**UNITED STATES SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

**FORM 10-K**

(MARK ONE)

**x**                                  ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCALYEAR ENDED: June 30, 2007

**o**                                    TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THETRANSITION PERIOD FROM                     TO                         

*COMMISSION FILE NUMBER: 1-32439*

****

**CUISINE**SOLUTIONS, INC.

(EXACT NAME OF REGISTRANTAS SPECIFIED IN ITS CHARTER)

| **DELAWARE**(State or other  jurisdiction of  incorporation or organization) |   | **52-0948383**(I.R.S. Employer  Identification No.) |
|------------------------------------------------------------------------------|--------|-----------------------------------------------------|

 

| **85 South Bragg Street,  Suite 600** |   | ** ** |
|--------------------------------------------|--------|------------|
| **Alexandria,  VA**                        |   | **22312**  |
| (Address of  principal executive offices)  |   | (Zip Code) |

 

**Registrant’stelephone number, including area code: (703) 270-2900**

**Securitiesregistered 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**               |

 

**Securitiesregistered pursuant to Section 12(g) of the Act:**

**NONE**

(Title of each Class)

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. YES  o** **NO  x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. YES  o** **NO  x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for the such shorter period that the registrant was required to filesuch report(s), and (2) hasbeen subject to such filing requirements for the past 90 days. YES  x** **NO  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer (as defined in Rule 12b-2 of the ExchangeAct). 

| Large accelerated  filer   o |   | Accelerated  filer   o |   | Non-accelerated  filer   x |
|---------------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2of the Act).YES  o** **NO  x

The aggregate market valueof the voting stock held by non-affiliates of the registrant, based upon theclosing sale price of the Common Stock on December 8, 2006 as reported onthe American Stock Exchange, was approximately $35,273,000. Shares of CommonStock held by each officer and director and by each person who owns 5% or moreof the outstanding Common Stock have been excluded in that such persons may bedeemed to be affiliates. This determination of affiliate status is notnecessarily a conclusive determination for other purposes.

As of September 15, 2007, there were 16,669,591shares outstanding of the Registrant’s Common Stock.

**DOCUMENTS INCORPORATED BYREFERENCE**

Portionsof the Registrant’s Proxy Statement relating to Registrant’s 2007 AnnualMeeting of Stockholders are incorporated by reference into Part III ofthis Annual Report on Form 10-K.

 

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**TABLEOF CONTENTS**

| PART I   |   |                                                                                            |   |          |   |
|---------------|--------|-------------------------------------------------------------------------------------------------|--------|---------------|--------|
| Item 1.       |   | Business.                                                                                       |   | 3   |   |
| Item 1A.      |   | Risk  Factors                                                                                   |   | 7             |   |
| Item 1B.      |   | Unresolved Staff Comments                                                                       |   | 11            |   |
| Item 2.       |   | Properties                                                                                      |   | 11            |   |
| Item  3.      |   | Legal  Proceedings                                                                              |   | 11            |   |
| Item 4.       |   | Submission of Matters to a Vote of Security Holders                                             |   | 11            |   |
| PART II  |   |                                                                                            |   |          |   |
| Item 5.       |   | Market for The Registrant’s Common Equity and Related  Stockholder Matters                 |   | 12            |   |
| Item 6.       |   | Selected Financial Data                                                                         |   | 14            |   |
| Item 7.       |   | Management’s Discussion and Analysis of Financial  Condition and  Results of Operations    |   | 15            |   |
| Item 7A.      |   | Quantitative and Qualitative Disclosures About Market  Risk                                     |   | 25            |   |
| Item 8.       |   | Financial Statements and Supplementary Data                                                     |   | 25            |   |
| Item 9.       |   | Changes in and Disagreements with Accountants on  Accounting and  Financial Disclosure          |   | 26            |   |
| Item 9A.      |   | Controls and Procedures                                                                         |   | 26            |   |
| Item  9B.     |   | Other  Information                                                                              |   | 26            |   |
| PART III |   |                                                                                            |   | 27            |   |
| Item 10.      |   | Directors, Executive Officers and Corporate Governance                                          |   | 27            |   |
| Item 11.      |   | Executive Compensation                                                                          |   | 27            |   |
| Item 12.      |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters |   | 27            |   |
| Item 13.      |   | Certain Relationships and Related Transactions, and  Director Independence                      |   | 27            |   |
| Item 14.      |   | Principal Accountant Fees and Services                                                          |   | 27            |   |
| PART IV  |   |                                                                                            |   |          |   |
| Item 15.      |   | Exhibits and Financial Statement Schedules                                                      |   | 28            |   |

 

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**PART I**

**ITEM 1.**                BUSINESS

Unless the contextotherwise requires, when used in this report, the terms “Cuisine Solutions,”the “Company”, “we” and “us” refer to Cuisine Solutions, Inc. and itssubsidiary, “Cuisine Solutions France” refers to the Company’s wholly-ownedFrench subsidiary Cuisine Solutions, S.A.S., and “Cuisine Solutions Chile”refers to Cuisine Solutions Chile, S.A., a corporation in which the Companyowns a minority interest.

**General Developmentof Business**

Cuisine Solutions, Inc. was incorporated in theState of Delaware in 1974. We commenced operations in 1972 as a wholesaleproducer of French bread for daily delivery to the Washington, D.C. area. We expanded our business into new geographic marketsthroughout the 1970s. In fiscal year 1979, then known as Vie de FranceCorporation, we began offering our product through Company-owned retailbakeries where the products could be freshly baked throughout the day. Duringthe 1980s, we expanded our frozen dough product line and developed processes tofacilitate 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 theRestaurant Division to Vie de France Bakery Yamazaki, Inc. in 1991 and1994, respectively, and changed our name to Cuisine Solutions, Inc.

We began development of the Culinary Division businessin 1987, in conjunction with research previously performed by Nouvelle CarteFrance, a related French company. Due to the growth in high quality frozenproducts in Europe, our Board of Directors authorized the establishment of theCulinary Division for the express purpose of the research into and developmentof high quality frozen products for the U.S. market. In 1989, constructionbegan 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 supplyairline customers in Europe as well as to supply global foodservice and retailcustomers.

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

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

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

**Description ofBusiness**

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

The phrase “*sous-vide*” means “under vacuum” in French. While the wordshave taken on broad meaning, the original authentic usage is derived from aprocess that we pioneered and refined by our French operations. *sous-vide* is a unique and gentle method of cooking whichallows the cellular structure of food to remain intact while also pasteurizingthe product. The food’s natural moisture and juices are retained, preservingits flavor, aroma, and nutrients. Natural flavors are so enhanced that far less

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seasoning,especially salt, is required. Natural fibers soften and dissolve, leavingproteins, such as beef, tender enough to cut with a fork. The food is not onlyimproved in taste, it retains its nutritional content; a fact that is veryimportant in today’s health conscious society. As an added benefit, measurableshrinkage of *sous-vide* products is 10% or lesscompared to 20% or more on some conventionally cooked products. This entireprocess is managed through computerized cooking equipment under the supervisionof culinary professionals. Heating of our food is easy and can be accomplishedwith any kitchen oven.

**Major ProductClasses**

The *sous-vide*process places fresh ingredients in a sealed, protected environment where theyare 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. Flashfreezing minimizes crystallization and therefore eliminates the deteriorationof the food.

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

We have recently expanded our offerings to includeappetizers 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 Delissdesserts and Mini Savories hors d’oeuvres. These appetizers and mini dessertsare an important addition to Cuisine Solutions’ growing repertoire of premiumfrozen foods.

Our products do not require additional preservativesnormally found in prepared foods due to our unique cooking process. Ourmanagement believes that this makes our products especially attractive to anyfoodservice establishment.

Supported by what we believe to be the best and mostexperienced technical team in this cooking technology and enhanced by thecollaboration of some of the best culinary chefs in the industry, we provideunique value to the market place with our quality consistent products. We offerthe struggling, overworked and understaffed foodservice operators expanded menulines, potential labor savings, flexibility, serving time reduction, reducedyield losses and increased food safety.

We have positioned ourselfas a high quality provider of prepared foods, with unique product capabilitiesat competitive market prices with three operating production facilities; two in Europe and one in the U.S.

**Manufacturing**

We have manufacturingsites in Alexandria, VA, Louviers and Le Pertre, France and a minority interestin a facility in Puerto Montt, Chile that produces high quality whitefish,shellfish and salmon.

**Distribution**

Most of our sales are frozen products shippedthroughout the U.S. and Europe. We produce a diversified product mix for Europeand the U.S., while we fulfill much of our international distribution of salmonthrough products produced by Cuisine Solutions Chile. All products are shippedfrozen 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 2007. Most of thewarehouses were secured to meet the demands of foodservice customers for short lead times and productavailability. We can quickly and easily add or reduce outside warehouses whenand where it is deemed necessary.

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

We currently distributeproducts through the following sales channels:

·       OnBoard Services: Airlines, railroad and cruise lines.

·       Foodservice:Hotel banquets, convention centers, sport stadiums and other special eventssuch 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**

Our largest cost is thepurchase of raw materials, and therefore, senior management participateddirectly in the procurement process in fiscal year 2007 and 2006. In fiscalyear 2008, we intend to seek greater cost savings by negotiating with oursuppliers for further price reductions due to increased purchasing volumes, andbuying at favorable times during the year when certain raw materials are inless demand or the supply is greater.

**Trademarks**

Webelieve that ourtrademarks are important to ourbusiness success. Accordingly, wetake steps we believe arenecessary to protect these trademarks. For example, we secured, in Europe and in the U.S., the service trademark “YourCulinary Partner” and “Votre Partenaire Culinaire”, which is being used inour international advertising campaign. Wecontinually review the trademarks to determine whether there is value in payingthe fees associated with maintaining registered trademarks.

**Seasonality**

The seasonality of the frozen foodservice channeldemands typically peak in September through December, and March throughJune.

**Customer Dependency**

During fiscal year 2007and 2006, Ocean Direct, a distributor to the U.S. Army represented 10.7% and13.6%, respectively, of ourtotal revenue and a retail customer, Costco, accounted for 15.3% and 12.4% of our total revenue, respectively. We did not have sales to any onecustomer that represented 10% or more of our total revenue in fiscal year 2005.

**Backlog**

Historically we have beenable to respond quickly to the receipt of orders and, accordingly, we do notmaintain a significant sales backlog.

**Competition**

We consider ourself to be the leader in upscale fullycooked frozen food with our *sous-vide*product line within the foodservice industry in the U.S. At present, limitedbut growing competition exists within the U.S. frozen wholesale component ofthis product line, however, many firms exist in Europe within the retail andrefrigerated components of the *sous-vide*prepared foods. As such, weprimarily compete for 

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sales against foodserviceproviders in the frozen and raw segment, rather than against other upscalefrozen or *sous-vide* suppliers.

We try to develop productsthat are non-comparable, so we can determine the market price, while we alsobelieve our products can successfully compete with other comparable products inprice when product quality, value and convenience are considered. We also offerimplementation and menu development services, as well as equipment selectionsto our customers as another means of building sales. We depend on our productdevelopment, marketing, and menu items as a means of maintaining our leadershipposition within the *sous-vide*industry.

**Research &Development**

Wespent $909,000, $632,000 and $625,000 in research and development expenses infiscal years 2007, 2006, and 2005, respectively. We maintain a staff of experienced culinary and food scienceprofessionals in order to provide the marketplace with innovative products on acontinuous basis. Our chefs and scientists in the U.S. and Europe provide us with the latest in culinary trendsfrom around the world.

**Regulations**

We are subject to variousFederal, 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 DrugAdministration (“FDA”) have promulgated specific regulations containingrequirements for the processing of certain meat and poultry products. FSISpermits establishments to develop total quality control (“TQC”) systems. TQCsystems encompass all aspects of product processing and must include proceduresfor raw material control; the nature and frequency of tests to be made; thecritical check or control points to be addressed; the nature of charts andother records that will be used; the length of time such charts and recordswill be maintained; the nature of deficiencies the system is designed toidentify and control; the parameters or limits that will be used; and thepoints at which corrective action will occur and the nature of such correctiveaction—ranging from the least to the most severe. All of our facilities followthe Hazard Analysis Critical Control Points (“HACCP”) program and are auditedby international third-party auditors such as NSF-Cook and Thurber, Steritechor SGS. In addition, our France facilities comply with International FoodStandards (“IFS”) as well as the British Retail Consortium (“BRC”). We believe ouroperations comply in all material respects with applicable laws andregulations.

**Employees**

Asof June 30, 2007 and June 24, 2006 we employed approximately354 and 302 people, respectively, including full-time and part-time workers andcorporate staff. We believe that our relations with our employees are good.

**Geographic Sales**

Our sales are primarily focused in the U.S.and Europe with sales in the U.S. representing 69.5%, 68.2% and 63.2% of totalsales for fiscal years 2007, 2006 and 2005, respectively.

| **Fiscal year ending:** | ** ** | ** ** | ** ** | **June 30, 2007** | ** ** | **%  change** | ** ** | **June 24, 2006** | ** ** | **%  change** | ** ** | **June 25, 2005** | ** ** |
|-----------------------------------|------------|------------|------------|-----------------------------|------------|---------------|------------|-----------------------------|------------|---------------|------------|-----------------------------|------------|
| USA Sales                         |       | $          | 55,866,000 |                        |       | 27.7          | %          |                        | $          | 43,732,000    |       |                        | 49.5       | % |   | $ | 29,250,000 |   |
| Europe Sales                      |       | 24,150,000 |       |                        | 20.7       | %             |       | 20,003,000                  |       |          | 19.3       | %                           |       | 16,773,000 |   |
| Rest of World  Sales              |       | 315,000    |       |                        | (16.9      | %)            |       | 379,000                     |       |          | 70.0       | %                           |       | 223,000 |   |
| Net Sales                         |       | $          | 80,331,000 |                        |       | 25.3          | %          |                        | $          | 64,114,000    |       |                        | 38.6       | % |   | $ | 46,246,000 |   |

 

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**EXECUTIVE OFFICERS**

Thefollowing list and narrative sets forth the name and age of each currentexecutive officer of the Company, all officer positions held by the person with the Company and theyear in which the person first became an officer.

| **Name**              | ** ** | ** ** | ** ** | **Age** | ** ** | ** **                                                 | **Office held with Company** | ** ** | ** ** | **Since** | ** ** |
|-----------------------|------------|------------|------------|---------|------------|------------------------------------------------------------|---------------------------------------------|------------|------------|-----------|------------|
| Stanislas  Vilgrain   |       |       | 48         |    |       | Chief  Executive Officer and President                     |                                        | 1993       |       |
| Gerard J.  Bertholon  |       |       | 47         |    |       | Vice  President of Sales                                   |                                        | 2002       |       |
| L. Felipe  Hasselmann |       |       | 38         |    |       | Chief  Operating Officer                                   |                                        | 2005       |       |
| Ronald R. Zilkowski   |       |       | 50         |    |       | Chief Financial Officer, Treasurer and Corporate Secretary |                                        | 2007       |       |

 

Mr. Vilgrain was appointed Chief ExecutiveOfficer in October 1993 and resumed the additional position of Presidentin May 2007. He previously served as President and Chief Operating Officerfrom June 1991 to October 1993 and has been a director since 1991. Heserved as President of the Vie de France Culinary Division from July 1987to June 1991. Previously, he was employed by Vie de France Corporation asDirector of Staff Operations from August 1986 through June 1987. Hewas Manager of the Vie de France Corporation’s San Francisco bakery from January 1986through August 1986, after having served as Assistant Manager of theDenver bakery from July 1984 through December 1985. Prior to joiningVie de France Corporation, he was Assistant to the Director of Research &Development for the Bakery Division of Grands Moulins de Paris from June 1983to July 1984, and was Regional Manager of Operations and Sales from July 1982through May 1983 for O.F.U.P., a publication distributor in Paris, France.

Mr. Bertholon joined Cuisine Solutions in August 1989as Director of Research & Development then VP of International Salesin 1997 and VP of Marketing in December 2000. He has over 27 years of experienceand recognition in the international foodservice industry. Prior to joining theCompany, Mr. Bertholon was an Executive Chef for 9 years in the U.S. Mr. Bertholon’scurrent title is Vice President of Sales.

Mr. Hasselmann was appointed Chief OperatingOfficer in August 2005. Mr. Hasselmann was made Chief of Staff ofCuisine Solutions in January 2004. Mr. Hasselmann joined CuisineSolutions in 2000 as an International Development Director in charge of theBrazilian implementation and business development. Prior to his work at CuisineSolutions, Mr. Hasselmann was the National Director of BusinessDevelopment in Brazil for L’Oreal Paris, and he was also responsible for the L’OrealLatin America Sales Committee Area from 1995 to 2000. From 1992 to 1995, Mr. Hasselmannserved as Regional Division Manager of Frito Lay, and he was a Regional SalesManager of Coca Cola from 1989 to 1992.

Mr. Zilkowski wasnamed Chief Financial Officer in March 2007. Mr. Zilkowski wasrecently at Intermagnetics General Corp. prior to its acquisition by RoyalPhillips. Prior to that, he was Senior Vice President of Finance and Controllerat Chindex International for twelve years. He also spent six of his over 25years of corporate financial experience with the International Group ofBristol-Myers Squibb. Mr. Zilkowski is a CPA and holds an MBA from RutgersUniversity.

**ITEM 1A.**        RISKFACTORS

The following risk factorsshould be read carefully in connection with evaluating our business and theforward-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 towhich 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 factorsaffecting our business, there may be additional risks and uncertainties thatare not presently known or that are not currently believed to be significantthat may adversely affect our business, performance or financial condition inthe future.

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**Our foreignoperations subject us to a number of risks.**

In fiscal year 2007, 30.5%of our sales were generated in foreign countries. Our foreign operations aresubject to the risks described in this section, as well as risks related tofluctuations in the value of the U.S. dollar as compared to the localcurrencies, economic and political uncertainties in such countries. Oursubsidiary conducts its business in local currency and, for purposes offinancial reporting, its results are translated into U.S. dollars based onaverage exchange rates prevailing during a reporting period. During times of astrengthening U.S. dollar, our reported revenues and operating income will bereduced because the local currency will be translated into fewer U.S. dollars. Asa result, the foreign exchange fluctuations could adversely affect ourprofitability.

**Increases ininterest rates may have an adverse impact on our profitability.**

As of June 30, 2007we had total outstanding short-term borrowings of $1,811,000 which accrueinterest at a variable rate based on prevailing interest rates (7.57% as of June 30,2007). We have not used derivative financial instruments to hedge our interestrate exposure. Therefore, we cannot assure that future interest rate increaseswill not have a negative impact on our business, financial position oroperating results.

**Fluctuation in the availability and price of rawmaterials may increase our operating costs, resulting in an adverse impact onour margins.**

We purchase certain rawmaterials that are subject to availability and price fluctuations caused byseasonality, weather and other factors. While the movements of raw materialcosts and the fluctuation of availability are uncertain in fiscal 2008, wecontinue to develop strategic purchasing programs to purchase our raw materialsfrom a number of different suppliers internationally with annual arrangements. However,the implementation of these strategies might not effectively limit or eliminatethe exposure to a decline in operating results due to changes in raw materialprices and availability. Therefore, we cannot assure you that future costs andavailability fluctuations in raw material will not have a negative impact onour margins, which could harm our business, financial position or results ofoperations. Changes in government regulation may also impact our ability tosource products internationally.

**We do not enter into long term contracts with ourcustomers, and the loss of one or more significant customers could have amaterial adverse impact on our business, results of operations and financialcondition.**

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

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

We face all of the risksinherent in the production and distribution of frozen food products, includingcontamination, adulteration, spoilage, and the associated risks of productliability litigation, which may occur even with an isolated event. Although ourmodern production facilities have obtained governmental 

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approvalsthat we believe are required for their operations, and we employ what webelieve are the necessary processes and equipment in order to insure foodsafety, there can be no assurance that our procedures will be adequate toprevent the occurrence of such events. Claims alleging problems with ourproducts, whether or not successful, would likely be expensive to defend,distract management’s attention and could potentially expose us to significantliabilities. Although we maintain insurance to protect ourselves against suchliabilities, these policies are subject to exclusions and limitations, andthere can be no assurance that such insurance would be sufficient to satisfysuch liabilities. In any event, regardless of the merit or ultimate success ofany claims, such accusations could significantly harm our reputation, therebyleading to a material adverse effect on our sales and results of operations.

**The markets inwhich we compete are highly competitive.**

The food industry ishighly competitive. While we currently face little direct competition in theU.S. from very large competitors in the premium, fully cooked, frozen foodmarket, these potential competitors could choose to enter our markets. Suchcompanies are larger and have access to significantly greater financial andother resources than us. If large food companies elect to enter the premiummarkets in which we compete, they could outspend us and decrease our marketshare and potentially drive down prevailing prices in these markets, whichwould have a material adverse impact on our results of operations. WithinEurope we face direct *sous-vide*competition from a number of manufacturers. Many of these are similar or largerin size and compete directly in the same markets of Food Service, On BoardServices and Retail channels in Europe.

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

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

**As a food company, we are required to comply with manyfederal, state and local laws and regulations, and the failure to comply withapplicable laws could have a material adverse impact on our reputation andresults of operations.**

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

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

Our ability to generate cash to meet our expenses anddebt service obligations and to otherwise reduce our debt as anticipated willdepend on our future performance, which will be affected by financial,business, economic, legislative, regulatory and other factors, includingpotential changes in consumer preferences, the success of product and marketinginnovation and pressure from competitors. Many of these factors are beyond ourcontrol. Any factor that negatively affects our results of operations,including our cash flow, may also negatively affect our ability to pay theprincipal and interest on our outstanding 

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debt. If we are unable toreduce our debt as anticipated, our interest expense could be materially higherthan anticipated and our financial performance could be adversely affected. Ifwe do not have enough cash to pay our debt service obligations, we may berequired to amend our credit facility or indentures, refinance all or part ofour 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 ofthese actions on terms acceptable to us or at all.

**The market price of our common stock may fluctuatesignificantly for reasons beyond our control and potentially unrelated to ourperformance.**

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

·       priceand volume fluctuations in the stock market from time to time, which are oftenunrelated to the operating performance of particular companies;

·       significantvolatility in the market price and trading volume of shares of food companies,which is not necessarily related to the operating performance of thesecompanies;

·       changesin regulatory policies;

·       changesin our earnings or variations in our operating results;

·       anyshortfall in our revenue or net income or any increase in losses from levelsexpected by securities analysts;

·       departureof our key personnel;

·       operatingperformance of companies comparable to us;

·       generaleconomic trends and other external factors;

·       lossof one or more of our significant customers; and

·       lossof a major funding source.

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

**The market for our common stock has recently beencharacterized by relatively low trading volume, and high trading volume couldresult in a significant decline in our stock price.**

In the past, the marketfor our common stock has been characterized by low and somewhat sporadictrading volume, which has in the past led to extreme price volatility. A largevolume of stock being sold into the market at any one time or over a shortperiod of time, or the perception that such events will occur, could cause ourstock price to rapidly decline.

**Members of the Vilgrain family and their affiliatescontrol a majority of our common stock and are able to exert significantcontrol over our future direction.**

Members of the Vilgrainfamily and their affiliates together control approximately 59.8% of ouroutstanding common stock. As a result, these stockholders, if they acttogether, are able to exert significant influence, as a practical matter, onall matters requiring stockholder approval, including the election of directorsand approval of significant corporate transactions. Additionally, three membersof the Vilgrain family serve on our board of directors, including StanislasVilgrain, who also serves as our Chief Executive 

10

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Officerand President and Mr. Jean-Louis Vilgrain who serves as our Chairman ofthe Board. As a result, this concentration of ownership and representation onour board of directors and management may delay, prevent or deter a change incontrol, could deprive our stockholders of an opportunity to receive a premiumfor their common stock as part of a sale of us or our assets and might reducethe market price of our common stock.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

None.

**ITEM 2.**                PROPERTIES

We own our French facilities and properties, and lease our U.S. office andmanufacturing facilities. One of theFrench facilities is located in Louviers, France and is approximately 15,000 square feet. InMay 2006, we purchased a new production facility in Le Pertre, France withapproximately 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 approximately18,000 additional square feet at the same location which expanded the manufacturing facility fromapproximately 48,000 square feet to 66,000 square feet. We own substantiallyall of the equipment used in our facilities. Lease commitments and futureminimum lease payments are included in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and in Note 8 to theConsolidated Financial Statements, which is included elsewhere in this report.We believe that our current owned and leased properties are sufficient to meetour needs for the foreseeable future.

**ITEM 3.**                LEGALPROCEEDINGS

In 1999, we became a minority partner and providedmanagement services toward a Brazilian joint venture. Over the next severalyears, we also contributed advances, accounts receivable for services performedand extended a loan. At the end of fiscal year 2002, we filed a civil lawsuitin the Federal District Court of Brasilia against the controlling partner inthis joint venture, as a result of the Brazilian partner’s failure to disclosefinancial information and operating results of Cuisine Solutions do Brasil Ltdato Cuisine Solutions Inc. according to both the joint venture agreement andBrazilian law. We continue to seek full recovery of the amounts owed by CuisineSolutions do Brasil Ltda, including the loan of $763,000, and management andadministrative fees of $895,000 according to the joint venture agreement. Themanaging directors of Cuisine Solutions do Brasil Ltda, Jose Sanchez Aguayo andRodrigo 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 accruedany potential income, gain or expense related to this matter.

There are no othermaterial pending legal proceedings, other than ordinary, routine litigationincidental to the Company’s business, to which the Company or its subsidiary isa party or to which any of its property is subject. Management does not believethat any amounts it may be required to pay by reason thereof will have amaterial effect on the Company’s financial position or results of operations.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

11

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**PART II**

**ITEM 5.**                MARKETFOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER

Ourcommon stock is listed on the American Stock Exchange (“Amex”) under the symbol“FZN.” The following table shows the high and low common stock closing pricesas quoted on Amex. Such quotations reflect interdealer prices, without retailmark-up, mark-down or commission and may not necessarily represent actualtransactions.

| ** **                                  | ** ** | **High** | ** ** | **Low** | ** ** |
|---------------------------------------------|------------|----------|------------|---------|------------|
| **Year Ended June 24, 2006:**          |       |     |       |    |       |
| First  Quarter—September 17, 2005 |       | $        | 8.70       |    | $          | 4.48 |   |
| Second  Quarter—December 10, 2005 |       | 9.80     |       | 6.80    |       |
| Third  Quarter—April 1, 2006      |       | 11.60    |       | 7.85    |       |
| Fourth  Quarter—June 24, 2006     |       | 9.47     |       | 4.50    |       |
| **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    |       |

 

As of September 5,2007, there were approximately 522 record holders of our common stock. Wecurrently intend to retain all available funds and future earnings, if any, foruse in the operation and expansion of our business. We did not repurchase anyshares of common stock in the fourth quarter of fiscal 2007.

**Dividends**

No dividends were paidduring fiscal year 2007, 2006 or 2005. Any future determination as to thepayment of dividends will be at the discretion of our Board of Directors andwill depend upon our results of operations, financial condition, restriction inour credit facilities and other factors deemed relevant to the Board ofDirectors.

**Recent Sales ofUnregistered Securities**

There were no unregisteredsales of securities during the fiscal year ended June 30, 2007.

**SecuritiesAuthorized for Issuance under Equity Compensation Plans**

This information isprovided in Item 12 “Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters” of this Form 10-K.

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**Stock PerformanceGraph**

The following graphcompares the cumulative total stockholder return of our common stock with thecumulative total return of the NASDAQ Composite Index and the Dow Jones US FoodProducers Index for the five years ended June 29, 2007. The graph assumesthat $100 was invested on June 28, 2002 in our common stock and each indexand that all dividends were reinvested. We have not declared any cash dividendson our common stock. Stockholder returns over the indicated period should notbe considered indicative of future stockholder returns.

**COMPARISONOF 5 YEAR CUMULATIVE TOTAL RETURN*(1)**AmongCuisine Solutions, Inc., the NASDAQ Composite IndexAnd the Dow Jones US Food Producers Index

.

*$100 invested on 6/28/02 in stock or index—includingreinvestment of dividends.Fiscal year ending June 30.

| ** **                       | ** ** | **6/02**   | ** ** | **6/03**   | ** ** | **6/04**   | ** ** | **6/05**    | ** ** | **6/06**   | ** ** | **6/07**    | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------|------------|------------|------------|-------------|------------|
| **Cuisine Solutions, Inc.** | ** ** | **100.00** | ** ** | **108.33** | ** ** | **305.00** | ** ** | **1000.00** | ** ** | **841.67** | ** ** | **1008.33** | ** ** |
| **NASDAQ Composite**             | ** ** | **100.00** | ** ** | **108.29** | ** ** | **139.82** | ** ** | **140.70**  | ** ** | **151.54** | ** ** | **183.10**  | ** ** |
| **Dow  Jones US Food Producers** | ** ** | **100.00** | ** ** | **97.83**  | ** ** | **118.05** | ** ** | **124.06**  | ** ** | **134.93** | ** ** | **158.04**  | ** ** |

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(1)          The stock performancegraph shall not be deemed soliciting material or to be filed with theSecurities and Exchange Commission or subject to Regulation 14A or 14Cunder the Securities Exchange Act of 1934 (the “Exchange Act”) or to theliabilities of Section 18 of the Exchange Act, nor shall it beincorporated by reference into any past or future filing under the SecuritiesAct of 1933 (the “Securities Act”) or the Exchange Act, except to the extent wespecifically request that it be treated as soliciting material or specificallyincorporate it by reference into a filing under the Securities Act or theExchange Act.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

The following selectedfinancial data for the fiscal years ended 2007, 2006, 2005, 2004 and 2003 arederived from our audited consolidated financial statements. The data should beread in conjunction with our consolidated financial statements and notesthereto and “Management’s Discussion and Analysis of Financial Condition andResults of Operations” included elsewhere in this report.

**FIVEYEAR SUMMARY**(inthousands, except per share amounts) 

| ** **                                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Net sales                                                          |       | $80,331  |       | $64,114  |       | $46,246  |       | $35,335  |       | $26,626  |       |
| Gross margin %                                                     |       | 22.7     | %          | 25.1     | %          | 24.6     | %          | 21.9     | %          | 20.3     | %          |
| Income (loss)  from continuing operations                          |       | 10,427   |       | 3,654    |       | 1,886    |       | (343     | )          | (3,359   | )          |
| Income (loss)  from discontinued operations                        |       | 117      |       | —   |       | (177     | )          | (661     | )          | (733     | )          |
| Net income (loss)                                                  |       | 10,544   |       | 3,654    |       | 1,709    |       | (1,004   | )          | (4,092   | )          |
| Income (loss)  from continuing operations per share—basic     |       | 0.63     |       | 0.22     |       | 0.12     |       | (0.02    | )          | (0.21    | )          |
| Income (loss)  from continuing operations per share—diluted   |       | 0.57     |       | 0.20     |       | 0.12     |       | (0.02    | )          | (0.21    | )          |
| Income (loss)  from discontinued operations per share—basic   |       | 0.01     |       | —   |       | (0.01    | )          | (0.04    | )          | (0.05    | )          |
| Income (loss)  from discontinued operations per share—diluted |       | 0.01     |       | —   |       | (0.01    | )          | (0.04    | )          | (0.05    | )          |
| Net income (loss)  per share—basic                            |       | 0.64     |       | 0.22     |       | 0.11     |       | (0.06    | )          | (0.26    | )          |
| Net income (loss)  per share—diluted                          |       | 0.58     |       | 0.20     |       | 0.11     |       | (0.06    | )          | (0.26    | )          |
| Total assets                                                       |       | 42,820   |       | 26,766   |       | 18,986   |       | 17,710   |       | 16,428   |       |
| Long-term debt,  including current portion                         |       | 6,300    |       | 3,677    |       | 1,503    |       | 1,903    |       | 798      |       |
| Stockholders’ equity                                          |       | 24,625   |       | 13,255   |       | 8,651    |       | 6,572    |       | 7,466    |       |

 

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*Youshould read the following discussion in conjunction with the auditedconsolidated financial statements and the accompanying notes included in this Form 10-K.This discussion contains forward-looking statements that involve risks anduncertainties. Our actual results may differ materially from those discussed inor implied by any of the forward-looking statements as a result of variousfactors, including but not limited to those listed in “Risk Factors” andelsewhere in this Form 10-K and those listed in other documents wehave filed with the Securities and Exchange Commission.*

**CRITICAL ACCOUNTINGPOLICIES**

A summary of our significant accounting policies isincluded in Note 1 to the Consolidated Financial Statements, included elsewherein this report. Management believes that the application of these policies on aconsistent basis enables us to provide the users of the financial statementswith useful and reliable information about our operating results and financialcondition.

The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of America (“GAAP”)requires management to make estimates and assumptions that affect the reportedconsolidated amounts of assets and liabilities, disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the periods reported. Judgments andassessments of uncertainties are required in applying our accounting policiesin the areas of allowance for doubtfulaccounts, inventory obsolescence reserve, stock-based compensation and incometaxes. We base our judgments and estimates on historical experience and otherassumptions that we believe are reasonable. Actual results could materiallydiffer from those estimates.

Trade receivables arereported in the consolidated balance sheets net of the allowance for doubtfulaccounts. Generally, we consider receivables past due 30 days subsequent to thebilling date. We perform ongoing credit evaluations of our customers andgenerally extend credit without requiring collateral. We maintain an allowancefor doubtful accounts, which is determined based on historical collectionexperience or changes in the financial condition of our customers. As thesefactors change, our allowance for doubtful accounts may change in subsequentaccounting periods. Generally, losses have historically been within management’sexpectations and have not been significant. As of June 30, 2007 and June 24,2006, we maintained an allowance for doubtful accounts of approximately$373,000 and $662,000, or 6.0% and 11.0% of gross accounts receivable,respectively.

We determine the inventoryobsolescence reserve based on management’s historical experience and establishreserves against inventory according to the age of the product. Additionalreserves are sometimes established as a result of lack of marketability orchanges in customer consumption patterns. Management’s judgment is necessary indetermining the realizable value of those products to arrive at the properobsolescence reserve. Total inventory obsolescence reserve as of June 30,2007 and June 24, 2006 were $256,000 and $281,000, respectively, or 1.7%and 2.9% of total inventory.

Weaccount for corporate income taxes in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 109, *Accounting for IncomeTaxes*, which requires an asset and liability approach. This approachresults in the recognition of deferred tax assets (future tax benefits) andliabilities for the expected future tax consequences of temporary timingdifferences between the book carrying amounts and the tax basis of assets andliabilities. Future tax benefits are subject to a valuation allowance to theextent of the likelihood that the deferred tax assets may not be realized. TheCompany had a net operating loss carry-forward for U.S. Federal and stateincome tax purposes of approximately $13,970,000 as of June 30, 2007.

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**RECENT ACCOUNTINGPRONOUNCEMENTS**

In June 2006, the Financial Accounting StandardBoard (“FASB”) issued FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109*(“FIN 48”). FIN 48 iseffective for fiscal years beginning after December 15, 2006. Differencesbetween the amounts recognized in the statements of financial position prior tothe adoption of FIN 48 and the amounts recognized after the adoption should beaccounted for as a cumulative-effect adjustment recorded to the beginningbalance of retained earnings. Management is currently studying the impact onits financial position upon the adoption of this pronouncement starting thefirst quarter of the Company’s fiscal year 2008.

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities*(“SFAS 159”). SFAS 159 provides companieswith an option to report selected financial assets and liabilities at fairvalue. SFAS 159 also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between companies that choose differentmeasurement attributes for similar types of assets and liabilities and toprovide additional information that will help investors and other financialstatement users to more easily understand the effect of the company’s choice touse fair value on its earnings. Finally, SFAS 159 requires entities to displaythe fair value of those assets and liabilities for which the company has chosento use fair value on the face of the balance sheet. SFAS 159 is effectiveas of the beginning of an entity’s first fiscal year beginning after November 15,2007. Early adoption is permitted as of the beginning of the previous fiscalyear provided that the entity makes that choice in the first 120 days ofthat fiscal year and also elects to apply the provisions of SFAS 157 (seebelow). The Company is currently assessing the impact of SFAS 159 which it willbe required to adopt at the start of fiscal year 2008.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*(“SFAS157”). This standard establishes a framework for measuring fair value in GAAP,and expands disclosures about fair value measurements. This standard iseffective for financial statements issued for fiscal years beginning after November 15,2007. The Company has not yet assessed the impact of adopting SFAS 157.

In September 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans—an Amendment of FASB Statements No. 87, 88, 106and 132(R)*(“SFAS 158”). This standard requires an employer torecognize the overfunded or underfunded sta us of a defined benefitpostretirement plan as an asset or liability in its statement of financialposition and to recognize changes in that funded status in the year in whichthe changes occur as a component of comprehensive income. The standard alsorequires an employer to measure the funded status of a plan as of the date ofits year-end statement of financial position. The requirement to recognize thefunded status of a defined benefit postretirement plan is effective as of theend of the fiscal year ending after December 15, 2006. The requirement tomeasure plan assets and benefit obligations as of the date of the employer’sfiscal year-end statement of financial position is effective for the fiscal yearsending after December 15, 2008. Currently, the Company does not have adefined benefit pension plan and other postretirement plans; therefore theadoption of SFAS 158 is not expected to have a material impact on the Company’sfinancial position or results of operations.

In September 2006,the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements*(“SAB108”). SAB 108 eliminates the diversity of practice surrounding how publiccompanies quantify financial statement misstatements. It establishes anapproach that requires quantification of financial statement misstatementsbased on the effects of the misstatements on each of the Company’s financialstatements and the related financial statement disclosures. SAB 108 must beapplied to annual financial statements for their first fiscal year ending afterNovember 15, 2006. The adoption of SAB 108 did not have a material impacton the Company’s financial position, results of operations and cash flows.

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**RESULTS OFOPERATIONS**

**Fiscal year ended June 30,2007 (53 weeks) compared to fiscal year ended June 24, 2006 (52 weeks)**

**NET SALES**

| **By Geographic Region** | ** ** | ** ** | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **%  change** | ** ** |
|------------------------------------|------------|------------|------------|-----------------------------|------------|-----------------------------|------------|---------------|------------|
| USA Sales                          |       | $          | 55,866,000 |                        | $          | 43,732,000                  |       |          | 27.7       | % |   |
| Europe Sales                       |       | 24,150,000 |       | 20,003,000                  |       |                        | 20.7       | %             |       |
| Rest of World Sales                |       | 315,000    |       | 379,000                     |       |                        | (16.9      | %)            |       |
| Net Sales                          |       | $          | 80,331,000 |                        | $          | 64,114,000                  |       |          | 25.3       | % |   |

 

| ** **        | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **%  change** | ** ** |
|-------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------|------------|
| Existing products |       | 63,603,000                  |       | 56,134,000                  |       |          | 13.3       | % |   |
| New products      |       | 16,728,000                  |       | 7,980,000                   |       |          | 109.6      | % |   |
| Net Sales         |       | $                           | 80,331,000 |                        | $          | 64,114,000    |       |   | 25.3 | % |   |
|                   |            |                             |            |                             |            |               |            |  |  |  |  |  |

 

| **By Channel**        | ** ** | ** ** | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **%**

**change** | ** ** |
|----------------------------|------------|------------|------------|-----------------------------|------------|-----------------------------|------------|-------------------|------------|
| On Board Services          |       | $          | 19,385,000 |                        | $          | 17,483,000                  |       |              | 10.9       | % |   |
| Food Service               |       | 13,693,000 |       | 13,236,000                  |       |                        | 3.5        | %                 |       |
| Retail                     |       | 23,766,000 |       | 15,984,000                  |       |                        | 48.7       | %                 |       |
| Military                   |       | 17,612,000 |       | 13,868,000                  |       |                        | 27.0       | %                 |       |
| National Restaurant  Chain |       | 5,875,000  |       | 3,543,000                   |       |                        | 65.8       | %                 |       |
| Net Sales                  |       | $          | 80,331,000 |                        | $          | 64,114,000                  |       |              | 25.3       | % |   |

 

Net Sales of $80,331,000for fiscal year 2007 increased $16,217,000 or 25.3% over prior fiscal yearsales of $64,114,000. After considering the additional week in 2007, a 53 weekyear, sales were still up 22.9% compared to the prior fiscal year 2006. We donot have any defined segments since all of our products are produced similarlydespite the sales channel or area of distribution. Our new product sales rosedramatically to $16,728,000 in fiscal year 2007 from prior fiscal year 2006 newproduct sales of $7,980,000, a 109.6% increase. These new product sales aredefined as sales over the first year of introduction. For fiscal year 2007 wehad gains in all sales channels with Retail now the largest channel with a48.7% increase over prior fiscal year 2006, a gain of approximately $7.8million. While we consider new products and channel information helpful to thereader we cannot forecast any particular trends for our sales as a result ofsuch information. Our sales cycle can run over one year in certain markets beforerecognizing a sale.

**GROSS MARGIN**

The gross margin decreasedthis fiscal year 2007 to 22.7% compared the prior fiscal year 2006 of 25.1%.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,continued increases in facility expansion and increased costs associated withnew product introductions. While we strive to attain a 30% gross margin target,our sales growth and new product introductions are below target margins. Weanticipate our margins will remain constant with current levels for theforeseeable future.

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**RESEARCH ANDDEVELOPMENT EXPENSES**

Research and developmentexpenses increased in fiscal year 2007 to $909,000 from prior fiscal year 2006of $632,000, a 43.8% increase. These expenses represented 5% and 8%,respectively, of the amount of new products sold in the past year. Much ofresearch and development occurs well before an actual sale and the cycle canlast over one year in certain markets. The increase is primarily related toincreased salaries from additional staff.

**SELLING ANDMARKETING EXPENSES**

Our sales and marketingteams are focused on customers primarily in the USA and Europe. Expenses forfiscal year 2007 increased $1,085,000 to $7,688,000 or 16.4% over prior fiscalyear 2006 expense of $6,603,000 (selling and marketing expenses represented9.6% and 10.3% of revenue for fiscal 2007 and 2006, respectively). Thisincrease was primarily related to increased costs associated with in-storedemonstrations of $534,000, increased fees to brokers on higher sales of$247,000 and increased salary expense of $156,000.

**GENERAL ANDADMINISTRATIVE EXPENSES**

General and administrativeexpenses for fiscal year 2007 increased $915,000 to $6,051,000, or 17.8%, over priorfiscal year 2006 expenses of $5,136,000 (general and administrative expensesrepresented 7.5% and 8.0% of revenue for fiscal 2007 and 2006, respectively). Mostof this increase was related to increased salaries for additional staff of$1,106,000 offset partially by decreased stock option expenses of $219,000 andlower consulting fees of $119,000.

**NON-OPERATINGINCOME AND EXPENSE**

Non-operating expenseincreased to $208,000 in fiscal year 2007 from $67,000 in fiscal year 2006, dueprimarily to the increase in interest expense to $238,000 in fiscal year 2007from $131,000 in fiscal year 2006, relating to the increased outstandingborrowings in the U.S. and France.

**INCOME BEFOREINCOME TAXES**

Income before income taxesin fiscal year 2007 of $3,359,000 decreased slightly from fiscal year 2006 of$3,674,000 or a decrease of $315,000. This decrease is primarily related tolower margins percentage principally from higher raw material costs resultingin approximately a $2,000,000 decrease in potential margins offset by lowerincreases in Selling and Marketing and General Administrative expenses relevantto revenue and decreased by higher Research and Development as well as higherinterest expenses.

**INCOME TAXES**

The effective income tax rate was (210.4)% and 0.5% infiscal years 2007 and 2006, respectively. In fiscal year 2007, as a result ofpositive earnings in recent years, the effective income tax rate differed fromthe applicable mixed statutory rate of approximately 38.0% primarily due to theCompany’s current year release of valuation allowances of $9,077,000 resultingin a (248.4)% reduction in effective tax.

In June 2006, theFASB issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes, an interpretation of FASB Statement No. 109* (“FIN48”). This Statement addresses uncertainty in tax positions recognized in acompany’s financial statements and stipulates a recognition threshold andmeasurement of a tax position taken or expected to be taken in a tax return. Managementis currently studying the impact on its financial position upon the adoption ofthis pronouncement starting in the first quarter of the Company’s fiscal year2008.

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**DISCONTINUEDOPERATIONS**

The Company completed theclosedown of the Norway facility and received official notice in June 2007.The favorable $117,000 amount represents the final resolution of the estimatedexpenses related to the closedown effort.

**NET INCOME**

Net income increased$6,890,000 to $10,544,000 for fiscal year 2007 from $3,654,000 in fiscal year2006. The primary reason for the increase was a reversal of a valuationallowance on our deferred tax of $9,077,000 offset by increased deferred taxesof $2,008,000 for a net benefit of $7,069,000. Decreased gross margins of 22.7%in fiscal year 2007 compared to 25.1% in fiscal year 2006 were offset by slowerincreases of selling and marketing expense and general and administrativeexpense as a percent of sales.

**Fiscal year ended June 24,2006 compared to fiscal year ended June 25, 2005**

**NET SALES**

Netsales by region for fiscal year 2006 and 2005 are as follows: 

| ** **    | ** ** | **June 24, 2006** | ** **     | **June 25, 2005** | ** ** | **%  Change**  | ** ** |
|---------------|------------|-----------------------------|----------------|-----------------------------|------------|----------------|------------|
| U.S.          |       | $                           | 44,470,000     |                        | $          | 29,843,000     |       |   | 49.0 | % |   |
| France        |       | 19,644,000                  |           | 16,403,000                  |       |           | 19.8       | % |   |
| **Net Sales** | ** ** | **$**                       | **64,114,000** | ** **                  | **$**      | **46,246,000** | ** ** | ** ** | **38.6** | **%** | ** ** |

 

Fiscal year 2006 revenue of $64,114,000 reflects aconsolidated sales increase of 38.6% from fiscal year 2005 revenue of$46,246,000. The increase in sales in fiscal year 2006 was attributable to a49.0% increase in U.S. sales and a 19.8% increase in sales from France comparedto fiscal year 2005. The increases in sales is primarily due to the salesvolume increase of 39.8% and 19.5% in fiscal year 2006 and 2005, respectively;while unit sales prices remained the same in fiscal year 2006 versus anincrease of 9.4% in fiscal year 2005 is primarily due to the change in productmix. In fiscal year 2006, four out of five sales channels in the U.S. and twoof the four sales channels in France experienced a growth in revenue.

The Company’s premium food is sold to airlines,passenger rail lines and harbor cruise lines restaurants, hotel and conventioncenter restaurants and banquets, casinos, retail supermarkets, the U.S.military and restaurant chains. In fiscal year 2006, U.S. sales accounted for69.4% of total revenue compared to 64.5% of total revenue in fiscal year 2005;while France accounted for 30.6% of total revenue in fiscal year 2006 and 35.5%in fiscal 2005, after eliminating inter-company sales.

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Netsales by sales channel for fiscal year 2006 and 2005 are as follows:

| ** **                  | ** ** | **June 24, 2006** | ** **     | **June 25, 2005** | ** ** | **%  Change**  | ** ** |
|-----------------------------|------------|-----------------------------|----------------|-----------------------------|------------|----------------|------------|
| On Board Services           |       | $                           | 17,483,000     |                        | $          | 16,459,000     |       |   | 6.2 | % |   |
| Foodservice                 |       | 13,236,000                  |           | 11,370,000                  |       |           | 16.4       | % |   |
| Retail                      |       | 15,934,000                  |           | 10,162,000                  |       |           | 56.8       | % |   |
| Military                    |       | 13,868,000                  |           | 6,222,000                   |       |           | 122.9      | % |   |
| National  Restaurant Chains |       | 3,593,000                   |           | 2,033,000                   |       |           | 76.7       | % |   |
| **Total**                   | ** ** | **$**                       | **64,114,000** | ** **                  | **$**      | **46,246,000** | ** ** | ** ** | **38.6** | **%** | ** ** |

 

The Company’s net sales increased by 38.6% to$64,114,000 in fiscal year 2006 as compared to $46,246,000 in fiscal 2005 dueto the improved economy and the successful implementation of new CuisineSolutions sales strategies resulting in higher demand and sales of theproducts. Collectively, in the U.S. and France, Company sales grew in all fivesales channels and it had at least double digit growth in four of the fivechannels. Although Retail sales of Cuisine Solutions branded items grewsubstantially in the U.S. in fiscal 2006, Retail sales grew cautiously inFrance with its private label items after management chose to discontinuecertain low margin products in fiscal 2005. During fiscal year 2006, Retail,Military and National Restaurant Chains sales increased substantially by 56.8%,122.9%, and 76.7%, respectively, while Foodservices and On Board Services salesincreased by 16.4% and 6.2%, respectively.

CuisineSolutions fiscal year 2006 and 2005 sales in the U.S. by sales channel are asfollows:

| ** **                  | ** ** | **Year Ended**         | ** **     | **%**                       | ** ** |
|-----------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| ** **                  | ** ** | **June 24, 2006** | ** **     | **June 25, 2005** | ** ** | **Change** | ** ** |
| On Board Services           |       | $                           | 8,616,000      |                        | $          | 10,866,000 |   |   | (20.7 | %) |   |
| Foodservice                 |       | 8,473,000                   |           | 6,198,000                   |       |   | 36.7 | % |   |
| Retail                      |       | 9,970,000                   |           | 4,580,000                   |       |   | 117.7 | % |   |
| Military                    |       | 13,868,000                  |           | 6,222,000                   |       |   | 122.9 | % |   |
| National  Restaurant Chains |       | 3,543,000                   |           | 1,977,000                   |       |   | 79.2 | % |   |
| **Total**                   | ** ** | **$**                       | **44,470,000** | ** **                  | **$**      | **29,843,000** | ** ** | ** ** | **49.0** | **%** | ** ** |

 

In the U.S., net sales grew by 49.0% in fiscal year2006 as compared to fiscal year 2005. This is primarily due to increasedproduct demand in all sales channels except On Board Services. Military salesachieved both the highest increase in sales of $7,646,000 and growth rate of122.9% due to continual increase in sales to the U.S. military’s field feedingprograms providing meals to the troops overseas. Also, Retail had a stronggrowth of 117.7% compared to fiscal 2005 primarily resulting from increased CuisineSolutions branded package products sold to warehouse and supermarket retailers.A better diversified sales focus on each of the channels and the improvement inthe U.S. economy was very important to the growth in the U.S. sales. NationalRestaurant Chains sales grew 79.2% as the Company gained more productsplacements in more restaurants during fiscal 2006. On Board Services sales inthe U.S. continued to slump as many of the carriers continued having financialdifficulties and were eliminating meals to many destinations or were tryingalternative menus in first and business class to cut costs.

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CuisineSolutions fiscal year 2006 and 2005 sales in France by sales channel are asfollows:

| ** **        | ** ** | **June 24, 2006** | ** **     | **June 25, 2005** | ** ** | **%  Change**  | ** ** |
|-------------------|------------|-----------------------------|----------------|-----------------------------|------------|----------------|------------|
| On Board Services |       | $                           | 8,867,000      |                        | $          | 5,593,000      |       |   | 58.5 | % |   |
| Foodservice       |       | 4,763,000                   |           | 5,172,000                   |       |           | (7.9       | %) |   |
| Retail            |       | 5,964,000                   |           | 5,582,000                   |       |           | 6.8        | % |   |
| New Business      |       | 50,000                      |           | 56,000                      |       |           | (10.7      | %) |   |
| **Total**         | ** ** | **$**                       | **19,644,000** | ** **                  | **$**      | **16,403,000** | ** ** | ** ** | **19.8** | **%** | ** ** |

 

Net sales grew by 19.8% inFrance in fiscal year 2006 as compared to fiscal year 2005 due primarily to the58.5% increase in sales in the On Board Services channel and the stability ofthe Retail channel. The On Board Services channel sales grew 58.5% in fiscal2006 to $8,867,000 compared to the $5,593,000 in fiscal year 2005 as airlinesin Europe continued their recovery. The Foodservice channel sales decreased by$409,000 to $4,763,000 in fiscal year 2006 from $5,172,000 in fiscal year 2005due to a decline in demand resulting from political demonstrations and strikesin France that affected the hospitality industry during early February toearly April as well as reduced poultry consumption due to initial scaresof an avian flu outbreak in Europe during the third quarter of fiscal 2006. TheRetail sales increased $382,000 to $5,964,000 in fiscal year 2006, compared tothe $5,582,000 in fiscal year 2005, largely due to cautious growth aftermanagement’s decision to phase-out certain low margin private label items infiscal 2005.

**GROSS MARGIN**

Acomparison of net sales, gross margin and gross margin percentages for fiscalyear 2006 and 2005 are as follows:

| ** **              | ** ** | **Year Ended**         | ** ** |
|-------------------------|------------|-----------------------------|------------|
| ** **              | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| Net sales               |       | $                           | 64,114,000 |   | $ | 46,246,000 |   |
| Gross margin            |       | $                           | 16,112,000 |   | $ | 11,374,000 |   |
| Gross margin percentage |       | 25.1                        | %          | 24.6 | % |

 

Gross margin increased 41.7% in fiscal year 2006compared to fiscal year 2005, due primarily to significantly higher sales, andto a lesser extent increased production efficiencies, and better control overprocurement costs. Gross margin as a percent of sales increased to 25.1% forfiscal 2006 compared to 24.6% in fiscal 2005. Cuisine Solutions has developednew sales channels in the U.S. over the past few years to include military andretail accounts and meals for passenger rail lines, and has seen relativelyconsistent results in its French subsidiary. We expect gross margins as apercentage of sales to continue to increase as sales continue to grow and webenefit from economies of scale although operating costs are expected to increasein fiscal year 2007 due to increased facility space and equipment in both theU.S. and France.

During fiscal year 2006,the management re-evaluated the presentation of its French financial statementsand determined that certain manufacturing and depreciation costs should bereclassified to conform to the current year presentation. As a result, infiscal year 2005, cost of goods sold, other operating income and other incomeincreased by $909,000, $23,000 and $3,000, respectively; while selling and administrativeexpenses and interest expenses decreased by $882,000 and $1,000. There was noimpact to the Company’s results of operations for either year as a result ofthese reclassifications.

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**SELLING ANDADMINISTRATIVE EXPENSES**

Acomparison of selling and administrative expenses by region are as follows:

| ** **                                 | ** ** | **June 24, 2006** | ** **     | **June 25, 2005** | ** ** | **%  Change** | ** **    |
|--------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|---------------|---------------|
| U.S.                                       |       | $                           | 9,203,000      |                        |       | $             | 6,670,000     |   |   |   | 38.0 | % |   |
| France                                     |       | 3,090,000                   |           |                        | 2,585,000  |          |          |   | 19.5 | % |   |
| Total selling and  administrative expenses | ** ** | **$**                       | **12,293,000** | ** **                  | ** ** | **$**         | **9,255,000** |   | ** ** | ** ** | **32.8** | **%** | ** ** |

 

Selling and administrativeexpenses increased $3,038,000, or 32.8% in fiscal 2006 to $12,293,000, comparedto $9,255,000 in fiscal 2005. These expenses as a percentage of net salesdecreased to 19.2% in fiscal 2006 from 20.0% in fiscal 2005. The decrease inselling and general administrative expenses as a percentage of sales fromfiscal 2006 versus fiscal 2005 is a result of continued cost reduction,efficient use of existing resources and the significant increase in salesdescribed above. Payroll and related expenses, marketing and sales promotion,and travel expenses increased by $1,924,000, $1,056,000, and $229,000,respectively, in fiscal year 2006, compared to fiscal year 2005, as a result ofthe increased sales activities. Also included in the selling and administrativeexpenses in fiscal year 2006 is a $217,000 non-cash compensation charge as theresult of implementing the new accounting standard SFAS No. 123(R), *Share-Based Payment*.

**DEPRECIATION ANDAMORTIZATION**

The fiscal year 2006depreciation and amortization expense increased by $78,000 over fiscal year2005 to $979,000 as a result of an increased amount of machinery and equipmentdeployed in fiscal 2006 to meet the production requirement from the salesincrease. The portions of depreciation and amortization expense that areincluded in the cost of goods sold are $817,000 and $726,000 in fiscal year2006 and 2005, respectively.

**NON-OPERATINGINCOME AND EXPENSE**

Non-operating expensedecreased to $50,000 in fiscal year 2006 from $99,000 in fiscal year 2005, dueprimarily to the decrease in interest expense, to $122,000 in fiscal year 2006from $168,000 in fiscal year 2005, relating to the outstanding borrowings inthe U.S. and France, offset by the loss of $49,000 in selling the long-terminvestment in fiscal year 2006 and the decreases of investment interest incometo $57,000 in fiscal year 2006 from $64,000 in fiscal year 2005. Foreignexchange gains of $17,000 and $2,000 are included in non-operating expense for2006 and 2005.

**INCOME FROM CONTINUINGOPERATIONS**

Acomparison of income from continuing operations for fiscal year 2006 and 2005are as follows:

| ** **                         | ** ** | **Year Ended**         | ** ** |
|------------------------------------|------------|-----------------------------|------------|
| ** **                         | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| Income from  continuing operations |       |                        | $          | 3,654,000 |   |   |   | $ | 1,886,000 |   |   |
|                                    |            |                             |            |  |  |  |  |  |  |  |  |

 

The Company reportedincome from continuing operations of $3,654,000 in fiscal year 2006, or a 93.7%increase, compared to the income from continuing operations of $1,886,000 infiscal year 2005. The increase in income from continuing operations wasprimarily driven by a 38.6% increase in sales and lower cost of goods sold dueto manpower and production efficiencies and lower raw material cost.

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**DISCONTINUEDOPERATIONS**

The Company’s Board ofDirectors approved a plan to discontinue its manufacturing operations in Norwayon October 26, 2004 as the Company had incurred consecutive losses fromits operations in Norway since inception. The Company liquidated theinvestments and satisfied the outstanding debt obligation during fiscal year2006 with no impact to the net income. The discontinued operations in Norwayhad reported a $177,000 loss for the fiscal year 2005.

**NET INCOME**

Acomparison of net income for fiscal year 2006 and 2005 are as follows:

| ** ** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
|------------|------------|-----------------------------|------------|-----------------------------|------------|
| Net income |       |                        | $          | 3,654,000                   |       |   |   | $ | 1,709,000 |   |   |
|            |            |                             |            |                             |            |  |  |  |  |  |  |

 

The Company reported net income of $3,654,000 forfiscal year 2006, or a 113.8% increase, compared to the net income of$1,709,000 for fiscal year 2005. The increase in income was primarily driven bya 38.6% increase in sales and lower cost of goods sold due to manpower andproduction efficiencies and lower raw material cost.

Netincome (loss) by region are as follows:

| ** **                        | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| U.S.                              |       |                        | $          | 3,277,000                   |       |   |   | $ | 1,677,000 |   |   |
| France                            |       |                        | 377,000    |                        |       |   | 372,000 |   |   |
| Norway  (discontinued operations) |       |                        | —     |                        |       |   | (340,000 | ) |   |
| **Total net income**              | ** ** | ** **                  | **$**      | **3,654,000**               |       | ** ** | ** ** | **$** | **1,709,000** |   |   |

 

Cuisine Solutions increased its net income in the U.S.fiscal year 2006 by $1,600,000, or 95.4%, from net income of $1,677,000 infiscal year 2005 to $3,277,000 in fiscal year 2006. This increase in net incomein the U.S. is due primarily to a 49.0% increase in sales, strong growth in theMilitary and Retail channels, and a 52.4% increase in gross margin.

Cuisine Solutions Francehad its seventh consecutive profitable year since the acquisition by CuisineSolutions in 1999. Net income increased $5,000, or 1.3%, to $377,000 in fiscalyear 2006. Profits in France in fiscal year 2005 were $372,000. In spite of thelackluster economy during the last four years in Europe, the French subsidiaryreported profitable results and double-digit growth in the On Board Servicechannel in France. However, in fiscal 2006, the growth in the On Board Servicechannel was offset by the decline in demand in the Foodservice channel due topolitical demonstrations and strikes in France that affected the hospitalityindustry during early February to early April as well as reducedpoultry consumption due to initial scares of an avian flu outbreak in Europeduring the third quarter of fiscal 2006.

**IMPACT OF INFLATIONAND THE ECONOMY**

Inflation in labor andingredient costs can significantly affect the Company’s operations. In fiscal2007, many of the Company’s employees were paid hourly rates related to, butgenerally higher than the federal minimum rates. The Company’s sales pricing structureallows for the fluctuation of raw material prices and fuel costs. As a result,market price variations do not significantly affect the gross margin realizedon product sales. However, most customers require a sixty-day notice for pricechanges in order to update their internal systems and evaluate the impact ofprice changes. Therefore, in the event of a continuous commodity priceincrease, the Company must either absorb the price increase during thatsixty-day period or discontinue sales to the customer, and risk losing thelong-term business relationship.

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**LIQUIDITY ANDCAPITAL RESOURCES**

Selectedfinancial ratios at the end of fiscal years 2007 and 2006 are as follows:

| ** **                | ** ** | **June 30,** | ** ** | **June 24,** | ** ** |
|---------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| Liquidity Ratios          |       |              |       |              |       |   |   |   |   |
| Current ratio             | ** ** | ** **        | **1.9**    |              |       |   | 1.8 |   |   |
| Receivables turnover      | ** ** | ** **        | **14.3**   |              |       |   | 14.1 |   |   |
| Days sales in receivables | ** ** | ** **        | **26.6**   |              |       |   | 30.5 |   |   |
| Inventory turnover        | ** ** | ** **        | **5.1**    |              |       |   | 5.9 |   |   |
| Days sales in inventory   | ** ** | ** **        | **88.6**   |              |       |   | 71.9 |   |   |
| Leverage Ratio            |       |              |       |              |       |   |   |   |   |
| Long-term debt to equity  | ** ** | ** **        | **25.6**   | **%**             |       |   | 27.7 | % |   |
| Operating Ratios          |       |              |       |              |       |   |   |   |   |
| Return on investment      | ** ** | ** **        | **42.8**   | **%**             |       |   | 27.6 | % |   |
| Return on assets          | ** ** | ** **        | **24.6**   | **%**             |       |   | 13.7 | % |   |

 

Cash, cash equivalents, and short-term marketablesecurities were $546,000 at the end of fiscal year 2007 compared to $2,154,000at the end of fiscal year 2006.

During fiscal 2007, cash provided by operatingactivities was $242,000 compared to $2,819,000 in fiscal 2006. The decrease incash by operating activities was primarily due to changes in working capitalitems: increases in inventory of $5,323,000 were only slightly offset byincreases in accounts payable and accrued expenses of $842,000.

Cash used in investing activities was $5,242,000 infiscal year 2007, compared to $3,573,000 in fiscal year 2006. The increase wasdue primarily to expansion activities at the USA facility, including increasedcapacity as well as additional production related expenses in France. Projectedcapital expenditures for fiscal year 2008 are estimated to be between$2,000,000 and $4,000,000.

Cash provided by financing activities was $3,356,000in fiscal 2007 compared to $691,000 in fiscal 2006. The Company increased itsborrowing capacity (see below) and secured a $1,718,000 equipment loan.

On June 15, 2007, theCompany entered into two separate lines of credit with Branch Banking and TrustCompany (“BB&T”) with a total maximum borrowing amount of $13.5 million. Bothlines of credit bear an annual interest rate of LIBOR plus 2.25%. The firstline of credit, with a maximum borrowing amount of $7.5 million and amaturity date of June 15, 2009, is secured by our accounts receivables andinventory; while the second line of credit, with a maximum borrowing amount of$6 million and a maturity of June 15, 2010, is guaranteed by FoodInvestors Corporation (“FIC”), an affiliate of us, and secured by real estateowned by FIC. These two lines of credit replace our $5 million line ofcredit with the Bank of Charles Town, which was scheduled to mature on November 1,2007 and has been terminated. As of June 30, 2007 there is $1,811,000 outstandingon the new first line of credit with a current interest rate of 7.57%.

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**CONTRACTUALOBLIGATIONS AND COMMERCIAL COMMITMENTS**

Oursignificant contractual obligations as of June 30, 2007 were for debt,asset retirement obligation, and capital and operating leases. Debt by year ofmaturity and future rental payments under operating lease agreements arepresented below. We have not engaged in off-balance sheet financing, commoditycontract trading or significant related party transactions.

| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|-------------------------------------------|------------|
| **Contractual Obligations** | ** ** | ** ** | ** ** | **Total**  | ** ** | **Less than  1 year**           | ** ** | **1 - 3 years** | ** ** | **4 - 5 years** | ** ** | **More than  5 years** | ** ** |
| Debt  payable—current       |       | $          | 2,578,000  |       | $          | 2,578,000                                 |       | $ | — |   | $ | — |   | $ | — |   |
| Debt payable—long  term     |       | 5,499,000  |       | —     |       | 1,717,000                                 |       | 1,582,000 |   | 2,200,000 |   |
| Capital leases                   |       | 34,000     |       | 10,000     |       | 13,000                                    |       | 11,000 |   | — |   |
| Operating leases                 |       | 5,020,000  |       | 795,000    |       | 1,209,000                                 |       | 1,143,000 |   | 1,873,000 |   |
| Interest                         |       | 1,003,000  |       | 181,000    |       | 287,000                                   |       | 194,000 |   | 341,000 |   |
| Total                            |       | $          | 14,134,000 |       | $          | 3,564,000                                 |       | $ | 3,226,000 |   | $ | 2,930,000 |   | $ | 4,414,000 |   |

 

Assuming that there are nosignificant changes to our business plan, management also anticipatesgenerating positive cash flow from operations during fiscal year 2008. Managementbelieves that the combination of cash on hand, cash flows from operations andavailable credit facilities will provide sufficient liquidity to meet ourongoing cash requirements for the foreseeable future.

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks(i.e., the risk of loss arising from adverse changes in market rates andprices) to which we are exposed are: interest rates and foreign exchange rates.

**Interest RateExposure:**

Our exposure to marketrisk for changes in interest rates relates primarily to our debt portfolio. Wehave not used derivative financial instruments in our debt portfolio. A portionof the debt portfolio has fluctuating interest rates that change with changesin the market.

**Foreign Currency** Exchange Rate Exposure:

Sales generated in foreigncountries were 30.5% of fiscal year 2007 sales. The majority of our sales aredenominated in U.S. dollars, thereby limiting our risk to changes in foreigncurrency rates. The functional currency in France is the Euro. Fluctuation inthe U.S. dollar/Euro exchange rate impacts the translation of the incomestatements of our French operations into U.S. dollars and affectsyear-over-year comparability of our operating results. The assets of ourforeign subsidiary constituted approximately 31.7% of the our consolidatedtotal assets and fluctuations in the U.S. dollar/Euro exchange rate similarlyimpact the translation of the value of these assets into U.S. dollars. We donot enter into hedging transactions to mitigate exposure to exchange ratefluctuations as we currently do not believe that this is justified by thepotential exposure of the costs associated with derivative securities. Informationabout our foreign currency translation policy is set forth in Note 1 to theNotes to our Audited Consolidated Financial Statements contained in this Form 10-K.

**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

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

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**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

Our management evaluated, with the participation ofour principal executive officer and our principal financial officer, theeffectiveness of the disclosure controls and procedures as of the end of theperiod covered by this annual report. Based on that evaluation, the principalexecutive officer and principal financial officer concluded that the Company’sdisclosure controls and procedures, as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934, are effective to ensure that informationrequired to be disclosed in the reports that the Company files or submits underthe Securities Exchange Act of 1934 is recorded, processed, summarized andreported, within the time periods specified in the rules and forms of theSecurities and Exchange Commission.

There have been no changes in the Company’s internal control overfinancial reporting that occurred during the fiscal year 2007 that havematerially affected or are reasonably likely to materially affect the Company’sinternal control over financial reporting.

Our management, includingour Chief Executive Officer and Chief Financial Officer, do not expect that ourdisclosure controls and procedures will prevent all errors and fraud. Indesigning and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable, not absolute, assurance of achieving thedesired control objectives. Further, the design of a control system mustreflect the fact that there are resource constraints, and managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management’s override of the control. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions. Overtime, controls may become inadequate because of changes in conditions, or thedegree of compliance with the policies or procedures may deteriorate. Becauseof the inherent limitations in a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.

**ITEM 9B.**       OTHER INFORMATION

Notapplicable.

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**PART III**

Wewill file a definitive Proxy Statement for our 2007 Annual Meeting ofStockholders (the “2007 Proxy Statement”) with the SEC pursuant to Regulation14A not later than 120 days after the end of our fiscal year. Accordingly,certain information required by Part III has been omitted under GeneralInstruction G(3) to Form 10-K. Only those sections of the 2007Proxy Statement that specifically address the items set forth herein areincorporated by reference.

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information requiredto be included in this Item 10 is hereby incorporated by reference from the 2007 Proxy Statement underthe captions “Election of Directors,” “Section 16 Compliance” and “Code ofEthics.”

**ITEM 11.**         EXECUTIVECOMPENSATION

The information requiredto be included in this Item 11 is hereby incorporated by reference from the 2007 Proxy Statement underthe caption “Executive Compensation.”

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

The information requiredto be included in this Item 12 is hereby incorporated by reference from the 2007 Proxy Statement underthe captions “Stock Option Plans” and “Voting Securities and Principal HoldersThereof.”

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information requiredto be included in this Item 13 is hereby incorporated by reference from the 2007 Proxy Statement underthe caption “Certain Related Person Transactions” and “Director Independence.”

**ITEM 14.**         PRINCIPALACCOUNTANT FEES AND SERVICES

The information requiredto be included in this Item 14 is hereby incorporated by reference from the 2007 Proxy Statement underthe caption “Principal Accountant Fees and Services.”

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**PART IV**

**ITEM 15.**         EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Index toFinancial Statements

(1)   FinancialStatements

| Report of Independent  Registered Public Accounting Firm BDO Seidman, LLP as of and for the year  ended June 30, 2007 and June 24, 2006                                          |   |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|
|                                                                                                                                                                                       |   |         |
| Consolidated Balance  Sheets as of June 30, 2007 and June 24, 2006.                                                                                                              |   |         |
| Consolidated Statements  of Income for the Fiscal Years Ended June 30, 2007, June 24, 2006  and June 25, 2005                                                               |   |         |
| Consolidated Statements  of Changes in Stockholders’ Equity and Other Comprehensive Income for the  Fiscal Years Ended June 30, 2007, June 24, 2006 and June 25,  2005 |   |         |
| Consolidated Statements  of Cash Flows for the Fiscal Years Ended June 30, 2007, June 24,  2006 and June 25, 2005                                                           |   |         |
| Notes to Consolidated  Financial Statements                                                                                                                                                |   |         |

 

(2)          Financial StatementSchedule:

Schedule II—Valuation and Qualifying Accounts andReserves

All other schedules are omitted because they are notapplicable or the required information is shown in the financial statements ornotes thereto.

(3)          Exhibits:

| Exhibit    | ** ** | ** **                                                                                                                        |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                   | ** ** | ** ** |
| 3.1        |       | Restated Certificate of  Incorporation, as amended. (1)                                                                           |
| 3.2        |       | Certificate of  Amendment of Restated Certificate of Incorporation. (2)                                                           |
| 3.3        |       | By-laws. (3)                                                                                                                      |
| 10.1*      |       | The Company’s  1992 Stock Option Plan. (4)                                                                                   |
| 10.2*      |       | The Company’s  1999 Stock Option Plan. (4)                                                                                   |
| 10.3       |       | Loan Contract  dated April 19, 2006 with Credit Industriel de Normandie. (5)                                                 |
| 10.4       |       | Loan Contract  dated May 23, 2006 with BNP Paribas. (6)                                                                      |
| 10.5       |       | Lease and Lease  Addendum No. 1 to Lease with Duke Shirley LLC, dated June 7, 2006.  (7)                                |
| 10.6       |       | Loan and Security  Agreement dated June 15, 2007 by and between Branch Banking and Trust  Company and the Company(10,1). (8) |
| 10.7       |       | Promissory Note  dated June 15, 2007 by and between Branch Banking and Trust Company and  the Company(10.2). (8)             |
| 10.8       |       | Loan Agreement  dated June 15, 2007 by and between Branch Banking and Trust Company and  the Company(10.3). (8)              |
| 10.9       |       | Security  Agreement dated June 15, 2007 by and between Branch Banking and Trust  Company and the Company(10.4). (8)          |
| 21.1       |       | Subsidiary of the Company                                                                                                         |

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| 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. |

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*                    denotesmanagement contract, compensatory plan or arrangement.

(1)          Incorporated byreference to exhibit 3-A of the Registrant’s Form 10-K/Afor the year ended June 27, 1992, filed with the SEC on April 2, 1993.

(2)          Incorporated byreference to exhibit 3.2 of the Registrant’s Form 8-A filed with theSEC on February 22, 2005.

(3)          Incorporated byreference to exhibit 3-B of the Registrant’s Form 10-K/Afor the year ended June 27, 1992, filed with the SEC on April 2, 1993.

(4)          Incorporated byreference from the Registrant’stwo Registration Statements on Form S-8, dated April 5, 1993.

(5)          Incorporated byreference to exhibit 10.61 of the Registrant’s Form 8-K filedwith the SEC on April 25,2006.

(6)          Incorporated byreference to exhibit 10.62 of the Registrant’s Form 8-K filedwith the SEC on May 30,2006.

(7)          Incorporated byreference to exhibit 10.63 of the Registrant’s Form 8-K filedwith the SEC on June 13,2006.

(8)          Incorporated byreference to the exhibit in the preceeding parenthetical of the Registrant’sForm 8-K filed with the SEC on June 15, 2007.

(b)          Exhibits:

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

(c)           Financial StatementSchedule:

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

29

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following person on behalf of the registrant and inthe capacity and on the date indicated.
|        | ** ** | **CUISINE  SOLUTIONS, INC.** |
|--------|------------|------------------------------|
|   |       | (Registrant)                 |
|   |       | By:                          |   | /s/ STANISLAS VILGRAIN |
|   |       |                         |   | Stanislas Vilgrain |
|   |       |                         |   | Chief Executive Officer and President |
|   |       | * *                     |   | (Principal Executive Officer) |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.
|                           | **Signature** | ** **                                                       | ** ** | ** **               | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|---------------------------|---------------|------------------------------------------------------------------|------------|--------------------------|-----------|------------|------------|------------|----------|------------|
| /s/ STANISLAS VILGRAIN    |          | Chief Executive  Officer and President                           |       | September 18,  2007 |
| Stanislas Vilgrain        |          | (Principal Executive Officer)                                    |       |                     |
| /s/ RONALD ZILKOWSKI      |          | Chief Financial  Officer, Treasurer and                          |       | September 18,  2007 |
| Ronald Zilkowski          |          | Corporate Secretary(Principal Financial  and Accounting Officer) |       |                     |
| /s/ JEAN-LOUIS VILGRAIN   |          | Chairman of the  Board                                           |       | September 18,  2007 |
| Jean-Louis Vilgrain       |          |                                                             |       |                     |
| /s/ SEBASTIEN VILGRAIN    |          | Director                                                         |       | September 18,  2007 |
| Sebastien Vilgrain        |          |                                                             |       |                     |
| /s/ CHARLES C. MCGETTIGAN |          | Director                                                         |       | September 18,  2007 |
| Charles C. McGettigan     |          |                                                             |       |                     |
| /s/ ROBERT VAN ROIJEN     |          | Director                                                         |       | September 18,  2007 |
| Robert van Roijen         |          |                                                             |       |                     |
| /s/ HUGUES PRINCE         |          | Director                                                         |       | September 18,  2007 |
| Hugues Prince             |          |                                                             |       |                     |
| /s/ JOHN D. FIRESTONE     |          | Director                                                         |       | September 18,  2007 |
| John D. Firestone         |          |                                                             |       |                     |
| /s/ ROBERT N. HERMAN      |          | Director                                                         |       | September 18,  2007 |
| Robert N. Herman          |          |                                                             |       |                     |

 

30

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**Report ofIndependent Registered Public Accounting Firm**

Board of Directors andStockholdersCuisine Solutions, Inc.Alexandria, Virginia

We have audited the accompanying consolidated balancesheets of Cuisine Solutions, Inc. and subsidiary as of June 30, 2007and June 24, 2006 and the related consolidated statements of income,changes in stockholders’ equity and other comprehensive income, and cash flowsfor each of the three years in the period ended June 30, 2007. We havealso audited the schedule listed in the accompanying index. These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements and schedule are free ofmaterial misstatement. The Company is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements andschedule, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of thefinancial statements and schedule. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Cuisine Solutions, Inc. and subsidiary at June 30, 2007and June 24, 2006, and the results of their operations and their cashflows for each of the three years in the period ended June 30, 2007**,** in conformity with accounting principlesgenerally accepted in the United States of America.

Also, in our opinion, theschedule presents fairly, in all material respects, the information set forththerein, for each of the three years in the period ended June 30, 2007.

/s/BDO Seidman, LLP**BDO Seidman, LLP**

Bethesda, MarylandSeptember 18, 2007

F-1

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**CUISINE SOLUTIONS, INC.CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                                                                                           | ** ** | **June 30, 2007** | ** **     | **June 24, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                           | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Current assets                                                                                                                                                                       |       |                        |           |                        |       |
| Cash and cash equivalents                                                                                                                                                            |       | $                           | 546,000        |                        | $          | 2,154,000 |   |
| Trade accounts receivable, net (Note 2 and 5)                                                                                                                                        |       | 5,864,000                   |           | 5,360,000                   |       |
| Inventory, net (Note 3 and 5)                                                                                                                                                        |       | 15,081,000                  |           | 9,461,000                   |       |
| Prepaid expenses                                                                                                                                                                     |       | 521,000                     |           | 373,000                     |       |
| Accounts receivable, related party                                                                                                                                                   |       | 57,000                      |           | 25,000                      |       |
| Other current assets                                                                                                                                                                 |       | 638,000                     |           | 616,000                     |       |
| Assets from discontinued operations (Note 13)                                                                                                                                        |       | —                      |           | 6,000                       |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                 | ** ** | **22,707,000**              | ** **     | **17,995,000**              | ** ** |
| Investments, non-current                                                                                                                                                             |       | 375,000                     |           | 375,000                     |       |
| Fixed assets, net  (Note 4 and 5)                                                                                                                                                    |       | 12,520,000                  |           | 8,321,000                   |       |
| Restricted cash  (Note 12)                                                                                                                                                           |       | 66,000                      |           | 5,000                       |       |
| Deferred tax  assets, net (Note 6)                                                                                                                                                   |       | 7,069,000                   |           | —                      |       |
| Other assets                                                                                                                                                                         |       | 83,000                      |           | 70,000                      |       |
| TOTAL ASSETS                                                                                                                                                                         | ** ** | **$**                       | **42,820,000** | ** **                  | **$**      | **26,766,000** | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                       | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Current liabilities                                                                                                                                                                  |       |                        |           |                        |       |
| Accounts payable and accrued expenses                                                                                                                                                |       | $                           | 6,999,000      |                        | $          | 5,831,000 |   |
| Accrued payroll and related liabilities                                                                                                                                              |       | 2,486,000                   |           | 2,455,000                   |       |
| Line-of-credit (Note 5)                                                                                                                                                              |       | 1,811,000                   |           | 1,000,000                   |       |
| Current portion of long-term debt (Note 5)                                                                                                                                           |       | 777,000                     |           | 356,000                     |       |
| Liabilities from discontinued operations (Note 13)                                                                                                                                   |       | —                      |           | 150,000                     |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                                            | ** ** | **12,073,000**              | ** **     | **9,792,000**               | ** ** |
| Long-term debt, less current portion (Note 5)                                                                                                                                        |       | 5,523,000                   |           | 3,321,000                   |       |
| Asset retirement  obligation (Note 9)                                                                                                                                                |       | 499,000                     |           | 398,000                     |       |
| Deferred rent                                                                                                                                                                        |       | 100,000                     |           | 0                           |       |
| TOTAL LIABILITIES                                                                                                                                                                    | ** ** | **18,195,000**              | ** **     | **13,511,000**              | ** ** |
| Commitments and Contingencies (Note 8)                                                                                                                                               | ** ** | **—**                  | ** **     | **—**                  | ** ** |
| Stockholders’  equity                                                                                                                                                           |       |                        |           |                        |       |
| Common stock—$.01 par value, 20,000,000 shares  authorized, 16,623,191 and 16,439,191 shares issued and outstanding at  June 30, 2007 and June 24, 2006, respectively |       | 166,000                     |           | 165,000                     |       |
| Class B Stock—$.01 par value, 175,000 shares  authorized, none issued                                                                                                      |       | —                      |           | —                      |       |
| Additional paid-in capital                                                                                                                                                           |       | 27,934,000                  |           | 27,516,000                  |       |
| Accumulated deficit                                                                                                                                                                  |       | (4,583,000                  | )              | (15,127,000                 | )          |
| Accumulated other  comprehensive income                                                                                                                                              |       |                        |           |                        |       |
| Cumulative translation adjustment                                                                                                                                                    |       | 1,108,000                   |           | 701,000                     |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                                      | ** ** | **24,625,000**              | ** **     | **13,255,000**              | ** ** |
| TOTAL LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                                                     | ** ** | **$**                       | **42,820,000** | ** **                  | **$**      | **26,766,000** | ** ** |

 

See accompanying notes to consolidated financial statements.

F-2

----

**CUISINE SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF INCOME**

| ** **                                                               | ** ** | **Year Ended**         | ** **     |
|--------------------------------------------------------------------------|------------|-----------------------------|----------------|
| ** **                                                               | ** ** | **June 30, 2007** | ** **     | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| **Net  sales (Note 12)**                                                 | ** ** | **$**                       | **80,331,000** | ** ** | **$** | **64,114,000** | ** ** | **$** | **46,246,000** | ** ** |
| Cost of goods sold (Note 10)                                             |       | 62,116,000                  |           | 48,002,000 |   | 34,872,000 |   |
| **Gross  margin**                                                        | ** ** | **18,215,000**              | ** **     | **16,112,000** | ** ** | **11,374,000** | ** ** |
| Research and development                                                 |       | 909,000                     |           | 632,000 |   | 625,000 |   |
| Selling and marketing                                                    |       | 7,688,000                   |           | 6,603,000 |   | 4,912,000 |   |
| General and administrative                                               |       | 6,051,000                   |           | 5,136,000 |   | 3,865,000 |   |
| **Income  before non operating expense and income taxes**                | ** ** | **3,567,000**               | ** **     | **3,741,000** | ** ** | **1,972,000** | ** ** |
| Non operating  income (expense)                                          |       |                        |           |   |   |   |   |
| Investment income                                                        |       | —                      |           | 57,000 |   | 80,000 |   |
| Interest expense                                                         |       | (238,000                    | )              | (131,000 | ) | (170,000 | ) |
| Loss on sale of investment                                               |       | —                      |           | (49,000 | ) | — |   |
| Other income, net                                                        |       | 30,000                      |           | 56,000 |   | 23,000 |   |
| **Total  non-operating expense**                                         | ** ** | **(208,000**                | **)**          | **(67,000** | **)** | **(67,000** | **)** |
| **Income before income taxes**                                           | ** ** | **3,359,000**               | ** **     | **3,674,000** | ** ** | **1,905,000** | ** ** |
| Provision for income tax benefit (expense) (Note 6)                      |       | 7,068,000                   |           | (20,000 | ) | (19,000 | ) |
| **Income  from continuing operations**                                   | ** ** | **10,427,000**              | ** **     | **3,654,000** | ** ** | **1,886,000** | ** ** |
| Income (loss)  from discontinued operations (Note 13)                    |       |                        |           |   |   |   |   |
| Loss from operations of Cuisine Solutions Norway                         |       | —                      |           | — |   | (67,000 | ) |
| Gain from dissolution of Cuisine Solutions Norway,  net of tax |       | 117,000                     |           | — |   | — |   |
| Loss from translation adjustment                                         |       | —                      |           | — |   | (110,000 | ) |
| Net income (loss) from discontinued operations                           | ** ** | **117,000**                 | ** **     | **—** | ** ** | **(177,000** | **)** |
| **NET  INCOME**                                                          | ** ** | **$**                       | **10,544,000** | ** ** | **$** | **3,654,000** | ** ** | **$** | **1,709,000** | ** ** |
| Per common share  data                                                   |       |                        |           |   |   |   |   |
| Basic earnings:                                                          |       |                        |           |   |   |   |   |
| Income from continuing operations                                        | ** ** | **$**                       | **0.63**       | ** ** | **$** | **0.22** | ** ** | **$** | **0.12** | ** ** |
| Income (loss) from discontinued operations                               | ** ** | **0.01**                    | ** **     | **—** | ** ** | **(0.01** | **)** |
| Net income                                                               | ** ** | **$**                       | **0.64**       | ** ** | **$** | **0.22** | ** ** | **$** | **0.11** | ** ** |
| Diluted earnings:                                                        |       |                        |           |   |   |   |   |
| Income from continuing operations                                        | ** ** | **$**                       | **0.57**       | ** ** | **$** | **0.20** | ** ** | **$** | **0.11** | ** ** |
| Income (loss) from discontinued operations                               | ** ** | **0.01**                    | ** **     | **—** | ** ** | **(0.01** | **)** |
| Net income                                                               | ** ** | **$**                       | **0.58**       | ** ** | **$** | **0.20** | ** ** | **$** | **0.10** | ** ** |
| Weighted average  shares outstanding—basic                          | ** ** | **16,477,272**              | ** **     | **16,249,566** | ** ** | **15,927,524** | ** ** |
| Common stock equivalents                                                 | ** ** | **1,851,379**               | ** **     | **1,922,799** | ** ** | **1,610,746** | ** ** |
| Weighted average shares  outstanding—diluted                        | ** ** | **18,328,651**              | ** **     | **18,172,365** | ** ** | **17,538,270** | ** ** |

 

See accompanying notes to consolidated financial statements.

F-3

----

**CUISINE SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY ANDOTHER COMPREHENSIVE INCOME**

| ** **                                       | ** ** | ** **  | ** **  | ** **     | ** ** | **Retained**     | ** ** | **Unrealized Gains**      | ** **      | ** **      | ** ** | ** **             | ** **  |
|--------------------------------------------------|------------|-------------|-------------|----------------|------------|------------------|------------|--------------------------------|-----------------|-----------------|------------|------------------------|-------------|
| ** **                                       | ** ** | ** **  | ** **  | **Additional** | ** ** | **Earnings**     | ** ** | **(Losses) on Debt** | ** **      | **Cumulative**  | ** ** | **Total**              | ** **  |
| ** **                                       | ** ** | **Common**  | ** **  | **Paid-In**    | ** ** | **(Accumulated** | ** ** | **and Equity**            | ** **      | **Translation** | ** ** | **Stockholders’** | ** **  |
| ** **                                       | ** ** | **Stock**   | ** **  | **Capital**    | ** ** | **Deficit)**     | ** ** | **Investments**                | ** **      | **Adjustment**  | ** ** | **Equity**             | ** **  |
| **Balance, June 26, 2004**                  | ** ** | **$**       | **159,000** | ** **     | **$**      | **26,380,000**   | ** ** | **$**                          | **(20,490,000** | **)**           |       | **$**                  | **17,000**  | ** ** |   |   | **$** | **506,000** | ** ** |   |   | **$** | **6,572,000** | ** ** |   |
| Exercise of common stock options                 |       | 2,000       |        | 208,000        |       | —           |       |                           | —          |            |       |                   | —      | ** ** |   |   | 210,000 |   |   |
| Stock-based compensation                         |       | —      |        | 166,000        |       | —           |       |                           | —          |            |       |                   | —      | ** ** |   |   | 166,000 |   |   |
| 2005 Net income                                  |       | —      |        | —         |       | 1,709,000        |       |                           | —          |            |       |                   | —      | ** ** |   |   | 1,709,000 |   |   |
| Other comprehensive  income                      |       |        |        |           |       |             |       |                           |            |            |       |                   |        | ** ** |   |   |   |   |   |
| Unrealized losses on debt and equity investments |       | —      |        | —         |       | —           |       |                           | (24,000         | )               |       |                   | —      | ** ** |   |   | (24,000 | ) |   |
| Translation adjustment                           |       | —      |        | —         |       | —           |       |                           | —          |            |       |                   | 18,000      | ** ** |   |   | 18,000 |   |   |
| **Total comprehensive income**                   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** |                           | ** **      | ** **      |       |                   | ** **  | ** ** |   |   | **1,703,000** | ** ** |   |
| **Balance, June 25, 2005**                  | ** ** | **161,000** | ** **  | **26,754,000** | ** ** | **(18,781,000**  | **)**      |                           | **(7,000**      | **)**           |       |                   | **524,000** | ** ** |   |   | **8,651,000** | ** ** |   |
| Exercise of common stock options                 |       | 4,000       |        | 411,000        |       | —           |       |                           | —          |            |       |                   | —      | ** ** |   |   | 415,000 |   |   |
| Stock-based compensation                         |       | —      |        | 351,000        |       | —           |       |                           | —          |            |       |                   | —      | ** ** |   |   | 351,000 |   |   |
| 2006 Net income                                  |       | —      |        | —         |       | 3,654,000        |       |                           | —          |            |       |                   | —      | ** ** |   |   | 3,654,000 |   |   |
| Other  comprehensive income                      |       |        |        |           |       |             |       |                           |            |            |       |                   |        | ** ** |   |   |   |   |   |
| Unrealized gain on debt and equity investments   |       | —      |        | —         |       | —           |       |                           | 7,000           |            |       |                   | —      | ** ** |   |   | 7,000 |   |   |
| Translation adjustment                           |       | —      |        | —         |       | —           |       |                           | —          |            |       |                   | 177,000     | ** ** |   |   | 177,000 |   |   |
| **Total comprehensive income**                   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** |                           | ** **      | ** **      |       |                   | ** **  | ** ** |   |   | **3,838,000** | ** ** |   |
| **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 |   |   |
| 2007 Net income                                  |       | —      |        | —         |       | 10,544,000       |       |                           | —          |            |       |                   | —      | ** ** |   |   | 10,544,000 |   |   |
| Other comprehensive  income                      |       |        |        |           |       |             |       |                           |            |            |       |                   |        | ** ** |   |   |   |   |   |
| Translation adjustment                           |       | —      |        | —         |       | —           |       |                           | —          |            |       |                   | 407,000     | ** ** |   |   | 407,000 |   |   |
| **Total comprehensive income**                   | ** ** | ** **  | ** **  | ** **     | ** ** | ** **       | ** ** |                           | ** **      | ** **      |       |                   | ** **  | ** ** |   |   | **10,951,000** | ** ** |   |
| **Balance,  June 30, 2007**                 | ** ** | **$**       | **166,000** | ** **     | **$**      | **27,934,000**   | ** ** | **$**                          | **(4,583,000**  | **)**           |       | **$**                  | **—**  | ** ** |   |   | **$** | **1,108,000** | ** ** |   |   | **$** | **24,625,000** | ** ** |   |

 

See accompanying notes to consolidated financial statements.

F-4

----

**CUISINE SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                        | ** ** | **Year Ended**         | ** **     |
|-----------------------------------------------------------------------------------|------------|-----------------------------|----------------|
| ** **                                                                        | ** ** | **June 30, 2007** | ** **     | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                          | ** ** |                        | ** **     | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net income                                                                        |       |                        | $              | 10,544,000 |   |   |   | $ | 3,654,000 |   |   |   | $ | 1,709,000 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities |       |                        |           |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                    |       |                        | 1,445,000      |   |   |   | 730,000 |   |   |   | 901,000 |   |   |
| Allowance for  doubtful accounts                                                  |       |                        | (300,000       | ) |   |   | 164,000 |   |   |   | 441,000 |   |   |
| Inventory  obsolescence reserve                                                   |       |                        | (27,000        | ) |   |   | (52,000 | ) |   |   | 317,000 |   |   |
| Deferred tax  credit                                                              |       |                        | (7,069,000     | ) |   |   | — |   |   |   | — |   |   |
| Loss on sale of  investments                                                      |       |                        | —         |   |   |   | 49,000 |   |   |   | — |   |   |
| Stock-based  compensation                                                         |       |                        | 246,000        |   |   |   | 351,000 |   |   |   | 166,000 |   |   |
| Gain on disposal  of assets of discontinued operations                            |       |                        | —         |   |   |   | — |   |   |   | (577,000 | ) |   |
| Changes in assets and  liabilities, net of effects of non-cash transactions:      |       |                        |           |   |   |   |   |   |   |   |   |   |   |
| Decrease  (increase) in trade accounts receivable                                 |       |                        | 9,000          |   |   |   | (1,701,000 | ) |   |   | (445,000 | ) |   |
| Increase in  inventory                                                            |       |                        | (5,323,000     | ) |   |   | (2,389,000 | ) |   |   | (1,826,000 | ) |   |
| Increase in  prepaid expenses                                                     |       |                        | (152,000       | ) |   |   | (37,000 | ) |   |   | (204,000 | ) |   |
| (Increase)  decrease in accounts receivable, related parties                      |       |                        | (32,000        | ) |   |   | 70,000 |   |   |   | (36,000 | ) |   |
| Increase  (decrease) in other assets                                              |       |                        | 85,000         |   |   |   | (393,000 | ) |   |   | 11,000 |   |   |
| Increase  (decrease) in accounts payable and accrued expenses                     |       |                        | 842,000        |   |   |   | 1,463,000 |   |   |   | (33,000 | ) |   |
| Increase in  accrued payroll and related liabilities                              |       |                        | 18,000         |   |   |   | 896,000 |   |   |   | 291,000 |   |   |
| Increase in  deferred rent                                                        |       |                        | 100,000        |   |   |   | — |   |   |   | — |   |   |
| Changes in assets  and liabilities of discontinued operations                     |       |                        | (144,000       | ) |   |   | 14,000 |   |   |   | (300,000 | ) |   |
| **Net cash  provided by operating activities**                                    | ** ** |                        | **242,000**    | ** ** |   |   | **2,819,000** | ** ** |   |   | **415,000** | ** ** |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                                          | ** ** |                        | ** **     | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Increase in  restricted cash                                                      |       |                        | (61,000        | ) |   |   | (5,000 | ) |   |   | — |   |   |
| Proceeds from  investments                                                        |       |                        | —         |   |   |   | 1,048,000 |   |   |   | — |   |   |
| Capital  expenditures                                                             |       |                        | (5,181,000     | ) |   |   | (4,616,000 | ) |   |   | (1,241,000 | ) |   |
| **Net cash  used in investing activities**                                        | ** ** |                        | **(5,242,000** | **)** |   |   | **(3,573,000** | **)** |   |   | **(1,241,000** | **)** |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                                          | ** ** |                        | ** **     | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Proceeds from  issuance of common stock                                           |       |                        | 173,000        |   |   |   | 415,000 |   |   |   | 210,000 |   |   |
| Net borrowings  (repayment) on line-of-credit                                     |       |                        | 811,000        |   |   |   | (774,000 | ) |   |   | 1,774,000 |   |   |
| Proceeds from  debts                                                              |       |                        | 2,726,000      |   |   |   | 3,182,000 |   |   |   | 295,000 |   |   |
| Repayment of debts                                                                |       |                        | (354,000       | ) |   |   | (1,101,000 | ) |   |   | (695,000 | ) |   |
| Repayment of note  payable from discontinued operations                           |       |                        | —         |   |   |   | (1,031,000 | ) |   |   | — |   |   |
| **Net cash  provided by financing activities**                                    | ** ** |                        | **3,356,000**  | ** ** |   |   | **691,000** | ** ** |   |   | **1,584,000** | ** ** |   |
| **Effect  of foreign exchange rate changes on cash and cash equivalents**         | ** ** |                        | **36,000**     | ** ** |   |   | **46,000** | ** ** |   |   | **18,000** | ** ** |   |
| **Net  (decrease) increase in cash and cash equivalents**                         | ** ** |                        | **(1,608,000** | **)** |   |   | **(17,000** | **)** |   |   | **776,000** | ** ** |   |
| **Cash and  cash equivalents, beginning of year**                                 | ** ** |                        | **2,154,000**  | ** ** |   |   | **2,171,000** | ** ** |   |   | **1,395,000** | ** ** |   |
| **CASH and  CASH EQUIVALENTS, END OF YEAR**                                       | ** ** |                        | **$**          | **546,000** | ** ** |   |   | **$** | **2,154,000** | ** ** |   |   | **$** | **2,171,000** | ** ** |   |
| **SUPPLEMENTAL  DISCLOSURE OF CASH FLOWS INFORMATION**                            | ** ** |                        | ** **     | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Cash paid during  the year for interest                                           | ** ** |                        | **$**          | **394,000** | ** ** |   |   | **$** | **189,000** | ** ** |   |   | **$** | **188,000** | ** ** |   |
| Cash paid during  the year for income taxes                                       | ** ** |                        | **$**          | **1,000** | ** ** |   |   | **$** | **20,000** | ** ** |   |   | **$** | **19,000** | ** ** |   |
| Fixed assets  acquired through capital leases                                     | ** ** |                        | **$**          | **31,000** |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Addition to fixed  assets due to recognition of asset retirement obligation       | ** ** |                        | **$**          | **101,000** | ** ** |   |   | **$** | **398,000** | ** ** |   |   | **$** | **—** | ** ** |   |

 

See accompanying notes to consolidated financial statements.

F-5

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**CUISINE SOLUTIONS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1—SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

**ORGANIZATION**

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

**BASIS OF CONSOLIDATION**

The consolidated financialstatements include the accounts of Cuisine Solutions, Inc. and itswholly-owned subsidiary. All significant inter-company accounts and transactions have beeneliminated in the consolidated financial statements. Certain prior year amountshave been reclassified to conform to current year presentation.

**FISCAL PERIODS**

The Company utilizes a52/53 week fiscal year which ends on the last Saturday in June. For the fiscalyear 2007, the first and second quarters of fiscal years contain 12 weeks whilethe third quarter and fourth quarter contain 16 weeks and 13 weeks respectively.For the fiscal year 2006 and 2005, the first, second and fourth quarterscontain 12 weeks and the third quarter contains 16 weeks.

**USE OF ESTIMATES**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported consolidated amounts of assets and liabilities, disclosure ofcontingent assets and liabilities and the reported amounts of revenue andexpenses during the reporting period. Judgments and assessments ofuncertainties are required in applying the Company’s accounting policies in theareas of sales rebates, tax assets and liabilities, allowance for doubtfulaccounts, stock base compensation cost and inventory obsolescence reserved. TheCompany bases its judgments and estimates on historical experience and otherassumptions that it believes are reasonable. Actual results may or may not differ from estimated results.

**REVENUE RECOGNITION**

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

**SEGMENT REPORTING**

The Company operates onlyin one business segment, the foodservice industry.

**CASH AND CASH EQUIVALENTS**

Cash equivalents consistof highly liquid investments with original maturities of three months or lessat the time of purchase and are recorded at cost, which approximates fairvalue. As of June 30, 2007 and June 24, 2006, $204,000 and $1,300,000, respectively, of cash were held in foreignfinancial institutions.

F-6

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**INVESTMENTS**

The Company’s onlyinvestment is a minority interest in Cuisine Solutions Chile, which isaccounted for under the cost method.

**INVENTORY**

Inventories are valued atthe lower of cost, determined by the first-in, first-out method, or market.Included in inventory costs are raw materials, labor and manufacturingoverhead.

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

**FAIR VALUE OF FINANCIAL INSTRUMENTS**

**The Companyconsiders the recorded value of its financial instruments, which consistprimarily of cash and cash equivalents trade receivables, accounts payable,line-of-credit and long-term debt to approximate the fair value of the respectiveassets and liabilities at June 30, 2007 and June 24, 2006.**

**FIXED ASSETS**

Fixed assets are stated atcost. Machinery, equipment and furniture and fixtures which cost $1,000 orabove and have an estimated useful life of two years or more are capitalized andare depreciated using the straight-line method over estimated useful liveswhich range from two to ten years. Leasehold improvements are amortized usingthe straight-line method over the shorter of the term of the leases which rangefrom four to twenty years, or the estimated useful life of the improvement. Buildingsare depreciated using the straight-line method over the estimated useful liveswhich range from twenty to thirty years. The Company periodically evaluateswhether current events or circumstances indicate the carrying value of itsdepreciable assets may not be recoverable.

**CAPITALIZED SOFTWARE**

The Company capitalizescertain costs to obtain internal use software for significant systems andamortizes them over the estimated useful life of the software which ranges fromtwo to ten years. Costs to obtain software for projects that are notsignificant are expensed as incurred.

**SHIPPING AND HANDLING COSTS**

Shipping and handlingcosts are expensed when incurred and are classified as cost of goods sold inthe accompanying consolidated statements of income.

**RESEARCH AND DEVELOPMENT COSTS**

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

**INCOME AND OTHER TAXES**

The Company computesincome taxes using the asset and liability method whereby deferred tax assetsand liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect on 

F-7

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deferredtax assets and liabilities of a change in tax rates is recognized in income inthe period that includes the enactment date. A valuation allowance isestablished against such assets where management is unable to conclude morelikely than not that such asset will be realized.

**IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETSTO BE DISPOSED OF**

The Company accounts forthe impairment of long-lived assets pursuant to SFAS No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets”(“Statement 144”). Statement 144 requires that long-lived assets and certainidentifiable intangibles be reviewed for impairment whenever events or changesin 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 thecarrying amount of an asset to future net cash flows expected to be generatedby the asset. If such assets are considered to be impaired, the impairment tobe recognized is measured by the amount by which the carrying amounts of theassets exceed the fair value of the assets. Assets to be disposed of arereported at the lower of the carrying amount or fair value less costs to sell.

**VALUATION OF STOCK-BASED AWARDS**

The Company accounts forstock-based compensation in accordance with the fair value recognitionprovisions of SFAS No. 123R. Under SFAS No. 123R,stock-based compensation cost is measured at the grant date based on the valueof the award and is recognized as expense over the vesting period of theindividual equity instrument. Determining the fair value of stock-based awardsat the grant date requires judgment, including estimating the expected term ofstock options, the expected volatility of our stock, and expected dividends.The computation of the expected volatility assumption used in the Black-Scholescalculation for option grants is based on historical volatility as options onour stock are not traded. When establishing the expected life assumption, wereview annual historical employee exercise behavior of option grants withsimilar vesting periods. In addition, judgment is also required in estimatingthe amount of stock-based awards that are expected to be forfeited. If actualforfeitures differ significantly from these estimates, stock-based compensationexpense and our results of operations could be materially affected.

Thefollowing table illustrates the effect on net income and earnings per share forthe fiscal year ended June 25, 2005 if the Company had applied the fair valuerecognition provisions of SFAS No. 123 to options granted under the Company’sstock option plans in all periods presented. For purposes of this pro formadisclosure, the value of the options is estimated using the Black-Scholes-Mertonoption—pricing formula and amortized to expense over the options’ vestingperiods.

| ** **                                                                           | ** ** | **June 25, 2005** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| Net income  applicable to common shareholders                                        |       | $                           | 1,709,000  |   |
| Add: Stock-based  employee compensation cost included in reported net income (loss)  |       | $                           | 166,000    |   |
| Less: Total  stock-based compensation expense determined under the fair value method |       | $                           | (716,000   | ) |
| Pro forma net  income                                                                |       | $                           | 1,159,000  |   |
| Net Income per common  share:                                                        |       |                        |       |
| Basic—as reported                                                               |       | $                           | 0.11       |   |
| Diluted—as  reported                                                            |       | $                           | 0.10       |   |
| Basic—pro forma                                                                 |       | $                           | 0.07       |   |
| Diluted—pro forma                                                               |       | $                           | 0.07       |   |
| Weighted average  common shares outstanding—basic                               |       | 15,927,524                  |       |
| Common stock  equivalents                                                            |       | 1,610,746                   |       |
| Weighted average common  shares outstanding—diluted                             |       | 17,538,270                  |       |

 

F-8

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**EARNINGS PER SHARE**

Basic earnings per commonshare are computed using the weighed-average number of shares outstandingduring the year. Diluted earnings per common share are computed using theweighted-average number of shares outstanding during the year plus theincremental shares outstanding assuming the exercise of diluted stock options.Anti-dilutive options of 15,000 were not included in the computation for fiscalyear 2007. There were no anti-dilutive shares or options in fiscal years 2006or 2005.

**FOREIGN CURRENCY TRANSLATION**

The statements of incomeof the Company’s foreign subsidiaries are translated to U.S. dollars usingaverage exchange rates. Foreign subsidiaries’ balance sheets have been translatedusing the current exchange rates. The impact of the exchange rate changes onthe translation of the Subsidiary’s balance sheet is reflected as a componentof Other Comprehensive Income in the Statements of Changes in Stockholders’Equity and Other Comprehensive Income. In fiscal 2005, the Company recognized aloss from translation adjustment of $110,000 related to winding downsubstantially all of the Norwegian operations.

**RECENT ACCOUNTING PRONOUNCEMENTS**

In June 2006, theFinancial Accounting Standard Board (“FASB”) issued FASB Interpretation (FIN) No. 48*Accounting for Uncertainty in Income Taxes,**an interpretation of FASBStatement No. 109*. FIN 48 is effective for fiscal years beginningafter December 15, 2006. Differences between the amounts recognized in thestatements of financial position prior to the adoption of FIN 48 and theamounts recognized after the adoption should be accounted for as acumulative-effect adjustment recorded to the beginning balance of retainedearnings. Management is currently studying the impact on its financial positionupon the adoption of this pronouncement starting the first quarter of theCompany’s fiscal year 2008.

In February 2007, theFASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities*(“SFAS159”). SFAS 159 provides companies with an option to report selected financial assetsand liabilities at fair value. SFAS 159 also establishes presentation anddisclosure requirements designed to facilitate comparisons between companiesthat choose different measurement attributes for similar types of assets andliabilities and to provide additional information that will help investors andother financial statement users to more easily understand the effect of thecompany’s choice to use fair value on its earnings. Finally, SFAS 159 requiresentities to display the fair value of those assets and liabilities for whichthe company has chosen to use fair value on the face of the balance sheet. SFAS159 is effective as of the beginning of an entity’s first fiscal year beginningafter November 15, 2007. Early adoption is permitted as of the beginningof the previous fiscal year provided that the entity makes that choice in thefirst 120 days of that fiscal year and also elects to apply the provisionsof SFAS 157 (see below). The Company is currently assessing the impact of SFAS159 which it will be required to adopt.

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements*(“SFAS 157”). This standard establishes aframework for measuring fair value in GAAP and expands disclosures about fairvalue measurements. This standard is effective for financial statements issuedfor fiscal years beginning after November 15, 2007. The Company has notyet assessed the impact of adopting SFAS 157.

In September 2006,the FASB issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an Amendment of FASBStatements No. 87, 88, 106 and 132(R)* (“SFAS 158”). Thisstandard requires an employer to recognize the overfunded or underfunded statusof a defined benefit postretirement plan as an asset or liability in itsstatement of financial position and to recognize changes in that funded statusin the year in which the changes occur as a component of comprehensive income.The standard also requires an employer to measure the funded status of a planas of the date of its year-end statement of financial position. The requirementto recognize the funded status of a defined 

F-9

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benefitpostretirement plan is effective as of the end of the fiscal year ending after December 15,2006. The requirement to measure plan assets and benefit obligations as of thedate of the employer’s fiscal year-end statement of financial position iseffective for the fiscal years ending after December 15, 2008. Currently,the Company does not have a defined benefit pension plan and other postretirementplans; therefore the adoption of SFAS 158 is not expected to have a materialimpact on the Company’s financial position or results of operations.

In September 2006,the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements*(“SAB108”). SAB 108 eliminates the diversity of practice surrounding how publiccompanies quantify financial statement misstatements. It establishes anapproach that requires quantification of financial statement misstatementsbased on the effects of the misstatements on each of the Company’s financialstatements and the related financial statement disclosures. SAB 108 must beapplied to annual financial statements for their first fiscal year ending afterNovember 15, 2006. The adoption of SAB 108 did not have a material impacton the Company’s financial position, results of operations and cash flows.

**NOTE 2—TRADE ACCOUNTS RECEIVABLE, NET**

Tradeaccounts receivable consisted of: 

| ** **                       | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Trade accounts  receivable       |       | $                           | 6,237,000  |                        | $          | 6,022,000 |   |
| Allowance for  doubtful accounts |       | (373,000                    | )          | (662,000                    | )          |
| Trade accounts  receivable, net  |       | $                           | 5,864,000  |                        | $          | 5,360,000 |   |

 

The Company provides allowancesfor estimated credit losses, product returns, and adjustments at a level deemedappropriate to adequately provide for known and inherent risks related to suchaccounts. The allowances are based on reviews of individual accounts bycustomer, their financial conditions, and other factors that deserverecognition in estimating potential losses. While management uses the bestinformation available in making its determination, the ultimate recovery ofrecorded accounts and other receivables is also dependent on future economicand other conditions that may be beyond management’s control.

**NOTE 3—INVENTORY, NET**

Inventoryconsisted of the following: 

| ** **                                      | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Raw material                                    |       | $                           | 4,626,000  |                        | $          | 3,371,000 |   |
| Frozen  product & other finished goods |       | 9,722,000                   |       | 5,297,000                   |       |
| Packaging                                       |       | 989,000                     |       | 1,074,000                   |       |
|                                            |       | 15,337,000                  |       | 9,742,000                   |       |
| Less obsolescence  reserve                      |       | (256,000                    | )          | (281,000                    | )          |
|                                            |       | $                           | 15,081,000 |                        | $          | 9,461,000 |   |

 

F-10

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**NOTE 4—FIXEDASSETS, NET**

Thecomponents of fixed assets were as follows: 

| ** **                                        | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Land                                              |       | $                           | 484,000    |                        | $          | 450,000 |   |
| Buildings                                         |       | 5,869,000                   |       | 4,541,000                   |       |
| Machinery &  equipment                   |       | 14,488,000                  |       | 13,564,000                  |       |
| Leasehold  improvements                           |       | 3,509,000                   |       | 3,095,000                   |       |
| Furniture &  fixtures                    |       | 183,000                     |       | 274,000                     |       |
| Capitalized  software                             |       | 1,010,000                   |       | 1,127,000                   |       |
| Construction in  progress                         |       | 2,953,000                   |       | 482,000                     |       |
| Capital leases                                    |       | 64,000                      |       | 34,000                      |       |
|                                              |       | 28,560,000                  |       | 23,567,000                  |       |
| Less: Accumulated  depreciation and amortization  |       | (16,017,000                 | )          | (15,232,000                 | )          |
| Less: Accumulated  amortization on capital leases |       | (23,000                     | )          | (14,000                     | )          |
|                                              |       | $                           | 12,520,000 |                        | $          | 8,321,000 |   |

 

Construction in progressincludes $2,442,000 in projects related to the acquisition and installation ofequipment and $458,000 in leasehold improvements. Also included in this amountis $78,000 in capitalized interest. These projects are expected to be completedin the first quarter of fiscal year 2008 with an estimated additional cost of$661,000.

**NOTE 5—DEBT**

Debt,at June 30, 2007 and June 24, 2006 was as follows:

| ** **      | ** ** | ** **               | ** ** | **2007 Principal  Outstanding  In Foreign** | ** ** | **Interest** | ** ** | **2007 Principal** | ** ** | **2006 Principal** | ** ** |
|-----------------|------------|--------------------------|------------|-------------------------------------------------------|------------|--------------|------------|-------------------------|------------|-------------------------|------------|
| **Description** | ** ** | ** **               | ** ** | **Maturity**                                          | ** ** | **Currency** | ** ** | **Rates**               | ** ** | **Outstanding**         | ** ** | **Outstanding** | ** ** |
| Term  Loan      |       | October 22,  2012   |       |                                                  | 115,000    |  € |       | 5.7%                    |       |                    | $          | 155,000 |   |   |   | $ | 167,000 |   |   |
| Term  Loan      |       | June 3, 2008        |       |                                                  | 60,000     |  € |       | 3.3%                    |       |                    | 81,000     |   |   |   | 148,000 |   |   |
| Term  Loan      |       | June 15,  2008      |       |                                                  | 15,000     |  € |       | 4.0%                    |       |                    | 20,000     |   |   |   | 37,000 |   |   |
| Term  Loan      |       | June 20,  2010      |       |                                                  | 40,000     |  € |       | 3.8%                    |       |                    | 54,000     |   |   |   | 65,000 |   |   |
| Term  Loan      |       | November 28,  2012  |       |                                                  | 225,000    |  € |       | 2.8%                    |       |                    | 304,000    |   |   |   | 330,000 |   |   |
| Term  Loan      |       | June 12,  2019      |       |                                                  | 1,900,000  |  € |       | 3.6%                    |       |                    | 2,560,000  |   |   |   | 2,019,000 |   |   |
| Term  Loan      |       | October 23,  2013   |       |                                                  | 569,000    |  € |       | 3.8%                    |       |                    | 766,000    |   |   |   | 125,000 |   |   |
| Term  Loan      |       | June 5, 2012        |       |                                                  |       |         |       | 7.0%                    |       |                    | 1,718,000  |   |   |   | — |   |   |
| Term  Loan      |       | October 5,  2010    |       |                                                  |       |         |       | 7.3%                    |       |                    | 490,000    |   |   |   | 612,000 |   |   |
| Term  Loan      |       | March 15,  2010     |       |                                                  |       |         |       | 6.8%                    |       |                    | 118,000    |   |   |   | 156,000 |   |   |
| Line  of credit |       | June 15,  2009      |       |                                                  |       |         |       | LIBOR+2.25%             |       |                    | 1,811,000  |   |   |   | — |   |   |
| Line  of credit |       | November 1,  2006   |       |                                                  |       |         |       | Prime+0.5%              |       |                    | —     |   |   |   | 1,000,000 |   |   |
| Capital  Lease  |       | January 28,  2008   |       |                                                  |       |         |       | 8.3%                    |       |                    | —     |   |   |   | 8,000 |   |   |
| Capital  Lease  |       | September 18,  2008 |       |                                                  |       |         |       | 19.4%                   |       |                    | 6,000      |   |   |   | 10,000 |   |   |
| Capital  Lease  |       | December 31,  2011  |       |                                                  |       |         |       | 8.4%                    |       |                    | 28,000     |   |   |   | — |   |   |
|            |       |                     |       |                                                  |       |         |       | Total                   |       |                    | $          | 8,111,000 |   |   |   | $ | 4,677,000 |   |   |
|            |       |                     |       |                                                  |       |         |       | Less: current  portion  |       |                    | 2,588,000  |   |   |   | 1,356,000 |   |   |
|            |       |                     |       |                                                  |       |         |       | Non-current portion     |       |                    | $          | 5,523,000 |   |   |   | $ | 3,321,000 |   |   |
|                 |            |                          |            |                                                       |            |              |            |                         |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

From time to time, the Company enters into separateterm loans in purchasing new equipment and improvement projects. As of June 30,2007, the total principal balance of all these term loans was $6,266,000; amongwhich $3,940,000 was denominated in Euros in the amount of 2,924,000€.These loans 

F-11

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bear interest rates from2.8% to 7.3% and with maturity dates range from June 3, 2008 to October 23,2013. The loans are typically secured by the equipment.

On June 15, 2007, the Company entered into twoseparate lines of credit with Branch Banking and Trust Company (BB&T). Bothlines of credit bear an annual interest rate of LIBOR plus 2.25% which was7.57% as of June 30, 2007. The first line of credit, with a maximumborrowing amount of $7.5 million and a maturity date of June 15, 2009, is securedby the Company’s accounts receivables and inventory. The outstanding balance ofthis line of credit was $1,811,000 as of June 30, 2007. The second line ofcredit, 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 theCompany, and secured by real estate owned by FIC. This second line of credithad no balance as of June 30, 2007.

As of June 30, 2007, the total loan balance undercapital leases was $34,000, bearing interest rates from 8.3% to 19.4% withmaturity dates ranging from September 18, 2008 to December 31, 2011.

Debt maturities during each of the next five fiscal yearsand thereafter on an aggregate basis at June 30, 2007 are as follows:

| 2008       |   | $         | 2,588,000 |   |
|------------|--------|-----------|-----------|--------|
| 2009       |   | 821,000   |      |
| 2010       |   | 909,000   |      |
| 2011       |   | 809,000   |      |
| 2012       |   | 784,000   |      |
| Thereafter |   | 2,200,000 |      |
| Total      |   | $         | 8,111,000 |   |

 

**NOTE 6—INCOME TAXES**

Income before income tax provision includesthe following:

| ** ** | ** ** | **Year Ended**         | ** ** |
|------------|------------|-----------------------------|------------|
| ** ** | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| Domestic   |       |                        | $          | 3,044,000 |   |   |   | $ | 3,277,000 |   |   |   | $ | 1,514,000 |   |   |
| Foreign    |       |                        | 315,000    |   |   |   | 397,000 |   |   |   | 391,000 |   |   |
| Total      |       |                        | $          | 3,359,000 |   |   |   | $ | 3,674,000 |   |   |   | $ | 1,905,000 |   |   |

 

Thecomposition of the provision for income taxes attributable to operations was:

| ** **                       | ** ** | **Year Ended**         | ** ** |
|----------------------------------|------------|-----------------------------|------------|
| ** **                       | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| Current:                         |       |                        |       |   |   |   |   |   |   |   |   |
| Federal                          |       | $                           | —     |   |   | $ | — |   |   |   | $ | — |   |   |
| State                            |       | 1,000                       |       |   | — |   |   |   | — |   |   |
| Foreign                          |       | —                      |       |   | 20,000 |   |   |   | 19,000 |   |   |
|                             |       | 1,000                       |       |   | 20,000 |   |   |   | 19,000 |   |   |
| Deferred:                        |       |                        |       |   |   |   |   |   |   |   |   |
| Federal                          |       | $                           | 824,000    |   |   | $ | — |   |   |   | $ | — |   |   |
| State                            |       | 145,000                     |       |   | — |   |   |   | — |   |   |
| Foreign                          |       | 1,039,000                   |       |   | — |   |   |   | — |   |   |
|                             |       | 2,008,000                   |       |   | — |   |   |   | — |   |   |
| Reversal of valuation allowance: |       | $                           | (9,077,000 | ) |   | $ | — |   |   |   | $ | — |   |   |
| Income tax (benefit) expense     |       | $                           | (7,068,000 | ) |   | $ | 20,000 |   |   |   | $ | 19,000 |   |   |

 

F-12

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Thedifferences between amounts computed by applying the statutory federal incometax rates to income from operations and the total income tax benefit applicableto operations were as follows:

| ** **                                                                               | ** ** | **Year Ended**         | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                               | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| Federal tax expense at statutory rates                                                   |       | $                           | 1,242,000  |   | $ | 1,114,000 |   |   | $ | 581,000 |   |   |
| Earnings in jurisdictions taxed at rates  different from the statutory U.S. federal rate |       | 564,000                     |       | 151,000 |   |   | (584,000 | ) |   |
| State income taxes, net                                                                  |       | 145,000                     |       | 203,000 |   |   | 57,000 |   |   |
| France minimum taxes                                                                     |       | —                      |       | 20,000 |   |   | 19,000 |   |   |
| Credits                                                                                  |       | —                      |       | — |   |   | (27,000 | ) |   |
| Period effect of  change in valuation allowance                                          |       | (9,077,000                  | )          | (1,505,000 | ) |   | 222,000 |   |   |
| Permanent differences                                                                    |       | 38,000                      |       | 40,000 |   |   | (249,000 | ) |   |
| Other, net                                                                               |       | 19,000                      |       | (3,000 | ) |   | — |   |   |
| Total                                                                                    |       | $                           | (7,069,000 | ) | $ | 20,000 |   |   | $ | 19,000 |   |   |

 

The significantcomponents of deferred tax assets are as follows:

| ** **                      | ** ** | **Year Ended**         | ** ** |
|---------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** |
| Deferred tax assets:            |       |                        |       |   |   |   |   |   |   |
| NOL—US                     |       |                        | $          | 5,588,000 |   |   |   | $ | 5,992,000 |   |   |
| NOL—Norway                 |       |                        | —     |   |   |   | 1,356,000 |   |   |
| NOL—France                 |       |                        | 794,000    |   |   |   | 415,000 |   |   |
| Capital losses                  |       |                        | 43,000     |   |   |   | 63,000 |   |   |
| Foreign other                   |       |                        | 12,000     |   |   |   | 74,000 |   |   |
| Inventory adjustment            |       |                        | 90,000     |   |   |   | 121,000 |   |   |
| Basis difference in investments |       |                        | —     |   |   |   | 793,000 |   |   |
| Property and equipment          |       |                        | 302,000    |   |   |   | 249,000 |   |   |
| Allowance for bad debts         |       |                        | 84,000     |   |   |   | 210,000 |   |   |
| Stock options                   |       |                        | 220,000    |   |   |   | 241,000 |   |   |
| Other                           |       |                        | 156,000    |   |   |   | 191,000 |   |   |
| Total deferred tax assets       |       |                        | 7,289,000  |   |   |   | 9,705,000 |   |   |
| Less: Deferred tax liabilities  |       |                        |       |   |   |   |   |   |   |
| Worthless stock—Norway     |       |                        | —     |   |   |   | 408,000 |   |   |
| Net deferred tax assets         |       |                        | 7,289,000  |   |   |   | 9,297,000 |   |   |
| Less: Valuation allowance       |       |                        | (220,000   | ) |   |   | 9,297,000 |   |   |
| Net deferred tax                |       |                        | $          | 7,069,000 |   |   |   | $ | — |   |   |

 

In fiscal year 2007 the Company reversed substantiallyall of the valuation allowance related to our deferred tax assets since it ismore likely than not these assets will be realized. This determination wasprimarily based on cumulative positive earnings in recent years and projectedtaxable income. In evaluating our ability to realize our deferred tax assets weconsidered all available positive and negative evidence including our pastoperating results and our forecast of future taxable income. The Company haspreviously provided a valuation allowance against its deferred tax assets sincethe realization of these tax benefits could not be reasonably assured. The netchanges in total valuation allowance for the years ended June 30, 2007 andJune 24, 2006 were a decrease of $9,077,000 and a decrease of $222,000,respectively, using an estimated tax rate of 40%.

The foreign net operating loss carry-forward can onlybe used to offset taxable income in the country where the loss carry-forwardwas generated. These operating loss carry-forwards are available to offsetfuture foreign income, if any, through 2015.

F-13

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The Company has netoperating loss carry-forwards for U.S. Federal and state income tax purposes of$13,970,000 at June 30, 2007, which is available to offset future federaland state taxable income, if any, through 2025. Section 382 of the InternalRevenue Code limits the utilization of net operating losses when ownershipchanges, as defined by that section, are greater than 50%. The effects of anypotential ownership changes, if any, have not been analyzed by the Company.Management believes there have been no significant ownership changes that wouldimpact the use of net operating losses.

**NOTE 7—EMPLOYEEBENEFITS**

The Company sponsors aqualified employee savings plan (the “Plan”) pursuant to the provisions ofSection 401(k) of the Internal Revenue Code. All employees who are atleast age 18 and have one year of service with the Company eligible toparticipate in the Plan. The Company makes matching contributions to the Planof one-third of the first 6% of the participant’s voluntary contributions tothe plan. Participants are immediately vested in their own tax deferredcontributions plus actual earnings thereon. Participants vest 20% each year ofthe Company’s contribution plus actual earnings and are fully vested after fiveyears. The Company expensed $37,000, $36,000 and $30,000 in fiscal years 2007,2006 and 2005, respectively, for matching contributions made to the Plan.

The Company expensed $34,000, $33,000, and $28,000 fora separate health and retirement plan for the CEO of the Company and two other non-officersbut key employees in fiscal years 2007, 2006, and 2005, respectively.

During fiscal year 1993 and amended in 1998, theCompany established, upon stockholder approval, the 1992 Stock Option Planwhich provided for up to 1,753,000 shares of the Company’s Common Stock to bemade available to employees at various prices as established by the Board ofDirectors at the date of grant. Only 134,500 non-qualified stock options arestill outstanding under this plan.

During fiscal year 2000, the Company adopted the 1999 Stock Option Plan whichprovides for up to 2,600,000 shares of the Company’s Common Stock to be madeavailable to employees and directors at various prices as established by theBoard of Directors of the Company. As of June 30, 2007, there are 285,597 shares areavailable for future option grants under the 1999 Plan. All of the grants underthis plan have been issued as non-qualified stock options.

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option pricing model with the following weighted-averageassumptions used for grants in 2007, 2006 and 2005 as follows:

| ** **                | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
|---------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Expected dividend  yield  |       |                        | —     |                        |       |                        | —     |   |   |   | — |   |   |
| Risk-free  interest rate  |       |                        | 4.61       | %                           |       |                        | 3.9        | % |   |   | 4.2 | % |   |
| Total option life         |       |                        | 10         |                        |       |                        | 10         |   |   |   | 10 |   |   |
| Expected life (in  years) |       |                        | 4          |                        |       |                        | 5          |   |   |   | 6 |   |   |
| Expected volatility       |       |                        | 73         | %                           |       |                        | 179        | % |   |   | 251 | % |   |

 

The expected life of option is based on theweighted-average years of post-vesting employment termination and employees’ exercisesor forfeiture history. The expected volatility is estimated based on the pastthree-year average closing prices of the Company’s stock. None of the Company’soutstanding option awards have post-vesting restrictions.

F-14

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The following is a summary of stock option activityduring the years ended June 30, 2007, June 24, 2006 and June 25,2005:

| ** **                                                           | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Aggregate**            | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Aggregate**            | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** **    | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|--------------|------------|--------------------------|------------|------------|------------|--------------|------------|--------------------------|------------|------------|------------|--------------|------------|---------------|------------|
| ** **                                                           | ** ** | ** ** | ** ** | **Average**  | ** ** | **Intrinsic**            | ** ** | ** ** | ** ** | **Average**  | ** ** | **Intrinsic**            | ** ** | ** ** | ** ** | **Average**  | ** ** | **Aggregate** | ** ** |
| ** **                                                           | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Value**                | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Value**                | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** |
| ** **                                                           | ** ** | **2007**   | ** ** | **Price**    | ** ** | **(in 000’s)** | ** ** | **2006**   | ** ** | **Price**    | ** ** | **(in 000’s)** | ** ** | **2005**   | ** ** | **Price**    | ** ** | **Value**     | ** ** |
| Options  outstanding, beginning  of year                             |       | 2,448,099  |       |         | $          | 0.99                     |       |       |       |         |       |                     | 2,795,968  |       |       | $            | 1.02       |          |       |   |   |   |   | 2,893,616 |   |   | $ | 1.02 |   |   |   |   |   |   |
| Granted                                                              |       | 72,000     |       |         | 6.00       |                     |       |       |       |         |       | 18,034                   |       |       | 0.01       |         |       |          |       |   |   | 188,852 |   |   | 1.34 |   |   |   |   |   |   |
| Exercised                                                            |       | (184,000   | )          |         | 0.94       |                     |       |       |       |         |       | (365,903                 | )          |       | 1.13       |         |       |          |       |   |   | (238,500 | ) |   | .088 |   |   |   |   |   |   |
| Forfeited or  expired                                                |       | (82,000    | )          |         | —     |                     |       |       |       |         |       | 0                        |       |       | —     |         |       |          |       |   |   | (48,000 | ) |   | — |   |   |   |   |   |   |
| Options  outstanding, end of year                                    |       | 2,254,500  |       |         | $          | 1.13                     |       |       |       | $            | 11,160     |                     |       | 2,448,099  |       |         | $          | 0.99          |       |   |   | $ | 488 |   |   | 2,795,968 |   |   | $ | 1.02 |   |   |   | $ | *** |   |   |
| Weighted average  remaining contractual term                         |       | 5.12       |       |         |       |                     |       |       |       |         |       | 5.45                     |       |       |       |         |       |          |       |   |   | 4.86 |   |   |   |   |   |   |   |   |   |
| Options  exercisable at end of year                                  |       | 2,204,500  |       |         | $          | 1.00                     |       |       |       | $            | 11,140     |                     |       | 2,194,349  |       |         | $          | 0.99          |       |   |   | $ | 483 |   |   | 2,252,218 |   |   | $ | 1.04 |   |   |   | $ | *** |   |   |
| Weighted average  remaining contractual term                         |       | 5.02       |       |         |       |                     |       |       |       |         |       | 5.20                     |       |       |       |         |       |          |       |   |   | 4.73 |   |   |   |   |   |   |   |   |   |
| Options exercisable at end of year and expected to be exercisable ** |       | 2,254,500  |       |         | $          | 1.13                     |       |       |       | $            | 11,160     |                     |       | 2,448,099  |       |         | $          | 0.99          |       |   |   | $ | 488 |   |   | *** |   |   | *** |   |   |   | *** |   |   |

----

*                      The aggregate intrinsic value on thistable was calculated based on the positive difference between the closingmarket price of the Company’s common stock on fiscal year end 2007, 2006 and2005 and the exercise price of the underlying options. The total intrinsicvalue of stock options exercised during the fiscal years ended June 30,2007 and June 24, 2006 were $897,798 and $2,803,000, respectively.

**                 Options exercisable at fiscal year end 2007, 2006 and2005, and expected to be exercisable include both vested options and non-vestedoptions outstanding less our expected forfeiture rate of 0%.

***            Not calculated in prior years.

As of June 30, 2007 the total unrecognizedestimated compensation cost related to non-vested stock options granted priorto that date is $155,000, which is expected to be recognized over a weightedaverage period of 2.75 years. The Company recorded cash from the exercise ofstock options of $173,000 and zero related tax benefits for the fiscal year endingJune 30, 2007.

Effective June 26,2005, the Company adopted the fair value recognition provisions of FASB SFASStatement No. 123(R). *Share-Based Payment*(“SFAS 123(R)”),using modified prospective-transition method. Under that transition method,compensation cost recognized in the fiscal year 2006 includes:(a) compensation cost for all share-based payments granted prior to, butnot yet vested as of June 25, 2005, based on the grant date fair valueestimated in accordance with the original provision of SFAS 123, and(b) compensation cost for all share-based payments granted subsequent toJune 25, 2005, based on the grant-date fair value estimated in accordancewith the provisions of SFAS 123(R). As a result, a non-cash charge of$134,000 was charged to compensation expense during fiscal year 2006.

**NOTE 8—COMMITMENTSAND CONTINGENCIES**

The Company leasesoffice and plant space, vehicles, and certain office equipment under operatingleases, which expire on various dates through 2014. Certain leases provide forescalations in rent based upon increases in the lessor’s annual operating costsor the consumer price index. Future minimum lease payments under theseagreements at June 30, 2007 were as follows:

| 2008       |   | $         | 795,000   |   |
|------------|--------|-----------|-----------|--------|
| 2009       |   | 652,000   |      |
| 2010       |   | 557,000   |      |
| 2011       |   | 561,000   |      |
| 2012       |   | 582,000   |      |
| Thereafter |   | 1,873,000 |      |
| Total      |   | $         | 5,020,000 |   |

 

F-15

----

Rent expense foroperations approximated $1,104,000, $603,000 and $559,000 for fiscal years2007, 2006 and 2005, respectively. We recognize rent expense on a straight-linebasis over the expected lease term. Differences between amounts paid andamounts expensed are recorded as deferred rent.

**NOTE 9—ASSETRETIREMENT OBLIGATION**

According to the terms andconditions of the amended lease agreement, effective June 2006, for themanufacturing facility in the U.S., the Company is required to restore aportion of the premises to its conditions as in existence prior to thealterations and improvements made by the Company. The present value of theestimated restoration cost is $499,000 and $398,000 at June 30, 2007 and June 24,2006, respectively and is also included in fixed assets. In addition, theCompany is required to make monthly deposits of $5,000, adjusted annually, to arestricted bank account (restricted cash) as security in fulfilling thisobligation.

**NOTE 10—TRANSACTIONSWITH RELATED PARTIES**

The Company’s 10% equity investment in CuisineSolutions Chile for $375,000 is accounted for under the cost method as theCompany does not have the ability to exercise significant influence over theoperating or financial policy of Cuisine Solutions Chile. During the fiscalyear 2007, 2006 and 2005, the Company purchased $7,969,000, $4,159,000 and$2,574,000, respectively, of products from Cuisine Solutions Chile for resalein the U.S. and Europe.  The balance owedby the Company to Cuisine Solutions Chile as of June 30, 2007 and June 24,2006 is $558,000 and $291,000, respectively.

On July 10, 2004, theCompany entered into an agreement with the Bank of Charles Town in WestVirginia for a $2,500,000 line-of-credit to finance its working capitalrequirements in the U.S. The line-of-credit is secured by the Company’s U.S.accounts receivable and inventory and further guaranteed by Food Investors Corporation (“FIC”), an affiliate of the Company, and secured by real estate ownedby FIC. On December 23, 2005, the maximum borrowing amount of thisline-of-credit was increased to $5,000,000 and the maturity date was extendedto September 1, 2006. This line of credit bears an interest rate of 0.5%over the prime interest rate, or 8.5% as of June 24, 2006. During fiscalyear 2007, the Company paid FIC $75,000 as a compensation for its guarantee onthis line-of-credit. As of September 1,2006, the expiration date of this line-of-credit was extended to November 1,2007 and this line of credit was paid off and closed out after the Companyobtained a new line of credit from BB&T.

**NOTE 11—GEOGRAPHICINFORMATION**

Revenues to external customers are attributed toindividual countries based upon the location of the customer. Revenue bygeographic area are as follows:

| **Fiscal year ended:** | ** ** | ** ** | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
|----------------------------------|------------|------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| USA Sales                        |       | $          | 55,866,000 |                        | $          | 43,732,000                  |       | $                           | 29,250,000 |   |
| France                           |       | 18,296,000 |       | 16,018,000                  |       | 14,482,000                  |       |
| UK                               |       | 4,071,000  |       | 3,611,000                   |       | 2,136,000                   |       |
| Germany                          |       | 1,540,000  |       | 601,000                     |       | 375,000                     |       |
| Spain                            |       | 558,000    |       | 152,000                     |       | 3,000                       |       |
| Net Sales                        |       | $          | 80,331,000 |                        | $          | 64,114,000                  |       | $                           | 46,246,000 |   |

 

F-16

----

Longlived assets consisting of property and equipment by geographic area are asfollows:

| ** ** | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** |
|------------|------------|-----------------------------|------------|-----------------------------|------------|
| USA        |       | $                           | 6,903,000  |                        |       | $ | 3,824,000 |   |   |
| France     |       | 5,617,000                   |       |                        | 4,497,000  |   |   |
| Total      |       | $                           | 12,520,000 |                        |       | $ | 8,321,000 |   |   |

 

**NOTE 12—SIGNIFICANTCUSTOMERS/SUPPLIERS**

One retail customer accounted for 15.3% and 12.4% ofthe Company’s total revenue during fiscal year 2007 and 2006, respectively;while another militarydistributor represented 10.7% and 13.6% of the Company’s total revenue duringfiscal year 2007 and 2006, respectively.  There were no customers that represented over10% of revenue in fiscal year 2005.

There are no purchasesfrom any one supplier that exceed 10% of total expenses.

**NOTE 13—DISCONTINUEDOPERATIONS**

The Company discontinued its manufacturing operationsin Norway on October 26, 2004 as the Company had incurred consecutivelosses from its operations in Norway since inception. Cuisine Solutions Norwaywas dissolved and its business registration was deleted in Norway in fiscalyear 2007.

Theassets and liabilities from discontinued operations at June 30, 2007, and June 24,2006 are as follows:

| ** **                                      | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Assets from discontinued operations:            |       |                        |       |                        |       |   |   |   |   |
| Cash and cash equivalents                       |       |                        | $          | —                      |       |   |   | $ | — |   |   |
| Other assets                                    |       |                        | —     |                        |       |   | 6,000 |   |   |
| Total assets from discontinued operations       |       |                        | $          | —                      |       |   |   | $ | 6,000 |   |   |
| Liabilities from discontinued operations:       |       |                        |       |                        |       |   |   |   |   |
| Accounts payable and accrued expenses           |       |                        | $          | —                      |       |   |   | $ | 150,000 |   |   |
| Note payable                                    |       |                        | —     |                        |       |   | — |   |   |
| Total liabilities from discontinued  operations |       |                        | $          | —                      |       |   |   | $ | 150,000 |   |   |

 

Thefollowing amounts related to Cuisine Solutions Norway have been segregated fromcontinuing operations and reflected are as follows:

| ** **                                  | ** ** | **Year ended**         | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **June 30, 2007** | ** ** | **June 24, 2006** | ** ** | **June 25, 2005** | ** ** |
| Net Sales                                   |       |                        | $          | — |   |   |   | $ | — |   |   |   | $ | 32,000 |   |   |
| Expenses:                                   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold                          |       |                        | —     |   |   |   | — |   |   |   | 127,000 |   |   |
| Selling and administrative expenses         |       |                        | —     |   |   |   | — |   |   |   | 1,000 |   |   |
| Other operating expense                     |       |                        | —     |   |   |   | — |   |   |   | 463,000 |   |   |
| Interest expense                            |       |                        | —     |   |   |   | — |   |   |   | 86,000 |   |   |
| Other income                                |       |                        | —     |   |   |   | — |   |   |   | (1,000 | ) |   |
| Loss from discontinued operations           |       |                        | —     |   |   |   | — |   |   |   | (644,000 | ) |   |
| Gain from disposal of assets                |       |                        | —     |   |   |   | — |   |   |   | 577,000 |   |   |
| Loss from translation adjustments           |       |                        | —     |   |   |   | — |   |   |   | (110,000 | ) |   |
| Gain on dissolution, net of tax             |       |                        | 117,000    |   |   |   | — |   |   |   | — |   |   |
| Income (loss) from discontinued  operations |       |                        | $          | 117,000 |   |   |   | $ | — |   |   |   | $ | (177,000 | ) |   |

 

F-17

----

 

**NOTE 14—QUARTERLYCONSOLIDATED FINANCIAL DATA (UNAUDITED)**

Inmanagement’s opinion, the interim financial data below reflects all adjustmentsnecessary to fairly state the results of the interim period presented. Alladjustments are of a normal recurring nature necessary for a fair presentationof the information for the periods presented. Results of any one or morequarters are not necessarily indicative of annual results or continuing trends.

| ** **                                       | ** ** | **FISCAL YEAR 2007 QUARTERS ENDED**               | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **September 16,  2006**                                          | ** ** | **December 9,  2006** | ** ** | **March 31,  2007*** | ** ** | **June 30,  2007** | ** ** |
| ** **                                       | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Net sales                                        |       |                                                                  | $          | 14,206 |   |   |   | $ | 23,248 |   |   |   | $ | 23,898 |   |   | $ | 18,979 |   |
| Gross margin                                     |       |                                                                  | 3,170      |   |   |   | 5,782 |   |   |   | 5,046 |   |   | 4,216 |   |
| Income from  continuing operations*              |       |                                                                  | 525        |   |   |   | 1,628 |   |   |   | 8,498 |   |   | (224 | ) |
| Income from  discontinued operations, net of tax |       |                                                                  | —     |   |   |   | — |   |   |   | 116 |   |   | 1 |   |
| Net income                                       |       |                                                                  | 525        |   |   |   | 1,628 |   |   |   | 8,614 |   |   | (223 | ) |
| Net income per  share—basic                 |       |                                                                  | $          | 0.03 |   |   |   | $ | 0.10 |   |   |   | $ | 0.52 |   |   | ($0.01 | ) |
| Net income per  share—diluted               |       |                                                                  | $          | 0.03 |   |   |   | $ | 0.09 |   |   |   | $ | 0.47 |   |   | ($0.01 | ) |
|                                                  |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    3rd quarter results reflect $7,900 deferred taxvaluation reserve reversal

| ** **                         | ** ** | **FISCAL YEAR 2006 QUARTERS ENDED** | ** ** |
|------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                         | ** ** | **September 17,  2005**                            | ** ** | **December 10,  2005** | ** ** | **April 1,  2006** | ** ** | **June 24,  2006** | ** ** |
| Net sales**                        |       |                                                    | $          | 14,752 |   |   |   | $ | 16,595 |   |   | $ | 17,967 |   | $ | 14,800 |   |
| Gross margin**                     |       |                                                    | 4,109      |   |   |   | 4,124 |   |   | 4,427 |   | 3,452 |   |
| Income from  continuing operations |       |                                                    | 1,522      |   |   |   | 787 |   |   | 659 |   | 686 |   |
| Net income                         |       |                                                    | 1,522      |   |   |   | 787 |   |   | 659 |   | 686 |   |
| Net income per  share—basic   |       |                                                    | $          | 0.09 |   |   |   | $ | 0.05 |   |   | $ | 0.04 |   | $ | 0.04 |   |
| Net income per share—diluted  |       |                                                    | $          | 0.08 |   |   |   | $ | 0.04 |   |   | $ | 0.04 |   | $ | 0.04 |   |

----

**             reflectsminor presentation changes for fiscal year 2006

F-18

----

**SCHEDULEIICUISINE 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 25, 2005**  | ** ** | ** **          | ** ** | ** **          | ** ** |                  | ** ** | ** **          |       | ** ** | ** ** |
| Allowance for doubtful accounts    |       | $                   | 68,000     |                | $          | 441,000               |       |                | $          | 16,000 | ** ** |   | $ | 493,000 |   |
| Allowance for obsolete inventory   |       | $                   | 162,000    |                | $          | 317,000               |       |                | $          | 148,000 | ** ** |   | $ | 331,000 |   |
| **Year ended June 24,  2006** | ** ** | ** **          | ** ** | ** **          | ** ** |                  | ** ** | ** **          |       | ** ** | ** ** |
| Allowance for doubtful accounts    |       | $                   | 493,000    |                | $          | 173,000               |       |                | $          | 4,000 | ** ** |   | $ | 662,000 |   |
| Allowance for obsolete inventory   |       | $                   | 331,000    |                | $          | —                |       |                | $          | 50,000 | ** ** |   | $ | 281,000 |   |
| **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 |   |

 

 

F-19

----