VIE DE FRANCE CORP, 10-K, 1997-09-26

VIE DE FRANCE CORP
10-K, 1997-09-26
CANNED, FROZEN & PRESERVD FRUIT, VEG & FOOD SPECIALTIES

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-K

(Mark One)
XX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: June 28, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
[NO FEE REQUIRED]

For the transition period from to
------------------- ----------------------
Commission file number: 0-12800

VIE de FRANCE CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
Delaware 52-0948383
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

85 South Bragg Street, Suite 600,
Alexandria, VA 22312
(Address of Principal Executive Offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (703) 750-9600

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
-----------------------------------------------------------------------------------------------
None None
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per Share

(Title Class)

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on
August 31, 1997 as reported on the NASDAQ National Market System, was
approximately $18,422,086. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of August 31, 1997, there were 13,822,543 shares outstanding of the
Registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the following document are incorporated by reference in Parts
III and IV of this Form 10-K Report:

Proxy Statement for Registrant's 1996 Annual Meeting of Stockholders
to be filed - Items 10, 11, 12 and 13.

Exhibit Index is located on page .

VIE DE FRANCE 5
<PAGE> 2
PART I

ITEM 1. BUSINESS

Financial Information About Industry Segments

The Company is engaged in only one industry segment as of June 28,
1997. Accordingly, no segment data is included in the Consolidated Financial
Statements for the fiscal year ending June 28, 1997.

General

The Company develops, produces and markets high-quality frozen
entrees, side dishes and sauces for the foodservice and retail industries.
During the third quarter of fiscal year 1997, the Company announced its new
marketing focus on the banquet business, which consists of the lodging and
transportation markets. The lodging market comprises of hotels, convention
centers, casinos and similar facilities. The transportation market comprises of
airlines, railroads, cruise ships and other similar facilities. Other focuses
of the Company are international sales and retail customers, including sales to
restaurants, military installations and home meal replacement.

The Company maintains manufacturing facilities in the United States
and Norway, and sells its product in Asia, North America and Europe. Its
customers include among others, hotels, catering companies, restaurants,
casinos, airlines, military facilities, healthcare facilities and retail
stores. The Company opened a USDA-approved food processing plant in Alexandria,
Virginia in May 1990 and began operating another plant in Hjemeland, Norway in
August 1994. The Company uses an advanced method of food preparation, developed
in France, which cooks meats, seafood, poultry, sauces and vegetables over time
using low heat. Before the cooking process begins, the product is vacuum-sealed
in special plastic pouches that better maintain the food's flavor and moisture
as compared to other methods of cooking. Following the completion of the
cooking process, the product can be either frozen or refrigerated for
distribution. Currently, all of the Company's products are frozen. The Company
also works with equipment manufacturers to provide efficient computer
controlled reheating equipment to its food service providers who effectively
convert their kitchen operations and improve customer satisfaction through
better and consistent product quality, while realizing reductions in their food
and labor costs as a result of this technology.

The Private Securities Litigation Reform Act of 1995 (the "Act") was
recently passed by Congress. The Company desires to take advantage of the "safe
harbor" provisions of the Act. Therefore, this report contains forward looking
statements that are subject to risks and uncertainties, including, but not
limited to, the reliance on key customers, fluctuations in operating results
and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. These risks could cause the Company's
actual results for 1997 and beyond to differ materially from those expressed in
any forward looking statements made by, or on behalf of, the Company.

Vie de France was incorporated in the State of Delaware in 1974. Its
principal executive offices are located at 85 South Bragg Street, Suite 600,
Alexandria, VA 22312 and its telephone number at that location is (703)
750-9600.

Background

The Company commenced operations in 1972 as a wholesale producer of
French bread for daily delivery to the Washington, DC area. The Company
expanded its markets throughout the 1970s. In fiscal year 1979, the Company
began offering its product through Company-owned retail bakeries where the
products could be freshly baked throughout the day. During the 1980s, the
Company expanded its frozen dough product line and developed processes to
facilitate the baking of these products at the point-of-sale. As of May 1994,
the Company owned and operated 31 retail units. The Company sold the Bakery
Division and the Restaurant Division to Vie de France Bakery Yamazaki, Inc. in
1991 and 1994, respectively.

The Company began development of the Culinary division business in
1987, in conjunction with research performed previously by Nouvelle Carte
France, a French Company. As a result of the growth in the application of high
quality frozen products in Europe, the Board authorized the establishment of
the Vie de France Culinary Corporation for the express purpose of the research
into and development of high quality frozen products for the U.S. market. This
Company was formed in 1987, and was later merged into Vie de France
Corporation. In 1989, construction began on a 30,000 square foot plant in
Alexandria, Virginia designed to manufacture its sous vide product line under
the trade name Vie de France Culinary. The Culinary plant began operations in
May 1990, and expanded into a 50,000 square feet building.

During fiscal years 1991 through 1996, the Culinary Division
successfully built its sales volume from zero to over $2 million in fiscal year
1991, and by fiscal year 1996 to $16 million. The Company restructured its
sales organization and refocused its strategy on sales to the banquet industry
(hotels, convention centers, casinos, airlines and other banquet providers)
during fiscal year 1997. Because of sales and marketing disruptions related to
this transition, sales declined during the year to about $14 million.

The Company initially depended upon a national direct sales operation,
which was formally organized in 1992. In fiscal year 1997 the emphasis shifted
to a more balanced sales system that includes an internal sales group,
segmented by customer type, and additional sales support from a network of
brokers and distribution organizations located in key markets nationwide. A
sales program that includes trade advertising, promotions and far more frequent
contact with a broader range of existing and potential high-volume customers
was put into effect late in fiscal year 1997.

In order to reduce costs, increase quality and increase production
capacity, the Company is pursuing the development and construction of single
product production plants for its high quality entrees located adjacent to, or
in the proximity of suppliers of raw materials. One such plant, located in
Norway, began production in August 1994. The Company currently has capacity in
its plants to support near term sales growth.

6 VIE DE FRANCE
<PAGE> 3
Subsequent to year end, the Company obtained approval for $8.2 million
of financing in the form of industrial revenue bonds from the Industrial
Development Authority of Loudoun County, Virginia for an envisioned new plant
and corporate headquarters in the Greenway Industrial Center near Leesburg,
Virginia. As of June 28, 1997 the Company has not officially determined whether
it would pursue plans to construct this facility, and has not drawn any funds.
The site is well situated in an attractive industrial area with a good supply
of labor and lower cost structure. The county's Board of Supervisors approved
issuance of up to $8.2 million in bonds to finance a 70,000 square-foot food
manufacturing plant and corporate office on 7.74 acres of the industrial park
near the Dulles Airport and U.S. Postal Service facility. The new facility
would replace the Company's existing 40,000 square-foot manufacturing plant in
Alexandria, Virginia as well as the corporate offices the Company leases
nearby. The $8.2 million includes the cost of the land, building and equipment.
The new production facility will provide increased efficiencies and modern
space for future growth. All new production plants will be designed to meet
International Standards of Operations and European Community standards. In
September, 1997 the Company purchased the land through financing with a banking
institution.

The Company is also considering locating one or more plants for sous
vide products closer to the source of supply to maintain product quality, lower
shipping costs and as a method of entering new markets. The cost of such
facilities ranges from approximately $1,000,000 to $5,000,000, depending upon
the nature of the product and the production volume desired. Local governments
may provide subsidies and other assistance in connection with such facilities.
It is possible that the Company may use some of its cash resources to fund
these efforts and/or acquisitions. The Company is also pursuing a lease for a
production facility in Europe to support its strategic intent to be the leading
banquet solution company in the world. The European plant would be built under
European quality standards, would give the company immediate access to that
market.

Products

The Company offers a wide range of high quality frozen entrees, side
dishes, and sauces. The entree items consist of a variety of seafood, pork,
beef and poultry items. Side dishes and sauces range from vegetables and rice
to cream or tomato-based sauces.

The Company packages its products in two ways. Many products are
vacuum-sealed and frozen in either single or multi-serving packaging and then
case-packed. Single-pack items provide maximum customer flexibility, while
multi-serving packs provide additional efficiency and economy for banquets.
Both individual and multiple-serving vacuum packages are ideal for hot-water
rethermalization, and both provide a long shelf life. A second packaging
method, ideal for products designed for oven heating or to be served cold, is
Individually Quick Frozen packaging. In this method, individual servings of
products are cooked, frozen and removed from vacuum package and placed inside
a plastic bag with the appropriate case quantities for easy customer access.

During fiscal year 1995, the Company began research on the preparation
of its products for retail consumption. The Company has experimented with
distribution through wholesale clubs and private-labeled products for other
retailers. The Company intends to continue to pursue alternatives in this
market.

Distribution

The Culinary Division distributes its products in a frozen state
primarily to U.S. customers. The primary markets of the Company's wholly-owned
Norwegian division are in Europe and Asia.

During fiscal year 1997, the Company established important new
relationships with U.S. food service distributors and brokers in markets with
significant banquet activity. A significant issue for our customers has been
ready availability of our foods. The Company established relationships in nine
of twenty markets that, together, constitute 80% of all U.S. banquet sales.
This allows the Company to have a presence in each market and the efficient
means to supply its customers on a continuing basis.

The Company expanded distribution into the European markets in fiscal
year 1995 in conjunction with the opening of the Norwegian production facility
in 1995. Its products are stored in a number of regional frozen warehouses as
well as at the Alexandria, Virginia plant. The Company improved its
distribution of Norwegian Salmon to U.S. customers by offering "direct ship"
capabilities from the Norwegian plant directly to the customer. The Company
intends to adopt alternative distribution means as their customers need them.
Export products are transported in frozen containers via ship.

Raw Material Status

The Company buys its raw materials from a number of suppliers at
market prices. While these prices may fluctuate during the year, the Company
does not believe that availability poses a material risk to its business. The
majority of product sales are subject to price revision to reflect shifts in
the price of raw materials.

Patents and Trademarks and Other Items Important to Operating Segments

The Company believes that its Vie de France trademark is important to
its business success. Accordingly, it takes the necessary steps to protect it.
The Company and Vie de France Bakery Yamazaki, Inc. entered into a Trademark
and Service Mark License Agreement in 1991 and, in conjunction with the sale of
the Restaurant Division, amended and restated this agreement. In fiscal year
1996 the Company was in the process of securing a new packaging trademark
called MicroRoast(TM) and MicroRoti(TM) to be used in the U.S. and European
market, respectively. However, it was during fiscal year 1997 the Company
secured the use of these two trademarks. This new packaging is designed for
use in microwave ovens and imparts a roasted quality to our value-added
entrees. The Company holds no patents that are essential for its continued
operations.

VIE DE FRANCE 7
<PAGE> 4
Customer Dependency

During fiscal year 1997, sales to hotels and other lodging customers,
transportation, new business development, international and Norway customers
represented 41.6%, 34.8%, 14.2%, .6% and 8.8%, respectively compared to 50.7%,
29.2%, 16.3%, 2.4% and 1.4% in fiscal year 1996 and 58.1%, 29.1%, 11.1%, 1.2%
and .5% in fiscal year 1995.

In fiscal years 1997, 1996 and 1995, sales to food service
distributors representing the Marriott Hotel chain amounted to 15.2%, 18.9% and
25% of total net sales. In fiscal year 1997, 1996 and 1995, sales to food
service distributors representing the Hyatt Hotel chain amounted to 17.2%,
22.5% and 23.2% of total net sales. Sales to distributors serving the airline
industry represented 38.2%, 29.2% and 28.4% of total net sales in fiscal year
1997, 1996 and 1995, respectively. The loss of any of the above customers could
have an effect on the Company's results of operations.

Seasonality

Culinary sales are seasonally impacted by the hotel banquet industry,
which typically peak in September through December and March through June.

Competition

The Company considers itself to be a leader in the sous vide segment
of the food service industry. At present, limited competition exists within the
frozen wholesale component of this segment. Other firms exist within the retail
and refrigerated components of the sous vide segment or cooked food. As such,
the Culinary Division primarily competes for sales against the traditional
forms of food preparation, rather than against other sous vide suppliers. The
Company offers value-added products, but must offer these products in a price
range that makes it economically advantageous for its users to convert from
other methods of food preparation. The Company believes its products can
compete against these other methods in price, product performance and
convenience. The Company also offers implementation and menu development
services, as well as equipment, to its customers as another means of building
sales. The Company depends upon its pricing structure, menu items, and customer
service programs as a means of maintaining its leadership position within the
sous vide industry.

Research & Development

For continuing operations, the Company invested $169,000, $139,000 and
$94,000 in research and development activities in fiscal years 1997, 1996 and
1995, respectively. The Company invests in development on an ongoing basis in
order to maintain the vitality of its product lines and to build sales.

Regulation

The Company is subject to various Federal, state and local laws
affecting its business, including health, sanitation and safety regulations.
The Culinary-U.S. plant operates under USDA supervision over the handling and
labeling of its products. The Company believes its operations comply in all
material respects with applicable laws and regulations.

The Company's Norwegian plant meets European Community standards and
regulations. The Norwegian product, along with certain raw materials, are
subject to import regulations.

Employees

The Company employs approximately 117 people including full-time and
part-time workers and corporate staff.

Geographic Sales

The Company's sales are primarily focused in the United States, with
sales representing 90.6%, 96.1% and 98.4% of total sales for fiscal years 1997,
1996 and 1995, respectively.

ITEM 2. PROPERTIES

The Company leases its offices and its two manufacturing facilities.
The Culinary-U.S. plant, located in Alexandria, Virginia, is approximately
50,000 square feet. The Culinary-Norway plant, located in Hjelmeland, Norway,
is approximately 20,000 square feet.

The Company's Norway plant is structured as a twenty-year capital
lease whereby the Company will own the facility at the end of the lease term.

The Company owns substantially all of the equipment used in its
facilities.

Lease commitments and future minimum lease payments are shown in Notes
5 and 8 to the Consolidated Financial Statements, which is included in this
Form 10-K.

ITEM 3. LEGAL PROCEEDINGS

The Company is engaged in ordinary and routine litigation incidental
to its business, but management does not believe that any amounts it may be
required to pay by reason thereof will have a material effect on the Company's
financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

8 VIE DE FRANCE
<PAGE> 5
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

Common Stock

The Company's capital stock is divided into two classes: Common Stock
and Class B Stock. The Class B Stock, which is reserved for issuance to
employees under stock options plans, is identical in all respects to the Common
Stock except that the holders thereof have no voting rights unless otherwise
required by law. The Company's Common Stock is traded in the over-the-counter
market on the NASD National Market System under the symbol VDEF or Viedefr. The
following table sets forth for the quarters indicated the high and low sales
prices per share as reported on the National Market System:

<TABLE>
<CAPTION>
Year ended June 28, 1997 High Low
-------------------------------------------------------------------------
<S> <C> <C>
First Quarter $2.688 $1.938
Second Quarter 2.563 1.375
Third Quarter 2.000 1.063
Fourth Quarter 1.500 1.063

<CAPTION>
Year ended June 29, 1996 High Low
-------------------------------------------------------------------------
<S> <C> <C>
First Quarter $4.500 $2.625
Second Quarter 3.750 2.625
Third Quarter 3.063 1.875
Fourth Quarter 3.125 1.875

<CAPTION>
Year ended June 24, 1995 High Low
-------------------------------------------------------------------------
<S> <C> <C>
First Quarter $4.500 $3.375
Second Quarter 4.250 3.000
Third Quarter 4.375 3.000
Fourth Quarter 4.125 2.875
</TABLE>

As of August 31, 1997 there were 725 holders of record of the Company's
Common Stock.

No dividends were paid during fiscal years 1997, 1996 and 1995.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Five Year Summary
(in thousands, except per share amounts)
1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $13,987 $16,078 $15,707 $12,786 $ 9,377
Loss from continuing operations (4) (934) (2,224) (706) (476) (341)
Net income (loss) (1); (2); (3); (4) (466) (1,714) 24 7,934 261
Loss from continuing operations per share (0.07) (0.16) (0.05) (0.03) (0.03)
Net income (loss) per share (0.04) (0.13) -- 0.58 0.02
Total assets 22,712 27,035 29,911 30,964 19,862
Long term debt, including current portion 2,575 2,300 2,981 -- --
Stockholders' equity 18,125 22,782 24,481 24,431 16,016
Dividends per share -- -- -- -- --
</TABLE>

(1) Includes benefit from cumulative effect of change in accounting principle
of $197 in 1996.

(2) Includes (loss) income from discontinued operations of ($813), and $479
in 1994 and 1993, respectively.

(3) Includes gain from sale on discontinued operations of $468, $313, $730,
and $9,233 in 1997, 1996, 1995 and 1994, respectively.

(4) Includes loss on equity method investment of $1,500 in 1996.

VIE DE FRANCE 9
<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

The current year results reflect a decline in sales of 20% from fiscal
year 1996 for its United States operations. The Norwegian operations reflect
sales growth of 419%, primarily due to shipments to a new airline customer.
Operations for fiscal year 1997 resulted in a loss for the Company.

During fiscal year 1997, the Company announced its new marketing focus
on the banquet business, which consists of the lodging and transportation
segments. The lodging segment consists of hotels, convention centers, casinos
and similar facilities. The transportation segment consists of airlines,
railroads, cruise ships and other similar facilities. The Company is now
organized to serve the banquet industry with a highly professional and
experienced sales force, appropriate national and international distribution, a
very broad range of banquet-appropriate products, competitive pricing,
effective marketing strategies and an expanding base of customer relationships.

The Company's old retail segment has been reconstituted as part of the
new business development segment, including sales to restaurants, military
installations, and home meal replacement and other retail customers.

Although the Company's primary focus is to increase U.S. domestic
sales, its intention under its new marketing focus is to serve customers
internationally. It may do so through its existing facilities, through
additional foreign operations or by purchasing products of the same quality
from suppliers worldwide.

Fiscal year 1996 was a year of strategy formulation and focus on cost
containment and productivity issues. The Company formulated a Sales and
Operations Planning team which was successful in reducing inventory levels by
$537,000 with no interruptions to customer shipment schedules.

During 1996, the Company determined that its investment of $1,500,000
in Stockwell's Home Meal Market(TM), (Stockwell's) was impaired. The fiscal
year 1996 consolidated financial statements reflect the Company's share of
losses of $405,000 and the additional write-off of the investment $1,095,000
which are included in loss on equity method investment. During portions of the
year the president and chief financial officer served on the Board of Directors
of Stockwell's.

Sale and Gross Margins

Historically, the Company's sales of high-quality frozen foods have
been to lodging, airlines and other food service providers who order through
their distributor networks. In fiscal year 1997 total lodging sales represented
42%, transportation 35%, new business development 14%, and Norwegian customers,
exclusive of intercompany sales, 9%.

A comparison of net sales, gross margin percentages and losses from
operations as follows:

<TABLE>
<CAPTION>
Year Ended
June 28, June 29, June 24,
1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $13,987,000 $16,078,000 $15,707,000
Gross margin percentage 14% 12% 30%
Loss from operations $(2,366,000) $(3,353,000) $(1,447,000)
</TABLE>

The reorganization of our sales force and transition to a new
marketing focus led to some disruption of sales during fiscal year 1997. Fiscal
year 1997 sales fell to $13,987,000, down 13% from fiscal year 1996 sales of
$16,078,000. Lodging sales fell $2,335,000, or 29%, because of lower volume for
banquets and other special events. Transportation sales increased by $658,000,
or 14%, largely due to the addition of one of the world's largest international
airlines, a European carrier, which began using our products during the year.
The new business development sales decreased by $625,000, or 2%, primarily
because of declining sales to retail customers. In fiscal year 1996 retail
sales to Sam's Clubs were discontinued. Sales to this customer in 1996 totaled
$1,057,000, or 7% of the of the new business development sales in 1996. There
were no sales to Sam's Clubs in fiscal year 1997. International sales
generated from the U.S. operations decreased by $298,000, or 77%. European and
Asian sales of fish packed by the Company's Norwegian plant totaled $1,231,000
during 1997, compared with $237,000 a year-ago, primarily due to shipments to
a new airline customer.

Fiscal year 1996 sales increased by 2.4% or $371,000 over fiscal year
1995 to $16,078,000 from $15,707,000. This moderate increase is attributed to
$210,000 for the United States operations and $161,000 for Norway. Fiscal year
1995 sales increased by 23% over fiscal year 1994 to $15,707,000 from
$12,786,000. This increase is attributable to substantial growth within the
airline segment.

Gross margin as a percentage of total net sales increased to 14% in
fiscal year 1997 from 12% in fiscal year 1996. The increase is primarily due to
the focus of cost containment and productivity issues implemented in fiscal
year 1996.

Gross margin as a percentage of total net sales decreased to 12% from
30% in fiscal year 1995. The decrease is primarily attributed to the accounting
change under which certain costs such as material handling, purchasing and
receiving, plant administration, factory and equipment depreciation were
treated as product costs instead of period costs. This change in accounting
principle is reflected

10 VIE DE FRANCE
<PAGE> 7
through a cumulative adjustment on the consolidated statements of operations.
Gross margin as a percentage of sales for fiscal year 1995 and 1994 under the
reclassified cost method would be 11.2% and 5.5%, respectively. Gross margin as
a percentage of total sales increased in fiscal year 1995 versus fiscal year
1994 due primarily to lower material costs during the year along with increased
labor productivity, offset somewhat due to the start-up effects of the Norway
plant.

Selling, Distribution and Administration Expenses:

A comparison of selling, distribution and general administrative costs
follows:

<TABLE>
<CAPTION>
Year Ended
June 28, June 29, June 24,
1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selling and distribution costs $2,441,000 $2,077,000 $2,183,000
General administrative costs 1,816,000 1,671,000 3,038,000
---------- ---------- ----------
$4,257,000 $3,748,000 $5,221,000
</TABLE>

In fiscal year 1997, selling, distribution and administrative costs
increased as a percentage of sales to 30% from 23%. This increase is primarily
due to the expansion of the sales and finance organizations to carry out the
new strategic focus to be the banquet solution Company to our core customers.

In fiscal year 1996, selling, distribution and administrative costs
decreased as a percentage of net sales to 23% from 33%. This decrease is
related to the accounting change in 1996 under which distribution and the
portion of general administration costs related directly to the plant are now
treated as product costs.

For fiscal year 1995, these costs increased by 46% as compared to the
prior year, to $5,221,000 from $3,579,000. This increase is due to the selling
expenses associated with Norway, for which there were few outside sales,
additional sales personnel in the United States who are just beginning to
generate sales, and residual corporate costs that were present within the
Company, but were primarily allocable to the former Restaurant Division in
prior years. These costs decreased as a percentage of sales from 33% to 28% in
fiscal year 1994 compared to fiscal year 1993, as the rate of sales growth
offset the rate of real dollar growth in this expense category.

Depreciation and Amortization

The Company's change in accounting principle in fiscal year 1996
resulted in, among other things, the recording of production equipment
depreciation as product costs instead of period costs. Actual fiscal year 1997
depreciation and amortization costs recorded as product cost increased by
$55,000 over fiscal year 1996 to $1,249,000 as a result of investments in
capital assets for its operations. Actual depreciation and amortization costs
recorded as product cost increased by $141,000 over fiscal year 1995 to
$1,194,000 for fiscal year 1996, versus $1,053,000 for fiscal year 1995 which
is recorded as period costs. This increase is attributable to the depreciation
associated with the United States plant.

Nonoperating Income and Expense

Investment income consists of returns earned on funds received from
the sale of the Restaurant Division and interest income of $212,000 earned on
a related party loan to Food Research Corporation of $4,408,000.

Interest expense relates to the borrowings, including a capital lease,
associated with the Company's Norwegian subsidiary. At June 28, 1997, the
Company, had borrowings of approximately $2,575,000, bearing interest at rates
ranging from 4.85% to 10.0%. The majority of these borrowings of $2,544,00
were through its Norwegian facility. It is anticipated that these borrowings
will remain outstanding during the upcoming fiscal year.

Change in Accounting

Effective June 25, 1995, the Company changed its overhead absorption
policy with regard to finished goods inventories. Prior to this change, the
Company had valued its inventories using partial absorption of certain plant
level indirect manufacturing overhead costs. Additional costs, such as material
handling, purchasing and receiving, plant administration and factory and
equipment depreciation, were expensed as period costs. These costs are now
treated as product costs under the method adopted by the Company in order to
better match costs with related revenues and to better conform to prevailing
manufacturing industry practice. The cumulative benefit from the change
amounted to $197,000, which is shown net of tax expense of $110,000 on the
consolidated statements of operations for fiscal year 1996.

Discontinued Operations

VIE DE FRANCE 11
<PAGE> 8
the fourth quarter of 1997. As of June 28, 1997, reserves of approximately
$72,000 relating to a remaining lease is accrued by the Company.

The gain from sale of discontinued operations for fiscal year 1996
relates to the net effect of reversals of certain accruals related to the
former Restaurant Division of $22,000, and income tax refunds received during
1996 of $335,000.

During the third and fourth quarters of fiscal year 1995, the Company
reduced its accruals related to the sale of the former Restaurant Division.
This reduction was possible due to the expiration of certain contingent
liabilities.

Impact of Inflation and the Economy

Inflation in labor and ingredient costs can significantly affect the
Company's operations. Many of the Company's employees are paid hourly rates
related to, but generally higher than the federal minimum rates.

The Company's sales pricing structure allows for the fluctuation of
raw material prices. As a result, market price variations do not significantly
affect the gross margin realized on product sales. Customer sensitivity to
price changes can influence the overall sales of individual products.

Liquidity and Capital Resources

In fiscal year 1997, the Company continued to experienced a decline in
its liquidity. The combined total of the cash and short-term investment
balances was $1,451,000 and $9,520,000 at June 28, 1997 and June 29, 1996,
respectively. Additionally, the Company held investments of $10,217,000 and
$5,598,000 at June 28, 1997 and June 29, 1996, respectively, with maturities
greater than one year.

In fiscal year 1996, the Company also experienced a decline in its
liquidity over fiscal year 1995. The combined total of the cash and short-term
investment balances was $9,520,000 and $14,209,000 at June 29, 1996 and June
24, 1995, respectively. Additionally, the Company held investments of
$5,598,000 and $2,025,000 at June 29, 1996 and June 24, 1995, respectively,
with maturities greater than one year. In addition to the $500,000 common stock
investment in Stockwell's held at June 24, 1995, an additional investment of
$1,000,000 was made during fiscal year 1996. This total investment of
$1,500,000 is considered an equity method investment and was written off in
fiscal year 1996 due to the closure of Stockwell's two retail locations. The
decrease in liquidity is also related to the increased working capital
requirements primarily for the Norway plant.

Cash used by operations in fiscal year 1997 amounted to $1,308,000, as
compared to cash provided in fiscal year 1996 and used in fiscal year 1995 of
$1,095,000 and $4,606,000, respectively. The cash used in fiscal year 1997
relates to the funds needed to finance the companies operations, along with
increases in trade and notes receivable and an increase in accounts payable.
The cash provided in fiscal year 1996 relates to the strong emphasis on
reduction of inventory and improved cash collections in these areas. The use of
cash in fiscal year 1995 resulted primarily from the payment of income taxes
related to the sale of the former Restaurant Division, along with increases in
inventory, receivables, and notes receivable.

Cash in the amount of $5,791,000 was used by investing activities in
fiscal year 1997. During 1997, the Company funded a loan to its majority
shareholder, Food Research Corporation ("FRC"), totaling $2,441,000. The loans
issued to FRC during 1997, due in April, 2000 are collateralized by FRC's share
of the Company's stock. In addition to these loans, three loans from FRC
totaling $1,966,000 were outstanding as of June 28, 1997 and June 29, 1996,
with maturity dates ranging from July 1, 1997 through October 1, 1997. The
three loans that were outstanding as of June 29, 1996 are secured by assets of
FRC. Subsequent to year end, the loan due July 1, 1997 was paid in full. The
Company is presently in discussions with its majority shareholder to extend
the maturity of the notes originally due in August and October of 1997. All
loans issued require quarterly interest payments.

Management believes all notes receivable from FRC will be paid in full
upon maturity, if not sooner. However, because of the extension of the 1996
notes maturity, the nature of the collateral securing the 1997 notes, and the
term of the 1997 notes, the balance of the notes from FRC, excluding the note
due and paid in July, 1997, have been presented as a separate component in
stockholders equity in the balance sheet as of June 28, 1997.

In addition, the Company made investments in capital expenditures of
$413,000. The Company also had net purchases of investments totaling $1,900,000
in fiscal year 1997. Cash in the amount of $930,000 was provided by investing
activities in fiscal year 1996, representing the return of the deposit of
$4,900,000 from the European bank. This deposit was offset by cash used by
investing activities for financing of capital expenditures of $509,000, net
purchases of other debt and equity securities of $2,566,000, and an investment
in Stockwell's of $1,000,000. Cash in the amount of $448,000 was provided by
investing activities in fiscal year 1995, representing a decrease in
investments needed to finance capital expenditures of $1,490,000 and increase
in inventories and receivables. Fiscal year 1995's investments in capital
projects included, approximately $400,000 for the Norway plant and
approximately $700,000 for the Alexandria, Virginia facility. During 1995, the
Company funded a loan to FRC in the amount of $1,450,000 million.

In fiscal year 1997 cash in the amount of $590,000 was provided by
financing activities, which is attributable to the debt acquired by the
Norwegian and U.S. facilities in the amount of $713,000 and $31,000,
respectively offset by payments of $154,000. In fiscal year 1996 cash in the
amount of $597,000 was used by financing activities which included $585,000 to
pay off the line of credit established for Norway, $96,000 relating to other
debt service, offset by $84,000 generated through the exercise of stock
options. In fiscal year 1995 cash in the amount of $1,344,000 was generated by
financing activities, representing the debt acquired by the Norway subsidiary,
offset by $890,000 in repayments, and $50,000 generated through the exercise of
stock options.

Subsequent to year-end, the Company obtained approval for $8.2 million
of financing in the form of industrial revenue bonds from the Industrial
Development Authority of Loudoun County, Virginia for an envisioned new plant
and corporate headquarters in the Greenway Industrial Center near Leesburg,
Virginia. As of June 28, 1997 the company has not officially determined whether
it would pursue plans to construct this facility, and has not drawn any funds.
The site is well situated in an attractive industrial area with a good supply
of labor and lower cost structure. The County's Board of Supervisors approved
issuance of up to $8.2 million in bonds to

12 VIE DE FRANCE
<PAGE> 9
finance a 70,000 square-foot food manufacturing plant and corporate office on
7.74 acres of the industrial park near the Dulles Airport and U.S. Postal
Service facility. The new facility would replace the Company's existing 40,000
square-foot manufacturing plant in Alexandria, Virginia as well as the
corporate offices the Company leases nearby. The $8.2 million includes the cost
of the land, building and equipment. The new production facility would provide
increased efficiencies and modern space for future growth. In September, 1997
the Company purchased the land through financing with a banking institution,
for approximately $700,000 plus applicable fees.

The Company is also considering locating one or more plants for sous
vide products closer to the source of supply to maintain product quality, lower
shipping costs and as a method of entering new markets. The cost of such
facilities ranges from approximately $1,000,000 to $5,000,000, depending upon
the nature of the product and the production volume desired. Local governments
may provide subsidies and other assistance in connection with such facilities.
It is possible that the Company may use some of its cash resources to fund
these efforts and/or acquisitions. The Company is also pursuing a lease for a
production facility in Europe to support its strategic intent to be the leading
banquet solution Company in the world. The European plant which is built under
European quality standards, will give the company immediate access to that
market.

The Company's Norwegian subsidiary has secured a working capital
commitment for its liquidity needs in Norway in the form of an overdraft
facility. As of June 28, 1997, $634,000 was outstanding under this overdraft
facility. During fiscal year 1996, VdF Norway increased its overdraft facility
balance, and can borrow up to $800,000 under this commitment.

The Company was returned its deposit of $4,900,000 and all accrued
interest with a European bank during fiscal year 1996. This deposit was
denominated in U.S. dollars and earned a rate of return in excess of the
prevailing short-term rates in the United States. This loan was pledged as
collateral to the bank so that the bank may loan funds to a French subsidiary
of Setucaf S.A., a French Company which is 21% owned by Food Research
Corporation, the majority stockholder of the Company. The return of this
deposit was transferred to the United States Investment account at the end of
fiscal year 1996 and earns interest at the market prevailing rate of the
securities for which it is held.

Future Prospects

In fiscal year 1998, the Company intends to build upon the broader
sales base established in fiscal 1997 and 1996, and provide a high level of
service to its customers. Because of the banquet industry buying cycles, the
Company does not expect significant improvement in results until the second
half of fiscal year 1998. The Company will continue to explore and develop its
emerging markets and formats that show promise of generating significant sous
vide sales. Although the course of the European business is difficult to
forecast, it is management's expectation that its Norwegian operations will
reduce its losses in fiscal 1998.

The Company is confident that it has taken the right steps to reshape
the Company and its strategy. During fiscal year 1998, the Company must execute
that strategy, build sales and move the Company towards consistent
profitability.

New Accounting Standards

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
("Statement 128"), and No. 129, Disclosure of Information About Capital
Structure ("Statement 129"). Statement 128 was issued to simplify the
computations of earnings per share and to make the U.S. standard more
compatible with the standards of other countries and that of the International
Accounting Standards Committee. Statement 128 replaces primary and fully
diluted earnings per share with basic earnings and diluted earnings per share.
Statement 129 will change some of the required disclosures about capital
structure. It is not expected that these statements will have a material effect
on the Company's financial statements. The Statements are effective for the
year ending June 27, 1998.

In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"). Statement 130 establishes standards for the reporting
and display of comprehensive income and its components in the financial
statements. The Company is required to adopt the provisions of the statements,
during fiscal year 1998. The Company believes that the disclosure of
comprehensive income in accordance with the provisions of Statement 130 will
impact the manner of presentation of its financial statements as currently and
previously reported earnings include amounts from cumulative translation
adjustments and unrealized gains and losses on debt and equity instruments.

In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosure about Segments
of an Enterprise and Related Information ("Statement 131"). Statement 131
applies to all public business enterprises and establishes standards for the
reporting and display of financial data of operating segments in the financial
statements. Statement 131 replaces the "industry segment" concept of Statement
14 with a "management approach" concept as the basis for identifying reportable
segments. The Company is required to adopt the provisions of the statement
during fiscal year 1998. Adoption of this statement will require additional
disclosure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is included at Item 14(a)(1)
and (2).

VIE DE FRANCE 13
<PAGE> 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The Company dismissed its former principal accountants, Price
Waterhouse LLP of Falls Church, Virginia and engaged KPMG Peat Marwick LLP, of
Washington, DC, as its principal accountants. The change was made effective May
13, 1996.

During the two most recent fiscal years of the registrant and each
subsequent interim period preceding May 13, 1996 there were no disagreements
with the former accountants on any matter of accounting principle or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the former accountants
would have caused them to make reference in connection with their report to the
subject matter of the disagreements.

The reports of the former principal accountants on the financial
statements of the registrant for either of the past two years contained no
adverse opinion or disclaimer of opinion, nor was either qualified or modified
as to uncertainty, audit scope, or accounting principles.

The decision to change auditors was approved by the Board or Directors
of the Company.

Price Waterhouse LLP, the former auditors confirmed their agreement
with the statements presented above, as noted in Exhibit 14 (b).

14 VIE DE FRANCE
<PAGE> 11
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this Item 10 is shown in the Proxy
Statement to be filed under Regulation 14A, under the caption "Election of
Directors", and such information is incorporated herein by reference.

Executive Officers

The following list and narrative sets forth the name and age of each
present executive officer of the Company who is not also a director or director
nominee, all positions held by the person with the Company, the year in which
the person first became an officer, and the principal occupations of each
person named since 1988.

<TABLE>
<CAPTION>
Name Age Office held with Company Since
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arthur J. Stouffs 53 Vice President, Culinary Sales 1990
Carl M. Youngman 55 Chief Financial Officer & Treasurer 1996
Leara L. Dory 36 Secretary and Vice President of Finance 1996
Michael McCloud 34 Vice President of Sales and Marketing 1997
</TABLE>

Mr. Stouffs has served in the capacity of Vice President of Culinary
Sales since 1990, and was appointed an officer of the Company in 1994.
Previously Mr. Stouffs held various positions in the Company's former Bakery
Division including Director of Operations and Director of Sales - National
Accounts from 1980 through 1990.

Mr. Carl Youngman was appointed Chief Financial Officer in February
1996 and Treasurer in October 1996. Mr. Youngman has over twenty five years of
experience in executive-level positions. During this period he has been an
executive in over twenty companies and an advisor to over fifty other
companies. From 1993 to the present, Mr. Youngman has been senior partner of
Youngman and Charm, a professional firm which specializes in corporate renewal
and corporate finance. Mr. Youngman holds a B.S. degree in Electrical
Engineering from Worcester Polytechnic Institute and a Master's Degree from
Harvard Business School. He is a member of the Audit and Stock Option
Committees.

Mrs. Dory was appointed to the position of Controller and Secretary in
February, 1996. Subsequent to the end of fiscal year 1997, Mrs. Dory was
promoted to the position of Vice President of Finance. Mrs. Dory also remains
the Secretary for the Company. She came to the Company in November, 1995 as the
Controller. Prior to joining the Company, Mrs. Dory was a Controller/Director
of Finance for Thomas Enterprises and Assistant Controller for
Telecommunications Technique Corporation from 1989 through 1995. Mrs. Dory has
over 13 years of experience in the manufacturing industry. Mrs. Dory is a
Certified Public Accountant and holds a BS degree in Accounting.

Mr. McCloud was appointed to the position of Vice President of Sales
and Marketing in March, 1997. He came to the company in October, 1996. Prior to
joining the Company, Mr. McCloud was Vice President of Sales for Edwards Baking
Company since July, 1994. He previously served as Edwards' Vice President of
Marketing, and as that company's Director of Marketing. Before joining Edwards,
Mr. McCloud was Director of Marketing for Borden, Inc.'s snacks and
international consumer products division. He has also held sales and marketing
positions with units of Coca-Cola, USA and Proctor & Gamble. Mr. McCloud holds
a BS degree in Management.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item 11 is shown in the Proxy
Statement to be filed under Regulation 14A, under the caption "Executive
Compensation", and such information, except for the information required by
Item 402(k) and Item 402(l) of Regulation S-K, is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this Item 12 is shown in the Proxy
Statement to be filed under Regulation 14A, under the caption "Voting
Securities and Principal Holders Thereof", and such information is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this Item 13 is shown in the Proxy
Statement to be filed under Regulation 14A, under the caption "Certain
Transactions", and such information is incorporated herein by reference.

VIE DE FRANCE 15
<PAGE> 12
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K

(a) Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(1) Financial Statements: . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Accountants . . . . . . . . . . . . . . . . . . .
KPMG Peat Marwick LLP . . . . . . . . . . . . . . . . . . . . . . . . . F-1
PRICE WATERHOUSE LLP . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets-June 28, 1997 and June 29, 1996 . . . . . . F-3
Consolidated Statements of Operations-Fiscal Years Ended June 28, 1997,
June 29, 1996, and June 24, 1995 . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity-Fiscal Years
Ended June 28, 1997, June 29, 1996, and June 24, 1995 . . . . . . . F-5
Consolidated Statements of Cash Flows-Fiscal Years Ended June 28, 1997,
June 29, 1996 and June 24, 1995 . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements-June 28, 1997 . . . . . . . F-7

(2) Financial Statement Schedule: . . . . . . . . . . . . . . . . . . . . .
Schedule II--Valuation and Qualifying Accounts . . . . . . . . . . . . F-8
</TABLE>

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

(3) Exhibits:

The following exhibits are incorporated in this report by
reference from identically numbered exhibits to the
Company's Amendment to its Annual Report for the year ended
June 27, 1992 on Form 8 dated February 26, 1993:

Exhibit
No. Description of Exhibit
--------------------------------------------------------------------
3-A The Certificate of Incorporation of the Company, as
amended to date.

3-B The By-Laws of the Company, as amended to date.

The following exhibits are incorporated in this report by reference
from an identically numbered exhibit to the Company's Annual Report
on Form 10-K for the year ended June 29, 1991:

10.46 The Company's Proxy Statement for a Special Meeting of
Stockholders, dated June 7, 1991, together with a
conformed copy of the Asset Purchase Agreement between Vie
de France Corporation and Vie de France Bakery Yamazaki,
Inc. dated May 7, 1991.

The following exhibits are incorporated in this report by reference
from the Company's two Registration Statements on Form S-8, dated
April 5, 1993:

10.52 The Company's 1986 Stock Option Plan, as amended.

10.53 The Company's 1992 Stock Option Plan.

16 VIE DE FRANCE
<PAGE> 13
The following exhibits are filed as exhibits to this report in the
indicated sections.

10.54 The Company's Proxy Statement for a Special Meeting of
Stockholders, dated April 28, 1994, together with a
conformed copy of the Asset Purchase Agreement between Vie
de France Corporation and Vie de France Bakery Yamazaki,
Inc. dated March 4, 1994.

10.55 Lease dated March 30, 1989 and as amended, between the
Company and Duke-Shirley Industrial Development, LP, with
respect to the lease of property at 4106 Wheeler Avenue,
Alexandria VA.

10.56 Management contract between the Company and Food Investors
Corporation dated July 31, 1995, with respect to payment
in reimbursement of expenses and other costs incurred by
Food Investors Corporation on the behalf of the Company.

24 Consent of Independent Accountants.

(b) Reports on Form 8-K:

Change of former principal accountants Price Waterhouse LLP,
and engagement of new auditors KPMG Peat Marwick LLP effective
May 13, 1996

Exhibits required to be filed in response to this paragraph of
Item 14 are listed above in subparagraph (a)(3).

(d) Financial Statement Schedule:

Schedules and reports thereon by independent accountants
required to be filed in response to this paragraph of Item 14
are listed in Item 14(a)(2).

VIE DE FRANCE 17
<PAGE> 14
SIGNATURES

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

VIE de FRANCE CORPORATION
(Registrant)

By: /s/ Stanislas Vilgrain
Stanislas Vilgrain
President
and Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ JEAN-LOUIS VILGRAIN Chairman of the Board September 26, 1997
-----------------------------
Jean-Louis Vilgrain

/s/ STANISLAS VILGRAIN President, September 26, 1997
----------------------------- Chief Executive Officer
Stanislas Vilgrain

/s/ CARL YOUNGMAN Director September 26, 1997
----------------------------- Chief Financial Officer & Treasurer
Carl M. Youngman

/s/ BRUNO GOUSSAULT Director September 26, 1997
-----------------------------
Bruno Goussault

/s/ ALEXANDRE VILGRAIN Director September 26, 1997
-----------------------------
Alexandre Vilgrain

/s/ GEORGE NADAFF Director September 26, 1997
-----------------------------
George Nadaff

/s/ JAMES HACKNEY Director September 26, 1997
-----------------------------
James Hackney

/s/ LEARA DORY Vice President of Finance & Secretary September 26, 1997
----------------------------- (Principal Financial and
Leara Dory Accounting Official)

</TABLE>

18 VIE DE FRANCE
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
Vie de France Corporation

The Board of Directors and Stockholders
Vie de France Corporation:

We have audited the accompanying consolidated balance sheets of Vie
de France Corporation and subsidiaries as of June 28, 1997 and June 29, 1996,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years then ended. In connection with our
audits of the consolidated financial statements we also have audited the
financial statement schedule for the years ended June 28, 1997 and June 29,
1996, as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Vie
de France Corporation and subsidiaries as of June 28, 1997 and June 29, 1996,
and the results of their operations and their cash flows for each of the years
then ended, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule for the years ended
June 28, 1997 and June 29, 1996, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements,
effective June 25, 1995, the Company changed its accounting method for certain
inventory costs.

KPMG PEAT MARWICK LLP

Washington, D.C.
September 23, 1997

VIE DE FRANCE 19
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Vie de France Corporation

To the Board of Directors and Stockholders
Vie de France Corporation

In our opinion, the consolidated financial statements listed in the
index appearing under items 14(a)(1) and (2) present fairly, in all material
respects, the results of operations of Vie de France Corporation and its
subsidiaries, and their cash flows for the year ended June 24, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Vie de France Corporation and its subsidiaries for any period
subsequent to June 24, 1995.

PRICE WATERHOUSE LLP

Washington, D.C.
August 25, 1995

20 VIE DE FRANCE
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Vie de France Corporation

<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash of $143,000 and $0,
respectively) $ 353,000 $ 6,862,000
Investments, current 1,098,000 2,658,000
Accounts receivable, trade 2,357,000 1,486,000
Inventory 1,999,000 2,119,000
Prepaid expenses 330,000 137,000
Current portion of notes receivable, related party 603,000 10,000
Income tax receivable 753,000 --
Other current assets 374,000 292,000
------------- -------------
Total current assets 7,867,000 13,564,000

Investments, noncurrent 10,217,000 5,598,000
Fixed assets, net 4,269,000 5,313,000
Notes receivable, related party, including accrued interest, less current portion 56,000 2,178,000
Other assets 303,000 382,000
------------- -------------
Total assets $ 22,712,000 $ 27,035,000
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,195,000 $ 948,000
Accrued payroll and related liabilities 631,000 577,000
Current portion of long-term debt 807,000 153,000
Accrued store closings 72,000 287,000
Other accrued taxes 114,000 141,000
------------- -------------
Total current liabilities 2,819,000 2,106,000

Long-term debt, less current portion 1,768,000 2,147,000
------------- -------------
Total liabilities 4,587,000 4,253,000
============= =============

Stockholders' equity
Common stock--$.01 par value, 20,000,000 shares authorized,
14,078,620 and 14,034,620 issued and 13,822,543 and 13,822,543 shares outstanding 141,000 141,000
Class B Stock--$.01 par value, 175,000 shares authorized, none issued -- --
Additional paid-in capital 21,352,000 21,352,000
Retained earnings 2,323,000 2,789,000
Cumulative translation adjustment 13,000 50,000
Unrealized gains (losses) on debt and equity investments 11,000 (110,000)
Treasury stock, at cost (256,077 shares) (1,440,000) (1,440,000)
Notes receivable from majority shareholder, including accrued interest (4,275,000) --
------------- -------------
Total stockholders' equity 18,125,000 22,782,000
------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 22,712,000 $ 27,035,000
============= =============
</TABLE>

See accompanying notes to consolidated financial statements.

VIE DE FRANCE 21
<PAGE> 18
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Vie de France Corporation

<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
June 28, June 29, June 24,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 13,987,000 $16,078,000 $15,707,000

Cost of goods sold 12,015,000 14,084,000 11,046,000
------------ ----------- -----------
Gross margin 1,972,000 1,994,000 4,661,000

Selling and administration 4,257,000 3,748,000 5,221,000
Depreciation and amortization 110,000 107,000 1,053,000
Other income (29,000) (8,000) (166,000)
Loss on equity method investment -- 1,500,000 --
------------ ----------- -----------
Loss from operations (2,366,000) (3,353,000) (1,447,000)
------------ ----------- -----------

Nonoperating income (expense)
Investment income 1,093,000 1,234,000 1,256,000
Interest expense (105,000) (229,000) (192,000)
Other income (expense) 5,000 14,000 (16,000)
------------ ----------- -----------
Total nonoperating income 993,000 1,019,000 1,048,000
------------ ----------- -----------

Loss from continuing operations before income taxes, discontinued
operations, and cumulative effect of change in accounting principle (1,373,000) (2,334,000) (399,000)
Provision for income tax (expense) benefit 439,000 110,000 (307,000)
------------ ----------- -----------

Loss from continuing operations before discontinued operations and
cumulative effect of change in accounting principle, net of taxes (934,000) (2,224,000) (706,000)

Gain from sale of discontinued operations, net of taxes 468,000 313,000 730,000
Cumulative effect of change in accounting principle, net of taxes -- 197,000 --
------------ ----------- -----------

Net income (loss) $ (466,000) $(1,714,000) $ 24,000
============ =========== ===========

Net income (loss) per common share:
Continuing operations before discontinued
operations and cumulative effect of change in accounting
principle, net of taxes $ (0.07) $ (0.16) $ (0.05)
Discontinued operations $ 0.03 $ 0.02 $ 0.05
Cumulative effect of change in accounting principle $ -- $ 0.01 $ --
------------ ----------- -----------
Net income (loss) per common share $ (0.04) $ (0.13) $ 0.00
============ =========== ===========

Weighted average shares outstanding 13,822,543 13,797,492 13,767,852
============ =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

22 VIE DE FRANCE
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Vie de France Corporation

<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
June 28, June 29, June 24,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (466,000) $ (1,714,000) $ 24,000
Adjustments to reconcile net income (loss) to net cash (used) provided
by operating activities
Gain from sale of discontinued operations (161,000) (176,000) (730,000)
Loss on equity method investment -- 1,500,000 --
Depreciation and amortization, including discontinued operations 1,249,000 1,194,000 1,053,000
Gain on disposal of fixed assets 10,000 -- --
Change in cumulative translation adjustment (37,000) 41,000 (24,000)
Cumulative effect of change in accounting principle, net -- (197,000) --
Income tax benefit -- (110,000) --
Changes in assets and liabilities, net of effects of discontinued
operations and non-cash transactions:
(Increase) decrease in accounts receivable trade, net (981,000) 160,000 (232,000)
Decrease in inventory 91,000 537,000 (947,000)
(Increase) decrease in prepaid expenses (193,000) (18,000) 62,000
Increase in notes receivable, related party (305,000) (120,000) (93,000)
Increase in income tax receivable (753,000) -- --
(Increase) decrease in other assets (41,000) 317,000 (365,000)
Increase (decrease) in accounts payable and accrued expenses 273,000 (366,000) 362,000
Increase (decrease) in accrued payroll and related liabilities 87,000 59,000 (44,000)
Decrease in accrued store closing costs (64,000) (12,000) (307,000)
Decrease in other accrued taxes (17,000) -- (237,000)
Decrease in income taxes payable -- -- (3,128,000)
----------- ------------ -----------
Net cash (used) provided by operating activities (1,308,000) 1,095,000 (4,606,000)
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 10,660,000 13,600,000 3,085,000
Purchase of investments (13,598,000) (11,044,000) --
Investments in common stock -- (1,000,000) (500,000)
Notes receivable issued to majority shareholder (2,441,000) -- (1,450,000)
Proceeds on disposal of fixed assets 1,000 3,000 --
Capital expenditures (413,000) (509,000) (1,490,000)
----------- ------------ -----------
Net cash (used) provided by investing activities (5,791,000) 1,050,000 (355,000)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to debt 744,000 -- 2,184,000
Reductions of debt (154,000) (681,000) (890,000)
Proceeds from issuance of stock -- 84,000 50,000
----------- ------------ -----------
Net cash provided (used) by financing activities 590,000 (597,000) 1,344,000
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents (6,509,000) 1,548,000 (3,617,000)
Cash and cash equivalents, beginning of period 6,862,000 5,314,000 8,931,000
----------- ------------ -----------
CASH and CASH EQUIVALENTS, END OF PERIOD $ 353,000 $ 6,862,000 $ 5,314,000
=========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest $ 131,000 $ 241,000 $ 153,000
Income taxes, net $ -- $ -- $ 3,486,000
=========== ============ ===========
Non-cash activities:
Facility purchased under capital lease $ -- $ -- $ 1,688,000
Unrealized income (losses) on debt and equity investments $ 121,000 $ (110,000) $ --
=========== ============ ===========
</TABLE>

See accompanying notes to consolidated financial statements

VIE DE FRANCE 23
<PAGE> 20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Vie de France Corporation

<TABLE>
<CAPTION>
Notes
Receivable
Unrealized from
Gains Majority
(Losses) Shareholder
Additional Cumulative on Debt Including Total
Common Paid-In Retained Translation and Equity Treasury Accrued Stockholders'
Stock Capital Earnings Adjustment Investments Stock Interest Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 25, 1994 $140,000 $21,219,000 $4,479,000 $33,000 -- $(1,440,000) -- $24,431,000
Stock options exercised -- 50,000 -- -- -- -- -- 50,000
1995 net income -- -- 24,000 -- -- -- -- 24,000
Translation adjustment -- -- -- (24,000) -- -- -- (24,000)
-------- ----------- ---------- -------- -------- ----------- ----------- -----------
Balance, June 24, 1995 140,000 21,269,000 4,503,000 9,000 -- (1,440,000) -- 24,481,000

Stock options exercised 1,000 83,000 -- -- -- -- -- 84,000
1996 net loss -- -- (1,714,000) -- -- -- -- (1,714,000)
Unrealized losses on
debt and equity
investments -- -- -- -- (110,000) -- -- (110,000)
Translation Adjustment -- -- -- 41,000 -- -- -- 41,000
-------- ----------- ---------- -------- -------- ----------- ----------- -----------
Balance, June 29, 1996 141,000 21,352,000 2,789,000 50,000 (110,000) (1,440,000) -- 22,782,000

Stock options exercised -- -- -- -- -- -- -- --
1997 net loss -- -- (466,000) -- -- -- -- (466,000)
Unrealized gains on debt
and equity investments -- -- -- -- 121,000 -- -- 121,000
Translation Adjustment -- -- -- (37,000) -- -- -- (37,000)
Loan to majority
shareholder, including
accrued interests -- -- -- -- -- -- (4,275,000) (4,275,000)
-------- ----------- ---------- -------- -------- ----------- ----------- -----------
Balance, June 28, 1997 $141,000 $21,352,000 $2,323,000 $13,000 $11,000 $(1,440,000) $(4,275,000) $18,125,000
======== =========== ========== ======== ======== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

24 VIE DE FRANCE
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Vie de France Corporation

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Principles of Consolidation

The financial statements include the consolidated accounts of Vie de
France Corporation and its subsidiaries (collectively "the Company"). All
significant intercompany transactions have been eliminated in the financial
statements.

Fiscal Year

The Company utilizes a 52/53 week fiscal year which ends on the last
Saturday in June. Fiscal year 1997 contains 52 weeks, 1996 contained 53 weeks
and 1995 contained 52 weeks.

Financial Statement Reclassifications

Certain items in prior year financial statements have been
reclassified to conform to the current year financial statement presentation.

Accounting Change

Effective June 25, 1995 (fiscal year 1996), the Company changed its
overhead absorption policy with regard to finished goods inventories. Prior to
this change, the Company had valued its inventories using partial absorption of
certain plant-level indirect manufacturing overhead costs. Additional costs,
such as material handling, purchasing and receiving, plant administration and
factory and equipment depreciation, were expensed as period costs. These costs
are now treated as product costs under the method adopted by the Company in
order to better match costs with related revenues and to better conform to
prevailing manufacturing industry practice. Under this method approximately
$1,087,000 of depreciation and amortization costs and $1,848,000 of general
administrative expenses were reclassified as product costs during 1996. The
effect of this change on 1995 amounts is immaterial.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue at the time products are shipped to its
customers, with the exception of some of its United States airline
distributors. For U.S. airline distributors that purchase salmon products
directly from the Company's Norway facility, the Company recognizes revenue
when the customer receives the products.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with an original
maturity of three months or less.

Investments

Investment securities consist of U.S. Treasury, mortgage-backed
instruments, corporate debt and equity securities. The Company has classified
its investments as "available-for-sale." Securities classified as available for
sale includes securities which could be sold in response to changes in interest
rates for general liquidity needs. Such securities are carried at estimated
fair value with unrealized gains or losses recorded as a separate component of
equity.

Investments in affiliates in which the Company has an ownership
position providing it with significant influence over the investee, are
accounted for by the equity method. Equity method investments are recorded at
original cost and are adjusted to recognize the Company's proportionate share
of the investees' income or losses after date of investment, and additional
contributions made.

Inventory

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

VIE DE FRANCE 25
<PAGE> 22
nventory consisted of:

<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 413,000 $ 529,000
Frozen product & other finished goods 1,438,000 1,448,000
Packing materials & supplies 246,000 193,000
---------- ----------
2,097,000 2,170,000
Less obsolescence reserve (98,000) (51,000)
---------- ----------
$1,999,000 $2,119,000
========== ==========
</TABLE>

Fixed Assets

Machinery, equipment, furniture and fixtures are depreciated using the
straight-line method over estimated useful lives which range from two to eight
years. Leasehold improvements are amortized using the straight-line method over
the shorter of terms of the leases which range from four to twenty years, or
the estimated useful life of the improvement.

Expenditures for maintenance and repairs are charged to expense, and
significant improvements are capitalized. For continuing operations,
maintenance and repairs charged to expense approximated $352,000 in 1997,
$381,000 in 1996 and $373,000 in 1995.

The components of fixed assets were as follows:

<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
Machinery & equipment $ 5,938,000 $ 5,717,000
Furniture & fixtures 166,000 164,000
Leasehold improvements 2,213,000 2,214,000
Building under capital lease 1,583,000 1,756,000
Construction in progress 63,000 34,000
----------- -----------
9,963,000 9,885,000
Less accumulated depreciation and amortization (5,694,000) (4,572,000)
----------- -----------
$ 4,269,000 $ 5,313,000
=========== ===========
</TABLE>

Income and Other Taxes

The Company computes income taxes using the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-lived
Assets and or Long-lived Assets to Be Disposed of ("Statement 121") on June 30,
1996 (fiscal year 1997). Statement 121 requires companies to review long-lived
assets and certain identifiable intangibles to be held, used or disposed of,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Adoption of Statement 121
did not have a material impact on the Company's financial position, results of
operations or liquidity.

Accounting for Stock-Based Compensation

Prior to June 30, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board Opinion
No. 25 ("APB Opinion 25"), Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On June 30, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement 123"), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, Statement 123 also allows entities to continue to apply the
provisions of APB Opinion 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1996
and

26 VIE DE FRANCE
<PAGE> 23
future years as if the fair-value based method defined in Statement 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion 25 and provide the pro forma disclosure of the provisions of
Statement 123 (see note 7). In addition, in accordance with Statement 123, the
Company applies fair value as the measurement basis for transactions in which
equity instruments are issued to nonemployees.

Earnings Per Share

Net income (loss) per share is computed on the basis of the weighted
average number of shares of stock and dilutive stock options outstanding during
each period.

Foreign Currency Translation

The statement of operations of the Company's Norwegian subsidiary (the
"Subsidiary") has been translated to U.S. dollars using the average currency
exchange rates in effect during the year. The Subsidiary's balance sheet has
been translated using the currency exchange rate as of the end of the fiscal
year. The impact of currency exchange rate changes on the translation of the
Subsidiary's balance sheet is charged directly to stockholders' equity.

New Accounting Standards

NOTE 2--INVESTMENTS

The Company's investments are classified as available-for-sale. These
securities are carried at fair value and unrealized gains and losses are
reported in a separate component of stockholders' equity.

The following is a summary of the Company's investments at June 28,
1997:

<TABLE>
<CAPTION>
Estimated
Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agencies
Current $ 978,000 $14,000 -- $ 992,000
Non-current 6,993,000 20,000 -- 7,013,000
Corporate debt
Current 109,000 -- (3,000) 106,000
Non-current 3,224,000 -- (20,000) 3,204,000
----------- ------- --------- -----------
Total investments $11,304,000 $34,000 $ (23,000) $11,315,000
=========== ======= ========= ===========
</TABLE>

VIE DE FRANCE 27
<PAGE> 24
The following is a summary of the Company's investments at June 29,
1996:

<TABLE>
<CAPTION>
Estimated
Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agencies
Current $1,113,000 $ -- $ (6,000) $1,107,000
Non-current 3,972,000 -- (57,000) 3,915,000
Corporate debt
Current 1,549,000 $ 2,000 -- 1,551,000
Non-current 1,732,000 -- (49,000) 1,683,000
---------- ------- --------- ----------
Total investments $8,366,000 $ 2,000 $(112,000) $8,256,000
========== ======= ========= ==========
</TABLE>

The net adjustment to unrealized losses on available-for-sale
securities increased stockholders' equity by $11,000 in 1997 and decreased
stockholders' equity by $110,000 in 1996.

During fiscal year 1997 and 1996 the Company realized gross gains on
sale of investments of $4,000 and $1,000, respectively. In addition, the
Company realized gross losses on sale of investments of $74,000 and $35,000
during fiscal year 1997 and 1996, respectively.

During fiscal year 1996 the Company received the deposit and all
accrued interest it had with a European bank of $4,900,000 at June 24, 1995.
This deposit had been pledged as collateral to the Bank with respect to funds
loaned to a party affiliated with the principal stockholder of the Company. The
Company incurred no costs as a result of the collateralization. These funds are
included as a cash equivalent at June 29, 1996.

Through June 29, 1996, the Company had made investments totaling
$1,500,000 in Stockwell's Home Meal Market(TM) (Stockwell's), a start-up entity
devoted to the development of a chain of frozen food retail outlets. During
1996, Stockwell's incurred substantial losses and decided to close its two
stores in July and August, 1996, respectively. The Company determined that is
was not likely that the investment would be recovered, therefore the remaining
investment balance was written off during the fourth quarter of 1996. The
fiscal year 1996 financial statements reflect the Company's share of losses of
$405,000 and the additional write-off of the investment of $1,095,000, which
are included in loss on equity method investment in the accompanying
consolidated statements of operations. During portions of 1996, the chief
financial officer and president of the Company also served on the board of
directors' of Stockwell's.

NOTE 3--INCOME TAXES

The composition of the provision for income tax expense (benefit)
attributable to continuing operations was:

<TABLE>
<CAPTION>
June 28, June 29, June 24,
1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(439,000) $ -- $ 285,000
State -- -- 22,000
---------- ---------- ---------
(439,000) -- 307,000
Deferred:
Federal -- (110,000) --
State -- -- --
---------- ---------- ---------
-- (110,000) --
---------- ---------- ---------
Total provision for income tax
(benefit) expense, continuing operations $(439,000) $(110,000) $ 307,000
========== ========== =========
</TABLE>

28 VIE DE FRANCE
<PAGE> 25
The provision (benefit) for income taxes for fiscal years 1997, 1996
and 1995 has been presented in the consolidated statements of income as
continuing operations, discontinued operations and cumulative effect of change
in accounting principle as follows:

<TABLE>
<CAPTION>
June 28, June 29, June 24,
1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax (benefit) provision allocated to:
Continuing Operations $(439,000) $ (110,000) $307,000
Discontinued Operations: (314,000) (335,000) --
Cumulative effect of change in accounting
principle -- 110,000 --
--------- ---------- --------
Total provision for income tax (benefit)
expense $(753,000) $ (335,000) $307,000
========= ========== ========
</TABLE>

The differences between amounts computed by applying the statutory
federal income tax rates to income from continuing operations and the total
income tax provision applicable to continuing operations were as follows:

<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
June 28, June 29, June 24,
1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax benefit at statutory rates $(467,000) $(793,000) $(136,000)
Loss from foreign operations 84,000 231,000 252,000
Period effect of valuation allowance (8,000) 497,000 156,000
State income taxes, net (54,000) (12,000) 38,000
Other, net 6,000 (33,000) (3,000)
--------- --------- ---------
Total expense (benefit) $(439,000) $(110,000) $ 307,000
========= ========= =========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The
deferred tax assets at June 28, 1997 and June 29, 1996 are offset by a
valuation allowance of approximately $1,370,000 and $1,378,000, respectively,
due to uncertainties surrounding the ultimate realizability of the assets.

The significant components of deferred tax assets are as follows:

<TABLE>
<CAPTION>
June 28, June 29,
Deferred tax assets: 1997 1996
-------------------------------------------------------------------------
<S> <C> <C>
Net foreign operating loss carryforwards $ 609,000 $ 495,000
Alternative minimum tax credit carryforwards 357,000 --
Accrued losses on discontinued operations 29,000 112,000
Inventory adjustment 186,000 163,000
Accrued losses on equity method investment -- 585,000
Other 242,000 76,000
----------- -----------
Total deferred tax assets 1,423,000 1,431,000

Less valuation allowance (1,370,000) (1,378,000)
Net deferred tax assets 53,000 53,000
----------- -----------
Deferred tax liabilities:
Property and equipment 53,000 53,000
----------- -----------
Net deferred income taxes -- --
=========== ===========
</TABLE>

The valuation allowance for deferred tax assets as of June 24, 1995
was $891,000. The net changes in total valuation allowance for the years ended
June 28, 1997 and June 29, 1996 were a decrease of $8,000 and an increase of
$487,000, respectively.

VIE DE FRANCE 29
<PAGE> 26
The net foreign operating loss carryforward can only be used to offset
taxable income in the country where the carryforward was generated. These
operating loss carryforwards expire as follows:

Fiscal year 2004, $219,000
Fiscal year 2005, $832,000
Fiscal year 2006, $716,000
Fiscal year 2007, $408,000

NOTE 4--DISCONTINUED OPERATIONS

The gain from sale of discontinued operations for fiscal year 1997
relates to reversal of certain accruals related to the former Bakery and
Restaurant Divisions of $154,000 due to the settlement of certain leases
relating to the former restaurants and bakeries, of which $60,000 was recorded
in the fourth quarter of 1997, and income tax refunds applied of $314,000, of
which $110,000 was recorded in the fourth quarter of 1997. The Company expects
to receive these refunds by the end of the first quarter of fiscal year 1998.
As of June 28, 1997, reserves of approximately $72,000 relating to a remaining
lease is accrued by the Company.

NOTE 5--LONG-TERM DEBT

Long-term debt, net of current maturities, at June 28, 1997 and June
29, 1996 was as follows:

<TABLE>
<CAPTION>
1997 1996
Principal Principal
Lender Description Maturity Outstanding Outstanding
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Den norske Bank Overdraft Facility Six months, renewable $ 634,000 $ --
Den norske Bank Term Loan February 28, 2000 190,000 297,000
SND Term Loan February 1, 2004 271,000 321,000
Nations Bank Term Loan June 2, 2002 31,000 --
Hjelmeland Kommune Capital Lease June 1, 2014 1,449,000 1,682,000
---------- ----------
Total $2,575,000 $2,300,000
Less-current portion 807,000 153,000
---------- ----------
Non-current portion $1,768,000 $2,147,000
========== ==========
</TABLE>

Borrowings under the Den norske Bank ("DnB") Overdraft Facility are
limited to a percentage of VdF Norway, inventories and receivables, up to a
maximum of $1,000,000 with a floating interest rate equal to the prevailing
Norwegian overnight funds rate plus two percentage points. The Den norske Bank
Overdraft Facility interest rate at June 28, 1997 and June 29, 1996 was 5.90 %
and 4.85%, respectively.

During fiscal year 1995, VdF Norway was not in compliance with certain
of the covenants set forth by DnB. In 1996, DnB agreed to temporarily waive
such covenants in exchange for certain guarantees on the part of the Company.
These included a guaranty in the form of a renewable six-month stand-by letter
of credit issued by the Company in the amount of $600,000, along with the
subordination of a $300,000 loan from the Company to VdF Norway. During fiscal
year 1997, the stand-by letter of credit was increased to $800,000.
Accordingly, DnB has agreed to maintain the overdraft facility and waive its
covenant requirements for as long as the stand-by letter of credit is in
effect, but it has limited borrowings up to the amount of the guaranty of
$800,000. The term loan from DnB has a stated interest rate of 7.25% and will
be repaid through ten semi-annual payments of principal and interest beginning
August 30, 1995 and ending February 28, 2000.

Statens Narings-OgDistriktutvikiingsfond ("SND"), a governmental
development agency in Norway, issued to VdF Norway, an eight-year term loan
that requires the establishment of a working plant facility. The loan has a
variable interest rate which at June 28, 1997 and June 29, 1996 was 6.90% and
10%, respectively, and will be repaid through sixteen semi-annual payments of
principal and interest beginning August 1, 1996 and ending February 1, 2004.

30 VIE DE FRANCE
<PAGE> 27
VdF Norway entered into a twenty-year capital lease obligation with an
initial principal amount of $1,691,000 and with quarterly payments of $49,000,
including principal and interest. At the end of the lease term, ownership of
the facility will transfer to VdF Norway. The Company has issued no guarantees
with respect to this lease.

During fiscal year 1997 the Company entered into a five year term loan
with Nations Bank to finance the purchase of a new refrigerated truck for its
U.S. operations. The Nations Bank term loan has a stated interest rate of 8.85%
and will be repaid through monthly payments of principal and interest beginning
June 2, 1997 to June 2, 2002.

Maturities for the renewable overdraft facility, of the three term
loans and the capital lease during the next five fiscal years on an aggregate
basis at June 28, 1997 were as follows: 1998 - $807,000; 1999 - $177,000; 2000
- - $139,000; 2001 - $107,000; 2002 - $113,000 and $1,233,000 thereafter. The
maturities for 1997 of $807,000 includes the balance of the $634,000 amount
borrowed under the overdraft facility at June 28, 1997.

NOTE 6--STOCKHOLDERS' EQUITY

The Company's capital stock is comprised of two classes: Common Stock
and Class B Stock. The Class B Stock, which is reserved for issuance to
employees under stock option plans, is identical in all respects to the Common
Stock except that the holders thereof have no voting rights unless otherwise
required by law.

NOTE 7--EMPLOYEE BENEFITS

The Company sponsors a qualified employee savings plan under which
employees who meet certain minimum age and service requirements are eligible to
participate. The Company matches one-third of the first 6% of eligible
employees' voluntary contributions to the plan. The Company expensed, as a
component of continuing operations, $12,000, $13,000 and $11,000 in fiscal
years 1997, 1996 and 1995, respectively, for contributions to the savings and
profit sharing plan.

In fiscal year 1994, the Company implemented a non-qualified employee
savings plan under which senior management employees are eligible to
participate. The Company matches one-third of the first 6% of eligible
employees' voluntary contributions to the plan. The Company's matching
contribution is limited to 6% of the combined contributions into both the
qualified and the non-qualified plan. The Company expensed, as a component of
continuing operations, $12,000, $13,000 and $14,000 for fiscal year 1997, 1996
and 1995, respectively.

The Company expensed $35,000 and $37,000 for a separate health and
retirement plan for the president of the Company in fiscal year 1997 and 1996,
respectively.

During fiscal year 1993, the Company established, upon stockholder
approval, the 1992 Stock Option Plan which provides for up to 300,000 shares of
the Company's Common Stock to be made available to employees at various prices
as established by the Board of Directors at the date of grant. Upon the
adoption of the 1992 Stock Option Plan, two previous plans, the 1986 Stock
Option Plan and the 1982 Stock Option Plan, were terminated except with respect
to 373,000 options issued and outstanding under these plans. During fiscal
year 1996, the Company granted 82,250 options under the 1992 Stock Option Plan.
The outstanding options expire through fiscal year 2006. During fiscal year
1997 the Company amended its 1992 Stock Option Plan to increase the number of
shares in its plan from 300,000 to 1,300,000 upon majority shareholder
approval. During fiscal year 1997, the Company granted to employees 951,460
options under the 1992 Stock Option Plan. The outstanding options expire
through fiscal year 2007.

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996 as follows:

<TABLE>
<CAPTION>
1997
-------------------------
June 28, June 29,
Deferred tax assets: 1997 1996
--------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield -- --
Risk-free interest rate 6.4% 6.3%
Expected life (in years) 6 6
Expected volatility 71% 60%
</TABLE>

The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plan in the financial statements. Had
compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for awards under those
plans consistent with the method

VIE DE FRANCE 31
<PAGE> 28
of FASB Statement 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
June 28, June 29,
Deferred tax assets: 1997 1996
--------------------------------------------------------------------------
<S> <C> <C>
Net loss:
As reported $(466,000) $(1,714,000)
Pro forma $(653,000) $(1,747,000)
Primary and fully diluted net loss per share:
As reported $ (0.04) $ (0.13)
Pro forma $ (0.05) $ (0.14)
</TABLE>

Changes in outstanding options were as follows:

<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Price Range Options Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at June 25, 1994 $1.63-$4.00 393,375 $2.57
Options granted 3.50 77,000 3.50
Options exercised 1.63-3.88 (22,500) 2.12
Options canceled 1.63-3.88 (57,875) 2.81
---------
Outstanding at June 24, 1995 1.63-4.00 390,000 2.74
Options granted 2.38-3.13 82,250 2.87
Options exercised 1.63-2.38 (44,000) 1.89
Options canceled 1.63-4.00 (57,500) 3.44
---------
Outstanding at June 29, 1996 1.63-4.00 370,750 2.76
Options granted 1.38 951,460 1.38
Options exercised -- -- --
Options canceled 1.63-4.00 (39,500) 2.80
---------
Outstanding at June 28, 1997 1.38-4.00 1,282,710 1.73
=========
</TABLE>

As of June 28, 1997, options to purchase 1,282,710 shares of common
stock were currently outstanding, at prices ranging from $1.38 to $4.00. The
exercise prices equal the fair market value of the stock at the date of grant.

The Board of Directors unanimously approved to revalue all stock
options issued during fiscal year 1997 to the lower of the market price of
$1.38 on June 26, 1997, or the value of the original issue on the date of
grant. The original stock grant prices during fiscal year 1997 ranged from
$1.38 to $2.13. The date of grant and vesting period was not affected by this
revaluation.

At June 28, 1997 and June 29, 1996, the number of options exercisable
was 471,802 and 319,750, respectively, and the weighted-average exercise price
of those options was $2.21 and $2.59, respectively. The weighted-average
remaining contractual life is 9 years.

The following table summarizes information about fixed stock options
outstanding at June 28, 1997:

<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
----------------------------------------------- ----------------------------
Number Weighted-Average Number
Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg
Range of Exercise Prices at 6/28/97 Contractual Life Exercise Price at 6/28/97 Exercise Price
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.38 to $1.50 951,460 9.90 $1.38 87,865 $1.38
$1.51 to $2.00 116,000 3.26 $1.77 114,500 $1.77
$2.01 to $2.50 52,750 6.01 $2.38 44,937 $2.38
$3.01 to $3.50 99,000 7.91 $3.34 62,750 $3.34
$3.51 to $4.00 63,500 6.55 $3.95 61,750 $3.95
</TABLE>

32 VIE DE FRANCE
<PAGE> 29
NOTE 8--COMMITMENTS

The Company leases office and plant space under operating leases, which
expire on various dates through 1999. Certain leases provide for escalations in
rent based upon increases in the lessor's annual operating costs or the
consumer price index. Future minimum lease payments under these agreements at
June 28, 1997 were as follows:

<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------------------------------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $770,000
</TABLE>

Rent expense for continuing operations approximated $414,000, $405,000
and $371,000 for fiscal years 1997, 1996 and 1995, respectively.

NOTE 9--TRANSACTIONS WITH RELATED PARTIES

As of June 28, 1997 and June 29, 1996 the Company had outstanding
$4,791,000 and 2,188,000, respectively of notes receivable from its majority
shareholder, FRC Corporation as described in the following table:

<TABLE>
<CAPTION>
Outstanding Balance
Original Loan Amount Maturity Date Interest Rate June 28, 1997 June 29, 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 516,000 July 1, 1997 8% $ 516,000 $ 516,000
$1,000,000 August 1, 1997 8% 1,000,000 1,000,000
$ 450,000 October 1, 1997 8% 450,000 450,000
$1,432,000 April 1, 2000 8.25% 1,432,000 --
$ 568,000 April 1, 2000 8.25% 568,000 --
$ 400,000 April 1, 2000 8.25% 400,000 --
$ 42,000 April 1, 2000 8.25% 42,000 --
---------- ----------
$4,408,000 $1,966,000
Accrued interest 383,000 222,000
---------- ----------
$4,791,000 $2,188,000
========== ==========
</TABLE>

The three loans from FRC that were outstanding as of June 29, 1996 are
secured by the assets of FRC Corporation. The four loans issued in 1997, due in
April 2000, are collateralized by FRC's shares of the Company's stock.
Subsequent to year end, the loan due July 1, 1997 was paid in full. The Company
is presently in discussions with its majority shareholder to extend the
maturity of the notes originally due in August and October of 1997. All loans
require quarterly interest payments.

Management believes all notes receivable from FRC will be paid in full
upon maturity if not sooner. However, because of the extension of the 1996
notes maturity, the nature of the collateral securing the 1997 notes, and term
of the 1997 notes, the balance of the notes from FRC, excluding the note due
and paid in July 1997, have been presented as a separate component of
stockholders' equity in the accompanying balance sheet as of June 28, 1997.

In addition to these loans, two other related party loans in the
amounts of $36,000 and $62,000 were outstanding at the end of fiscal year 1996.

At June 28, 1997 and June 29, 1996, the Company has an employee loan
outstanding in the amount of $56,000. This loan was made during fiscal year
1996 and bears no interest through April, 1997. Effective April, 1997 this loan
was renewed, and interest shall accrue on the outstanding principal of the note
and shall be payable at a rate of 8.5% per annum, commencing April, 2000. The
employee will pay against the principal with 50% of all future cash bonuses
earned with the Company and any additional payments made by the employee, until
the loan is relinquished. This loan was established as a part of the employee's
employment contract. A second employee loan was outstanding in the amount of
$45,000, which bears no interest, and is expected to be paid by the end of the
first quarter of fiscal year 1998.

The Board of Directors agreed to pay one of its Directors a $15,000
annual fee less the amount of consulting fees paid to the member during the
fiscal year for services provided on behalf of the Company's technology
committee. The board member provides engineering consulting services to the
Company through the member's own company at his normal billing rates.

The Company receives consulting services under an agreement with
Food Investors Corporation ("FIC"), which is majority owned by the Secria
Europe, S.A. FRC is also owned by Secria Europe. Pursuant to the consulting
agreement, FIC provides services related to management, planning, strategy
development and pursuing world-wide interests of the Company. This agreement is
renewable by the Company annually. The amount paid by the Company to FIC in
fiscal years 1997, 1996 and 1995 was $144,000.

During fiscal years 1997 and 1996, the Company had sales to related
parties in the amount of $281,000 and $144,000, respectively.

VIE DE FRANCE 33
<PAGE> 30
During fiscal year 1996 the Company received the deposit and all
accrued interest it had with a European bank of $4,900,000 at June 24, 1995.
This deposit had been pledged as collateral to the Bank with respect to funds
loaned to a party affiliated with the principal stockholder of the Company. The
Company incurred no costs as a result of the collateralization. These funds are
included as a cash equivalent at June 29, 1996.

NOTE 10--SALES TO MAJOR CUSTOMERS

During the fiscal 1997, sales to hotels and other lodging customers,
transportation, new business development, international and Norway customers
represented 41.6%, 34.8%, 14.2%, .6% and 8.8%, respectively compared to 50.7%,
29.2%, 16.3%, 2.4% and 1.4% in fiscal year 1996 and 58.1%, 29.1%, 11.1%, 1.2%
and .5% in fiscal 1995.

NOTE 11--LITIGATION

The Company is engaged in ordinary and routine litigation incidental
to its business. Management does not anticipate that any amounts, which it may
be required to pay by reason thereof, will have a material effect on the
Company's financial position or results of operations.

NOTE 12--SUBSEQUENT EVENT

Subsequent to fiscal year end, the Company obtained approval for $8.2
million of financing in the form of industrial revenue bonds from the
Industrial Development Authority of Loudoun County, Virginia to be used for an
envisioned new plant and corporate headquarters in the Greenway Industrial
Center near Leesburg, Virginia. As of June 28, 1997 the Company had not
officially determined whether it would pursue plans to construct this facility,
and has not drawn any funds. In September, 1997 the Company purchased the land
through financing with a banking institution, for approximately $700,000 plus
applicable fees.

34 VIE DE FRANCE
<PAGE> 31
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- --------------------------------------------------------------------------------
Vie de France Corporation

SCHEDULE II

<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts Deductions of Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 24, 1995
Allowance for doubtful accounts $ 2,000 $ 3,500 $ (500)(1) $ 5,000
======== ======== ========= ========

Provision for losses on unit closings 534,000 -- (167,000)(2) 367,000
======== ======== ========= ========

Allowance for obsolete inventory 97,000 -- (52,000) 45,000
======== ======== ========= ========

Year ended June 29, 1996
Allowance for doubtful accounts $ 5,000 $ -- $ (5,000)(1) $ --
======== ======== ========= ========

Provision for losses on unit closings 367,000 92,000 (172,000)(2,3) 287,000
======== ======== ========= ========

Allowance for obsolete inventory 45,000 6,000 -- 51,000
======== ======== ========= ========

Year ended June 28, 1997
Allowance for doubtful accounts $ -- $ -- $ -- $ --
======== ======== ========= ========

Provision for losses on unit closings 287,000 -- (215,000)(2,3) 72,000
======== ======== ========= ========

Allowance for obsolete inventory 51,000 47,000 -- 98,000
======== ======== ========= ========
</TABLE>

(1) Write-off of uncollectible customer accounts, net of recoveries.

(2) Lease termination costs associated with the former Restaurant Division.

(3) Recovery of reserves associated with the former Bakery Division.

VIE DE FRANCE 35

<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Vie de France Corporation

The Board of Directors
Vie de France Corporation:

We consent to the incorporation by reference in the registration
statements, (Nos. 33-60614 and 33-60616) on Form S-8 of Vie de France
Corporation of our report dated September 23, 1997, relating to the
consolidated balance sheets of Vie de France Corporation and subsidiaries as of
June 28, 1997 and June 29, 1996, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the fiscal
years then ended, and related schedule, which report appears in the June 28,
1997 annual report on Form 10-K of Vie de France Corporation.

KPMG PEAT MARWICK LLP

Washington, D.C.
September 26, 1997

The Board of Directors
Vie de France Corporation:

We hereby consent to the incorporation by reference in the
registration statements on form S-8 (Nos. 33-60614 and 33-60616) of Vie de
France Corporation of our report dated August 25, 1995 appearing on page F-2 of
this Form 10-K

Price Waterhouse LLP

Washington, D.C.
September 26, 1997

36 VIE DE FRANCE

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 353,000
<SECURITIES> 1,098,000
<RECEIVABLES> 2,357,000
<ALLOWANCES> 0
<INVENTORY> 1,999,000
<CURRENT-ASSETS> 7,867,000
<PP&E> 9,963,000
<DEPRECIATION> (5,694,000)
<TOTAL-ASSETS> 22,712,000
<CURRENT-LIABILITIES> 2,819,000
<BONDS> 1,768,000
0
0
<COMMON> 141,000
<OTHER-SE> 17,984,000
<TOTAL-LIABILITY-AND-EQUITY> 22,712,000
<SALES> 13,987,000
<TOTAL-REVENUES> 13,987,000
<CGS> 12,015,000
<TOTAL-COSTS> 12,015,000
<OTHER-EXPENSES> 4,338,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 993,000
<INCOME-PRETAX> (1,373,000)
<INCOME-TAX> 439,000
<INCOME-CONTINUING> (934,000)
<DISCONTINUED> 468,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (466,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0

</TABLE>