SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM 10-KSB
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1996
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)
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.001 par value
----------------------------
(Title of Class)
Check whether the issuer: (a) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.
Yes: _X_ No: ___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will 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-KSB or any amendment to this Form 10-KSB. /X/
The issuer's revenues for its more recent fiscal year were:
US $61,535,457.
The aggregate market value of the voting stock of the Registrant held by
non-affiliates as of September 30, 1996 was approximately $22,959,212. A
total of 12,083,796 shares were owned by non-affiliates as of September 30,
1996.
The number of shares outstanding of the Registrant's common stock, as of
the latest practicable date, December 31, 1996 was 19,809,396.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Documents incorporated by references are found in Item 13.
<PAGE>
FORM 10-KSB/A
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
-------------------------------
In March of 1997, Costa Rica International, Inc. (the "Company"), with
the assistance of its external auditors, KPMG Peat Marwick, first detected and
communicated via a press release that the September 30, 1996 10-KSB filing was
in error and that KPMG Peat Marwick was conducting a reaudit of fiscal years
1994, 1995 and 1996. Since March, the Company has been awaiting the final
audit results in order to prepare amendments to its filings and received the
auditor's report on August 29, 1997. This Amendment corrects those errors and
the financial statements attached hereto completely restate the Company's
financial position.
The nature of the error can be traced to the financial statements
certified by Registrant's predecessor auditor for fiscal 1996 for the
Registrant and its subsidiary, Corporacion Pipasa, S.A. ("Pipasa"), a
Costa-Rican corporation. These financial statements had to be restated by the
Company to properly account for the following:
1) The business combination of the Company and Pipasa was first recorded
according to the purchase method of accounting. As a result, the
Company recorded the assets of Pipasa at fair market value. The
combination was actually a reverse acquisition, whereby Pipasa should
have been treated as the accounting acquirer, and Costa Rica
International, Inc., formerly Quantum Learning Systems, Inc. ("QLS")
as the legal acquirer. In accordance with Generally Accepted
Accounting Principles ("GAAP"), Pipasa (the accounting acquirer) must
account for its acquisition of Costa Rica International, Inc. as a
reverse merger.
2) The Company, following the advice of its prior accountants, previously
reflected the results of operations of QLS as the historical financial
statements of the Company through the date of the merger. GAAP
requires that the historical financial statements of the entity after
the reverse merger be those of Pipasa, the accounting acquirer.
Historical financial statements of the Company have been restated
accordingly.
3) The Company, under the advice of its prior accountants, mistakenly
accounted for a transfer of goodwill. A business combination between
an operating enterprise and QLS, a shell company, in which the shell
company is the issuer of securities and the operating enterprise is
determined to be the acquiring enterprise for financial reporting
purposes, should be treated, for financial reporting purposes, as an
issuance of securities by the operating enterprise. The operating
enterprise would credit equity for the fair value of the tangible
net assets of the shell company. No goodwill or intangible assets
would be recognized in this transaction. Costs directly related to
this transaction may be expressed as incurred or charged directly to
equity. The financial statements of the Company are revised so as
not to reflect any transfer of goodwill.
4) The non-monetary assets and liabilities included in the financial
statements of Pipasa have been translated from Costa Rican currency
to U.S. dollars at historical exchange rates. As of December 31,
1984, Costa Rica is no longer considered to be a highly inflationary
country according to the Statement of Financial Accounting Standards
No. 52 parameters, and consequently, the functional currency of
Pipasa is the Costa Rican colon. These items should have been
translated into U.S. dollars using year-end exchange rates. This
error has been corrected.
1
<PAGE>
The amended and restated financial statements are attached hereto and
have been adjusted to reflect a reduction in asset value of $24,142,964, due
to the currency translation error and use of the improper accounting method
as described above. The financial statements contain information as of
July 1997.
The audit conducted by KPMG Peat Marwick resulted in the following
restated amounts:
<TABLE>
<CAPTION>
Stockholders Equity
and
Assets Liabilities Minority Interest
------ ----------- -------------------
<S> <C> <C> <C>
Previously Reported $62,351,671 $18,919,347 $43,432,324
As restated $38,208,707 $22,690,396 $15,518,311
</TABLE>
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(c) Dividends
---------
Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. The Company does not anticipate
paying dividends in the foreseeable future. The Company's ability to do so
will depend on the payment of dividends by Pipasa to the holders of its common
stock.
CRI receives income as a 59.56% shareholder of Pipasa. Pipasa has
consistently paid dividends to holders of both its preferred and common stock.
Management believes it is likely to continue to do so, however, there is no
certainty that Pipasa will pay any dividends in the future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD ENDING SEPTEMBER 30, 1996
The following section supersedes Management's Discussion and Analysis of
Financial Condition and Results of Operations in the 10-K.
Results of Operations
On April 30, 1996, the Company entered into an Agreement and Plan of
Reorganization with Corporacion Pipasa, S.A. ("Pipasa") for the acquisition of
Pipasa and the divestiture of all the then current subsidiaries and activities
of the Company. This Plan of Reorganization was approved by the Company's
Shareholders on August 5, 1996 and all documentation was finalized on
September 30, 1996.
Management of the Company elected to change its fiscal year end from
June 30 to September 30 to coincide with the fiscal year end of its sole
subsidiary, Pipasa.
Prior to the reorganization, the Company had three subsidiary corporations
which included Cambridge Academy, Sentient, Inc. and Current Concept Seminars,
Inc., along with a division which engaged in real estate development. As a
condition of the Agreement and the underlying acquisition, the Acquirer
divested itself of all operations, including the former subsidiary corporations
and the real estate division. As a result, Pipasa is the only operating
subsidiary of the Company.
2
<PAGE>
For purposes of comparison and evaluation, Statements of Income of Pipasa,
the Company's sole operating subsidiary are used. These comparisons do not
reflect the fact that the Company owns 59.56% of Pipasa's common stock and,
as a result, receives income only through the payment of dividends by Pipasa
to the Company as a holder of Pipasa's common stock.
Since the reorganization, the Company's operational costs, including but
not limited to rent, insurance, and professional fees in connection with the
reaudit, have been paid through advances made on the Company's behalf by
Pipasa. These advances totaled $81,302 for the year ended September 30, 1996.
The Company intends to repay Pipasa the advanced monies, with interest
accrued at the prevailing local market rate, as funds become available to it
through the receipt of dividends or through acquisition of other operating
entities.
Pipasa's revenues increased from $57,138,759 in fiscal year 1995 to
$61,535,457 in fiscal year 1996, an increase of approximately 7% over the
previous year. Pipasa experienced increased revenues in its latest fiscal
year over the comparable previous year period as a result of its successful
efforts to increase the volume of sales of its poultry products.
Pipasa's operating expenses increased to $10,921,973 for the fiscal year
1996, from $10,702,149 for the comparable fiscal year 1995. General and
administrative expenses increased slightly as a percentage of revenue,
relative to the previous fiscal year as a result of extraordinary expenses
related to Costa Rica International, Inc., such as professional fees and travel
expenses which were advanced to the Company.
Pipasa generated net income before income tax of $3,015,940 for fiscal
year 1996, when compared to a net income before income tax of $3,754,349 for
the comparable fiscal year 1995. The reduction in net income resulted from
rising grain prices during the early part of fiscal year 1996. This rise
in grain prices affected the cost of sales and consequently reduced net
income. Management decided not to pass to its customers this increase in the
sale prices of its products, because it considered the increase in prices of
the raw material a typical market fluctuation and cost of doing business and
did not want to negatively impact its customers.
Management expects continued growth of revenues from its core business
activities. Management is continuing to expand its market operations and to
cut costs to maximize future profit potential.
<PAGE>
Liquidity and Capital Resources
At September 30, 1996, cash and cash equivalents of Pipasa were $5,129,312
as compared to $2,113,595 at September 30, 1995. There was an increase in
cash and cash equivalent of Pipasa due to the collection of a note receivable
from related parties.
At September 30, 1996, the working capital ratio was 0.98 as compared to
1.04 at September 30, 1995.
On August 26, 1996, Pipasa entered into an agreement with Inversiones La
Ribera, S.A., a company owned and controlled by its Chairman and Chief
Executive Officer, Mr. Chaves, to acquire, for $4,858,955, 10% of the equity
ownership rights to Inolasa, S.A. and ADEC, S.A. ("Inolasa Group"), an
independent third party and significant supplier of raw material to Pipasa.
Inversiones La Ribera, S.A. is both a principal stockholder of Pipasa and a
related party since it is beneficially controled by Mr. Chavez, who is
Chairman of both the Company and Pipasa. At September 30, 1996, Pipasa had
made payments of $934,842 in connection with such agreement; the unpaid
balance was to be paid during the year ending September 30, 1997. As of the
date of this filing, the balance due for the transaction has been paid in full.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD ENDING SEPTEMBER 30, 1995
For purposes of comparison and evaluation, Statements of Income of Pipasa,
the Company's sole operating subsidiary are used. These comparisons do not
reflect the fact that the Company owns 59.56% of Pipasa's common stock and,
as a result, receives income only through the payment of dividends by Pipasa
to the Company as a holder of Pipasa's common stock.
Revenues of Pipasa increased from $54,639,749 in fiscal year 1994 to
$57,138,759 in fiscal year 1995, an increase of approximately 4.5% over the
previous year. Pipasa experienced increased revenues in the fiscal year
September 30, 1995 over the comparable previous year as a result of the
opening of new agencies and the increase in sales of its poultry products.
The cost of sale as of percentage of sales declined 1.61% from that of fiscal
year 1995 to 71.12% when compared to the previous fiscal year's, 72.73%, due
to stable prices of the raw materials, and the efficient management of its
resources.
Pipasa's General and Administrative expenses increased slightly to
$4,180,417 in 1995, an increase of 1.04%, when compared to the previous year's
fiscal period expenses of $4,137,033. This increase was a result of the
normal growth of the Company. Selling expenses increased from US $5,925,317,
in fiscal year 1994, to US $6,521,732, in the fiscal year 1995, due to (1) the
implementation of a new sales commission policy designed as an incentive
for higher sales and (2) the renovation of the vehicle fleet. Pipasa generated
net income before income tax of $3,754,349 for fiscal year 1995, when compared
to a net income before income tax of $2,966,440 for the comparable fiscal year
1994. This increase in net income is a result of stable grain prices during
the fiscal year 1995, and the efficient management of resources.
Management expects continued growth of revenues from its core business
activities. Management is continuing to expand its market operations and to
cut costs to maximize future profit potential.
Liquidity and Capital Resources
At September 30, 1995, cash and cash equivalents of Pipasa were $2,113,595
as compared to $1,307,675 at September 30, 1994, an increase of $805,920.
This increase is generated by inventory realization.
At September 30, 1995, the working capital ratio was 1.044 as compared to
1.045 at September 30, 1994. This ratio did not show a significant variation
during this period.
<PAGE>
PART II
ITEM 7. FINANCIAL STATEMENTS
The following financial information is filed as part of this report:
(1) Financial Statements
--------------------
(2) Schedules
---------
The financial statement schedules listed in the accompanying index to
financial statements are filed as a part of this annual report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 26, 1996, Pipasa entered into an agreement with Inversiones La
Ribera, S.A. to acquire, for US $4,858,955, 10% of the equity ownership rights
in the Inolasa Group, an independent third party and a significant supplier of
raw materials to Pipasa. Inversiones La Ribera, S.A. is both a principal
stockholder of Pipasa and a related party, since it is beneficially controlled
by Mr. Chavez, who is Chairman of both the Company and Pipasa. As of
September 30, 1996, Pipasa had made payments of US $934,842 in connection with
that commitment; the unpaid balance had been agreed to be paid during the year
ending September 30, 1997. As of the date of this filing, the balance has
been paid in full.
The Inolasa Group is currently undergoing a corporate and legal
restructuring, which includes the formation of a new holding company. As a
result, the investment is currently registered in the "other assets account."
Once the Inolasa Group finishes restructuring its holding company, the Company
will transfer the investment to the permanent investment account. Share
certificates are expected to be issued and delivered to Pipasa no later than
December 1, 1997, for no additional consideration.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders,
Costa Rica International, Inc.
We have audited the accompanying consolidated balance sheets of Costa Rica
International, Inc. and Subsidiary as of September 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 Costa Rica
International, Inc. and Subsidiary as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
San Jose, Costa Rica
July 31, 1997
<PAGE>
COSTA RICA INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,129,312 $ 2,113,595
Short-term investments 260,339 249,138
Notes and accounts receivable, net (note 2) 4,613,762 4,149,637
Due from related parties (note 3) 1,304,500 2,111,550
Inventories, net (note 4) 7,148,797 5,931,555
Prepaid expenses 157,889 158,458
----------- -----------
Total Current Assets $18,614,599 $14,713,933
----------- -----------
Long term receivable - trade 211,362 201,433
Property, plant and equipment, net (note 6) 13,604,108 15,252,608
Long term investments (note 7) 35,190 996,293
Other assets (note 8 and 12) 5,743,448 902,085
----------- -----------
Total Assets $38,208,707 $32,066,352
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable (note 9) 9,411,340 8,863,144
Due to related parties (note 3) 3,924,114 -
Current installments of long-term debt (note 10) 1,461,118 1,167,541
Accounts payable 2,562,129 2,382,905
Accrued expenses 1,642,455 1,697,477
----------- -----------
Total Current Liabilities $19,001,156 $14,111,067
----------- -----------
Long term debt, excluding current
installments (note 10) 3,593,601 2,379,691
Other liabilities 95,639 78,338
----------- -----------
Total Liabilities 22,690,396 16,569,096
----------- -----------
Minority interest $ 5,429,402 $ 5,374,895
Stockholders' Equity (note 11):
Common stock 19,560 15,574
Preferred Stock 2,216,072 2,216,072
Additional paid-in capital 9,350,252 7,266,128
Cumulative translation adjustment (3,596,253) (2,404,016)
Retained earnings 2,099,278 3,028,603
----------- -----------
Total Stockholders' Equity 10,088,909 10,122,361
----------- -----------
Total Liabilities and
Stockholders' Equity $38,208,707 $32,066,352
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $ 61,535,457 $ 57,138,759 $ 54,639,749
Cost of sales 45,446,182 40,635,032 39,740,268
------------ ------------ ------------
Gross profit 16,089,275 16,503,727 14,899,481
Operating expenses:
General and administrative 4,415,842 4,180,417 4,137,033
Selling 6,506,131 6,521,732 5,925,317
------------ ------------ ------------
Total operating expenses 10,921,973 10,702,149 10,062,350
------------ ------------ ------------
Income from operations 5,167,302 5,801,578 4,837,131
------------ ------------ ------------
Other expenses (income):
Interest expense 2,686,801 2,638,497 2,561,530
Interest income (439,821) (299,858) (345,985)
Exchange losses (gains), net 101,529 207,814 (23,420)
Miscellaneous, net (197,147) (499,224) (321,434)
------------ ------------ ------------
Other expenses, net 2,151,362 2,047,229 1,870,691
Income before income taxes and
minority interest 3,015,940 3,754,349 2,966,440
Income taxes (note 13) 244,431 250,802 137,463
------------ ------------ ------------
Income before minority interest 2,771,509 3,503,547 2,828,977
------------ ------------ ------------
Minority interest 1,121,630 1,417,885 1,144,887
------------ ------------ ------------
Net income $ 1,649,879 $ 2,085,662 $ 1,684,090
Preferred stock dividends 211,750 291,256 182,781
------------ ------------ ------------
Net income applicable to common stock $ 1,438,129 $ 1,794,406 $ 1,501,309
============ ============ ============
Pro-forma earnings per share:
Net income per common shares $ 0.09 $ 0.12 $ 0.10
------------ ------------ ------------
Weighted average number of common shares
outstanding 15,573,571 15,573,571 15,573,571
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Statements of Cash Flows
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,649,879 $ 2,085,662 $ 1,684,090
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation 1,232,269 1,306,617 1,254,519
Loss (gain) on sale of productive assets 77,461 (37,603) 50,520
Increase in allowance for doubtful
receivables 154,868 - 56,557
Cash provided by (used for) changes in:
Short-term investments (44,594) (193,322) 8,387
Notes and accounts receivable (1,193,383) (1,171,739) (1,181,268)
Due from related parties 496,513 (878,839) (1,266,400)
Inventories (2,074,586) (541,709) (44,070)
Prepaid expenses (20,165) 53,788 119,422
Accounts payable 468,898 129,844 (1,457,285)
Accrued expenses 163,891 464,129 (173,414)
Long term receivable-trade (36,986) 162,339 (430,282)
------------ ------------ ------------
Cash provided by (used for) operating
activities 874,065 1,379,167 (1,379,224)
------------ ------------ ------------
Investing activities:
Increase in long term investments - - (1,094,845)
Additions to property, plant and equipment (1,672,706) (3,343,685) (3,005,666)
Proceeds from sale of productive assets and
long-term investments 1,013,574 211,953 26,494
Decrease (Increase) in other assets (1,095,621) 80,162 (210,282)
------------ ------------ ------------
Cash used for investing activities (1,754,753) (3,051,570) (4,284,299)
------------ ------------ ------------
Financing activities:
Short-term financing-increase in notes payable 1,745,986 2,748,535 3,939,883
Cash dividends (380,349) (724,852) (962,789)
Long-term financing:
Payments (1,344,403) (1,545,203) 49,430
New loans 3,415,700 1,255,269 -
Capital contributions (returns) (110,745) (19,796) 280,796
Increase in minority interest 865,019 911,656 684,771
Other liabilities 28,703 (122,990) 235,210
------------ ------------ ------------
Cash provided by financing activities 4,219,911 2,502,619 4,227,301
------------ ------------ ------------
Effect of exchange rate changes on cash
and cash equivalents (323,506) (24,296) 212,213
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents 3,015,717 805,920 (1,224,009)
Cash and cash equivalents at beginning of year 2,113,595 1,307,675 2,531,684
------------ ------------ ------------
Cash and cash equivalents at end of year $ 5,129,312 $ 2,113,595 $ 1,307,675
============ ============ ============
Supplementary disclosures of cash flows
information:
Cash paid during year for:
Interest $ 2,411,604 $ 2,600,003 $ 2,429,739
============ ============ ============
Income taxes $ 189,054 $ 160,592 $ 265,138
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Cumulative Total
Number of Preferred Paid-In Translation Retained Stockholders'
Shares Amount Stock Capital Adjustment Earnings Equity
------------ --------- --------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $ 15,573,571 15,574 395,581 7,670,938 (543,103) 1,364,419 8,903,409
Capital contributions -- -- -- 280,796 -- -- 280,796
Issuance of preferred stock to existing
stockholders -- -- 1,364,480 (812,275) -- -- 552,205
Cash dividends on common stock -- -- -- -- -- (780,008) (780,008)
Cash dividends on preferred stock -- -- -- -- -- (182,781) (182,781)
Net income -- -- -- -- -- 1,684,090 1,684,090
Translation adjustment -- -- -- -- (572,289) -- (572,289)
----------- --------- --------- --------- ---------- ---------- ----------
Balance, September 30, 1994 15,573,571 15,574 1,760,061 7,139,459 (1,115,392) 2,085,720 9,885,422
Return of capital contributions -- -- -- (19,796) -- -- (19,796)
Issuance of preferred stock to
existing stockholders -- -- 456,011 (271,462) -- -- 184,549
Capitalization of retained earnings -- -- -- 417,927 -- (417,927) --
Cash dividends on common stock -- -- -- -- -- (433,596) (433,596)
Cash dividends on preferred stock -- -- -- -- -- (291,256) (291,256)
Net income -- -- -- -- -- 2,085,662 2,085,662
Translation adjustment -- -- -- -- (1,288,624) -- (1,288,624)
----------- --------- --------- --------- ---------- ---------- ----------
Balance, September 30, 1995 15,573,571 15,574 2,216,072 7,266,128 (2,404,016) 3,028,603 10,122,361
Issuance of common stock 4,152,694 4,153 -- -- -- -- 4,153
Agreement and Plan of Reorganization
dated April 30, 1996:
Common stock returned and canceled (116,869) (117) -- -- -- -- (117)
Divestment of assets (50,000) (50) -- (117,614) -- -- (117,664)
Capital contributions -- -- -- 2,883 -- -- 2,883
Capitalization of retained earnings -- -- -- 2,198,855 -- (2,198,855) --
Cash dividends on common stock -- -- -- -- -- (168,599) (168,599)
Cash dividends on preferred stock -- -- -- -- -- (211,750) (211,750)
Net income -- -- -- -- -- 1,649,879 1,649,879
Translation adjustment -- -- -- -- (1,192,237) -- (1,192,237)
----------- --------- --------- --------- ---------- ---------- ----------
Balance, September 30, 1996 $19,559,396 19,560 2,216,072 9,350,252 (3,596,253) 2,099,278 10,088,909
========== ========= ========= ========= ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
September 30, 1996, 1995 and 1994
(1) Business and Summary of Significant Accounting Policies
-------------------------------------------------------
(a) Corporate Activity
------------------
Costa Rica International, Inc. (the "Company"), formerly Quantum
Learning Systems, Inc. was incorporated under the laws of the State
of Utah on February 6, 1986 and filed a public offering in 1987.
In April 1994, the Company changed its legal domicile from Utah to
Nevada. In April 1996, the Company entered into an acquisition
agreement to acquire the majority of the stock of Corporacion
Pipasa, S.A. (Pipasa). This transaction was approved by the
shareholders of the Company on August 5, 1996 and consummated on
September 30, 1996. Simultaneously with the acquisition of Pipasa,
the Company divested itself of all other subsidiaries.
(b) Agreement and Plan of Reorganization
------------------------------------
On April 30, 1996, the Company entered into an Agreement and Plan
of Reorganization (the "Agreement") for the acquisition of Pipasa,
and the divestiture of all other subsidiaries of the Company. The
shareholders approved the plan of reorganization on August 5, 1996.
Prior to the reorganization, the Company had three educational
subsidiaries: Cambridge Academy, Sentient, Inc. and Current
Concept Seminars, Inc., and a real estate development division.
As a condition to the Agreement and the underlying acqusition, the
acquiror was required to divest itself of all other operations,
including the former subsidiary corporations and the real estate
division, by the delivery date of the common shares.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
Also on September 30, 1996, the Company entered into an agreement
with InterCoast Financial Corporation (IFC) to sell the former
subsidiaries to IFC. Control of the Company changed on August 5,
1996 by shareholder approval. The final documentation was
completed on September 30, 1996. Pursuant to the Agreement,
InterCoast Financial Corporation acquired the subsidiaries in
exchange for 50,000 shares of common stock of Costa Rica
International, Inc. and indemnification by the Company from any
liability, damage or deficiency, all actions, suits, proceedings,
demands, assessments, judgments, costs and expenses including
attorney's fees, incident to the subsidiaries. The acquisition
of the shares was accounted at fair value.
Pursuant to the Agreement, and as of September 30, 1996, the
Company had exchanged 15,573,571 shares of its common stock for
approximately 59.56% of Pipasa's common shares. The remaining
40.44% of Pipasa's common shares were not available for transfer
under the Agreement because they were used to secure a loan. The
15,573,571 shares represent approximately 79% of the issued and
outstanding shares of the Company. The 40.44% interest not
acquired in the merger transaction has been accounted for as
minority interest for all years presented.
(c) Operations of Corporacion Pipasa, S.A.
--------------------------------------
On January 7, 1991, Industrias Derivados de Pollo, S.A
(Idepo, S.A.), Retisa S.A., Servicios Multiples Pipasa, S.A.
(Semupi, S.A.), Avicola Chacara, S.A., Concentrados Belen, S.A.,
Empolladora Belen, S.A., Granja Avicola Monica, S.A., Planta
Procesadora de Aves, S.A., Grupo Pipasa, S.A., Productores Huevo
Fertil, S.A. (Prohufe, S.A.) and El Polluelo, S.A., merged into the
surviving entity, Akron, S.A. The articles of incorporation were
simultaneously amended to reflect the Company's new name,
Corporacion Pipasa, S.A. On January 1996, Rincon de los Toros,
S.A. merged with Corporacion Pipasa, S.A. Since the mergers were
between companies under common control, the net assets were
recorded at book value.
Pipasa produces and markets poultry products on 33 farms and in 2
processing plants located throughout Costa Rica. Pipasa's main
market is within Costa Rica and in the countries of El Salvador,
Honduras, Nicaragua, and Colombia.
(d) Consolidation Principles
------------------------
The consolidated financial statements include the accounts of Costa
Rica International, Inc. and its 59.56% owned subsidiary,
Corporacion Pipasa, S.A.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
The consolidated financial statements as of September 30, 1996
reflect the acquisition of Pipasa as a reverse acquisition, whereby
Pipasa is treated as the accounting acquirer and the Company as the
legal acquirer. Accordingly, for financial reporting purposes, the
issuance of stock in the acquisition is treated as an issue by the
operating company Pipasa, and the historical financial statements
of Pipasa as of September 30, 1994 and 1995 have been presented in
the consolidation.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(e) Restated Consolidated Financial Statements
------------------------------------------
The consolidated financial statements of Costa Rica International,
Inc. and Subsidiary as of September 30, 1996 have been restated by
the Company to properly account for the following:
- The business combination of Costa Rica International, Inc. with
Corporacion Pipasa, S.A. had been accounted by using the purchase
method. As a result, the Company had recorded the assets of
Pipasa at fair market value. The combination should have been
treated as a reverse acquisition, whereby Pipasa should have
been treated as the accounting acquirer and Costa Rica
International, Inc. as the legal acquirer. In accordance with
Generally Accepted Accounting Principles ("GAAP"), Pipasa (the
accounting acquiror) must account for its acquisition of Costa
Rica International, Inc. as a reverse merger.
- The Company previously reflected the results of operations of
Quantum Learning Systems, Inc. as the historical financial
statements of the Company through the date of the merger.
Generally Accepted Accounting Principles require that the
historical financial statements of the entity after the reverse
merger be those of the accounting acquiror. Historical
financial statements of the Company have been recast accordingly.
- The Company mistakenly accounted for a tranfer of goodwill. A
business combination between an operating enterprise and a
"shell company" in which the shell company is the issuer of
securities and the operating enterprise is determined to be the
acquiring enterprise for financial reporting purposes, should be
treated for financial reporting purposes as an issuance of
securities by the operating enterprise. The operating
enterprise would credit equity for the fair value of the
tangible net assets of the shell company. No goodwill or
intangible assets would be recognized in this transaction.
Costs directly related to this transaction may be expressed as
incurred or charged directly to equity. The financial
statements of the Company will be revised so as not to reflect
any transfer of goodwill.
- The non-monetary assets and liabilities included in the
financial statements of Pipasa had been translated from Costa
Rican currency (colones) to US $ dollars at historical exchange
rates. As of December 31, 1984, Costa Rica is no longer
considered to be a highly inflationary country according to
Statement of Financial Accounting Standards No. 52, and
consequently, the functional currency of Pipasa is the Costa
Rican colon (local currency). Assets and liabilities should
have been translated to US $ dollars using year-end exchange
rates and income statements at average rate.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
- On August 26, 1996, the Company entered into an agreement to
acquire equity ownership rights equivalent to 10% of the
outstanding common stock of Inolasa Group for $4,858,955. As of
September 30, 1996, only the $934,842 advance paid on the total
purchase price has been recorded in the financial statements.
However, by date of this Amendment, the total purchase price has
been paid. The consolidated financial statements have been
restated to reflect the total amount of the equity ownership
rights in the other assets account; and the related liability.
Accordingly, the 1996 consolidated balance sheet has been restated
as follows:
<TABLE>
<CAPTION>
Stockholders'
Equity and Minority
Assets Liabilities Interest
------ ----------- -------------------
<S> <C> <C> <C>
Balance on September 30,
1996, as previously
reported $ 62,351,671 $18,919,347 $ 43,432,324
Adjustments for correction
of the business
combination method,
translation of financial
statements and other
assets (24,142,964) 3,771,049 (27,914,013)
------------ ----------- ------------
Balance as of September 30,
1996, as restated $ 38,208,707 $22,690,396 $ 15,518,311
============ =========== ============
</TABLE>
(f) Accounting Principles
---------------------
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (USGAAP). Accounting records of Pipasa
are kept according to generally accepted accounting principles in
Costa Rica and have been converted to USGAAP in consolidation.
(g) 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 amounts reported
in the consolidated financial statements. Actual results may
differ from those estimates.
(h) Foreign Currency Translation
----------------------------
Most business transactions of Pipasa take place in the Republic of
Costa Rica, where the local currency is the colon ([cent sign]). The
parity of the colon to the US dollar is determined in a free
exchange market, supervised by the Central Bank of Costa Rica. As
of September 30, 1996, 1995 and 1994, commercial exchange rates
have been ([cent sign])213.94, ([cent sign])187.62 and
([cent sign])160.51 to US $1.00, respectively.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
The financial statements of Corporacion Pipasa, S.A. have been
translated into US dollars on the basis of the colon ([cent sign]) as
the functional currency, as follows: assets and liabilities
denominated in dollars have been stated at nominal dollar amounts;
assets and liabilities denominated in Costa Rican colones have been
translated at the commercial exchange rates in effect on
September 30, 1996, 1995 and 1994; Stockholders' equity accounts
have been translated at exchange rates in effect when incurred or
realized (historical exchange rates); income and expenses have been
translated at average exchange rates in effect during the years
then ended. Translation adjustments have been recorded as a
separate component of Stockholders' equity.
(i) Cash Equivalents
----------------
Highly liquid investments with original maturities of 3 months
or less are treated as cash equivalents.
(j) Investments
-----------
The Company has investments in short-term debt securities that
have been classified under the provisions of SFAS No. 115 as held
to maturity.
Short-term investments consist primarily of commercial paper with
original maturities between three and twelve months, which bear
interest ranging from 7% to 8%, and are carried at cost, which
approximates fair market value.
(k) Inventories and Allowance for Renewal of Production Poultry
-----------------------------------------------------------
Inventories are stated at the lower of cost or market. Cost is
determined using the weighted-average method, except for
inventories in transit, which are valued at specific cost.
Allowance for renewal of production poultry is determined based
on the estimated poultry reproductive period.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(l) Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Improvements to
property and equipment which extend their useful lives are
capitalized. Disbursements for maintenance, repairs and minor
renewals are charged to expenses when incurred.
(m) Depreciation and Amortization
-----------------------------
Depreciation is provided by the straight-line method, for both
financial reporting and tax purposes, over estimated useful lives
as follows: buildings - 50 years; vehicles, machinery and
equipment, furniture and fixtures - between 5 and 20 years.
Cost of leasehold rights on leased properties, accounted for as
operating leases, are amortized over 5 years (lease term) using
the straight-line method.
(n) Advertising Costs
-----------------
Advertising costs are expensed as incurred. Advertising costs
amounted to $445,466, $386,135 and $475,171 in 1996, 1995 and 1994,
respectively.
(o) Income Taxes
------------
The Company accounts for income taxes in accordance with statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under the asset and liability method of Statement 109,
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 bases. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized as income in the period that includes the
enactment date.
(p) Fair Value of Financial Instruments
-----------------------------------
Financial instruments are not held for trading purposes. The
Company estimates that the fair value of all financial instruments
on September 30, 1996 and 1995 does not differ materially from the
aggregate carrying values recorded in the financial statements.
The estimated fair value and, accordingly, the estimates, are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange.
(q) Pro-Forma Earnings per Share
----------------------------
Pro-forma earnings per share have been computed on the basis of
the weighted-average number of common shares outstanding, totaling
15,573,571 for the years ended September 30, 1996, 1995 and 1994.
The shares used in computing earnings per share for the periods
prior to the reverse merger are those shares issued by the Company
to effect the business combination. The minority interest in the
earnings of Pipasa and dividends on preferred stock have been
excluded from earnings available to common stockholders.
(r) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
-----------------------------------------------------------
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of, which became effective for
fiscal years beginning after December 15, 1995. This Statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less cost to sell. Management does not expect that the
adoption of this Statement will have a material impact on the
Company's financial position, results of operations, or liquidity.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(s) Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
------------------------------------------------------------------
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. SFAS No. 125 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
It is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities placed on
consistent application of a financial-components approach that
focuses on control. It distinguishes between transfers of
financial assets that are sales and transfers that are secured
borrowings. Management of the Company does not expect that
adoption of SFAS No. 125 will have a material impact on the
Company's financial position, results of operations, or liquidity.
(2) Notes and Accounts Receivable
-----------------------------
Notes and accounts receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accounts Receivables
Trade receivables $ 3,802,023 $ 3,246,364
Other 845,917 918,014
------------ ------------
$ 4,647,940 $ 4,164,378
Less allowance for doubtful
accounts 212,872 77,012
------------ ------------
$ 4,435,068 $ 4,087,366
Short-term notes-trade 178,694 62,271
------------ ------------
$ 4,613,762 $ 4,149,637
</TABLE>
(3) Accounts and Transactions with Related Parties
----------------------------------------------
In 1994, Pipasa acquired 9% of the outstanding common stock of Cerveceria
Americana, S.A. (C.A.) from Inversiones La Ribera, S.A., Pipasa's main
stockholder, for approximately $1,080,000. On June 30, 1996, Pipasa
sold its 9% ownership in C.A. back to Inversiones La Ribera for $848,402,
which was the carrying value as of the date of this Amendment.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
On August 26, 1996, Pipasa entered into an agreement with Inversiones
La Ribera, S.A. (principal stockholder) to acquire,for $4,858,955, 10%
of the equity ownership rights in Grupo Inolasa, an independent third
party and a significant supplier to Pipasa. As of September 30, 1996,
Pipasa has made payments of $934,842 in connection with its commitment;
the unpaid balance has been agreed to be paid during the year ending
September 30, 1997 (see note 8). As of the date of this Amendment, the
total purchase price has been paid.
Balance and transactions with related parties consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from stockholders $ 1,104,990 $ 1,939,380
Due from related parties 199,510 172,170
------------ ------------
$ 1,304,500 $ 2,111,550
============ ============
Due to stockholders $ 3,924,114 $ -
============ ============
</TABLE>
Balance due to stockholders is originated from the agreement to acquire
equity ownership rights equivalent to 10% of the outstanding common
stock of Inolosa Group, which was owned by Inversiones La Ribera, S.A.
Balance due from stockholders originates from non-interest bearing loans
made when the Company was still privately owned to Inversiones La
Ribera, S.A. and the Company's Chief Executive Officer and shareholder,
starting on October 1, 1996, such loans bear interest at market rates.
(4) Inventories, net
----------------
Inventories, net consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished products $ 2,176,876 $ 1,074,102
Poultry 1,770,714 1,654,080
Production poultry 1,452,607 1,407,635
Materials and supplies 1,361,296 1,079,171
Raw materials 786,848 1,119,594
In transit 19,929 26,063
------------ ------------
$ 7,568,270 $ 6,360,645
Allowance for renewal of
production poultry (419,473) (429,090)
------------ ------------
Inventories, net $ 7,148,797 $ 5,931,555
============ ============
</TABLE>
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(5) Fair Value of Financial Instruments
-----------------------------------
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments on September 30, 1996 and
1995. The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between
willing parties.
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 5,129,312 $ 5,129,312 $ 2,113,595 $ 2,113,595
Short-term investments 260,339 260,339 249,138 249,138
Notes and accounts
receivable, net 5,918,262 5,918,262 6,261,187 6,261,187
Long-term receivable-trade 211,362 211,362 201,433 201,433
Current liabilities:
Notes payable 13,335,454 13,335,454 8,863,144 8,863,144
Current installments of
long-term debt 1,461,118 1,461,118 1,167,541 1,167,541
Accounts payable 2,562,129 2,562,129 2,382,905 2,382,905
Long-term debt 3,593,601 3,593,601 2,379,691 2,379,691
</TABLE>
The data presented above represent management's best estimates based on
a range of methodologies and assumptions, including the following:
- For cash and cash equivalents, short-term investments, accounts
payable, notes and accounts receivable and long-term receivable-trade,
the carrying amounts approximate fair value because of the short
maturity of these instruments.
- For notes payable, current installments of long-term debt and
long-term debt, the carrying amount approximates fair value.
The Company has entered into derivative transactions for purposes other
than trading as a means of managing the risk of future commitments.
Futures contracts of less than one year are used to hedge fluctuations
in the prices of corn.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(6) Property, Plant and Equipment, net
----------------------------------
Property, plant, and equipment, net, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 2,444,323 $ 2,818,755
Buildings and facilities 6,394,134 6,271,683
Machinery and equipment 6,687,936 6,734,058
Vehicles 1,685,967 2,067,595
Advertising signs and display 381,039 429,780
Machinery in transit 5,380 47,724
Construction in process 441,130 1,263,880
------------ ------------
$ 18,039,909 $ 19,633,475
Less accumulated depreciation 4,435,801 4,380,867
------------ ------------
Property, plant, and equipment, net $ 13,604,108 $ 15,252,608
============ ============
</TABLE>
Most of the above assets have been pledged in guarantee of certain
long-term debt (see note 10).
Depreciation expense in 1996, 1995 and 1994 amounted to $1,232,269,
$1,306,617 and $1,254,519, respectively.
(7) Long-Term Investments
---------------------
Long-term investments consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investments in equity
Brewery Cerveceria Americana, S.A.
(9% ownership) $ - $ 956,168
Other 35,190 40,125
------------ ------------
$ 35,190 $ 996,293
============ ============
</TABLE>
(8) Other Assets
------------
As of September 30, 1996 other assets include $4,858,955 of equity
ownership rights equivalent to 10% of the outstanding common shares of
Grupo Inolasa, a significant supplier of raw materials to Pipasa. Grupo
Inolasa is currently undergoing a corporate and legal restructuring,
which includes the formation of a new holding company. Share
certificates are expected to be issued and delivered to Pipasa by no
later than December 1, 1997, for no additional consideration.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(9) Notes Payable
-------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Loans payable $ 5,232,010 $ 4,715,866
Bank overdrafts 545,118 867,563
Commercial paper 3,498,193 3,130,453
Other 136,019 149,262
------------ ------------
$ 9,411,340 $ 8,863,144
============ ============
</TABLE>
Loans payable include lines of credit and commitments with banks for
letters of credit to support commercial operations with suppliers to
acquire raw materials.
As of September 30, 1996, the Company has line of credit agreements with
banks for a maximum of $8.9 million, of which $5.2 million has already
been used ($9.1 million and $4.7 million, respectively, for 1995).
Agreements may be renewed annually, and bear interest at rates ranging
between 9.75% and 10.75% per annum. Those agreements are secured by
property.
Commercial paper is unsecured debt certificates in colones registered
with the Costa Rican Stock Exchange, with a maximum authorized amount of
$4.6 million ([cent sign] billion). Commercial paper bears annual
interest rates ranging from 20.25% through 39.75% (from 29% through
39.75% in 1995).
(10) Long-Term Debt
--------------
Long-term debt is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Colones-Denominated:
Bank loans $ 3,027,335 $ 2,659,491
Commercial paper-unsecured 43,470 201,338
Other 25,780 40,701
------------ ------------
3,096,585 2,901,530
US $ Dollars-Denominated:
Bank loans 1,953,489 641,360
Other 4,645 4,342
------------ ------------
1,958,134 645,702
------------ ------------
5,054,719 3,547,232
Less current installments 1,461,118 1,167,541
------------ ------------
$ 3,593,601 $ 2,379,691
============ ============
</TABLE>
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
Bank loans are secured by most of the Company's land, buildings,
machinery and equipment and vehicles, and are due from January 1997
through April 2003.
Interest rates for long-term debt are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
US dollar loans 8%-10.75% 6.84%-10.75%
Costa Rican colones loans 23%-30.25% 26.25%-33%
Commercial paper-unsecured 20%-34% 20%-39.75%
</TABLE>
Future payments on long-term debt at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<C> <S>
1997 $ 1,461,118
1998 914,479
1999 812,513
2000 440,498
2001 440,101
Thereafter 986,010
------------
$ 5,054,719
============
</TABLE>
(11) Stockholders' Equity
--------------------
CRI
Common Stock
As of September 30, 1996, 60,000,000 common shares of CRI at $0.001 par
value were authorized and 19,559,396 shares had been issued.
Preferred Stock
As of September 30, 1996, 5,000,000 preferred shares of CRI were
authorized and no shares had been issued.
PIPASA
Preferred Stock
As of September 30, 1996, 82,169 Class "C" preferred shares were
authorized but not issued. No price in US dollars can be set for these
shares that are authorized but not issued. The price in US dollars for
these shares will depend on the prevailing exchange rate at the time the
shares are actually issued.
317,831 Class "C" preferred shares amounting to $2,216,072 were
authorized and outstanding. The main characteristics of Class "C"
preferred shares are as follows:
- The 53,034 shares of Class "C-A" and the 60,702 shares of Class "C-B"
and 72,695 shares of Class "C-D" receive a 10% annual dividend payable
monthly and adjustable by the Board of Directors.
- The 131,400 shares of Class "C-C" receive an dividend equal to the
prime rate set by the Central Bank of Costa Rica plus two points and
payable monthly.
As of September 30, 1996, 200,000 Class "D" shares were authorized but
not issued.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
Retained Earnings
-----------------
Costa Rican legislation requires that 5% of annual net income (in local
currency) up to an amount equivalent to 20% of total capital stock, be
allocated to a legal reserve. As of September 30, 1996 and 1995, the
Company has set aside earnings of $296,781 and $236,105 respectively,
for the creation of a legal reserve.
(12) Operating Leases
----------------
The Company has operating leases for vehicles and cooling equipment.
At the end of lease terms, the Company has the option of returning
the equipment or buying the equipment at a depreciated price. A
percentage of the money paid during the lease terms will be applied to
this reduced purchase price.
Under the lease terms, the Company is required to maintain a
self-insurance trust with the lessor bank. An initial deposit is made
with the bank at the inception of the lease to create the self-insurance
fund. After an initial 6 month period, during which time the Company
does not need to make payments to the Fund, the Company is required
to make monthly payments to the Fund for the remainder of the lease
term. In case of accidents or major repairs to vehicles under the
lease, the Company submits request for reimbursement, less a deductible,
to the Fund. The life of each trust is equivalent to the duration of
the respective lease. At the end of the lease term, any remaining
funds will be returned to the Company. The Company established three
funds in May, July and August 1995, and no claims have been filed. The
balance of the self-insurance fund amounted to $80,736 and $113,574 at
September 30, 1996 and 1995, respectively.
Future minimum lease payments for the years ending in September 30 are
as follows:
<TABLE>
<C> <S>
1997 $ 307,734
1998 213,495
</TABLE>
Rental expenses for operating leases amounted to $276,740, $252,143 and
$413,712 in 1996, 1995 and 1994, respectively.
(13) Income Taxes
------------
Income tax expense attributable to income from continuing operations
for the years ended September 30, 1996, 1995 and 1994 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended September 30, 1996: $ 244,431 - $ 244,431
Year ended September 30, 1995: $ 250,802 - $ 250,802
Year ended September 30, 1994: $ 137,463 - $ 137,463
</TABLE>
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
Costa Rican income tax expense attributable to income from continuing
operations was $244,431, $250,802, and $137,463, for the years ended
September 30, 1996, 1995, and 1994, respectively, and differs from the
amounts computed by applying the Costa Rican corporate tax rate of 30%
to pretax income from continuous operations as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax expense $ 904,782 $ 1,125,704 $ 889,995
Increase (reduction) in income taxes
resulting from:
Interest earned outside Costa Rica
and other income not subject to taxation (106,994) (87,619) (72,297)
Reduction of allowance for doubtful
accounts - (39,848) -
Tax benefits under Costa Rica Income Tax
Law Article 8, Section T for Agricultural
Companies and Article 8, Section F (356,136) (483,277) (406,998)
Deduction for reinvestment of prior
year earnings in machinery and
equipment under Costa Rica Income Tax
Law Article 8, Section T for Agricultural
Companies (250,284) (302,332) (291,696)
Non-Deductible depreciation expense 57,792 40,432 19,508
Export incentives granted under Costa Rica
Income Tax Law Article 66 (4,729) (2,258) (1,049)
------------ ------------ ------------
$ 244,431 $ 250,802 $ 137,463
============ ============ ============
</TABLE>
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1996, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts $ 44,230 $ 23,104 $ 38,264
Revaluation of property, plant and
equipment depreciable for Costa Rican
tax purposes 2,547,293 2,614,635 3,326,463
------------ ------------ ------------
Total gross deferred tax assets 2,591,523 2,637,739 3,364,727
Less valuation allowance (2,591,523) (2,637,739) (3,364,727)
Net deferred tax assets - - -
============ ============ ============
</TABLE>
The Company has not recognized a deferred tax asset for the current
year or the prior years. The valuation allowance has been established
at 100% of the deferred tax asset balance. Under Costa Rican Income Tax
Law, the Company is subject to a 1% asset tax which may be credited
against the regular income tax liability. However, if the income tax
is less than the asset tax liability in the same tax year, the asset
tax must still be paid in full. The deferred tax asset results
primarily from the revaluation of the fixed assets. The Company has
historically reported a slightly higher asset tax liability compared to
the income tax liability. In addition, the Company has significant tax
incentives available in Costa Rica which will reduce future taxable
income thereby reducing the potential benefit of the additional
depreciation resulting from the fiscal asset revaluation. Based on the
above, the Company's management does not consider that the deferred tax
asset will be realized in the foreseeable future and thereby justify
the recognition of a deferred tax asset on the financial statements.
In accordance with the Costa Rican income tax regulations, the
companies are required to file the annual income tax returns for the
twelve-month period ended September 30 of each year.
The income tax returns of Pipasa for the years ended September 30, 1994
through 1996 are open to inspection by the Costa Rican tax authorities.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
(14) Stock Warrants
--------------
On January 21, 1994, the Company entered into an investment banking
agreement with M. H. Meyerson & Co. The agreement required the Company
to issue warrants to purchase 300,000 shares of common stock with an
exercise price of $1.85 per warrant and demand and piggyback registration
rights. The registration rights may not be demanded during the 18
months immediately following the date of the agreement. The rights
become exercisable 19 to 48 months after the date of the agreement.
On June 1, 1994, Management of the Company approved the issuance of
warrants to purchase 200,000 shares of common stock at $.75 per share to
an outside consultant in exchange for services to be rendered to the
Company.
On August 1, 1995, the Management of the Company approved the sale of
warrants to two members of its Board of Directors and one independent
consultant, for the purchase price of $100 each. The warrants are
for the purchase of a total of 250,000 shares of the Company's
$0.001 common stock at an exercise price of $0.10 per share. The
warrants may be exercised anytime from August 1, 1995 to August 1, 2000.
Between November and December 1996, 250,000 warrants were exercised
and both Directors and the independent consultant received 250,000
shares.
(15) Concentration of Risk
---------------------
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
short-term investments, and trade receivables.
The Company places its cash equivalents and short-term investments with
high credit quality financial institutions.
Concentrations of credit risk with respect to trade receivables are
limited because a large number of geographically diverse customers make
up the Company's customer base. Thus, the trade credit risk is wide
spread. The Company controls credit risk through credit approvals,
credit limits and monitoring procedures. Losses due to uncollectible
receivables have not been material.
(16) Commitments and Contingencies
-----------------------------
The Company does not have damage insurance or a specific self-insurance
fund for vehicles that are not under lease agreements. The Company has
liability insurance to cover third parties through an umbrella policy
ranging from $58,153 to a maximum of $1,453,826.
(Continued)
<PAGE>
COSTA RICA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
The income tax returns of Pipasa for 1993, 1994 and 1995 were assessed
at $43,922 and $169,851 and $85,907, respectively. Due to the
disallowance by the Costa Rican tax authorities of approximately 26.03%
in the aggregate of the deductions taken by Pipasa for 1993, 1994, and
1995, the 1993 assessment has been contested, and 1994 and 1995
assessments are in the process of being contested by the Company.
Management does not believe this matter will be resolved in the next
fiscal year. No accrual has been made for any losses that may result
from the resolution of this uncertainty.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
Management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
<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.
Dated: August 29, 1997 By:/s/---------------------------------
Calixto Chaves
Chairman
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 29, 1997 By:/s/--------------------------------
Lic. Jorge Ml. Quesada
Treasurer
SECRETARY
Dated: August 29, 1997 By:/s/----------------------------------
Monica Chaves
Secretary
