<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report pursuant to Section
13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: September 30, 2000
Transition Report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1943
For the Transition Period from __________ to ___________
Commission File No. 0-18222
RICA FOODS, INC.
(Exact Name of Registrant as specified in its charter)
Nevada 87-0432572
------ ----------
(State or other jurisdiction of
incorporation) (I.R.S. Employer File No.)
8550 N.W. 17th Street, Suite 100
Miami, Florida 33126
(Address of principal executive offices) (Zip code)
(305) 477-1408, (305) 477-1409
(Registrant's telephone and facsimile number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value per share $.001
(Title of Class)
<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for, such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendments to
this Form 10-K. [ ]
Issuer's revenues for its most recent fiscal year $ 123,628,327
The aggregate market value of the voting stock of the Registrant held by
non-affiliates as of January 3, 2001 was approximately $23,958,934. A total of
4,457,476 shares were owned by non-affiliates as of December 29, 2000.
The number of shares outstanding of the Registrant's common stock, as of the
latest practicable date, January 3, 2001 was 12,854,321.
<PAGE>
RICA FOODS, INC.
TABLE OF CONTENTS
Page
----
PART I
------
Item 1. Description of Business........................................... 1
Item 2. Properties........................................................ 12
Item 3. Legal Proceedings................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders .............. 15
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related
Stockholders Matters............................................ 17
Item 6. Selected Financial Data........................................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 19
Item 7.A. Quantitative and Qualitative Disclosures about
Market Risk..................................................... 29
Item 8. Financial Statements and Supplementary Data....................... 30
Item 9. Changes in or Disagreements with Accountants on
Accounting and Financial Disclosures............................ 30
PART III
--------
Item 10. Directors and Executive Officers, Promoters and
Control Persons................................................. 31
Item 11. Executive Compensation............................................ 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................... 36
Item 13. Certain Relationships and Related Transactions.................... 37
PART IV
-------
Item 14. Exhibits, Financial Statements Schedules and Reports on
Form 8-K........................................................ 38
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Background
----------
Rica Foods, Inc., formerly Costa Rica International, Inc. (the "Company") was
incorporated under the laws of the state of Utah on February 6, 1986 under the
name CCR, Inc. The Company undertook a public offering of its securities in
1987. In 1994, the Company changed its name to Quantum Learning Systems, Inc.
and its state of incorporation to Nevada. On August 5, 1996, the Company changed
its name to Costa Rica International, Inc., and on May 29, 1998, the Company
changed its name to Rica Foods, Inc., to better reflect its core business.
In April, 1996, Corporacion Pipasa, S.A. and subsidiaries ("Pipasa"), a Costa
Rican corporation, entered into an agreement and plan of reorganization (the
"First Pipasa Agreement") with the Company, pursuant to which the Company
acquired 59.56% of the common stock of Pipasa in exchange for the issuance of
5,191,190 shares of the Company's common stock to the shareholders of Pipasa. On
September 28, 1998, the Company and the minority shareholder of Pipasa,
Inversiones La Ribera, S.A. ("La Ribera"), a Costa Rican corporation controlled
by Calixto Chaves, the Company's President, Chief Executive Officer and
principal shareholder entered into an agreement (the "Final Pipasa Agreement")
providing for the purchase of the remaining outstanding common stock of Pipasa
held by La Ribera in exchange for 3,683,595 shares of the Company's common
stock. In January 1999, the Company received a fairness opinion from an
independent consultant confirming that the transaction was fair from a financial
point of view to the Company's shareholders. On December 7, 1999, the Company
consummated the acquisition of the 40.44% remaining minority interest or
1,840,000 shares of common stock of Pipasa, pursuant to the Final Pipasa
Agreement, in exchange for a total of 3,683,595 shares of the Company's common
stock.
On February 26, 1998, the Company consummated an agreement (the "Original Oros
Agreement") with Comercial Angui, S.A., ("Comercial Angui") a corporation in
Costa Rica to purchase 56.38% of the outstanding common stock of Corporacion As
de Oros, S.A. and subsidiaries ("As de Oros"), a corporation in Costa Rica held
by Comercial Angui, for consideration consisting of a promissory note with a
stated amount of $2.4 million due in January, 2000, and 815,686 shares of the
Company's common stock, having a then current market value of approximately $2.6
million. On September 28, 1998, the Company and Comercial Angui entered into an
agreement (the "Final Oros Agreement") to purchase Comercial Angui's remaining
43.62% interest in As de Oros for 1,670,921 shares of the Company's common
stock. On November 22, 1999, the Company consummated the acquisition of the
remaining 43.62% or 654,300 shares of common stock of As de Oros in accordance
with the terms and conditions in the Final Oros Agreement.
<PAGE>
Acquisitions
------------
During October 1999, Pipasa merged with Karpatos, S.A. ("Karpatos"), a Costa
Rican corporation, which is in the business of converting waste material from
chicken farms into fertilizers. The transaction was accounted for under the
purchase method of accounting. The Company recorded assets with a fair market
value of approximately $700,000 and assumed liabilities for an equivalent
amount. The Company did not issue any shares of Company stock or cash as part of
this transaction.
In October 2000, the Company entered into a Stock Purchase Agreement (the
"Indavinsa Acquisition") with Industrias Avicolas Nicaraguenses, S.A.
("Indavinsa"), a Nicaraguan company engaged in the production and distribution
of poultry and animal feed concentrate products. According to the Indavinsa
Acquisition agreement, the Company will acquire 80% interest ownership of
Indavinsa for a total of 100,000 shares of common shares and $300,000 in cash
payable at the closing of the transaction. The Company expects to close this
transaction during the second quarter of fiscal year 2001.
During July 2000, the Company announced its intent to acquire an interest in
Poultryfirst.com. Poultryfirst.com is a virtual business-to-business poultry
market place which provides leading business tools and market data, using
formats of auctions for fresh products and catalogs for value-added products for
the sale and commercialization of poultry and poultry by-products on the
Internet. Poultryfirst.com is owned by Jose Pablo Chaves, the Company's Chief
Operating Officer and a Director of the Company who is also the son of Calixto
Chaves, a major stockholder and Chief Executive Officer of the Company. The
Company is currently evaluating the terms and conditions of any potential
acquisition.
In December 2000, the Company announced its intent to acquire a majority stake
of the outstanding common stock of Core Etuba, SRL., a Brazilian company
engaged in the production and distribution of poultry products. Final terms and
conditions of this acquisition are under negotiation.
Other Recent Events
-------------------
During October 2000, the Company announced it had reached an agreement with
Stock Management International, a British Virgin Islands corporation, to sell an
81% controlling interest in the subsidiaries of As de Oros, Planeta Dorado, S.A.
and Corasa Estudiantes, S.A. (the "Restaurants"), in exchange for a note
receivable. Pursuant to the terms and conditions of the agreement, the Company
will receive $4.05 million over a five year period, with an annual interest rate
of 10.06% payable every six months. Stock Management International will have a
grace period of one year and will subsequently make annual principal payments to
the Company amounting to $1,012,500 each. As part of the agreement, As de Oros
will continue to supply poultry products to the Restaurants for a period of 12
years. The Company is in the process of closing this transaction.
-2-
<PAGE>
In October 2000, the Company purchased from Granja Zaragoza, S.A., a Costa Rican
company, the brand name "Zaragoza" for a total of $600,000 in a combination of
cash and extinguishment of debt. Granja Zaragoza, S.A. distributes processed and
packaged beef, pork and poultry products. The purchase of the brand name will
grant the Company the right to produce and market Zaragoza products. Prior to
the purchase, the Company manufactured the Zaragoza products in its facilities
and subsequently sold the products to Zaragoza for its distribution. According
to the terms of the agreement, the $600,000 originating from the purchase will
be paid by crediting amounts due from Zaragoza in the amount of $200,000 and the
remaining $400,000 will be paid to Zaragoza in monthly payments amounting to
$10,000 over a period of 40 months. The Company will amortize the Zaragoza
trademark over a period of ten years.
Reverse Stock Split
-------------------
On December 15, 1998, the Board of Directors declared a 1 for 3 reverse stock
split (the "Split") of the Company's common stock to be effective on December
29, 1998. In connection with the Split, new certificates were issued and those
stockholders owning more than five shares of common stock, on the Split date,
received one full share for each fraction of a share to which they would be
entitled. Each shareholder holding less than 5 shares of common stock, on the
effective date, received a payment in cash for the fractional share held by them
based on the mean of the bid and ask price on the effective date of the Split.
All share amounts have been restated to reflect the Split.
Financing
---------
In February 1998, the Company consummated the refinancing of a part of As de
Oros' and Pipasa's (the "subsidiaries") debt through the issuance of an
aggregate of $20 million of the Company's 11.71% Series A Senior Notes and
Series B Senior Notes (the "Notes"). Principal payments on both Notes will be
made from January 15, 2001 through January 15, 2005 in five annual installments
of $4,000,000. These Notes were placed through Citicorp Securities, Inc. With
the proceeds of these Notes, the Company repaid $8 million and $12 million of
the indebtedness of its two subsidiaries, Pipasa and As de Oros, respectively.
Public Offering of Preferred Shares
-----------------------------------
As de Oros was authorized by the "Superintendencia General de Valores" - the
official market and securities regulator in Costa Rica, to offer 1,000,000
preferred shares with a par value of $20 million (the "Preferred Shares") in
Costa Rica during fiscal year 2001. The Company plans to invest the funds
received from the sale of the Preferred Shares issued in capital expenditures
primarily in the production area to enable future growth in international
markets. The Company cannot assure that all Preferred Shares from this public
offering will be sold in the market, and therefore will not depend upon funds
from this public offering to continue its normal operations.
-3-
<PAGE>
Business of the Company
-----------------------
The Company's operations are largely conducted through Pipasa and As de Oros,
its two largest subsidiaries. Pipasa, founded in 1969, is the largest poultry
company in Costa Rica with a market share of approximately 50% of the chicken
meat market in Costa Rica, according to information provided by the Costa Rican
Chamber of Poultry Producers, "Camara Nacional de Avicultores de Costa Rica"
("CANAVI") The main activities of Pipasa entail the production and sale of fresh
and frozen poultry, processed chicken products, commercial eggs and concentrate
for livestock and domestic animals. Pipasa has been in the poultry business for
more than 30 years with more than 15 years of experience in exports.
As de Oros, founded in 1954, is Costa Rica's second largest poultry producer,
comprising approximately 20% according to information provided by CANAVI of the
country's poultry market and according to Company's surveys, is one of the
leaders in the Costa Rican animal feed market with a market share of
approximately 28%. As de Oros subsidiaries' also operate a chain of 30 fried
chicken quick service restaurants in Costa Rica called "Restaurantes As", and
"Don Amado". During fiscal 2000, some of the Restaurantes As were remodeled and
changed their name to "Golden Wings". In October 2000, the Company agreed to
sell an 81% ownership interest in its subsidiary that owns the restaurants and
is in the process of closing this transaction.
The Company's subsidiaries own a total of 69 urban and rural outlets throughout
Costa Rica, three modern processing plants and three animal feed plants. Due to
similar business activities, the combined operations of the subsidiaries permit
the Company to achieve operational efficiencies.
The Company promotes its brand names through advertisements and marketing events
and considers its subsidiaries to be among the most recognized Central American
chicken producers, supplying chicken in Costa Rica to Burger King, Subway,
Kentucky Fried Chicken and Pizza Hut franchises, Price Smart, Taco Bell and
Gerber Products companies. In addition, the Company, through its subsidiaries
was selected by the McDonald's Corporation to be one of its poultry suppliers
for all of Central America. During fiscal 2000, the Company invested
approximately $17 million in productive assets in its subsidiaries, which is
expected to increase efficiency and output.
The Company's subsidiaries do not depend on the sales of only one product but
rather a diversity of products available at a range of prices and presentations,
which represent an important strategic strength of the subsidiaries. The Company
produces and markets over 600 different products to meet consumer demands.
-4-
<PAGE>
Segments
--------
Information regarding the Company's segments for the last three fiscal years is
set forth in the Company's Fiscal 2000 Audited Report, Note 15 to the
consolidated financial statements. Such information is incorporated by
reference.
The following is a brief description of the main business segments of the
Company:
BROILER CHICKEN: Poultry is a popular food item in Costa Rica because of its
easy preparation, nutritional value and low price when compared to other
available meats, according to information provided by the Junta de Fomento
Avicola, a Costa Rican gubermental institution. The per capita consumption of
poultry in Costa Rica has increased from 20.25 kilograms (44.6 lbs.) in 1999 to
21.05 kilograms (46.4 lbs.) in 2000, a 4% increase during the period. Poultry is
consumed by all social levels and is not defined by geographic markets. The
popularity of poultry in Costa Rica extends beyond broiler chicken and includes
chicken by-products, such as sausages and cold cuts. The Company's main brand
names for broiler chicken, chicken parts, mixed cuts and chicken breasts are
Pipasa(TM) and As de Oros(TM). Broiler chicken is a generic product that is
directed to customers of all social and economic levels. Polls and consumer
information gathered by the Company indicate that Costa Ricans eat chicken at
least once a week. Chicken is sold to institutional clients, schools, hospitals,
restaurants and small grocery stores. In Costa Rica, Pipasa currently supplies
Burger King, Subway, Kentucky Fried Chicken and Pizza Hut franchises, Price
Smart, Taco Bell and Gerber Products companies. It was also selected by the
McDonald's Corporation to be one of its poultry suppliers for all of Central
America.
CHICKEN BY-PRODUCTS: Chicken by-products include sausages, bologna, chicken
nuggets, chicken patties, frankfurters, salami and pate. Chicken by-products is
one of the most profitable segments of the Company. The Company's chicken
by-products are sold through the Kimby (TM), Chulitas (TM), and As de Oros(TM)
brand names and are sold to all social and economic levels. These products are
sold mainly in supermarkets and sales are predominantly driven by price. The
Kimby (TM) brand name is the leading seller of chicken by-products in Costa
Rica. During October 2000, the Company purchased the brand name Zaragoza(TM)
from a company in Costa Rica, and will begin to produce and distribute this
product under the Zaragoza brand name during the next fiscal year.
ANIMAL FEED: Animal feed is made with imported raw materials, such as corn and
soybean meal, along with the unused portions of chicken and other vitamins and
minerals. Animal feed is marketed for consumption by cows, pigs, birds, horses
and domestic pets. The Company's animal feed products are sold through the
Ascan(TM), Aguilar y Solis(TM), Kanin(TM), Mimados(TM) and Nutribel(TM) brand
names. Customers for the commercial animal feed brands are mainly large
wholesalers and high scale breeders. This customer group focuses on quality and
price. Products marketed through the Mimados(TM), Kanin(TM) and Ascan(TM) brand
names are targeted towards veterinarians, pet stores and supermarkets and are
sold typically to consumers with medium to higher income levels. The Company is
currently the leader in the animal feed market in Costa Rica, with a 28% market
share.
-5-
<PAGE>
QUICK SERVICE: Corporacion Planeta Dorado, S.A. and Subsidiaries
("Restaurantes") operate 30 restaurants located in rural and urban areas through
out Costa Rica, including express delivery service in some restaurants. This
segment is comprised of quick service restaurants, which offer a diversified
menu of chicken meals. Restaurantes distinguishes itself from other quick
service chains by offering dishes and using recipes and ingredients which appeal
to the taste of consumers in Costa Rica. The quick service restaurant business
is highly competitive in Costa Rica, as several other quick service chains
operate in Costa Rica.
In October 2000, the Company agreed to sell an interest of 81% of the common
stock of Planeta Dorado, S.A. The Company is in the process of closing this
transaction.
EXPORTS: Subsidiaries of the Company export different products to other
countries in Central America and the Caribbean and makes occasional exports to
Hong Kong. The Company exports mainly the Pipasa(TM),
Mimados(TM) Ascan(TM) and Kimby(TM) brand
names.
OTHER: This segment includes sales of commercial eggs, non-recurrent sales of
fertile eggs and sales of recycling material and raw material sales among
others. "Other" sales make up less than 3% of total sales for fiscal year 2000.
Distribution Network
--------------------
The Company has a distribution fleet consisting of approximately 260 product
distribution trucks and supervision vehicles. Poultry delivery trucks are
especially equipped with refrigeration chambers to ensure delivery of fresh
products daily, thus maintaining the Company's reputation for fresh quality
products. In addition, the Company used independent distributors to deliver
larger quantities of animal feed to some of its customers during fiscal 2000.
The Company's products are sold throughout Costa Rica, through owned or leased
delivery trucks, urban and rural retail outlets that may also be owned or
leased, supermarket chains and independent distributors. A majority of the total
distribution of the Company's products is conducted through the Company's urban
retail outlets and delivery trucks, with a smaller portion through rural
outlets. The remaining distribution is serviced through the Company's processing
plants. The retail outlets, mostly located in urban areas, are exclusively
dedicated to the sale of the Company's products and most of these outlets are
leased by the Company. In total, through its distribution fleet and outlets, the
Company sells to over 44,000 customers.
-6-
<PAGE>
Seasonality
-----------
The Company's subsidiaries have historically experienced and have come to expect
seasonal fluctuations in net sales and results of operations. The Company's
subsidiaries have generally experienced higher sales and operating results in
the first and second quarters of the fiscal period. This variation is primarily
the result of holiday celebrations during this time of year in which Costa
Ricans prepare traditional meals, which include dishes with chicken as the main
ingredient. The Company expects this seasonal trend to continue for the
foreseeable future.
Raw Materials
-------------
The primary raw material and main component for the Company's products consists
primarily of corn and soybean meal. Corn and soybean meal purchases represent
approximately 35% of total cost of goods sold and 70% of raw material costs.
Historically, the Company has been able to obtain satisfactory supply for these
materials.
The Company imports all of its corn from the United States of America through
the Chicago Board of Trade ("CBOT") and uses commodity futures and forward
purchasing for hedging purposes to reduce the effect of changing commodity
prices on a portion of its commodity purchases. The price of corn and soybean
meal, like most grain commodities, is fairly volatile and requires consistent
and daily hedging in order to minimize the effect of price increases on the
Company's profit margin. Changes in the price of corn can significantly affect
the Company's profit margin.
The Company purchases its soybean meal through Industrias Oleaginosas, S.A., a
Costa Rican corporation ("INOLASA"), in which the Company holds a 10% equity
ownership. In Costa Rica, there is a 5% tax for soybean meal imports, which is
not levied if purchased through INOLASA. If for any reason INOLASA cannot
deliver the soybean meal to the Company, the Company can buy its soybean meal
directly from the CBOT. Thus far, the Company has never had to go directly to
the CBOT to purchase soybean meal.
-7-
<PAGE>
Customer Relations
------------------
The majority of the Company's customers are located in Costa Rica. No single
customer accounted for more than 10% of total consolidated sales, and the loss
of any single customer would not have a material adverse effect on the Company's
business.
Backlog of Orders
-----------------
At September 30, 2000, the Company had no backlog of sales orders.
Foreign Competition
-------------------
The Company does not have any significant domestic competition at the present
time. The Company's local market share, however, could potentially be threatened
by foreign competition. The Company believes that the likelihood of this is low
for several reasons. First, the Company has a strong reputation for producing
high quality products at a reasonable price. Consumers in Costa Rica prefer
fresh chicken to frozen chicken. Due to transportation constraints and distance,
foreign competitors would have to sell frozen chicken if they were to sell
chicken in Costa Rica.
The Agriculture Ministry in Costa Rica monitors all chicken entering the country
to prevent the spread of Newcastle Disease in Costa Rica. The market in Costa
Rica is also assisted by tariff agreements at the present time. Chicken
importers must pay duties as dictated by the General Agreement on Trade and
Tariffs ("GATT"). These agreements were reached at the Uruguay Round of the GATT
negotiations and are due to expire in 2004 . These agreements provide that for
fiscal year 2000, only 1,056 metric tons ("MT") of poultry meat and 124 MT of
poultry by-products of whole chicken parts or chicken by products can be
imported to Costa Rica from countries outside of the Central American Common
Market. This quota is taxed at a rate of 34% and amounts in excess of this quota
are subject to a 158% tariff, except for whole chicken and breast cut, which are
subject to a 40% tariff and by products which is subject to a 19% tariff. These
tariff rates were based on the average sales price of poultry meat in Costa Rica
compared to the average sales price of poultry meat in the United States of
America.
Pricing
-------
In Costa Rica, there are no laws against monopolies; however, there are laws
against monopolistic practices. Companies which have a dominant market share in
Costa Rica cannot arbitrarily increase prices in order to take advantage of
market position. Companies also are forbidden to work in conjunction with their
competitors in order to create price collusion. Given these guidelines, the
Company's pricing strategies are influenced by two main factors: industry
conditions and currency devaluation. The Company will use its financial model to
increase prices in order to mitigate the effect of the devaluation of the colon,
the functional currency of Costa Rica. During the last 10 years, the colon has
devalued at an annual average rate of 13.06%, which the Company has mitigated by
increasing prices. During the year ended September 30, 2000 the colon devalued
7.06% and the Company mitigated this devaluation by increasing prices on average
by 9.90% for its chicken, by-products and animal feed segments. In terms of
consumer reaction to price increases within the chicken broiler segment, there
is little differentiation for customers between one competitor and another.
-8-
<PAGE>
Instead, prices are set by the leader, which in Costa Rica is the Company's
subsidiary, Pipasa. Given the consistent increase in chicken prices over the
past 14 years, the Company believes it has excellent data on consumer reactions
to price increases. According to past experience, a significant price increase
leads to a temporary decrease in sales that lasts approximately two months.
Marketing
---------
The Company has a division dedicated to marketing. The marketing department's
responsibility is to advertise the Company's various products and brand names.
In addition to television and radio advertisements, the Company's distribution
centers promote the Company's brand names by distributing posters, T-shirts and
hats with the Company's logo. In Costa Rica, the Company's brand names commonly
appear on billboards and bus stops. Other marketing techniques used by the
Company, include packaging presentations, promotions and sponsoring of special
national events.
Research and Development
------------------------
The Company conducts continuous research and development activities to improve
the quality of the diet fed to poultry during their growing stage. The annual
cost of such research and development programs is less than one percent of total
consolidated annual sales and is expensed as incurred.
Employees Compensation and Incentives
-------------------------------------
As of November 2000 the Company employed approximately 3,500 persons.
The Company believes it has good relations with its employees. Private companies
in Costa Rica typically support their own workers' associations instead of
organized unions which offer various benefits for the employees associated. The
success of the worker's association, Asociacion Solidarista de Empleados de
Pipasa, As y Afines ("ASERICA"), at the Company and the fact that there has
never been a strike at the Company's facilities reflects the quality of the
Management team and its ability to keep the Company's employees satisfied.
ASERICA provides recreational facilities, healthcare and pension benefits as
well as financial services to the Company's employees. This association is
located on land donated by Mr. Chaves and is among the largest solidarity
associations in Costa Rica.
Salaries in Costa Rica are increased twice a year as dictated by the government
in order to counterbalance the effect of inflation and increases in the cost of
living. The Company`s policy is to increase the salaries of all employees every
six months to offset the effect of inflation. Under the existing labor laws
prior to and for fiscal year 2000, companies in Costa Rica are required to make
a payment equivalent to 8.33% of an employee's yearly gross salary for a maximum
of 8 years of employment, as a severance pay to be paid upon the termination of
an employee without just cause. The Company offers its employees the option to
deposit 5% of this required severance pay into ASERICA. The employee then
matches the 5% payment by the Company. ASERICA invests these funds in
certificates of deposits which bear annual rates that range from 18% to 21% For
-9-
<PAGE>
the remaining 3.33%, the Company offers the option to the employee to deposit it
into a pension fund, for which the employee must also match any percentage
deposited into a pension fund by the Company. In February of each year, the
Company makes a payment equal to 1.33% of the employee's total yearly gross
salary, as part of this severance payment. Any remaining portion not invested
into a pension fund or paid to the employee during February must be settled by
the Company when the employee terminates employment. The Company has a provision
to settle severance pay when an employee terminates employment and believes it
is reasonable based on past experience. As of September 30, 2000, the Company
has a provision for severance pay in the amount of approximately $260,000, which
is considered to be adequate.
Beginning in March 2001, labor laws will require all companies in Costa Rica to
deposit 3% of the 8.33% into a pension fund. Of the remaining 5.33%, the Company
will continue to deposit 4% into ASERICA, as part of a savings program, which
the employee must match, and will continue to pay each February the remaining
1.33%. The new labor law will not affect the results of operations or financial
position of the Company.
All employees in Costa Rica are protected by obligatory insurance with the Caja
Costarricense de Seguro Social ("CCSS") and the Instituto Nacional de Seguros
("INS") which are the government's social security and insurance programs,
respectively. All companies in Costa Rica must pay the CCSS and the INS 21% and
1.74% of each employee's monthly salary, respectively. The CCSS pays 70% of the
employee's normal salary during the periods in which the employee is unable to
work. In addition to these benefits, employees must pay a total of 8% of their
monthly salary to the CCSS in order to receive healthcare, pension and maternity
care benefits, and 1% to the "Banco Popular" into an obligatory savings account.
Employees of the Company are provided with a profit sharing program. If either
one of the Company's subsidiaries has a successful year and generates profits in
excess of budgeted levels, that entity will distribute a percentage of its net
income to its employees. This incentive is calculated monthly and distributed
every two months. The Company encourages its employees to make a career at the
Company, and accordingly, in conjunction with a local university, the Company
offers a business administration program for its employees. The main goal of the
program is directed toward developing the Company's future management team. In
addition, the Human Resources Department offers in-house and outside training
for its employees in various fields, in order to assure quality in all areas.
-10-
<PAGE>
On May 29, 1998, the Company adopted the 1998 Stock Option Plan (the "Plan").
Under the Plan, 200,000 shares of the Company's common stock, par value $.001
per share, are reserved for issuance upon the exercise of options. The plan is
designed to serve as an incentive for retaining and attracting persons and/or
entities that provide services to the Company and its subsidiaries. As of
September 30, 2000, 6,400 shares have been issued under this plan.
Poultry Raising Process
-----------------------
The poultry raising process starts with the import of one-day old parent hens
from the United States of America. Once these hens reach their egg-laying
period, which takes about 24 weeks, they produce fertile eggs, which are then
incubated in order to produce baby chicks. The hatching period lasts 21 days,
which is divided into 19 days in hatching machines and two days in birth
chambers. These baby chicks are inoculated to prevent diseases. The chicks are
then brought to the Company's own raising house or to independent integrated
producers who raise the chicken to full size (typically a seven week process)
and provide basic elements such as vitamins, formula and a balanced ration of
feed.
The integrated producers are a group of 179 farmers who own their own land and
facilities. The producers have a long-term contract with the Company to raise
the baby chicks to adult birds with an average weight of 2.052 kilograms
(approximately 4.5 lbs.). During fiscal 2000, integrated producers supplied
approximately 57% of the total number of chickens needed by the Company. These
producers are paid according to the weight and quality of the chicken produced
and the mortality rate of the chickens raised. The Company provides veterinary
services and offers vaccines and chicken feed to the farmers at wholesale
prices. Regardless of whether the Company or the integrated producers raise the
chickens, the chickens are regularly inspected for immune deficiencies, vitamin
levels and general diseases. By working in conjunction with these integrated
producers, the Company has greater flexibility to increase or decrease the
number of chickens raised depending on the Company's growth objectives.
Once the chickens reach the desired weight, they are taken to one of the
processing plants. At the processing plants, the where chickens are slaughtered
and the meat packaged or processed to make chicken by-products. The Company's
processing facilities are among the most sophisticated and largest in the
country. The plants' processing capacity is approximately 98 million kilograms
annually. Costa Rica has been declared free of Newcastle Disease, the Animal and
Plant Health Inspection Service ("APHIS"), and a U.S. governmental agency,
continues to surveys the Company's facilities to ensure that the Company's
facilities remain free of Newcastle Disease. The Company recently adopted the
guidelines of the Hazardous Analysis and Critical Control Points ("HACCP"),
which are expected to be fully implemented in the near future. HACCP is a
prevention-based food safety system used widely throughout the food industry. It
is a tool used to assess hazards and to establish controls based on the
prevention of food contamination. By identifying critical points in the process
flow that could lead to contamination of food products and applying control
measures at each point, the likelihood of food borne illness is reduced. All new
employees are trained as to the proper procedures required in handling and
preparing food.
-11-
<PAGE>
Regulations
-----------
The Company's poultry hatcheries and processing plants are subject to regulation
under Costa Rican law regarding cleanliness and health standards. Exports of the
Company's poultry products are regulated in the countries in which the Company
sells its products. The Company has strict sanitary processes in order to
provide consumers with product integrity, safety and quality and is in
compliance with all health regulations.
Environmental Compliance
------------------------
The Company has been and is practicing sustainable environmental policies such
as reforesting, processing and recycling of its waste, producing organic
fertilizer, building oxidation lagoons and sewage treatment plants. The
Company's compliance with environmental laws and regulations relating to the
discharge of material into the environment or otherwise relating to the
protection of the environment has not had a material effect on the Company's
financial position and results of operations. For fiscal year ended September
30, 2000, the Company invested approximately $1.65 million in improving its
waste treatment facilities. For the next fiscal period, the Company intends to
invest approximately $1 million in improving its sewage treatment in the further
processing plant.
At the present time, the Company is not subject to any material costs for
compliance with any environmental laws in any jurisdiction in which it operates.
However, in the future, the Company could become subject to material costs to
comply with new environmental laws or environmental regulations in jurisdictions
in which it might conduct business. At the present time, the Company cannot
assess the potential impact of any such potential environmental regulations.
ITEM 2. PROPERTIES
The Company conducts its operations through its production facilities and
executive offices, which are all located in Costa Rica. All facilities are owned
by the Company's subsidiaries, Pipasa and As de Oros. The following contains
descriptions of the principal facilities:
-12-
<PAGE>
Production Area
---------------
The production area includes the following divisions: Animal Feed Production,
Reproduction, Incubation, Growing Stage, Broiler, and By-products processing.
The production capacities are described below:
The Company owns three processing plants for its Animal Feed division. These
plants perform activities, which include grinding grains, mixing flour and
packing different types of animal feed products. The facilities produce an
aggregate of approximately 310,000 tons of animal feed annually.
The Reproduction division facilities utilizes an average of 25 galleys annually,
which have a capacity to produce approximately 55 million fertile eggs annually.
The Incubation division consists of two incubation plants, which are among the
most modern in Central America. The plants' incubation and hatching halls can be
expanded to increase production. The Company expects that these plants will
fulfill production needs for many years. The incubation facilities produce
approximately 44 million chicks annually.
One day after birth, chicks are transferred to the Growing Stage division.
During this stage, the chicks receive three types of diet, according to growth
requirements. The growth stage lasts approximately from 43 to 45 days. The
Company owns 34 farms and 179 farms are under contract as integrated producers.
The facilities production capacity is approximately 43 million chickens
annually, which includes integrated producers.
The Broiler division is divided into slaughter and pluck, coolers and retailers,
packing and cuts and sub-products processes. The facilities have a production
capacity of approximately 98 million kilograms annually, working two shifts.
The By-products processing division is divided into sausage, formed, packaging,
oven and cooking areas. The facilities have a production capacity of
approximately 9 million kilograms annually.
-13-
<PAGE>
Distribution
------------
Distribution is conducted through retail outlets in Costa Rica, the majority of
which are leased. Restaurantes has a total of 30 restaurants, the majority of
which are also leased. During October 2000, the Company agreed to sell 81% of
the restaurant segment. The Company is in the process of closing this
transaction.
Administrative Area
-------------------
Administrative offices of the Company are located in Miami, Florida. Staff,
administrative, and financial headquarters of Pipasa and As de Oros are located
in La Ribera de Belen, Heredia, Costa Rica.
ITEM 3. LEGAL PROCEEDINGS
The income tax returns of As de Oros for fiscal year 1995 were examined by the
Costa Rican tax authorities and As de Oros was assessed $130,000 of additional
income taxes. Tax authorities have contested depreciation expenses and income
tax withholdings of employees. As de Oros has appealed this decision and does
not expect that the final outcome will result in a material adverse effect on
the operations, cash flows or the financial position of the Company. No accrual
has been made for any losses that may result from the resolution of this
uncertainty.
Pipasa is a defendant in a lawsuit brought in Costa Rica in which, as a result
of this lawsuit in which the plaintiff seeks $3.6 million, Pipasa was served
with prejudgment liens for $1.5 million. These liens were substituted by land
owned by Pipasa with the approval of the court in Costa Rica (Juzgado 6to
Civil). Such substitution of collateral was subsequently ratified by the
Superior Court on November 11, 1999. The prejudgment liens on assets and on cash
have been released and Pipasa received all of the funds originally attached. For
the same reasons and by the same plaintiff, Pipasa was sued in the United States
of America, in the State of California and the State of Florida, respectively.
The California lawsuit has been suspended awaiting the ruling of the court of
the State of Florida on a lack of personal jurisdiction motion raised by Pipasa.
The Florida lawsuit is still active and Pipasa's defense is based on a lack of
personal jurisdiction in the State of Florida. Interrogatories, Request to
Produce Documents and Request of Admissions have been answered by Pipasa. While
Pipasa still has time to answer the complaints, it cannot ascertain the basis of
the claim or the relief sought, but believes the lawsuits are without merit and
intends to assert a vigorous defense. At the present time, neither the Company
nor Pipasa can evaluate the potential impact of this lawsuit, or assess the
likelihood of an unfavorable outcome.
-14-
<PAGE>
No legal proceedings of a material nature, to which the Company or the
subsidiaries are a party, exist or were pending during the fiscal year ended
September 30, 2000. The Company knows of no legal proceedings of a material
nature pending or threatened or judgments entered against any director or
officer of the Company in his or her capacity.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of the Stockholders during the
Fiscal Year ended September 30, 2000:
Stockholders Meeting for the Fiscal Year ended September 30, 1999:
The Annual Meeting of Stockholders (the "Annual Meeting") was held at the
Sheraton Biscayne Bay Hotel, Miami, Florida, at 10:00 a.m., local time, on
August 25, 2000, for the following purposes:
1. To elect nine members of the Company's Board of Directors to hold office
until the Annual Meeting of Stockholders of the Company's fiscal year 2000, or
until their successors are duly elected and qualified; and
2. To consider and vote upon a proposal to ratify the selection of Arthur
Andersen LLP as the Company's independent auditors for the fiscal year ended
September 30, 2000; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
-15-
<PAGE>
The Shareholders Meeting voted for the proposals as follows:
Proposal number 1: For Director number 1: 11,020,591 votes
For Director number 2: 11,020,578 votes
For Director number 3: 11,020,591 votes
For Director number 4: 11,020,579 votes
For Director number 5: 11,020,578 votes
For Director number 6: 11,020,591 votes
For Director number 7: 11,020,591 votes
For Director number 8: 11,020,591 votes
For Director number 9: 11,020,591 votes
Against Director number 1: 0 votes
Against Director number 2: 0 votes
Against Director number 3: 0 votes
Against Director number 4: 0 votes
Against Director number 5: 0 votes
Against Director number 6: 0 votes
Against Director number 7: 0 votes
Withhold Director number 1: 703 votes
Withhold Director number 2: 716 votes
Withhold Director number 3: 703 votes
Withhold Director number 4: 715 votes
Withhold Director number 5: 716 votes
Withhold Director number 6: 703 votes
Withhold Director number 7: 703 votes
Withhold Director number 8: 703 votes
Withhold Director number 9: 703 votes
Proposal number 2: FOR 1,021,090 votes
AGAINST 0 votes
ABSTAIN 204 votes
Relating to item number three, no other business was transacted.
-16-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's common stock started trading on the American Stock Exchange
("AMEX") under the symbol RCF on May 14, 1999 and prior to that date traded on
the NASDAQ National Market under the symbol RICA. The following table presented
below sets forth the market price range of the Common Stock for each quarter
during the years ended September 30, 2000 and 1999, based on the high and low
closing sale prices as reported on the AMEX and NASDAQ prior to the transfer to
AMEX. Such high and low sales prices reflect interdealer prices without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
Market Price Range
-----------------------------------
High Low
Fiscal 2000
-----------
First Fiscal Quarter (10/1/99 to 12/31/99) $12.000 $10.875
Second Fiscal Quarter (1/1/00 to 3/31/00) 25.500 12.250
Third Fiscal Quarter (4/1/00 to 6/30/00) 28.125 20.250
Fourth Fiscal Quarter (7/1/00 to 9/30/00) 23.938 11.625
Fiscal 1999
-----------
First Fiscal Quarter (10/1/98 to 12/31/98) (1) $ 8.000 $4.125
Second Fiscal Quarter (1/1/99 to 3/31/99) 9.500 6.000
Third Fiscal Quarter (4/1/99 to 6/30/99) 11.875 8.625
Fourth Fiscal Quarter (7/1/99 to 9/30/99) 11.875 10.688
_________________
(1) Prices have been adjusted to reflect the 1 for 3 reverse stock split
effective on December 29, 1998.
As of January 3, 2001, the Company had 12,854,321 shares of common stock
outstanding and approximately 1,500 holders of record of such stock and no
shares of preferred stock were outstanding as of that date.
Dividends
---------
The Company has never paid any dividends on its common stock. The Company does
not anticipate paying cash dividends on common stock in the foreseeable future
based on its expected operating cash flow requirements (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources"). The Nevada General Corporation Law prohibits
the Company from paying dividends or otherwise distributing funds to its
stockholders, except out of legally available funds. The declaration and payment
of dividends on the Company's common stock and the amount thereof will be
dependent upon the Company's results of operations, financial condition, cash
-17-
<PAGE>
requirements, future prospects and other factors deemed relevant by the Board of
Directors. No assurance can be given that the Company will pay any dividends on
common stock in the future.
On December 23, 1999, the Board of Directors of Pipasa declared a dividend of
637,000 series "TCA" shares of preferred stock of Pipasa, valued at $2,143,626,
to common stockholders of record as of September 30, 1999. Pipasa distributed
379,398 shares to the Company and 257,602 to Inversiones La Ribera, S.A. in
accordance with the ownership of Pipasa's common stock as of September 30, 1999.
The dividends distributed corresponded to earnings pertaining to the year ended
September 30, 1999.
Immediately after the issuance of the 637,000 shares of preferred stock, Pipasa
repurchased such stock for an amount equal to the value of such repurchased
stock, $2,143,626, from the stockholders. The stockholders then used the
proceeds of the repurchase to cancel certain outstanding debts with Pipasa.
Accordingly, outstanding debts from Inversiones La Ribera, S.A. and the Company
amounting to $1,276,743 and $866,882, respectively, were cancelled.
On December 23, 1999, the Board of Directors of As de Oros declared a dividend
of 590,000 series "TCA" shares of preferred stock of As de Oros valued at
$1,983,327 to common stockholders of record as of September 30, 1999. As de Oros
distributed 332,642 shares to the Company and 257,358 shares to Comercial Angui,
S.A. in accordance with As de Oros' ownership of common stock as of September
30, 1999. The dividends distributed corresponded to earnings pertaining to the
year ended September 30, 1999.
Immediately after the issuance of such preferred stock, As de Oros repurchased a
portion of the preferred stock issuance for an amount equal to the value of such
repurchased stock, $881,273 from the stockholders. The stockholders used the
proceeds of the purchase to cancel outstanding debts with As de Oros. As de Oros
cancelled outstanding debts from Inversiones La Ribera, S.A. and the Company
amounting to $537,896 and $343,377, respectively.
During the year ended September 30, 1999, Pipasa distributed 510,565 series
"TCA" of preferred stock as dividends to its common stockholders, in the amount
of $1,929,766. During the year ended September 30, 1998, Pipasa distributed
282,958 series "TCA" shares of preferred stock as dividends to its common
stockholders, in the amount of $1,103,666.
-18-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction with
the consolidated financial statements and related notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information included elsewhere in this Form 10-K. The data
as of September 30, 2000 and 1999 and for the fiscal years of 2000, 1999 and
1998, respectively are derived from the Company's audited consolidated financial
statements included elsewhere in this Form 10-K. The data as of September 30,
1998, 1997 and 1996 and for the fiscal years ended September 30, 1997 and 1996
is derived from audited statements not included in this Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Sales ......................................... $ 123,628 $ 118,550 $ 98,794 $ 64,658 $ 56,819
Cost of sales ................................. 83,757 77,275 71,464 47,847 40,730
Income from operations ........................ 6,385 12,427 6,155 3,962 5,167
Income before income taxes and minority
interest .................................. 3,725 8,174 3,641 2,382 3,016
Net income applicable to stockholders ......... 2,889 3,041 1,130 754 1,650
Diluted earnings per common share ............. 0.24 0.42 0.16 0.11 --
Pro forma earnings per common share ........... -- -- -- -- 0.28
Total assets .................................. 88,182 70,323 63,005 36,554 37,103
Long-term debt, net of current portion ........ 21,821 21,444 22,559 5,252 3,593
Diluted weighted average number of common
shares outstanding ........................ 11,878,474 7,269,769 7,113,265 6,639,075 --
Pro forma weighted average number of common
shares outstanding ........................ -- -- -- -- 5,191,190
Ratio of earnings to fixed charges ............ 1.80 1.87 1.46 1.37 1.61
Ratio of earnings to fixed charges and
preferred dividends ....................... 1.68 1.71 1.38 1.28 1.50
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
-------
Management is responsible for preparing the Company's consolidated financial
statements and related information that appears in this Form 10-K. Management
believes that the consolidated financial statements fairly reflect the form and
substance of transactions and reasonably present the Company's consolidated
financial condition and results of operations in conformity with Generally
Accepted Accounting Principles in the United States of America ("GAAP").
Management has included in the Company's consolidated financial statement
amounts that are based on estimates and judgements, which it believes are
reasonable under the circumstances. The Company maintains a system of internal
accounting policies, procedures and controls intended to provide reasonable
assurance, at the appropriate cost, that transactions are executed in accordance
with Company's authorization and are properly recorded and reported in the
consolidated financial statements, and that assets are adequately safeguarded.
-19-
<PAGE>
The Company's operations are largely conducted through its subsidiaries,
Corporacion Pipasa, S.A. and Subsidiaries ("Pipasa") and Corporacion As de Oros,
S.A. and Subsidiaries ("As de Oros"), (the "subsidiaries"). The Company, through
its subsidiaries, represents the largest poultry company in Costa Rica with a
market share of approximately 70% of the chicken meat market in Costa Rica. The
subsidiaries' primary business is derived from the production and sales of
broiler chickens, processed chicken by-products, and pre-mixed feed and
concentrate for livestock and domestic animals. Pipasa, founded in 1969, is the
largest poultry company in Costa Rica with approximately a 50% market share of
the chicken meat market in Costa Rica. As de Oros, founded in 1954, is Costa
Rica's second largest poultry producer, comprising approximately 20% of the
country's poultry market and is one of the leaders in the Costa Rican animal
feed market with a 28% market share. As de Oros also owns a subsidiary which
operates a chain of 30 fried chicken quick service restaurants in Costa Rica. In
October 2000, the As de Oros agreed to sell 81% controlling interest of the
restaurant subsidiary.
The Company's subsidiaries own a total of three modern processing plants, three
animal feed plants and 69 urban and rural retail outlets throughout Costa Rica.
Due to similar business activities, the combined operations of the subsidiaries
permit the Company to achieve operational efficiencies.
Seasonality
-----------
The Company's subsidiaries have historically experienced and have come to expect
seasonal fluctuations in net sales and results of operations. The Company's
subsidiaries have generally experienced higher sales and operating results in
the first and second quarters of the fiscal year. This variation is primarily
the result of holiday celebrations during this season, in which consumers in
Costa Rica prepare traditional meals, which include dishes with chicken as the
main ingredient. The Company expects this seasonal trend to continue for the
foreseeable future.
Environment
-----------
The Company has been and is practicing sustainable environmental policies such
as reforesting, processing and recycling its waste, producing organic
fertilizer, building oxidation lagoons and sewage treatment plants. The
Company's compliance with Costa Rican environmental laws and regulations
relating to the discharge of material into the environment or otherwise relating
to the protection of the environment has not had a material effect on the
Company's financial position and results of operations. For fiscal year ended
September 30, 2000, the Company invested approximately $1.65 million. For the
next fiscal period, the Company intends to invest approximately $1 million in
improving its sewage treatment in the further processing plant.
-20-
<PAGE>
At the present time, the Company is not subject to any material costs for
compliance with any environmental laws in any jurisdiction in which it operates.
However, in the future, the Company could become subject to material costs to
comply with new environmental laws or environmental regulations in jurisdictions
in which it might conduct business. At the present time, the Company cannot
assess the potential impact of any such potential environmental regulations.
Year 2000 readiness
-------------------
As described in the Annual Report on Form 10-K for the year ended September 30,
1999, the Company had developed plans to address the possible exposures related
to the impact on its computer systems of the Year 2000. Since entering the Year
2000, the Company has not experienced any major disruptions to its business nor
is it aware of any significant Year 2000 related disruptions impacting its
customers or suppliers. Furthermore, the Company did not experience any material
impact on inventories as of September 30, 2000. The Company will continue to
monitor its critical systems over the next several months but does not
anticipate any significant impact due to Year 2000 exposures from its internal
systems as well as from the activities of its suppliers and customers. Costs
incurred to achieve Year 2000 readiness, which include contractor costs to
modify existing systems and costs of internal resources dedicated to achieving
Year 2000 compliance, were charged to expense as incurred. The Company has not
experienced any material change in total costs related to Year 2000 remediation
efforts since entering the Year 2000.
Fiscal 2000 Compared to Fiscal 1999
-----------------------------------
The Company's net income applicable to common stockholders was $2.89 million and
$3.04 million for fiscal years ended September 30, 2000 and 1999, respectively.
Diluted earnings per share was $0.24 for fiscal year 2000, compared to $0.42
during fiscal year 1999. The decrease in the diluted earnings per share is
mainly due to the November and December 1999, acquisition of the remaining
minority interests of Pipasa and As de Oros through an issuance of an aggregate
of 5,354,516 of the Company's common shares and a decrease in the Company's
income for fiscal 2000.
The Company uses segment profit margin to analyze segment performance, which is
defined as the percentage over sales of the gross profit less selling expenses.
The following table presents sales and profitability per segment, for the
periods under analysis (in millions of dollars):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment profit
Sales Segment profit margin
----- -------------- --------------
Segments 2000 1999 Change % Change 2000 1999 2000 1999
-------- ---- ---- ------ -------- ---- ---- ---- ----
Broiler $73.48 $72.13 $1.35 1.9% $15.03 $ 17.22 20.5% 23.9%
Animal Feed 22.42 20.61 1.81 8.8% 2.45 3.02 11.0% 14.7%
By-products 11.69 9.66 2.03 21.1% 2.70 2.21 23.1% 22.9%
Quick Service 8.03 9.39 (1.36) -14.5% 0.33 0.50 4.1% 5.3%
Exports 4.56 3.38 1.18 35.0% 0.02 0.45 0.4% 13.3%
Others 3.45 3.38 0.07 2.1% 0.39 0.84 11.3% 24.9%
-------- -------- ----- ----- ------- ------- ----- -----
Total $ 123.63 $ 118.55 $5.08 4.3% $ 20.92 $ 24.24 17.0% 20.5%
======== ======== ===== ===== ======= ======= ===== =====
</TABLE>
-21-
<PAGE>
BROILER: Sales of broiler chicken increased by 1.9% for fiscal the year ended
September 30, 2000, compared to fiscal 1999. This increase is primarily due to a
1.2% increase in tonnage and an increase in average sales prices offset by a
stronger market competition in this segment and a decrease in the consumption of
chicken by the general consumer whose income has been affected by adverse
economic factors in Costa Rica. In addition, during fiscal 2000, the Company
temporarily reduced sales prices for some brands in order to increase sales.
Segment profit margin decreased by 3.4% mainly due to increases in the cost of
raw material, broad fluctuations in the sales mix less profitable products and
increases in plant maintenance costs.
ANIMAL FEED: Sales for commercial animal feed for fiscal year 2000 increased by
8.8% when compared to fiscal year 1999. This increase is due to a 23.0% increase
in tonnage as a result of new distribution outlets, new clients and increased
sales of pet food products, offset by the Company's policy not to increase sales
prices for some products in this segment, due to strong market competition.
Segment profit margin decreased by 3.7% mainly due to these factors and to
increases in the cost of raw materials.
BY-PRODUCTS: Total sales for this segment for fiscal 2000 increased by 21.1%,
when compared to fiscal 1999, mainly due to an 18.4% increase in tonnage
resulting from an increase in average sales prices and increased sales due to
the introduction of new distribution routes. Segment profit margin did not have
significant variations.
QUICK SERVICE: Sales for the Quick Service segment decreased by 14.5% for fiscal
2000, when compared to fiscal 1999. The decrease in sales is the result of
strong market competition in this segment together with the temporary closing of
some restaurants due to remodeling. Segment profit margin did not have
significant variations.
During October 2000, the Company reached an agreement with Stock Management
Corporation to sell 81% of the stock of the restaurant subsidiary for a note
receivable amounting to $4.05 million. This amount will be received over a 5
year period, and the Company will charge a 10.06% annual interest rate payable
every six months. Stock Management International will have a grace period of one
year and will subsequently make annual principal payments to the Company
amounting to $1,012,500 each. The Company is in the process of closing this
transaction.
EXPORTS: The Company's sales for this segment for fiscal 2000 increased by 35.0%
when compared to fiscal 1999. The increase is primarily due to an increase in
sales by Pipasa's subsidiary in Honduras and an overall increase in pet food
products, broiler chicken and recycling material. Segment profit margin
decreased by 13%, mainly due to variations in the sales mix to less profitable
products. For the next fiscal period, the Company expects to increase sales of
concentrate feed, resulting from the investment made in the concentrate plants.
-22-
<PAGE>
OTHERS: Sales of Other for fiscal 2000 increased by 2.1% compared to fiscal
1999. This increase is mainly due to the sale of recyclable material, which the
Company began to market during this fiscal year. The low profitability of the
recyclable material resulted in a decrease in this segment's profit margin of
13.6%. Sales of other products represented 2.8% and 2.9% of total sales for
fiscal years 2000 and 1999, respectively.
OPERATING EXPENSES
Operating expenses for fiscal 2000 increased by 16.1% when compared to fiscal
1999. The increase is primarily attributable to payroll expenses to prepare the
executive organizational structure of the Company for further international
expansion, in addition to a general increase in employee payroll in accordance
with the Company's policy to make two annual salary increases. There were also
increases in vehicle fleet leasing costs, as a result of leasing of new
vehicles, and in the amortization of cost in excess of net assets acquired
(goodwill) and excess of fair value over book value of assets of acquired
businesses allocated to property, plant and equipment, as a result of the
purchase of the remaining minority interest of As de Oros. Also, the Company has
incurred in additional expenses related to research in other international
markets aimed at future growth of the Company's operations in other countries.
As a percentage of sales, operating expenses represented 27.1% and 24.3% of
sales for fiscal 2000 and 1999, respectively.
OTHER EXPENSES (INCOME):
Other expenses (income) for fiscal 2000 decreased by 38.9%, when compared to
fiscal 1999. The decrease is mainly due to an increase in interest income
resulting from increases in notes receivable, dividends received from long term
investments in stocks, and gains from sales of vehicles, properties and other
assets. As a percentage of sales, other expenses represented 2.1% and 3.6% of
sales for fiscal 2000 and 1999, respectively.
-23-
<PAGE>
PROVISION FOR INCOME TAXES:
Provision for income taxes for fiscal 2000 decreased by 89.5%, primarily due to
a decrease in taxable income and an increase in amortization of deferred income
tax, resulting from the acquisition of the remaining minority interest in As de
Oros.
FISCAL 1999 COMPARED TO FISCAL 1998
The Company's net income applicable to common stockholders was $3.04 million and
$1.13 million for fiscal years ended September 30, 1999 and 1998, respectively.
Diluted earnings per share were $0.42 for fiscal year 1999, compared to $0.16
for fiscal year 1998.
The following table shows sales and profitability per segment, for the periods
under analysis (in millions of dollars):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment profit
Net Sales Segment profit margin
--------- -------------- --------------
Segments 1999 1998 Change % Change 1999 1998 1999 1998
-------- ---- ---- ------ -------- ---- ---- ---- ----
Broiler $73.48 $72.13 $1.35 1.9% $15.03 $ 17.22 20.5% 23.9%
Broiler $72.13 $60.06 $ 12.07 20.1% $ 17.22 $8.70 23.9% 14.5%
Animal Feed 20.61 17.85 2.76 15.5% 3.02 2.80 14.7% 15.7%
By-products 9.66 9.40 0.26 2.8% 2.21 2.31 22.9% 24.6%
Quick Service 9.39 5.11 4.28 83.8% 0.50 0.34 5.3% 6.7%
Exports 3.38 2.71 0.67 24.7% 0.45 0.51 13.3% 18.9%
Others 3.38 3.66 (0.28) -7.7% 0.84 0.49 24.9% 13.4%
-------- -------- ----- ----- ------- ------- ----- -----
Total $ 118.55 $98.79 $ 19.76 20.0% $ 24.24 $ 15.15 20.5% 15.4%
======== ======== ===== ===== ======= ======= ===== =====
</TABLE>
Prior and subsequent to the acquisition of As de Oros in March 1998, there were
transactions between Pipasa and As de Oros consisting mainly of sales of raw
materials and finished products. Transactions subsequent to the acquisition of
this subsidiary have been eliminated in consolidation.
Sales and cost of sales, for fiscal year 1998, have been restated to reflect the
change in the method of accounting for sales and purchases to integrated
producers. Integrated producers are local farmers who raise and feed poultry on
behalf of the Company. For fiscal 1999, the Company changed its method of
accounting to reflect chickens and materials transferred to integrated producers
as in process inventory, as opposed to a sale at cost. The effect of this
restatement is a decrease in sales and cost of sales in the amount of $4.89
million for fiscal 1998.
-24-
<PAGE>
BROILER: Sales of broiler chicken increased by 20.1% for fiscal year ended
September 30, 1999, compared to fiscal 1998. This increase is primarily due to a
19.5% increase in tonnage, sales to significant new customers and the inclusion
of a full year of operations of As de Oros. This increase is offset by
promotions of lower priced products during 1999, which caused variations in the
sales mix creating an increase in sales of lower priced products. Segment profit
margin increased by 9.4% mainly due to lower costs of raw materials.
ANIMAL FEED: Sales of animal feed for fiscal year 1999 increased by 15.5% when
compared to fiscal year 1998. This increase is due to a 33.3% increase in
tonnage and the inclusion of a full year of operations of As de Oros, offset by
decreases in sales prices. Significant decreases in the cost of raw materials,
an important component of this product, has enabled other competitors to sell
similar products in the market, causing the Company to lower sales prices of
certain products in order to maintain its market share. The Company expects to
maintain this sales strategy in the foreseeable future. The decrease is offset
by variations in the sales mix of different types of products of which units and
sales prices have increased. Segment profit margin decreased by 1.0% mainly due
to increases in selling expenses and variations in sales mix, offset by
decreases in raw material.
BY-PRODUCTS: Sales of by-products increased by 2.8% for fiscal 1999, when
compared to fiscal 1998, which is mainly due to an increase in tonnage of 18.1%
offset by variations in sales mix to lower priced products. During 1999, the
Company lowered the sales prices for certain key products to maintain sales
volume due to strong market competition. Segment profit margin decreased by
1.7%, which is mainly due to an increase in sales prices, offset by lower costs
of raw materials.
QUICK SERVICE: This segment increased sales by 83.8%, mainly due to the
consolidation of As de Oros' operations for twelve months for fiscal 1999,
compared to seven months for fiscal 1998. During fiscal 1999, competitors
introduced new quick service restaurants in the market, which have resulted in a
decrease in sales in this segment. The Company has begun a marketing strategy to
increase sales through the opening of new restaurants in rural and urban areas,
remodeling some of its restaurants and investing in new cooking equipment to
improve the flavor of the product. The Company expects that, through this
marketing strategy, sales will increase in the foreseeable future. Segment
profit margin decreased by 1.4% due to higher operating costs.
EXPORTS: Sales for this segment for fiscal 1999 increased by 24.78%, mainly due
to a 12.4% increase in tonnage, in addition to an increase in sales of Other
Products. During 1998, the Company began to export pet food to the Dominican
Republic and other countries in Central America. Also during fiscal 1999, the
Company began supplying products to new customers such as Pizza Hut, McDonalds
and Burger King in countries in Central America and made non-recurring, low
sales priced products to Hong Kong during the months of October and November
1998. During fiscal 1999, Pipasa was the only Central American company to make
exports to all other countries in the region. The Company expects to increase
its export sales for the next fiscal year, increasing its market share in the
Central American and Caribbean areas. Segment profit margin decreased by 5.5%
mainly due to sales mix changes to lower profit margin products.
-25-
<PAGE>
OTHERS: Sales of Other Products, which include commercial eggs, raw materials
and baby chicks, decreased by 7.7%. This decrease is mainly the result of
eliminations of inter-company sales, since prior to the acquisition of As de
Oros in February 1998, there were transactions between Pipasa and As de Oros,
consisting mainly of sales of raw materials included in this segment. Segment
profit margin increased by 11. 5% mainly due to lower costs of raw materials.
OPERATING EXPENSES
Operating expenses increased from $21.17 million to $28.85 million, an increase
of $7.67 million or 36.28% during the year ended September 30, 1999 as compared
with fiscal 1998. The increase is primarily due to higher payroll expenses,
higher marketing expenses such as advertising and increased vehicle fleet
leasing costs, and the start up of new Pipasa subsidiaries in El Salvador and
Honduras. Also, there is an increase in operating expenses due to the full year
inclusion of As de Oros' operations, acquired in February 1998. As a percentage
of sales, operating expenses were 24.33% and 21.43% for the years ended
September 30, 1999 and 1998, respectively.
OTHER EXPENSES (INCOME):
Other expenses (income) increased from $2.51 million for fiscal 1999 to $4.25
million for fiscal 2000, an increase of $1.74 million or 69.32% during the year
ended September 30, 1999 as compared with the same period of fiscal 1998. The
increase is primarily due to higher interest and exchange rate expenses, which
increased $770,000. This increase reflects the acquisition of As de Oros'
consolidated debts for twelve months during 1999, as opposed to seven months
during 1998.
In addition, there is a decrease in other income in the amount of $1.03 million,
which is primarily due to a non-recurrent legal settlement gain recorded in
fiscal 1998 in the amount of $350,073 and the reclassification of fleet services
income for $596,000 for fiscal 1999 from other income to selling expenses.
PROVISION FOR INCOME TAXES
Income taxes were $762,472 and $188,663 for the fiscal years ended September 30,
1999 and 1998, respectively. The lower tax rate in the prior period resulted
mainly from the utilization of additional tax credits and tax shelters in 1998,
and to higher taxable income results in 1999.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: As of September 30, 2000, the Company had $4.3 million in
cash and cash equivalents. The working capital deficit was $8.2 million as of
September 30, 2000, compared to a positive working capital of $6.2 million at
the end of fiscal year 1999. The Company plans to restructure its short-term
debt to long-term debt to address the deficit. This decrease in working capital
is primarily due to an increase in short-term liabilities, which include the
reclassification to current liabilities of the first amortization of the private
placement debt for a total of $4 million. The current ratios were 0.79 and 1.25
as of September 30, 2000 and 1999, respectively.
-26-
<PAGE>
Cash provided by operating activities was $9.7 million and $14.0 million for
fiscal years 2000 and 1999, respectively. The decrease in fiscal 2000 is mainly
due to a lower income before minority income, and increases in commercial notes
and accounts receivable. Notes and accounts receivable increased as a result of
new clients added and important payments made in advance to suppliers of
materials used for capital expenditures. The Company entered into an agreement
to supply a customer in Honduras with broiler chicken during the first quarter
of fiscal 2001, with broiler chicken for a total value of approximately
$630,000.
INVESTING ACTIVITIES: Funds used for investing activities during fiscal 2000,
totaled $17.4 million, compared to $8.9 million invested during fiscal 1999.
Investing cash flows reflect capital expenditures, which are primarily related
to purchases and improvements in production equipment and facilities. The
Company is investing in the expansion of the by-products processing plant to
increase production and also in the animal feed plants to lower costs of
production and to increase production for internal consumption as a result of
increased projected sales. The expansion of the animal feed plants will position
the Company as a leader in "pellet" animal feed production in Central America.
In addition, the Company is remodeling the waste and recycling facilities and
has also installed a communication network between different locations of the
Company's facilities, has acquired an enterprise resource planning system and
has remodeled some restaurants. The Company anticipates that it will spend
approximately $6 million during the next fiscal period for capital expenditures
mostly related to the production area, and expects to finance such expenditures
primarily with long-term financing or through the issuance of a public offering
of preferred shares by As de Oros in Costa Rica.
FINANCING ACTIVITIES: As of September 30, 2000, the Company had lines of credit
agreements with banks and raw material suppliers for a maximum aggregate amount
of $27 million, of which $16.7 million had been used. Agreements may be renewed
annually and bear interest at annual rates ranging from 8.00% to 11.75%.
Property and other collateral secure those agreements.
During fiscal 2000, net cash provided by financing activities was $7.2 million,
compared to $5.2 million used in financing activities during fiscal 1999.
Long-term debt funds were used mainly to finance capital expenditures and for
debt restructuring from short-term to long-term in the Company's subsidiaries.
Cash provided by short-term debt was primarily used as a bridge loan to
temporarily finance capital expenditures. The Company is in the process of
completing long-term loans to restructure the short-term debt.
As de Oros was authorized for the next fiscal year by the "Superintendencia
General de Valores" - the official market and securities regulator in Costa
Rica, to offer 1,000,000 preferred shares with a par value of $20 million (the
"Preferred Shares") in Costa Rica during fiscal year 2001. This $20 million
offering will pay a 9.5% annual dividend payable every three months. The Company
plans to invest the funds received from the sale of Preferred Shares issued, in
capital expenditures primarily in the production area to enable future growth in
international markets. The Company cannot assure that all Preferred Shares from
this public offering will be sold in the market, and therefore will not depend
upon funds from this public offering to continue its normal operations.
Management expects to continue to finance operations and capital expenditures
with its normal operating activities and external sources. Management also
expects that there will be sufficient resources available to meet the Company's
cash requirements through the rest of the fiscal year.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
-27-
<PAGE>
The Company and its representatives may, from time to time, make written or oral
forward-looking statements with respect to their current views and estimates of
future economic circumstances, industry conditions, company performance and
financial results. These forward-looking statements are subject to a number of
factors and uncertainties which could cause the Company's actual results and
experiences to differ materially from the anticipated results and expectations
expressed in such forward-looking statements. The Company cautions readers not
to place undue reliance on any forward-looking statements, which speak only as
of the date made. Among the factors that may affect the operating results of the
Company are the following:
(i) fluctuations in the cost and availability of raw materials, such as feed
grain costs in relation to historical levels;
(ii) market conditions for finished products, including the supply and pricing
of alternative proteins which may impact the Company's pricing power;
(iii) risks associated with leverage, including cost increases due to rising
interest rates;
(iv) changes in regulations and laws, including changes in accounting
standards, environmental laws, occupational, health and safety, currency
fluctuations; and
(v) the effect of, or changes in, general economic conditions.
This management discussion and analysis of financial condition and results of
operations may include certain forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including (without limitations)
statements with respect to anticipated future operations and financial
performance, growth and acquisition opportunity and other similar forecasts and
statements of expectation. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates, should and variations of those words and similar
expressions are intended to identify these forward-looking statements.
Forward-looking statements made by the Company and its Management are based on
estimates, projections, beliefs and assumptions of Management at the time of
such statements and are not guarantees of future performance. The Company
disclaims any obligations to update or review any forward-looking statements
based on occurrence of future events, the receipt of new information or
otherwise.
Actual future performance outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its Management
as a result of a number of risks, uncertainties and assumptions. Representative
examples of these factors include (without limitation) general industrial and
economic conditions; cost of capital and capital requirement; shifts in customer
demands; changes in the continued availability of financial amounts and at the
terms necessary to support the Company's future business.
-28-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk Management
-------------------------
The Company imports all of its corn, the primary ingredient in chicken feed,
from the United States of America. Fluctuations in the price of corn may
significantly affect the Company's profit margin. The Company purchased
approximately $l.3 million of corn monthly through the Chicago Board of Trade
("CBOT") during fiscal 2000. The price of corn and soybean meal, like most grain
commodities, is fairly volatile and requires consistent and daily hedging in
order to minimize the effect of price increases on the Company's profit margin.
The Company has been actively hedging its exposure to corn price fluctuations
since 1991. The Company evaluates, on a daily basis, the prices of corn and
soybean meal. All hedging activities are supervised by a Hedging Committee,
which consists of members of the Company's Management and meets at least once a
month to evaluate the Company's exposure to corn and soybean meal price
fluctuations. The Company's strategy is to hedge against price increases in corn
and soybean meal, the Company is not involved in speculative trading. Contracts
range from one month to six months.
The Company will buy directly from the spot market if market conditions are
favorable, but as a general rule, the Company purchases most of its corn through
contracts. The Company's hedging strategy is set in its annual budget, which
determines how much corn and soybean meal the Company will need and the price
the Company must pay in order to meet budget forecasts. The Company uses an
internal pricing model to prepare sensitivity analysis. The Company bases its
target prices on the worst case price assumptions (i.e. high corn prices). The
prices paid by the Company for corn were 8.12% above its budgeted prices for the
year ended September 30, 2000.
The Company has a $500,000 credit line with Futures U.S.A., Inc. ("FIMAT") and
draws upon this credit line to cover its initial margin deposit. The interest
rate paid on this line of credit averages an annual rate of less than 10% on
drawn amounts. The Company is in frequent contact with its brokers (at least
three to four times a day) and receives advice from the brokers' corn experts.
The Company's average monthly soybean meal purchase was approximately $1.08
million for fiscal 2000. The hedging strategies for soybean meal purchases are
identical to that of corn purchases, except that the Company purchases its
soybean meal through a company in Costa Rica, INOLASA, in which the Company
holds a 10% equity ownership. In Costa Rica, there is a 5% tax for soybean meal
imports, which is not levied if purchased through INOLASA. If for any reason
INOLASA cannot deliver the soybean meal to the Company, the Company can buy its
soybean meal directly from the CBOT. Thus far, the Company has never had to
purchase soybean meal directly from the CBOT. The prices paid by the Company for
soybean meal were 2.21% below budgeted prices for the year ended September 30,
2000.
-29-
<PAGE>
Exchange Rate Risk Management
-----------------------------
The Company makes U.S. dollar payments for the majority of its raw materials and
bank facilities. This U.S. dollar expense component is not unique to the
Company, as most poultry producers in Central America must rely on U.S.
companies for raw materials such as corn, soybean meal and reproduction birds.
Given its U.S. dollar exposure, the Company actively manages its currency
exchange rate risk. The Company uses a financial model to determine the best
strategy to mitigate against the devaluation of the currency of Costa Rica, the
colon, against the U.S. dollar. The Company systematically increases its annual
sales prices by a rate that is consistent with the colon devaluation against the
U.S. dollar. For the fiscal years ended September 30, 2000, 1999 and 1998, the
national devaluation rates were 7.06%, 10.81% and 10.6%, respectively, and
correspondingly, the Company increased its prices 9.90%, 11.19% and 13.03%,
respectively. Management believes that the Company's strong market will allow
for this type of price increase without sacrificing long-term demand and market
share. The Company has successfully passed along such price increases for the
last five years. Management plans to increase its export operations in order to
increase its U.S. dollar revenues, as all export sales are made in U.S. dollars.
For the fiscal year ended September 30, 2000, exports increased 34.8%, compared
to exports for the same period in 1998 and represented 4% of total sales.
In addition to fluctuations in the price of corn and soybean meal, the Company
has exposure to fluctuations in exchange rates, as payments for imported corn,
soybean meal, reproduction birds and bank facilities are in U.S. dollars. The
Company's Finance Division has the responsibility of monitoring economic and
industrial trends that influence foreign exchange levels. This division examines
areas such as poultry gross national product, gross national product ("GNP"),
inflation, devaluation, export and import growth rates, growth in real wages,
unemployment and population rates in Costa Rica.
Raw material purchases have an average payment period of 120 days, hence
exchange rate risk is for four months. During this time, accounts are paid and
costs are updated to reflect new exchange rates. In the event of a severe
devaluation of the colon, or increases in international prices, the Company may
be able to increase sales prices to recuperate its foreign exchange losses. In
addition, all of the Company's exports are denominated in U.S. dollars (even
exports within Central America). Management expects that the strategy to
increase exports will increase the Company's U.S. dollar revenues. The Company
uses a model to determine the maximum devaluation possible before considering
whether or not to incur additional U.S.-based debt. In effect, the Company
borrows in U.S. dollars when economically proven to be less expensive than
borrowing in colones.
Information required by this item is also located in this Form 10-K under the
heading "Foreign Competition."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference to the
Independent Auditor's Report included on page F-2 and from the consolidated
financial statements and supplementary data on pages F-3 through F-33 on this
Form 10-K.
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable
-30-
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Directors and Executive Officers of the Company, their ages and present
positions held in the Company, as of September 30, 2000, are as follows:
NAME AGE POSITION HELD
Calixto Chaves 54 Chairman, Chief Executive
Officer,President and
Director
Jose Pablo Chaves 28 Director, Chief
Operating Officer
Dr. Federico Vargas 67 Director,Chairman Audit
Committee since fiscal
1999.
Jorge M. Quesada 51 Treasurer and Director
Member Audit Commmitte
Luis J. Lauredo 51 Director (until 1/7/00)
Chairman Audit
Committee (Until 1/7/00)
Alfred E. Smith, IV 49 Director
Monica Chaves 29 Secretary, Director
The Honorable Ambassador
Luis Guinot, Jr. 65 Director
Randall Piedra 34 Chief Financial Officer
Mauricio Marenco 36 Chief Investor Officer
and Assistant Secretary
Trond S. Jensen 47 Director (since 9/1/00)
Jack Peeples 70 Director (since 9/1/00)
The Company's Directors will serve in such capacity until the next annual
meeting of stockholders of the Company and until their successors have been
elected and qualified. The officers serve at the discretion of the Company's
Directors. Calixto Chaves and Monica Chaves are father and daughter. Calixto
Chaves and Jose Pablo Chaves are father and son. Jorge M. Quesada is the
brother-in-law of Calixto Chaves. Mr. Mauricio Marenco, Chief Investor Relations
and Assistant Secretary is married to one of Mr. Calixto Chaves' nieces.
Otherwise, there are no family relationships among the Company's officers and
directors, nor are there any arrangements or understandings between any of the
directors or officers of the Company or any other person pursuant to which any
officer or director was or is to be selected as an officer or director.
-31-
<PAGE>
CALIXTO CHAVES. Mr. Chaves is the founder and President of Corporacion Pipasa,
S.A. from its inception in 1969 to the present. He is currently on the Boards of
Directors of Central American Oils and Derivatives, S.A., and American
Oleaginous Industry. From 1994 to 1996, he was a Board member of Cerveceria
Americana, a private brewery. In 1994, he served as an advisor to the President
of Costa Rica and the Ministry of Economic Business Affairs. From 1983 to 1985,
he was a member of the Board of Directors of the Sugar Cane Agricultural League.
From 1982 to 1986, he served as Minister of the Ministry of Industry, Energy and
Mines of Costa Rica and became Minister of Natural Resources of Costa Rica in
1986. From 1982 to 1986, Mr. Chaves was a member of the Board of Directors of
MINASA, a mining company in Costa Rica. Mr. Chaves was the founder of the
Chamber of Industries in the province of Heredia in Costa Rica. From 1973 to
1974, he was President of the Board of Directors of Banco Nacional de Belen.
DR. FEDERICO VARGAS. Dr. Vargas is a Board member of Corporacion Pipasa, S.A.,
one of the Registrant's subsidiaries. He has served as a Professor of Economics
and Social Sciences at the University of Costa Rica from 1963 to the present.
Dr. Vargas has been involved extensively in political activities since 1974.
From 1990 to 1994, he served as a Deputy in the Assembly of Costa Rica. From
1993 to 1994, he was Chairman of the Legislative Section of the Partido
Liberacion Nacional of Costa Rica. Prior to 1990, Dr. Vargas held a number of
political offices, including Minister of Finance on two occasions, Ambassador of
Costa Rica to the United States, Ambassador of Costa Rica to the Organization of
American States, Counselor to the President of Costa Rica in Finance and
External Debt, with the rank of Minister of Economics, and Advisor to the
President of Costa Rica. His teaching activities included serving as the
Chairman of the "Instituto de Investigaciones Economicas", University of Costa
Rica and Director of School of Economics and Social Sciences of the University
of Costa Rica. Dr. Vargas serves on the Boards and advisory bodies of numerous
charitable and educational organizations and is the author of a number of
publications in economic and educational matters. He obtained his Bachelors in
Business Administration from Nichols College in Massachusetts in 1954 and his
Ph.D. from the University of Colorado in 1967. He has also attended the Wharton
School of Finance and Commerce at the University of Pennsylvania. Mr. Vargas
graduated from the University of Costa Rica with a degree in Business
Administration.
LIC. JORGE M. QUESADA. Mr. Quesada has held numerous positions with Corporacion
Pipasa, S.A. since 1985, and was its Executive Vice President from 1990 to 1999,
and is presently its Executive President. Mr. Quesada was appointed Executive
President of Pipasa and As de Oros on March 1, 1999. He was a member of the
Boards of Directors of Banco Fomento AgrIcola (k/n/a BFA) from 1991 to 1996.
From 1987 to 1991, he was on the Board of Directors of Financiera Belen, S.A.
Mr. Quesada has conducted numerous seminars regarding marketing topics. He
obtained his Degree in Business Administration, with emphasis on Public
Accounting, from the University of Costa Rica in 1984.
-32-
<PAGE>
LUIS J. LAUREDO. From 1995 to the present, Mr. Lauredo has been President of
Greenberg Traurig Consulting, Inc., an affiliate of the international law firm,
Greenberg Traurig Hoffman, Lipoff, Quentel & Rosen, of Miami, Washington, and
New York. From 1994 to 1995, he was Executive Director of the Summit of the
Americas. From 1992 to 1994, he was a Commissioner on the Florida Public Service
Commission, as well as Chairman of the International Relations Committee of the
National Association of Regulatory Utility Commissioners. In his career, Mr.
Lauredo has held a number of positions in the banking industry, including Senior
Vice President of the Export-Import Bank of the United States of America. He has
represented the President of the United States as special U.S. Ambassador to the
inaugurations of the Presidents of Colombia, Venezuela, Brazil, and Costa Rica.
He also served as a founding Director of the Hispanic Council on Foreign Affairs
(Washington, D.C.). Mr. Lauredo received his B.A. from Columbia University in
New York City and has attended the University of Madrid in Spain and Georgetown
University Law Center in Washington, D.C. Mr. Lauredo was appointed United
States Ambassador to the Organization of American States, and resigned from the
Board of Directors of the Company on January 7th , 2000 as a result of this
significant appointment.
ALFRED E. SMITH, IV. Mr. Smith has been a director of the Company since June 1,
1994. Mr. Smith has been a Managing Director at the Wall Street firm of Hunter
Specialists, LLC, New York, since January 1997. From 1979 to 1996, he was with
CMJ Partners, a New York Stock Exchange member firm. Mr. Smith is the Chairman
of the Government Relations Committee of the New York Stock Exchange, Director
and Secretary of the Alfred Emanuel Smith Memorial Foundation, where he also is
the Dinner Chairman; Chairman of the Cardinal's Committee for the Laity-Wall
Street Division since 1985; Founder and Chairman of Hackers for Hope since 1989;
Director of the Center for Hope since 1989; a Director at the Catholic Youth
Organization until 1997; and member at the President's Council, Memorial Sloan
Kettering Hospital since 1986; and a member of the New York City Advisory Board
of the Enterprise Foundation. Mr. Smith has also been a member of the Board of
Trustees of St. Vincent's Hospital and Medical Center, since 1986, and the
Cavalry Hospital since 1998, and was a member of the Board of Trustees of Iona
Prep School, Saint Agnes Hospital, and Our Lady of Mercy Medical Center. Mr.
Smith is a member of the Association of the Sovereign Military Order of Malta.
He has received numerous awards for his charity humanitarian work, including
"Wall Street 50" Honoree Humanitarian Award, Terence Cardinal Cooke Center in
1999; Man of the Year Award at Iona Prep in 1986, Club of Champions Gold Medal
Award of the Catholic Youth Organization, Ellis Island Medal of Honor, the
National Brotherhood Award of the National Conference of Christians and Jews,
the Graymoor Community Service Award by the Franciscan Friars of the Atonement,
the American Cancer Society's Gold Sword of Hope Award, and the Terence Cardinal
Cooke Humanitarian Award by Our Lady of Mercy Medical Center. Mr. Smith was
educated at Villanova University.
MONICA CHAVES. Ms. Chaves is Secretary of the Board of Directors of Rica Foods,
Inc. and is also member of the Board of Directors of Corporacion Pipasa. Ms.
Chaves joined Corporacion Pipasa as assistant manager in the company's Finance
Division in 1991, when she was in charge of Pipasa's Special Investment
Department. In 1996, when the Company went public, Ms. Chaves assumed the
Company's Investor Relations Department. Ms. Chaves was appointed the Vice
President of Administration of Pipasa and As de Oros on March 1, 1999. Ms.
Chaves received a bachelors degree in Business Administration from Saint
Michaels College, Vermont.
-33-
<PAGE>
HONORABLE AMBASSADOR MR. LUIS GUINOT, JR. Ambassador Luis Guinot, Jr. attended
college in the United States of America, where he graduated from the Catholic
University of America School of Law in Washington, D.C. After completing his
undergraduate studies at New York University, he was commissioned an Ensign in
the U.S. Navy where he served in several billets-both shore and afloat,
including a tour of duty as gunnery officer of the destroyer USS Gearing (DD710)
and Senior Shore Patrol Officer of the U.S. Sixth Fleet based in Naples, Italy.
After completion of his military obligation, Mr. Guinot entered the private
practice of law in Washington, D.C. Mr. Guinot has served as United States
Ambassador to the Republic of Costa Rica, as the Assistant General Counsel of
the United States Department of Agriculture and as Administrator of the Office
of the Commonwealth of Puerto Rico in Washington, D.C. Additionally, Mr. Guinot
has also appeared as speaker and lecturer on United States-Latin American Trade,
North American Foreign Trade Agreement ("NAFTA") and General Agreement on Trade
and Tariffs ("GATT") related matters, and he is the author of several newspaper
articles on the same subject. Mr. Guinot is a member of the Commonwealth of
Virginia and the District of Columbia Bar Associations and has been admitted to
practice before the bars of the U.S. Supreme Court, the 1st and the 11th Circuit
Court of Appeals, the Bars of the Southern District of New York, and the
Southern District of Florida, Eastern Districts of Virginia, and the Court of
Military Appeals. Mr. Guinot is also a fellow of the American Bar Foundation,
served in the U.S. Presidential Commission on Civil Disorders (Kerner
Commission) and former member of the Board of Directors of the Legal Services
Corporation. Mr. Guinot was awarded the Grand Order of Juan Mora (Silver Plaque)
by the Government of Costa Rica. He has been featured speaker on Conferences on
the general subject of hemispheric free trade and served as legal advisor to
U.S. corporations doing business in Latin America as well as legal advisor to
ministries of Central and South American Countries. In addition to serving as a
member of the Board of Directors of Rica Foods Mr. Guinot was recently appointed
to serve in the Board of Directors of Tampa Energy Co. ("TECO") of Tampa,
Florida. Mr. Guinot is currently practicing law in the Washington, D.C. office
of Shapiro, Sher & Guinot, P.A. of Baltimore, Maryland.
JOSE PABLO CHAVES. Mr. Chaves is a member of the Board of Directors of Pipasa
and As de Oros, as well as Restaurantes As de Oros, S.A., of which the Company
agreed to sell 81% of its shares on October 2000, and is a board member of the
Company and the Company's Chief Operating Officer. Mr. Chaves studied Business
Administration with emphasis in Marketing at Babson College, Massachusetts and
in Costa Rica. Mr. Chaves is the founder of three Costa Rican Companies.
TROND SIGURD JENSEN. Mr. Jensen was born in Oslo, Norway. Mr. Jensen graduated
from Handels Gymnas in 1973 and in 1983 he received a Bachelor of Arts Degree in
Economics from the University of California, San Diego. In 1984, he was
transferred to New York City to manage Banco Consolidado New York. During his
two years in New York City, he successfully expanded the bank's operation and
improved financial results while developing operations in Venezuela. He also
worked at Latino Financial Group, headquartered in Venezuela, to build up a
commodity trading company where he combined his financial and banking experience
with his roots in business and trade. Mr. Jensen created and headed the Latimar
Trading Company and opened Latimar offices in Miami, Caracas, Curacao and Oslo.
In 1989, Mr. Jensen became an equity partner in Latimer Trading Company and
continued building the venture until selling his position in 1992 when he
decided to assume the ownership and management of Sigurd Jensen a/s, Oslo,
Norway. Simultaneously, he established an affiliated company, Sigurd Jensen &
Co., based in Miami, Florida. Since 1992, Mr. Jensen has successfully developed,
expanded and diversified the family enterprise first established in 1903. Today,
through strategic alliances and affiliations, Sigurd Jenesen is involved in a
wide range of activities including cargo and vessel chartering, the export and
marketing of food commodities from South America to the Far East and the United
States, privatization projects in Central and South America and investments in
food and maritime-transportation projects. During his fourteen years in Miami,
Mr. Jensen has been active in numerous community organizations, including the
Beacon Council, the Dade County Committee for World Trade and the Homestead
Diversification Project. He is also a director of the Norwegian American Chamber
of Commerce and a member of various corporate boards and civic committees.
-34-
<PAGE>
JACK PEEPLES. Mr. Peeples served in the Korean War as an Airborne Infantry
Officer and Rifle Company Commander. He was awarded Combat Infantryman Badge,
Bronze Star for Valor and Purple Heart. Mr. Peeples graduated from the
University of Florida College of Law in 1957 and joined the law firm of former
Governor Leroy Collins in Tallahassee, Florida. Mr. Peeples was appointed as
Legislative Counsel to Governor Collins in 1958 and was appointed to the
Governor's Cabinet as State Beverage Director in 1959. Mr. Peeples returned to
the private practice of law in 1961, specializing in legislative and
administrative practice in Tallahassee, Florida. He was a founding partner in
Peeples, Earl & Blank in 1970, specializing in environmental law. Mr. Peeples
retired from Peeples, Earl & Blank in 1994 and joined White & Case as Of
Counsel. Mr. Peeples served as Campaign Chairman and Chairman of Transition Team
for Governor Lawton Chiles and Legislative and Senior Counsel to the Governor.
He has also served as Vice-Chairman of Governor's Commission on Governance,
Vice-Chairman of Governor's Commission on the Homeless, Chairman of Florida
Aviation Commission, and Co- Chairman of the Dade County Homeless Trust. Mr.
Peeples is a Board Member of the Florida Independent College Fund, Member of the
Board of Overseers of the University of Florida Medical School, and
representative of the Governor and Cabinet on the Downtown Development Authority
for Tallahassee, Florida. He has also served as General Counsel and member of
the Board of Directors of Deltona Corporation, a New York Stock Exchange
("NYSE") company, and he is a member of the Board of Directors and Chairman of
the Audit Committee of United Petroleum Group, a Hunt family company, and as
Senior Counsel and member of the Board of Directors of Senior Networks, Inc.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires the
Company's officers and directors and persons owning more than ten percent of the
Company's Common Stock to file initial reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Additionally,
Item 405 of Regulation S-K under the 34 Act requires the Company to identify in
its Form 10-K and Proxy Statement those individuals for whom one of the above
referenced reports was not filed on a timely basis during the most recent fiscal
year or prior fiscal years. Given these requirements, the Company reports that
to the best of its knowledge all of the Company's officers or directors and all
persons owning more than ten percent of its shares have filed the subject
reports on a timely basis during the past fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for the summary compensation table for the most
highly compensated officers for the last three fiscal years:
Salary Other
Name and Main Position Years Compensation Compensation(1)
---------------------- ----- ------------ ---------------
Calixto Chaves - Chief Executive Officer 2000 $136,764 $5,633
Calixto Chaves - Chief Executive Officer 1999 $128,262 $1,953
Calixto Chaves - Chief Executive Officer 1998 $126,780 $1,993
All salary compensation was paid in Costa Rican colones. For the purposes of
this presentation, all compensation has been converted to U.S. dollars at the
then current exchange rate for Costa Rican colones.
(1) Represents Director's fees payable for action as a Director of Pipasa.
-35-
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Company has a Compensation Committee consisting of Calixto Chaves, Chairman
of the Board, President and Chief Executive Officer and Jorge Quesada, Treasurer
and Director. This Committee makes the determinations for stock issuance
pursuant to the Company's compensation plans. The Company has no retirement,
pension or profit sharing plans covering its officers and directors, but does
contemplate implementation of such a plan in the future through Pipasa and As de
Oros. The Company's subsidiaries, Pipasa and As de Oros have implemented such a
plan that includes all of its employees, management and officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the latest practicable date, December 15,
2000, the number of shares of Common Stock of the Company which were owned
beneficially by (i) each person who is known by the Company to own beneficially
more than 5% of its Common Stock, (ii) each director and nominee for director,
(iii) certain executive officers of the Company.
<TABLE>
<CAPTION>
<S> <C> <C>
Amount and Nature
Name and Address of Beneficial Owner(1) of Beneficial Percentage of Shares
Ownership (2) (3) Owned (2)
---------------------------------------------------------------------------------------------------
Calixto Chaves 5,548,433 (5)(4) 44.44%
Comercial Angui, S.A. 2,318,130 (6) 19.46%
c/o Bufete Chaverri, Soto & Asociados
Barrio Escalante de Cine Magaly,
400 Metros Este
San Jose, Costa Rica
Jorge M. Quesada 45,795 (7) *
Monica Chaves 133,334 (8) *
Luis Guinot, Jr. - *
Luis J. Lauredo - *
Federico Vargas - *
Alfred E. Smith IV 33,334 *
Jose Pablo Chaves 279,324 (9) *
Jose A. Zamora 47,295(10)
</TABLE>
_________________________
* Indicates less than 1% of outstanding shares owned.
(1) Unless otherwise indicated, the address of each beneficial owner is Rica
Foods, Inc., 8550 N.W., 17th Street, Suite 100, Miami, Florida 33126.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of options, warrants and convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date
hereof have been exercised.
(3) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
-36-
<PAGE>
(4) Includes 861,315 shares of Common Stock owned of record by Atisbos de
Belen, S.A., a corporation in Costa Rica wholly-owned by Mr. Chaves and his
wife, 704,857 shares of Common Stock owned of record by Inversiones Leytor,
S.A., a Costa Rican company wholly-owned by Mr. Chaves, and 298,667 shares
of Common Stock owned of record by OCC, S.A., a company in Costa Rica
wholly-owned by Mr. Chaves and his wife. Does not include 133,334 shares
and 279,324 shares owned by his adult daughter and adult son respectively.
(5) Includes 3,683,595 shares of Common Stock acquired by Inversiones la Ribera
S.A., a corporation in Costa Rica owned by Mr. Chaves and his wife.
(6) Includes 1,670,921 shares of Common Stock acquired by Comercial Angui,
S.A., a corporation in Costa Rica owned by Mr. Echeverria and his wife.
(7) Includes 45,795 shares owned by Jorque, S.A., a closely-held company in
Costa Rica whose principal shareholders are the wife and sons of Mr. Jorge
Quesada.
(8) Owned of record by Moninternacional, S.A., a corporation in Costa Rica
owned by Monica Chaves. Mr. Chaves disclaims any beneficial ownership of
these shares.
(9) Owned of record by Rtrosptva, S.A. a corporation in Costa Rica wholly owned
Jose Pablo Chaves. Mr. Chaves disclaims any beneficial ownership of these
shares.
(10) Owned of record by Inversiones Zamora y Aguilar S.A., a corporation in
Costa Rica wholly owned by Jose A. Zamora and wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Balances and transactions with related parties consist of the following:
2000 1999
---- ----
Due from stockholders $4,900,499 $ 644,988
Due from related parties 39,618 2,954,579
Due to stockholders (short-term) 76,657 75,108
Due to stockholders (long-term) 16,409 16,715
Balances due from stockholders for fiscal years 2000 and 1999 originate from
loans which bear interest at market rates which range from 10.5% to 12% in U.S.
dollars and 16% in Colones, made primarily to the Company's Chief Executive
Officer, other stockholders and to Inversiones La Ribera, a company 100% owned
by the Company's Chief Executive Officer. Interest income for fiscal years ended
September 30, 2000, 1999 and 1998 amounted to $$405,040, $87,535 and $53,200,
respectively.
Current and long-term balances due to stockholders in 2000 and 1999 originate
from notes payable to the Company's Chief Executive Officer and other
stockholders.
During fiscal 2000 and 1999, the Board of Directors of Pipasa declared a
dividend to common stockholders for a total of 637,000 and 510,565 "TCA"
preferred shares of Pipasa, valued at $2,143,626 and $1,929,766, respectively.
In accordance with the Company's ownership, Inversiones La Ribera, S.A. received
257,602 shares during fiscal year 2000 and 206,472 shares during fiscal year
1999, valued at $866,882 and $780,397, respectively. Immediately after the
issuance of such preferred stock, Inversiones La Ribera, S.A. used of the total
proceeds of the purchase to cancel outstanding debts with Pipasa, during each of
fiscal 2000 and 1999. The dividends distributed during fiscal years 2000 and
1999, correspond to earnings pertaining to fiscal periods 1999 and 1998,
respectively.
-37-
<PAGE>
During fiscal 2000, the Board of Directors of As de Oros declared a dividend of
590,000 series "TCA" shares of preferred stock of As de Oros valued at
$1,983,327 to common stockholders of record as of September 30, 1999. As de Oros
distributed 332,642 shares to the Company and 257,358 shares to Comercial Angui,
S.A. in accordance with the Company's common stock ownership as of September 30,
1999. The dividends distributed correspond to earnings pertaining to fiscal
period 1999.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL SATEMENTS SCHEDULES AND REPORTS ON FORMS 8-K
14 (a) Documents filed for this item are filed as a separate section
following the signature page. Reference is made to the Consolidated Financial
Statements beginning on page F-1.
(1) See Page No. F-1.
(2) Schedules, other than Page F-1 are omitted because of the absence of
conditions under which they are required or because the information required is
included in the consolidated financial statements and notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
Number Description Reference
--------------------------------------------------------------------------------------
(2) Acquisition Plans
2.1 Stock Purchase Agreement, dated as of
September 28, 1998, by and between
the Company and Inversiones La
Ribera, S.A. filed as Exhibit 2.1 to
Form 8-K filed on December 7, 1999 is
incorporated by reference herein.
2.2 Stock Purchase Agreement, dated as of
September 28, 1998, by and between
the Company and Comercial Angui, S.A.
filed as Exhibit 2.1 to Form 8-K
filed on November 29, 1999 is
incorporated by reference herein.
(3) 3.1 Articles of Incorporation
3.2 By-Laws
(10) Material contracts
(21) Subsidiaries of the Registrant
-38-
<PAGE>
(27) Financial Data Schedule See page 72
</TABLE>
(b) Reports on form 8-K. During the first quarter of fiscal year ended
September 30, 2000, the Company filed two reports on Form 8-K on November 29,
1999 and December 16, 1999, two reports on Form 8K/A on February 2, and February
10, 2000, pertaining to the acquisitions referenced above. These reports and
exhibits thereto are hereby incorporated by reference.
-39-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RICA FOODS, INC.
Dated By:
------------------------- --------------------------------------
Calixto Chaves
Chief Executive Officer
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.
Dated By:
------------------------- --------------------------------------
Randall Piedra
Chief Financial Officer
Dated By:
------------------------- --------------------------------------
Monica Chaves
Secretary
-40-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
EXHIBITS
TO
RICA FOODS, INC.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of
RICA FOODS, INC.:
We have audited the accompanying consolidated balance sheets of RICA FOODS, INC.
(a Nevada corporation) and subsidiaries as of September 30, 2000 and 1999, and
the related consolidated statements of income, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the
period ended September 30, 2000. 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. 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 RICA FOODS, INC. and
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Miami, Florida,
December 22, 2000.
F-2
<PAGE>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assets 2000 1999
---- ----
Current assets:
Cash and cash equivalents $ 4,256,636 $ 3,913,168
Short-term investments 86,557 32,747
Notes and accounts receivable, net 11,187,031 9,603,282
Due from related parties 39,618 2,954,579
Inventories, net 14,307,768 13,896,517
Prepaid expenses 557,519 366,221
------------ ------------
Total current assets 30,435,129 30,766,514
Property, plant and equipment, net 45,425,881 31,923,486
Long-term receivables-trade 640,222 114,346
Long-term investments 3,965,385 4,260,663
Other assets, net 4,010,364 1,875,888
Cost in excess of net assets of acquired business, net 3,705,392 1,382,226
------------ ------------
Total assets $ 88,182,373 $ 70,323,123
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 16,161,076 $ 12,084,992
Accrued expenses 3,862,659 3,604,397
Notes payable 12,878,147 7,582,890
Current portion of long-term debt 5,680,190 1,182,184
Due to stockholders 76,657 75,108
------------ ------------
Total current liabilities 38,658,729 24,529,571
Long-term debt, net of current portion 21,820,905 21,443,589
Due to stockholders 16,409 16,715
Deferred income tax liability 2,899,511 1,764,735
------------ ------------
Total liabilities 63,395,554 47,754,610
------------ ------------
Minority interest in Subsidiary 1,336,445 9,468,206
------------ ------------
Commitments and Contingencies (Note 19)
Stockholders' equity:
Common stock 12,855 7,486
Preferred stock 2,216,072 2,216,072
Additional paid-in capital 25,760,950 12,137,326
Accumulated other comprehensive loss (8,758,737) (6,828,500)
Retained earnings 9,388,127 6,481,305
------------ ------------
28,619,267 14,013,689
Less:
Due from stockholders (4,900,499) (644,988)
Treasury stock, at cost (268,394) (268,394)
------------ ------------
Total stockholders' equity 23,450,374 13,100,307
------------ ------------
Total liabilities and stockholders' equity $ 88,182,373 $ 70,323,123
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
---- ---- ----
Net sales $ 123,628,327 $ 118,549,625 $ 98,793,976
Cost of sales 83,756,904 77,274,794 71,464,203
------------- ------------- ------------
Gross profit 39,871,423 41,274,831 27,329,773
------------- ------------- ------------
Operating expenses:
General and administrative 13,577,143 11,412,996 8,694,664
Selling 18,955,061 17,035,717 12,182,757
Amortization of cost in excess of net
assets of acquired business 953,828 398,941 297,206
------------- ------------- ------------
Total operating expenses 33,486,032 28,847,654 21,174,627
------------- ------------- ------------
Income from operations 6,385,391 12,427,177 6,155,146
------------- ------------- ------------
Other expenses (income):
Interest expense, net of interest capitalized 3,548,935 3,484,314 3,108,182
Interest income (1,660,747) (677,155) (614,211)
Foreign exchange losses, net 1,562,549 1,806,311 1,412,971
Miscellaneous, net (790,039) (360,341) (1,392,732)
------------- ------------- ------------
Other expenses, net 2,660,698 4,253,129 2,514,210
------------- ------------- ------------
Income before income taxes and minority interest 3,724,693 8,174,048 3,640,936
Provision for income taxes 80,223 762,472 188,663
------------- ------------- ------------
Income before minority interest 3,644,470 7,411,576 3,452,273
Minority interest (572,631) (4,133,011) (2,094,962)
------------- ------------- ------------
Net income 3,071,839 3,278,565 1,357,311
Preferred stock dividends 182,892 237,910 227,357
------------- ------------- ------------
Net income applicable to common stockholders $ 2,888,947 $ 3,040,655 $ 1,129,954
============= ============= ============
Earnings per share:
Basic earnings per share $ 0.24 $ 0.43 $ 0.16
============= ============= ============
Diluted earnings per share $ 0.24 $ 0.42 $ 0.16
============= ============= ============
Weighted average number of common shares outstanding:
Basic 11,874,190 7,122,170 7,078,949
============= ============= ============
Diluted 11,878,474 7,269,769 7,113,265
============= ============= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended September 30, 2000, 1999 and 1998
(chart is to be read over the next four pages)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Stock Treasury Stock
------------ -------------- Preferred
Shares Amount Shares Amount Stock
------ ------ ------ ------ ---------
Balance,
September 30,
1997 6,603,132 $ 6,603 188,329 $ (847,967) $ 2,216,072
Acquisition of
56.38% of As de
Oros 815,686 816 - - -
Cash dividends
on preferred
stock
of Pipasa - - - - -
Repurchase of
common stock - - 276,710 (1,245,197) -
Stock swapped
for Pipasa's
"TCA" preferred
stock - - (146,077) 657,344 -
Pipasa's preferred
"TCA" stock issued
as dividend to
common
stockholders - - - - 1,103,666
Repurchase of
Pipasa's
preferred
"TCA" stock (1,103,666)
Net income - - - - -
Translation
adjustment - - - - -
Decrease in Due
from
Stockholders - - - - -
Total
comprehensive
income - - - - -
--------- ------- ------- ----------- -----------
Balance
September 30,
1998 7,418,818 7,419 318,962 (1,435,820) 2,216,072
Pipasa's "TCA"
preferred
stock issued as
dividend to
common
stockholders - - - - 826,100
Pipasa's treasury
Preferred "TCA"
stock issues as
dividends of
common stock - - - - 1,103,666
Repurchase of
Pipasa's "TCA"
preferred shares - - - - (1,929,766)
Cash dividends
on preferred
stock of Pipasa - - - - -
Repurchase of
common stock - - 5,500 (77,771) -
Adjustment to
outstanding
common stock,
result of reverse
stock split 321 - - - -
</TABLE>
F-5A (continued on next page)
<PAGE>
<TABLE>
<CAPTION>
(Chart continued from above)
<S> <C> <C> <C> <C> <C>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended September 30, 2000, 1999 and 1998
Accumulated Comprehensive
Additional Other Total Income
Paid-In Due from Comprehensive Retained Stockholders For the
Capital Stockholders Loss Earnings Equity Period
---------- ------------ ------------- -------- ------------ -------------
Balance,
September 30,
1997 $ 9,388,209 $ (920,476) $(4,675,549) $ 2,122,542 $ 7,289,434 -
Acquisition of
56.38% of As de
Oros 2,599,184 - - - 2,600,000 -
Cash dividends
on preferred
stock
of Pipasa - - - (135,413) (135,413) -
Repurchase of
common stock - - - - (1,245,197) -
Stock swapped
for Pipasa's
"TCA" preferred
stock - - - - 657,344 -
Pipasa's preferred
"TCA" stock issued
as dividend to
common
stockholders - - - - 1,103,666 -
Repurchase of
Pipasa's
preferred
"TCA" stock (1,103,666) -
Net income 1,357,311 1,357,311 1,357,111
Translation
adjustment (954,486) - (954,486) (954,486)
Decrease in Due
from
Stockholders - 750,063 - - 750,063 -
Total
comprehensive
income - - - - - 402,625
----------- ----------- ----------- ----------- ----------- -----------
Balance,
September 30,
1998 11,987,393 (170,413) (5,630,035) 3,344,440 10,319,056 -
Pipasa's "TCA"
preferred
stock issued as
dividend to
common
stockholders 826,100
Pipasa's treasury
Preferred "TCA"
stock issues as
dividends of
common stock 1,103,666
Repurchase of
Pipasa's "TCA"
preferred shares - - - - (1,929,766)
Cash dividends
on preferred
stock of Pipasa - - - (141,700) (141,700) -
Repurchase of
common stock - - - - (77,771) -
Adjustment to
outstanding
common stock,
result of reverse
stock split - - - - - -
</TABLE>
F-5B (continued on next page)
<PAGE>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended September 30, 2000, 1999 and 1998
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Stock Treasury Stock
------------ -------------- Preferred
Shares Amount Shares Amount Stock
------ ------ ------ ------ ---------
Warrants
exercised 66,666 67 - - -
Issued treasury
stock (276,710) 1,245,197 -
Net income - - - - -
Translation
adjustment - - - - -
Increase in Due
from
Stockholders - - - - -
Total
comprehensive
income - - - - -
---------- ------- ------- ----------- -----------
Balance
September 30,
1999 7,485,805 7,486 47,752 (268,394) 2,216,072
Cash dividends on
preferred shares - - - - -
Acquisition of
40.44% interest
in Pipasa and
43.62% interest
in As de Oros 5,354,516 5,355 - - -
Shares granted to
employees 7,600 8 - - -
Exercise of
employees' stock
options 6,400 6 - - -
Net income - - - - -
Translation
adjustment - - - - -
Increase in Due
from
Stockholders - - - - -
Total
comprehensive
income - - - - -
---------- ------- ------- ----------- -----------
Balance
September 30,
2000 12,854,321 $12,855 47,752 $ (268,394) $ 2,216,072
========== ======= ======= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5C (continued on next page)
<PAGE>
<TABLE>
<CAPTION>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended September 30, 2000, 1999 and 1998
(Continued)
<S> <C> <C> <C> <C> <C>
Comprehensive Income
(Loss)
-------------------------
Accumulated Comprehensive
Additional Other Total Income
Paid-In Due from Comprehensive Retained Stockholders For the
Capital Stockholders Loss Earnings Equity Period
---------- ------------ ------------- -------- ------------ -------------
Warrants
exercised 149,933 - - - 150,000 -
Issued treasury
stock 1,245,197 -
Net income - - - 3,278,565 3,278,565 3,278,565
Translation
adjustment - - (1,198,465) - (1,198,465) (1,198,465)
Increase in Due
from
Stockholders (474,575) - - (474,575)
Total
comprehensive
income - - - - - 2,080,100
----------- ----------- ----------- ----------- ----------- -----------
Balance
September 30,
1999 12,137,326 (644,988) (6,828,500) 6,481,305 13,100,307 -
Cash dividends on
preferred shares (165,017) (165,017) -
Acquisition of
40.44% interest
in Pipasa and
43.62% interest
in As de Oros 13,463,640 - - - 13,468,995 -
Shares granted to
employees 86,856 - - - 86,864 -
Exercise of
employees' stock
options 73,128 - - 73,134 -
Net income 3,071,839 3,071,839 3,071,839
Translation
adjustment - - (1,930,237) - (1,930,237) (1,930,237)
Increase in Due
from
Stockholders - (4,255,511) - - (4,255,511) -
Total
comprehensive
income - - - - - 1,141,602
----------- ----------- ----------- ----------- ----------- -----------
Balance
September 30,
2000 $25,760,950 $(4,900,499) $(8,758,737) $ 9,388,127 $23,450,374 -
=========== =========== =========== =========== =========== ===========
</TABLE>
F-5D
<PAGE>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 3,071,839 $ 3,278,565 $ 1,357,311
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,038,238 3,394,588 2,435,836
Production poultry 2,331,767 1,697,887 1,340,431
Provision for inventory obsolescence 33,004 28,740 29,435
Amortization of cost in excess of net assets
of acquired business 953,828 398,941 297,206
Stock options and grants issued to employees 121,598 - -
Gain on sales of productive assets (509,272) (214,867) (3,732)
Deferred income tax benefit (323,798) (209,671) (122,308)
Provision for doubtful receivables 352,058 746,599 301,432
Minority interest in Subsidiary 572,631 4,133,011 2,094,962
Changes in operating assets and liabilities:
Notes and accounts receivable (1,994,653) (1,651,518) 952,598
Inventories (2,708,186) (2,674,111) (1,891,920)
Prepaid expenses (191,298) (25,998) 967,717
Long-term receivables-trade (449,519) (6,109) 56,116
Accounts payable 4,162,139 4,548,021 (1,920,001)
Accrued expenses 258,264 568,444 379,910
----------- ----------- -----------
Net cash provided by operating
activities 9,718,640 14,012,522 6,274,993
----------- ----------- -----------
Cash flows from investing activities:
(Purchases) Sales of short-term investments (53,809) 69,145 1,833,749
Initial cash balance from subsidiary acquired - - 1,147,472
Purchase of property, plant and equipment (17,253,793) (9,419,401) (5,313,919)
Purchase of long-term investments - - (2,135,614)
Proceeds from sales of productive assets and long-term
investments 1,850,024 708,629 348,818
Increase in other assets (1,944,492) (229,060) (723,579)
----------- ------------ -----------
Net cash used in investing activities (17,402,070) (8,870,687) (4,843,073)
----------- ------------ -----------
</TABLE>
(Continued on next page)
F-6
<PAGE>
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2000, 1999 and 1998
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
---- ---- ----
Cash flows from financing activities:
Increase (decrease) in notes payable 4,832,597 (883,332) 2,510,177
Preferred stock cash dividends (271,296) (339,570) (288,219)
Long-term financing:
Payments (1,355,247) (2,249,772) (2,753,919)
New loans 6,769,264 445,095 2,344,966
Treasury stock acquired - (77,771) -
Collections from related parties - - 322,239
Advances to stockholders and related party (2,737,373) (2,276,236) (2,414,934)
Proceeds from exercise of warrants - 150,000 -
Proceeds from exercise of stock options 38,400 - -
----------- ----------- -----------
Net cash provided by (used in) financing
activities 7,276,345 (5,231,586) (279,690)
----------- ----------- -----------
Effect of exchange rate changes on cash
and cash equivalents 750,553 712,162 750,237
----------- ----------- -----------
Increase in cash and cash equivalents 343,468 622,411 1,902,467
Cash and cash equivalents at beginning of year 3,913,168 3,290,757 1,388,290
----------- ----------- -----------
Cash and cash equivalents at end of year $ 4,256,636 $ 3,913,168 $ 3,290,757
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 3,859,677 $ 2,611,202 $ 2,482,826
=========== =========== ===========
Income taxes $ 517,903 $ 281,191 $ 117,935
=========== =========== ===========
Supplemental schedule of non-cash investing and
financing activities
Acquisition of treasury stock through
financial agreement $ - $ - $ 1,245,197
=========== =========== ===========
Issuance of treasury stock through financial agreement $ - $ 1,245,197 $ -
=========== =========== ===========
Common stock dividends paid as preferred shares:
From Pipasa $ 2,143,626 $ 1,929,766 $ 1,103,666
=========== =========== ===========
From As de Oros $ 1,983,327 $ - $ -
=========== =========== ===========
Pipasa's preferred stock repurchased in exchange for
outstanding receivables $ 2,143,626 $ 1,929,766 $ 1,103,666
=========== =========== ===========
As de Oros' preferred stock repurchased in exchange
for outstanding receivables $ 1,983,327 $ - $ -
=========== =========== ===========
Acquisition of As de Oros:
Fair value of assets acquired $ 4,600,000 $ - $ 7,709,050
=========== =========== ===========
Common stock issued $ 7,880,000 $ - $ 2,600,000
=========== =========== ===========
Loan assumed $ - $ - $ 2,400,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Rica Foods, 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. The Company's operations are largely conducted through its
100% owned subsidiaries, Corporacion Pipasa, S.A. and Subsidiaries ("Pipasa")
and Corporacion As de Oros, S.A. and Subsidiaries ("As de Oros"). The Company's
subsidiaries' primary business is derived from the production and sale of
broiler chickens, processed chicken by-products, commercial eggs, and premixed
feed and concentrate for livestock and domestic animals. The Company's
subsidiaries own 58 urban and rural outlets throughout Costa Rica, three modern
processing plants and three animal feed plants. As de Oros also owns and
operates a chain of 36 quick service restaurants in Costa Rica called
"Restaurantes As de Oros." Pipasa exports its products to El Salvador, Honduras,
Nicaragua, and Colombia.
The Company acquired a 59.56% ownership interest in Pipasa on August 5, 1996,
and 56.38% of As de Oros on February 26, 1998. On November 22, 1999 and December
7, 1999, the Company acquired the remaining 43.62% and 40.44% minority interest
of As de Oros and Pipasa, respectively, in exchange for the issuance of
1,670,921 and 3,683,595 restricted shares of common stock of the Company. The
Company designated November 30, 1999 as the date of acquisition for accounting
purposes and as such, has consolidated 100% of earnings of the Subsidiaries
beginning on December 1, 1999. The acquisition of Pipasa was accounted for at
the value of the minority interest as of the acquisition date, on the basis that
the owner of the minority interest of Pipasa is a major stockholder of the
Company. The acquisition of As de Oros was accounted for under the purchase
method of accounting.
On December 15, 1998, the Board of Directors declared a 1 for 3 reverse stock
split (the "Split") of the Company's common stock effective on December 29,
1998. All share amounts have been restated to reflect the Split.
The Company's references herein to Fiscal Years 2000, 1999 or 1998 encompass the
years ending September 30, 2000, 1999 and 1998, respectively.
F-8
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Accounting Principles
---------------------
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States of
America ("U.S." or "U.S.A."). Accounting records of the subsidiaries,
Corporacion Pipasa, S.A. and Corporacion As de Oros, S.A. are maintained
according to generally accepted accounting principles in Costa Rica and have
been converted to GAAP in the U.S.A. in consolidation for financial statement
presentation purposes.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Rica Foods, Inc.
and its subsidiaries, Pipasa and As de Oros. The minority interests held by
third parties in Pipasa and As de Oros are stated separately. As of September
30, 2000, minority interest is composed of preferred shares of As de Oros.
Minority interest's share of earnings include dividends paid to preferred
shareholders of As de Oros. Prior to the acquisition of the 40.44% minority
interest in Pipasa and 43.62% in As de Oros, minority interest share of net
income was based on their ownership percentage during the respective periods.
All significant intercompany balances and transactions have been eliminated in
consolidation.
The September 30, 1996 acquisition of Pipasa was accounted for as a reverse
acquisition, whereby Pipasa was treated as the accounting acquiror and the
Company as the legal acquiror.
The consolidated financial statements of the Company as of September 30, 2000
and 1999 reflect the acquisition of As de Oros using the purchase method of
accounting. The excess of purchase price over the fair market value of the net
assets acquired is being amortized using the straight-line method over a period
of five years.
Reclassifications
-----------------
Certain prior period balances have been reclassified to conform to the fiscal
year 2000 presentation.
F-9
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with GAAP in the U.S.A.
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates made by
management include but are not limited to the realization of inventories, the
possible outcome of outstanding litigation and the ultimate collection of
customer receivables. Actual results in subsequent periods could differ from
estimates.
Foreign Currency Translation
----------------------------
Most of the Company's transactions take place in Costa Rica and are denominated
in local currency, the colon (cent sign). The exchange rate between the colon
and the U.S. dollar is determined in a free exchange market, supervised by the
Banco Central de Costa Rica. As of September 30, 2000, 1999 and 1998, commercial
exchange rates were (cent sign)313.35 (cent sign)292.69 and (cent sign)264.07
for US$1.00, respectively.
The financial statements of Pipasa and As de Oros have been translated into U.S.
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
F-10
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Rican colones have been translated at the commercial exchange rates in effect on
the balance sheet dates, stockholders' equity have been translated at historical
exchange rates and income and expenses have been translated at average exchange
rates in effect during the fiscal years. Foreign currency gains and losses
resulting from transactions denominated in foreign currencies, including
intercompany gains and losses resulting from transactions, are included in
results of operations. The related translation adjustments for each fiscal year,
along with the cumulative amounts as of the balance sheets, are reflected in the
accumulated other comprehensive income (loss) section of the consolidated
statements of stockholders' equity.
Cash and Cash Equivalents/Fair Value of Financial Instruments
-------------------------------------------------------------
The Company classifies as cash and cash equivalents all interest-bearing
deposits with original maturities of three months or less. The fair value of a
financial instrument represents the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation. Fair value estimates are made at a specific point in
time, based on relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision. The
assumptions used have a significant effect on the estimated amounts reported.
The carrying value of cash and cash equivalents, short-term investments, notes
and accounts receivable, due from related parties, accounts payable, notes
payable and due to stockholders, are a reasonable estimate of their fair value
due to the short-term nature of these instruments. The Company estimates that
the carrying value of current installments of long-term debt and long-term debt
approximates fair value because interest rates are adjustable based on market
interest rates.
Futures Contracts
-----------------
Futures contracts with original maturities of less than one year are used to
hedge fluctuations in corn and soybean meal prices. The Company does not enter
into derivative transactions for speculative purposes. Gains and losses on
commodity futures transactions are deferred until the futures contracts are
liquidated. As of September 30, 2000, the Company has futures contracts in place
to hedge purchases of commodities for $1.87 million with a fair value of
approximately the same amount.
F-11
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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. Costs pertaining to the growth period of reproductive hens
consisting primarily of animal feed, labor costs and cost of imported chicks,
are capitalized and are subsequently amortized over the expected reproductive
life of the hens which is of approximately 16 months.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Improvements to property,
plant and equipment which extend their useful lives are capitalized. Costs for
maintenance, repairs and minor renewals are charged to expense when incurred.
Depreciation expense is recorded using the straight-line method over the
following estimated useful lives: buildings and facilities-50 years; machinery
and equipment-between 5 and 20 years.
Costs of leasehold rights on properties that are accounted for as operating
leases are capitalized and amortized over the respective lease term using the
straight-line method. Net capitalized leasehold rights amounted to $680,000 as
of September 30, 2000.
Applicable interest charges incurred during the construction of new facilities
are capitalized as one of the elements of its cost and are amortized over the
assets' estimated useful lives. Interest capitalized during fiscal year 2000 was
$680,488.
Impairment Charges
------------------
The Company assesses long-lived assets for impairment whenever events and
circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. The Company has not recognized an impairment loss for
the years ended September 30, 2000, 1999 or 1998.
Software Development Costs
--------------------------
The Company capitalizes costs associated with software developed for internal
use. Capitalized costs include direct costs of materials, services consumed in
developing the software, payroll and payroll-related costs for employee who are
directly associated with and who devote time to the internal-use software
project, and interest costs incurred while developing the software.
Capitalization of such costs ceases when the project is substantially completed
and ready for its intended use. The carrying value of software and development
costs included in other assets in the consolidated balance sheets amounting to
$1,527,872 and $338,641 at September 30, 2000 and 1999, respectively, is
regularly reviewed by the Company to determine if an impairment loss should be
recognized.
F-12
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Capitalized internal software development costs are amortized using the
straight-line method over a period of five years, which totaled $175,957,
$196,942 and $122,761 for the years ended September 30, 2000, 1999 and 1998,
respectively.
Comprehensive Income (Loss)
---------------------------
The Company reports comprehensive income (loss) in accordance with FASB
Statement No. 130 "Reporting Comprehensive Income" which requires the disclosure
of comprehensive income, which includes, the disclosure of comprehensive income,
which includes, in addition to net income, unrealized gains and losses which
bypass the traditional income statement and are recorded directly into a
separate section of shareholders' equity on the balance sheet. The component of
other comprehensive income (loss) for the Company consist of unrealized losses
relating to the translation of foreign currency financial statements.
Loan Costs Deferral
-------------------
The Company is deferring certain commitment fees and other direct loan
origination costs. These charges are being amortized over the contractual life
of the related loan.
Advertising Costs
-----------------
Advertising costs are expensed as incurred. Advertising costs amounted to
$829,811, $1,356,226 and $815,699 for the fiscal years ended September 30, 2000,
1999 and 1998, respectively. Advertising expenses are included in selling
expenses in the accompanying consolidated statements of income.
Income Taxes
------------
The Company files a tax return for its operations in the United States, which do
not include operations of any of its subsidiaries. The Company's subsidiaries,
As de Oros and Pipasa, file a tax return in Costa Rica. The Company accounts for
income taxes in accordance with the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
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 SFAS No.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.
F-13
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Change in Method of Accounting
------------------------------
For the fiscal year ended September 30, 1999, the Company changed its method of
accounting for sales and purchases from integrated producers. Integrated
producers are local farmers who raise and feed poultry on behalf of the Company.
The new method adopted on October 1, 1998, reflects chickens and materials
transferred to integrated producers as inventory. The method used until
September 30, 1998, reflected transfers of chicken and materials to the
integrated producers as sales at cost. The effect of the change in accounting
method was a decrease in sales and cost of sales of approximately $11.5 million
for the year ended September 30, 1999. The consolidated statement of income for
the fiscal year ended September 30, 1998 has been restated to reflect the new
method of accounting. The effect of this restatement was to decrease sales and
cost of sales by $4.9 million, increasing the gross profit margin from 26.36% to
27.66%. There was no effect on the net income for the years ended September 30,
1999 and 1998. Sales and cost of sales from integrated producers was included in
the "Others" segment for fiscal year ended September 30, 1998.
New Accounting Pronouncements
-----------------------------
Accounting for Derivative Instruments and for Hedging Activities:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") for fiscal years beginning
after June 15, 1999. SFAS No.133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, and for hedging activities be
recognized as either an asset or a liability in the statement of financial
position and measure those instruments at fair value. Application of this
statement is deffered by SFAS No. 137 for one year from June 15, 1999 to June
15, 2000. The Company adopted SFAS No. 137 on October 1, 2000 and its adoption
is not expected to have a material effect on the financial statements of the
Company.
Revenue Recognition
On December 3, 1999, the staff of the SEC published Staff Accounting Bulletin
101, "Revenue Recognition," ("SAB 101") to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. Specific items
discussed in SAB 101 include bill-and-hold transactions, long-term service
transactions, refundable membership fees, contingent rental income, up-front
fees when the seller has significant continuing involvement and the amount of
revenue recognized when the seller is acting as a sales agent or in a similar
capacity. SAB 101 also provides guidance on disclosures that should be made for
revenue recognition policies and the impact of events and trends on revenue. The
Company adopted SAB 101 effective October 1, 1999. The adoption of SAB 101 did
not have a material effect on the financial statements of the Company, as the
revenue recognition policies are in conformity with SAB 101.
F-14
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Accounting for Certain Transactions Involving Stock Compensation
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation-An Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of APB No. 25 to certain issues including: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequences of various modifications to the terms of previously fixed stock
options or awards; and the accounting for the exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 are applicable retroactively to specific events occurring
after either December 15, 1998 or January 12, 2000. The Company does not expect
the application of FIN 44 to have a material impact on the Company's financial
position or results of operations.
2. NOTES AND ACCOUNTS RECEIVABLE
Notes and accounts receivable consist of the following:
2000 1999
---- ----
Accounts:
Trade receivables $ 9,020,999 $ 9,003,334
Other 2,856,915 1,142,976
----------- -----------
11,877,914 10,146,310
Less: allowance for doubtful accounts (797,611) (675,334)
----------- -----------
11,080,303 9,470,976
Short-term notes-trade 106,728 132,306
----------- -----------
$11,187,031 $ 9,603,282
=========== ===========
3. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES
Balances and transactions with related parties consist of the following:
2000 1999
---- ----
Due from stockholders $4,900,499 $ 644,988
Due from related parties 39,618 2,954,579
Due to stockholders (short-term) 76,657 75,108
Due to stockholders (long-term) 16,409 16,715
F-15
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Balances due from stockholders for fiscal 2000 and 1999 originate from loans,
which bear interest at market rates which range from 10.5% to 12% in U.S.
dollars and 16% in Colones, made primarily to the Company's Chief Executive
Officer, other stockholders and to Inversiones La Ribera, a company 100% owned
by the Company's Chief Executive Officer. Interest income for fiscal years ended
September 30, 2000, 1999 and 1998 amounted to $405,040, $87,535 and $53,200,
respectively.
Current and long-term balances due to stockholders in 2000 and 1999 originate
from notes payable to the Company's Chief Executive Officer and other
stockholders.
During fiscal 2000 and 1999, the Board of Directors of Pipasa declared a
dividend to common stockholders of Pipasa for a total of 637,000 and 510,565
"TCA" preferred shares of Pipasa, valued at $2,143,626 and $1,929,766,
respectively. In accordance with Pipasa's ownership, Inversiones La Ribera, S.A.
received 257,602 shares during fiscal year 2000 and 206,472 shares during fiscal
year 1999, valued at $866,882 and $780,397, respectively. Immediately after the
issuance of such preferred stock, Inversiones La Ribera, S.A. used the total
proceeds of the dividends to cancel outstanding debts with Pipasa, during each
of fiscal 2000 and 1999. The dividends distributed during fiscal years 2000 and
1999 correspond to Pipasa's earnings pertaining to fiscal periods 1999 and 1998,
respectively.
During fiscal 2000, the Board of Directors of As de Oros declared a dividend of
590,000 series "TCA" shares of preferred stock of As de Oros valued at
$1,983,327 to common stockholders of record of As de Oros as of September 30,
1999. As de Oros distributed 332,642 shares to the Company and 257,358 shares to
Comercial Angui, S.A. in accordance with As de Oros' common stock ownership as
of September 30, 1999. The dividends distributed correspond to As de Oros'
earnings pertaining to fiscal period 1999.
4. INVENTORIES
Inventories consist of the following:
2000 1999
---- ----
Finished products $ 4,049,669 $ 3,029,269
Poultry 3,655,554 3,035,678
Production poultry 3,191,343 3,329,784
Materials and supplies 1,939,597 2,165,074
Raw materials 2,180,936 1,757,125
In transit 391,105 1,469,056
----------- -----------
15,408,204 14,785,986
Production poultry (1,025,754) (836,849)
Allowance for obsolescence (74,682) (52,620)
----------- -----------
$14,307,768 $13,896,517
=========== ===========
F-16
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
2000 1999
---- ----
Land $ 7,608,400 $ 5,676,757
Buildings and facilities 13,345,140 9,833,532
Machinery and equipment 25,151,983 21,652,888
Machinery in transit 350,344 534,158
Construction in process 9,917,733 4,639,879
----------- -----------
56,373,600 42,337,214
Less: accumulated depreciation and
amortization (10,947,719) (10,413,728)
----------- -----------
$45,425,881 $31,923,486
=========== ===========
Depreciation expense for the years ended September 30, 2000, 1999 and 1998
amounted to $3,862,281, $3,197,646 and $2,313,075, respectively.
6. LONG-TERM INVESTMENTS
Long-term investments, which are carried at cost, net of unrealized foreign
exchange differences, consist of the following:
2000 1999
---- ----
Grupo Industrias Oleaginosas S.A.
("INOLASA") $ 3,317,457 $ 3,551,625
La Condesa, S.A. 638,264 683,317
Others (less than 50% ownership) 9,664 25,721
----------- -----------
$ 3,965,385 $ 4,260,663
=========== ===========
INOLASA is the only supplier of soybean meal in Costa Rica. The Company has a
10% ownership interest in INOLASA which is accounted for under the cost method
and dividends are recorded in income when they are declared. During the year
ended September 30, 2000, the Company received cash dividends from INOLASA
amounting to approximately $550,000. During fiscal year 1999, no dividends were
declared or paid by INOLASA. For fiscal year 1998, the Company received cash
dividends from INOLASA in the amount of $150,000. These dividends are included
in miscellaneous, net in the consolidated statements of income.
During 1998, the Company acquired 200,000,000 preferred shares of La Condesa,
S.A., a hotel located in Costa Rica. Shares in La Condesa, S.A., a corporation
in Costa Rica in the hotel business, does not grant ownership interest to the
Company.
F-17
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. NOTES PAYABLE
Notes payable consist of the following:
2000 1999
---- ----
Loans payable $ 12,776,593 $ 5,661,055
Commercial paper - 1,895,613
Other 101,554 26,222
------------ -----------
$ 12,878,147 $ 7,582,890
============ ===========
Loans payable include lines of credit and commitments with banks and raw
material suppliers to support operations of the Company. The Company has a
$500,000 line of credit with Fimat, a brokerage firm, which is used to finance
purchases of corn and soybean. Notes payable are due from October 2000 through
September 2001.
As of September 30, 2000, the Company had line of credit agreements with banks
and raw material suppliers for a maximum aggregate amount of $27 million, of
which $16.7 million had already been used ($26.7 million for 1999, of which
$8.60 million had already been used). As of September 30, 2000, $4.3 million of
these lines of credit are included in accounts payables. The credit agreements
may be renewed annually and bear interest at annual rates ranging from 8.00% to
11.75%. Property and inventory amounting to $1.9 million and $1 million,
respectively, secure line of credit agreements amounting to $6.2 million, of
which $5.9 had been used as of September 30, 2000. Other lines of credit
agreements and notes payables are unsecured.
The Company was in compliance with all debt covenants as of September 30, 2000.
8. LONG-TERM DEBT
Long-term debt consists of the following:
2000 1999
---- ----
Series A Senior Notes $ 8,000,000 $ 8,000,000
Series B Senior Notes 12,000,000 12,000,000
Bank loans 7,501,095 2,625,773
------------ ------------
27,501,095 22,625,773
Less: current installments (5,680,190) (1,182,184)
------------ ------------
$ 21,820,905 $ 21,443,589
============ ============
As of September 30, 2000, bank loans amounting to $4.1 million were secured by
Company's property, equipment and vehicles in the amount of $5 million. Other
bank loans amounting to $3.5 million are unsecured. Bank loans are due from
October 2001 to January 2008.
During fiscal year 1998, the Company completed a private placement (the "Private
Placement") of $20 million in notes payable bearing an annual interest rate of
11.71%, comprised of $8 million in Series "A" Senior Notes and $12 million in
Series "B" Senior Notes (collectively the "Notes"). The closing date of the
agreement was on January 23, 1998 for Series "A" and February 26, 1998 for
series "B" Notes. Pipasa and As de Oros serve as guarantors for this Private
Placement. The Private Placement includes the following terms, among others:
F-18
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
- The Notes shall be payable annually in five consecutive principal
installments amounting to $4,000,000 each beginning on January 15, 2001.
The Notes have a two-year principal payment grace period.
- The Notes covenants state that there will be no significant organizational
changes and that the Company will comply with all federal and local laws
and regulations.
- Financial and business information for the Company and its subsidiaries
will be remitted periodically to the lenders.
- The Notes include several financial and operational covenants which must be
met to prevent the existence of a default or event of default.
Interest rates for long-term debt are as follows:
2000 1999
---- ----
Private Placement 11.71% 11.71%
U.S. dollar bank loans 6.19%-11.75% 5.78%-9.5%
Costa Rican colones bank loans 24%-25% 25%-27%
Future payments on long-term debt as of September 30, 2000 are as follows:
Fiscal Year Amount
----------- ------
2001 $ 5,680,190
2002 5,644,149
2003 5,131,772
2004 4,837,026
2005 4,717,491
Thereafter 1,490,467
-----------
$ 27,501,095
============
9. EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average number of
common shares outstanding plus the effect of outstanding warrants and stock
options using the treasury stock method according to SFAS No. 128 "Earnings per
Share".
Following is a reconciliation of the weighted average number of shares currently
outstanding with the number of shares used in the computations of fully diluted
earnings per share:
F-19
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
---- ---- ----
Numerator:
Net income applicable to common
Stockholders $ 2,888,947 $ 3,040,655 $ 1,129,954
=========== =========== ===========
Denominator:
Denominator for basic income per share 11,874,190 7,122,170 7,078,949
Effect of dilutive securities:
Options to purchase common stock 4,284 - -
Other - 147,599 34,316
----------- ---------- ----------
Denominator for diluted earnings
per share 11,878,474 7,269,769 7,113,265
=========== =========== ===========
Earnings per share:
Basic $ 0.24 $ 0.43 $ 0.16
=========== =========== ===========
Diluted $ 0.24 $ 0.42 $ 0.16
=========== =========== ===========
</TABLE>
The Company had no antidilutive securities outstanding as of September 30, 2000,
1999 and 1998.
10. PRO FORMA FINANCIAL INFORMATION
Following is pro forma financial information which presents results of
operations, and weighted average basic and diluted shares, for the years ended
September 30, 2000 and 1999, as if the acquisition of the remaining minority
interest in Pipasa and As de Oros, had taken place on October 1, 1998:
2000 1999
---- ----
Net sales $123,628,327 $118,549,625
Net income 3,481,205 6,431,992
Pro forma earnings per share:
Basic $ 0.25 $ 0.49
============ ===========
Diluted $ 0.25 $ 0.48
============ ===========
Pro forma Weighted average
number of common shares
outstanding
Basic 12,800,537 12,476,686
============ ===========
Diluted 12,804,822 12,624,285
============ ===========
F-20
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. EMPLOYEE BENEFIT PLAN
The Company has a Stock Option Plan (the "Plan"), under which certain directors,
officers, employees and entities who provide services to the Company and its
subsidiaries are participants. In October 1999, the Company granted to
seventy-six (76) officers and employees 7,600 shares of the Company's common
stock, which vested upon issuance. Officers and employees were restricted from
selling the shares granted and exercised for a period of one year. In addition,
7,600 options to purchase shares of common stock of the Company were issued on
the same date to those same officers and employees, at an exercise price of
$6.00 which vested upon issuance and had to be exercised within a period of one
year, after which, the officers and employees are restricted from selling such
shares of common stock for one additional year. Market price per share on the
date of the grant and issuance of the stock options was $11.40. As of September
30, 2000, 64 employees exercised their stock options, which amounted to 6,400
shares of common stock. All options under this plan expired on September 30,
2000. No options were outstanding as of September 30, 2000.
The Company applied Accounting Principles Board ("APB") Opinion No. 25 in
accounting for its stock options, and accordingly, compensation costs for the
shares granted and stock options issued were expensed during fiscal 2000.
Accordingly, compensation costs amounting to $121,598 for the shares granted and
stock options issued have been expensed during the year ended September 30,
2000. Pro forma information and other information required under SFAS No. 123
"Accounting for Stock Based Compensation" are deemed not significant.
A summary of the changes and status of the Company's stock based compensation
plans for the end of fiscal year 2000 is as follows:
Weighted Weighted
Average Average
Number of Exercise Fair
Shares Price Value
--------- -------- --------
Outstanding, beginning of year - $ 6.00 $ 11.40
Granted 7,600 - -
Exercised 6,400 6.00 11.60
Forfeited - - -
Expired 1,200 6.00 -
-----
Outstanding, end of year - - -
-----
12. STOCKHOLDERS' EQUITY
Common Stock
As of September 30, 2000 and 1999, 20,000,000 shares of common stock at $0.001
par value were authorized.
F-21
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
During November 1997, the Board of Directors authorized the repurchase of up to
66,667 shares of the Company's common stock. The repurchase program authorizes
management, at its discretion, to make purchases from time to time as
circumstances warrant. As of September 30, 2000, no shares of common stock had
been repurchased under this program.
In August 1999, Pipasa purchased 5,500 shares of the Company's common stock for
$77,771. These shares have been included in treasury stock as of September 30,
2000 and 1999. The purchase was authorized by the Board of Directors of Pipasa.
Preferred Stock
---------------
On September 30, 2000 and 1999, 1,000,000 preferred shares of the Company were
authorized. No preferred shares had been issued as of September 30, 2000.
Pipasa
------
Preferred shares issued consist of Class "C" preferred shares and "TCA"
preferred shares, which refer to "Titulos de Capital" in Costa Rica amounting to
317,831 shares and 637,000 shares, respectively. As of September 30, 2000, there
were 317,831 shares of class "C" preferred shares outstanding which amount to
$2,216,072 in the accompanying consolidated balance sheets. These preferred
shares are comprised of subcategories and receive dividends based on the
following:
o Class "C-A", "C-B" and "C-D" preferred shares, which amount to 186,431
shares receive a 10% annual dividend payable monthly and adjustable by the
Board of Directors.
o Class "C-C" preferred shares, which amount to 131,400 shares receive an
annual dividend equal to the prime rate set by the Banco Central de Costa
Rica plus two percent, payable monthly which as of September 30, 2000 was
equivalent to 11.5%.
During fiscal 2000, 1999, and 1998 dividends of $182,892, $237,910 and $227,357
respectively, were paid on these preferred shares and are reflected as preferred
stock dividends in the accompanying consolidated statements of income.
During fiscal 2000 and 1999, the Board of Directors of Pipasa declared a
dividend to common stockholders of Pipasa for a total of 637,000 and 510,565
"TCA" preferred shares of Pipasa, valued at $2,143,626 and $1,929,766,
respectively. In accordance with Pipasa's ownership, Inversiones La Ribera, S.A.
received 257,602 shares during fiscal year 2000 and 206,472 shares during fiscal
year 1999, valued at $866,882 and $780,397, respectively. Immediately after the
issuance of such preferred stock, Inversiones La Ribera, S.A. used the total
proceeds of the dividends to cancel outstanding debts with Pipasa, during each
of fiscal 2000 and 1999. The dividends distributed during fiscal years 2000 and
1999, correspond to Pipasa's earnings pertaining to fiscal periods 1999 and
1998, respectively.
F-22
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As de Oros
----------
As of September 30, 2000 and 1999, 1,200,000 Class "C" preferred shares of As de
Oros were authorized, of which 158,374 had been issued for a total of
US$1,003,287. The holders of these preferred shares receive dividends based on
the following:
o Class C Series 1 preferred shares which amount to 87,600 shares receive a
monthly dividend equal to prime rate set by the Banco Central de Costa Rica
plus two percent.
o Class C Series 2 preferred shares which amount to 70,774 shares receive a
monthly dividend of no less than 10% adjustable annually by the Board of
Directors.
These preferred shares are included in minority interest in the accompanying
consolidated balance sheets as of September 30, 2000, and 1999.
During fiscal 2000, the Board of Directors of As de Oros declared a dividend of
590,000 series "TCA" shares of preferred stock of As de Oros valued at
$1,983,327 to common stockholders of record of As de Oros as of September 30,
1999. As de Oros distributed 332,642 shares to the Company and 257,358 shares to
Comercial Angui, S.A. in accordance with As de Oros' common stock ownership as
of September 30, 1999. The dividends distributed correspond to As de Oros'
earnings pertaining to fiscal period 1999.
Immediately after the issuance of such preferred stock, As de Oros repurchased
from the stockholders a portion of the preferred stock issuance for $881,273
which equals the value of such repurchased stock. The stockholders used the
proceeds of the purchase to repay outstanding debts to As de Oros. As de Oros
cancelled outstanding debts from Inversiones La Ribera, S.A.
As of September 30, 2000, there are no preferred dividends in arrears.
Treasury Stock
--------------
As of September 30, 2000 and 1999, 47,752 shares of Common Stock amounting to
$268,394 were held as treasury stock.
Retained Earnings
-----------------
Current legislation in Costa Rica 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, 2000 and 1999, the Company has
allocated retained earnings of $1,698,916 and $1,374,092, respectively, for the
creation of a legal reserve.
13. OPERATING LEASES
The Company has operating leases for vehicles, cooling equipment and building
facilities for its restaurants and retail outlets. These leasing agreements
expire between June 2001 and February 2004. At the end of the lease term, the
Company has the option of returning or buying the vehicles or the equipment at
estimated market value.
F-23
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Rental expenses for operating leases amounted to $1,585,886, $819,106 and
$550,627 for the 2000, 1999 and 1998 fiscal years, respectively.
The Company was obligated for the following minimum annual base rentals under
operating leases as of September 30, 2000:
Fiscal Year Amount
----------- ------
2001 $ 1,876,465
2002 1,507,357
2003 882,010
Thereafter 76,948
-----------
$ 4,342,780
===========
14. INCOME TAXES
Income tax expense attributable to income from continuing operations for the
years ended September 30, 2000, 1999 and 1998 consists of:
2000 1999 1998
---- ---- ----
Current:
United States $ 12,000 $ - $ -
Costa Rica 392,021 972,143 310,971
Deferred
United States - - -
Costa Rica (310,551) (209,671) (122,308)
--------- --------- ---------
Total $ 80,223 $ 62,472 $ 188,663
========= ========= =========
Income tax expense differs from the amounts computed by applying the corporate
tax rate in Costa Rica of 30% to pretax income from continuous operations as a
result of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
---- ---- ----
Computed statutory income tax
provision $ 1,117,408 $ 2,452,214 $ 1,092,281
Increase (reduction) in income taxes
resulting from:
Non-taxable, income (343,819) (484,171) (281,330)
Increase (decreases) in provisions 110,080 171,445 41,926
Tax benefit under Costa Rica
Income Tax Law Article 8, Section T for
Agricultural Companies and Article 8,
Section F
(72,069) (98,695) (122,667)
Deduction for reinvestment of prior year
earnings in machinery and equipment
under Costa Rica Income Tax Law
Article 8, Section T for Agricultural
Companies
(1,215,174) (544,048) (276,524)
</TABLE>
F-24
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
---- ---- ----
Non-deductible depreciation expense 347,371 209,672 122,308
Deductible investments in tourism related
companies - - (399,122)
Depreciation revalued assets (246,145) (226,483) (237,755)
Amortization of cost in excess of net assets
of acquired business 286,148 119,682 89,162
Utilization of loss carryforwards (411,494) (1,198,698) -
Non-deductible operating losses 244,677 614,233 134,317
Taxable intercompany loans 597,356 - -
Other items (10,318) (43,007) 148,375
----------- ----------- ----------
404,021 972,143 310,971
Amortization of deferred tax benefit (323,798) (209,671) (122,308)
----------- ----------- ----------
$ 80,223 $ 762,472 $ 188,663
=========== =========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 2000
and 1999 are presented below:
2000 1999
---- ----
Deferred tax assets:
-------------------
Allowance for doubtful accounts $ 239,283 $ 235,019
Revaluation of property, plant and
equipment depreciable for tax
purposes in Costa Rica 3,402,178 3,238,121
Costa Rican loss carryforwards 57,991 139,442
United States loss carryforwards - 392,666
Vacation accrual 185,495 148,152
---------- ----------
Total gross deferred tax assets 3,884,947 4,153,400
Less valuation allowance (3,884,947) (4,153,400)
---------- ----------
$ - $ -
========== ==========
The Company has established a valuation allowance for the depreciation expense
resulting from revaluation of property, plant and equipment in Costa Rica and
for certain provisions. The Company has also included the effect of net
operating loss carryforwards related to operations in the United States and
Costa Rica. As of September 30, 2000 and 1999, the Company's deferred tax assets
are fully offset by a valuation allowance. Management of the Company believes
that it is more likely than not that all of the net deferred tax assets will not
be realized. Management will continue to assess the valuation allowance to
determine if such allowance should be reduced based on changing conditions, and
to the extent that it is no longer required, the tax benefit of the remaining
net deferred tax assets will be recognized.
F-25
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2000 1999
---- ----
Deferred tax liability:
----------------------
Excess fair market value over book
value of assets acquired $2,899,511 $1,764,735
The recorded deferred tax liability for the years ended September 30, 2000 and
1999 consists of the amortization of the deferred tax liability resulting from
basis differences on property, plant and equipment resulting from the As de Oros
acquisition and other capitalizations expensed for tax purposes.
Taxes in the United States of America have not been provided on undistributed
earnings of foreign subsidiaries, as such earnings are being retained
indefinitely by such subsidiaries for reinvestment. For fiscal years 2000 and
1999, the Company applied loss carryforwards for federal taxes in the United
States of America for $1.1 million and $3.4 million, respectively, as a credit
to the taxable income determined for Rica Foods, Inc. in the United States. For
fiscal years 2000 and 1999, As de Oros applied loss carryforwards in the amount
of approximately $240,000 and $1.2 million as a credit to the income tax
determined in Costa Rica. As of September 30, 2000, the Company has net
operating loss carryforwards amounting to $193,303 in Costa Rica, which expire
on September 30, 2001.
In accordance with income tax regulations in Costa Rica, the subsidiaries are
required to file annual income tax returns for the twelve-month period ended
September 30 of each year. According to Costa Rica's laws, the income tax
returns of Pipasa and As de Oros for the years ended September 30, 2000, 1999,
1998 and 1997, are open to examination by the tax authorities in Costa Rica.
15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has operated in the production and marketing of poultry products,
animal feed and quick service chicken restaurants. The Company's subsidiaries
distribute these products throughout Costa Rica and export mostly within Central
America and the Caribbean. The basis for determining the Company's operating
segments is the manner in which financial information is used by Management in
its operations. Management operates and organizes the financial information
according to the types of products offered to its customers.
The following is a brief description of the main business segments of the
Company:
BROILER CHICKEN: The Company's main brand names for broiler chicken, chicken
parts, mixed cuts and chicken breasts are PipasaTM and As de OrosTM. Broiler
chicken is a generic product that is directed to customers of all social and
economic levels. Chicken is sold mostly to supermarket chains, institutional
clients, schools, hospitals, restaurants and small grocery stores.
F-26
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
CHICKEN BY-PRODUCTS: Chicken by-products include sausages, bologna, chicken
nuggets, chicken patties, frankfurters, salami and pate. The Company's chicken
by-products are sold through the KimbyTM, ChulitasTM, and As de OrosTM brand
names and are sold at all social and economic levels. These products are sold
mainly in supermarkets and sales are predominately driven by price. During
October 2000, the Company purchased the brand name Zaragoza, from a company in
Costa Rica, and will begin to produce and distribute this product during the
next fiscal year.
ANIMAL FEED: Animal feed is made with imported raw materials, such as corn and
soybean meal, along with the unused portions of chicken and other vitamins and
minerals. Animal feed is marketed for consumption by cows, pigs, birds, horses,
shrimps and domestic pets. The Company's animal feed products are sold through
the AscanTM, Aguilar y SolisTM, KaninTM, MimadosTM and NutribelTM brand names.
Customers for the commercial animal feed brand, are mainly large wholesalers and
high scale breeders. Products marketed through the MimadosTM, KaninTM and
AscanTM brand names are targeted towards veterinarians, pet stores and
supermarkets and are sold typically to consumers with medium to higher income
levels.
RESTAURANTS: Corporacion Planeta Dorado, S.A. and Subsidiaries ("Restaurantes")
operates 30 restaurants located in rural and urban areas through out Costa Rica,
including express delivery service in some restaurants. Restaurantes is a quick
service restaurant, which offers a diversified menu of chicken meals.
Restaurantes distinguishes itself from other quick service chains by offering
dishes and using recipes and ingredients which appeal to the taste of consumers
in Costa Ricans. The quick service restaurant business is highly competitive in
Costa Rica.
In October 2000, the Company reached an agreement with Stock Management
International, a British Virgin Islands corporation, to sell an 81% controlling
interest in Planeta Dorado, S.A. and its subsidiaries, for $4.05 million in
cash, to be cancelled over a five year period with an annual interest rate of
10.06%. As part of the negotiation, As de Oros will continue to supply Planeta
Dorado with chicken for the next 12 years. The Company is in the process of
closing this transaction.
EXPORTS: Subsidiaries of the Company export different products to other
countries in Central America and the Caribbean and occasional exports to Hong
Kong. The Company exports mainly the Pipasa(TM), Mimados(TM) Ascan(TM) and
Kimby(TM) brand names.
OTHER: This segment includes sales of commercial eggs, non-recurrent sales of
fertile eggs, recycling material in fiscal 2000, and raw material sales among
others.
F-27
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Business Segments
-----------------
(In millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Animal By-
Broiler Feed Products Restaurants Exports Other Corporate Consolidated
------- ------ -------- ----------- ------- ----- --------- ------------
2000
----
Net sales $ 73.48 $ 22.42 $11.69 $ 8.03 $ 4.56 $ 3.45 $ 123.63
Gross profit less selling
expenses 15.03 2.45 2.70 0.33 0.02 0.39 20.92
Other operating expenses 14.53
Income from operations 6.39
Depreciation and
amortization expense 2.57 0.63 0.08 0.22 - - 0.38 3.88
Assets 34.85 10.62 4.41 6.66 1.31 0.61 29.72 88.18
1999
----
Net sales $ 72.13 $ 20.61 $ 9.66 $ 9.39 $ 3.38 $ 3.38 - $ 118.55
Gross profit less selling
expenses 17.22 3.02 2.21 0.50 0.45 0.84 24.24
</TABLE>
F-28
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Animal By-
Broiler Feed Products Restaurants Exports Other Corporate Consolidated
------- ------ -------- ----------- ------- ----- --------- ------------
Other operating expenses 11.80
Income from operations 12.43
Depreciation and
amortization expense 1.61 0.57 0.04 0.26 - - 0.72 3.20
Assets 27.35 12.78 0.88 3.00 0.42 0.03 25.86 70.32
1998
Net sales $ 60.06 $ 17.85 $ 9.4 $ 5.11 $ 2.71 $ 3.66 - $ 98.79
Gross profit less selling
expenses 8.7 2.80 2.31 0.34 0.51 0.49 15.15
Other operating expenses 8.99
Income from operations 6.16
Depreciation and
amortization expense 1.20 0.49 0.04 10.20 - - 0.38 2.31
Assets 25.66 12.32 .09 2.63 0.99 - 21.31 63.00
</TABLE>
Geographic Information (In millions):
------------------------------------
The following represents net sales and long-lived assets by geographic location:
2000 1999 1998
---- ---- ----
Net Sales:
Costa Rica $119.07 $115.17 $ 96.08
Other 4.56 3.38 2.71
------- ------- -------
Total $123.63 $118.55 $ 98.79
======= ======= ========
Long-lived assets:
Costa Rica $ 44.30 $ 31.50 $ 28.43
Other 1.13 0.42 0.06
------- ------- -------
Total $ 45.43 $ 31.92 $ 28.49
======= ======= =======
F-29
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
16. ACQUISTIONS
During October 1999, Pipasa merged with Karpatos, S.A. ("Karpatos"), a Costa
Rican corporation, which is in the business of converting waste material from
chicken farms into fertilizers. The transaction was accounted for under the
purchase method of accounting. The Company recorded assets with a fair market
value of approximately $700,000 and assumed liabilities for an equivalent
amount. The Company did not issue any shares of Company stock or cash as part of
this transaction. The acquisition of Karpatos is not material to these financial
statements.
In October 2000, the Company entered into a Stock Purchase Agreement (the
"Indavinsa Acquisition") with Industrias Avicolas Nicaraguenses, S.A.
("Indavinsa"), a Nicaraguan company engaged in the production and distribution
of poultry and animal feed concentrate products. According to the Indavinsa
Acquisition agreement, the Company will acquire 80% interest ownership of
Indavinsa for a total of 100,000 shares of common shares and $300,000 in cash
payable at the closing of the transaction. The Company expects to close this
transaction during the second quarter of fiscal year 2001.
During July 2000, the Company announced its intent to acquire an interest in
Poultryfirst.com. Poultryfirst.com is a virtual business-to-business poultry
market place which provides leading business tools and market data, using
formats of auctions for fresh products and catalogs for value-added products for
the sale and commercialization of poultry and poultry by-products on the
Internet. Poultryfirst.com is owned by Jose Pablo Chaves, the Company's Chief
Operating Officer and a Director of the Company who is also the son of Calixto
Chaves, a major stockholder and Chief Executive Officer of the Company. The
Company is currently evaluating the terms and conditions of any potential
acquisition.
In December 2000, the Company announced its intent to acquire a majority stake
of the outstanding common stock of Core Etuba, SRL., a Brazilian company
engaged in the production and distribution of poultry products. Final terms and
conditions of this acquisition are under negotiation.
17. QUARTERLY FINANCIAL DATA
Unaudited summarized financial data by quarter for fiscal 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Fiscal 2000
Net Sales $ 33,116,512 $ 30,309,985 $ 29,755,427 $ 30,446,433 $ 123,628,357
Gross profit 11,990,046 9,882,436 8,707,290 9,291,651 39,871,423
Net income (loss) 2,156,539 532,404 (310,208) 510,211 2,888,946
Basic earnings (loss) per share 0.24 0.04 (0.02) 0.04 0.24
Diluted earnings (loss) per share 0.24 0.04 (0.02) 0.04 0.24
Fiscal 1999
Net Sales $ 31,651,795 $ 29,908,477 $ 27,732,390 $ 29,256,963 $ 118,549,625
Gross profit 11,644,973 10,544,656 9,057,998 10,027,204 41,274,831
Net income 1,501,527 979,764 133,065 426,299 3,040,655
Basic earnings per share 0.20 0.13 0.02 0.06 0.43
Diluted earnings per share 0.20 0.13 0.02 0.06 0.42
</TABLE>
F-30
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
18. 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 high credit quality financial institutions.
The majority of the Company's customers are located in Costa Rica. No single
customer accounted for more than ten percent of the Company's net sales in
fiscal 2000, 1999 and 1998, and no account receivable from any customer exceeded
approximately $430,000. Credit risk is mitigated due to the fact that the
Company's customer base is diverse and is located throughout Costa Rica. The
Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers, and general economic conditions. Consequently, an
adverse change in these factors could affect the Company's estimate of the bad
debt allowance.
19. COMMITMENTS AND CONTINGENCIES
Vehicle Self Insurance
----------------------
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
approximately $38,000 to a maximum of $947,000. While the ultimate amount of
claims incurred are dependent on future developments, in Management's opinion
insurance is adequate to cover any future claims.
Severance Pay
-------------
Salaries in Costa Rica are increased twice a year as dictated by the government
in order to counterbalance the effect of inflation and increases in the cost of
living. The Company's policy is to increase the salaries of all employees every
six months to offset the effect of inflation. Under the existing labor laws
prior to and for fiscal year 2000, companies in Costa Rica are required to make
a payment equivalent to 8.33% of an employee's yearly gross salary for a maximum
of 8 years of employment, as severance to be paid upon the termination of an
employee without just cause. The Company offered its employees the option of
depositing 5% in the workers` association: Asociacion de Empleados de Rica
Foods, Inc. ("ASERICA"). The employee then matches the 5% payment by the
Company. The remaining 3.33%, the Company offers the option to the employee to
deposit it into a pension fund, the employee must also match any percentage
deposited into a pension fund by the Company. In February of each year, the
company makes a payment equal to 1.33% of the employee's total yearly gross
salary. Any remaining amount owed by the Company must be settled when the
employee is terminated. The Company has a provision to settle severance pay when
an employee is terminated and believes it is reasonable based on past
experience. As of September 30, 2000, the Company has a provision for severance
pay in the amount of approximately $260,000 included in accrued expenses.
F-31
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Beginning on March 2001, labor laws will require all companies in Costa Rica to
deposit 3% of the 8.33% into a pension fund. Of the remaining 5.33%, the Company
will continue to deposit 4% in ASERICA, as part of a savings program, which the
employee must match, and will continue to pay each February the remaining 1.33%.
The new provisions of the labor law are not expected to have a significant
effect on the results of operations, cash flows or financial position of the
Company.
Construction Commitments
------------------------
In the normal course of business, the Company enters into commitments for
construction or renovations of its buildings, plant facilities and leased
outlets. As of September 30, 2000, the amounts outstanding under these
construction commitments totaled approximately $270,000.
Litigation, Claims and Assessments
----------------------------------
The income tax returns of As de Oros for fiscal year 1995 were examined by the
Costa Rican tax authorities and As de Oros was assessed $130,000 of additional
income taxes. Tax authorities have contested depreciation expense and income tax
withholdings of employees. As de Oros has appealed this decision and does not
expect that the final outcome will result in a material adverse effect on the
operations, cash flows or the financial position of the Company. No accrual has
been made for any losses that may result from the resolution of this
uncertainty.
Pipasa is a defendant in a lawsuit brought in Costa Rica in which, as a result
of this lawsuit in which the plaintiff seeks $3.6 million, Pipasa was served
with prejudgment liens for $1.5 million. These liens were substituted by land
owned by Pipasa with the approval of the court in Costa Rica (Juzgado 6to
Civil). Such substitution of collateral was subsequently ratified by the
Superior Court on November 11, 1999. The prejudgment liens on assets and on cash
have been released and Pipasa received all of the funds originally attached. For
the same reasons and by the same plaintiff, Pipasa was sued in the United States
of America, in the State of California and the State of Florida, respectively.
The California lawsuit has been suspended awaiting the ruling of the court of
the State of Florida on a lack of personal jurisdiction motion raised by Pipasa.
The Florida lawsuit is still active and Pipasa's defense is based on a lack of
personal jurisdiction in the State of Florida. Interrogatories, Request to
Produce Documents and Request of Admissions have been answered by Pipasa. While
Pipasa still has time to answer the complaints, it cannot ascertain the basis of
the claim or the relief sought, but believes the lawsuits are without merit and
intends to assert a vigorous defense. At the present time, neither the Company
nor Pipasa can evaluate the potential impact of this lawsuit or assess the
likelihood of an unfavorable outcome.
F-32
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
No legal proceedings of a material nature, to which the Company or the
subsidiaries are a party, exist or were pending during the fiscal year ended
September 30, 2000. The Company knows of no legal proceedings of a material
nature pending or threatened or judgments entered against any director or
officer of the Company in his or her capacity.
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.
20. SUBSEQUENT EVENTS
During October 2000, the Company announced it had reached an agreement with
Stock Management International, a British Virgin Islands corporation, to sell an
81% controlling interest in the subsidiaries of As de Oros, Planeta Dorado, S.A.
and Corasa Estudiantes, S.A. (the "Restaurants"), in exchange for a note
receivable. Pursuant to the terms and conditions of the agreement, the Company
will receive $4.05 million over a five year period, with an annual interest rate
of 10.06%, payable every six months. Stock Management International will have a
grace period of one year and will subsequently make four annual amortizations to
the Company amounting to $1,012,500 each. As part of the agreement, As de Oros
will continue to supply poultry products to the Restaurants for a period of 12
years. The Company is in the process of closing this transaction.
In October 2000, the Company purchased from Granja Zaragoza, S.A., a Costa Rican
company, the brand name "Zaragoza" for a total of $600,000. Granja Zaragoza,
S.A. distributes processed and packaged beef, pork and poultry products. The
purchase of the brand name will grant the Company the right to produce and
market Zaragoza products. Prior to the purchase, the Company manufactured the
Zaragoza products in its facilities and subsequently sold it to Zaragoza for its
distribution. According to the terms of the agreement, the $600,000 originating
from the purchase will be paid by crediting amounts due from Zaragoza in the
amount of $200,000 and the remaining $400,000 will be paid to Zaragoza in
monthly payments amounting to $10,000 over a period of 40 months. The Company
will amortize the Zaragoza trademark over a period of 10 years.
F-33
<PAGE>
RICA FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
RICA FOODS, INC.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Rica Foods, Inc.'s Form 10-K, and have issued
our report thereon dated December 22, 2000. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The Financial
Statement Schedule II listed in Item 14 is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This financial statement schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
December 22, 2000.
-73-
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Additions Non-cash Ending
Beginning Charged to Cash Reductions Accrual
Description Accrual Income Reductions (Additions) Reversal Balance
---------------------------------------------------------------------------------------------------------------------------------
Provision for doubtful receivables
2000 $675,334 352,058 - 229,781 - 797,611
1999 727,005 746,599 - 798,270 - 675,334
1998 380,791 301,432 - (44,782) - 727,005
Provision for inventory obsolescence
2000 $ 52,620 33,004 - 10,942 - 74,682
1999 28,025 28,740 - 4,145 - 52,620
1998 - 29,435 - 1,410 - 28,025
</TABLE>
-74-
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description Page or Cross Reference
-------------- ----------- -----------------------
Exhibit 27 Financial Data Schedule 76
-75-
<PAGE>
