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 June 30, 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 303, 2525 S.W. 3rd Ave., Miami, Florida 33129
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(305) 250-9938 or (305) 250-9939
(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 June 30, 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-QSB as
of June 30, 1997, the Company has used 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 June 30, 1997, reflected adjustments which management believes are
necessary to correct the errors identified.
Revenues of the Company for the quarter ending June 30, 1997
increased from $14,787,114 in fiscal year 1996 to $18,676,349 in fiscal
year 1997, an increase of US $3,889,235, approximately 26.30% over the previous
year. The Company experienced an increase in revenues as a direct and partial
result of its acquisition of the poultry market division of CoopeMontecillos
R.L., a Costa Rican based poultry production company. This acquisition
resulted in an increase of approximately 11% due to an increase of sales in
chicken of 662,807 kilos per trimester. This previously announced transaction
also included the acquisition of the animal feed division of CoopeMontecillos,
which, for the reporting period, increased the total amount of Pipasa sales
by 1,130,000 kilos or 26% in the sale of animal feed concentrate by kilos.
Another important factor that lead to increased sales in the
reporting period was the Company's decision to increase prices of its main
product, chicken. From June 96 to June 97 the price of chicken rose 13.80%.
This price increment was higher than the devaluation of the Costa Rican colon
(local currency) which resulted in an increase of 12.20%. With this
increase, the prices were higher than the prices in June 1996. The revenues
of the Company also experienced an increase in sales of other products that
the Company produces and distributes (chicken derivatives, pet food, etc.).
Sales corresponding to the nine month period ending June 30, 1997
reflect an increase of US $5,330,995 (11.60%) when compared to the nine month
period ending June 30, 1996. This is also due to an increase in the number
of units sold and adjustments to sales prices.
The cost of sales during the reporting period increased by 27.61%
as a result of the increase in sales. The increase in the cost of sales is
1.31% higher than the increase in sales. This 27.61% increase can be
attributed to those customers the Company inherited from the CoopeMontecillos'
acquisition, who were accustomed to higher discounts than the Company's
regular clients.
The gross profit for the quarter and nine month period ended
June 30, 1997 rose US $811,464, an increase of 22.32% due to the
above-mentioned factors.
The operating expenses in absolute terms increased by 23.01% as a
result of increase in sales. Selling expenses increased to 9.72%, a small
amount in comparison to the increase in sales of 26.30%.
<PAGE>
For the quarter ended June 30, 1997, the Company's operating
expenses were 17% over sales, when compared to 18% for the quarter ended
June 30, 1996 due to efficiencies that the Company successfully applied in
this quarter.
These excellent results for this quarter generated an income of
US $806,028 for the Company which is US $304,147 higher, than its previous
fiscal quarter, June 30, 1996. This resulted in an increase in income of
60.60%. The successful acquisition of the market share of the poultry
division of CoopeMontecillos, an increase in exports and sales in the rest
of its products, plus the operating efficiencies applied by the Company
generated this important increase in income.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the working capital ratio was 1.15.
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.
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
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including (without limitations) statements with respect to
anticipated future operations 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 numbers of risks, uncertainties
and assumptions. Representatives examples 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 officer of the Company in his capacity as such.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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 June 30, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Unaudited Audited
--------- -------
June 1997 September 1996
--------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,204,775 $ 5,259,457
Investments available for sale 1,978,741 26,419
Notes and accounts receivable - net 6,490,403 6,095,420
Inventories - net 7,988,404 7,288,279
Prepaid expenses 294,146 9,073
Due from related parties 1,722,595 158,200
----------- -----------
Total Current Assets 19,679,064 18,836,848
----------- -----------
Long term receivable - trade 232,664 52,855
Investment - Held to maturity 4,647,648 1,121,412
Property, plant and eq. - net 12,735,878 39,964,665
Forestry Rights - 748,304
Copyrights, trademarks - net - 90,421
Guarantee Deposits - 115,385
Goodwill - 967,786
Other assets 1,056,740 375,186
Due from related parties - 78,809
----------- -----------
Total Assets $38,351,994 $62,351,671
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts 0 70,113
Notes payable 10,728,470 9,849,002
Due to related parties - -
Current installments of long-term debt 700,987 -
Accounts payable 3,819,948 3,574,455
Allowance for Christmas bonus - 467,407
Allowance for Severance pay - 95,638
Accrued expenses 1,898,939 790,793
----------- -----------
Total Current Liabilities 17,148,344 14,847,408
----------- -----------
Long term notes payables 5,068,988 4,071,939
Accrued severance indemnities 60,149 -
----------- -----------
Total Liabilities 22,277,481 18,919,347
----------- -----------
Minority Interest 5,786,346 12,665,111
Stockholders' Equity
Common Stock - $.001 par; 60,000,000
shares authorized; 19,809,396 shares
outstanding as of June 30, 1997 19,810 19,560
Preferred Stock - 317,831 shares
outstanding as of June 30, 1997 2,216,072 0
Additional paid-in capital 9,488,767 33,928,787
Foreign currency trans. adj. (4,419,390) 0
Retained Earnings 2,982,908 (3,181,134)
----------- -----------
Total Stockholders' Equity 10,288,167 30,767,213
----------- -----------
Total Liabilities and
Stockholders' Equity $38,351,994 $62,351,671
=========== ===========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Costa Rica International
Consolidated Condensed Statements of Income
Three Months Ended Nine Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
Coporacion Coporacion
Pipasa, S.A. Pipasa, S.A.
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $18,676,348 $14,787,114 $51,319,978 $ 45,988,983
Cost of Sales 14,229,212 11,151,442 38,725,278 33,714,427
----------- ----------- ----------- -------------
Gross profit 4,447,136 3,635,672 12,594,700 12,274,556
----------- ----------- ----------- -------------
Operating Expenses
Selling 1,741,429 1,587,134 4,970,890 3,321,742
General and administrative 1,465,170 1,101,037 4,162,119 4,811,163
----------- ----------- ----------- -------------
Total Operating Expenses 3,206,599 2,688,171 9,133,009 8,132,905
----------- ----------- ----------- -------------
Income from operations 1,240,537 947,501 3,461,691 4,141,651
Other expenses (income)
Interest expense 603,455 514,808 1,707,695 1,979,195
Interest income (194,926) (149,264) (652,545) (393,160)
Exchange losses (gain), net 98,756 (1,514) 158,278 102,366
Miscellaneous expenses (gains) (72,776) 81,590 (304,554) 100,370
----------- ----------- ----------- -------------
Other expenses, net 434,509 445,620 908,875 1,788,771
----------- ----------- ----------- -------------
Income before income tax and
Minority interest 806,028 501,881 2,552,816 2,352,880
Income taxes 117,421 33,941 354,934 187,775
----------- ----------- ----------- -------------
Income before minority interest 688,607 467,940 2,197,882 2,165,105
Minority interest 349,406 189,375 1,031,450 876,218
----------- ----------- ----------- -------------
Net Income $ 339,201 $ 278,565 $ 1,166,432 $ 1,288,887
Preferred stock dividend 104,576 60,165 229,470 273,658
----------- ----------- ----------- -------------
234,625 218,400 936,962 1,015,229
=========== =========== =========== =============
Proforma earnings per share:
Net income per common share $ 0.012 $ 0.014 $ 0.047 $ 0.065
----------- ----------- ----------- -------------
Weighted average number of
common shares outstanding 19,676,063 15,573,571 19,727,915 15,573,571
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
Costa Rica International
Statement of Cash Flows
For the nine months ended June 30, 1997 and 1996
Unaudited
---------
<CAPTION>
Corporacion
Pipasa, S.A.
1997 1996
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,197,882 $ 2,165,104
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 1,027,656 987,665
Allowance for doubtful accounts 95,617 122,550
Cash provided by (used for) changes in:
Short term investment (1,718,402) (1,705,217)
Notes and accounts receivable (1,932,207) (574,038)
Due from related party (458,147) (1,307,440)
Inventories (839,608) (1,058,001)
Prepaid expenses (136,257) (18,318)
Accounts payable 1,257,819 152,261
Accrued expenses 220,994 (126,102)
Long term receivable - trade (21,302) 131,190
----------- -----------
Net Cash Provided by Operating Activities (305,955) (1,230,346)
=========== ===========
CASH FLOW FROM INVESTING ACTIVITIES:
Increase long term investment 246,498 (4,675)
Additions to property, plant and equipment (1,549,432) (1,634,418)
Proceeds from sale of productive assets 10,961 126,643
Other assets 120,542 126,541
----------- -----------
Net Cash Provided by Investing Activities (1,171,431) (1,385,909)
=========== ===========
CASH FLOW FROM FINANCING ACTIVITIES:
Short-term financing - increase in notes payable (3,367,117) (187,732)
Cash dividends (283,954) (430,481)
Long-term financing:
New loans 2,473,906 3,949,989
Payments (743,793) (1,443,777)
Issuance of common stock 25,000 -
----------- -----------
Net Cash Provided by Financing Activities (1,895,958) 1,887,999
=========== ===========
EFFECT OF EXCHANGE RATE CHANGES ON CASH (551,193) (438,938)
Net Increase (Decrease) in Cash (3,924,537) (1,167,194)
Cash Balance at beginning of period 5,129,312 2,113,595
----------- -----------
Cash Balance at end of period $ 1,204,775 $ 946,401
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for the period for:
Interest $ 1,698,895 $ 1,934,064
=========== ===========
Income Taxes $ 54,167 $ 145,139
=========== ===========
See accompanying notes to condensed financial statements
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
June 30, 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 the CRI on August 5, 1996 and was
consummated on September 30, 1996. Pursuant to this agreement, approximately
sixty percent (60%) of Pipasa is owned by CRI. The Company is preparing an
amendment to its previous filings which will reflect that for accounting
purposes Pipasa should have been treated as the accounting acquirer, and
should not have been measured according to the purchase method of accounting.
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
June 30, 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
June 30, 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 June 30, 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 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 June 30, 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 June 30, 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 June 30, 1997, all assets and
liabilities in the balance sheet of Pipasa, were translated to U.S. Dollars
<PAGE>
using period ending exchange rates, income statements have been translated
using average exchange rates pertaining to each period
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
June 30, 1997 and September 30, 1996
and stockholder's 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 dilutive, 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
<PAGE>
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
June 30, 1997 and September 30, 1996
NOTE 3 - SUMMARY OF FINANCIAL INFORMATION
NOTES AND ACCOUNTS RECEIVABLES
- ------------------------------
Notes and account receivable consist of:
<TABLE>
<CAPTION>
June 1997 September 1996
----------- --------------
<S> <C> <C>
Commercial 5,586,479 6,054,175
Officers and employees 33,360 40,131
Others 1,113,615 148,837
---------- ----------
6,733,454 6,243,143
Allowance for doubtful accounts (243,051) (147,723)
---------- ----------
6,490,403 6,095,420
========== ==========
INVENTORIES
- -----------
Inventories consist of:
June 1997 September 1996
----------- --------------
Finished Products 1,158,556 2,181,158
Production Poultry 3,348,569 3,228,828
Materials and Supplies 1,142,145 1,397,694
Raw Materials 1,427,390 788,396
In Transit 1,355,363 111,668
Others 0 833
---------- ----------
8,432,023 7,708,577
Allowance for renewal of
Production Poultry (443,618) (420,298)
---------- ----------
7,988,405 7,288,279
========== ==========
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL INC.
Notes to Financial Statements
June 30, 1997 and September 30, 1996
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, Plant and Equipment consists of:
<TABLE>
<CAPTION>
June 1997 September 1996
----------- --------------
<S> <C> <C>
Land 2,246,238 6,456,246
Buildings 6,106,600 24,737,806
Work in process 233,524 -
Machinery 4,130,449 7,977,361
Furniture and equipment 370,590 656,896
Computer equipment 505,069 617,737
Hand tools 32,103 58,945
Other equipment 750,839 1,309,321
Vehicles 2,193,725 2,508,997
Water wells 49,176 93,877
Advertising signs and displays 302,679 730,887
Miscellaneous farm equipment 671,216 1,151,821
In-transit 4,941 -
---------- ----------
17,597,149 46,299,894
Accumulated Depreciation (4,861,272) (6,335,229)
---------- ----------
12,735,878 39,964,665
========== ==========
</TABLE>
<PAGE>
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: August 19, 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: August 19, 1997 By:/s/---------------------------------
Lic. Jorge Ml. Quesada Chaves
Treasurer
SECRETARY
Dated: August 19, 1997 By:/s/----------------------------------
Monica Chaves Zamora
Secretary
