilgrain        |  | (Principal Executive Officer)                              |  |                   
|                          |  |                                                            |  |                   
|/s/ RONALD ZILKOWSKI      |  | Chief Financial Officer, Treasurer and Corporate Secretary |  | September 16, 2008
|Ronald Zilkowski          |  | (Principal Financial and Accounting Officer)               |  |                   
|                          |  |                                                            |  |                   
|/s/ JEAN-LOUIS VILGRAIN   |  | Chairman of the Board                                      |  | September 16, 2008
|Jean-Louis Vilgrain       |  |                                                            |  |                   
|                          |  |                                                            |  |                   
|/s/ SEBASTIEN VILGRAIN    |  | Director                                                   |  | September 16, 2008
|Sebastien Vilgrain        |  |                                                            |  |                   
|                          |  |                                                            |  |                   
|/s/ CHARLES C. MCGETTIGAN |  | Director                                                   |  | September 16, 2008
|Charles C. McGettigan     |  |                                                            |  |                   
|                          |  |                                                            |  |                   
|/s/ ROBERT van ROIJEN     |  | Director                                                   |  | September 16, 2008
|Robert van Roijen         |  |                                                            |  |                   
|                          |  |                                                            |  |                   
|/s/ HUGUES PRINCE         |  | Director                                                   |  | September 16, 2008
|Hugues Prince             |  |                                                            |  |                   
|                          |  |                                                            |  |                   
|/s/ JOHN D. FIRESTONE     |  | Director                                                   |  | September 16, 2008
|John D. Firestone         |  |                                                            |  |                   
|                          |  |                                                            |  |                   
|/s/ ROBERT N. HERMAN      |  | Director                                                   |  | September 16, 2008
|Robert N. Herman          |  |                                                            |  |                   











17



---

Report of Independent Registered Public Accounting Firm



Board of Directors and Stockholders

Cuisine Solutions, Inc.

Alexandria, Virginia

We have audited the accompanying consolidated balance sheets of Cuisine Solutions, Inc. and its subsidiaries as of June 28, 2008 and June 30, 2007 and the related consolidated statements of income, changes in stockholders equity and other comprehensive income, and cash flows for each of the two years in the period ended June 28, 2008.  We have also audited the schedule listed in the accompanying index.  These financial statements and schedule are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements and 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 audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule.  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 its subsidiaries at June 28, 2008 and June 30, 2007, and the results of their operations and their cash flows for each of the two years in the period ended June 28, 2008, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedules, 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, for each of the two years in the period ended June 28, 2008.



| |  |                     
| |  | --------------------
| |  | /s/ BDO SEIDMAN, LLP
| |  | BDO Seidman, LLP    





Bethesda, Maryland

September 15, 2008







18



---

CUISINE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS





|                                                                                                                                   |   |               |             |               |            |             | 
|---------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ----------- | ------------- | ---------- | ----------- | 
|                                                                                                                                   |   | June 28,
2008 |             | June 30,
2007
|ASSETS                                                                                                                             |   |               |             |               |            |            
|Current assets                                                                                                                     |   |               |             |               |            |            
|Cash and cash equivalents                                                                                                          |   | $             | 1,016,000   |               | $          | 546,000    
|Trade accounts receivable, net (Note 2)                                                                                            |   |               | 8,264,000   |               |            | 5,864,000  
|Inventory, net (Note 3 and 5)                                                                                                      |   |               | 11,322,000  |               |            | 15,081,000 
|Prepaid expenses                                                                                                                   |   |               | 482,000     |               |            | 521,000    
|Accounts receivable, related party                                                                                                 |   |             |             |               | 57,000    
|Deferred tax assets                                                                                                                |   |               | 801,000     |               |            | 680,000    
|Other current assets                                                                                                               |   |               | 458,000     |               |            | 638,000    
|TOTAL CURRENT ASSETS                                                                                                               |   |               | 22,343,000  |               |            | 23,387,000 
|                                                                                                                                   |   |               |             |               |            |            
|Investments, non-current                                                                                                           |   |               | 375,000     |               |            | 375,000    
|Fixed assets, net (Note 4 and 5)                                                                                                   |   |               | 14,012,000  |               |            | 12,520,000 
|Restricted cash (Note 9)                                                                                                           |   |               | 130,000     |               |            | 66,000     
|Deferred tax assets, net (Note 6)                                                                                                  |   |               | 5,002,000   |               |            | 4,884,000  
|Other assets                                                                                                                       |   |               | 86,000      |               |            | 83,000     
|TOTAL ASSETS                                                                                                                       |   | $             | 41,948,000  |               | $          | 41,315,000 
|                                                                                                                                   |   |               |             |               |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                               |   |               |             |              
|Current liabilities                                                                                                                |   |               |             |               |            |            
|Accounts payable and accrued expenses                                                                                              | $ | 6,357,000     |             | $             | 6,999,000 
|Accrued payroll and related liabilities                                                                                            |   |               | 2,389,000   |               |            | 2,486,000  
|Line-of-credit (Note 5)                                                                                                            |   |               | 1,049,000   |               |            | 1,811,000  
|Current portion of long-term debt (Note 5)                                                                                         |   |               | 906,000     |               |            | 777,000    
|TOTAL CURRENT LIABILITIES                                                                                                          |   |               | 10,701,000  |               |            | 12,073,000 
|                                                                                                                                   |   |               |             |               |            |            
|Long-term debt, less current portion (Note 5)                                                                                      |   |               | 5,689,000   |               |            | 5,523,000  
|Asset retirement obligation (Note 9)                                                                                               |   |               | 601,000     |               |            | 499,000    
|Deferred rent                                                                                                                      |   |               | 170,000     |               |            | 100,000    
|TOTAL LIABILITIES                                                                                                                  |   |               | 17,161,000  |               |            | 18,195,000 
|                                                                                                                                   |   |               |             |               |            |            
|Commitments and Contingencies (Note 8)                                                                                             |   |               |           |               |            |          
|                                                                                                                                   |   |               |             |               |            |            
|Stockholders equity                                                                                                               |   |               |             |               |            |            
|Preferred Stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding                                        |   |               |             |              
|Common stock - $0.01 par value, 38,000,000 shares authorized,                                                                      |   |               |             |              
|17,449,194 and 16,623,191 shares issued and outstanding                                                                            |   |               |             |               |           
|at June 28, 2008 and June 30, 2007, respectively                                                                                   |   | 174,000       |             |               | 166,000   
|Class B Stock - $0.01 par value, none and 175,000 shares authorized at June 28, 2008 and June 30, 2007, respectively. None issued. |   |             |             |               |         
|Additional paid-in capital                                                                                                         |   |               | 28,946,000  |               |            | 28,248,000 
|Accumulated deficit                                                                                                                |   |               | (6,358,000) |               |            | (6,402,000)
|Accumulated other comprehensive income:                                                                                            |   |               |             |               |           
|Cumulative translation adjustment                                                                                                  |   |               | 2,025,000   |               |            | 1,108,000  
|TOTAL STOCKHOLDERS EQUITY                                                                                                         |   |               | 24,787,000  |               |            | 23,120,000 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         | $ | 41,948,000    |             | $             | 41,315,000



See accompanying notes to consolidated financial statements.





19



---

CUISINE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME



|                                                              |  |               |            |   |               |   |            |  
|------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                              |  | Year Ended    |           
|                                                              |  | June 28,
2008 |            |   | June 30,
2007 |  
|Net sales (Notes 11 and 12)                                   |  | $             | 87,479,000 |   |               | $ | 80,331,000 |  
|Cost of goods sold (Note 10)                                  |  |               | 69,417,000 |   |               |   | 62,116,000 |  
|Gross margin                                                  |  |               | 18,062,000 |   |               |   | 18,215,000 |  
|                                                              |  |               |            |   |               |   |            |  
|Research and development                                      |  |               | 1,067,000  |   |               |   | 909,000    |  
|Selling and marketing                                         |  |               | 8,197,000  |   |               |   | 7,688,000  |  
|General and administrative                                    |  |               | 8,601,000  |   |               |   | 6,051,000  |  
|Income before non operating expense and income taxes          |  |               | 197,000    |   |               |   | 3,567,000  |  
|                                                              |  |               |            |   |               |   |            |  
|Non operating (expense) income                                |  |               |            |   |               |   |            |  
|Investment income                                             |  |               |          |   |               |   |          |  
|Interest expense                                              |  |               | (425,000   | ) |               |   | (238,000   | )
|Loss on sale of investment                                    |  |               |          |   |               |   |          |  
|Other income, net                                             |  |               | 236,000    |   |               |   | 30,000     |  
|Total  non-operating expense                                  |  |               | (189,000   | ) |               |   | (208,000   | )
|                                                              |  |               |            |   |               |   |            |  
|Income before income taxes                                    |  |               | 8,000      |   |               |   | 3,359,000  |  
|Provision for income tax benefit (Note 6)                     |  |               | 36,000     |   |               |   | 5,249,000  |  
|Income from continuing operations                             |  |               | 44,000     |   |               |   | 8,608,000  |  
|                                                              |  |               |            |   |               |   |            |  
|Income from discontinued operations                           |  |               |            |   |               |   |            |  
|Gain from dissolution of Cuisine Solutions Norway, net of tax |  |               |          |   |               |   | 117,000    |  
|Net income from discontinued operations                       |  |               |          |   |               |   | 117,000    |  
|NET INCOME                                                    |  | $             | 44,000     |   |               | $ | 8,725,000  |  
|                                                              |  |               |            |   |               |   |            |  
|                                                              |  |               |            |   |               |   |            |  
|Per common share data                                         |  |               |            |   |               |   |            |  
|Basic earnings:                                               |  |               |            |   |               |   |            |  
|Income from continuing operations                             |  | $             |          |   |               | $ | 0.52       |  
|Income from discontinued operations                           |  |               |          |   |               |   | 0.01       |  
|Net income                                                    |  | $             |          |   |               | $ | 0.53       |  
|Diluted earnings:                                             |  |               |            |   |               |   |            |  
|Income from continuing operations                             |  | $             |          |   |               | $ | 0.47       |  
|Income from discontinued operations                           |  |               |          |   |               |   | 0.01       |  
|Net income                                                    |  | $             |          |   |               | $ | 0.48       |  
|                                                              |  |               |            |   |               |   |            |  
|Weighted average shares outstanding-basic                     |  |               | 16,893,953 |   |               |   | 16,477,272 |  
|Common stock equivalents                                      |  |               | 1,022,942  |   |               |   | 1,851,379  |  
|Weighted average shares outstanding-diluted                   |  |               | 17,916,895 |   |               |   | 18,328,651 |  



See accompanying notes to consolidated financial statements.







20



---

CUISINE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME





|                                 |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|-------------------------------- |  | ------ | ------- |  | ---------- | - | ---------- | ------------ |  | - | ----------- | - |  | ------------- | --------- |  |  | - | ---------- | 
|                                 |  |        |         |  |            |   |            | Retained     |  |   |             |   |  |               |          
|                                 |  |        |         |  | Additional |   |            | Earnings     |  |   | Cumulative  |   |  | Total         |          
|                                 |  | Common |         |  | Paid-In    |   |            | (Accumulated |  |   | Translation |   |  | Stockholders' |          
|                                 |  | Stock  |         |  | Capital    |   |            | Deficit)     |  |   | Adjustment  |   |  | Equity        |          
|Balance, June 24, 2006           |  | $      | 165,000 |  |            | $ | 27,516,000 |              |  | $ | (15,127,000 | ) |  | $             | 701,000   |  |  | $ | 13,255,000 | 
|                                 |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|Exercise of common stock options |  |        | 1,000   |  |            |   | 172,000    |              |  |   |           |   |  |               |         |  |  |   | 173,000    | 
|Stock-based compensation         |  |        |       |  |            |   | 246,000    |              |  |   |           |   |  |               |         |  |  |   | 246,000    | 
|Windfall tax benefits            |  |        |       |  |            |   | 314,000    |              |  |   |           |   |  |               |         |  |  |   | 314,000    | 
|2007 Net income                  |  |        |       |  |            |   |          |              |  |   | 8,725,000   |   |  |               |         |  |  |   | 8,725,000  | 
|Other comprehensive income:      |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|Translation adjustment           |  |        |       |  |            |   |          |              |  |   |           |   |  |               | 407,000   |  |  |   | 407,000    | 
|Total comprehensive income       |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   | 9,132,000  | 
|                                 |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|Balance, June 30, 2007           |  |        | 166,000 |  |            |   | 28,248,000 |              |  |   | (6,402,000  | ) |  |               | 1,108,000 |  |  |   | 23,120,000 | 
|                                 |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|Exercise of common stock options |  |        | 8,000   |  |            |   | 625,000    |              |  |   |           |   |  |               |         |  |  |   | 633,000    | 
|Stock-based compensation         |  |        |       |  |            |   | 73,000     |              |  |   |           |   |  |               |         |  |  |   | 73,000     | 
|2008 Net income                  |  |        |       |  |            |   |          |              |  |   | 44,000      |   |  |               |         |  |  |   | 44,000     | 
|Other comprehensive income:      |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|Translation adjustment           |  |        |       |  |            |   |          |              |  |   |           |   |  |               | 917,000   |  |  |   | 917,000    | 
|Total comprehensive income       |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   | 961,000    | 
|                                 |  |        |         |  |            |   |            |              |  |   |             |   |  |               |           |  |  |   |            | 
|Balance, June 28, 2008           |  | $      | 174,000 |  |            | $ | 28,946,000 |              |  | $ | (6,358,000  | ) |  | $             | 2,025,000 |  |  | $ | 24,787,000 | 



See accompanying notes to consolidated financial statements.





21



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CUISINE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS





|                                                                            |  |               |            |   |               |   |            |  
|--------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                                            |  | Year Ended    |           
|                                                                            |  | June 28,
2008 |            |   | June 30,
2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |               |            |   |               |  
|Net income                                                                  |  | $             | 44,000     |   |               | $ | 8,725,000  |  
|Adjustments to reconcile net income to net cash provided by                 |  |               |            |   |               |   |            |  
|operating activities                                                        |  |               |            |   |               |   |            |  
|Depreciation and amortization                                               |  |               | 1,942,000  |   |               |   | 1,445,000  |  
|Allowance for doubtful accounts                                             |  |               | 15,000     |   |               |   | (300,000   | )
|Inventory obsolescence reserve                                              |  |               | 354,000    |   |               |   | (27,000    | )
|Deferred tax credit                                                         |  |               | (112,000   | ) |               |   | (5,564,000 | )
|Stock-based compensation                                                    |  |               | 73,000     |   |               |   | 246,000    |  
|Changes in assets and liabilities, net of effects of non-cash transactions: |  |               |            |   |               |   |            |  
|(Increase) decrease in trade accounts receivable                            |  |               | (1,907,000 | ) |               |   | 9,000      |  
|Decrease (increase) in inventory                                            |  |               | 4,216,000  |   |               |   | (5,323,000 | )
|Decrease (increase) in prepaid expenses                                     |  |               | 47,000     |   |               |   | (152,000   | )
|Decrease (increase) in accounts receivable, related parties                 |  |               | 56,000     |   |               |   | (32,000    | )
|Increase (decrease) in other assets                                         |  |               | 253,000    |   |               |   | 85,000     |  
|(Decrease) increase in accounts payable and accrued expenses                |  |               | (1,220,000 | ) |               |   | 1,156,000  |  
|(Decrease) increase in accrued payroll and related liabilities              |  |               | (300,000   | ) |               |   | 18,000     |  
|Increase in deferred rent                                                   |  |               | 70,000     |   |               |   | 100,000    |  
|Changes in assets and liabilities of discontinued operations                |  |               |          |   |               |   | (144,000   | )
|Net cash provided by operating activities                                   |  |               | 3,427,000  |   |               |   | 242,000    |  
|                                                                            |  |               |            |   |               |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |               |            |   |               |   |            |  
|Increase in restricted cash                                                 |  |               | (64,000    | ) |               |   | (61,000    | )
|Capital expenditures                                                        |  |               | (2,397,000 | ) |               |   | (5,181,000 | )
|Net cash used in investing activities                                       |  |               | (2,461,000 | ) |               |   | (5,242,000 | )
|                                                                            |  |               |            |   |               |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |               |            |   |               |   |            |  
|Proceeds from issuance of common stock                                      |  |               | 633,000    |   |               |   | 173,000    |  
|Net (repayment) borrowings on line-of-credit                                |  |               | (835,000   | ) |               |   | 811,000    |  
|Proceeds from debts                                                         |  |               | 549,000    |   |               |   | 2,726,000  |  
|Repayment of debts                                                          |  |               | (927,000   | ) |               |   | (354,000   | )
|Net cash (used in)/provided by financing activities                         |  |               | (580,000   | ) |               |   | 3,356,000  |  
|Effect of foreign exchange rate changes on cash and cash equivalents        |  |               | 84,000     |   |               |   | 36,000     |  
|Net increase (decrease) in cash and cash equivalents                        |  |               | 470,000    |   |               |   | (1,608,000 | )
|Cash and cash equivalents, beginning of year                                |  |               | 546,000    |   |               |   | 2,154,000  |  
|                                                                            |  |               |            |   |               |   |            |  
|CASH and CASH EQUIVALENTS, END OF YEAR                                      |  | $             | 1,016,000  |   |               | $ | 546,000    |  
|                                                                            |  |               |            |   |               |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION                           |  |               |            |   |               |   |            |  
|Cash paid during the year for interest                                      |  | $             | 494,000    |   |               | $ | 394,000    |  
|Cash paid during the year for income taxes                                  |  | $             | 3,000      |   |               | $ | 1,000      |  
|Fixed assets acquired through capital leases                                |  | $             |          |   |               | $ | 31,000     |  
|Addition to fixed assets due to recognition of asset retirement obligation  |  | $             | 102,000    |   |               | $ | 101,000    |  



See accompanying notes to consolidated financial statements.





22



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CUISINE SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



ORGANIZATION



The Company produces and markets premium, fully cooked, frozen and prepared foods to a variety of channels and geographic regions.  The Company has manufacturing facilities in U.S.A. and France and its products are sold primarily to the U.S.A. and European Union business customers in Foodservice, On Board Services, Retail, Military and National Restaurant Chains.



BASIS OF CONSOLIDATION



The consolidated financial statements include the accounts of Cuisine Solutions, Inc. and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. Certain prior year amounts have been reclassified to conform to current year presentation.



FISCAL PERIODS



The Company utilizes a 52/53 week fiscal year which ends on the last Saturday in June. For the fiscal year 2008, the first, second and fourth quarters contain 12 weeks and the third quarter contains 16 weeks. For the fiscal year 2007, the first and second quarters  contain 12 weeks while the third and fourth quarters contain 16 weeks and 13 weeks, respectively.



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 consolidated amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Judgments and assessments of uncertainties are required in applying the Companys accounting policies in the areas of sales rebates, tax assets and liabilities, allowance for doubtful accounts, and inventory obsolescence reserved. The Company bases its judgments and estimates on historical experience and other assumptions that it believes are reasonable.  Actual results may or may not differ from estimated results.



REVENUE RECOGNITION



Revenues are recognized when the earnings process is complete. This occurs when products are shipped and when title and risk of loss transfer to customers, collection is probable and pricing is fixed or determinable. Revenues are recognized net of provisions for returns, discounts, allowances and coupon redemption costs.



SEGMENT REPORTING



The Company operates only in one business segment, the foodservice industry.



CASH AND CASH EQUIVALENTS



Cash equivalents consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recorded at cost, which approximates fair value. As of June 28, 2008 and June 30, 2007, $241,000 and $204,000, respectively, of cash were held in foreign financial institutions.



INVESTMENTS



The Companys only investment is a minority interest in Cuisine Solutions Chile, which is accounted for under the cost method.



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.



The Company determines the inventory obsolescence reserve based on managements historical experience and establishes reserves against inventory according to the age of the product. Additional reserves are sometimes established as a result of lack of marketability or changes in customer consumption patterns.









23



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FAIR VALUE OF FINANCIAL INSTRUMENTS



The Company considers the recorded value of its financial instruments, which consist primarily of cash and cash equivalents, trade receivables, accounts payable, line-of-credit and long-term debt to approximate the fair value of the respective assets and liabilities at June 28, 2008 and June 30, 2007.



FIXED ASSETS



Fixed assets are stated at cost.  Machinery, equipment and furniture and fixtures which cost $1,000 or above and have an estimated useful life of two years or more are capitalized and 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.  Buildings are depreciated using the straight-line method over the estimated useful lives which range from twenty to thirty years. The Company periodically evaluates whether current events or circumstances indicate the carrying value of its depreciable assets may not be recoverable.



CAPITALIZED SOFTWARE



The Company capitalizes certain costs to obtain internal use software for significant systems and amortizes them over the estimated useful life of the software which ranges from two to ten years. Costs to obtain software for projects that are not significant are expensed as incurred.



SHIPPING AND HANDLING COSTS



Shipping and handling costs are expensed when incurred and are classified as cost of goods sold in the accompanying consolidated statements of income.



RESEARCH AND DEVELOPMENT COSTS



Research and development costs are expensed as incurred. Included in research and development is 70% of our culinary team expenses as well as 100% of direct costs.



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.



IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF



The Company accounts for the impairment of long-lived assets pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144). 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.



VALUATION OF STOCK-BASED AWARDS



The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of SFAS No. 123R. Under SFAS No. 123R, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period of the individual equity instrument.  Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options, the expected volatility of our stock, and expected dividends. The computation of the expected volatility assumption used in the Black-Scholes calculation for option grants is based on historical volatility as options on our stock are not traded.  When establishing the expected life assumption, we review annual historical employee exercise behavior of option grants with similar vesting periods. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited.  If actual forfeitures differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.





24



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EARNINGS PER SHARE



Basic earnings per common share are computed using the weighted-average number of shares outstanding during the year. Diluted earnings per common share are computed using the weighted-average number of shares outstanding during the year plus the incremental shares outstanding, assuming the exercise of diluted stock options. Anti-dilutive options of 30,000 and 15,000 were not included in the computation for fiscal year 2008 and 2007, respectively.



FOREIGN CURRENCY TRANSLATION



The statements of income of the Companys foreign subsidiaries are translated to U.S. dollars using average exchange rates. Foreign subsidiaries balance sheets have been translated using the current exchange rates. The impact of the exchange rate changes on the translation of the Subsidiarys balance sheet is reflected as a component of Other Comprehensive Income in the accompanying Statements of Changes in Stockholders Equity and Other Comprehensive Income.



RECENT ACCOUNTING PRONOUNCEMENTS



In June 2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation (FIN) No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 is effective for fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts recognized after the adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. Effective July 1, 2007, the Company adopted the provisions of FIN 48 and the effect of the adoption was not material.



In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations(SFAS 141R). SFAS 141R clarifies the information that a reporting entity provides in its financial reports about a business combination and it replaces SFAS No. 141. SFAS 141R revises the method of accounting for a number of aspects of business combinations, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activities of acquired businesses. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting beginning on or after December 15, 2008.



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157). This standard establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. On February 12, 2008, the FASB issued Staff Position No. SFAS 157-2,  Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for non-financial assets and liabilities to fiscal years beginning after November 15, 2008.  The Company has not yet assessed the impact of adopting SFAS 157.



In December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160). SFAS 160 requires noncontrolling (minority) interests to be reported as a component of equity on the balance sheet, to include all earnings of a consolidated subsidiary in consolidated results of operations and to treat all transactions between an entity and noncontrolling interest as equity transactions between the parties. SFAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years. SFAS 160 will be effective for the Company during its fiscal year beginning June 28, 2009.



In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities(SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 and is intended to provide users of financial statements with an enhanced understanding of (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161 is effective for the Company beginning June 28, 2009. The Company is currently evaluating the provisions of SFAS 161 to determine the impact on its consolidated financial statements.  The Company has not yet assessed the impact of adopting SFAS 161.



In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS shall be effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with General Accepted Accounting Principles. The Company has not yet assessed the impact of adopting SFAS 162.



In May 2008, the FASB also issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts(SFAS 163). SFAS 163 relates to recognition and measurement of premium revenue and claim liabilities and to disclosures. The premium revenue





25



---

recognition approach for a financial guarantee insurance contract links premium revenue recognition to the amount of insurance protection and the period in which it is provided. The recognition approach for a claim liability relating to a financial guarantee insurance contract requires that an insurance enterprise recognize a claim liability when the insurance enterprise expects, based on the present value of expected net cash outflows to be paid under the insurance contract discounted using a risk-free rate, that a claim loss will exceed the unearned premium revenue. An insurance enterprise is required to provide expanded disclosures about financial guarantee insurance contracts. Those disclosures would focus, in part, on the information included in the risk-management activities used by the insurance enterprise to evaluate credit deterioration in its insured financial obligations. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008.  The Company has not yet assessed the impact of adopting SFAS 163.



NOTE 2  TRADE ACCOUNTS RECEIVABLE, NET



Trade accounts receivable consisted of:



|                                |  |               |           |   |               |   |           |  
|------------------------------- |  | ------------- | --------- | - | ------------- | - | --------- | -
|                                |  | June 28,
2008 |           |   | June 30,
2007 |  
|Trade accounts receivable       |  | $             | 8,677,000 |   |               | $ | 6,237,000 |  
|Allowance for doubtful accounts |  |               | (413,000  | ) |               |   | (373,000  | )
|Trade accounts receivable, net  |  | $             | 8,264,000 |   |               | $ | 5,864,000 |  



The Company provides allowances for estimated credit losses, product returns, 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 and other receivables is also dependent on future economic and other conditions that may be beyond managements control.



NOTE 3  INVENTORY, NET



Inventory consisted of the following:



|                                      |  |               |            |   |               |   |            |  
|------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                      |  | June 28,
2008 |            |   | June 30,
2007 |  
|Raw material                          |  | $             | 4,018,000  |   |               | $ | 4,626,000  |  
|Frozen product & other finished goods |  |               | 6,741,000  |   |               |   | 9,722,000  |  
|Packaging                             |  |               | 1,032,000  |   |               |   | 989,000    |  
|                                      |  |               | 11,791,000 |   |               |   | 15,337,000 |  
|Less obsolescence reserve             |  |               | (469,000   | ) |               |   | (256,000   | )
|                                      |  | $             | 11,322,000 |   |               | $ | 15,081,000 |  



NOTE 4  FIXED ASSETS, NET



The components of fixed assets were as follows:



|                                                 |  |               |             |   |               |   |             |  
|------------------------------------------------ |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|                                                 |  | June 28,
2008 |             |   | June 30,
2007 |  
|Land                                             |  | $             | 565,000     |   |               | $ | 484,000     |  
|Buildings                                        |  |               | 6,884,000   |   |               |   | 5,869,000   |  
|Machinery & equipment                            |  |               | 19,470,000  |   |               |   | 14,488,000  |  
|Leasehold improvements                           |  |               | 4,352,000   |   |               |   | 3,509,000   |  
|Furniture & fixtures                             |  |               | 200,000     |   |               |   | 183,000     |  
|Capitalized software                             |  |               | 1,033,000   |   |               |   | 1,010,000   |  
|Construction in progress                         |  |               | 466,000     |   |               |   | 2,953,000   |  
|Capital leases                                   |  |               | 31,000      |   |               |   | 64,000      |  
|                                                 |  |               | 33,001,000  |   |               |   | 28,560,000  |  
|Less: Accumulated depreciation and amortization  |  |               | (18,986,000 | ) |               |   | (16,017,000 | )
|Less: Accumulated amortization on capital leases |  |               | (3,000      | ) |               |   | (23,000     | )
|                                                 |  | $             | 14,012,000  |   |               | $ | 12,520,000  |  



Construction in progress includes $267,000 in the implementation of the Companys new ERP systems and $79,000 in the acquisition of new computers required to work with the new systems. The total cost of the new ERP systems is estimated to be $400,000 and it is expected to be completed in the first half of fiscal year 2009.







26



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NOTE 5DEBT



Debt, at June 28, 2008 and June 30, 2007 was as follows:



|               |  |                    |  |                                       |           |   |          |             |           |                |   |           |                |  |   |           |           | 
|-------------- |  | ------------------ |  | ------------------------------------- | --------- | - | -------- | ----------- | --------- | -------------- | - | --------- | -------------- |  | - | --------- | --------- | 
|               |  |                    |  | 2008 Principal Outstanding
In Foreign |           |   | Interest |             |           | 2008 Principal |   |           | 2007 Principal | 
|Description    |  | Maturity           |  | Currency                              |           |   | Rates    |             |           | Outstanding    |   |           | Outstanding    | 
|Term Loan      |  | June 20, 2010      |  |                                       | 27,000    | € |          |             | 3.8       | %              |   | $         | 43,000         |  |   | $         | 54,000    | 
|Term Loan      |  | October 22, 2012   |  |                                       | 96,000    | € |          |             | 5.7       | %              |   |           | 151,000        |  |   |           | 155,000   | 
|Term Loan      |  | November  28, 2012 |  |                                       | 189,000   | € |          |             | 2.8       | %              |   |           | 298,000        |  |   |           | 304,000   | 
|Term Loan      |  | October 23, 2013   |  |                                       | 492,000   | € |          |             | 3.8       | %              |   |           | 775,000        |  |   |           | 766,000   | 
|Term Loan      |  | March 1, 2015      |  |                                       | 374,000   | € |          |             | 4.3       | %              |   |           | 590,000        |  |   |           | ––        | 
|Term Loan      |  | June 12, 2019      |  |                                       | 1,813,000 | € |          |             | 3.6       | %              |   |           | 2,856,000      |  |   |           | 2,560,000 | 
|Term Loan      |  | June 3, 2008       |  |                                       | ––        |   |          |             | 3.3       | %              |   |           | ––             |  |   |           | 81,000    | 
|Term Loan      |  | June 15, 2008      |  |                                       | ––        |   |          |             | 4.0       | %              |   |           | ––             |  |   |           | 20,000    | 
|Term Loan      |  | June 5, 2012       |  |                                       |           |   |          |             | 7.0       | %              |   |           | 1,423,000      |  |   |           | 1,718,000 | 
|Term Loan      |  | October 5, 2010    |  |                                       |           |   |          |             | 7.3       | %              |   |           | 359,000        |  |   |           | 490,000   | 
|Term Loan      |  | March 15, 2010     |  |                                       |           |   |          |             | 6.8       | %              |   |           | 78,000         |  |   |           | 118,000   | 
|Line of credit |  |                    |  |                                       | 482,000   | € |          |             | T4M+ 1.25 | %              |   |           | 759,000        |  |   |           | ––        | 
|Line of credit |  |                    |  |                                       | 184,000   | € |          | EONIA + 1.6 | %         |                |   | 290,000   |                |  |   |         |          
|Line of credit |  | June 15, 2009      |  |                                       |           |   |          | LIBOR+2.25  | %         |                |   |         |                |  |   | 1,811,000 |          
|Capital Lease  |  | September 18, 2008 |  |                                       |           |   |          |             | 19.4      | %              |   |           |              |  |   |           | 6,000     | 
|Capital Lease  |  | December 31, 2011  |  |                                       |           |   |          |             | 8.4       | %              |   |           | 22,000         |  |   |           | 28,000    | 
|               |  |                    |  |                                       |           |   |          | Total       |           |                | $ | 7,644,000 |                |  | $ | 8,111,000 |          
|               |  |                    |  | Less: current portion                 |           |   |          | 1,955,000   |           |                |   | 2,588,000 |               
|               |  |                    |  | Non-current portion                   |           |   | $        | 5,689,000   |           |                | $ | 5,523,000 |               



From time to time, the Company enters into separate term loans in purchasing new equipment and improvement projects.  As of June 28, 2008, the total principal balance of all these term loans was $6,572,000; of which $4,712,000 was denominated in Euros in the amount 2,991,000 €. These loans bear interest rates ranging from 2.8% to 7.3%, with maturity dates ranging from March 5, 2010 to June 12, 2019.  The loans are typically secured by the equipment.



On June 15, 2007, the Company entered into two separate lines of credit with Branch Banking and Trust Company (BB&T).  Both lines of credit bear an annual interest rate of LIBOR plus 2.25% which was 4.7% as of June 28, 2008. The first line of credit, with a maximum borrowing amount of $7.5 million and a maturity date of June 15, 2009, is secured by the Companys accounts receivables and inventory; this line had zero borrowings and provided credit security for $778,000 in standby letters of credit as of June 28, 2008. The second line of credit, with a maximum borrowing amount of $6.0 million and a maturity date of June 15, 2010, is guaranteed by Food Investors Corporation (FIC), an affiliate of the Company, and is secured by real estate owned by FIC; there were no borrowings or guarantees on this line as of June 28, 2008.



As of June 28, 2008, the loan balance under capital lease was $22,000, bearing interest at an annual rate of 8.4%, which matures on December 31, 2011.



Debt maturities during each of the next five fiscal years and thereafter on an aggregate basis at June 28, 2008 are as follows:



|           |  |   |           | 
|---------- |  | - | --------- | 
|2009       |  | $ | 1,955,000 | 
|2010       |  |   | 1,568,000 | 
|2011       |  |   | 878,000   | 
|2012       |  |   | 861,000   | 
|2013       |  |   | 405,000   | 
|Thereafter |  |   | 1,976,000 | 
|Total      |  | $ | 7,643,000 | 







27



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NOTE 6 - INCOME TAXES

Income before income tax provision is comprised of the following:



|         |  |               |            |   |               |   |           | 
|-------- |  | ------------- | ---------- | - | ------------- | - | --------- | 
|         |  | Year Ended    |           
|         |  | June 28,
2008 |            |   | June 30,
2007 |  
|Domestic |  | $             | 1,093,000  |   |               | $ | 3,044,000 | 
|Foreign  |  |               | (1,085,000 | ) |               |   | 315,000   | 
|Total    |  | $             | 8,000      |   |               | $ | 3,359,000 | 



The composition of the provision for income taxes attributable to operations was:



|                                 |  |               |          |   |               |   |            |  
|-------------------------------- |  | ------------- | -------- | - | ------------- | - | ---------- | -
|                                 |  | Year Ended    |         
|                                 |  | June 28,
2008 |          |   | June 30,
2007 |  
|Current:                         |  |               |          |   |               |  
|Federal                          |  | $             |        |   |               | $ |          |  
|State                            |  |               | 3,000    |   |               |   | 1,000      |  
|Foreign                          |  |               | 47,000   |   |               |   |          |  
|                                 |  |               | 50,000   |   |               |   | 1,000      |  
|                                 |  |               |          |   |               |   |            |  
|Deferred:                        |  |               |          |   |               |   |            |  
|Federal                          |  | $             | 149,000  |   |               | $ | 824,000    |  
|State                            |  |               |        |   |               |   | 145,000    |  
|Foreign                          |  |               | (235,000 | ) |               |   | 1,039,000  |  
|                                 |  |               | (86,000  | ) |               |   | 2,008,000  |  
|                                 |  |               |          |   |               |   |            |  
|Reversal of valuation allowance: |  | $             |        |   |               | $ | (7,258,000 | )
|                                 |  |               |          |   |               |   |            |  
|Income tax (benefit) expense     |  | $             | (36,000  | ) |               | $ | (5,249,000 | )



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 Ended    |         
|                                                                                        |  | June 28,
2008 |          |   | June 30,
2007 |  
|Federal tax expense at statutory rates                                                  |  | $             | 3,000    |   |               | $ | 1,242,000  |  
|Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate |  |               | 38,000   |   |               |   | 564,000    |  
|State income taxes, net                                                                 |  |               | 72,000   |   |               |   | 145,000    |  
|France minimum taxes                                                                    |  |               |        |   |               |   |          |  
|Period effect of change in valuation allowance                                          |  |               | (200,000 | ) |               |   | (7,258,000 | )
|Permanent differences                                                                   |  |               | 51,000   |   |               |   | 38,000     |  
|Other, net                                                                              |  |               |        |   |               |   | 19,000     |  
|Total                                                                                   |  | $             | (36,000  | ) |               | $ | (5,250,000 | )







28



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The significant components of deferred tax assets were as follows:



|                          |  |               |           |   |               |   |           |  
|------------------------- |  | ------------- | --------- | - | ------------- | - | --------- | -
|                          |  | Year Ended    |          
|                          |  | June 28,
2008 |           |   | June 30,
2007 |  
|Deferred tax assets:      |  |               |           |   |               |  
|NOL  US                  |  | $             | 3,634,000 |   |               | $ | 4,083,000 |  
|NOL  France              |  |               | 1,185,000 |   |               |   | 794,000   |  
|Capital losses            |  |               | 20,000    |   |               |   | 43,000    |  
|Foreign other             |  |               | 8,000     |   |               |   | 12,000    |  
|Inventory adjustment      |  |               | 201,000   |   |               |   | 90,000    |  
|Property and equipment    |  |               | 351,000   |   |               |   | 272,000   |  
|Allowance for bad debts   |  |               | 98,000    |   |               |   | 0         |  
|Stock options             |  |               | 181,000   |   |               |   | 220,000   |  
|Other                     |  |               | 144,000   |   |               |   | 270,000   |  
|Total deferred tax assets |  |               | 5,822,000 |   |               |   | 5,784,000 |  
|                          |  |               |           |   |               |   |           |  
|Less: Valuation allowance |  |               | (20,000   | ) |               |   | (220,000  | )
|Net deferred tax          |  | $             | 5,802,000 |   |               | $ | 5,564,000 |  



In fiscal year 2007 the Company reversed substantially all of the valuation allowance related to our deferred tax assets since it is more likely than not these assets will be realized.  This determination was primarily based on cumulative positive earnings in recent years and projected taxable income.  In evaluating our ability to realize our deferred tax assets we considered all available positive and negative evidence including our past operating results and our forecast of future taxable income.  The Company has previously provided a valuation allowance against its deferred tax assets since the realization of these tax benefits could not be reasonably assured. The net changes in total valuation allowance for the years ended June 28, 2008 and June 30, 2007 were a decrease of $200,000 and a decrease of $7,258,000, respectively, using an estimated tax rate of 40%.



The Company has foreign net operating loss carry-forwards of $3,556,000 as of June 28, 2008 that can only be used to offset taxable income in the country where the loss carry-forward was generated and may be carried forward indefinitely.



The Company has net operating loss carry-forwards for U.S. Federal and state income tax purposes of $15,450,000 (including windfall tax benefits from stock option exercises of $6,364,000) at June 28, 2008, which is available to offset future federal and state taxable income, if any, through 2025.  Section 382 of the Internal Revenue Code limits the utilization of net operating losses when ownership changes, as defined by that section, are greater than 50%.  The effects of any potential ownership changes, if any, have not been analyzed by the Company.  Management believes there have been no significant ownership changes that would impact the use of net operating losses.



During the year ended June 28, 2008, 826,003 stock options were exercised for the purchase of shares of common stock.  The exercise of these stock options generated an income tax deduction equal to the excess of the fair market value over the exercise price.  In accordance with SFAS 123(R), the Company will not recognize a deferred tax asset with respect to the excess stock compensation deductions until those deductions actually reduce our income tax liability.  The Company has not recorded a deferred tax asset related to the net operating losses resulting from the exercise of these stock options in the accompanying financial statements.  At such time as the Company utilizes these net operating losses to reduce income tax payable, the tax benefit will be recorded as an increase to additional paid in capital.  The cumulative amount of unrecognized tax benefits at June 28, 2008 was $2,546,000.



The Company adopted FIN 48 on July 1, 2007, which requires financial statement benefits to be recognized for positions taken for tax return purposes when it is more-likely-than-not that the position will be sustained.  There has been no change in our financial position and results of operations due to the adoption of FIN 48.



As of July 1, 2007 and June 28, 2008, the Company had no unrecognized tax benefits, nor did it have any that would have an effect on the effective tax rate.  Income taxes are provided based on the liability method for financial reporting purposes.  No interest or penalties were accrued as of January 1, 2007 as a result of the adoption of FIN 48.  For the year ended June 28, 2008, there was no interest or penalties recorded included in tax expense.



In France, the Company is still open to examination by the French tax authorities from 2005 forward.  In the United States, the Company is still open to examination from 2005 forward, although carryforward tax attributes that were generated prior to 2005 may still be adjusted upon examination by tax authorities if they either have been or will be utilized.





29



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NOTE 7 - EMPLOYEE BENEFITS



The Company sponsors a qualified employee savings plan (the Plan) pursuant to the provisions of Section 401(k) of the Internal Revenue Code. All employees who are at least age 18 and have one year of service with the Company are eligible to participate in the Plan. The Company makes matching contributions to the Plan equal to one-third of the first 6% of the participants voluntary contributions to the plan. Participants are immediately vested in their own tax deferred contributions plus actual earnings thereon. Participants vest 20% each year of the Companys contribution plus actual earnings and are fully vested after five years. The Company expensed $68,000 and $37,000 in fiscal years 2008 and 2007, respectively, for matching contributions made to the Plan.



The Company expensed $39,000 and $34,000 for a separate health and retirement plan for the CEO of the Company and two other non-officers but key employees in fiscal years 2008 and 2007, respectively.



During fiscal year 1993 and amended in 1998, the Company established, upon stockholder approval, the 1992 Stock Option Plan which provided for up to 1,753,000 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.  Only 134,500 non-qualified stock options are still outstanding under this plan.



During fiscal year 2000, the Company adopted the 1999 Stock Option Plan 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 30, 2007, there are 285,597 shares are available for future option grants under the 1999 Plan.  All of the grants under this plan have been issued as non-qualified stock options.



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 2008, 2007 and 2006 as follows:



|                                       |  |               |  |              
|-------------------------------------- |  | ------------- |  | -------------
|                                       |  | June 28,
2008 |  | June 30,
2007
|Expected dividend yield                |  | n/a           |  |            
|Risk-free interest rate                |  | n/a           |  | 4.61%        
|Total option life                      |  | n/a           |  | 10           
|Expected life (in years)               |  | n/a           |  | 4            
|Expected volatility                    |  | n/a           |  | 73%          
|Weighted average grant date fair value |  | n/a           |  | $7.24        



The expected life of option is based on the weighted-average years of post-vesting employment termination and employees exercises or forfeiture history.  The expected volatility is estimated based on the past three-year average closing prices of the Companys stock.  None of the Companys outstanding option awards have post-vesting restrictions.



The following is a summary of stock option activity during the fiscal years ended June 28, 2008 and June 30, 2007:



|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |            |  |           |      |  |        |  | 
|-------------------------------------------------------------------- |  | ---- | --------- | - | ----- | -------- | ---- | ---------- | --------- | - | ----- |  |  | ----- | --------- | ---------- |  | --------- | ---- |  | ------ |  | 
|                                                                     |  |      |           |   |       | Weighted |      |            | Aggregate |   |       |  |  |       |           | Weighted   |  | Aggregate
|                                                                     |  |      |           |   |       | Average  |      |            | Intrinsic |   |       |  |  |       |           | Average    |  | Intrinsic
|                                                                     |  |      |           |   |       | Exercise |      |            | Value     |   |       |  |  |       |           | Exercise   |  | Value    
|                                                                     |  | 2008 |           |   | Price |          |      | (in 000s) |           |   | 2007  |  |  | Price |           | (in 000s)
|Options outstanding, beginning of year:                              |  |      | 2,254,500 |   |       | $        | 1.13 |            |           |   |       |  |  |       | 2,448,099 |            |  | $         | 0.99 |  |        | 
|Granted                                                              |  |      |         |   |       |          |    |            |           |   |       |  |  |       | 72,000    |            |  |           | 6.00 |  |        | 
|Exercised                                                            |  |      | (826,003  | ) |       |          | 0.77 |            |           |   |       |  |  |       | (184,000  | )          |  |           | 0.94 |  |        | 
|Forfeited or expired                                                 |  |      | (5,500)   |   |       |          |    |            |           |   |       |  |  |       | (82,000   | )          |  |           |    |  |        | 
|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |           
|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |            |  |           |      |  |        | 
|Options outstanding, end of year                                     |  |      | 1,422,997 |   |       | $        | 1.34 |            |           | $ | 1,262 |  |  |       | 2,254,500 |            |  | $         | 1.13 |  | 11,160 | 
|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |            |  |          
|Weighted average remaining contractual term                          |  |      | 4.55      |   |       |          |      |            |           |   |       |  |  |       | 5.12      |            |  |           |      |  |        | 
|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |            |  |           |      |  |        | 
|Options exercisable at end of year                                   |  |      | 1,399,247 |   |       | $        | 1.21 |            |           | $ | 1,268 |  |  |       | 2,204,500 |            |  | $         | 1.00 |  | 11,140 | 
|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |            |  |          
|Weighted average remaining contractual term                          |  |      | 4.47      |   |       |          |      |            |           |   |       |  |  |       | 5.02      |            |  |           |      |  |        | 
|                                                                     |  |      |           |   |       |          |      |            |           |   |       |  |  |       |           |            |  |           |      |  |        | 
|Options exercisable at end of year and expected to be exercisable ** |  |      | 1,422,997 |   |       | $        | 1.34 |            |           | $ | 1,262 |  |  |       | 2,254,500 |            |  | $         | 1.13 |  | 11,160 | 







30



---

*

The aggregate intrinsic value on this table was calculated based on the positive difference between the closing market price of the Companys common stock at fiscal year end 2008 and 2007 and the exercise price of the underlying options.  The total intrinsic value of stock options exercised during the fiscal years ended June 28, 2008 and June 30, 2007 were $2,180,000 and $898,000, respectively.



**

Options exercisable at fiscal year end 2008 and 2007, and expected to be exercisable include both vested options and non-vested options outstanding less our expected forfeiture rate of 0%.



As of June 28, 2008 the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date is $98,000, which is expected to be recognized over a weighted average period of 1.75 years.  The Company recorded cash from the exercise of stock options of $633,000 as well as $633,000 in related tax benefits for the fiscal year ending June 28, 2008.



NOTE 8  COMMITMENTS AND CONTINGENCIES



The Company leases office and plant space, vehicles, and certain office equipment under operating leases, which expire on various dates through 2014. 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 28, 2008 were as follows:



|           |  |   |           | 
|---------- |  | - | --------- | 
|2009       |  | $ | 809,000   | 
|2010       |  |   | 668,000   | 
|2011       |  |   | 608,000   | 
|2012       |  |   | 616,000   | 
|2013       |  |   | 638,000   | 
|Thereafter |  |   | 1,380,000 | 
|Total      |  | $ | 4,719,000 | 



Rent expense for operations approximated $1,262,000 and $1,104,000 for fiscal years 2008 and 2007, respectively.  We recognize rent expense on a straight-line basis over the expected lease term. Differences between amounts paid and amounts expensed are recorded as deferred rent.



NOTE 9  ASSET RETIREMENT OBLIGATION



According to the terms and conditions of the amended lease agreement, effective June 2006, for the manufacturing facility in the U.S., the Company is required to restore a portion of the premises to its conditions as in existence prior to the alterations and improvements made by the Company. The present value of the estimated restoration cost is $601,000 and $499,000 at June 28, 2008 and June 30, 2007, respectively, and is also included in fixed assets.  In addition, the Company is required to make monthly deposits of $5,000, adjusted annually, to a restricted bank account (restricted cash) as security in fulfilling this obligation.



NOTE 10  TRANSACTIONS WITH RELATED PARTIES



The Companys 10% equity investment in Cuisine Solutions Chile for $375,000 is accounted for under the cost method as the Company does not have the ability to exercise significant influence over the operating or financial policy of Cuisine Solutions Chile.  During the fiscal year 2008 and 2007, the Company purchased $4,778,000 and $7,969,000, respectively, of products from Cuisine Solutions Chile for resale in the U.S. and Europe. The balance owed by the Company to Cuisine Solutions Chile as of June 28, 2008 and June 30, 2007 is $200,000 and $558,000, respectively.



On June 15, 2007, the Company entered into two separate lines of credit with Branch Banking and Trust Company (BB&T).  Both lines of credit bear an annual interest rate of LIBOR plus 2.25% which was 4.7% as of June 28, 2008. The first line of credit, with a maximum borrowing amount of $7.5 million and a maturity date of June 15, 2009, is secured by the Companys accounts receivables and inventory. The second line of credit, with a maximum borrowing amount of $6.0 million and a maturity date of June 15, 2010, is guaranteed by Food Investors Corporation (FIC), an affiliate of the Company, and secured by real estate owned by FIC. Both lines of credit had no balance as of June 28, 2008. During fiscal year 2008, the Company paid FIC $95,000 as a compensation for its guarantee on this line-of-credit.





31



---

NOTE 11  GEOGRAPHIC INFORMATION



Revenues to external customers are attributed to individual countries based upon the location of the customer.  Revenue by geographic area was as follows:



|                   |  |               |            |  |               |   |            | 
|------------------ |  | ------------- | ---------- |  | ------------- | - | ---------- | 
|Fiscal year ended: |  | June 28,
2008 |            |  | June 30,
2007 |  
|USA                |  | $             | 58,121,000 |  |               | $ | 55,866,000 | 
|France             |  |               | 22,750,000 |  |               |   | 18,296,000 | 
|UK                 |  |               | 2,791,000  |  |               |   | 4,071,000  | 
|Germany            |  |               | 3,084,000  |  |               |   | 1,540,000  | 
|Spain              |  |               | 733,000    |  |               |   | 558,000    | 
|Net Sales          |  | $             | 87,479,000 |  |               | $ | 80,331,000 | 



Long lived assets consisting of property and equipment by geographic area were as follows:



|       |  |               |            |  |               |   |            | 
|------ |  | ------------- | ---------- |  | ------------- | - | ---------- | 
|       |  | June 28,
2008 |            |  | June 30,
2007 |  
|USA    |  | $             | 7,714,000  |  |               | $ | 6,903,000  | 
|France |  |               | 6,298,000  |  |               |   | 5,617,000  | 
|Total  |  | $             | 14,012,000 |  |               | $ | 12,520,000 | 





NOTE 12 - SIGNIFICANT CUSTOMERS/SUPPLIERS



One military distributor represented 13.7% of the Companys total revenue during fiscal year 2008, while another military distributor represented 10.7% of the Companys total revenue during fiscal year 2007. One retail customer accounted for 15.3% of the Companys total revenue during fiscal year 2007.



There were no purchases from any one supplier that exceeded 10% of total costs during either fiscal year 2008 or 2007.



NOTE 13  SUBSEQUENT EVENTS



On July 28, 2008, the Company entered into a sublease agreement (the Sublease) with Honeywell Technology Solutions, Inc. for 15,532 square feet of office space located at 2800 Eisenhower Avenue Suite 450, Alexandria, VA  22314 (the New Location).  The target commencement date of the Sublease is October 15, 2008, and the New Location will house the Companys principal executive offices and training center.  The sublease provides for an initial term of approximately six years, ending June 30, 2014, with monthly rental payments starting from $28,475.33 and increasing 3% per annum on each July 1 thereafter.   The Company has issued an irrevocable letter of credit for $28,475.34 as a security deposit.  Honeywell Technology Solutions will reimburse the first $271,810 of tenant improvements related to the New Location.



SCHEDULE II

CUISINE SOLUTIONS, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



|                                 |  |            |         |  |            |   |         |              |  |   |            |  |  |   |         | 
|-------------------------------- |  | ---------- | ------- |  | ---------- | - | ------- | ------------ |  | - | ---------- |  |  | - | ------- | 
|                                 |  | Balance at |         |  | Additions  |   |         | Reduction/   |  |   | Balance at | 
|                                 |  | Beginning  |         |  | charged to |   |         | write-off to |  |   | End of     | 
|                                 |  | of Period  |         |  | operations |   |         | allowance    |  |   | Period     | 
|Year ended June 30, 2007         |  |            |         |  |            |   |         |              |  |   |            | 
|Allowance for doubtful accounts  |  | $          | 662,000 |  |            | $ |       |              |  | $ | 289,000    |  |  | $ | 373,000 | 
|Allowance for obsolete inventory |  | $          | 281,000 |  |            | $ |       |              |  | $ | 25,000     |  |  | $ | 256,000 | 
|                                 |  |            |         |  |            |   |         |              |  |   |            |  |  |   |         | 
|Year ended June 28, 2008         |  |            |         |  |            |   |         |              |  |   |            |  |  |   |         | 
|Allowance for doubtful accounts  |  | $          | 373,000 |  |            | $ | 40,000  |              |  | $ |          |  |  | $ | 413,000 | 
|Allowance for obsolete inventory |  | $          | 256,000 |  |            | $ | 213,000 |              |  | $ |          |  |  | $ | 469,000 | 









32