SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) FEBRUARY 26, 1998
COSTA RICA INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-18222 87-0432572
-------------------------------- ----------------------------------
(Commission File Number) (IRS Employer Identification No.)
95 MERRICK WAY, SUITE 507
CORAL GABLES, FLORIDA 33134
- -------------------------------------------------------------------------------
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code (305) 476-1757
N/A
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
1. Corporacion As de Oros, S.A. ("As de Oros") Consolidated Condensed
Balance Sheet, as of December 31, 1997. (Unaudited)
2. As de Oros Consolidated Condensed Statements of Operations for the three
months ended December 31, 1997 and 1996. (Unaudited)
3. As de Oros Consolidated Condensed Statements of Cash Flows for the three
months ended December 31, 1997 and 1996. (Unaudited)
(b) Pro forma financial information
1. Pro Forma Combined Condensed Balance Sheet at December 31, 1997.
(Unaudited)
2. Pro Forma Combined Condensed Statement of Operations for the three
months ended December 31, 1997. (Unaudited)
3. Pro Forma Combined Condensed Statement of Operations for the year ended
September 31, 1997. (Unaudited)
(c) Exhibits
1. Corporacion As de Oros, S.A. and Subsidiaries audited Consolidated
Financial Statements as of September 30, 1997, 1996 and 1995.
<PAGE>
CORPORACION AS DE OROS, S.A. and subsidiaries
Consolidated Condensed Balance Sheet
As of December 31, 1997
(In thousands of dollars)
unaudited
<TABLE>
<CAPTION>
1997
----
<S> <C>
Assets
Current Assets
Cash and equivalents 117
Accounts receivables - net 4,598
Inventories - net 3,751
Other current assets 1,109
------
Total current assets 9,575
------
Property, plant and equipment, net 5,915
Other assets 378
------
Total Assets 15,868
======
Liabilities and Stockholder's
Deficit-Equity
Current liabilities
Short term notes payables 8,194
Accounts payable 3,752
Accured expense 685
------
Total current liabilities 12,631
------
Long term debt 4,480
------
Total Liabilities 17,111
======
Stockholder's Deficit-Equity
Common stock 4,657
Preferred shares 1,003
Additional paid in capital 736
Accummulated Deficit (5,006)
Translation adjustment (2,633)
------
Total Stockholder's Deficit-Equity (1,243)
------
Total Liabilities and Stockholder's
Deficit-Equity 15,868
======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CORPORATION AS DE OROS, S.A. and subsidiaries
Consolidated Condensed Statements of Operations
For the three months ended December 31, 1997 and 1996
(In thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales 13,027 13.561
Cost of sales 9,486 10,709
------ ------
Gross profit 3,541 2,852
------ ------
Operating expenses
Selling 1,569 1,837
General and administrative 779 628
------ ------
Total operating expenses 2,348 2,465
------ ------
Income from operations 1,193 387
Other expenses (income)
Interest expense 568 1,054
Interest income (8) (55)
Currency exchange losses, net 137 156
Miscellaneous, net (9) (189)
------ ------
Other expenses, net 678 966
------ ------
Income (loss) before tax 515 (579)
------ ------
Preferred stock dividends (11) (39)
------ ------
Net income applicable to common stock 504 (618)
------ ------
Earnings per share:
Net income (loss) per common share 0.3367 (0.4120)
Weighted average number of common
Shares outstanding 1,500,000 1,500,000
</TABLE>
See accompanying noted to consolidated financial statements
<PAGE>
CORPORATION AS DE OROS, S.A. and subsidiaries*
Consolidated Condensed Statements of Cash Flows
For the three months ended December 31, 1997 and 1996
(In thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income (loss) 515 (579)
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation and amortization 128 241
Allowance for doubtful accounts 40 30
Allowance for renewal of production
poultry 81 143
Loss (gain) on sale of productive assets
Cash provided by (used for):
Notes and account receivables (1,360) (791)
Inventories 474 341
Prepaid expense (313) (12)
Accounts payable (653) (82)
Accrued expense (99) (45)
------- -------
Net cash used for operating activities (1,187) (754)
------- -------
Cash flow from investing activities:
Short term investment (301) (17)
Additions to property, plant and equipment (220) (202)
Proceeds from sale of productive assets 95 50
Other assets (4) 105
------- -------
Net cash used for investing activities (430) (64)
------- -------
Cash flow from financing activities:
Short-term financing 1,268 242
Cash dividends (11) (39)
Long term financing - payments (303) (327)
------- -------
Net cash provided by - used for
financing activities 954 (
------- -------
Effect of exchange rate changes on cash 229 22
Net increase (decrease) in cash 434 (920)
Cash balance at beginning of period 551 1,471
------- -------
Cash balance at end of period 117 551
------- -------
</TABLE>
See accompanying noted to consolidated financial statements
<PAGE>
CORPORACION AS DE OROS, S.A. and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements include the accounts of As de Oros,
S.A. and its wholly-owned subsidiaries Restaurantes As, S.A. and Corasa
Estudiantes, S.A. All significant inter-company balances and transactions
have been eliminated in consolidation.
(b) Accounting Principles
The consolidated financial statements have been prepared in accordance with
accouting principles generally accepted in the United States of America
(USGAAP)
(c) Uses of estimates
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of assets and
liabilities to prepare financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(d) Foreign currency translation
Most business transactions of Corporacion As de Oros, S.A. and its
subsidiaries, take place in the Republic of Costa Rica, where the local
currency is the colon. The parity of the colon to the U.S. dollar is
determined by the Central Bank of Costa Rica. As of December 31, 1997,
commercial exchange rates was 244,53 to U.S.$1.00.
The consolidated financial statements have been translated to US dollars on
the basis of the colon as the functional currency, as follows: assets and
liabilities denominated in US dollars have been stated at nominal dollar
amounts; assets and liabilities denominated in Costa Rican colones have
been translated at the commercial exchange rates prebailing at balance
sheet dates; stockholders' equity accounts have been translated at exchange
rates in effect when incurred or realized (historical exchange rates);
revenue and expenses have been translated at average rates in effect during
the years then ended. Translation adjustments have been recorded as a
separate component of stockholders' equity.
(e) Inventories
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.
(f) 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 expensed when
incurred. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets: buildings-50 years; vehicles,
machinery and equipment, furniture and fixtures-between 5 and 20 years.
(g) Year 2000
As of December 31, 1997, the Company's management is preparing a plan to
evaluate its current computer systems and the estimated costs of
conversion, if required. As of the day of this report to the effect, if
any, on the Company's operations is uncertain.
<PAGE>
(h) CONTIGENCIES
In 1997, Tax authorities issued and assessment for fiscal year 1995 seeking
US$128,341 of additional income taxes. Authorities have contested
depreciation expense and income tax withholdings of employees. The Company
has appealed this decision and does not expect that its resolution will
result in material adverse effect on the results of its operations or its
financial position.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the final
resolution of these matters will not have a material effect on the
Company's consolidated financial position, results of operations, or
liquidity.
(h) SUBSEQUENT EVENTS
Concurrently with the agreement, CRI has completed a private placemet of
US$20 million in notes payable bearing interest at 11.71% per annum,
comprised of US$8 million in Series A Senior Notes and US$12 million in
Series B Senior Notes, all due upon maturity on January 15, 2005. The
Series B Notes have been used to substantially refinance all outstanding
debt of Corporacion As de Oros, S.A. On February 26, 1998, bank loans
outstanding were paid-off using the proceeds from the Series B Notes.
The Company is committed to comply with several financial and operational
covenants, as well as to review the relevant terms included in the
agreement to prevent the existence of default or event of default.
(2) INVENTORIES
As of December 31, 1997, inventories consist of the following (in thousands of
U.S. dollars):
Finished products 708
Poultry 626
Production poultry 951
Materials and supplies 499
Raw materials 1,151
In transit 8
3,943
-----
Allowance for renewal of production poultry (192)
-----
Inventories, net 3,751
-----
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma combined condensed financial statements assume
a business combination between Costa Rica International, Inc. (the "Company")
and As de Oros, accounted for using the purchase method of accounting. The pro
forma unaudited combined condensed financial statements are presented using the
Company's audited consolidated condensed statements of operations for the year
ended September 30, 1997, combined with As de Oros' audited consolidated
condensed financial statements for that same period. All other pro forma
financial statements presented are based on unaudited financial statements.
The pro forma combined condensed financial statements are presented as if the
transaction had taken place on October 1, 1996.
These unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of the Company and As de Oros.
The pro forma information is presented for illustrative purposes only and it
does not necessarily indicate operating results and financial positions that
would have occurred had the combination taken place as of that date, nor is it
necessarily indicative of future results or financial positions.
<PAGE>
Pro Forma Condensed Combined Balance Sheet, reflecting Costa Rica International,
Inc. (Unaudited) after giving effect to the acquisition as of December 31, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
COSTA RICA CORPORATION PRO FORMA COMBINED PRO
INTERNATIONAL, AS DE OROS, ADJUSTMENTS FORMA BALANCE
INC. S.A. SHEET
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and equivalents 1,220 117 1,337
Notes and accounts receivables,
net 7,070 4,598 (3) (555) 11,112
Inventories, net 7,426 3,751 11,177
Other current assets 2,579 1,109 3,688
------- ------- -------
Total current assets 18,294 9,575 27,314
------- ------- -------
Long term investment 4,282 - (1) 4,528 4,282
Property, plant and equipment, net 14,097 5,915 (4) 6,193 36,205
Other assets 1,484 378 1,862
Goodwill - - (4) 2,438 2,408
- - (4) (560)
------- ------- -------
Total Assets 38,157 15,868 62,101
------- ------- -------
Liabilities and Stockholder's
Equity (Deficit)
Current liabilities:
Short term notes payables 14,137 8,194 (3) (555) 21,776
Account payable 4,848 3,752 8,600
Accumulated expenses 1,582 685 2,267
Deferred taxes - - (2) 1,858 1,858
------- ------- -------
Total current liabilities 20,567 12,631 34,501
------- ------- -------
Long term debt 4,510 4,480 (1) 1,928 10,918
------- ------- -------
Total liabilities 25,077 17,111 45,419
Minority interest 5,558 6,360 (6)
Stockholder's Equity (Deficit)
Common stock 20 4,657 (1) 2 22
Preferred shares 2,216 1,003 2,216
Additional paid-in capital 9,375 736 (1) 2,598 11,973
Retained earnings (Deficit) 2,760 (5,006) 2,760
Foreign currency translation (4,929) (2,623) (4,929)
Treasury stock (848) - (848)
Due from related party (1,072) - (1,072)
------- ------- -------
Total stockholder's equity (Deficit) 7,522 (1,243) 10,122
------- ------- -------
Total liabilities and stockholder's 38,157 15,868 62,101
equity (Deficit) ------- ------- -------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
Pro Forma (Unaudited) Condensed Combined Statement of Earnings, reflecting Costa
Rica International, Inc. after giving effect to the acquisition For the three
months ended December 31, 1997 (In thousands of dollars)
<TABLE>
<CAPTION>
COSTA RICA CORPORATION PRO FORMA COMBINED PRO
INTERNATIONAL, AS DE OROS, ADJUSTMENTS FORMA BALANCE
INC. S.A. SHEET
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales 20,826 13,027 (3) (525) 33,328
Cost of sales 15,610 9,486 (3) (525) 24,570
--------- --------- ( ) 84 -------
Gross profit 5,216 3,541 8,758
--------- --------- -------
Operating expenses
Selling 1,859 1,569 (4) 24 3,454
Administrative 1,469 779 (4) (19) 2,252
Goodwill Amortization - - (4) 122 122
--------- --------- -------
Total operating expenses 3,328 2,348 5,821
--------- --------- -------
Operating Income 1,888 1,193 3,121
Other expenses (income)
Interest expense 632 568 1,190
Interest income (128) (8) (186)
Exchange difference, net 49 137 196
Miscellaneous (69) (9)(3) (40) (38)
--------- --------- -------
Total other expenses 484 678 1,202
--------- --------- -------
Net income before income taxes 1,404 515 1,640
and minority interest
Income tax 248 - (5) (46) 202
--------- --------- -------
Net income before minority 1,156 515 1,408
interest
Minority interest 496 - 496
--------- --------- -------
Net income 660 515 942
--------- --------- -------
Preferred dividends 39 11 50
Net income applicable to common 621 504 892
stock --------- --------- -------
Earnings per share .031
Weighted average number of 19,809,396
shares
Pro forma earnings per share 0.04
Proforma weighted average 22,256,454
number of shares
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Pro Forma (Unaudited) Condensed Combined Statement of Operations, reflecting
Costa Rica International, Inc. after giving effect to the acquisition For the
year ended September 30, 1997 (In thousands of dollars except share and per
share amounts).
<TABLE>
<CAPTION>
COSTA RICA CORPORATION PRO FORMA COMBINED PRO
INTERNATIONAL, AS DE OROS, ADJUSTMENTS FORMA BALANCE
INC. S.A. SHEET
-------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales 70,018 48,445 (3) (1,850) 116,613
Cost of sales 53,207 37,508 (5) 334 89,199
--------- --------- (3) 1,850 -------
Gross profit 16,811 10,937 27,414
--------- --------- -------
Operating expenses:
Selling 6,800 5,803 (5) 211 12,214
Administrative 6,049 3,562 (5) 74 9,685
Goodwill Amorization - - (5) 488 488
--------- --------- -------
Total operating expenses 12,849 9,365 22,987
--------- --------- -------
Operating Income 3,962 1,572 4,427
Other expenses (income)
Interest expense 2,509 2,690 5,199
Interest income (827) (76) (903)
Exchange difference, net 206 772 978
Miscellaneous (309) 665 356
--------- --------- -------
Total other expenses 1,579 4,051 5,630
--------- --------- -------
Net income (loss) before income 2,382 (2,479) 1,203
taxes and minority interest
Income tax 291 151 (5) 186 105
--------- --------- -------
Net income before minority 2,092 (2,479) 1,308
interest
Minority interest 1,165 - 1,165
--------- --------- -------
Net (loss) income 927 (2,479) (2,473)
--------- --------- -------
Preferred dividends 172 95 267
Net income (loss) applicable to 755 (2,574) (2,740)
common stock --------- --------- -------
Earnings (loss) per share 0.038
Weighted average number of 19,776,063
shares
Pro forma loss per share (0.12)
Pro forma weighted average
number of shares 22,223,121
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (Unaudited)
(1) Reflects a promissory note due to Commercial Angui, S.A. for a total of
$1,937,976 (present value of $2,400), and issue of 2,447,058 shares of The
Company at a price of $1.0625 per share for a total of $2,600,000, on
behalf of acquisition of 51% of outstanding voting stock As de Oros. The
shares are included in the weighted average share calculation of the
Company's earnings per share, on a pro forma basis.
(2) Records deferred income tax liability due to diffences originated by excess
market value over plant and equipment.
(3) Eliminates intercompany transactions taken place during the periods
presented. As de Oros and Corporacion Pipasa, S.A. (Subsidiary of the
Company) carried out transactions which resulted in income and expenses
orginated by services, sales of products bought and sold between both
company; and accounts due between Pipasa and As de Oros.
(4) Reflects excess of fair market value over book value of the net assets
acquired and excess of purchase price over fair value of net assets
acquired (goodwill). Excess fair market value over book value was allocated
to property, plant and equipment. The excess of purchase price over net
asets acquired is amortized using the straight line method over a 5 year
period. Fair market value over bood value of property, plant and equipment
will be depreciated over a period of approximately 10 years using the
straight line method.
(5) Recognition of Deferred tax benefit, originated by amortization of excess
fair market value over property, plant and equipment.
(6) Preferred shares of As de Oros have been presented as part of Minority
Income on the Proforma balance sheets.
(7) the Company does not expect to incur any material changes due to the
accounting policies practiced by As de Oros.
(8) the Company does not expect the transaction to result in any material
changes concerning income taxes.
<PAGE>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Corporacion As de Oros, S.A.
We have audited the accompanying consolidated balance sheets of Corporacion As
de Oros, S.A. and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' (deficit) equity,
and cash flows for each of the years in the three-year period ended September
30, 1997. 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 United States generally accepted
auditing standards. Those standards require that we plan and perform the audits
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 Corporacion As de
Oros, S.A. and subsidiaries as of September 30, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1997, in conformity with United States generally
accepted accounting principles.
San Jose, Costa Rica
April 24, 1998
KPMG Peat Marwick
<PAGE>
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents US$ 774,810 1,560,372
Short-term investments 158,988 245,577
Accounts receivable, net (note 2) 3,372,219 3,424,983
Inventories, net (note 3) 4,403,173 5,152,344
Prepaid expenses 155,501 118,983
------------- ----------
Total current assets 8,864,691 10,502,259
------------- ----------
Property, plant and equipment, net (note 5) 5,952,143 7,787,997
Other assets 387,849 520,170
------------- ----------
Total assets US$15,204,683 18,810,426
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable (note 6) US$ 6,345,213 8,168,487
Current installments of long-term debt (note 7) 947,355 1,663,450
Accounts payable 4,212,712 4,029,894
Accrued expenses 860,014 712,677
------------- ----------
Total current liabilities 12,365,294 14,574,508
Long-term debt, excluding current installments (note 7) 4,706,624 3,780,661
Other liabilities 230,929 61,410
------------- ----------
Total liabilities 17,302,847 18,416,579
------------- ----------
Stockholders' (deficit) equity (note 8):
Common stock 4,657,348 4,657,348
Preferred stock 1,003,287 1,003,287
Additional paid-in-capital 736,114 736,114
Accumulated deficit (5,603,906) (3,030,027)
Legal reserve 93,264 93,264
Cumulative translation adjustment (2,984,271) (3,066,139)
Contingencies (note 13) - -
------------- ----------
Total stockholders' (deficit) equity (2,098,164) 393,847
------------- ----------
Total liabilities and stockholders'
(deficit) equity US$15,204,683 18,810,426
============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales US$ 48,445,183 49,472,969 48,492,978
Cost of sales 37,507,812 37,863,103 34,994,533
-------------- ---------- ----------
Gross profit 10,937,371 11,609,866 13,498,445
Operating expenses:
General and administrative 5,803,061 7,627,592 7,678,624
Selling 3,562,083 3,496,668 3,466,275
-------------- ---------- ----------
Total operating expenses 9,365,144 11,124,260 11,144,899
-------------- ---------- ----------
Income from operations 1,572,227 485,606 2,353,546
-------------- ---------- ----------
Other expenses (income):
Interest expense 2,690,133 2,737,477 3,176,761
Interest income (76,252) (171,376) (130,001)
Foreign currency exchange losses, net 771,706 546,482 316,446
Miscellaneous, net 665,853 (189,774) 558,777
-------------- ---------- ----------
Other expenses, net 4,051,440 2,922,809 3,921,983
-------------- ---------- ----------
Loss before income taxes 2,479,213 2,437,203 1,568,437
Income taxes (note 10) - - 89,074
-------------- ---------- ----------
Net loss US$ 2,479,213 2,437,203 1,657,511
Preferred stock dividends 94,666 162,515 182,993
-------------- ---------- ----------
Net loss applicable to common stock US$ 2,573,879 2,599,718 1,840,504
============== ========== ==========
Loss per share:
Net loss per common share US$ 1.72 1.73 1.23
============== ========== ==========
Weighted average number of common shares
outstanding 1,500,000 1,500,000 1,500,000
============== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Consolidated Statements of Stockholders'(Deficit) Equity
Years ended September 30, 1997, 1996 and 1995
COMMON STOCK RETAINED TOTAL
------------------------ ADDITIONAL CUMULATIVE EARNINGS STOCKHOLDERS'
NUMBER OF PREFERRED PAID-IN TRANSLATION LEGAL (ACCUMULATED (DEFICIT)
SHARES AMOUNT STOCK CAPITAL ADJUSTMENT RESERVE DEFICIT) EQUITY
--------- ------------- --------- ---------- ----------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 1,500,000 US$ 4,657,348 771,568 736,114 (2,263,923) 64,871 1,966,119 5,932,097
Issuance of preferred stock to
existing stockholders - - 231,719 - - - - 231,719
Increase in legal reserve - - - - - 21,616 (21,616) -
Cash dividends on preferred
stock - - - - - - (182,993) (182,993)
Cash dividends on common stock - - - - - - (527,531) (527,531)
Net loss - - - - - - (1,657,511) (1,657,511)
Translation adjustment - - - - (553,304) - - (553,304)
--------- ------------- --------- ------- ---------- ------ ---------- ----------
Balance, September 30, 1995 1,500,000 4,657,348 1,003,287 736,114 (2,817,227) 86,487 (423,532) 3,242,477
Increase in legal reserve - - - - - 6,777 (6,777) -
Cash dividends on preferred
stock - - - - - - (162,515) (162,515)
Net loss - - - - - - (2,437,203) (2,437,203)
Translation adjustment - - - - (248,912) - - (248,912)
--------- ------------- --------- ------- ---------- ------ ---------- ----------
Balance, September 30, 1996 1,500,000 4,657,348 1,003,287 736,114 (3,066,139) 93,264 (3,030,027) 393,847
Cash dividends on preferred
stock - - - - - - (94,666) (94,666)
Net loss - - - - - - (2,479,213) (2,479,213)
Translation adjustment - - - - 81,868 - - 81,868
--------- ------------- --------- ------- ---------- ------ ---------- ----------
Balance, September 30, 1997 1,500,000 US$ 4,657,348 1,003,287 736,114 (2,984,271) 93,264 (5,603,906) (2,098,164)
========= ============= ========= ======= ========== ====== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss US$ (2,479,213) (2,437,203) (1,657,511)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 734,060 847,962 1,005,681
Loss (gain) from disposal of productive
assets 576,097 (433,682) 177,645
Allowance for doubtful receivables 172,971 10,498 144,251
Cash provided by (used for) changes in:
Short-term investments 64,399 (227,368) 731,857
Accounts receivable (493,016) (700,629) (432,738)
Inventories 225,075 (1,415,807) (929,489)
Prepaid expenses (51,573) 65,564 (7,337)
Accounts payable 634,904 1,711,086 745,156
Accrued expenses 233,595 (204,091) 481,791
Other liabilities 185,553 (90,221) 179,579
-------------- ---------- ----------
Cash provided by (used for) operating
activities (197,148) (2,873,891) 438,885
-------------- ---------- ----------
Investing activities:
Additions to property, plant and equipment (211,514) (1,008,382) (2,052,661)
Proceeds from sales of productive assets - 655,882 -
Decrease (increase) in other assets 59,845 (135,566) 717,557
-------------- ---------- ----------
Cash used for investing activities (151,669) (488,066) (1,335,104)
-------------- ---------- ----------
Financing activities:
Short-term financing-increase (decrease) in notes
payable (1,027,234) 5,605,377 (2,623,206)
Cash dividends (94,666) (162,515) (710,524)
Long-term financing:
Payments and transfer to current installments (834,706) (4,680,935) (1,916,825)
New loans 1,653,276 3,943,248 5,191,106
Issue of preferred stock - - 231,719
-------------- ---------- ----------
Cash provided by (used for) financing
activities (303,330) 4,705,175 172,270
-------------- ---------- ----------
Effect of exchange rate changes on cash and cash
equivalents (133,415) (132,535) 33,802
-------------- ---------- ----------
Increase (decrease) in cash and cash
equivalents (785,562) 1,210,683 (690,147)
Cash and cash equivalents at beginning of year 1,560,372 349,689 1,039,836
-------------- ---------- ----------
Cash and cash equivalents at end of year 774,810 1,560,372 349,689
============== ========== ==========
Supplementary disclosures of cash flow information:
Cash paid during year for:
Interest 4,761,992 4,572,824 4,337,160
============== ========== ==========
Income taxes US$ 122,373 81,721 70,218
============== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997, 1996, and 1995
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) CORPORATE ACTIVITY
On May 8, 1992, Aguilar & Solis, S.A., Aguilar y Venegas, S.A., Avicola La
Garita, S.A., Central de Incubacion, S.A., Grupo Corporativo As de Oros,
S.A., El Cometa Comercial, S.A., Industrializadora As de Oros, S.A.,
Porcina As de Oros, S.A., Reproductora Costarricense, S.A., Avicola El Oro,
S.A., Alimentos Ascan, S.A., Servicios Agrocomerciales Belen, S.A.,
Productora Nacional de Aves, S.A., and Comercializadora As de Oros, S.A.
merged into the surviving entity, Corporacion As de Oros, S.A. (the
Company). As of the date of the merger the entities were under common
ownership; therefore, the merger was recorded by the pooling-of interests
method.
The Company produces and markets poultry products through six owned and 61
leased farms and in two processing plants located throughout Costa Rica.
The main market for the Company is within Costa Rica, and to a lesser
extent in the countries of El Salvador, Honduras, Nicaragua, and Guatemala.
In September 1992, Restaurantes As, S.A., Pocosa Alajuela, S.A., Pocosa
Diversiones, S.A., Pocosa San Jose, S.A., Pocosa San Pedro, S.A., Pocosa
Guadalupe, S.A., Rapifritos, S.A., Alimentos Procesados Alprosa, S.A.,
Comercial Alimenticia Coalsa, S.A., and La Casa del Pollo, S.A. merged into
the surviving entity, Restaurantes As, S.A., which is engaged in the
selling of fast food, mainly chicken-based food. As of October 30, 1992,
Restaurantes As, S.A. (surviving entity) was acquired by the Company. The
acquisition was recorded by the purchase method.
In August 1994, Corasa Estudiantes, S.A. was acquired by Restaurantes As,
S.A. The acquisition was recorded by the purchase method.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Corporacion
As de Oros, S.A. and its wholly-owned subsidiaries Restaurantes As, S.A.
and Corasa Estudiantes, S.A. All significant intercompany balances and
transactions have been eliminated in consolidation.
(Continued)
<PAGE>
2
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America
(USGAAP).
(d) USE OF ESTIMATES
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of assets and
liabilities to prepare financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(e) FOREIGN CURRENCY TRANSLATION
Most business transactions of Corporacion As de Oros, S.A. and its
subsidiaries take place in the Republic of Costa Rica, where the local
currency is the colon (/colon/). 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, 1997, 1996, and 1995, commercial exchange
rates were /colon/238.77, /colon/213.94, and /colon/187.62 to US$1.00,
respectively.
The consolidated financial statements have been translated into US dollars
on the basis of the colon (/colon/) as the functional currency, as follows:
assets and liabilities denominated in US dollars have been stated at
nominal dollar amounts; assets and liabilities denominated in Costa Rican
colones have been translated at the commercial exchange rates prevailing at
balance sheet dates; stockholders' equity accounts have been translated at
exchange rates in effect when incurred or realized (historical exchange
rates) ; revenue 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.
(f) CASH EQUIVALENTS
Highly liquid investments with original maturities of 3 months or less are
treated as cash equivalents.
(Continued)
<PAGE>
3
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) SHORT-TERM INVESTMENTS
The Company has investments in short-term debt securities which have been
classified under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115 as held to maturity.
Short-term investments consist primarily of commercial paper with original
maturities between 3 and 12 months; US dollar denominated paper bears
interest at rates ranging between 4.25% and 7.10% per annum; and colones-
denominated paper bears interest at rates ranging between 16.75% and 20.55%
per annum. These investments are carried at cost, which approximates fair
market value.
(h) 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.
(i) 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 expensed
when incurred.
(j) DEPRECIATION
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets as follows: buildings-50 years;
vehicles, machinery and equipment, furniture and fixtures-between five and
20 years.
(k) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs amounted to
US$325,754, US$210,229, and US$357,055 in 1997, 1996, and 1995,
respectively.
(Continued)
<PAGE>
4
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). Under the asset and liability method of Statement No. 109,
deferred tax assets and liabilities are recognized for 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 the
enacted rates expected to be applied to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax assets are required to be reduced by a valuation allowance to
the extent that, based on the weight of available evidence, it is more
likely than not that the deferred tax assets will not be realized. Under
Statement No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(m) 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 amounts 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 costs to sell. The
adoption of this Statement did not have a material impact on the Company's
consolidated financial position and results of operations.
(Continued)
<PAGE>
5
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(n) 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 transferring
and servicing financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively. This Statement
provides accounting and reporting standards based 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. The adoption of SFAS No. 125 did not
have a material impact on the Company's consolidated financial position,
results of operations, or liquidity.
(o) EARNINGS (LOSSES) PER SHARE
Losses per share for the years ended September 30, 1997, 1996 and 1995 have
been computed on the basis of the weighted-average number of common shares
outstanding, totaling 1,500,000 for the years ended September 30, 1997,
1996 and 1995.
(p) NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, Earnings per Share, which gives instructions for
the computation, presentation, and disclosure of earnings per share and is
effective for both interim and annual periods ending after December 15,
1997.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE - In February 1997, the
Financial Accounting Standards Board issued SFAS No. 129, Disclosure about
Capital Structure, which requires companies to present additional
information about securities, preferred stock, and redeemable stock and is
effective for fiscal years ending after December 15, 1997.
REPORTING COMPREHENSIVE INCOME - In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements and is effective for fiscal years beginning after December 15,
1997.
(Continued)
<PAGE>
6
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - In
June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 requires that public businesses report certain information in the
financial statements about their products, services, geographic areas in
which they operate, and their major customers, related to the operating
segments of a company. The statement is effective for fiscal years
beginning after December 15, 1997.
Management of the Company does not expect that adoption of SFAS No. 128,
129 and 131 will have a material impact on the Company's consolidated
financial position, results of operations, or liquidity. Likewise,
Management believes that adoption of SFAS No. 130 will result primarily in
including the changes in cumulative translation adjustment in the statement
of comprehensive income.
(q) YEAR 2000 (UNAUDITED)
As of September 30, 1997, Company management is preparing a plan to
evaluate its current computer systems and the estimated costs of
conversion, if required. As of the day of this report the effect, if any,
on the Company's operations is uncertain.
(Continued)
<PAGE>
7
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
1997 1996
---- ----
Accounts receivable:
Trade receivables US$ 3,645,277 3,617,899
Other 95,970 35,935
------------- ---------
3,741,247 3,653,834
Less allowance for doubtful accounts (369,028) (228,851)
------------- ---------
Accounts receivable, net US$ 3,372,219 3,424,983
============= =========
(3) INVENTORIES
Inventories consist of the following:
1997 1996
---- ----
Finished products US$ 865,015 1,435,637
Poultry 1,039,350 1,191,901
Production poultry 559,767 797,605
Materials and supplies 455,309 393,702
Raw materials 997,629 1,333,833
In transit 645,291 265,226
------------- ---------
4,562,361 5,417,904
Allowance for renewal of production
poultry (159,188) (265,560)
------------- ---------
Inventories, net US$ 4,403,173 5,152,344
============= =========
(Continued)
<PAGE>
8
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at September 30, 1997 and 1996. 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>
1997 1996
---------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents US$ 774,810 774,810 1,560,372 1,560,372
Short-term investments 158,988 158,988 245,577 245,577
Accounts receivable, net 3,372,219 3,372,219 3,424,983 3,424,983
Notes payable 6,345,213 6,345,213 8,168,487 8,168,487
Current installments of
long-term debt 947,355 947,355 1,663,450 1,663,450
Accounts payable and accrued
expenses 5,072,726 5,072,726 4,742,571 4,742,571
Long-term debt US$ 4,706,624 4,706,624 3,780,661 3,780,661
========= ========= ========= =========
</TABLE>
The data presented above represent management's best estimates based on a
range of methodologies and assumptions, including the following:
/bullet/ For cash and cash equivalents, short-term investments, accounts
payable, and accounts receivable, the carrying amounts
approximate fair value because of the short maturity of these
instruments.
/bullet/ For notes payable, current installments of long-term debt, and
long-term debt, the carrying amount approximates fair value
because of the short maturity of those instruments.
(Continued)
<PAGE>
9
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant, and equipment, net, are summarized as follows:
1997 1996
---- ----
Land US$ 927,525 1,031,629
Buildings and facilities 2,695,689 2,870,776
Machinery and equipment 3,687,480 4,747,662
Vehicles 1,197,623 1,532,272
Construction in process 20,474 270,393
Others 18,817 15,765
------------- ----------
8,547,608 10,468,497
Less accumulated depreciation 2,595,465 2,680,500
------------- ----------
Property, plant and equipment, net US$ 5,952,143 7,787,997
============= ==========
Most of the above assets have been pledged in guarantee of certain
long-term debt (see note 7).
Depreciation expense in 1997, 1996, and 1995 amounted to US$734,060,
US$847,962, and US$1,005,681, respectively.
(6) NOTES PAYABLE
Notes payable consist of the following:
1997 1996
---- ----
Colon-denominated:
Loans payable US$ 467,401 277,941
Commercial paper 220,994 1,047,886
--------- ---------
688,395 1,325,827
US dollar-denominated-Loans payable 5,656,818 6,842,660
--------- ---------
US$ 6,345,213 8,168,487
========= =========
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, 1997 and 1996, the balance of
notes payable represents notes in colones and US dollars due to private
local banks. Such notes bear interest at rates ranging between 10.5% and
12% per annum in US dollars; and 30% and 32% per annum in colones. Almost
all of these notes are guaranteed by drafts.
(Continued)
<PAGE>
10
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of September 30, 1997, the Company has line of credit agreements with
banks for a maximum of US$209,000, of which US$209,000 has already been
used.
During fiscal 1995 and 1996, the Company issued commercial paper which was
represented by unsecured debt certificates in colones registered with the
Costa Rican Stock Exchange, for an amount of US$1 million. Commercial paper
bore annual interest rates ranging between 21.5% and 33.60%. During 1997,
such debt certificates were paid off by the Company.
(7) LONG-TERM DEBT
Long-term debt is as follows:
1997 1996
---- ----
Colon-denominated Bank loans US$ 4,498,547 5,315,925
US dollar-denominated Bank loans 1,155,432 128,186
------------- ---------
5,653,979 5,444,111
Less current installments 947,355 1,663,450
------------- ---------
US$ 4,706,624 3,780,661
============= =========
Banks loans are secured by most of the Company's land, building, machinery,
equipment, and vehicles. Interest rates for long-term debt are as follows:
1997 1996
---- ----
US dollar-denominated loans 8.5%-10.5% 8.5%
Costa Rican colones-denominated loans 18%-29.75% 24.5%-32.95%
In February 1998, the Company's debt was refinanced, (see note 14).
(Continued)
<PAGE>
11
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) STOCKHOLDERS' EQUITY
Common stock
As of September 30, 1997 and 1996, 1,200,000 Class "A" common shares of
US$3.1049 par value each have been authorized and issued, and 800,000 Class
"B" shares of US$3.1049 par value each, have been authorized, of which
300,000 have been issued.
Preferred stock
As of September 30, 1997 and 1996, 1,200,000 Class "C" preferred shares
were authorized, of which 158,374 had been issued for a total of
US$1,003,287. The shares accrue a month dividend at the Prime Rate set by
the Central Bank of Costa Rica.
Legal reserve
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.
(9) OPERATING LEASES
The Company has entered into operating lease agreements for vehicles,
motorcycles, machinery and properties used in the production of poultry and
animal feed.
Future minimum lease payment for next year is US$1,106,027.
Rental expense amounted to US$978,665, US$853,971 and US$940,984 in 1997,
1996 and 1995, respectively.
(Continued)
<PAGE>
12
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) INCOME TAXES
Income tax expense attributable to income from continuing operations for
the years ended September 30, 1997, 1996, and 1995 consists of:
CURRENT DEFERRED TOTAL
------- -------- -----
Year ended September 30, 1997: US$ - - -
Year ended September 30, 1996: US$ - - -
Year ended September 30, 1995: US$ 89,074 - 89,074
======== ======== =======
Costa Rican income tax expense attributable to income from continuing
operations amounted to US$89,074, for the year ended September 30, 1995.
Such expense differs from the amounts computed by applying the Costa Rican
corporate tax rate of 30% to pretax income from continuous operations as a
result of the following:
1995
----
Computed "expected" income tax expense US$ (470,531)
Increase (decrease) in income taxes resulting from:
Interest and other income not subject to taxation (26,768)
Increase of allowance for doubtful accounts 15,111
Non deductible expenses 637,637
Increase in provisions for severance indemnities and
vacations 20,306
Tax benefit under Costa Rica Income Tax Law Article 8,
Section T for Agricultural Companies and Article
8, Section F (86,681)
------------
US$ 89,074
============
As of September 30, 1997 and 1996 the Company incurred in losses for tax
purposes.
(Continued)
<PAGE>
13
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities
as of September 30, 1997, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards US$ 1,459,250 100,601 9,593
Allowance for doubtful accounts 110,709 68,655 74,917
Allowance for social benefits 182,720 123,787 192,581
Revaluation of property, plant and equipment
depreciable for Costa Rican tax purposes 329,182 372,530 491,125
------------- -------- --------
Total gross deferred tax assets 2,081,861 665,573 768,216
Less valuation allowance (2,081,861) (665,573) (768,216)
------------- -------- --------
Net deferred tax assets US$ - - -
============= ======== ========
</TABLE>
The Company has not recognized a deferred tax asset for 1997, 1996 and
1995. The valuation allowance has been established at 100% of the
deferred tax asset balance. The deferred tax asset results
primarily from tax loss carryforwards and the revaluation of fixed
assets for tax purposes. 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 decreasing the potential benefit of the tax loss
carryforwards and the additional depreciation resulting from the
fiscal asset revaluation. Based on the above, Company's management
believes it is more likely than not that the deferred tax asset
will not be realized in the foreseeable future and thereby
justifies the recognition of a full deferred tax asset valuation
allowance in the consolidated financial statements.
Under Costa Rican Income Tax Law, the Company is subject to a 1% asset
tax which may be applied as an income tax credit. 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. In 1997 and 1996, the asset tax amounted
to US$150,615 and US$151,336, respectively, which were recorded as part
of operating expenses.
In accordance with Costa Rican income tax regulations, companies
domiciled in Costa Rica are required to file annual income tax
returns for the 12-month period ending September 30 of each year.
(Continued)
<PAGE>
14
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax returns of the Company for the years ended September 30, 1995
through 1997 are open to audit by Costa Rican Tax Authorities.
(11) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
short-term investments, and trade receivables.
The Company places its cash equivalents and short-term investments with
highly rated financial institutions.
Concentrations of credit risk with respect to trade receivables are
limited since the Company's customer base is geographically dispersed.
The Company controls credit risk through credit approvals, credit limits,
and other monitoring procedures. Losses due to bad debts have not been
material.
(Continued)
<PAGE>
15
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into six business segments:
broiler chicken, animal feed, extruder, by-products, exports, and others. The
financial information by business segment for 1997, 1996, and 1995 is summarized
as follows (in thousands of dollars):
1997 1996 1995
---- ---- ----
Net sales:
Broiler chicken US$ 15,132 15,145 14,772
Animal feed 19,418 19,695 18,114
Restaurants 8,659 8,102 9,171
By-products 1,605 1,657 2,155
Exports 62 260 530
Other 3,569 4,613 3,751
---------- ------ ------
US$ 48,445 49,472 48,493
---------- ------ ------
Cost of sales:
Broiler chicken US$ 12,199 11,534 9,876
Animal feed 15,659 16,568 15,075
Restaurants 4,679 4,015 4,763
By-products 1,392 1,580 1,441
Exports 52 206 370
Other 3,527 3,960 3,470
---------- ------ ------
US$ 37,508 37,863 34,995
---------- ------ ------
Gross profit:
Broiler chicken US$ 2,933 3,611 4,896
Animal feed 3,759 3,130 3,039
Restaurants 3,980 4,286 4,408
By-products 213 277 714
Exports 10 54 160
Other 42 251 281
---------- ------ ------
US$ 10,937 11,609 13,498
---------- ------ ------
Selling expenses:
Broiler chicken US$ 2,143 1,924 1,760
Animal feed 690 851 1,019
By-products 222 212 231
Exports 9 29 56
Other 498 480 400
---------- ------ ------
US$ 3,562 3,496 3,466
---------- ------ ------
General and administrative:
Corporate US$ 5,803 7,628 7,679
---------- ------ ------
Income from operations US$ 1,572 485 2,353
========== ====== ======
(Continued)
<PAGE>
16
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) CONTINGENCIES
In 1997, Tax Authorities issued an assessment for fiscal year 1995
seeking US$131,437 of additional income taxes. Authorities have contested
depreciation expense and income tax withholdings of employees. The
Company has appealed this decision and does not expect that its
resolution will result in a material adverse effect on the results of its
operations or its financial position.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
final resolution of these matters will not have a material adverse effect
on the Company's consolidated financial position, results of operations,
or liquidity.
(14) SUBSEQUENT EVENT
a. On February 26, 1998, Costa Rica International Inc. ("CRI")
consummated a stock purchase agreement (the "Agreement") with
Comercial Angui, S.A., a privately-owned company and the majority
shareholder of Corporacion As de Oros, S.A. and its wholly-owned
subsidiaries Restaurantes As, S.A. and Corasa Estudiantes, S.A. (the
Company) whereby CRI acquired 51% of the outstanding voting stock of
the Company for US$2.4 million, in cash upon the maturity of a
promissory note due in January 2000 and US$2.6 million in Parent
Company stock.
Concurrently with the Agreement, CRI has completed a private placement
of US$20 million in notes payable bearing interest at 11.71% per
annum, comprised of US$8 million in Series A Senior Notes and US$12
million in Series B Senior Notes, all due upon maturity on January 15,
2005. The Series B Notes have been used to substantially refinance all
outstanding debt of Corporacion As de Oros, S.A. On February 26, 1998,
bank loans described in note 7 were paid-off using the proceeds from
the Series B Notes.
Among others, the aforementioned private placement includes the
following terms:
/bullet/ Notes shall be payable annually in 5 consecutive principal
installments amounting to US$4,000,000 each (from the
aggregate amount). Such notes have a 2-year grace period.
(Continued)
<PAGE>
17
CORPORACION AS DE OROS, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
/bullet/ CRI guarantees there will be no significant organizational
changes and that all federal and local laws and regulations
will be complied with.
/bullet/ Financial and business information for CRI and its
subsidiaries will be remitted periodically, as stipulated in
the agreement.
/bullet/ CRI is committed to comply with several financial and
operational covenants, as well as to review the relevant
terms included in the agreement to prevent the existence of
default or event of default. If any such condition or event
existed or exists, it will be informed as required.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COSTA RICA INTERNATIONAL, INC.
Dated: May 8, 1998 By: /s/ CALIXTO CHAVEZ
---------------------------------
Calixto Chavez
Chief Executive Officer
