<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 4, 1998
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-12800
------------------------------
CUISINE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-0948383
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
</TABLE>
85 S BRAGG STREET, SUITE 600, ALEXANDRIA, VA 22312
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (703) 750-9600
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 5, 1998.
<TABLE>
<CAPTION>
COMMON STOCK 0.01 PAR VALUE NUMBER OF SHARES
- --------------------------- ----------------
<S> <C>
CLASS A 13,822,543
CLASS B NONE
</TABLE>
1
<PAGE> 2
CUISINE SOLUTIONS, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments necessary
for the fair presentation of the Company's results of operations, financial
position and changes therein for the periods presented have been included.
2
<PAGE> 3
CUISINE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------
April 4, June 28,
1998 1997
--------------- ----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 665,000 $ 353,000
Investments, current 1,277,000 1,098,000
Restricted investments, current 645,000 -
Accounts receivable, trade 2,432,000 2,357,000
Inventory 2,442,000 1,999,000
Prepaid expenses 483,000 330,000
Current portion of notes receivable, related party - 603,000
Income tax receivable 716,000 753,000
Other current assets 382,000 374,000
--------------- ----------------
TOTAL CURRENT ASSETS 9,042,000 7,867,000
Investments, noncurrent 10,567,000 10,217,000
Fixed assets, net 4,646,000 4,269,000
Note receivable, related party, including accrued interest,
less current portion 533,000 56,000
Other assets 291,000 303,000
--------------- ----------------
TOTAL ASSETS $ 25,079,000 $ 22,712,000
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 932,000 $ 1,195,000
Accrued payroll and related liabilities 776,000 631,000
Current portion of long=term debt 1,382,000 807,000
Accrued store closings 72,000 72,000
Other accrued taxes 26,000 114,000
--------------- ----------------
Total current liabilities 3,188,000 2,819,000
Long-term debt, less current portion 1,557,000 1,768,000
--------------- ----------------
Total liabilities 4,745,000 4,587,000
-------------- ---------------
Stockholders' equity
Common stock - $.01 par value, 20,000,000 shares
authorized, 14,078,620 shares issued 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 471,000 2,323,000
Cumulative translation adjustment 63,000 13,000
Unrealized gains on debt and equity investments 190,000 11,000
Treasury stock, at cost (256,077 shares) (1,440,000) (1,440,000)
Notes receivable from majority shareholder, including accrued interest (443,000) (4,275,000)
--------------- ----------------
Total stockholders' equity 20,334,000 18,125,000
--------------- ----------------
Commitments and contingencies
--------------- ----------------
Total liabilities and stockholders' equity $ 25,079,000 $ 22,712,000
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
====================================================================
THIRD QUARTER YEAR TO DATE
====================================================================
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED
====================================================================
April 4, April 5, April 4, April 5,
1998 1997 1998 1997
====================================================================
<S> <C> <C> <C> <C>
NET SALES $ 4,204,000 $ 4,020,000 $ 10,437,000 $ 10,478,000
COST OF GOODS SOLD 3,443,000 3,716,000 8,648,000 9,138,000
--------------------------------------------------------------------
GROSS MARGIN 761,000 304,000 1,789,000 1,340,000
SELLING AND ADMINISTRATION 1,832,000 1,187,000 4,255,000 2,908,000
DEPRECIATION AND AMORTIZATION 41,000 28,000 91,000 77,000
OTHER INCOME (6,000) (14,000) (7,000) (46,000)
--------------------------------------------------------------------
LOSS FROM OPERATIONS (1,106,000) (897,000) (2,550,000) (1,599,000)
--------------------------------------------------------------------
NONOPERATING INCOME (EXPENSE)
INVESTMENT INCOME 344,000 339,000 809,000 833,000
INTEREST EXPENSE (40,000) (5,000) (87,000) (85,000)
OTHER INCOME (EXPENSE) 1,000 1,000 12,000 0
--------------------------------------------------------------------
TOTAL NONOPERATING INCOME 305,000 335,000 734,000 748,000
--------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, AND DISCONTINUED OPERATIONS (801,000) (562,000) (1,816,000) (851,000)
PROVISION FOR INCOME TAX BENEFIT (88,000) - (36,000) -
--------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (801,000) (562,000) (1,764,000) (851,000)
DISCONTINUED OPERATIONS, NET OF TAXES 0 298,000
--------------------------------------------------------------------
NET LOSS $ (889,000) $ (562,000) $ (1,852,000) $ (553,000)
====================================================================
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS,
NET OF TAXES $ (0.06) $ (0.04) $ (0.13) $ (0.06)
DISCONTINUED OPERATIONS $ - $ - $ - $ 0.02
--------------------------------------------------------------------
NET LOSS PER COMMON SHARE $ (0.06) $ (0.04) $ (0.13) $ (0.04)
====================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 13,822,543 13,822,543 13,822,543 13,822,543
====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
===================================
Year-to-date
Forty weeks ended
April 4, April 5,
1998 1997
============== =============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,852,000) $ (553,000)
Adjustments to reconcile net loss to
net cash used by operating activities
Gain from sale of discontinued operations - (90,000)
Depreciation and amortization 870,000 958,000
Loss on disposal of fixed assets - 5,000
Change in cumulative translation adjustment 50,000 (49,000)
Changes in assets and liabilities, net of non-cash transactions:
Increase in accounts receivable trade, net (75,000) (169,000)
(Increase) decrease in inventory (443,000) 233,000
Increase in prepaid expenses (153,000) (105,000)
Decrease (increase) in notes receivable, related party 126,000 (165,000)
Decrease in income tax receivable 37,000 -
Increase in other assets (3,000) (236,000)
(Decrease) increase in accounts payable
and accrued expenses (263,000) 93,000
Increase (decrease) in accrued payroll and related liabilities 145,000 (16,000)
Decrease in accrued store closing costs - (65,000)
Decrease in other accrued taxes (88,000) (11,000)
-------------- -------------
Net cash used by operating activities (1,649,000) (170,000)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 7,000,000 7,000,000
Purchase of investments (7,995,000) (10,412,000)
Capital expenditures (595,000) (184,000)
-------------- -------------
Net cash used by investing activities (1,590,000) (3,596,000)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to debt - 356,000
Reductions of debt (281,000) (604,000)
Loans to majority shareholder - (2,000,000)
Receipt of payments for notes receivable issued to majority
shareholder including accrued interest 3,832,000 -
-------------- -------------
Net cash provided (used) by financing activities 3,551,000 (2,248,000)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 312,000 (6,014,000)
Cash and cash equivalents, beginning of period 353,000 6,862,000
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 665,000 $ 848,000
============== =============
Non cash activities:
Land purchased under short term note $ 645,000 $ -
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
VIE de FRANCE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, all
adjustments necessary for the fair presentation of the Company's results of
operations, financial position and changes therein for the periods presented
have been included.
2) FISCAL PERIODS
The Company utilizes a 52/53 week fiscal year which ends on the last
Saturday in June. The first, second and fourth quarters, of fiscal years 1998
and 1997 contain 12 weeks, and the third quarter contains 16 weeks.
3) INVENTORY
The inventories are valued at the lower of cost, determined by the
first-in, first-out method (FIFO), or market. Included in inventory costs are
raw materials, labor and manufacturing overhead.
Inventory consist of:
<TABLE>
<CAPTION>
April 4, June 28,
1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 681,000 $ 413,000
Frozen product & other finished goods 1,619,000 1,438,000
Packing materials & supplies 234,000 246,000
------------------------
2,534,000 2,097,000
Less obsolescence reserve (92,000) (98,000)
------------------------
$2,442,000 $1,999,000
=========================
</TABLE>
4) DIVIDENDS - NONE.
5) COMMITMENTS AND CONTINGENCIES
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.
6
<PAGE> 7
6) TRANSACTIONS WITH RELATED PARTIES
During the third quarter of fiscal year 1998 the principal amount of the
loans of $2,000,000, $400,000 and $42,000 due April 1, 2000, from Food Research
Corporation ("FRC"), the Company's majority shareholder, were paid. The
accrued interest of $97,000 associated with these loans is expected to be paid
by the end of fiscal year 1998, and is shown as of April 4, 1998 as a separate
component of stockholders' equity in the accompanying consolidated balance
sheet.
During the second quarter of fiscal year 1998 the loans in the amount of
$1,000,000 and $450,000 due August 1, 1997 and October 1, 1997, respectively
from FRC, the Company's majority shareholder, were paid in full including
accrued interest. During the second quarter of fiscal year 1998 the company
issued a loan in the amount of $331,000 to FRC which is due December 31, 1997.
The loan bears an annual interest rate of 8.5%. The loan in the amount of
$331,000 plus applicable interest accrued from FRC is shown as of April 4, 1998
as a separate component of stockholders' equity in the accompanying balance
sheet due to the extension of the previous short term notes maturity, the
nature of the collateral securing the 1998 note, and the terms of the note.
Management believes that all notes receivables from FRC will be paid in full.
During the first quarter of fiscal year 1998 the loan in the amount of
$516,000 due July 1, 1997 from FRC was paid in full including accrued
interest.
During the first quarter of fiscal year 1998 the Company issued an
employee loan in the amount of $375,000. At the end of fiscal year 1997 this
employee had a loan outstanding in the amount of $45,000. Subsequent to the
end of the first quarter of fiscal year 1998 these two loans were combined.
The revised loan amount of $420,000 bears interest of at 6.5% per annum and is
payable on October 1, 2002. Interest payments are negotiable at such place as
the Company may designate in writing. Payments on the loan will be derived
from the equity proceeds from the sale of the employees first residence, a
portion of future annual bonuses to be paid to the employee by the Company as
negotiated and all outstanding balances of the note, including principal and
interest accrued thereon, shall become payable in full on October 1, 2002.
Subsequent to the end of third quarter fiscal year 1998 the employee sold its
first residence. It is expected by the end of the fiscal year to receive the
net proceeds from the sale of the residence as payment towards this loan.
7) INCOME TAXES
During the third quarter of fiscal year 1998 the Company reversed $88,000
of disallowed income tax receivable in third quarter fiscal year 1998. The
reversal of this benefit is based on the results of the audit conducted by the
Internal Revenue Service for relating to fiscal year 1994.
During the first quarter of fiscal year 1998 the Company recognized
$52,000 of income tax benefit from continuing operations.
9) 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.
The Statements are effective for the fiscal year ended June 27, 1998.
Statement 128 requires restatement of previously reported earnings per share
data. Statement 129 will change some of the required disclosures
7
<PAGE> 8
about capital structure. These statements did not have a material effect on
the Company's consolidated financial statements.
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 1999. 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 1999. The company has not yet determined the effect of adoption of this
statement.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 (the "Act") was
recently passed by Congress. The Company desires to take advantage of the new
"safe harbor" provisions of the Act. Therefore, the Company wishes to caution
readers that various factors have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for 1998
and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
Cuisine Solutions, Inc. reported a net loss of $889,000 for third quarter
1998. The net loss for the 1998 third quarter resulted from low sales volumes
and an increase in marketing investments to support the Company's new strategic
focus on service to banquet providers. Gross margins increased to 18% in the
fiscal 1998 third quarter compared with 8% in the third quarter of fiscal year
1997.
During the fiscal year 1997, the Company announced its new marketing
focus on the banquet business, which consists of the lodging and onboard
services segments. The lodging segment consists of hotels, convention centers,
casinos and similar facilities. The onboard services segment consists 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.
SIXTEEN WEEKS ENDED APRIL 4, 1998 COMPARED TO SIXTEEN WEEKS ENDED APRIL 5, 1997
NET SALES
Third quarter 1998 sales totaled $4,204,000, up 5% from third quarter
1997 sales of $4,020,000. Lodging sales fell $97,000, or 7%, because of lower
volume for banquets and other special events. Onboard services customers
increased by $278,000. New business development sales decreased by $8,000, or
1%. International sales increased by $6,000, or 2%, from the third quarter
1997. European sales of fish packed by the Company's Norwegian plant totaled
$312,000 during the third quarter of fiscal 1998, compared with $307,000 in the
year-ago quarter.
During the third quarter of 1998, sales to hotels and other lodging
customers, onboard services, new business development and international
customers represented 33%, 41%, 18% and 8%, respectively compared to 38%, 36%,
19% and 7%, respectively a year ago.
Operating costs for the fiscal year 1998 third quarter totaled
$5,310,000, up 8% from $4,917,000 during the same quarter in fiscal year 1997.
Inventories increased to $2,442,000 from $1,999,000 at the end of fiscal year
1997, mainly due to the addition of new warehouses to support the new strategic
focus in establishing improved relationships with distributors and brokers by
having the Company's products readily available. These new warehouses are
strategically located to supply customers needs on a continuing and an
expedient basis.
A comparison of net sales, gross margin percentages and losses from
operations follows:
9
<PAGE> 10
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
DEC. 13, DEC. 14,
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,204 $ 4,020
Gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . 18% 8%
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,106) (897)
</TABLE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative costs increased 54% during the fiscal year
1998 third quarter, to $1,832,000 from $1,187,000 in the same quarter of fiscal
year 1997. The increase resulted from sales and marketing investments at the
corporate facility to support the strategic focus. Selling and administrative
costs constituted 44% of net sales during the quarter due to low sales volumes
and increased expenses, compared with 30% during the fiscal year 1997 third
quarter.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization amounted to $41,000 for the third quarter
of fiscal year 1998 and $28,000 for the same period a year ago.
NONOPERATING INCOME AND EXPENSE
Investment income consists of returns earned on funds received from the
sale of the Restaurant Division.
Interest expense relates to the borrowings, including a capital lease,
associated with the Company's Norwegian subsidiary. At December 13, 1997, the
Company, had borrowings of approximately $2,939,000, bearing interest at rates
ranging from 4.85% to 10.0%. The majority of these borrowings of $2,267,00
were through its Norwegian facility. It is anticipated that these borrowings
will remain outstanding during the fiscal year.
INCOME TAXES
During the third quarter of fiscal year 1998 the Company reversed $88,000
of disallowed income tax receivable in third quarter fiscal year 1998. The
reversal of this benefit is based on the results of the audit conducted by the
Internal Revenue Service relating to fiscal year 1994.
FORTY WEEKS ENDED APRIL 4, 1998 COMPARED TO FORTY WEEKS ENDED APRIL 5, 1997
NET SALES
Third quarter year to date sales total $10,437,000, compared with a year
ago sales of $10,478,000. Lodging sales fell $562,000, or 13%, because of lower
volume for banquets and other special events. Sales to onboard services
customers increased by by $108,000, or 3%. International sales increased by
$11,000, or 13%. European sales of fish packed by the Company's Norwegian
plant totaled $984,000 third quarter year to date, compared with $582,000 in
the year-ago quarter.
Year to date 1998 sales to hotels and other lodging customers, onboard
services, new business development and international customers represented 34%,
38%, 18% and 10%, respectively compared to 40%, 36%, 18% and 6%, respectively
a year ago.
Operating costs for the fiscal year 1998 third quarter totaled
$12,987,000, up 8% from $12,077,000 during the same quarter in fiscal year
1997. Inventories increased to $2,442,000 from $1,999,000 at the end of fiscal
year 1997, mainly due to the addition of new warehouses to support the new
10
<PAGE> 11
strategic focus in establishing improved relationships with distributors and
brokers by having our products readily available. These new warehouses are
strategically located to supply our customers needs on a continuing and an
expedient basis.
A comparison of net sales, gross margin percentages and losses from
operations follows:
<TABLE>
<CAPTION>
YEAR TO DATE
-----------------------
APRIL 4, APRIL 5,
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,437 $ 10,478
Gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . 17% 13%
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,550) (1,599)
</TABLE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative costs increased 46% year to date third quarter
fiscal year 1998, to $4,255,000 from $2,908,000 year to date third quarter
fiscal year 1997. The increase resulted from sales and marketing investments at
the corporate facility to support the strategic focus. Selling and
administrative costs constituted 41% of net sales year to date fiscal year 1998
due to low sales volumes and increased expenses, compared with 28% year to date
fiscal year 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization amounted to $91,000 and $77,000 year to
date third quarter of fiscal year 1998 and 1997, respectively.
NONOPERATING INCOME AND EXPENSE
Investment income consists of returns earned on funds received from the
sale of the Restaurant Division.
Interest expense relates to the borrowings, including a capital lease,
associated with the Company's Norwegian subsidiary. At April 4, 1998, the
Company, had borrowings of approximately $2,939,000, bearing interest at rates
ranging from 4.85% to 10.0%. The majority of these borrowings of $2,267,000
were through its Norwegian facility. It is anticipated that these borrowings
will remain outstanding during the fiscal year.
INCOME TAXES
During the third quarter of fiscal year 1998 the Company reversed $88,000
of disallowed income tax receivable in third quarter fiscal year 1998. The
reversal of this benefit is based on the results of the audit conducted by the
Internal Revenue Service relating to fiscal year 1994.
During the first quarter of fiscal year 1998 the Company recognized
$52,000 of income tax benefit from continuing operations.
11
<PAGE> 12
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.
The Statements are effective for the fiscal year ended June 27, 1998.
Statement 128 requires restatement of previously reported earnings per share
data. Statement 129 will change some of the required disclosures about capital
structure. These statements did not have a material effect on the Company's
consolidated financial statements.
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 the
first quarter of fiscal year 1999. 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 1999. The Company has not yet determined the effect of adoption of this
statement.
IMPACT OF INFLATION AND THE ECONOMY
Variations in labor and ingredient costs can significantly affect the
Company's operations. Many of the Company's employees are paid hourly rates
related to, but generally higher than the federal minimum rates.
The Company's sales pricing structure allows for the fluctuation of raw
material prices. As a result, market price variations do not significantly
affect the gross margin realized on product sales. Customer sensitivity to
price changes can influence the overall sales of individual products.
LIQUIDITY AND CAPITAL RESOURCES
At April 4, 1998, the Company's combined total of cash and short-term
investment balances was $2,587,000, compared with $1,451,000 at June 28, 1997.
Additionally, the Company held investments of $10,567,000 and $10,217,000 at
April 4, 1998 and June 28, 1997, respectively, with maturities greater than one
year. This increase in liquidity is a direct result of the repayment of five
loans outstanding in the amount $1,000,000, $450,000, $2,000,000, $400,000 and
$42,000 from Food Research Corporation its majority shareholder plus accrued
interest offset by increased working capital requirements for the Company.
Net cash used by operations amounted to $1,649,000 year to date third
quarter of 1998, compared to cash used of $170,000 year to date third quarter
of 1997. Cash in the amount of $1,590,000 was used by investing activities.
Cash in the amount of $3,551,000 was provided by financing activities
12
<PAGE> 13
mainly due to the payment of the five loans loans from Food Research
Corporation, its majority shareholder, plus accrued interest.
During the first quarter of fiscal year 1998, 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 April 4, 1998 no amounts have been
drawn. 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 would provide increased
efficiencies and modern space for future growth. As of April 4, 1998 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 parcel of land through financing with a banking
institution, for approximately $700,000 plus applicable fees, which is
collateralized by $645,000 of the Company's short term investments.
The Company's Norwegian subsidiary has secured a working capital
commitment for its liquidity needs in Norway in the form of an overdraft
facility. As of April 4, 1998, $731,000 was outstanding under this overdraft
facility. The subsidiary can borrow up to $800,000 under this commitment.
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. 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 year 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.
The Company is aware of the issues associated with the programming code
in existing computer systems as the millenium (year 2000) approaches. The
Company is utilizing both internal and external resources to identify, correct
or reprogram, and test any other systems it has for the year 2000 compliance.
It is anticipated that all reprogramming efforts will be completed by June,
1999, allowing adequate time for testing. Management has not yet assessed the
year 2000 compliance expense and related potential effect on the Company's
earnings, although the Company does not expect the amounts to have a material
effect on is financial position or results of operations.
13
<PAGE> 14
CUISINE SOLUTIONS, INC.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's 14th annual meeting of shareholders was held on October 30,
1997 in Las Vegas, Nevada at the MGM Grand Hotel conference center. The
following individuals were re-elected to serve as Directors for a period of one
year and until their successors are elected and qualify: Jean-Louis Vilgrain
(Chairman), Stanislas Vilgrain (President & CEO), Bruno Goussault, Alexandre
Vilgrain, Carl Youngman (Treasurer) and James Hackney. Mr. Charles McGettigan
of Proactive Partners was also elected as a first time member of the board of
directors. George Naddaff a former director chose not to stand for re-election.
The Company's amendment to change its name to Cuisine Solutions, Incorporated
was also approved. The Company's amendment to increase the number shares in
its 1992 stock option plan from 300,000 to 1,753,000 was also approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
None
(b) Reports on Form 8-K -
On November 4, 1997, the Corporation amended its Restated Certificate of
Incorporation to change the name of the Corporation to Cuisine Solutions, Inc.
The amendment was approved by the stockholders of the Corporation at the Annual
Meeting of Shareholders held on October 30, 1997. The name change is intended
to help establish the Corporation's new identity as the banquet meal provider
of choice in the food service market.
The Corporation's Common Stock now is listed on the NASDAQ National
Market under the symbol CUIS.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
CUISINE SOLUTIONS, INC.
----------------------------
Date: May 5, 1998 By: /s/Stanislas Vilgrain
------------------------ -------------------------------
Stanislas Vilgrain
President and CEO
By:/s/Robert Murphy
----------------
Robert Murphy
VP & Chief Financial Officer
By:/s/Michael C. McCloud
---------------------
Michael C. McCloud
Executive Vice President
By: /s/Leara L. Dory
-------------------------------
Leara L. Dory
Vice President of Finance
(Financial Officer - Secretary)
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> DEC-14-1998
<PERIOD-END> APR-04-1998
<CASH> 665,000
<SECURITIES> 12,489,000
<RECEIVABLES> 3,681,000
<ALLOWANCES> 0
<INVENTORY> 2,442,000
<CURRENT-ASSETS> 865,000
<PP&E> 11,155,000
<DEPRECIATION> (6,509,000)
<TOTAL-ASSETS> 25,079,000
<CURRENT-LIABILITIES> 3,188,000
<BONDS> 1,577,000
0
0
<COMMON> 141,000
<OTHER-SE> 24,938,000
<TOTAL-LIABILITY-AND-EQUITY> 25,079,000
<SALES> 4,204,000
<TOTAL-REVENUES> 4,204,000
<CGS> 3,443,000
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<OTHER-EXPENSES> 1,867,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 305,000
<INCOME-PRETAX> (889,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (889,000)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (889,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
