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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                     Annual Report under Section 13 or 15(d)

                     Of the Securities Exchange Act of 1934

                  For the Fiscal Year Ended: September 30, 1998

                           Commission File No. 0-18222

                                RICA FOODS, INC.

                                Formerly known as

                         Costa Rica International, Inc.

               (EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)

                    Nevada                                   87-0432572

     (State or other jurisdiction of                 (IRS Employer File Number)
              incorporation)


                            95 Merrick Way, Suite 507

                      Coral Gables, Florida               33134

               (Address of principal executive offices)   (zip code)


                            (305) 476-1757, 476-1760

       (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 $.001 par value

                                (Title of Class)

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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 / /

Check if there is no disclosure  of delinquent  files in response to Item 405 of
Regulation  S-K contained in this form and no disclosure  will be contained,  to
the  best  of  Registrant's   knowledge,  in  definitive  proxy  or  information
statements incorporated by reference in Part III of this Form 10-K.

Issuer's revenues for its most recent fiscal year $103,676,630.

The  aggregate  market  value  of the  voting  stock of the  Registrant  held by
non-affiliates as of December 30, 1998 was approximately $31,038,991. A total of
4,211,532 shares were owned by non-affiliates as of December 30, 1998.

The number of shares  outstanding of the  Registrant's  common stock,  as of the
latest practicable date, December 30, 1998, was 7,518,818.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 1998 Annual Report to Shareholders          Parts I, II and IV

Portions of the Proxy Statement for the 1998 Annual
        Meeting of Shareholders                             Parts I, III and IV

                                      -2-

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PART 1
------

ITEM 1.   Description of Business

GENERAL DEVELOPMENT 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. ("Pipasa"), a Costa Rican company,
entered  into  an  agreement  and  plan of  reorganization  (the  "First  Pipasa
Agreement")   with  the  Company,   pursuant  to  which  the  Company   acquired
approximately  60% of the common stock of Pipasa in exchange for the issuance of
15,573,571 pre-split (5,191,190 post-Split) shares of the Company's common stock
to the  stockholders  of Pipasa.  The First Pipasa  Agreement  provided that the
Company  could acquire the  remaining  approximately  40% of the common stock of
Pipasa on or before September 30, 1997. The additional purchase did not occur by
that date.

     In July, 1998, an independent  committee of the Company's  stockholders and
Management of Pipasa  resumed  discussions  concerning  the  acquisition  by the
Company of the balance of Pipasa's  common  stock.  On September  28, 1998,  the
Company and Pipasa  entered into an  agreement  (the "Final  Pipasa  Agreement")
providing  for the  purchase  of the  remaining  common  stock  of  Pipasa  from
Inversiones La Ribera, S.A., a privately-held Costa Rican corporation controlled
by Mr.  Calixto  Chaves,  the Company's  chief  executive  officer and principal
shareholder,  for  11,050,784  pre-split  (3,683,595  post-Split)  shares of the
Company's  common stock.  The Final Pipasa  Agreement was amended on November 9,
1998, to provide that the transaction  would be subject to (I) the receipt of an
opinion from an independent  firm that the transaction was fair from a financial
point of view to the Company's stockholders and (II) approval of the transaction
by holders of a majority  of the  issued  and  outstanding  common  stock of the
Company.

     On February 26, 1998,  the Company  consummated an agreement (the "Original
Oros  Agreement")  to  purchase  56.38%  of  the  outstanding  common  stock  of
Corporacion As de Oros,  S.A., a Costa Rican  corporation  ("As de Oros"),  from
Comercial Angui,  S.A., a  privately-held  Costa Rican  corporation  ("Comercial
Angui"),  for  consideration  consisting of (A) a promissory  note with a stated
amount  of $2.4  million  due in  January,  2000,  and (B)  2,447,058  pre-split
(815,686 post-Split) shares of the Company's common stock, having a then current
market value of  approximately  $2.6 million.  Soon  thereafter,  an independent
committee  of  the  stockholders  and  Management  commenced   discussions  with
Comercial Angui and its sole  shareholder,  Antonio  Echeverria,  concerning the
possibility  of  purchasing  the remaining  shares of As de Oros from  Comercial
Angui. The reason for this proposed transaction, as in the case of the agreement
to

                                      -3-

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purchase the minority interest in Pipasa, was to eliminate the potential loss of
dividends to minority  stockholders  and to consolidate  not only the operations
but  the  financial  results  of  Pipasa  and  As  de  Oros  (collectively,  the
"subsidiaries")  in  the  Company's  financial  statements.   Subsequently,   on
September 28, 1998,  the Company and  Comercial  Angui entered into an agreement
(the "Final Oros Agreement") to purchase Comercial Angui's remaining interest in
As de  Oros  for  5,012,762  pre-split  (1,670,921  post-Split)  shares  of  the
Company's  common stock.  On November 9, 1998,  the Company and Comercial  Angui
entered  into an  amendment  to the Final  Oros  Agreement  which  mirrored  the
amendment to the Final Pipasa  Agreement,  that  provided  that the  transaction
would not be  consummated  until holders of a majority of the  Company's  common
stock approved the  transaction,  and the Company received a fairness opinion to
the effect that the  transaction was fair to the Company's  shareholders  from a
financial point of view.

     The Company has not received an independent fairness opinion as of the date
hereof for either the transaction with the minority shareholder of Pipasa or the
transaction with the minority  shareholder of As de Oros; however,  holders of a
majority of the  Company's  common stock have approved  both  transactions.  See
"Proxy Solicitation" below. The Company expects to receive fairness opinions and
to close the  purchase  of the  remaining  stock of Pipasa  and As de Oros on or
before January 31, 1999.

     Proxy Solicitation

     On December  4, 1998,  the Company  sent to its  stockholders  of record on
November 20, 1998 a Consent Solicitation Statement soliciting written consent to
the Final Pipasa  Agreement and Final Oros  Agreement.  Mr. Chaves and Comercial
Angui  collectively held 37.86% of the Company's common stock as of November 20,
1998 and consented to the transactions.  In addition,  Mr. Chaves' adult son and
daughter,  who own 837,971 pre-split (279,324  post-Split) and 400,000 pre-split
(133,333  post-Split)  shares of the Company's common stock,  representing 0.03%
and  0.01% of the  common  stock  outstanding,  respectively,  consented  to the
transactions.  As of December 21,  1998,  holders of more than a majority of the
Company's  issued  and  outstanding  shares  consented  to  these  transactions.
Consequently,  the  transactions  have  been  approved  by  the  consent  of the
Company's  shareholders  and,  upon receipt by the Company of fairness  opinions
with respect to the  transactions,  and the final  tabulation  of consents,  the
transactions will be consummated.

     Financing

     In February, 1998, the Company consummated the refinancing of a part of its
subsidiaries'  short-term  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"),  both due January  15,  2005.  These  Notes were placed  through
Citicorp  Securities,  Inc. With the proceeds of these Notes, the Company repaid
$8 million and $12 million,  respectively, of the short-term indebtedness of its
two subsidiaries, Pipasa and As de Oros.

                                      -4-

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BUSINESS OF THE COMPANY

     The Company's  operations  are largely  conducted  through Pipasa and As de
Oros,  its two  subsidiaries.  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. The main  activities of Pipasa are the production and sale
of broiler chickens (whole chickens),  poultry meat, processed chicken products,
commercial  eggs and premixed  feed and  concentrate  for livestock and domestic
animals.  Pipasa has been in the  poultry  business  for more than 29 years with
more than 13 years of  experience  in  exports.  Pipasa  owns 41 urban and rural
outlets  throughout  Costa Rica.  Today,  Pipasa enjoys a  vertically-integrated
operation,  which begins with the fertilized  egg and ends with the  preparation
and  distribution  of fresh  whole  chickens,  fast-frozen  and  cooked  chicken
patties, and sausages.

     As de  Oros,  founded  in 1954,  is Costa  Rica's  second  largest  poultry
producer,  comprising approximately a 20% of the country's poultry market. As de
Oros operates 13 urban and 4 rural outlets throughout Costa Rica. In addition to
the production and marketing of poultry and poultry  by-products,  As de Oros is
one of the  leaders in the Costa  Rican  animal  feed  market  with a 21% market
share.  As de Oros also owns a chain of 36 fried  chicken  restaurants  in Costa
Rica called Restaurantes As de Oros.

     The Company promotes its brand names through  advertisements  and marketing
events.  The Company  considers  Pipasa to be among the most recognized  Central
American  chicken  producers.  Pipasa  supplies  chicken in Costa Rica to Burger
King,  Pizza Hut,  Subway,  and Kentucky Fried Chicken  franchises and to Gerber
Products and the  McDonald's  Corporation  in Central  America.  During the last
three years, the Company has invested  approximately $4.3 million in assets that
have increased  efficiency and output, that include,  but are not limited to, an
automatic de-boning machine, a new incubation plant (regarded as one of the most
modern in Central America),  a nipple-type  drinking system to feed birds, and a
new distribution fleet for its subsidiaries.

     Distribution Network

     The  Company has a  distribution  fleet  consisting  of  approximately  230
delivery trucks  specially  designed to deliver poultry  products.  These trucks
play an important role in the Company's  exports within Central America,  as the
trucks  provide  the  Company  the  necessary  fleet  size to  export  to  other
countries.  Locally, these trucks deliver fresh products daily, thus maintaining
the Company's  reputation for fresh quality products.  Through its outlets,  the
Company is able to distribute its products to customers in urban and rural areas
who may not have easy access to supermarkets.  The majority of these outlets are
rented by the Company and are located in urban areas.

                                      -5-

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     Exchange Rate Risk

     The Company  makes U.S.  dollar  payments  for its raw  materials  and bank
facilities.  This U.S. dollar expense component is not unique to the Company, as
all 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 exchange rate risk. It 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, 1997 and 1998, the national devaluation rate was 11.6%
and 10.6%, respectively,  and correspondingly,  the Company increased its prices
12.6% and 13.03%,  respectively.  Management  believes that the Company's strong
market will allow for this type of price increase without sacrificing demand and
market share. The Company has  successfully  passed along such 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, 1998,  exports increased 16.28% (in U.S.
dollars) compared to exports for the same period in 1997.

     Foreign Competition

     The Company currently does not have any significant  domestic  competition.
The Company's local market share,  however,  could  potentially be threatened by
foreign  competition.  The  Company  believes  that this  likelihood  is low for
several reasons.  First, the Company has a strong  reputation for producing high
quality  products at a reasonable  price.  Secondly,  Costa Ricans  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 it in
Costa Rica.

     The  Agriculture  Ministry in Costa Rica monitors all chicken  entering the
country,  as it wants to prevent the spread of Newcastle  Disease in Costa Rica.
The Costa Rican market currently is also protected by tariff agreements. 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.  They  provide that only 942 metric
tons ("MT") of whole  chicken  parts or chicken  derivatives  can be imported to
Costa Rica from countries  outside of the Central  American Common Market.  This
quota is taxed 34% and  amounts  in excess of this  quota are  subject to a 200%
tariff.  This tax rate was based on the additional cost of producing  poultry in
Costa Rica compared to cost of production in the U.S.

                                      -6-

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     Commodity Risk Management

     The Company  imports all of its corn,  the  primary  ingredient  in chicken
feed, from the United States.  Movements in the price of corn can  significantly
affect the Company's gross profit margin. The Company's greatest cost components
are corn and  soybean  meal,  which are  imported  from the United  States.  The
Company purchases approximately $l.6 million of corn monthly through the Chicago
Board of Trade ("CBOT"). Corn and soybean meal purchases represent approximately
35% of total cost of goods sold and 70% of raw material costs. 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 since 1991. The
Company  evaluates,  on a daily basis,  the price of corn and soybean meal.  All
hedging activities are supervised by the financial  department,  whose employees
have been trained at the CBOT and attend regular seminars on commodities hedging
strategies.

     Hedging strategies must be approved by the Company's hedging committee. The
committee consists of two analysts,  the Financial  Director,  Financial Manager
and  General  Vice  President.  The  committee  meets at  least  once a month to
evaluate the Company's exposure in corn and soybean meal. 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, it purchases at least 50% of its corn through
contracts.  The Company's  hedging  strategy is set in its yearly budget,  which
determines how much corn and soybean meal it will need and the price it must pay
in order to meet budget forecasts. The Company uses an internal pricing model to
prepare  sensitivity  models.  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 4.72% below its budgeted prices as of September,  1998.  Commodity
prices for fiscal 1998 have been below or equal to budgeted prices.

     The Company has a $500,000 credit line with Futures U.S.A.,  Inc. ("FIMAT")
and draws upon this credit line in order to cover its  initial  margin  deposit.
The interest rate paid on this line of credit is less than 10% on drawn amounts.
The  Company is in  constant  contact  with its  brokers (at least three to four
times a day) and receives advice from the brokers' corn experts.

     The Company's monthly soybean meal purchases total approximately  $900,000.
The hedging  strategies for soybean meal purchases are identical to that of corn
purchases,  except that the Company  purchases  its soybean meal through a Costa
Rican company, Industrial de Oleaginosas, S.A. ("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-

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     Exchange Rate Risk Management

     In addition to movements in the price of corn and soybean meal, the Company
has exposure to fluctuations  in exchange  rates, as payments for corn,  soybean
meal,  reproduction  birds and bank facilities are in U.S. dollars.  The Company
has an  internal  Economic  Studies  Division  whose sole  function is to follow
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.

     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 can
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 it considers taking
on  U.S.-based  debt.  In  effect,  the  Company  borrows in U.S.  dollars  when
economically proven to be less expensive than borrowing in colones.

     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.  As previously mentioned,
the Company will use its financial model to increase prices in order to mitigate
the effect of devaluation of the colon.  During the last 10 years, the colon has
devalued  an average of 13.5%  annually,  which the  Company  has  mitigated  by
increasing prices on average by 14.0% annually for its chicken, meat 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.  Instead,  prices are set by the leader,  which in the Costa Rican
market is the Company's  subsidiary,  Pipasa.  Given the consistent  increase in
chicken  prices over the past 12 years,  the Company  believes it has  excellent
data on consumer reactions to price increases.  In the Company's  experience,  a
significant  increase  in prices  leads to a  temporary  decrease in demand that
lasts approximately two months.

                                      -8-

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     Main Business Segments

     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.  Per capita  consumption  of poultry has increased  from 16.2 kilos (35.6
lb.) in 1994 to 18.5 kilos  (40.7 lb.) in 1997,  a 14.2%  increase  during  that
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 like sausages and cold cuts.

     The following is a brief  description of the main business  segments of the
Company:

     Broiler Chicken

     Sales  of  broiler  chicken  represented  approximately  63% and 58% of the
Company's total sales during fiscal 1997 and 1998,  respectively.  Gross margins
for locally sold broilers as a percent of total broiler chicken sales was 26.20%
and 25.86% during fiscal 1997 and 1998, respectively.

     Chicken By-Products

     Chicken by-products  include sausages,  bologna,  chicken nuggets,  chicken
patties, frankfurters, salami and pate. Chicken by-products represented a little
over 11% and  9.07% of the  Company's  total  sales  for  fiscal  1997 and 1998,
respectively. Chicken by-products are a very profitable segment of the business,
with gross  margins as a percent of total  by-products  sales of roughly 43% for
fiscal 1998.

     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.  Animal feed  represented  approximately  9.93% and 17.21% of the
Company's total sales during 1997 and 1998, respectively.

     Other

     This segment includes sales of commercial eggs,  fertile eggs,  animal feed
and baby  chicks to  integrated  producers,  as well as raw  materials  and baby
chicks to third parties.

                                      -9-

<PAGE>

     Diversity of products

     The Company's  subsidiaries  do not depend on the sales of only one product
but a diversity of lines available at a range of prices and presentations, which
represent an important strategic strength of the subsidiaries.

     Concentration of portfolio

     From the total sales of the  subsidiaries,  32.50% of sales are in cash and
67.50%  of  sales  are  in  credit,   with  an  average   collection  period  of
approximately   32  days.   The  total  credit   portfolio  is   constituted  by
approximately 10,450 direct clients with one client accounting for approximately
4% of the portfolio.

POULTRY RAISING PROCESS

     The poultry  raising  process  starts with the import of one-day old parent
hens from the United States.  Once these hens reach their laying  period,  which
takes about 20 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 72 farmers who own their own land and facilities.  They
have a  long-term  contract  with the  Company to raise the baby chicks to adult
birds with an average weight of 1.87 kilograms (4.1 1b.).  Integrated  producers
supply 30% of the total  number of  chickens  needed by the Company and are paid
according to the weight and quality of the chicken  produced  and the  mortality
rate of the chickens raised.  The Company provides free veterinary  services and
offers vaccines and chicken feed to the farmers at wholesale prices.  Regardless
of whether  the Company  raises the  chickens or  integrated  producers  do, 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.

PROCESSING FACILITIES AND HEALTH GUIDELINES

     Once  the  chickens  reach  the  desired  weight,  they  are  taken  to the
processing   plant.  The  Company's   processing   houses  are  among  the  most
sophisticated  and largest in the  country.  The plant's  capacity of process is
approximately  46 million  kilograms  annually.  The  processing  plant is where
chickens  are  slaughtered  and the meat  packaged or  processed to make chicken
by-products. As with all animal processing facilities, the processing plant must
be kept clean in order to prevent the spread of bacteria.  For this reason,  the
Company's  employees are required to wear protective masks, caps, boots,  gloves
and coats at all times  while in the  processing  plant.  Each time an  employee
enters or leaves the  processing  plant,  boots  must be soaked and rinsed  with
bleach.  All  bathroom  facilities  are  located  outside  of the  plant and are
equipped  with foot  operated  faucets.  All new employees are trained as to the
proper procedures required in handling and preparing food.

                                      -10-

<PAGE>

     A government  health  inspector is at the plant 24 hours a day.  Government
representatives  inspect every step of the processing procedure and send samples
of the meat to government labs for analysis for bacteria and other organisms. In
addition to government  inspectors,  the Company has its own staff of inspectors
take samples of the meat at each step of the production  process.  These samples
are sent to Pipasa's own labs for analysis. Because Costa Rica has been declared
free of  Newcastle  Disease,  the Animal  and Plant  Health  Inspection  Service
("APHIS"),  a U.S. governmental agency, surveys work in the Company's facilities
to ensure that Costa Rica continues to be 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 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. For example, temperature must be carefully
controlled  as microbial  growth is encouraged  between 4-60 degrees  Celsius or
40-160  degrees  Fahrenheit.  HACCP  encourages  employees  to gain an  in-depth
understanding  of total food  production.  Employees thus take an active role in
ensuring food quality and safety. 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 a food borne illness is reduced.

CUSTOMERS

     Broiler Chickens Customers

     The Company's main brand names for broiler  chicken,  chicken parts,  mixed
cuts and breasts are Pipasa and As de Oros. Broiler chicken is a generic product
that is directed to customers of all social and economic levels. It is estimated
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  and the  Gerber  Products  and  Rostipollos
companies.  Pipasa was recently selected by the McDonald's Corporation to be its
poultry supplier for Central America.

     Chicken By-Products Customers

     The Company's chicken by-products are sold through the Kimby, Chulitas, and
As de Oros  brand  names and are sold to all social and  economic  classes.  The
Kimby brand is the leading seller of chicken  by-products  in Costa Rica.  These
products are sold mainly in supermarkets and sales are  predominantly  driven by
price. The Kimby brand name is one of the leading sellers of chicken by-products
and the leading seller of chicken sausages in Costa Rica.

     Animal Feed Customers

     The Company's  animal feed  products are sold through the Ascan,  Aguilar y
Solis,  Kanin and Nutribel brand names.  Customers are mainly large  wholesalers
and high scale  breeders.  This customer  group is focused on quality and price.
Products  marketed  through the Mimados brand name, a division within  Nutribel,
targets veterinarians,  pet stores and supermarkets.  Customers are typically at
the medium to higher income levels.  The leader in this market is Dos

                                      -11-

<PAGE>

Pinos  with  a  33%  market  share,  which  sells  animal  feed  exclusively  to
co-operatives.  As de Oros has a 21%  market  share and  Pipasa  has a 9% market
share. The rest of this market is very fragmented.

     "Other" Customers

     Customers of this segment are mainly  integrated  producers,  small farmers
and commercial egg distributors.

MARKETING

     The  Company  has  a  dedicated  division  for  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
works with its  distribution  centers to distribute  posters,  T-shirts and hats
that promote the Company's brand names. In Costa Rica, the Company's brand names
commonly appear on billboards and bus stops. There are more marketing techniques
available for use in meat by-products,  as these items can be packaged in a more
effective manner in order to draw customers.

DISTRIBUTION

     The Company's  distribution  fleet consists of approximately  230 trucks of
which  approximately 49 are leased. The fleet delivers to over 16,000 customers.
These trucks are  specially  designed to deliver  poultry and are equipped  with
refrigeration chambers.  These vehicles typically have a useful life of 5 years.
The Company's products are sold not only through supermarkets,  but also through
rural and urban retail  outlets.  A majority of total  distribution is conducted
through the Company's  urban retail  outlets,  a smaller  portion  through rural
outlets  and the  remaining  distribution  is  serviced  through  the  Company's
processing  plants.  Retail  outlets are  dedicated to the sale of the Company's
products  exclusively.  Prices for  products  sold in these  retail  outlets are
identical  to prices  quoted in  supermarkets.  The  products  sold are fresh as
retail outlets are typically situated near the Company's processing  facilities,
which enables trucks to make  deliveries on a daily basis.  Products may be sold
by the unit or  wholesale.  The  Company  currently  has 58  outlets.  The rural
outlets are  strategically  located near major  roadways  and are equipped  with
refrigeration  chambers that allow for storage of chicken.  The Company plans to
increase  the capacity of these cold room  storage  facilities  in order to meet
increased production plans (specifically for chicken by-products). The increased
capacity will enable distribution trucks to make more deliveries,  as trucks can
simply return to the nearest agency to reload, as opposed to the main plant.

EMPLOYEES, COMPENSATION AND INCENTIVES

     The top  management  level at the Company has on average almost 15 years of
experience  with the Company and has been able to grow Pipasa's  market share to
approximately  50% and As de Oros' market share to approximately 20% by creating
efficient operations,  making strategic  acquisitions and producing high quality
products.

                                      -12-

<PAGE>

     The success of the Employee's Solidarity Association  ("ASEPIPASA") 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  its  employees
satisfied.  ASEPIPASA provides recreational  facilities,  healthcare and pension
benefits as well as financial services to the Company's  employees.  The Company
encourages its employees to make a career at the Company.

     As of September 30, 1998,  the Company had  approximately  3,000  full-time
employees (including employees of As de Oros), of whom 55 were in management and
247 were in  administration.  Private  companies in Costa Rica typically support
their own workers'  associations instead of organized unions. These associations
provide certain services such as credit,  recreational facilities and subsidized
housing, and healthcare benefits. Pipasa employees created ASEPIPASA in 1985 and
on November  28, 1998  merged  ASEPIPASA  with the  Associacion  Solidarista  de
Colaboradores de Pipasa, As y Afines ("ASERICA"). This association is located on
land donated by Mr. Chaves and is among the largest  solidarity  associations in
Costa Rica. The association has a swimming pool,  soccer field,  outdoor sports,
sauna  and a  1,000-seat  gymnasium  facility.  At  Pipasa,  all  the  employees
participate in the association and Management  anticipates similar participation
from As de Oros' employees.

     Salaries  in  Costa  Rica are  increased  twice a year as  dictated  by the
government  in order to  counterbalance  the effect of inflation and the cost of
living. By law, each year,  companies are required to pay to the employees 8.33%
of an  employee's  yearly  gross  salary as  severance  which  must be paid upon
termination of a labor  contract  without just cause to a maximum of eight years
of employment. At the Company,  employees have the option to have the 8.33% paid
to ASERICA as part of a savings  incentive  program for as long as they work for
the  Company,  not just 8 years.  Few other  companies  in Costa Rica offer this
option. The savings incentive program works as follows:  Pipasa pays at each pay
period to ASERICA 5% of the employee's wage for that pay period.  The 5% payment
by the Company is then matched by the employee. In February of each year, Pipasa
makes the final  payment  equal to 3.33% of the  employee's  total  yearly gross
salary. Employees currently have the option to, but are not required to, deposit
the  remaining  3.33% due from Pipasa into the pension fund  Operadora de Fondos
Provida  ("Provida").  ASERICA  manages  all the cash  generated  by the savings
incentive  program.  Provida  invests  in low risk  financial  instruments  like
certificates  of deposit and other highly rated or better  investment  financial
instruments. Employees can borrow against the amount in their savings at a local
interest rate of 18-30% and, once an employee  leaves,  the employee is entitled
to the total  amount  accumulated  in his/her  severance  and savings  incentive
account. Management intends to implement similar policies at As de Oros.

     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. All companies in Costa Rica must pay the CCSS 21% and the INS 1.74% of
each employee's monthly salary. These contributions serve as a policy for health
and employee accidents.  This policy has unlimited coverage.  For example, if an
employee  were to suffer  serious  injury  while at work,  the CCSS and INS will
provide  hospitalization,  rehabilitation and medicine. The CCSS pays 70% of the
employee's  normal  salary  during  the  periods in which he or she is unable to
work. In addition to these  benefits,  employees must pay a total of 9% of their
monthly salary to the CCSS in order to receive healthcare, pension and maternity
care benefits.

                                      -13-

<PAGE>

     Employees of Pipasa are provided with a profit sharing  program.  If Pipasa
has a successful year and generates profits in excess of budgeted levels, Pipasa
will  distribute a percentage  of its net income to its employees and intends to
implement the same policy at As de Oros.  This  incentive is calculated  monthly
and distributed every two months.  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. Classes are held at the Company's facilities.

BACKLOG

     At September 30, 1998, the Company had no backlogged sales orders.

PROPRIETARY INFORMATION

     The Company uses no material proprietary information in connection with its
operations.

ENVIRONMENTAL COMPLIANCE

     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
environmental laws in jurisdictions in which it does not now do business. At the
present  time,  the  Company  cannot  assess  the  potential  impact of any such
potential  environmental  regulation.  The  Company  has been and is  practicing
sustainable   environmental  policies  such  as  reforesting  approximately  500
hectares  with hardwood  trees,  processing  and recycling its waste,  producing
organic fertilizer and building oxidation lagoons and sewage treatment plants.

GOVERNMENT REGULATION

     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.  Such regulation is not considered to be a
burden on the Company or to have a material  effect on the Company's  ability to
make  a  profit.   Otherwise,  the  Company  is  not  subject  to  any  material
governmental regulation or approvals.

SUBSEQUENT EVENTS

     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 share  certificates will be
issued and those shareholders owning more than five shares of common stock, post
split,  shall  receive 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,
post split,  shall  receive the  payment for the  fractional  share held by them
based on the mean of the bid and ask price on the effective date of the Split.

                                      -14-

<PAGE>

Item 2.   PROPERTIES

     The following contains descriptions of the principal facilities utilized by
the Company in its operations. All of these facilities are used by Pipasa and As
de Oros and are owned by them.

     Production Area

     This area has the following  divisions:  Reproduction,  Incubation,  Animal
Feed, Broiler, Process and Further Processing.  All production numbers have been
approximated.

     Reproduction Division

                                 Pipasa                     As de Oros

o Present capacity of    30,000,000 fertile            20,000,000 fertile 
  production installed:  eggs annually                 eggs annually
o Location:              Sardinal de Puntarenas,       Alajuela, Costa Rica
                         Costa Rica 

     Incubation Division
  
                                 Pipasa                     As de Oros

o Present capacity of    30,000,000 chicks             10,800,000 chicks 
  production installed:  annually                      annually
o Location:              Aranjuez de Puntarenas,       Heredia, Costa Rica
                         Costa Rica

     Pipasa's  incubation plant is one of the most modern  incubation  plants in
Central  America.  The Plant's  incubation and hatching halls can be expanded to
increase  production.  It is expected that Pipasa's plant will fulfill the needs
of customers for many years.

     Animal Feed Division 
                                 Pipasa                     As de Oros

o Present capacity       (1) 165,525 tons of animal    111,750 tons of animal 
  installed:                 feed annually             feed annually 
                         (2) 32,448 tons of animal
                             feed annually            
o Location:              (1) San Rafael de Alajuela,   Heredia, Costa Rica
                             Costa Rica, and 
                         (2) Sardinal de Puntarenas,
                             Costa Rica

     The two Pipasa plants and one As de Oros plant perform activities including
grinding grains, mixing flour and packing different types of animal feed.

                                      -15-

<PAGE>

     Broiler Division

                                 Pipasa                     As de Oros

o Present capacity       26,400,000 chickens           8,900,000 chickens   
  installed:             annually                      annually
o Location of farms:     36 farms owned and 94 under   10 farms owned and 37 
                         contract located in the       under contract in
                         central area of Costa Rica    Costa Rica

     Chicks  are  received  one day after  birth.  During  this time the  chicks
receive three types of diet according to growth  requirements.  The growth stage
lasts 43 days.

     Process Division 
                                 Pipasa                     As de Oros

o Present capacity of    39,073,000 kilograms          6,750,000 kilograms
  process:               annually                      annually
o Location of plant:     San Rafael de Alajuela,       La Garita, Alajuela,
                         Costa Rica                    Costa Rica

     The process is divided into  slaughter  and pluck,  coolers and  retailers,
packing and cuts, subproducts.

     Further Processing 
                                 Pipasa                     As de Oros

o Present capacity:      4,420,000 kilograms           Further processing is 
                         per year                      performed by Pipasa.
o Location:              San Rafael de Alajuela, 
                         Costa Rica

     The process is divided into sausage, formed, packing and hot zone (oven and
cooking tanks) areas.

     Marketing Area

     Distribution is through 58 retail outlets in Costa Rica. All retail outlets
are  operated  by the  Company  and a portion  of the  outlets  are owned by the
Company  although  the  majority of the outlets are rented.  The majority of the
Company's trucks are owned by the Company although a portion are leased.

     Administrative Area

     Staff, administrative,  and financial headquarters of Pipasa and As de Oros
are located in La Ribera de Belen, Heredia, Costa Rica.

                                      -16-

<PAGE>

Item 3.   LEGAL PROCEEDINGS

     The income tax returns for Pipasa for 1995,  1994 and 1993 were examined by
the tax authorities in Costa Rica and the Company was assessed $76,976, $131,222
and $39,354 respectively, as a result of the disallowance by the Costa Rican tax
authorities of approximately  26.03% in the aggregate of the deductions taken by
Pipasa for 1995, 1994 and 1993.  Management does not believe this matter will be
resolved in the next fiscal year. Management believes that these assessments are
without merit and intends to vigorously  contest these claims.  Management  does
not believe that the Company will incur a loss as a result of these assessments.
No accrual has been made for any losses that may result from the  resolution  of
this uncertainty.

     The income tax  returns of As de Oros were  examined by the Costa Rican tax
authorities  for fiscal year 1995 seeking  $131,437 of additional  income taxes.
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 or the
financial position of the Company.

     During  1998,  the Company  settled a legal  action in which  $350,073  was
received.  This amount is included in  miscellaneous  income in the statement of
income.

     Pipasa is a  defendant  in a lawsuit  brought in Costa Rica in which it was
served with prejudgment  liens.  Pipasa  substituted  collateral for these liens
with approval of the court,  which approval is currently being appealed.  Pipasa
has not yet been served with the  Complaint in the case and,  therefore,  cannot
ascertain  the basis of the claim or the  relief  sought,  but it  believes  the
lawsuit is without merit and intends to assert a vigorous defense. At this time,
neither the Company nor Pipasa can evaluate the potential impact of this lawsuit
on the financial results of the Company.

     No legal  proceedings of a material  nature to which the Company is a party
were pending  during the fiscal year ending  September  30, 1998 and the Company
knows of no legal  proceedings  of a material  nature  pending or  threatened or
judgments  entered  against  any  director  nor  officer  of the  Company in his
capacity as such.

     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

     No matters were submitted to a vote of the  shareholders  during the fourth
quarter of fiscal year 1998.

                                      -17-

<PAGE>

PART II
-------

Item 5.   MARKET FOR THE  COMPANY'S  COMMON  STOCK AND  RELATED  STOCKHOLDER
          MATTERS

     The Company's  common stock is traded on the Nasdaq  SmallCap  Market under
the symbol RICA.  The  following  tables set forth the market price range of the
Common  Stock for each  quarter  during the years ended  September  30, 1997 and
1998,  based on the high and low  closing  sale prices as reported on the Nasdaq
SmallCap  Market.  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(1)
                                       -----------------------
                                           High       Low
                                           ----       ---
Fiscal 1997
First Quarter (10/1/96 to 12/31/96)      $ 6.750    $6.375
Second Quarter (1/1/97 to 3/31/97)         4.875     4.500
Third Quarter (4/1/97 to 6/30/97)          4.914     4.500
Fourth Quarter (7/1/97 to 9/30/97)         4.500     4.125

Fiscal 1998
First Quarter (10/1/97 to 12/31/97)      $ 3.468    $3.375
Second Quarter (1/1/98 to 3/31/98)         5.718     5.532
Third Quarter (4/1/98 to 6/30/98)          5.343     5.157
Fourth Quarter (7/1/98 to 9/30/98)         5.064     4.689

-------------

(1) Prices have been adjusted to reflect the 1 for 3 reverse
    stock split effective on December 29, 1998.


     As of December 30, 1998,  the Company had 7,518,818  shares of common stock
outstanding and  approximately  1,500 holders of record of such stock. No shares
of preferred stock were outstanding.

     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
requirements,

                                      -18-

<PAGE>

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.

     No  dividends  for 1998 have been  declared.  Pipasa paid  dividends to the
Company of $657,345  during fiscal 1997. For 1996,  Pipasa paid dividends to the
original shareholders of that company of approximately $1.18 million.

Item 6.   SELECTED FINANCIAL DATA

                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
                            YEARS ENDED SEPTEMBER 30,
                                               1998          1997          1996
                                               ----          ----          ----
Net sales                               $   103,676   $    70,018   $    61,535
Cost of sales                                76,347        53,206        45,446
Income from operations                        6,155         3,962         5,167
Income before income taxes and
  minority interest                           3,641         2,382         3,016
Net income after minority interest            1,418           926         1,650
Earnings per common share                      0.16          0.11             -
Pro forma earnings per common share               -             -          0.28
Total assets                                 63,005        36,554        37,103
Long-term debt                               22,559         5,252         3,593
Dividends per common share                        -             -             -
Weighted average number of common
  shares outstanding                      7,078,949     6,592,021     5,191,190
Ratio of earnings to fixed charges             1.46          1.37          1.61
Ratio of earnings to fixed charges    
  and preferred dividends                      1.38          1.28          1.50

ITEM 7.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
          RESULTS OF OPERATIONS

General:

Management is responsible for preparing the Company's  financial  statements and
related  information that appears in this report.  Management  believes that the
financial  statements  fairly reflect the form and substance of transactions and
reasonably present the Company's  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  financial
statements 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 appropriate  cost, that  transactions are executed in
accordance with Company  authorization and are properly recorded and reported in
the financial statements, and that assets are adequately safeguarded.

                                      -19-

<PAGE>

The most  significant  events occurring during the year ended September 30, 1998
were:

(i) The refinancing of part of its subsidiaries' short-term debt, with a private
placement of US $20 million of the  Company's  11.71%  Series A Senior Notes and
Series B Senior Notes (the "Notes"),  placed by Citicorp Securities,  Inc., both
due  January  15, 2005  although  interest  and  principal  payments  are due as
follows:

                 YEAR

           January 15, 2001                       $ 4,000,000
           January 15, 2002                         4,000,000
           January 15, 2003                         4,000,000
           January 15, 2004                         4,000,000
           January 15, 2005                         4,000,000

Interest on outstanding principal is payable every six months commencing on July
14, 1998.

(ii) The company  changed its name from Costa Rica  International,  Inc. to RICA
FOODS, INC.

(iii) The  acquisition of a new  subsidiary,  Corporacion  As de Oros,  S.A. and
subsidiaries  ("As  de  Oros"),  a  poultry  and  animal  feed  producer  with a
significant  market share of domestic and commercial animal feed among the Costa
Rican market.  The Company reached an agreement (the "Original Oros  Agreement")
to acquire  56.38% of the total  outstanding  common stock of As de Oros and its
wholly owned  subsidiaries,  Restaurantes As, S.A. and Corasa  Estudiantes S.A.,
from Comercial Angui S.A.  ("Angui") a Costa Rican  privately-owned  company and
the  majority  shareholder  of As de Oros,  for US $2.4 million in cash upon the
maturity of a promissory note due January 2000 and 815,686  post-Split shares of
Company common stock, then valued at approximately $2.6 million.

As de Oros was first founded in 1954. In 1970 the company focused its operations
towards the animal feed  business  and  developed  its poultry  activities a few
years thereafter.  As de Oros has subsequently become the second largest poultry
company  in Costa  Rica,  (second  to Pipasa)  generating  approximately  US $48
million in sales  annually.  Like Pipasa,  As de Oros has  businesses in chicken
production,  chicken  by-products,  further  processed foods and animal feed. It
sells over 80 different  chicken and sausage  products,  commercial  eggs and 70
different animal feed formulas for poultry, hogs and cattle. As de Oros has been
in the poultry business for more than 35 years and has  approximately  20% share
of the Costa  Rican  national  market.  As de Oros'  strength  is in animal feed
concentrates, where it has approximately 21% market share of the business. As de
Oros  also  operates  one  of the  largest  fast  food  chains  in the  country,
"Restaurantes  As",  which  is  comprised  of 29  restaurants  operating  in the
metropolitan area of Costa Rica, and 7 restaurants in the rural area. As de Oros
currently employs approximately 1,300 people, has a distribution network of more
than 80 vehicles, and owns 17 urban and rural outlets.

                                      -20-

<PAGE>

Main Business Segments and Markets

The animal feed business, including processed feed and concentrates,  represents
approximately  40% of total 1997 sales of As de Oros and 39% of total 1998 sales
(concentrates are used to feed birds, pigs, horses, dogs and tilapia).

Currently  As de Oros has  approximately  21% market  share of the  animal  feed
business.  This  segment  represents  the  bulk of As de Oros'  activities.  The
marketing and administrative  costs associated with the animal feed business are
considerably  lower than those  associated with selling broiler chicken and meat
by-products.  This segment is less price sensitive than the chicken meat market,
as  sales  are  driven  by  quality.  Quality  of the  feed is  what  ultimately
determines the size and weight of the hog, chicken or cow.

The broiler chicken segment  represents  approximately  40% of As de Oros' total
sales and  approximately  21% of gross  margin as a percent  of  chicken  sales.
Prices in this segment are heavily influenced by the market leader, Pipasa.

As de Oros defines its target  market for broiler  chicken by areas within Costa
Rica as urban and rural. The urban area is the country's  central plateau region
and customers in this market have certain  characteristics  and buying patterns.
Distribution in the urban area tends to be daily,  compared to the  distribution
in rural area.  Chicken is sold through the typical conduits like  supermarkets,
retail traders and restaurants,  including "Restaurantes As de Oros." Management
is analyzing the  possibility of selling  Restaurantes  As de Oros. If such sale
takes place, purchase accounting could change.


           RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998
                  COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997

The  Company's  operations  resulted in $0.16 basic  earnings  per share  during
fiscal year 1998,  compared to $0.11  during  fiscal year 1997 and $0.28  during
fiscal year 1996.

The following table presents information related to the Company's sales:

                        RICA FOODS, INC. AND SUBSIDIARIES

                                               NET SALES-YEAR ENDED
                                                   SEPTEMBER 30,
                                                    (millions)
                                 1998       1997       1996    97-98    96-97
                                 ----       ----       ----   ------    ------
                                                                    %        %
Animal feed                  $  17.84       6.95       5.00   156.69%   39.08%
Chicken by-products              9.41       7.92       7.07    18.81%   12.02%
Exports                          2.70       2.33       1.19    15.88%   95.80%
Other                            8.55       8.54       7.04     0.23%   21.34%
Broiler chicken                 60.06      44.28      41.24    35.64%    7.37%
Restaurants                      5.12          -          -        -        -
------------------------------------------------------------------------------
TOTAL SALES                  $ 103.68     $70.02    $ 61.54    48.07%   13.80%
------------------------------------------------------------------------------

                                      -21-

<PAGE>

The following table presents certain items as a percentage of net sales for
the period indicated:

                        RICA FOODS, INC. AND SUBSIDIARIES
                                                      September 30,
                                            1998          1997          1996
                                       --------------------------------------
Net sales                                 100.00%       100.00%       100.00%
-----------------------------------------------------------------------------
Cost of sales                              73.64%        75.99%        73.85%
Gross profit                               26.36%        24.01%        26.15%
General and administrative                 11.76%         8.64%         7.18%
Selling                                     8.39%         9.71%        10.57%
Amortization of goodwill                    0.28%           --            --
Income from operations                      5.94%         5.66%         8.40%
Interest expense                            3.00%         3.58%         4.37%
Income before income taxes and
  minority interest                         3.51%         3.40%         4.90%
Provision for income taxes                  0.18%         0.42%         0.40%
Net income applicable to
    common stock                            1.09%         1.08%         2.34%

NET SALES:

General:  Net sales  generated by the  Company's  operations  for the year ended
September  30, 1998 were  $103.68  million,  an  increase  of $33.66  million or
48.07%, compared with fiscal year 1997.

The following table presents  consolidated  sales increase by business  segment,
for the years ended September 30, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
                                    RICA FOODS, INC. AND SUBSIDIARIES
                                                (millions)



                                     Year Ended September 30,
                       ---------------------------------------------------   Increase        Increase
                                        1998                     1997       (decrease)      (decrease)
Segment                  Pipasa      As de Oros      Total      Pipasa        Pipasa       Consolidated
---------------------------------------------------------------------------------------------------------
<S>                     <C>          <C>           <C>         <C>          <C>             <C>
Animal feed              $  7.09      $ 10.75       $ 17.84     $  6.95       2.01%          156.69%
By-products                 8.52         0.89          9.41        7.92       7.58%           18.81%
Exports                     2.70            -          2.70        2.33      17.39%           17.39%
Broiler chicken            50.03        10.03         60.06       44.28      12.99%           35.64%
Restaurants                    -         5.12          5.12           -        N/A              N/A
Other                       8.16         0.39          8.55        8.54      (9.33%)          (5.00%)
                       ----------------------------------------------------------------------------------
TOTAL                    $ 76.50      $ 27.18       $103.68     $ 70.02       8.59%           47.16%
                       ==================================================================================
</TABLE>

                                      -22-
                              
<PAGE>

Animal  feed:  Sales of animal  feed were $17.84  million  during the year ended
September 30, 1998  compared to $6.95  million  during the same period of fiscal
1997,  for  an  increase  of  156.69%.  This  growth  in  sales  was  due to the
incorporation  of sales of As de Oros for the period of March to  September  30,
1998,  whose core business is animal feed,  combined  with a volume  increase in
Pipasa.  Sales  increase  is mainly  due to a 152.04%  increase  in volume and a
variance in product distribution.

By-products: Sales of chicken by-products increased 18.81% during the year ended
September 30, 1998. This increase is due to 0.33% volume increase  combined with
price increase and product mix.

Exports:  Exports  increased  17.39%  during the year ended  September  30, 1998
compared to fiscal 1997. This is due to an average 1.53% price increase combined
with a 15.86% volume increase.  This increase is mainly due to continued exports
to  Central  America,   the  introduction  of  pet  food  in  this  market,  and
extraordinary  exports to Hong Kong.  The Company has  strengthened  sales to El
Salvador and Nicaragua, and expects to focus on Honduras during fiscal 1999.

Broiler  chicken:  Broiler  chicken sales of $60.06  million  represent a 35.64%
increase  above  broiler  sales of fiscal year 1997.  This  increase is due to a
32.78% volume increase and a 2.86% price increase.

Restaurants:   The  newly   acquired   restaurant   segment   which   represents
"Restaurantes  As de Oros" had sales of $5.12 million during the period of seven
months since its acquisition.

Other:  Sales of Other,  which include animal feed and baby chicks to integrated
producers and  commercial  eggs, raw materials and baby chicks to third parties,
decreased  5.00% during the year ended  September  30, 1998 compared to the same
period of fiscal year 1997.  This decrease is mainly due to a reduction in sales
to integrated producers and commercial eggs.

Sales  distribution,  by segment,  for the years ended September 30, 1998, 1997,
and 1996 were as follows:

                        RICA FOODS, INC. AND SUBSIDIARIES
                               Sales Distribution

                                          For the years ended September 30,
                                     1998              1997              1996
                                    ------            ------            ------ 
Animal feed                         17.21%             9.93%             8.12%
By-products                          9.07%            11.32%            11.50%
Exports                              2.61%             3.32%             1.94%
Other                                8.25%            12.18%            11.42%
Broiler chicken                     57.93%            63.25%            67.02%
Restaurants                          4.93%             0.00%             0.00%
------------------------------------------------------------------------------
TOTAL                              100.00%           100.00%           100.00%
------------------------------------------------------------------------------

                                      -23-

<PAGE>

COST OF SALES:

General: Cost of sales for the year ended September 30, 1998 was $76.35 million,
compared to $53.21 million for fiscal year 1997, an increase of $23.08  million.
This increase was mainly due to volume increase and the incorporation of the new
subsidiary, As de Oros.

As a percentage  of net sales,  cost of sales  represented  73.64% during fiscal
year 1998,  compared to 75.99% during  fiscal year 1997.  During the first three
quarters of fiscal year 1998,  cost of sales was slightly  higher than the prior
fiscal year, due to the imports of fertile egg and chicken parts. These imports,
that took  place  during  the  months  of  January  through  June of 1998 were a
consequence of the low technical yields and high  temperatures  that were caused
by the El Nino weather  phenomenon.  The impact of these imports was strong, not
only in cost,  but also technical  yields as well.  During the months of July to
September,  1998,  the Company  ceased  imports and as a result,  its  technical
yields and cost of sales percentage improved.

Since "As de Oros" has been incorporated into the Company, Management decided to
change the breed of its reproduction hens in order to improve production yields.
This change in breeders,  that  temporarily  affected the incubation  rates, has
been  stabilized  into normal yields  during the fourth  quarter of fiscal 1998.
This has  resulted in weight gain and  improved  conversion  (amount of feed per
pound of grown meat). Management is satisfied with the results obtained.

Along  with  the   improvement  of  technical   yields  came  the  reduction  in
international  prices of  grains,  specifically  soy bean  meal and  corn.  This
reduction  contributed  strongly to the cost of sales  reduction  from 75.99% to
73.64% of net sales.

Broiler  chicken:  Cost of sales for  broiler  chicken  for fiscal year 1998 was
$44.53 million, compared to $32.55 million during the same period of fiscal year
1997, a 36.80%  increase.  This increase is due to a 32.78%  increase in dressed
pounds sold and the remaining increase was due to an increase in unit production
costs. As a percentage of net sales, cost of sales was 74.04% during fiscal year
1998, compared to 73.59% during fiscal year 1997.

By-products:  Cost of sales for chicken  by-products  was $5.38  million  during
fiscal year 1998,  an increase of $0.51  million or 10.47%  compared with fiscal
1997.  This  variation  is mainly  due to a price  increase  which  consequently
improved  gross  margin,  offset by the  tonnage  decrease  due to  intercompany
elimination  due to the  consolidation  of As de Oros during  fiscal 1998.  As a
percentage  of net sales,  cost of sales was  57.45%  during  fiscal  year 1998,
compared to 60.76% during fiscal year 1997.

Animal  feed:  Cost of sales for animal feed was $13.98  million for fiscal year
1998,  compared to $5.77  million  during fiscal year 1997, an increase of $8.21
million or 142.29%.  This variation is mainly due to the  incorporation of As de
Oros' sales,  which, as previously  mentioned,  has its main business among this
segment.  As a percentage  of net sales,  cost of sales was 78.65% during fiscal
year 1998,  compared to 82.86% during fiscal year 1997. The reduction in cost of
imported  grains  (soy  bean  meal and corn)  contributed  significantly  to the
improvement in this ratio.

                                      -24-

<PAGE>

Exports: Cost of sales for exports for fiscal 1998 was $1.80 million compared to
$1.72 million  during fiscal year 1997.  This increase is mainly due to a 15.86%
volume increase combined with a 0.42% price increase. Volume increased mainly in
broiler chicken, by-products,  mechanically deboned meat and pet food, which was
introduced as an export  product at the end of fiscal year 1997. As a percentage
of net sales,  cost of sales was 66.67%  during  fiscal  year 1998,  compared to
73.91%  during  fiscal  year  1997.  This  improvement  is  mainly  due  to  the
introduction  of new  products  in  general  exports,  that have a higher  gross
margin.

Other:  Cost of sales for "Other"  was $7.95  million  during  fiscal year 1998,
compared to $8.29  million  during  fiscal year 1997,  a decrease of $340,000 or
4%.  This decrease is due to a decrease in sales to integrated  producers and
decreased commercial eggs sales. As a percentage of net sales, cost of sales for
"Other" was 92.94% compared to 97.65% during fiscal year 1997.

GROSS PROFIT:

Gross profit for fiscal year 1998 was $27.33 million, compared to $16.81 million
during  fiscal year 1997. A 62.57%  increase.  This  increase is mainly due to a
volume increase and an improvement in the general cost of sales ratio.

As a percentage of net sales,  gross profit increased from 24.01% in fiscal year
1997 to 26.37% during  fiscal year 1998,  due to the issues  discussed  above in
cost of sales.

The  following  table  shows gross  profit for each  segment for the years ended
September 30, 1998, 1997 and 1996:

                        RICA FOODS, INC. AND SUBSIDIARIES
                               Gross Profit Margin

                                    For the years ended September 30,
                               1998              1997               1996
                             ------            ------             ------
Animal Feed                  21.35%            17.02%             11.10%
By-products                  42.55%            38.53%             34.44%
Exports                      33.33%            26.05%             25.67%
Other                         7.06%             2.81%              5.24%
Broiler Chicken              25.96%            26.20%             30.12%
Restaurants                  47.06%               --                 --

GENERAL AND ADMINISTRATIVE EXPENSES:

General and administrative  expenses were $8.69 million during fiscal year 1998,
compared to $6.05  million  during  fiscal year 1997,  a 43.72%  increase.  This
increase is primarily due to expenses incurred in the As de Oros acquisition. As
a percentage  of sales,  this item  decreased  from 8.64% during fiscal 1997, to
8.39%  during  fiscal year 1998 mainly due to  improved  sales and  efficiencies
resulting from the As de Oros acquisition.


                                      -25-
<PAGE>

SELLING EXPENSES:

Selling expenses increased 79.14% during fiscal year 1998,  compared with fiscal
year 1997. As a percentage of net sales,  these expenses increased from 9.71% in
1997 to 11.75% during the same period of fiscal year 1998.

The  restaurant  segment  contributed  to the increase in selling  expenses as a
percentage of net sales.  This is due to the nature of the restaurant  business,
which has a high  gross  profit  and high  selling  expenses.  Selling  expenses
amounted to  approximately  14% of total  consolidated  sales for the restaurant
segment.

In connection with the acquisition of As de Oros, the Company  recorded a charge
to administrative expenses relating to the amortization of cost in excess of net
assets acquired ("Goodwill").  The Company also recorded administrative expenses
pertaining to professional services,  related to legal fees, financial printing,
auditing and other related charges.

OTHER EXPENSES (INCOME):

Other expenses (income) increased 59.20% during fiscal year 1998,  compared with
fiscal year 1997.  The  Company's  interest  expense  increased by 23.87% during
fiscal 1998,  compared with fiscal 1997.  Miscellaneous  income increased during
fiscal  1998,  when  compared  to fiscal  1997 and 1996.  This is mainly  due to
dividends  received from  investments  made in other  countries in the amount of
$153,073  and a legal  settlement  in the amount of $350,073.  In addition,  the
Company  recorded  gains for  transporting  products to clients in the amount of
$356,645.


          RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
                  COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996

NET SALES:

General:  Net sales  generated by the  Company's  operations  for the year ended
September  30, 1997 were $70.02  million,  an increase of  $8,482,637  or 13.78%
compared with fiscal 1996.

Broiler   chicken:   Broiler  chicken  sales  for  fiscal  1997  increased  from
$41,239,331  during fiscal 1996 to  $44,284,164  for the same period of 1997, an
increase of 7.38%.  This increase is due to a 4.72%  increase in tonnage and the
remaining 2.66% is due to sales price increases.

By-products: By-products have traditionally been the most profitable products of
the Company.  Total sales of this segment were of $7,923,545 during fiscal 1997,
an increase of $849,930 or 12.02% when compared with sales of fiscal 1996.  This
increase is due to a 3.66% increase in tonnage and the remaining 8.36% is due to
price  increases  among the  products  within this segment  (patties,  sausages,
further-processed products and maquila).

Animal feed: Sales for commercial animal feed were $6,950,523 in fiscal 1997 and
$4,996,541  during  fiscal  1996,  an  increase of 39.11%.  This sales  increase
corresponds to a 27.80%  increase in tonnage,  with the remaining  11.31% due to
price increases.  Also, Kanin and Mimados, pet

                                      -26-

<PAGE>

food brands, gained market share. Management has committed promotional and other
resources to these products, which are among the Company's most profitable.

Exports:  The Company's  exports were $2,325,043 during fiscal 1997, an increase
of $1,130,300 or 94.60%,  when compared to fiscal 1996. This increase in exports
was primarily due to the combined  result of an 11.88%  increase in net sales of
chicken by-products due to a 13.44% increase in total dressed pounds,  offset by
an  exchange  rate  effect on prices of 1.56%;  a 154.42%  increase  in  broiler
chicken and chicken parts due to a 121.3% increase in tonnage with the remaining
33.12%  due to price  increase;  and the  introduction  of the pet food  Mimados
during the fourth quarter of the year.

A  significant  contributor  to the  increase  in exports was a  transaction  in
Honduras,  which  represented a one-time  export sale to that  country,  running
through  July 1997.  Management  expects  that the  success in 1997 will lead to
future  opportunities  in this  market,  and an increase  through its exports to
Central  America.  The  Company has opened its own  distribution  facility in El
Salvador, which includes cold storage, offering sausage, pate, bologna and other
chicken and turkey products under the Company's  popular  Pipasa(TM),  Kimby(TM)
and  Supremo(TM)   brands.   Pipasa  has  been  fortunate  to  serve  McDonald's
restaurants  as a supplier in Costa Rica for several  years.  As a result of the
excellent service that the Company has provided to this important client, during
fiscal year 1997,  Pipasa has been  selected by  McDonalds  as its  supplier for
poultry  products  for all of  Central  America.  Management  expects  that this
relationship will increase exports to these markets.

Other:  Sales of "Others" were $8,534,817 and $7,031,226  during fiscal 1997 and
fiscal 1996, respectively. An increase of $1,503,591 or 21.40%. This increase is
due to a 13.29% increase in tonnage and an 8.11% increase in prices.

COST OF SALES:

General:  Fiscal  1997 cost of sales was $53.2  million,  an  increase  of $7.76
million or 17.08%  when  compared  to cost of sales  during  fiscal  1996.  This
increase  in cost of sales is due  primarily  to a 14.58%  increase  in  tonnage
combined with the effect of a higher cost of raw materials and higher production
cost of broiler chicken and by-products segments. As a percentage of sales, cost
of sales was 75.99% for fiscal 1997  compared to 73.85% in fiscal  1996,  for an
increase of 2.14%.  The most  significant  variations  were in raw materials and
indirect costs. Labor costs remained relatively constant.

El Nino  Phenomenon:  The El  Nino  weather  phenomenon  directly  affected  the
percentage of cost of sales over net sales for fiscal 1997. When mortality rates
increased in the Reproduction and Broiler  Divisions,  the Company's fertile egg
incubation rate goal only reached 92% of hatchery  capacity,  consequently,  the
available  amount  of baby  chicks  for  growing  and  processing  was less than
projected, causing a shortage of chicken pounds for sale.

To satisfy  demand,  it was  necessary to import baby chicks for the broiler (or
growth) phase, leading to higher costs. This situation increased unit prices and
also  affected  the  incubation  rates.  The goal for fiscal  1997 was an 86.25%
incubation rate, and the Company achieved 84%. The ideal mortality rate standard
for birds in their growing phase is 3.5%,  and the Company

                                      -27-

<PAGE>

experienced average 4.60% mortality during fiscal 1997. As the new regulated and
controlled  environments are implemented  among the different farms,  Management
expects the mortality rates to decrease almost immediately.  When implemented in
the  Company's  experimental  farms,  mortality  in the growing  phase  (broiler
chicken) decreased from 5.15% to 4.69%, or a 9% improvement. In the Reproduction
phase,  the results were a decrease in  mortality  from 5.35% to 1.68% in August
1997, a 68.6%  improvement.  Management expects to be able to offset the effects
of El Nino throughout fiscal year 1998.

Management  decided to change the breeding of its reproduction  hens in order to
have breeds with more  weight  with fewer  weeks of feeding  and  growing.  This
change in breeding  temporarily  affected the  incubation  rates.  Although this
breeding process requires an adjustment  period,  it has fulfilled  expectations
concerning weight.  Nevertheless,  Management estimates that the adjustment will
be completed during the next fiscal year.

Other  relevant facts that explain the increase in cost of sales as a percentage
of net sales are:

o    Average  soybean meal prices for 1997  increased by 28.70% when compared to
     average prices in 1996.

o    Inventory  reconversion:  Broiler chicken stored in freezing  chambers that
     had to be  reconverted  to other  cuts  such as  breast,  thighs  and other
     chicken  parts.  This was  necessary  to satisfy the demand  increase  from
     exports, as well as in the domestic market for chicken and by-products;

o    Import of 6,100  boxes of  fertile  eggs,  which  represent  8.90% of total
     produced  eggs.  These eggs had an  incubation  rate of  76.70%,  versus an
     average 84.25% that the Company produces locally.

o    Changes in diet  formulation for the birds,  with the purpose of increasing
     weight.

Broiler  chicken:  Cost of  sales  for  broiler  chicken  for  fiscal  1997  was
$32,554,735,  an increase of $3,738,587 or 12.97%  compared to fiscal 1996. This
difference is due to a 4.72%  increase in dressed  pounds sold and the remaining
was due to an increase in unit  production  costs in the  incubation and growing
phases explained above.

By-products:  Cost of sales for chicken by-products was $4,870,400 during fiscal
1997, an increase of $232,938 or 5.02% compared with fiscal 1996. This is due to
an increase  of 3.66% in tonnage  and  increases  in cost  production  explained
above.

Animal feed: Cost of sales for animal feed was of $5,767,286 for fiscal 1997, an
increase of $1,325,361 or 29.84% when compared with fiscal 1996. This difference
is due to a 27.80% increase in tonnage and the higher soybean meal prices.

Exports:  Cost of sales for exports for fiscal 1997 was $1,719,261,  an increase
of $831,185 or 93.59%  higher than cost of sales when compared with fiscal 1996.
This increase is due to a

                                      -28-

<PAGE>

94.60%  increase  in  dressed  pounds  sold and higher  production  costs of the
products that were exported during the present fiscal year.

Other:  Cost of sales for "Other" was $8,294,938 during fiscal 1997, an increase
of $1,632,367 or 24.5% when compared with fiscal 1996. This increase is due to a
13.29% increase in tonnage and increases in raw material costs.

GROSS PROFIT:

Gross  profit for fiscal year 1997 was  $16,811,474  or 4.49% higher than fiscal
1996.  As a percentage  of net sales,  gross profit  decreased to 24.01%  during
fiscal 1997 from 26.15% in fiscal 1996, due to the issues discussed above.

LIQUIDITY AND CAPITAL RESOURCES

OPERATING ACTIVITIES:

Working  capital:  As of September 30, 1998,  working  capital was $4.82 million
compared  to a working  capital  deficit  at the end of fiscal  1997 of  ($2.28)
million,  a $7.1 million  increase.  The current ratios were 1.22 and 0.88 as of
September 30, 1998 and 1997,  respectively.  This increase is mainly due to debt
refinancing  and an  increase  in cash  and  equivalents,  as a  result  of the
incorporation of a new subsidiary.

Cash flows  provided by  operations  was $7.87  million,  $4.5 million and $5.14
million for the years  ended 1998,  1997 and 1996,  respectively.  The  decrease
during fiscal year 1997 is mainly due to a decrease in net income.  The increase
in cash  flows  during  fiscal  year 1998 is mainly  due to an  increase  in net
income,  allowances,   depreciation  and  a  significant  increase  in  minority
interest.

Change  in  operating  assets  and  liabilities  during  fiscal  year  1998  was
approximately  $1.46 million  which is mainly due to an increase in  inventories
and a decrease in accounts payable.

INVESTING ACTIVITIES:

During the three years under analysis,  the Company obtained external  financing
in order to carry out part of its operating and investing activities.

During fiscal year 1997, the Company  invested in operating assets and long-term
investments, mainly Inolasa - Adecsa, and As de Oros during fiscal year 1998.

FINANCING ACTIVITIES:

As previously mentioned in the investing and operating activities,  during 1998,
the Company used cash mainly for capital  expenditures  and  inventory,  both of
which  are  related  to the  normal  investing  activities  of the  Company.  In
addition,  the Company invested in stock from other companies and acquisition of
its new subsidiary, As de Oros.

                                      -29-

<PAGE>

Management  re-financed  the Company's  debt and improved its  liquidity  during
fiscal 1998. Increased  liabilities are mainly the result of consolidating As de
Oros' debt and new loans.

Cash provided by (used in) financing activities was $(396,383),  $1,351,926, and
$3,099,113 for the years ended September 30, 1998, 1997 and 1996,  respectively.
The decrease in 1997 is mainly due to an increase in debt amortization,  as well
as the  repurchase  of common  stock.  The  decrease  in 1998 is  mainly  due to
amortization of debt and a decrease in due from shareholders. Management expects
to continue to finance its operations with its normal  operating  activities and
external sources,  and that there will be sufficient resources available to meet
the Company's cash requirements through the next year.

OTHER MATTERS:

ENVIRONMENTAL COMPLIANCE

The  Company  is not  subject  to any  material  costs for  compliance  with any
environmental  laws in any jurisdiction in which the Company operates.  However,
in the future, the Company could become subject to material costs to comply with
environmental laws in jurisdictions in which it does not now do business. At the
present  time,  the  Company  cannot  assess  the  potential  impact of any such
potential  environmental  regulation on cash flows,  results of  operations  and
financial condition.  The Company practices sustainable  environmental  policies
such as  reforestation,  processes  and  recycles  its waste,  produces  organic
fertilizer,  and is  currently  improving  its  oxidation  lagoons and  sewerage
treatment plants.

YEAR 2000 ISSUE

     The Company established a formal Year 2000 oversight committee in December,
1997. The members of this committee are the  Information  Systems  Manager,  the
Corporate Auditor, the Administrative  Director, an Information Systems auditor,
and  the  Company's  external  Information  Systems  Advisor.  Along  with  this
committee,  the Company has written  certification that its Information  Systems
tools  that were  developed  by Oracle are "Fully  Year 2000  Compliant".  Other
applications that have been certified  include:  RDBMS,  Developer 2000 - Forms,
Developer  2000 - Reports,  Developer  2000 -  Graphics,  SQL*Plus,  Oracle Bood
Runtime, Oracle Data Browser.

     The Company has begun the conversion,  testing and implementation stages of
its Year 2000 plan, and is in the process of the final  integrated test with key
users. The plan will include vendors,  customers and intermediaries.  Management
expects to develop and complete  its Year 2000 plan during  fiscal 1999 and will
report on this  project's  progress.  To the extent that the  Company  could not
implement such stages, adverse impact could arise.

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

                                      -30-

<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, all of 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  27E  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 and should and
various of those words and similar  expressions are intended  to identify  these
forward-looking  statements.  Forward-looking statements made by the Company and
its management are based on estimates,  projections,  beliefs and assumptions of
management  at the time of such  statements  and are  not guarantees  of  future
performance.  The  Company  disclaims  any  obligations  to update or review any
forward-looking statements based on occurrence of future events,  the receipt of
new information or otherwise.

Actual future performance  outcomes and results may differ materially from those
expressed in  forward-looking  statements made by the Company and its management
as a result a number of risks,  uncertainties  and assumptions.  Representatives
examples of these factors include (without  limitation)  general  industrial and
economic  conditions;  cost of  capital  and  capital  requirements;  shifts  in
customer demands; changes in the continued availability of financial amounts and
at the terms necessary to support the Company's future business.

ITEM 7.   A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information  required by this item is located in this  report  under the heading
"Exchange Rate Risk," "Foreign  Competition,"  "Commodity Risk  Management," and
"Exchange Rate Risk Management."

                                      -31-

<PAGE>

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information   required  by  this  item  is  incorporated  by  reference  to  the
Independent  Auditors'  Report  found  on page  F-2 and  from  the  consolidated
financial  statement  and  supplementary  data on pages F-3 through F-22 of this
report.

Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     There were no disagreements  between the Company and its accountants during
the fiscal year ended September 30, 1998.

PART III

ITEM 10.  DIRECTORS  AND  EXECUTIVE  OFFICERS,  PROMOTERS  AND CONTROL  PERSONS,
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The Directors and Executive Officers of the Company, their ages and present
positions held in the Company, as of September 30, 1998, are as follows:

NAME                              Age               POSITION HELD
----                              ---               -------------      
Calixto Chaves                     52             Chief Executive
                                                  Officer, Chairman, President
                                                  and Director

Federico Vargas                    65             Director

Jorge M. Quesada                   49             Chief Financial Officer,
                                                  Treasurer and Director

Luis J. Lauredo                    49             Director

Alfred E. Smith, IV                47             Director

Monica Chaves                      27             Secretary

The Honorable Luis Guinot          63             Director
 
Jose Pablo Chaves                  26             Director

                                      -32-

<PAGE>

     The Company's  Directors  will serve in such capacity until the next annual
meeting of the Company shareholders 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. Otherwise, there are no family relationships among the Company's
officers and directors,  nor are there any arrangements or understanding 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.

     CALIXTO  CHAVES.  Mr. Chaves was the founder and  President of  Corporacion
Pipasa,  S.A. from its inception in 1969 to the present.  He was the founder and
President  of Aero Costa  Rica,  S.A.,  a private  Costa  Rican  airline.  He is
currently on the Boards of Directors of Central  American Oils and  Derivatives,
S.A., and American Oleaginous Industry ("INOLASA").  From 1994 to 1996, he was a
Board member of Cerveceria  Americana,  a private brewery. In 1994, he served as
an advisor to 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 in the Costa Rican Ministry of Industry, Energy and
Mines and became  Minister of Natural  Resources in 1986.  From 1982 to 1986, he
was a member of the Board of Directors of MINASA,  a Costa Rican mining company.
Mr. Chaves was founder of the Chamber of Industries in the Costa Rican  province
of Heredia.  From 1973 to 1974,  he was  President  of the Board of Directors of
Banco  Nacional  de Belen.  He  devotes  a  minimum  of 48 hours per week to the
affairs of the Company.

     DR. FEDERICO  VARGAS.  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 in extensive  political  activities  since 1974.  From 1990 to
1994, he served as a Deputy in the Costa Rican  Assembly.  From 1993 to 1994, he
was  Chairman of the  Legislative  Section of the National  Liberation  Party of
Costa  Rica.  Prior to 1990,  Dr.  Vargas  held a number of  political  offices,
including  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,  and  Economics
Advisor to the President of Costa Rica. His teaching activities included serving
as the Chairman of Economists at the  Instituto de  Investigaciones  Economicas,
University  of Costa Rica and Director of the  Economics  Department,  School of
Economics and Social  Sciences,  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  on  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  Universe  of  Pennsylvania.  He  devotes  such  time as may be
necessary to fulfill his obligations as an outside director of the Company.


                                      -33-

<PAGE>

     LIC.  JORGE M.  QUESADA.  Mr.  Quesada  has held  numerous  positions  with
Corporacion  Pipasa, S.A. since 1985 and has been Executive Vice President since
1990.  He was a member of the Boards of  Directors  of Banco  Formento  Agricola
since 1991 until 1997.  From 1987 to 1991,  he was on the Board of  Directors of
Financiera  Belen, S.A. Mr. Quesada has conducted  numerous  seminars  regarding
marketing  issues.  He  obtained  his Degree in  Business  Administration,  with
emphasis on Public  Accounting,  from the  University  of Costa Rica in 1984. He
devotes a minimum of 48 hours per week to the affairs of the Company.

     LUIS J. LAUREDO.  From 1995 to the present, he has been the Director of the
International  Consulting Group for the law firm of Greenberg Traurig, of Miami,
Washington,  and New York.  From 1994 to 1995, he was Executive  Director of the
Summit of the Americas, a non-profit  organization.  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 had a number of positions
in the  banking  industry.  He  has  served  on  numerous  advisory  committees,
including the Export-Import Bank of the U.S. 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.  He  devotes  such time as is  necessary  to  fulfill  his
obligations as an outside director of the Company.

     ALFRED E. SMITH,  IV. Mr.  Smith has been a director  of the Company  since
June 1, 1994.  He was a partner of the New York Stock  Exchange  member  firm of
Adler,  Coleman & Co.,  Inc.  from 1979 to 1994.  Since  1998,  he has been with
Hunter  Specialist,  a New York Stock Exchange member firm. In September,  1994,
Adler,   Coleman  &  Co.  sold  the  Adler,  Coleman  Cleaning  division  to  an
unaffiliated  third party.  In  February,  1995,  the entity which  acquired the
Adler,  Coleman Cleaning division filed for bankruptcy  protection under Chapter
11. Mr. Smith is a member of the Government  Relations Committee of the New York
Exchange,   Director  and  Secretary  of  the  Alfred   Emanuel  Smith  Memorial
Foundation,  Chairman of the  Cardinal's  Committee  for the  Laity-Wall  Street
Division,  Director of the Center for Hope, a Trustee of St. Vincent's  Hospital
and a Trustee of Iona Prep School.  He is a member of the New York City Advisory
Board of the Enterprise Foundation and the American Association of the Sovereign
Military  Order of  Malta.  He has  received  numerous  awards  for his  charity
humanitarian work. Mr. Smith was educated at Villanova University.

     MONICA  CHAVES.  Mrs.  Chaves is Secretary of the Board of Directors of the
Company  and is also member of the Board of  Directors  of Pipasa.  Mrs.  Chaves
joined Pipasa as assistant manager in the Financial Division in 1991; since 1993
she has managed the Pipasa's Special Investment Department. Mrs. Chaves received
a Bachelor's  degree in Business  Administration  from Saint  Michaels  College,
Vermont.

                                      -34-

<PAGE>

     HONORABLE  AMBASSADOR MR. LOUIS GUINOT, JR. Luis Guinot Jr. was born in San
Juan,  Puerto Rico on April 8, 1935. He attended  college in the United  States,
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  Free Trade
Agreement  ("NAFTA"),  and 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  Association  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,  a  former  member  of 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. He is currently a
member of the U.S. law firm of Shapiro and Olander.

     JOSE PABLO CHAVES.  Mr. Chaves assists the Board of Directors of Pipasa and
As de Oros, as well as Restaurantes  As de Oros,  S.A., and is a board member of
the Company and the  Company's  Chief  Operating  Officer.  Mr.  Chaves  studied
Business  Administration with emphasis in Marketing in the U.S. (Babson College,
Massachusetts) and in Costa Rica. Mr. Chaves is the founder of three Costa Rican
Companies, and is the son of Calixto Chaves.

     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 10K 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
has the  following  report to make  under  this  section.  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.


                                      -35-

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth the Summary Compensation Table for the Chief
Executive Officer and the most highly  compensated  executive officer other than
the Chief Executive  Officer who was serving as executive  officer at the end of
the last fiscal year:

                           SUMMARY COMPENSATION TABLE

                                             Salary               Bonus (2)
Name and Main Position        Years      Compensation (1)      Compensation(2)

Calixto Chaves                 1998         $126,780               $1,993
Chief Executive Officer        1997          104,477                5,098
                               1996           94,780                3,864

(1)  All salary  compensation was paid in Costa Rican colones,  rather than U.S.
     dollars.  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.

(2)  Represents Director's fees payable for action as a Director of Pipasa.

     Compensation Committee Interlocks and Insider Participation

     The Company has a  Compensation  Committee  consisting  of Calixto  Chaves,
Chairman of the Board and Jorge Quesada, Chief Financial Officer. 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 any such plan in the future through Pipasa and As de Oros.

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth the number of  post-Split  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,  and  (iv)  all  directors  and  officers  as a  group,  prior  to  the
acquisitions and after the acquisitions of 100% of Pipasa and As de Oros:

                                      -36-

<PAGE>

<TABLE>
<CAPTION>

                                            Amount and                                Amount and
                                            Nature of              Percent of         Nature of            Percent of
                                            Beneficial             Shares Owned       Beneficial           Shares Owned
Name and Address of                         Ownership Prior to     Prior to           Ownership After      After
Beneficial Owner(1)                         Acquisitions (2)(3)    Acquisitions (2)   Acquisitions (2)(3)  Acquisitions (2)
----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                    <C>              <C>                  <C>   
Calixto Chaves.........................     1,993,315(4)           26.87%             5,676,910(5)         44.44%
Commercial Angui, S.A..................       815,686              10.99%             2,486,607(6)         19.46%
  c/o Bufete Chaverri, Soto & Asociados
        Barrio Escalante de Cine Magaly,
       400 Metros Este
       San Jose, Costa Rica
Jorge M. Quesada.......................      52,295(7)               *                   52,295(7)           *
Monica Chaves..........................     133,333(8)               *                  133,333(8)           *
Luis Guinot, Jr. ......................           0                  0                        0              0
Luis J. Lauredo .......................           0                  0                        0              0
Federico Vargas........................           0                  0                        0              0
Alfred E. Smith IV.....................      33,333                  *                   33,333              *
Jose Pablo Chaves......................     279,324                  *                  279,324              *
</TABLE>
______________________

* Indicates less than 1% of outstanding shares owned.

(1)       Unless  otherwise  indicated,  the address of each beneficial owner is
          RICA FOODS,  INC., 95 Merrick Way,  Suite 507,  Coral Gables,  Florida
          33134.
(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.
(4)       Includes  861,315 shares of common stock owned of record by Atisbos de
          Belen, S.A., a Costa Rican corporation  wholly-owned by Mr. Chaves and
          his  wife,   833,333  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 Costa Rican company  wholly-owned  by Mr. Chaves and his wife.
          Does not include  133,333 shares and 279,324 shares owned by his adult
          daughter and adult son respectively.
(5)       Includes  3,683,595  post-Split  shares of common stock to be acquired
          pursuant to the Pipasa Acquisition.
(6)       Includes  1,670,921  post-Split  shares of common stock to be acquired
          pursuant to the As de Oros Acquisition.
(7)       Includes  52,295 shares owned by Jorque,  S.A., a  closely-held  Costa
          Rican company whose principal  shareholders are the wife and adult son
          of Mr. Jorge Quesada.
(8)       Owned of record by  Moninternacional,  S.A., a Costa Rican corporation
          owned by Monica Chaves,  the adult daughter of Mr. Chaves.  Mr. Chaves
          disclaims any beneficial ownership of these shares.


                                      -37-

<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Balances and transactions with related parties consist of the following:

                                                    1998              1997
                                                    ----              ----
     Due from stockholders                       $ 170,413         $ 920,476
     Due from related parties                      656,904            76,243
     Due to stockholders                            75,671            36,870
     Due to stockholders (long-term)                18,526            20,489

     Balances due from stockholders originate from interest bearing loans, which
bear interest at market rates,  made primarily to the Company's  Chief Executive
Officer,  other stockholders and to Inversiones La Ribera, S.A. ("Inversiones La
Ribera"), a company 100% owned by the Company's Chief Executive Officer.

     Balance due to  stockholders in 1998 and 1997 originate from notes payables
to the Company's Chief Executive Officer and other stockholders.

     During June 1998,  Inversiones La Ribera paid-off  outstanding debts due to
Pipasa from related parties in the amount of $1,245,197, in exchange for 276,710
shares of Company's  common stock.  The Company recorded such shares as treasury
stock.  In connection  with this  transaction,  the Company agreed to a buy back
option agreement with Inversiones La Ribera,  whereby  Inversiones La Ribera can
buy  back the  276,710  shares  at a $4.50  strike  price.  This  option  can be
exercised any time within a period of one year from the date of the agreement.

     The  Company  retained  the law firm of Shapiro  and Olander on November 5,
1998,  to provide  corporate  legal advice on an ongoing  basis.  Director  Luis
Guinot, Jr. is a member of the firm.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 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 on page F-1.

     (1)  See Page No. F-1.

     (2)  Schedules,  other than those listed on 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.

                                      -38-

<PAGE>

     (3)  Exhibits

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 10.1 to
                                         Form 8-K filed on October 13, 1998 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 10.2 to Form 8-K
                                         filed on October 13, 1998 is
                                         incorporated by reference herein.

(3)   3.1   Articles of Incorporation    Previously filed.

      3.2   By-Laws                      Previously filed.

(4)         Instrument defining rights   See 3.1 above.
            of security holders

(10)        Material Contracts           

     10.1                                Note Purchase Agreement, dated as of 
                                         January 1, 1998, filed as Exhibit 10.1
                                         to Form 10-Q filed on May 20, 1998 is 
                                         incorporated by reference herein.

                                      -39-

<PAGE>

     10.2                                Stock Purchase Agreement dated as of 
                                         January 22, 1998 by and between the
                                         Company and Comercial Angui, S.A., 
                                         filed as Exhibit 10.2 to Form 10-Q
                                         filed on May 20, 1998 is incorporated 
                                         by reference herein. 

(21)        Subsidiaries of registrant   See page 73.

(27)        Financial Data Schedule      See page 74.

     (b)  Reports  on form 8-K.  During the last  quarter  of fiscal  year ended
September  30, 1998,  the Company  filed one report on Form 8-K on July 14, 1998
pertaining to the replacement of the Company's auditors,  and filed an amendment
to that report on August 3, 1998 submitting the auditor's letter concurring with
the Company's disclosure.

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: January 6, 1999                      By: /s/ Calixto Chaves 
                                               -----------------------------   
                                               Chief Executive Officer

Dated: January 6, 1999                      By: /s/ Randall Piedra         
                                               -----------------------------
                                               Chief Financial Officer

Dated: January 6, 1999                      By: /s/ Monica Chaves          
                                               -----------------------------
                                               Secretary

                                      -40-

<PAGE>

     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.


/s/ Calixto Chaves                                  January 6, 1999           
--------------------------------            --------------------------------
Calixto Chaves Zamora, Director


/s/ Federico Vargas                                 January 6, 1999    
--------------------------------            --------------------------------
Federico Vargas, Director


/s/ Jorge M. Quesada                                January 6, 1999    
--------------------------------            --------------------------------
Jorge M. Quesada, Director


/s/ Jose Pablo Chaves                               January 6, 1999   
--------------------------------            ---------------------------------
Jose Pablo Chaves

                                      -41-

<PAGE>














                        RICA FOODS, INC. AND SUBSIDIARIES


                        Consolidated Financial Statements

                           September 30, 1998 and 1997

                 (With Independent Certified Public Accountants)







                                      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 sheet of Rica Foods, Inc.
and  subsidiaries  as of  September  30,  1998,  and  the  related  consolidated
statements  of income,  stockholders'  equity,  and cash flows for the year then
ended.  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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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, 1998 and the results of their  operations  and
their cash flows for the year ended  September  30,  1998,  in  conformity  with
generally accepted accounting principles.

Arthur Andersen LLP



Miami, Florida,
  December 11, 1998.


                                      F-2
<PAGE>






                          INDEPENDENT AUDITORS' REPORT 

The Board of Directors and Stockholders,
Costa Rica International, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets of Costa Rica
International,  Inc. and  Subsidiary as of September 30, 1997 and 1996,  and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the years in the two-year  period ended  September  30, 1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
Management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  Management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of  Costa  Rica
International,  Inc. and  Subsidiary as of September 30, 1997 and 1996,  and the
results  of their  operations  and their cash flows for each of the years in the
two-year period ended September 30, 1997, in comformity with generally  accepted
accounting principles.

KPMG Peat Marwick


San Jose, Costa Rica
December 5, 1997

                                      F-3
<PAGE>


                       RICA FOODS, INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                          September 30, 1998 and 1997

                Assets                                 1998            1997
                ------                                 ----            ----  
Current assets:
  Cash and cash equivalents                       $  3,290,757    $  1,388,290
  Short-term investments                               101,892       1,935,671
  Notes and accounts receivable, net                 8,290,021       5,818,760
  Due from related parties                             656,904          76,243
  Inventories, net                                  12,862,456       7,106,214
  Prepaid expenses                                     648,918         130,088
                                                  ------------    ------------
     Total current assets                           25,850,948      16,455,266
                                                  ------------    ------------

Property, plant and equipment, net                  28,494,233      14,350,427
Long-term receivable-trade                             119,229         176,520
Long-term investments                                4,720,335       4,385,197
Other assets                                         2,039,443       1,187,128
Cost in excess of acquired business, net             1,781,147               -
                                                  ------------    ------------
     Total assets                                 $ 63,005,335    $ 36,554,538
                                                  ============    ============

       Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable                                $  7,510,750    $  5,191,923
  Accrued expenses                                   3,035,951       2,137,237
  Notes payable                                      8,463,052      10,126,947
  Current portion of long-term debt                  1,940,073       1,251,127
  Due to stockholders                                   75,671          36,870
                                                  ------------    ------------
     Total current liabilities                      21,025,497      18,744,104
                                                  ------------    ------------

Long-term debt,  net of current portion             22,559,425       5,252,149
Due to stockholders                                     18,526          20,489
Deferred income tax liability                        1,974,407               -
                                                  ------------    ------------
     Total liabilities                              45,577,855      24,016,742
                                                  ------------    ------------

Minority interest                                    6,078,595       5,248,362
Stockholders' equity:
  Common stock                                           7,419           6,603
  Preferred stock                                    4,323,025       2,216,072
  Additional paid-in capital                        11,987,393       9,388,209
  Cumulative translation adjustment                 (5,630,035)     (4,675,549)
  Retained earnings                                  3,370,982       2,122,542
                                                  ------------    ------------
                                                    14,058,784       9,057,877
  Less:
  Due from stockholders                               (170,413)       (920,476)
  Treasury stock, at cost                           (2,539,486)       (847,967)
                                                  ------------    ------------
     Total  stockholders' equity                    11,348,885       7,289,434
                                                  ------------    ------------

     Total liabilities and stockholders' equity    $ 63,005,335    $ 36,554,538
                                                   ============    ============

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>
                         RICA FOODS, INC. AND SUBSIDIARIES
                         Consolidated Statements of Income
                             Years ended September 30,

                                                1998            1997            1996
                                                ----            ----            ---- 

<S>                                       <C>              <C>             <C>         
Sales, net                                 $ 103,676,630    $ 70,018,094    $ 61,535,457
Cost of sales                                 76,346,857      53,206,620      45,446,182
                                           -------------    ------------    ------------
     Gross profit                             27,329,773      16,811,474      16,089,275
                                           -------------    ------------    ------------
Operating expenses:
  General and administrative                   8,694,664       6,049,338       4,415,842
  Selling                                     12,182,757       6,800,375       6,506,131
  Amortization  of cost in  excess of
    net assets of acquired business              297,206               -               -
                                           -------------    ------------    ------------
     Total operating expenses                 21,174,627      12,849,713      10,921,973
                                           -------------    ------------    ------------

     Income from operations                    6,155,146       3,961,761       5,167,302
Other expenses (income):
  Interest expense                             3,108,182       2,509,131       2,686,801
  Interest income                               (614,211)       (826,870)       (439,821)
  Foreign exchange losses, net                 1,412,971         205,988         101,529
  Miscellaneous, net                          (1,392,732)       (308,993)       (197,147)
                                           -------------    ------------    ------------
    Other expenses (income), net               2,514,210       1,579,256       2,151,362
                                           -------------    ------------    ------------
    Income before income taxes and
      minority interest
                                               3,640,936       2,382,505       3,015,940
Provision for income taxes                       188,663         291,396         244,431
                                           -------------    ------------    ------------
    Income before minority interest            3,452,273       2,091,109       2,771,509
Minority interest                              2,034,100       1,164,877       1,121,630
                                           -------------    ------------    ------------
    Net income                                 1,418,173         926,232       1,649,879
Preferred stock dividends                        288,219         172,496         211,750
                                           -------------    ------------    ------------
Net income applicable to
  common stockholders                      $   1,129,954    $    753,736    $  1,438,129
                                           =============    ============    ============
Earnings per share:
  Basic earnings per share                 $        0.16    $       0.11
                                           =============    ============
  Diluted earnings per share               $        0.16    $       0.11
                                           =============    ============
  Pro forma earnings per share                                              $       0.28
                                                                            ============
Weighted average number of common
  shares outstanding:

    Basic                                      7,078,949       6,592,021
                                           =============    ============
    Diluted                                    7,113,265       6,639,075
                                           =============    ============ 
    Pro forma                                                                  5,191,190
                                                                            ============   
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                                    RICA FOODS, INC. AND SUBSIDIARIES
                                              Consolidated Statements of Stockholders' Equity
                                               Years ended September 30, 1998, 1997 and 1996

                       Common Stock   Treasury Stock
                    ----------------- --------------                  Additional               Cumulative                 Total
                                                                      ----------               ----------                 -----
                      Number of        Number of           Preferred   Paid-In      Due from   Translation  Retained  Stockholders'
                      ---------        ---------           ---------   -------      --------   -----------  --------  ------------
                      Shares   Amount  Shares    Amount      Stock    Additional  Stockholders Adjustment   Earnings      Equity
                      ------   ------  ------    ------      -----    ----------  ------------ ----------   --------      ------

<S>                 <C>       <C>    <C>     <C>          <C>        <C>         <C>          <C>          <C>        <C>
Balance, September
  30, 1995           5,191,190 $5,191       -           -  $2,216,072  $7,276,511 ($1,939,380) ($2,404,016) $3,028,603 $8,182,981
Issuance of common
  stock              1,384,231  1,384       -           -           -       2,769           -            -           -      4,153
Agreement and Plan
  of Reorganization
  dated April 30,
  1996:
Common stock
  returned and
  canceled            (38,955)    (39)      -           -           -         (78)           -           -           -        (117)
Divestment of assets  (16,667)    (16)      -           -           -    (117,647)           -           -           -    (117,663)
Capital
  contributions             -       -       -           -           -       2,883            -           -           -       2,883
Capitalization of
  retained
  earnings                  -       -       -           -           -   2,198,855            -           -  (2,198,855)          -
Cash dividends on
  common stock of
  Pipasa                    -       -       -           -           -           -            -           -    (168,599)   (168,599)
Cash dividends on
  preferred stock           -       -       -           -           -           -            -           -    (211,750)   (211,750)
Net income                  -       -       -           -           -           -            -           -   1,649,879   1,649,879
Decrease in Due
  from Stockholders         -       -       -           -           -           -      834,390           -           -     834,390
Translation
  adjustment                -       -       -           -           -           -            -  (1,192,237)          -  (1,192,237)
                    ---------- ------ ------- -----------  ---------- -----------  -----------  -----------  ---------- -----------

Balance, September
  30, 1996           6,519,799  6,520       -           -   2,216,072   9,363,293  (1,104,990)  (3,596,253)  2,099,278   8,983,920
Issuance of
  common stock          83,333     83       -           -           -      24,916           -            -           -      24,999
Cash dividends on
  common stock of
  Pipasa                     -      -       -           -           -           -           -            -    (730,472)   (730,472)
Cash dividends on
  preferred
  stock                      -      -       -           -           -           -           -            -    (172,496)   (172,496)
Purchase of common
  stock                      -      - 188,329    (847,967)          -           -           -            -           -    (847,967)
Net income                   -      -       -           -           -           -           -            -     926,232     926,232
Decrease in Due
  from
  Stockholders               -      -       -           -           -           -     184,514            -           -     184,514
Translation
  adjustment                 -      -       -           -           -           -           -   (1,079,296)          -  (1,079,296)
                    ---------- ------ -------  ----------  ---------- ----------- -----------  -----------  ---------- -----------
Balance, September
  30, 1997           6,603,132  6,603 188,329   (847,967)   2,216,072   9,388,209   (920,476)   (4,675,549)  2,122,542   7,289,434
Acquisition  of
  As de Oros           815,686    816       -          -    1,003,287   2,599,184           -            -           -   3,603,287

                                                                                                          (continued on next page)

</TABLE>

                                      F-6

<PAGE>

<TABLE>
<CAPTION>

                                                    RICA FOODS, INC. AND SUBSIDIARIES
                                             Consolidated Statements of Stockholders' Equity
                                              Years ended September 30, 1998, 1997 and 1996
                                                               (continued)

                        Common Stock   Treasury Stock
                    ----------------- --------------                  Additional               Cumulative                 Total
                                                                      ----------               ----------                 -----
                      Number of        Number of           Preferred   Paid-In      Due from   Translation  Retained  Stockholders'
                      ---------        ---------           ---------   -------      --------   -----------  --------  ------------
                      Shares   Amount  Shares    Amount      Stock    Additional  Stockholders Adjustment   Earnings      Equity
                      ------   ------  ------    ------      -----    ----------  ------------ ----------   --------      ------

<S>                 <C>       <C>    <C>      <C>         <C>        <C>           <C>        <C>          <C>        <C>
 Cash dividends on
   preferred
   stock                    -      -        -          -           -           -           -            -    (169,733)   (169,733)
 Preferred stock
   dividends
   issued                   -      -        -          -   1,103,666           -           -            -               1,103,666
 Repurchase of                                                                                                           
   common stock             -      -  276,710 (1,245,197)          -           -           -            -           -  (1,245,197)
 Company's stock
   swapped for
   Pipasa's "TCA"
   preferred stock          -      - (146,077)   657,344           -           -           -            -           -     657,344
 Repurchase of                                                                                                           
   Pipasa's "TCA" 
   preferred stock          -      -  282,958 (1,103,666)          -           -           -            -           -  (1,103,666)
 Net income                 -      -        -          -           -           -           -            -   1,418,173   1,418,173
 Decrease in Due                                                                                                           
   from
   Stockholders             -      -        -          -           -           -     750,063            -           -     750,063
 Translation                                                                                                                   
   adjustment               -      -        -          -           -           -           -     (954,486)          -    (954,486)
                    ---------- ------ ------- ----------  ---------- -----------  ----------  -----------  ---------- -----------
 Balance, September                      
   30, 1998          7,418,818 $7,419 601,920 $2,539,486) $4,323,025 $11,987,393   ($170,413) ($5,630,035) $3,370,982 $11,348,885
                    ========== ====== ======= =========== ========== ===========  ==========  ===========  ========== ===========


The accompanying notes to consolidated financial statements are an integral part
of these statements.

</TABLE>

                                      F-7

<PAGE>

<TABLE>
<CAPTION>

                                       RICA FOODS, INC. AND SUBSIDIARIES

                                     Consolidated Statements of Cash Flows

                                           Years ended September 30,

                                                             1998               1997                 1996
                                                             ----               ----                 ----
<S>                                                      <C>                <C>               <C>
Cash flows from operating activities:
  Net income                                              $1,418,173         $  926,232        $  1,649,879
                                                          ----------         ----------        ------------
  Adjustment to reconcile net income to
    net cash provided by operating activities:
      Depreciation and amortization                        2,313,075          1,384,910           1,232,269
      Renewal for production poultry                       1,340,431            982,823             912,727
      Allowance for inventory obsolescence                    29,435                  -                   -
      Amortization of cost in excess of net assets
        of acquired business                                 297,206                  -                   -
      Increase in provision for vacation accrual             123,063                  -                   -
      Amortization of software development costs             122,761            105,534                   -
      Loss (gain) on sale of productive assets                (3,732)           (76,519)              77,461
      Deferred income tax benefit                           (122,308)                 -                   -
      Provision for doubtful  receivables                    301,432            213,000             154,868
      Minority interest                                    2,034,100          1,164,877           1,121,630
  Changes in operating assets and liabilities:
      Notes and accounts receivable                          952,598         (1,989,098)         (1,193,383)
      Due from related parties                               116,693            108,143             496,513
      Inventories                                         (1,891,920)        (1,722,092)         (2,987,313)
      Prepaid expenses                                       967,717             13,479            (20,165)
      Accounts payable                                    (1,920,001)         2,956,628             468,898
      Accrued expenses                                       256,847            611,497             163,059
      Long-term receivable-trade                              56,116             13,568            (36,986)
                                                          ----------         ----------        ------------
        Cash provided by operating
          activities                                       6,391,686          4,692,982           2,039,457
                                                          ----------         ----------        ------------
Investing activities:
  Short-term investments                                   1,833,749         (1,795,778)            (44,594)
  Initial cash balance from subsidiary acquired            1,147,472                  -                   -
  Additions to property, plant and equipment              (5,313,919)        (3,973,736)         (1,672,706)
  Increase in long-term investments                       (2,135,614)        (3,708,805)                  -
  Proceeds from sales of productive  assets and
     long-term investments                                   348,818             90,597           1,013,574
  Increase in other assets                                  (723,579)          (232,923)         (1,095,621)
                                                          ----------         ----------        ------------
    Cash used in investing
      activities                                          (4,843,073)        (9,620,645)         (1,799,347)
                                                          ----------         ----------        ------------
Financing activities:
  Increase in notes payable                                2,510,177          1,783,467           1,745,986
  Preferred stock cash dividends                            (288,219)          (172,496)           (211,750)
  Common stock cash dividends                                      -          1,343,569)           (424,378)

                                                                                                          (continued on next page)
</TABLE>

                                      F-8

<PAGE>

<TABLE>
<CAPTION>

                                                   RICA FOODS, INC. AND SUBSIDIARIES

                                           Consolidated Statements of Cash Flows - Continued

                                                       Years ended September 30,

                                                             1998               1997                 1996
                                                             ----               ----                 ----
<S>                                                      <C>                <C>               <C>
  Long-term financing:
    Payments                                               (2,753,919)        (2,134,580)         (1,344,403)
    New loans                                               2,344,966          3,134,004           3,415,700
  Return of capital                                                -                   -            (110,745)
  Due to related parties                                      205,546             60,424                   -
  Due from stockholders                                    (2,414,934)           150,265                   -
  Exercise of warrants                                              -             25,000                   -
  Repurchase of common stock                                        -           (150,589)                  -
  Other liabilities                                                 -                  -              28,703
                                                          -----------        -----------         -----------
    Cash provided by (used in) financing
      activities                                             (396,383)         1,351,926           3,099,113
                                                           ----------         ----------        ------------
Effect of exchange rate changes on cash
  and cash equivalents                                        750,237           (165,285)           (323,506)
                                                          -----------        -----------         -----------
    Increase (decrease) in cash and cash
      equivalents                                           1,902,467         (3,741,022)          3,015,717
Cash and cash equivalents at beginning of year              1,388,290          5,129,312           2,113,595
                                                          -----------        -----------         -----------
Cash and cash equivalents at end of year                  $ 3,290,757        $ 1,388,290         $ 5,129,312
                                                          ===========        ===========         ===========
Supplemental disclosures of cash flow information:
  Cash paid during year for:
    Interest                                              $ 2,482,826        $ 2,493,716         $  2,411,604
                                                          ===========        ===========         ============
    Income taxes                                          $   117,935        $    61,030         $    189,054
                                                          ===========        ===========         ============
Supplemental schedule of non-cash investing and
  financing activities:
    Acquisition of  treasury stock through
      financial agreement                                 $ 1,245,197
                                                          ===========
    Dividends paid as preferred shares                    $ 1,103,666
                                                          ===========
    Acquisition of business:
      Fair value of assets acquired                       $ 7,709,050
                                                          ===========
      Common stock issued                                 $ 2,600,000
                                                          ===========
      Loan assumed                                        $ 2,400,000
                                                          ===========

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-9

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997




NOTE 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.  In April  1996,  the  Company  entered  into an
acquisition  agreement  to  acquire  the  majority  of the stock of  Corporacion
Pipasa, S.A. ("Pipasa"),  a Costa Rican entity. This transaction was approved by
the  stockholders  of the Company on August 5, 1996 and consummated on September
30, 1996.  Simultaneously  with the acquisition of Pipasa,  the Company divested
itself of all other subsidiaries.

     On February 26, 1998,  the Company  consummated an agreement (the "Original
Oros Agreement") with Comercial Angui, S.A.  ("Angui"),  a Costa Rican privately
held company, and the majority stockholders of Corporacion As de Oros, S.A. ("As
de Oros") to purchase  56.38% of the  outstanding  common stock of As de Oros in
exchange for 815,686 shares of Company stock at a price of $3.19 per share,  for
a total of $2.6  million,  and for a $2.4  million  face value  promissory  note
payable in cash upon its maturity in January 2000,  accounted for at its present
value of $1,927,976.

     On April 14, 1998, the Board of Directors of the Company adopted a proposal
which would change the Company's name from "Costa Rica  International,  Inc." to
"Rica  Foods,  Inc." The Board of  Directors  believes the name change is in the
best interests of the Company  because it would enhance the Company's  corporate
identity  with a name that is more  closely  related  to the  poultry  producing
business of its principal subsidiaries,  Pipasa and As de Oros. The stockholders
of the  Company  approved  the name  change  at the May 29,  1998  stockholders'
meeting.

     Pipasa and As de Oros produce and market poultry  products and animal feed,
mainly in the Republic of Costa Rica.  As de Oros also owns a chain of fast food
fried  chicken  restaurants,  which  operate in Costa Rica.  Pipasa  exports its
products to El Salvador, Honduras, Nicaragua, and Colombia.

     The Company's fiscal 1998, 1997 and 1996 years encompass the periods ending
September 30, 1998, 1997 and 1996, respectively.

                                      F-10

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


AGREEMENT AND PLAN OF REORGANIZATION

     On April 30,  1996,  the  Company  entered  into an  Agreement  and Plan of
Reorganization (the "First Pipasa Agreement") for the acquisition of Pipasa, and
the divestiture of all the current  subsidiaries  and activities of the Company.
The stockholders of the Company approved the plan of reorganization on August 5,
1996.  Pursuant to the Agreement,  and as of September 30, 1996, the Company had
exchanged  5,191,190  shares of its  common  stock for  approximately  59.56% of
Pipasa's  common  shares.  The  40.44%  interest  not  acquired  in  the  merger
transaction has been accounted for as minority interest for all years presented.

ACCOUNTING PRINCIPLES

     The consolidated financial statements have been prepared in accordance with
generally  accepted  accounting  principles  in the  United  States  of  America
("GAAP").  Accounting  records  of  subsidiaries  are  maintained  according  to
generally accepted  accounting  principles in Costa Rica and have been converted
to GAAP in consolidation.

PRINCIPLES OF CONSOLIDATION RECLASSIFICATIONS

     The consolidated  financial  statements include the accounts of Rica Foods,
Inc.,  and  subsidiaries  (subsidiaries  include  Pipasa  and As de  Oros).  The
minority  interest  held by third  parties in a  majority  owned  subsidiary  is
separately stated. All significant  intercompany  balances and transactions have
been eliminated in consolidation.

     The  consolidated  financial  statements  as of September 30, 1998 and 1997
reflect the acquisition of Pipasa as a reverse  acquisition,  whereby Pipasa was
treated  as the  accounting  acquirer  and the  Company  as the legal  acquirer.
Accordingly,  for  financial  reporting  purposes,  the issuance of stock in the
acquisition  is  treated  as an  issuance  by  the  operating  company,  Pipasa.
Accordingly,  financial  statements  for  fiscal  1996 are those of Pipasa  (the
accounting acquiror), as required by GAAP.

     The consolidated financial statements as of September 30, 1998, reflect the
acquisition of As de Oros using the purchase  method of  accounting.  The excess
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.

     Certain prior period balances have been reclassified to conform to the 1998
presentation.

                                      F-11

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


USE OF ESTIMATES IN THE PREPARATION OF  FINANCIAL STATEMENTS

     The  preparation of financial  statements in conformity  with GAAP 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  ultimate   collection  of  customer
receivables. Actual results in subsequent periods could differ from estimates.

FOREIGN CURRENCY TRANSLATION

     Most business  transactions of the Company's  subsidiares take place in the
Republic  of Costa Rica and are  denominated  in the local  currency,  the colon
([cent  sign]).  The  exchange  rate  between  the  colon  and the US  dollar is
determined  in a free exchange  market,  supervised by the Central Bank of Costa
Rica. As of September 30, 1998,  1997 and 1996,  commercial  exchange rates were
[cent   sign]264.07,   [cent  sign]238.77  and  [cent  sign]213.94  to  US$1.00,
respectively.

     The financial statements of Pipasa and As de Oros have been translated into
US dollars on the basis of the colon ([cent sign]) as the  functional  currency,
as follows:  assets and  liabilities  denominated in dollars have been stated at
nominal  dollar  amounts;  assets and  liabilities  denominated  in Costa  Rican
colones  have been  translated  at the  commercial  exchange  rates in effect on
September 30, 1998 and 1997;  stockholders' equity accounts have been translated
at  historical  exchange  rates;  income and expenses  have been  translated  at
average  exchange  rates in effect  during  the years  then  ended.  Translation
adjustments have been recorded as a separate component of stockholders' equity.

CASH EQUIVALENTS

     Highly liquid investments with original  maturities of three months or less
are considered cash equivalents.

                                      F-12

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


INVESTMENTS

     Short-term investments consist primarily of commercial paper denominated in
U.S.  dollars and colones,  with  original  maturities  between 3 and 12 months.
These investments bear interest at 6% in U.S. dollars and 18.6% in colones (from
7% to 9% in US dollars  for 1997) and are  carried at cost,  which  approximates
fair market value.  The Company has  investments in short-term  debt  securities
that have been  classified  under  the  provisions  of  Statement  of  Financial
Accounting  Standards ("SFAS") No. 115,  "Accounting for Certain  Investments in
Debt and Equity Securities," as held to maturity.

INVENTORIES AND RENEWAL OF PRODUCTION POULTRY

     Inventories  are stated at the lower of cost or market.  Cost is determined
using the weighted-average  method, except for inventories in transit, which are
valued at specific cost.  Costs  pertaining to the growth period of reproductive
hens  are  capitalized  and  are   subsequently   amortized  over  the  expected
reproductive life of the hen. Renewal of production  poultry is determined based
on the estimated poultry reproductive period.

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. Improvements to property,
plant and equipment which extend the assets useful lives are  capitalized.  Cost
for  maintenance,  repairs  and minor  renewals  are  charged  to  expense  when
incurred.

     Depreciation  is provided  using the  straight-line  method over  estimated
useful lives: buildings-50 years; vehicles,  machinery and equipment,  furniture
and fixtures-between 5 and 20 years.

     Cost of leasehold rights on leased  properties,  accounted for as operating
leases,  are amortized  over the lease term  agreement  using the  straight-line
method.

ADVERTISING COSTS

     Advertising  costs are expensed as incurred.  Advertising costs amounted to
$815,699,   $295,768  and  $445,466  in  1998,  1997  and  1996,   respectively.
Advertising  expenses are included as part of selling  expenses on the statement
of income.

                                      F-13

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


INCOME TAXES

     The Company  accounts  for income  taxes in  accordance  with 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.


NEW ACCOUNTING PRONOUNCEMENTS

Disclosure of Information about Capital Structure
-------------------------------------------------  

     In February 1997, the Financial  Accounting Standards Board issued SFAS No.
129,  "Disclosure about Capital  Structure," which requires companies to present
additional  information about  securities,  preferred stock and redeemable stock
and is effective for fiscal years beginning after December 15, 1997.

Reporting Comprehensive Income 
------------------------------

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting  Comprehensive  Income."  SFAS  No.  130  establishes  standards  for
reporting and display of  comprehensive  income and its components in a full set
of  general-purpose  financial  statements  and is  effective  for fiscal  years
beginning after December 15, 1997.

Disclosures about Segments of an Enterprise and Related Information 
-------------------------------------------------------------------

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related  Information." SFAS No.
131 requires that public businesses report certain  information in the financial
statements  about  their  products,  services,  geographic  areas in which  they
operate,  and their major  customers,  related to the operating  segments of the
company.  The statement is effective for fiscal years  beginning  after December
15, 1997.

                                      F-14

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


Accounting for Derivative Instruments and for Hedging Activities 
----------------------------------------------------------------

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This Statement
establishes  accounting and reporting  standards requiring that every derivative
instrument  be  recorded in the  balance  sheet as either an asset or  liability
measured at its fair value and requires  that changes in the  derivative's  fair
value be  recognized  currently in earnings  unless  specific  hedge  accounting
criteria are met.  This  statement is effective  for  financial  statements  for
fiscal years  beginning  after June 15, 1999.  Management of the Company has not
yet quantified the impact of adopting SFAS No.133.

NOTE 2 - NOTES AND ACCOUNTS RECEIVABLE

     Notes and accounts receivable consist of the following:

                                             1998                  1997
                                             ----                  ----
  Accounts receivable:
   Trade receivables                    $ 7,771,455            $4,838,313
   Other                                  1,214,400             1,212,879
                                        -----------            ----------
                                          8,985,855             6,051,192
  Less: allowance for doubtful
        accounts                           (727,005)             (380,791)
                                        -----------            ----------
                                          8,258,850             5,670,401
  Short-term notes-trade                     31,171               148,359
                                        -----------            ----------
                                        $ 8,290,021           $ 5,818,760
                                        ===========           ===========
 

NOTE 3 - ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES

     Balances and transactions with related parties consist of the following:

 
                                             1998                   1997
                                             ----                   ----
     Due from stockholders                $ 170,413              $ 920,476
     Due from related parties               656,904                 76,243
     Due to stockholders                     75,671                 36,870
     Due to stockholders (long-term)         18,526                 20,489

     Balances due from stockholders originate from interest bearing loans, which
bear interest at market rates,  made primarily to the Company's  Chief Executive
Officer, other stockholders and to Inversiones La Ribera, S.A., ("Inversiones La
Ribera"), a company 100% owned by the Company's Chief Executive Officer.

     Balance due to  stockholders in 1998 and 1997 originate from notes payables
to the Company's Chief Executive Officer and other stockholders.

                                      F-15

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


     During June 1998,  Inversiones La Ribera paid off outstanding  debts due to
Pipasa from related parties in the amount of $1,245,197, in exchange for 276,710
shares of the  Company's  common  stock.  The  Company  recorded  such shares as
treasury stock. In connection with this transaction, the Company agreed to a buy
back option agreement with Inversiones La Ribera,  whereby Inversiones La Ribera
can buy back the  276,710  shares at a $4.50  strike  price.  This option can be
exercised any time within a period of one year from the date of the agreement.

NOTE 4 - INVENTORIES, NET

     Inventories, net consist of the following:
 
                                             1998                   1997
                                             ----                   ----

Finished products                      $  3,038,319              $ 686,423
Poultry                                   2,713,040              2,269,993
Production poultry                        3,141,980              1,708,071
Materials and supplies                    1,710,071              1,134,115
Raw materials                             2,849,126              1,639,527
In transit                                  204,681                131,188
                                       ------------             ----------
                                         13,657,217              7,569,317
Renewal of production poultry              (766,736)              (463,103)
Allowance for obsolescence                 ( 28,025)                     -
                                       ------------             ----------
Inventories, net                       $ 12,862,456             $7,106,214
                                       ============             ==========

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of cash and cash  equivalents,  short-term  investments,
accounts payable, notes and accounts receivable and long-term  receivable-trade,
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 notes
payable, 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 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, 1998, the Company has futures contracts in place
to  hedge  purchases  of such  commodities  for  $713,600  with a fair  value of
$673,200.

                                      F-16

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET

     Property, plant and equipment, net, is summarized as follows:

                                             1998                     1997
                                             ----                     ----
 
Land                                      $ 7,835,150             $ 2,253,591
Buildings and facilities                   11,000,373               5,955,582
Machinery and equipment                    17,426,179              10,302,630
Machinery in transit                          126,146                       -
Construction in process                       719,547                 782,812
                                          -----------            ------------
                                           37,107,395              19,294,615
Less: accumulated depreciation             (8,613,162)             (4,944,188)
                                          -----------            ------------
Property, plant and equipment, net        $28,494,233            $ 14,350,427
                                          ===========            ============

     Depreciation  and  amortization  expense for the years ended  September 30,
1998,  1997,  and 1996  amounted  to  $2,313,075,  $1,384,910,  and  $1,232,269,
respectively.

NOTE 7 - LONG -TERM INVESTMENTS

     Long-term investments consist of the following:

                                              1998                    1997
                                              ----                    ---- 

Grupo Industrias Oleaginosas S.A.         
  ("Inolasa") (10% ownership)              $3,936,551              $4,353,667
La Condesa, S.A.                              757,375                       -
Others (less than 50% ownership)               26,409                  31,530
                                           ----------              ----------
                                           $4,720,335              $4,385,197
                                           ==========              ==========

     Inolasa is the only Costa Rican supplier of soybean meal.  During 1998, the
Company  received  cash  dividends  from Inolasa in the amount of  approximately
$150,000.  This is included in  miscellaneous,  net on the  statement of income.

     During 1998, the Company invested $757,375 in 200,000,000  preferred shares
of La Condesa S.A.  Dividends on the  preferred  shares are payable  annually at
5.62% in cash or in kind.  La Condesa  S.A.  is a hotel  located in Costa  Rica.
Acccording   to  Costa  Rican  tax  laws,   50%  of  the  amounts   invested  in
tourism-related  companies can be deducted from the income tax during the period
the transaction took place. Accordingly,  the Company has deducted $399,122 from
its income tax payable for fiscal 1998.

     Investments   in  companies  are  carried  at  cost,   based  on  ownership
percentage.  Dividends  received  from those  companies  are  included  in other
income.

                                      F-17

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



NOTE 8 - NOTES PAYABLE

      Notes payable consist of the following:
 
                                                1998                 1997
                                                ----                 ----

Loans payable                               $5,648,310          $ 6,188,036
Bank overdrafts                              1,414,247              371,193
Commercial paper                             1,075,736            3,562,721
Other                                          324,759                4,997
                                            ----------          -----------
                                            $8,463,052          $10,126,947
                                            ==========          ===========

     Loans  payable  include  lines of credit  and  commitments  with  banks for
letters of credit to support commercial operations with suppliers to acquire raw
materials.  The Company has a $500,000 line of credit with the  brokerage  firm,
Futures U.S.A., Inc.  ("FIMAT"),  which is used to finance purchases of corn and
soybean.

     As of September 30, 1998,  the Company has line of credit  agreements  with
banks for a maximum of $11.6  million,  of which $4.8  million has already  been
used ($8.8  million for 1997,  of which $4.4  million  had  already  been used).
Agreements  may be renewed  annually,  and bear interest at annual rates ranging
from 8% to 10% (9.25% and 12.00% for  1997).  Those  agreements  are  secured by
property.

     Commercial  paper  consists of unsecured debt  certificates  denominated in
colones  registered  with the Comision  Nacional de Valores  ("Costa Rican Stock
Exchange"),  with a maximum  authorized  amount of $3.7  million  ([cent  sign]1
billion).  The Company's  commercial  paper bears annual  interest rates ranging
from 18.50% to 24.50% and from 17.25% to 19.25%, in 1998 and 1997, respectively.

     As  of  September  1998,  the  Costa  Rican  Stock  Exchange  approved  the
withdrawal of Pipasa's debt certificates from the stock exchange market.

NOTE 9 - LONG TERM DEBT

 Long-term consists of the following:
                                                   1998              1997
                                                   ----              ----

 Private placement                             $20,000,000        $        -
 Bank loans                                      2,984,250         5,395,152
 Commercial paper-unsecured                         42,224            46,698
 Other                                           1,473,024         1,061,426
                                               -----------        ----------
                                                24,499,498         6,503,276
 
 Less: current installments                      1,940,073         1,251,127
                                               -----------        ----------
                                               $22,559,425        $5,252,149
                                               ===========        ==========


                                      F-18

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



     As of  September  30,  1998,  bank loans in the  amount of $1  million  are
secured by the  Company's  equipment and vehicles in the amount of $1.5 million,
and are due from October 1998 to April 2005.

     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".  No  collateral  was
pledged relating to the private  placement.  The Private Placement  includes the
following terms, among others:

-    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 Company has signed covenants  stating 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.
-    The Company is committed to comply with several  financial and  operational
     covenants,  and to review the relevant  terms  included in the agreement to
     prevent the existence of a default or event of default.


     Interest rates for long-term debt are as follows:

                                           1998                    1997
                                           ----                    ----
     US dollar loans                   8.5% - 11.71%            8.25% - 10%
     Costa Rican colones loans              -                     19% - 27%
     Commercial paper-unsecured         24% - 24.5%                 18.56%

     Future payments on long-term debt at September 30, 1998 are as follows:

                       Year                            Amount
                       ----                            ------ 
                       1999                         $ 1,940,073
                       2000                           1,447,986
                       2001                           4,615,637
                       2002                           4,445,554
                       2003                           4,050,248
                    Thereafter                        8,000,000
                                                    ----------- 
                                                    $24,499,498
                                                    ===========


                                      F-19

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



NOTE 10 - EARNINGS PER SHARE AND PRO FORMA 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".  Earnings per share  pertaining to 1997 results of operations  have been
restated to comply with this standard.

     Earnings  per share and  weighted  average  amounts  have been  restated to
reflect reverse stock split effective on December 29, 1998.

     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:

                                            1998          1997           1996
                                            ----          ----           ----
Numerator:
---------
  Income from continuing operations      $1,129,954   $  753,736
                                         ==========   ==========
  Pro forma earnings from continuing        
    operations                                                      $ 1,438,129
                                                                    ===========
Denominator:
-----------
  Denominator for basic income
    per share                             7,078,949    6,592,021
  Effect of dilutive securities:
    Options to purchase common stock         34,316       47,054             -
  Denominator for diluted earnings
    per share                             7,113,265    6,639,075
                                         ==========   ========== 
  Denominator for pro forma earnings
    per share                                                         5,191,190
                                                                    ===========
Earnings per share from continuing
  operations:
    Basic                                $     0.16   $      0.11
                                         ==========   ===========
    Diluted                              $     0.16   $      0.11
                                         ==========   ===========
    Pro forma                                                       $      0.28
                                                                    ===========

     The  Company did not have any  antidilutive  securities  outstanding  as of
September 30, 1998 and 1997.

     The shares used in computing pro forma  earnings per share are those shares
issued by the Company to effect the business  combination for the acquisition of
59.56% of the outstanding shares of Pipasa.

     The  minority  interest  in the income of  subsidiaries  and  dividends  on
preferred stock have been excluded from income available to common stockholders.


                                      F-20

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



NOTE 11 -  PRO FORMA FINANCIAL INFORMATION

     Following is pro forma  financial  information  which  presents  results of
operations  for  the  years  ended  September  30,  1998  and  1997,  as if  the
acquisition of 56.38% of As de Oros, consummated on February 26, 1998, had taken
place on October 1, 1996:

                                                  1998                1997
                                                  ----                ----
Revenues                                     $ 120,491,783       $ 116,532,789
Net income (loss)                                  854,178          (1,758,194)

Basic earnings per share:
  Weighted average number of shares
    outstanding                                  7,418,818           7,407,707
                                             =============       =============
  Earnings (loss) per share                       $   0.12            $  (0.24)
                                             =============       =============
Diluted earnings per share:
  Incremental shares from assumed
    conversions of warrants                         34,316              47,054
  Adjusted weighted average shares               7,453,134           7,454,761
                                             =============       =============
  Diluted earnings (loss) per share          $        0.11       $       (0.24)
                                             =============       =============


     Pro  forma,  basic and  diluted  weighted  average  outstanding  shares and
earnings per share amounts, have been restated to reflect reverse stock split.

     Basic and adjusted weighted average shares are computed assuming the stocks
issued for the acquisition of As de Oros, had taken place on October 1, 1996.

NOTE 12 - EMPLOYEE BENEFIT PLAN

     On April 14,  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 exercise of options. The plan is
designed to serve as an incentive for retaining and attracting qualified persons
and/or entities that provide services. As of September 30, 1998, the Company had
not issued any options under the Plan.

                                      F-21

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



NOTE 13 - STOCKHOLDERS' EQUITY

COMMON STOCK

     As of September  30, 1998 and 1997,  20,000,000  common shares at $.001 par
value  were  authorized.  As of  September  30,  1998 and  1997,  7,418,818  and
6,603,132 shares were authorized and issued, respectively. Outstanding shares as
of  September  30, 1998 and 1997 were  7,099,856  and  6,414,803,  respectively.
During  February  1998,  the Company  issued  815,686  shares of common stock to
purchase 56.38% of As de Oros.

     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, 1998, no stocks had been  purchased
under this program.

PREFERRED STOCK

     Rica Foods, Inc.
     ---------------

     On September  30, 1998 and 1997,  1,000,000  preferred  shares at $1.00 par
value of the Company were authorized. Such preferred shares to have such classes
and preferences as the Board of Directors of the Company determines from time to
time. No preferred shares had been issued as of September 30, 1998.

     All subsidiary  preferred stock outstanding as of September 30, 1998 and
1997 is included in preferred stock in the  stockholders'  equity section of the
balance sheet.

     Pipasa
     ------

     As of September  30, 1998,  Pipasa had issued  600,789  shares of preferred
stock.  Preferred stock was comprised of 317,831 Class "C" preferred  shares and
282,958 series "TCA" amounting to $2,216,072 and $1,103,666,  respectively.  The
282,958  series "TCA"  shares  issued were  repurchased  in exchange for 146,077
shares of the Company's stock. This stock is held as a short-term  investment by
Pipasa.  "TCA" refer to "Titulos de Capital"  which is a mechanism used by Costa
Rican corporations to document, among other things, but not limited to, retained
earnings,  linked to equity  ownership,  with the same  shareholder  rights  and
obligations of common stockholders. "TCA" can be used for the issuance of common
or  preferred  shares.  The Series  "TCA"  preferred  shares are included in the
treasury stock as of September 30, 1998. Dividends on these preferred shares are
based on the following terms:

-         53,034 shares of Class "C-A",  60,702 shares of Class "C-B" and 72,695
          shares of Class "C-D" receive a 10% annual  dividend  payable  monthly
          and adjustable by the Board of Directors.

-         131,400  shares of Class "C-C"  receive a dividend  equal to the prime
          rate set by the Central  Bank of Costa Rica plus two percent,  payable
          monthly.

                                      F-22

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



-         282,958  shares  series  "TCA"  receive a dividend  in  proportion  to
          dividends distributed to common stock.

     As de Oros
     ----------

     As of September 30, 1998, 1,200,000 Class "C" preferred shares issued by As
de Oros  were  authorized,  of  which  158,374  had been  issued  for a total of
US$1,003,287.  The shares accrue a monthly dividend at the prime rate set by the
Central Bank of Costa Rica.

     As of September 30, 1998, there are no dividends in arrears.

TREASURY STOCK

     As of  September  30,  1998 and 1997,  601,920  and  188,329  shares of the
Company's common stock, amounting to $2,539,486 and $847,967, respectively, were
held in treasury shares.  As of September 30, 1998, these shares include 282,958
shares of preferred stock series "TCA" which amounted to $1,103,666.

RETAINED EARNINGS

     Costa  Rican  legislation  requires  that 5% of annual net income (in local
currency) up to an amount  equivalent to 20% of total capital stock be allocated
to a legal reserve.  As of September 30, 1998 and 1997, the Company has reserved
earnings of $911,780  and  $605,887  respectively,  for the  creation of a legal
reserve.

     As of September 30, 1998,  Pipasa has retained earnings of $4,805,871 which
may be  distributed  to  current  stockholders.  As de Oros  has an  accumulated
deficit of $6,815,791.  These amounts are computed by applying the exchange rate
as of the  date of the  balance  sheet  to the  retained  earnings  (accumulated
deficit) balance expressed in colones.

     During the year ended  September  1998,  subsidiaries  of the Company  paid
preferred  stock dividends  amounting to $288,219 of which $169,733  pertains to
the Company due to its ownership  interest in subsidiaries.  Pipasa  distributed
282,958 series "TCA" of preferred stock as dividends to its common stockholders,
in the amount of $1,103,666.

NOTE 14 - OPERATING LEASES


     The Company has operating leases for vehicles and cooling equipment. At the
end of the lease terms, the Company has the option of returning the equipment or
buying the equipment at estimated  market value.  A percentage of the money paid
during the lease terms will be applied to this purchase price.

     Rental  expenses for operating  leases  amounted to $550,627,  $307,734 and
$276,740, for the fiscal years of 1998, 1997 and 1996, respectively.


                                      F-23

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



     The Company was  obligated for the  following  minimum  annual base rentals
under operating leases at September 30, 1998:


          Fiscal Year                                Amount
          -----------                                ------
             1999                                  $ 407,490
             2000                                    390,915
             2001                                     92,564
             Thereafter                                    -
                                                   ---------
                                                   $ 890,969
                                                   =========

NOTE 15 - INCOME TAXES

     Income tax expense  attributable to income from  continuing  operations for
the years ended September 30, 1998, 1997 and 1996 consists of:

                                         Current      Deferred         Total
                                         -------      --------         -----
Year ended September 30, 1998:          $ 310,971    $ (122,308)     $ 188,663
Year ended September 30, 1997:            291,396             -         291,396
Year ended September 30, 1996:            244,431             -         244,431
 

     Costa Rican  income tax  expense  attributable  to income  from  continuing
operations was $310,971, $291,396 and $244,431 for the years ended September 30,
1998,  1997 and 1996,  respectively,  and differs  from the amounts  computed by
applying  the  Costa  Rican  corporate  tax rate of 30% to  pretax  income  from
continuous operations as a result of the following:

<TABLE>
<CAPTION>
                                                 1998         1997         1996
                                                 ----         ----         ----
<S>                                         <C>            <C>          <C>
Computed statutory income tax
  expense                                    $ 1,092,281    $ 714,752    $904,782
Increase (reduction) in income taxes
  resulting from:
  Non-deductible (taxable) expenses
    (income), net                               (281,330)    (145,952)   (116,772)
  Increases (decreases) in provisions             41,926      (21,094)     20,778
  Tax benefit under Costa Rica Income
    Tax Law Article 8,  Section T for
    Agricultural Companies and Article 8,
    Section F                                   (122,667)    (134,775)   (151,960)
  Deduction for reinvestment of prior
    year earnings in machinery and equipment
    under Costa Rica Income Tax Law
    Article 8, Section T for Agricultural
    Companies                                   (276,524)    (265,061)   (250,284)

                                                        (continued on next page)
</TABLE>

                                      F-24

<PAGE>


                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997
                           


<TABLE>
<CAPTION>
                                                 1998         1997         1996
                                                 ----         ----         ----
<S>                                         <C>            <C>          <C>
  Non-deductible depreciation expense            122,308      113,725      57,792
  Deductible investments in tourism related
    companies                                   (399,122)           -           -
  Depreciation revalued assets                  (237,755)    (210,689)   (219,905)  
  Amortization of cost in excess of 
    net assets of acquired business               89,162            -           -
  Other items                                    282,692      240,490           -
                                             -----------    ---------   ---------
                                                 310,971      291,396     244,431
  Deferred tax benefit                          (122,308)           -           -
                                             -----------    ---------   ---------
                                             $   188,663    $ 291,396   $ 244,431
                                             ===========    =========   =========
</TABLE>

     Other  items  mainly  consist  of  operating   losses  from   subsidiaries,
intercompany profit elimination and foreign tax asset credits.

     The tax  effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and  deferred tax  liabilities  at September
30, 1998 and 1997 are presented below:

                                                     1998               1997
                                                     ----               ----
Deferred tax assets:
-------------------
Allowance for doubtful accounts:                 $  218,102        $  114,237
Revaluation of property, plant and equipment
  depreciable for Costa Rican tax purposes        4,979,419         2,485,775
Loss carryforwards                                1,266,058                 -
Provision for social benefits                       109,411                 -
                                                  ---------         ---------
Total gross deferred tax assets                   6,572,990         2,600,012
Less valuation allowance                         (6,572,990)       (2,600,012)
                                                 ----------        ----------
                                                 $        -        $        -
                                                 ==========        ==========

Deferred tax liability:
----------------------
Excess fair market value over book value of
  assets acquired                                $1,974,407        $        -
                                                 ==========        ==========

     The Company has  established  a  valuation  allowance  equal to 100% of its
deferred tax asset for the current  year and the prior  years.  Under Costa Rica
Income Tax Law,  the  Company is subject to a 1% asset tax which may be credited
against the regular  income tax  liability.  However,  if the income tax is less
than the asset tax  liability in the same tax year,  the asset tax must still be
paid in full. The deferred tax asset results  primarily from the  revaluation of
property,  plant  and  equipment.  The  Company  has  a  Costa  Rican  tax  loss
carryforward  for As de Oros of  $1,266,058,  which,  if unused,  will expire on
September  30, 2000.  The Company has  historically  reported a slightly  higher
asset tax  liability  compared to the income tax  liability.  In  addition,  the
Company has significant tax incentives available in Costa Rica which potentially


                                      F-25

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997
                           

will reduce future taxable income thereby reducing the potential  benefit of the
additional  depreciation resulting from the tax asset revaluation.  Based on the
above,  the Company's  Management  does not consider that the deferred tax asset
will be realized in the foreseeable  future.  Accordingly,  the recognition of a
deferred tax asset in the financial statements is not justified.

     The  recorded  deferred tax benefit for the year ended  September  30, 1998
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.  The deferred  tax  liability  is being  amortized  over a ten year
period  which is  consistent  with the  amortization  period  of the  underlying
property, plant and equipment.

     United  States taxes have not been  provided on  undistributed  earnings of
foreign  subsidiaries,  as such earnings are being retained indefinitely by such
subsidiaries for reinvestment.

     In accordance  with the Costa Rican income tax  regulations,  the companies
are required to file the annual income tax returns for the  twelve-month  period
ended September 30 of each year.

     According to local laws in Costa Rica, the income tax returns of Pipasa and
As de Oros for the years ended  September 30, 1998,  1997 and 1996,  are open to
examination by the Costa Rican tax authorities.

NOTE 16 - STOCK WARRANTS

     On May 27,  1994,  Management  of the  Company  approved  the  issuance  of
warrants  to  purchase  66,666  shares of common  stock at $2.25 per share to an
outside consultant in exchange for services to be rendered to the Company. These
warrants expire on May 27, 1999.

     On August 1, 1995,  the  Management  of the  Company  approved  the sale of
warrants  to  two  members  of  its  Board  of  Directors  and  one  independent
consultant, for the purchase price of $300 per warrant. The warrants are for the
purchase of a total of 83,333 shares of the Company's  $0.001 common stock at an
exercise price of $0.10 per share. The warrants could be exercised  anytime from
August 1, 1995 to August 1, 2000.  Between November and December,  1996,  83,333
warrants  were  exercised  and both  Directors  and the  independent  consultant
received 83,333 shares.

     On June 15, 1998, the Management of the Company  approved a buy back option
agreement  with  Inversiones  La Ribera for 276,710  shares at a strike price of
$4.50 per share,  which can be  exercised  any time  within a period of one year
from the date of the  agreement.  These shares are considered as dilutive in the
earnings per share calculation.


                                      F-26

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


NOTE 17 - ACQUISITION OF POULTRY DIVISION AND ANIMAL FEED CONCENTRATE OF
          COOPEMONTECILLOS, R.L.

     On April 21, 1997,  Pipasa  acquired  the poultry  division and animal feed
concentrate   business   of  Costa   Rica-based   Coopemontecillos   R.L.,   for
approximately $2.6 million. Under the agreement, Pipasa acquired all the poultry
division's   assets  and  operations  of   Coopemontecillos,   including  plant,
equipment, vehicle fleet, inventory, hens and raw material.

NOTE 18 - BUSINESS SEGMENT INFORMATION

     The Company's  operations have been classified into six business  segments:
broiler  chicken,  animal feed,  by-products,  exports,  restaurants  and other.
Summarized financial  information by business segment for 1998, 1997 and 1996 is
as follows (in millions of dollars):

                                        1998              1997           1996
                                        ----              ----           ----
Net sales:
      Broiler chicken                 $ 60.1            $ 44.3         $ 41.2
      Animal feed                       17.8               7.0            5.0
      By-products                        9.4               7.9            7.1
      Exports                            2.7               2.3            1.2
      Restaurants                        5.1                 -              -
      Other                              8.5               8.5            7.0
                                       -----             -----          -----
                                       103.6              70.0           61.5
                                       -----             -----          -----

Cost of sales:
      Broiler chicken                   44.5              32.6           28.8
      Animal feed                       14.0               5.8            4.5
      By-products                        5.4               4.8            4.6
      Exports                            1.8               1.7            0.9
      Restaurants                        2.7                 -              -
      Other                              7.9               8.3            6.6
                                       -----             -----          -----
                                        76.3              53.2           45.4
                                       -----             -----          -----
Gross profit:
      Broiler chicken                   15.6              11.7           12.4
      Animal feed                        3.8               1.2            0.5
      By-products                        4.0               3.1            2.5
      Exports                            0.9               0.6            0.3
      Restaurants                        2.4                 -              -
      Other                              0.6               0.2            0.4
                                       -----             -----          -----
                                        27.3              16.8           16.1
                                       -----             -----          -----
Selling expenses:
      Broiler chicken                    5.6               4.4            4.2
      Animal feed                        1.7               0.2            0.2
      By-products                        0.9               1.5            1.3
      Exports                            0.3               0.2            0.2
      Restaurants                        1.9                 -              -
      Others                             0.7                 -              -
      Corporate                          1.0               0.5            0.6
                                       -----             -----          -----
                                        12.1               6.8            6.5
                                       -----             -----          -----
                                                      (continued on next page)

                                      F-27

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


                                        1998              1997           1996
                                        ----              ----           ----
General and administrative:
      Corporate                          8.7               6.0            4.4
      Amortization of cost in excess
        of net assets of acquired
        business                         0.3                 -              -
                                       -----             -----          -----
Income from operations                 $ 6.2             $ 4.0          $ 5.2
                                       -----             -----          -----

NOTE 19 - PURCHASE TRANSACTIONS

     On  September  28, 1998,  the Company and Pipasa  entered into an agreement
(the "Final  Pipasa  Agreement")  providing  for the  purchase of the  remaining
common stock of Pipasa from  Inversiones  La Ribera for 3,683,595  shares of the
Company's  common stock.  The Final Pipasa  Agreement was amended on November 9,
1998 to provide that the  transaction  would be subject to (i) the receipt of an
opinion from an independent  firm that the transaction was fair from a financial
point of view to the Company's stockholders and (ii) approval of the transaction
by holders of a majority  of the  issued  and  outstanding  common  stock of the
Company.

     On  September  28, 1998,  the Company and Angui,  entered into an agreement
(the "Final Oros  Agreement") to purchase  Angui's  remaining  interest in As de
Oros in exchange for 1,670,921 shares of the Company's common stock.  Holders of
the majority of the  Company's  common stock  approved the  transaction  and the
Company  expects to receive  fairness  opinions and to close the purchase of the
remaining stock of As de Oros on or before January 31, 1999.

NOTE 20 - CONCENTRATION OF RISK

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations of credit risk consist primarily of cash equivalents,  short-term
investments and trade  receivables.  The Company places its cash equivalents and
short-term investments with high credit quality financial institutions.

     The  majority of the  Company's  customers  are  located in Costa Rica.  No
single customer  accounted for more than five percent of the Company's net sales
in 1998,  1997 and 1996, and no account  receivable  from any customer  exceeded
$425,000.  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,
as well as general economic conditions. Consequently, an adverse change in these
factors could affect the Company's estimate of the bad debt allowance.

                                      F-28

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997


NOTE 21 - 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 by third  parties may be dependent on future  developments,  in
Management's opinion, insurance is adequate to cover any future claims

LITIGATION, CLAIMS AND ASSESSMENTS

     The income tax returns for Pipasa for 1995,  1994 and 1993 were examined by
the tax authorities in Costa Rica and the Company was assessed $76,976, $131,222
and $39,354 respectively, as a result of the disallowance by the Costa Rican tax
authorities of approximately  26.03% in the aggregate of the deductions taken by
Pipasa for 1995, 1994 and 1993.  Management does not believe this matter will be
resolved in the next fiscal year. Management believes that these assessments are
without merit and intends to vigorously  contest these claims.  Management  does
not believe that the Company will incur a loss as a result of these assessments.
No accrual has been made for any losses that may result from the  resolution  of
this uncertainty.

     The income tax  returns of As de Oros were  examined by the Costa Rican tax
authorities  for fiscal year 1995 seeking  $131,437 of additional  income taxes.
Authorities have contested  depreciation  expense and income tax withholdings of
employees.  As de Oros has appealed  this decision and does not expect the final
outcome  will  result in a  material  adverse  effect on the  operations  or the
financial position of the Company.

     During  1998,  the Company  settled a legal  action in which  $350,073  was
received.  This amount is included in  miscellaneous  income in the statement of
income.

     Pipasa is a  defendant  in a lawsuit  brought in Costa Rica in which it was
served with prejudgment  liens.  Pipasa  substituted  collateral for these liens
with approval of the court,  which approval is currently being appealed.  Pipasa
has not yet been served with the  Complaint in the case and,  therefore,  cannot
ascertain  the basis of the claim or the  relief  sought,  but it  believes  the
lawsuit is without merit and intends to assert a vigorous defense. At this time,
neither the Company nor Pipasa can evaluate the potential impact of this lawsuit
on the financial results of the Company.

     No legal  proceedings of a material  nature to which the Company is a party
were pending  during the fiscal year ending  September  30, 1998 and the Company
knows of no legal  proceedings  of a material  nature  pending or  threatened or
judgments  entered  against  any  director  nor  officer  of the  Company in his
capacity as such.

                                      F-29

<PAGE>

                        RICA FOODS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           September 30, 1998 and 1997



     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.

NOTE 22 - SUBSEQUENT EVENTS

REVERSE STOCK SPLIT

     On December 15, 1998,  the Board of Directors  authorized a 1 for 3 reverse
stock split ("the  Split") of the  Company's  common  stock to be  effective  on
December 29, 1998.  For twenty (20) days  following  the  effective  date of the
Split,  NASDAQ will alter the trading symbol for the Company to read "RICAD". In
connection  with the  Split,  new share  certificates  will be issued  and those
shareholders  owning more than five shares of common  stock,  post-Split,  shall
receive  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,
post-Split,  shall  receive the payment  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 references in the  accompanying  financial  statements to the number of
common  shares and per-share  amounts for 1998,  1997 and 1996 amounts have been
restated to reflect the Split.

                                      F-30

<PAGE>

EXHIBIT INDEX 


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 10.1 to
                                         Form 8-K filed on October 13, 1998 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 10.2 to Form 8-K
                                         filed on October 13, 1998 is
                                         incorporated by reference herein.

(3)   3.1   Articles of Incorporation    Previously filed.

      3.2   By-Laws                      Previously filed.

(4)         Instrument defining rights   See 3.1 above.
            of security holders

(10)        Material Contracts           

     10.1                                Note Purchase Agreement, dated as of 
                                         January 1, 1998, filed as Exhibit 10.1
                                         to Form 10-Q filed on May 20, 1998 is 
                                         incorporated by reference herein.

     10.2                                Stock Purchase Agreement dated as of 
                                         January 22, 1998 by and between the
                                         Company and Comercial Angui, S.A., 
                                         filed as Exhibit 10.2 to Form 10-Q
                                         filed on May 20, 1998 is incorporated 
                                         by reference herein. 

(21)        Subsidiaries of registrant   See page 73.

(27)        Financial Data Schedule      See page 74.


                                      -72-

<PAGE>