SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File No. 0-18222
COSTA RICA INTERNATIONAL, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 87-0432572
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
Suite 301, 2525 S.W. 3rd Ave., Miami, Florida 33129
(Address of principal executive offices) (Zip Code)
(305) 365-5820
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) had 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 ___
The number of shares outstanding of Registrant's common stock, par value $.001
per share, as of March 31, 1997 was 19,809,396 shares.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
See attached financial statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On March 5, 1997, the Company announced through a press release,
that certain reports filed with the Securities and Exchange Commission, will
have to be amended due to an overstatement in the assets reported due to an
error when applying currency translation and purchase accounting methods.
This amount is estimated to be between $20 million and $25 million. The
error was detected by the registrant's new external auditors KPMG Peat
Marwick. The Company, with the assistance of KPMG Peat Marwick, is reviewing
the filed reports in order to correct them in the shortest period of time.
Upon completion of the auditors' review, the registrant will file amendments
to correct its previous filings.
For purposes of preparing this quarterly report on Form 10-Q as
of March 31, 1997, the Company has reflected balance sheet accounts as of
September 30, 1996 at their previously filed unadjusted amounts. The
balance sheet accounts are unaudited interim financial statements and, as
of March 31, 1997, have been reflected with adjustments which management
currently estimates are necessary to correct the errors identified.
Revenues of the Company for the quarter ending March 31, 1997
increased from $15,034,877 in fiscal year 1996 to $15,722,186 in fiscal
year 1997, an increase of approximately 5% over the previous year. The
Company experienced an increase in revenues as a result of an increase of
sales of its products in Costa Rica and exported goods to other countries.
Sales corresponding to the six month period ending March 31, 1997
reflect an increase of 5% when compared to the six month period ending
March 31, 1996. This is also due to an increase of units sold and
adjustments to sales prices.
The gross profit for the quarter and six month period ended
March 31, 1997 is lower in comparison to the previous year. This is mainly
due to reduction in inventory levels which were produced at a higher cost.
There was also a reduction in the cost of raw material which has not been
reflected in the cost of sales. This also affects the net income before
minority interests of the Company. The Company recorded a net profit of
$644,724 for the second quarter in fiscal year 1997 compared to a net
profit recorded in 1996 of $786,377. The six month period ended March 31,
1997 reflects an accumulated net income before minority interests of
$1,547,100, a decrease of 15% when compared to the six month period ended
March 31, 1996 which realized a net profit of $1,820,380.
Export expenses increased from $30,179 during the last fiscal year
comparable period to $72,175 due to company's expansion into foreign
markets continuing the trend for the six month periods ending March 31 of
1997 and 1996. General and administrative expenses were higher
in 1997 partially due to an increase in professional services incurred by
Costa Rica International, Inc. Selling expenses were lower due to efficient
management of resources. The income statements for the three and six month
period ended March 31, 1996, are the result of Corporacion Pipasa, S.A.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the working capital ratio was 1.22.
Historically, the Company has generally relied upon internally
generated funds to satisfy working capital requirements. Management believes
that it can continue to fund its obligations and implement the development of
its business segments with available cash and internally generated cash flow.
However, the company may partially rely upon short term external financing for
raw material purchases. The Company does not foresee a major requirement for
capital in the next fiscal year. It has been the Company's policy to
distribute common stock dividends during the year, up to a maximum amount of
50% of the period's income, if the cash flow allows.
FORWARD LOOKING INFORMATION
This management discussion and analysis of financial condition and
results of operations may include certain forward-looking statements, within
the meaning of Section 27E of the Securities Exchange Act of 1933, as
amendment, and Section 21E of the Securities Exchange Act of 1934, as
amendment, including (without limitations) statements with respect to
anticipated future operation and financial performance, growth and
acquisition opportunity and other similar forecast and statements of
expectation. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and "should" and various of those words
and similar expressions are intended to identify these forward-looking
statements. Forward-looking statements made by the Company and its
management are based on estimates, projections, beliefs and assumptions
of management at the time of such statements and are not guarantees of
future performance. The Company disclaims any obligations to update or
review any forward-looking statements based on occurrence of future events,
the receipt of new information or otherwise.
Actual future performance outcomes and results may differ
materially from those expressed in forward-looking statements made by the
Company and its management as a result of number of risks, uncertainties
and assumptions. Representatives explains of these factors include
(without limitations) general industrial and economic conditions, interest
rates trends; cost of capital and capital requirements; availability of
real estate property; compensation from national hospitality companies;
shifts in customer demands; changes in operating expenses, including
employee wages, benefits and training; governmental and public policy;
changes in the continued availability of financial amounts and at the
terms necessary to support the company's future business.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No legal proceedings of a material nature to which the Company is a
party were pending during the reporting period, and the Company knows of no
legal proceedings of a material nature pending or threatened or judgments
entered against any director or office of the Company in his capacity as such.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
<PAGE>
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
No exhibits as set forth in Regulation S-B are considered necessary
in this 10-QSB filing.
<PAGE>
Costa Rica International
Consolidated Condensed Balance Sheet
As of March 31, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Unaudited Audited
--------- -------
March 1997 September 1996
---------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 738,264 $ 5,259,457
Investments available for sale 1,727,551 26,419
Notes receivable 2,506,477 235,240
Accounts Receivable - net 6,881,383 5,860,180
Inventories - net 6,999,038 7,288,279
Due from related parties - 9,073
Prepaid expenses 260,473 158,200
----------- -----------
Total Current Assets 19,113,186 18,836,848
----------- -----------
Long term notes receivable 23,900 52,855
Investment - held to maturity 2,515,454 1,121,412
Property, plant and eq. - net 14,560,366 39,964,665
Forestry Rights 549,586 748,304
Copyrights,, trademarks - net - 90,421
Guarantee Deposits 120,061 115,385
Goodwill - 967,786
Due from related parties - 78,809
Other assets 358,499 375,186
----------- -----------
Total Assets $37,241,052 $62,351,671
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts 358,054 70,113
Notes payable 10,947,892 9,849,002
Account payable 2,744,441 3,574,455
Allowances 506,392 563,045
Accrued expenses 1,278,189 790,793
Deferred revenue 1,614 -
----------- -----------
Total Current Liabilities 15,836,582 14,847,408
----------- -----------
Long term notes payables 3,290,341 4,071,939
----------- -----------
Total Liabilities 19,126,923 18,919,347
----------- -----------
Minority Interest 6,795,445 12,665,111
Stockholders' Equity
Common Stock - $.001 par; 60,000,000 $ 19,810 $ 19,560
shares authorized; 19,810,396 shares - -
outstanding as of March 31, 1997
Preferred Stock - 317,831 shares -
outstanding as of March 1997 2,005,439
Additional paid-in capital 14,879,566 33,928,787
Legal reserve 367,354 -
Foreign currency trans. adj. (8,564,612) -
Retained Earnings 2,611,126 (3,181,134)
----------- -----------
Total Stockholders' Equity 11,318,683 30,767,213
----------- -----------
Total Liabilities and
Stockholders' Equity $37,241,051 $62,351,671
----------- -----------
----------- -----------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
Costa Rica International
Consolidated Condensed Statement of Income
Unaudited
---------
<CAPTION>
Six Months Ended March 31 Three Months Ended March 31
March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales 32,672,407 31,258,945 15,722,186 15,034,877
Cost of Sales 24,531,542 22,569,168 11,807,280 10,962,400
----------- ----------- ---------- ----------
8,140,864 8,689,777 3,914,906 4,072,477
----------- ----------- ---------- ----------
Operating Expenses
Selling 3,177,467 3,237,235 1,604,472 1,612,203
Export 98,928 72,395 72,175 39,179
General and Administrative 2,657,226 2,122,779 1,354,151 1,036,984
---------- ---------- ---------- ----------
Total Operating Expenses 5,933,621 5,432,409 3,030,798 2,688,366
---------- ---------- ---------- ----------
Operating Profit 2,207,244 3,257,368 884,108 1,384,111
Other Income 970,126 546,692 542,415 222,727
Foreign currency translation gain 77,645 77,645
Other Expenses 1,434,030 1,884,581 714,236 862,988
---------- ---------- ---------- ----------
Net Earnings before Income Tax 1,743,340 1,997,124 712,287 821,495
---------- ---------- ---------- ----------
Estimated income tax (196,240) (176,744) (67,563) (35,118)
---------- ---------- ---------- ----------
1,547,100 1,820,380 644,724 786,377
Minority interest (699,072) - (317,029) -
---------- ---------- ---------- ----------
Net income $ 848,028 1,820,380 $ 327,695 786,377
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 0.043 $ 0.017
---------- ----------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
Costa Rica International
Condensed Consolidated Statement of Changes in Financial Position
For the six months ended March 31, 1997 and 1996
Unaudited
---------
<CAPTION>
Corporacion
Pipasa, S.A.
1997 1996
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 848,028 $ 1,997,124
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 705,179 635,722
Allowance for doubtful accounts 49,447 -
Minority Income 699,072
Deferred Revenue 1,614 -
(Increase) Decrease in:
Accounts Receivable (884,952) (1,132,738)
Inventories 289,241 (1,779,216)
Other Assets 48,293 (47,611)
Prepaid Expense (102,273) (31,510)
(Decrease) Increase in:
Accounts Payable 182,472 (1,290,487)
Accrued Expense 180,255 582,422
Estimated income taxes - 87,005
Allowances (56,653) (185,007)
----------- -----------
Net Cash Provided by Operating Activities 1,959,723 (1,164,296)
----------- -----------
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Sale of Property and Equipment -
Purchase of Property and Equipment (682,058) -
Loans to Related Party (1,997,146) (895,671)
Collection Loans Related Party 322 791,260
Advances on Notes Receivables (513,356) (328,682)
Collection on Notes Receivables 199,064 32,935
Investments (2,873,943) (1,632,730)
Forestry Rights (10,058) (46,085)
Copyrights - 36,792
Deposits (4,676) 22,971
Translation Adjustment - 409,431
----------- -----------
Net Cash Provided by Investing Activities (5,881,851) (1,609,779)
----------- -----------
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from Notes Payables 15,593,682 15,112,663
Principle Payment Notes Payables (14,294,697) (11,761,673)
Bank Overdrafts (187,064) 610,602
Dividends Distributed (413,715) (590,142)
Issue Common Stock 25,000 -
Translation Adjustment - (739,725)
----------- -----------
Net Cash Provided by Financing Activities 723,206 2,631,725
----------- -----------
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,322,271) -
Net Increase (Decrease) in Cash (4,521,193) (142,350)
Cash Balance at beginning of period 5,259,457 2,042,399
----------- -----------
Cash Balance at end of period $ 738,264 $ 1,900,049
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for the period for:
Interest $ 1,399,314
Income Taxes 145,139
See accompanying notes to condensed financial statements
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
March 31, 1997 and September 30, 1996
NOTE 1 - AGREEMENT AND PLAN OF REORGANIZATION
- - ---------------------------------------------
On April 30, 1996, Corporation Pipasa, S.A. (Pipasa) entered into an Agreement
and Plan of Reorganization with Quantum Learning Systems, Inc. (Quantum) to be
known as Costa Rica International, Inc. for the acquisition of Pipasa by
Quantum to be known as Costa Rica International, Inc. (CRI). The transaction
was approved by the shareholders of CRI on August 5, 1996 and was
consummated on September 30, 1996. Pursuant to this Agreement approximately
sixty percent (60%) of Pipasa is now owned by CRI.
On March 5, 1997, the Company announced through a press release,
that certain reports filed with the Securities and Exchange Commission, would
have to be amended due to an overstatement in the assets reported due to an
error when applying translation and purchase accounting methods. This
amount was estimated to be between $20 million and $25 million. The
registrant's new external auditors KPMG Peat Marwick detected the error.
The Company with the assistance of KPMG Peat Marwick is reviewing these
filed reports in order to rectify them in the shortest period of time.
For purposes of preparing this quarterly report on Form 10-Q as
of March 31, 1997, the Company has reflected balance sheet accounts as of
September 30, 1996 at their previously filed unadjusted amounts. The
balance sheet accounts are unaudited interim financial statements as of
March 31, 1997, have been reflected with adjustments which management
currently estimates are necessary to correct the errors identified.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION - The consolidated condensed financial statements
as of March 31, 1997 and September 30, 1996, include all accounts of CRI
and its currently owned subsidiary. All significant intercompany
transactions and balances were eliminated. The consolidated condensed
financial statements as of September 30, 1996 reflect Quantum's acquisition
of Pipasa from a perspective of Quantum's as the accounting acquirer.
KPMG Peat Marwick has now determined that under Opinion No. 16 of the
Accounting Principal's Board, Pipasa should have been treated as the
accounting acquirer. The financial statements as of March 31, 1997 reflect
the adjustments which management currently estimates are necessary to
correct this error. However, management's review is not complete and those
adjustments are subject to change once the Company and KPMG Peat Marwick
complete their work. The accounts as of March 31, 1997 reflect that
adjustment which management currently estimates are necessary to correct
this error. However, management's review is not complete and those
adjustments could change.
FOREIGN CURRENCY TRANSLATION - FASB 52 "Foreign Currency Translation" states
that "...if the financial statements of a foreign entity in a highly
inflationary economy are stated in any currency other than the reporting
currency, they must be remeasured into the reporting currency [using
historical rates for non-monetary assets and liabilities]... As a result
of that process, gains and losses from converting foreign currency
financial statements into reporting currency are recognized in net
income..." As of September 30, 1996, non-monetary accounts in the
audited financial statements were translated using historical rates.
However, it was determined that Costa Rica is not a highly inflationary
country, therefore, this method for translating financial statements to
U.S. Dollars does not apply. As of March 31, 1997, all assets and
liabilities in the balance sheet of Pipasa, were translated to U.S. Dollars
using period ending exchange rates, income statements have been translated
using average exchange rates pertaining to each period and stockholders'
<PAGE>
equity was translated applying historical rates. Translation gains and
losses are accumulated in a separate account as part of the stockholders'
equity.
EARNINGS PER SHARE - Earnings per shares is calculated based on the
weighted average number of shares outstanding. Common stock equivalents
are not diluted, therefore no change in fully diluted shares is presented.
DEPRECIATION, MAINTENANCE AND REPAIRS - Depreciation is provided by the
straight-line method. Estimated useful lives for depreciation purposes are
as follows:
Buildings 10-50 years
Machinery and equipment 5-10 years
Production equipment 5-10 years
Furniture and fixtures 3-10 years
Maintenance and repairs, which do not prolong the useful life of an asset,
are expensed as incurred.
AMORTIZATION - Amortization of intangible assets, which include copyrights
and royalties is amortized using the straight-line method. Estimated
useful lives for amortization purposes are as follows:
Royalties 5-10 years
Copyrights 5-10 years
ESTIMATES - Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenue and expenses. Actual results could vary from the estimates
that were assumed in preparing the financial statements.
INVENTORY - Inventory is recorded at the lower of cost or market. Cost is
determined using the weighted average method for all inventories.
NEW ACCOUNTING STANDARDS - In March 1995, the Financial Accounting Standards
Board (FASB), Issued Statement of Financial Accounting No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS No. 121), which becomes effective for financial statements
for fiscal years beginning after December 15, 1995. The Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangible assets and goodwill related to those assets
be held and used for long-lived assets and certain identifiable assets to be
disposed of. The Company is in the process of determining the effect, if
any, of adopting this standard.
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, "Accounting for Stock Based Compensation (SFAS No. 123), which
becomes effective for financial statements for fiscal years beginning after
December 15, 1995. SFAS No. 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value basic method of accounting prescribed by the Accounting Principle
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
No. 25). The Company is currently accounting for the stock-based
compensation under this method.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS No. 128). This statement is
effective for financial statements for both interim and annual periods
ending after December 15, 1997. It requires restatement for all
prior-period earnings per share ("EPS") data presented. SFAS No. 128
establishes standards for computing and presenting EPS and applies to
entities with publicly held common stock. This Statement replaces the
presentation of primary EPS with a presentation of basic EPS.
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
March 31, 1997 and September 30, 1997
NOTE 3 - SUMMARY OF FINANCIAL INFORMATION
<TABLE>
NOTES RECEIVABLES
- - -----------------
Notes receivable consist of:
<CAPTION>
March 1997 September 1996
----------- --------------
<S> <C> <C>
Commercial 411,583 235,240
Shareholder's 1,924,995 -
Others 169,900 -
---------- ----------
2,506,477 218,352
---------- ----------
---------- ----------
ACCOUNTS RECEIVABLES
- - --------------------
Account receivable consist of:
March 1997 September 1996
----------- --------------
Commercial 5,467,366 5,818,935
Officers and Employees 30,104 40,131
Others 1,569,315 148,837
---------- ----------
7,066,785 6,007,903
Allowance for doubtful accounts (185,402) (147,723)
---------- ----------
6,881,383 5,860,180
---------- ----------
---------- ----------
INVENTORIES
- - -----------
Inventories consist of:
March 1997 September 1996
----------- --------------
Finished Products 2,011,348 2,181,158
Production Poultry 2,981,449 3,228,828
Materials and Supplies 1,167,660 1,397,694
Raw Materials 1,172,506 788,396
In Transit 123,683 111,668
Others 787 833
---------- ----------
7,457,433 7,708,577
Allowance for renewal of
Production Poultry (458,396) (420,298)
---------- ----------
6,999,038 7,288,279
---------- ----------
---------- ----------
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
March 31, 1997 and September 30, 1997
PROPERTY, PLANT AND EQUIPMENT
- - -----------------------------
Property, Plant and Equipment consists of:
March 1997 September 1996
----------- --------------
Land 3,054,546 3,231,819
Work in Progress 383,415 441,998
Buildings and Installations 7,733,720 8,180,428
Machinery, Furniture and Equipment 5,043,860 5,226,087
Farm Equipment and Other 1,524,080 1,529,287
Vehicles 168,143 1,689,284
Advertising Signs and Displays 346,174 381,789
In-Transit 5,092 5,390
---------- ----------
18,259,031 20,686,081
Accumulated Depreciation (5,238,829) (4,696,715)
---------- ----------
13,020,201 15,989,366
---------- ----------
---------- ----------
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
March 31, 1997 and September 1996
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant that duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COSTA RICA INTERNATIONAL, INC.
By:/s/---------------------------------
Calixto Chaves Zamora
Chairman
Dated: May 13, 1997
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.
CHIEF FINANCIAL AND ACCOUNTING OFFICER
Dated: May 13, 1997 By:/s/---------------------------------
Lic. Jorge Ml. Quesada Chaves
Treasurer
SECRETARY
Dated: May 13, 1997 By:/s/----------------------------------
Monica Chaves Zamora
Secretary
