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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K



FOR ANNUAL AND TRANSITIONAL

REPORTS PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended September 30, 2003



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number: 0-18222



RICA FOODS, INC.

(Exact Name of
Registrant as Specified in Its Charter)



|Nevada                                                        |  | 87-0432572                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|1840 Coral Way 101 Miami Florida                              |  | 33145                              
|(Address of Registrants Principal Executive Offices)         |  | (Zip Code)                         



Registrants
telephone number, including area code: (305) 858-9480



Securities
registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share



Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing requirements for the past 90 days. Yes x No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes ̈No þ



The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the Registrant, as of the latest practicable
date, January 7, 2004, was approximately $16,723,617. The foregoing calculation assumes that the per share market value of the common stock is $1.30, the amount of the last reported trade on the American Stock Exchange on January 7, 2004.



The number of shares outstanding of the Registrants common stock, par
value $0.001 per share (the Common Stock), as of the latest practicable date, January 7, 2004, was 12,864,321. There are no shares of preferred stock of the Registrant outstanding.



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RICA FOODS, INC.

TABLE OF CONTENTS



|        |  |                                                                                                |  | Page
|------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|        |  | PART I                                                                                         |  |     
|        |  |                                                                                               
|Item 1  |  | Business                                                                                       |  | 3   
|Item 2  |  | Properties                                                                                     |  | 10  
|Item 3  |  | Legal Proceedings                                                                              |  | 12  
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                            |  | 13  
|        |  |                                                                                               
|        |  | PART II                                                                                        |  |     
|        |  |                                                                                               
|Item 5  |  | Market for the Registrants Common Equity and Related Stockholder Matters                      |  | 15  
|Item 6  |  | Selected Financial Data                                                                        |  | 17  
|Item 7  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 18  
|Item 7A |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 31  
|Item 8  |  | Financial Statements and Supplementary Data                                                    |  | 33  
|Item 9  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 33  
|Item 9A |  | Controls and Procedures                                                                        |  | 33  
|        |  |                                                                                               
|        |  | PART III                                                                                       |  |     
|        |  |                                                                                               
|Item 10 |  | Directors and Executive Officers of the Registrant                                             |  | 34  
|Item 11 |  | Executive Compensation                                                                         |  | 39  
|Item 12 |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 43  
|Item 13 |  | Certain Relationships and Related Transactions                                                 |  | 46  
|Item 14 |  | Principal Accountant Fees and Services                                                         |  | 51  
|        |  |                                                                                               
|        |  | PART IV                                                                                        |  |     
|        |  |                                                                                               
|Item 15 |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 52  



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PART I



|ITEM 1. |  | BUSINESS
|------- |  | --------



Background



Rica Foods, Inc. (the
Company) was incorporated under the laws of the State of Utah on February 6, 1986 and undertook a public offering of its securities in 1987. In April 1994, the Company changed its state of incorporation from Utah to Nevada.



Business of the Company



The Companys operations are principally conducted through two, wholly owned Costa
Rican corporations, Corporacion Pipasa, S.A. (Pipasa) and Corporacion As de Oros, S.A. (As de Oros) and their respective subsidiaries.



Pipasa and As de Oros, founded in 1969 and 1954, respectively, are the largest poultry companies in Costa Rica. According to information provided by the Costa Rican
Chamber of Poultry Producers, Camara Nacional de Avicultores de Costa Rica (CANAVI), Pipasa and As de Oros collectively comprise approximately 62% of the poultry market in Costa Rica, as well as comprising approximately 31% of the animal
feed market in Costa Rica. The main activities of Pipasa and As de Oros include the production and sale of fresh and frozen poultry, processed chicken products, commercial eggs and concentrate for livestock and domestic animals. Both Pipasa and As
de Oros have been in the poultry business for more than 30 years with more than 15 years of experience in exports. The subsidiaries of As de Oros, including Planeta Dorado, S.A., a Costa Rican corporation, also operate a chain of 28 fried chicken
quick service restaurants in Costa Rica called Restaurantes As and Kokoroko.



The Companys subsidiaries own a total of 91 urban and rural outlets throughout Costa Rica, three modern processing plants and four animal feed plants. Due to similar business activities, the combined operations
of the subsidiaries permit the Company to achieve operational efficiencies.



The Company promotes its brand names through advertisements and marketing events and considers its subsidiaries to be among the most recognized Central American chicken producers, supplying chicken in Costa Rica to Burger King, McDonalds,
Quiznos, Churchs Chicken, Dennys, Tony Romas, Hardees, Kentucky Fried Chicken, Pizza Hut franchises, Price Smart, Taco Bell and Gerber Products companies. In addition, the Company was selected by Price Smart to supply
pet food through out Central America and the Caribbean.



The Companys
subsidiaries do not depend on the sales of only one product but rather a diversity of products available at a range of prices and presentations, which represent an important strategic strength of the subsidiaries. The Company produces and markets
over 750 different products to meet consumer demands.



Segments



Information regarding the Companys segments for the last three
fiscal years is set forth in Note 15 to the Companys consolidated financial statements for fiscal year 2003, 2002 and 2001. Such information is incorporated herein by reference. The following is a brief description of the main business
segments of the Company:



Broiler Chicken: Poultry is a popular food
item in Costa Rica because of its easy preparation, nutritional value and low price when compared to other available meats, according to information provided by the Junta de Fomento Avicola, a Costa Rican governmental institution. Poultry is a
generic product, consumed at all social levels and is not defined by geographic markets. The Companys main brand names for broiler



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chicken, chicken parts, mixed cuts and chicken breasts are Pipasa(TM) and As de Oros(TM). Polls and consumer information gathered by the Company indicate
that the majority of Costa Ricans eat chicken at least one to three times a week. Chicken is sold to institutional customers, schools, hospitals, hotels, supermarkets, restaurants and small grocery stores.



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, shrimp and domestic pets. The Companys animal feed products are sold through the Ascan(TM),
Aguilar y Solis(TM), Mimados(TM), Kan Kan (TM) and Nutribel(TM) brand names. Customers for the commercial animal feed brands are mainly large wholesalers and high scale breeders. This customer group focuses on quality and price. Products marketed
through the Mimados(TM), Dogpro(TM), Kan Kan (TM) and Ascan(TM) brand names are targeted towards veterinarians, pet stores and supermarkets and are sold typically to consumers with medium to higher income levels. The Company is currently the leader
in the animal feed market in Costa Rica, with an approximate 30% market share.



By-products: By-products include sausages, bologna, chicken nuggets, chicken patties, frankfurters, salami and pate. The Zaragoza (TM) brand name includes chicken, beef and pork by-products. The Companys chicken by-products are
sold through the Kimby(TM), Tiquicia(TM), Chulitas(TM), Zaragoza(TM), Pimpollo (TM) and As de Oros(TM) brand names and are sold to all social and economic levels. These products are sold mainly in supermarkets, and sales are predominantly driven by
price. The Kimby(TM) brand name is the leading seller of chicken by-products in Costa Rica.



Exports: Subsidiaries of the Company export different products to all countries in Central America and the Dominican Republic and make occasional exports to Hong Kong and Colombia. The Company exports the
majority of its products, including broiler chicken, by-products, animal feed and pet foods.



Quick Service: Corporacion Planeta Dorado, S.A. and its subsidiary operate 28 restaurants (the Restaurants) located in rural and urban areas throughout Costa Rica, including express delivery service
in some restaurants. This segment is comprised of quick service restaurants, which offer a diversified menu of chicken meals. The Restaurants distinguish themselves from other quick service chains by offering dishes and using recipes and ingredients
that appeal to the taste of consumers in Costa Rica. The quick service restaurant business is highly competitive in Costa Rica, as several other quick service chains operate in Costa Rica.



Corporate Segment: Corporate is responsible for the treasury, tax and legal operations
of the Companys businesses and maintains and/or incurs certain assets, liabilities, income, expenses, gains and losses related to the overall management of the Company which are not allocated to the other reportable segments. These items
include general and administrative expenses and the Companys amortization of goodwill. This segment does not generate any revenue for the Company. See Note 12 of the Notes to Consolidated Financial Statements for corporate segment information.



Other: This segment includes sales of commercial eggs, non-recurring
sales of fertile eggs, fertilizers and raw material, among others.



Distribution Network



The Company has a distribution fleet
consisting of approximately 241 product distribution trucks and supervision vehicles. Poultry delivery trucks are equipped with refrigeration chambers to ensure delivery of fresh products daily, thus maintaining the Companys reputation for
fresh quality products. In addition, the Company uses independent distributors to deliver larger quantities of animal feed to some of its customers.



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The Companys products are sold throughout Costa Rica, through owned or leased delivery trucks, urban and rural
retail outlets that may also be owned or leased, supermarket chains and independent distributors. A majority of the total distribution of the Companys products is conducted through the Companys urban retail outlets and delivery trucks,
with a smaller portion through rural outlets. The remaining distribution is serviced through the Companys processing plants. The retail outlets, mostly located in urban areas, are exclusively dedicated to the sale of the Companys
products and most of these outlets are rented by the Company. As of September 30, 2003, the Company had a customer database of approximately 27,000 customers who purchase products on a regular and occasional basis.



Seasonality



The Companys subsidiaries have historically experienced and have come to expect seasonal fluctuations in net sales and results of
operations. The Companys subsidiaries have generally experienced higher sales and operating results in the months from October to January, which fall in the first and second quarters of each fiscal year. This variation is primarily due to
holiday celebrations that occur during these periods in which Costa Ricans prepare traditional meals, which include dishes with chicken as the main ingredient. The Company expects this seasonal trend to continue for the foreseeable future.



Raw Materials



The primary raw material and main component for the Companys products consists
primarily of corn and soybean meal. Corn and soybean meal purchases represent approximately 35% of the total cost of goods sold and approximately 60% of raw material costs. Historically, the Company has been able to obtain a satisfactory supply of
these materials.



The Company imports all of its corn from the United States of
America through the Chicago Board of Trade (CBOT) and uses commodity futures and forward purchasing for hedging purposes to reduce the effect of changing commodity prices on a portion of its commodity purchases. The price of corn and
soybean meal, like most grain commodities, is fairly volatile and requires constant and daily hedging in order to minimize the effect of price increases on the Companys profit margin. Changes in the price of corn can significantly affect the
Companys profit margin.



The Company purchases its soybean meal through
Industrias Oleaginosas, S.A. (INOLASA), a Costa Rican corporation, in which the Company holds a 10% equity interest. In Costa Rica, there is an applicable 5% tax for soybean meal imports, which is not levied if such imports are purchased
through INOLASA. If for any reason INOLASA cannot deliver the soybean meal to the Company, the Company can buy its soybean meal directly from the CBOT. Thus far, the Company has never had to purchase soybean meal directly from the CBOT.



Customer Relations



The majority of the Companys customers are located in Costa Rica. No single customer accounted for more than 10% of total consolidated
sales, and the Company believes that the loss of any single customer would not have a material adverse effect on the Companys business.



Backlog of Orders



As of September 30, 2003, the Company had no material backlog of sales orders.



Competition



Although the Company is
significantly larger and better established than any one of its domestic competitors, the Company believes it does face competitive pressures. The Companys principal competitors are other



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vertically integrated chicken companies domiciled in Costa Rica, who the Company believes have a market share of approximately 38% of the broiler market. The
Company believes that its experience, economies of scale, and brand recognition are the primary barriers to entry for other domestic competitors. The Companys local market share also could potentially be threatened by foreign competition. The
Company believes that the likelihood of a threat by foreign competitors is low for several reasons. First, the Company has a strong reputation for producing high quality products at a reasonable price. Additionally, consumers in Costa Rica prefer
fresh chicken to frozen chicken. Due to transportation constraints and distance, the Company believes foreign competitors would have to sell frozen chicken if they were to sell chicken in Costa Rica.



The Agriculture Ministry in Costa Rica together with the private industry sector of Costa
Rica monitors all chicken entering the country to prevent the spread of Newcastle Disease in Costa Rica. The market in Costa Rica is also assisted by tariff agreements at the present time. Chicken importers must pay duties as dictated by the World
Trade Organization (WTO) (Formerly, General Agreement on Trade and Tariffs). These agreements were reached at the Uruguay Round of the GATT negotiations, which are scheduled to end in 2004. The agreements provide quotas and scaled
tariffs, and permit only certain broiler chicken cuts to enter the Costa Rican market.



These agreements provide that for fiscal year 2003, only 1,285 metric tons (MT) of poultry meat and 150 MT of poultry by-products can be imported to Costa Rica from countries outside of the Central American Common Market. This
quota is taxed at a rate of 34% for poultry, 29% for poultry sausages and 19% for poultry patties. Amounts in excess of these quotas are subject to a 150% tariff, except for whole chicken, patties and breast cuts, which are subject to a 40% tariff.



The United States is currently in negotiations with five Central American
countries, including Costa Rica, Guatemala, Honduras, Nicaragua and El Salvador, to establish a Central American Free Trade Agreement (CAFTA), which among other things, addresses the reduction of restrictions on the export of broiler
meat by the United States to these Central American countries. The Costa Rican poultry industry has been actively participating in the CAFTA negotiations with respect to the establishment of quotas for chicken imports to Costa Rica. As of the date
of this report, no agreement has been reached between Costa Rican and the CAFTA participants. All of the other CAFTA participants have reached an agreement with respect to quotas for poultry imports. Pursuant to such agreement, quotas for poultry
imports will gradually increase over a period of approximately twelve years.



Pricing



In Costa Rica, there are no laws against monopolies;
however, there are laws against monopolistic practices. Companies that 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. The Companys pricing strategies have been influenced by the devaluation of the Costa Rican colon, economic conditions and the supply and demand of the product in the market.
Historically, the Company has consistently increased its sales prices in order to help mitigate the effect of the devaluation of the colon. The Company believes it has reliable historical data on consumer reactions with respect to price increases
and uses this information in its strategy to counteract the devaluation of the colon.



Marketing



The Company has a division dedicated to marketing.
The marketing departments responsibility is to advertise the Companys various products and brand names. In addition to television and radio advertisements, the Companys distribution centers promote the Companys brand names by
distributing posters, T-shirts and hats with the Companys logo. In Costa Rica, the Companys brand names commonly



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appear on billboards and bus stops. Other marketing techniques used by the Company include packaging presentations, promotions and sponsoring of special
national events.



Research and Development



The Company conducts continuous research and development activities to improve the quality
of the diet fed to poultry during their growing stage. The annual cost of such research and development programs is less than one percent of total consolidated annual sales and is expensed as incurred.



Employee Compensation and Incentives



As of October 30, 2003, the Company employed approximately 3,180 persons.



The Company believes it has good relations with its employees. Private companies in Costa
Rica typically support their own workers associations instead of organized unions. These associations offer various benefits for their employees. The success of the workers association, Asociacion Solidarista de Empleados de Rica Foods
(ASERICA), and the fact that there has never been a strike at the Companys facilities, reflects the quality of the management team and its ability to keep the Companys employees satisfied. ASERICA provides certain
recreational facilities, healthcare and pension benefits as well as financial services to the Companys employees. This association is among the largest workers associations in Costa Rica.



Salaries in Costa Rica are increased twice a year as dictated by the government in order to
counterbalance the effect of inflation and increases in the cost of living.



At
the present time, labor laws in Costa Rica require all companies to make a severance payment under certain conditions. This law requires all companies in Costa Rica to make a payment equivalent to 5.6% of an employees yearly gross salary for
every year of employment up to 8 years of labor, as part of a severance payment upon the termination of an employee. This benefit is payable after the employees death, retirement, or termination without cause. An employee who resigns
voluntarily or is terminated for cause forfeits his right to any severance benefit. Since 1991, the Company has waived the 8-year limit dictated by the labor law, and pays severance based on years of service. The Company is also required by Costa
Rican law to deposit an additional 3% of each employees yearly gross salary into a pension fund.



The Company deposits every month in ASERICA 5.33% of each employees yearly gross salary as part of severance pay, and the employees are required to make a monthly deposit equivalent to 4% of their monthly salary
as part of a savings program. Every February of each year, ASERICA pays each employee 1.33% of the 5.33% initially deposited by the Company. Amounts paid or transferred to ASERICA may not completely cover the severance payment at the time the
employee leaves, since the severance payment calculation is based on the average of the last 6 months salary. Any remaining amount owed by the Company must be settled when the employee is terminated. As of September 30, 2003, the Company has
recorded an accrual in the amount of approximately $422,140 for future severance payments, which has been included in accrued expenses. The Company believes this amount is adequate based on past experience.



All employees in Costa Rica are protected by obligatory insurance with the Caja Costarricense
de Seguro Social (CCSS) and the Instituto Nacional de Seguros (INS), which are the governments social security and insurance programs, respectively. All companies in Costa Rica must pay the CCSS and the INS 21% and
1.74% of each employees monthly salary, respectively. The CCSS pays 60% of the employees normal salary during the periods in which the employee is unable to work. In addition to these benefits, employees must pay a total of 8% of their
monthly salary to the CCSS in order to receive healthcare, pension and maternity care benefits, and 1% to the Banco Popular into an obligatory savings account.



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Employees of the Company are provided with a profit sharing program. If either one of the Companys subsidiaries has
a successful year and generates profits in excess of certain budgeted levels, that entity will distribute a percentage of its net income to its employees (the Incentive). This Incentive is calculated monthly and distributed every two
months. The Company encourages its employees to develop a career with the Company, and accordingly, in conjunction with a local university, the Company offers preferential rates for its employees. The main goal of the program is developing the
Companys future management team. In addition, the Companys human resources department offers in-house and outside training for its employees in various fields, in order to assure quality in all areas. The Company did not distribute any
Incentives to its employees during the fiscal year ended September 30, 2003, pursuant to the profit sharing program.



On May 29, 1998, the Company adopted the 1998 Stock Option Plan (the Plan). Under the Plan, 200,000 shares of the Companys Common Stock are reserved for
issuance upon the exercise of options. The plan is designed to serve as an incentive for retaining and attracting persons and/or entities that provide services to the Company and its subsidiaries. As of September 30, 2003, there were no options
outstanding under this Plan.



Poultry Raising Process



The poultry raising process starts with the import of one-day old breeder hens from the
United States. After approximately 24 weeks the breeder hens reach reproductive maturity and begin laying fertile eggs. 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 grow-out contract farmers who raise the chicken to full size (for approximately 43 days).



The grow-out contract farmers are a group of 123 farmers who own their own land and
facilities. These farmers have a long-term contract with the Company to raise the baby chicks to adult birds. During fiscal year 2003, grow-out contract farmers supplied approximately 90% of the total number of chickens needed by the Company. These
farmers are paid according to the weight and quality of the chickens produced and the mortality rate of the chickens raised. The Company provides veterinary services and offers vaccines and chicken feed to the farmers at wholesale prices. Regardless
of whether the Company or grow-out contract farmers raise the chickens, they are regularly inspected for immune deficiencies, vitamin levels and general diseases. By working in conjunction with these grow-out contract farmers, the Company has
greater flexibility to increase or decrease the number of chickens raised depending on the Companys growth objectives.



Once the chickens reach the desired weight, they are taken to one of the processing plants. At the processing plants, the chickens are slaughtered and the meat packaged
or processed to make chicken by-products. The Company believes that its processing facilities are among the most sophisticated and largest in the country.



Costa Rica has been declared free of Newcastle Disease, and additionally, the Company has been implementing the guidelines of the Hazardous Analysis and Critical Control
Points (HACCP). HACCP is a prevention-based food safety system used widely throughout the food industry. It is a tool used to assess hazards and to establish controls based on the prevention of food contamination. By identifying critical
points in the process flow that could lead to contamination of food products and applying control measures at each point, the likelihood of food borne illness is reduced. All new employees are trained as to the proper procedures required in handling
and preparing food.



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Regulations



The Companys poultry hatcheries and processing plants are subject to regulation under Costa Rican law regarding cleanliness and health standards. Exports of the
Companys poultry products are regulated in the countries in which the Company sells its products. The Company has strict sanitary processes in order to provide consumers with product integrity, safety and quality and is in compliance with all
health regulations.



Environmental Compliance



The Company has been and is practicing appropriate environmental policies such as
reforesting, processing and recycling of waste, producing organic fertilizer, building oxidation lagoons and sewage treatment plants. The Companys compliance with environmental laws and regulations relating to the discharge of material into
the environment or otherwise relating to the protection of the environment has not had a material effect on the Companys financial position and results of operations. For fiscal year 2003, the Company did not make any significant investment in
environmental projects.



At the present time, the Company is not subject to any
material costs for compliance with any environmental laws in any jurisdiction in which it operates. However, in the future, the Company could become subject to material costs to comply with new environmental laws or environmental regulations in
jurisdictions in which it might conduct business. At the present time, the Company cannot assess the potential impact of any such potential environmental regulations.



Potential Acquisitions



On February 20, 2003, Port Ventures, S.A. (Port Ventures) and Corporacion As de Oros, S.A. (As de Oros), a wholly owned subsidiary of the Company,
entered into a Stock Purchase Agreement (the Agreement), pursuant to which As de Oros agreed to acquire from Port Ventures, 2,040 shares of common stock of Logistica de Granos, S.A. (Logistica), representing 51% of the issued
and outstanding shares of capital stock of Logistica (the Shares), for a purchase price of US$2,580,000 (the Purchase Price). Logistica is the owner of 19% of the issued and outstanding capital stock of Sociedad Portuaria de
Caldera, S.A. (SPC) and Sociedad Portuaria Granelera de Caldera, S.A. (SPGC) (collectively, the Port Companies). The Port Companies are seeking to acquire concessions (the Concessions) being granted by
the Government of Costa Rica to refurbish and operate Puerto Caldera, a major seaport located on the Pacific coast of Costa Rica and considered by the Company as strategic to its raw material purchases.



Port Ventures is the sole shareholder of Logistica and Port Ventures is directly owned and
controlled by Jose Pablo Chaves Zamora (Mr JP Chaves). Mr JP Chaves is the son of the Companys Chief Executive Officer. Mr. JP Chaves does not hold any positions or titles with the Company or any of its subsidiaries and, as of
December 22, 2003, does not own any equity interest in the Company.



The
closing of the purchase and sale of the Shares is subject to: (i) the final grant by the Government of Costa Rica of the Concessions and (ii) the execution of definitive agreements between the Government of Costa Rica and each of the Port Companies
regarding the construction and operation of Puerto Caldera.



The Agreement
provides that Port Ventures may require that As de Oros remit the Purchase Price for the Shares in installments, prior to the fulfillment of the conditions to closing set forth above. Upon such payment, As de Oros will receive a bill of
exchange for the amount of such Purchase Price and a pro rata amount of shares will be issued and held by a Trust representing all participants in the Port Companies in escrow until the closing. In the event that the transactions contemplated
under the Agreement are not closed, Port Ventures must return to As de Oros the pro rata portion of the Purchase Price paid, plus interest, and As de Oros, must return the bills of exchange. If Port Ventures does not return the portion of the
Purchase Price paid, As de Oros may, in its discretion, seek to enforce the bill of exchange.



During fiscal year 2003, As de Oros remitted approximately 55% of the Purchase Price to Port Ventures (the Remitted Payment) in exchange for bills of exchange, which the Company recorded as Other
Assets on its balance sheet. The bills of exchange are not secured by tangible assets or readily marketable collateral. In the event the Concessions are not ratified to the Port Companies, the Company anticipates that As de Oros will have
limited ability to recoup its investment in Port Ventures. Port Ventures has agreed that As de Oros need not make any further payments until the Concessions are finally ratified. The Company expects to close



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this transaction during the 2004 fiscal year, when the definitive approval of the Government of Costa Rica is expected to be obtained.



The Company is continuing to explore the acquisition of majority of the outstanding common
stock of Industrias Avicolas Integradas, S.A. (Indavinsa), and Avicola Core Etuba Ltda. (Core), both engaged in the production and distribution of poultry. The Company would acquire the majority of the outstanding stock of
Core from the Companys Chief Executive Officer. The Company is closely evaluating the performance of these companies to determine if, when and how the Company should integrate its business with the acquisition targets, and has postponed
indefinitely investments in these two companies.



As with any business
acquisition, there can be no assurance that the Company will close these acquisitions and there can be no assurance that these acquisition efforts will prove to be beneficial to the Company. Even if the Companys board of directors, audit
committee and management team believe the Company should pursue a development or acquisition opportunity and successfully negotiate the contracts critical to such venture. The Company will continue to evaluate financial performance and giving the
necessary collaboration in order to obtain the necessary judging elements to arrive to a definite decision.



|ITEM 2. |  | PROPERTIES
|------- |  | ----------



The Company conducts its operations through its production facilities and executive offices, which are all located in Costa Rica. All facilities are owned by the Companys subsidiaries, Pipasa and As de Oros (the
Subsidiaries). The Company owns seven processing plants, two hatcheries, and various other grow-out farms, retail outlets, and restaurants. Among other things, the Subsidiaries have transferred or pledged substantially all of their real
properties and personal assets, including, among other things, its processing plants, hatcheries, grow-out farms, restaurants and retail outlets to the Trust (as defined below) or to secure other outstanding indebtedness of the Company. Corporate
offices of the Subsidiaries and most important processing plants are located in the central valley of Costa Rica. Grow-out farms are located in urban and rural areas.



On February 21, 2003, the Companys by-products processing plant was partially damaged by a fire. As a result, for a substantial
portion of the fiscal year ended September 30, 2003, while the plant was being reconstructed, the Company produced its by-products in three rented facilities from three different companies. Notwithstanding the fact that by-products were being
produced in rented facilities, the production of by-products was performed and managed in its entirety by the Company. Reconstruction of the by-products plant was completed in September 2003.



On September 22, 2003 the Company entered into a trust agreement pursuant to which it
restructured its debt obligations with respect to $36.3 million in principal amount of indebtedness. The Company contributed or pledged substantially all of the assets of the Subsidiaries, except for the assets pledged to other lenders as discussed
below, to a trust (the Trust), which secures the Subsidiaries obligations with respect to $36.3 million of indebtedness owed to ten financial institutions (the Participating Lenders). Under the terms of the trust
agreement, the appraised value of the Trust Assets, which are being appraised under the supervision of the Trustee, must, at all times, be equal to or greater than 143% of the aggregate amount of the indebtedness secured by the Trust. The
Participating Lenders have the right to designate experts to validate the appraised valuations. The Trust Agreement provides that additional Participating Lenders may execute and become subject to the terms of the Trust Agreement if the value of the
Trust Assets continues to be equal to or greater than 143% of the aggregate amount of the indebtedness secured by the Trust.



The Company believes the Trust Assets will have an appraised value sufficient to collateralize the indebtedness of the Participating Lenders in accordance with the terms
of the Trust Agreement. As of December 31, 2003, the Company estimates that more than 80% of the appraisals have already been completed. Based on information provide to the Company by



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the independent appraiser, the appraised value of the assets which have been appraised as of December 31, 2003 equals approximately $50 million.
Accordingly, the Company believes that the final appraised value of the Trust Assets may be sufficient to collateralize additional loans in accordance with the terms of the Trust Agreement.



As of September 30, 2003, the Company had also pledged property, plant and equipment valued
at approximately $7.6 million to entities that are not participants of the Trust



Each of the Companys business segments utilize all of the Companys primary properties. The following contains descriptions of the principal facilities:



Production Area



The production area includes the following divisions: Animal Feed Production, Breeder, Hatcheries, Grow-out division, Broiler Processing, and By-products Processing. The
production capacities are described below:



The Company owns four processing
plants for its Animal Feed division. These plants perform activities that include grinding grains, mixing flour and packing different types of animal feed products. The facilities have a maximum capacity to produce an aggregate of approximately
371,500 tons of animal feed annually. The Breeder division facilities are composed of galleys, which have a maximum capacity to produce approximately 54 million fertile eggs annually. The breeder hens are imported from the United States when they
are one-day old. The Hatchery division consists of two incubation plants, which the Company believes are among the most modern in Central America. The plants incubation and hatching halls can be expanded to increase production. The Company
expects that these plants will fulfill production needs for many years. The incubation facilities produce approximately 43 million chicks annually. One day after birth, chicks are transferred to the Grow-out division. During this stage, the chicks
receive three types of diet, according to growth requirements. The growth stage lasts approximately 43 to 45 days. The Company owns 14 grow-out farms, and leases 123 contracted grow-out farms where owners of these farms provide service needed to
grow the chicks. The Company transfers these farmers one-day old chicks, animal feed, and provides veterinary services, technical advice and other services. Once chicks reach a target weight, the Company pays the farmers an agreed upon fee for
the chickens. The facilities production capacity is approximately 31 million chickens annually, which includes grow-out farmers.



The Broiler division is divided into slaughter and pluck, coolers and retailers, packing and cuts and sub-products processes. The facilities have a maximum production
capacity of approximately 65 million kilograms annually.



The By-products
Processing division is divided into sausage, formed, packaging, oven and cooking areas. The facilities production capacity is approximately 6.8 million kilograms annually. Following a fire to the By-products processing plant in February 2003, the
plant was fully reconstructed in September 2003.



Distribution



Distribution is conducted through retail outlets in Costa Rica, the
majority of which are leased. There are a total of 28 restaurants, the majority of which are also leased.



Administrative Area



Administrative
offices of the Company are located in Miami, Florida. The staff, administrative, marketing and financial headquarters of Pipasa and As de Oros are located in La Ribera de Belen, Heredia, Costa Rica.



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|ITEM 3. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



Pipasa was one of two defendants in a lawsuit brought in Costa Rica, pursuant to which the plaintiff in such action was seeking damages in an amount equal to $3.6 million. The other defendant in the litigation was
Aero Costa Rica, S.A. (Aero), a corporation that, prior to entering into a receivership, was wholly owned by Mr. Chaves, the Companys Chief Executive Officer. Pipasa had been served with prejudgment liens for $1.5 million and, with
the approval of the Juzgado Sexto Civil, the court with jurisdiction over the lawsuit, certain parcels of real estate owned by Pipasa had been substituted for such liens (the Collateral). This approval was ratified by the Superior Court
on November 11, 1999, and all funds initially attached were released and returned to Pipasa. Costa Rican law requires the posting of guarantees by a plaintiff seeking prejudgment liens. A ruling on these objections had been pending. Pipasa had filed
several pleadings in opposition to the underlying lawsuit; a ruling on these pleadings also had been pending.



In connection with this pending lawsuit, the plaintiff also brought suit against Pipasa in the State of California and the State of Florida. The California lawsuit was dismissed without prejudice.



In Response to plaintiffs amended complaint filed in Miami-Dade County Circuit Court on
May 7, 1999, Pipasa, on July 19, 1999, filed a motion to dismiss for lack of personal jurisdiction. The motion was denied on March 31, 2003. Pipasa had appealed the denial to Floridas Third District Court of Appeal. No decision on
Pipasas appeal has been made. Pipasa had also moved in the Circuit Court for a stay of the Circuit Court case pending appeal. The Circuit Court had taken the stay request under advisement.



A separate lawsuit against Pipasa, filed by the same plaintiff in the North District of
California and styled Polaris Holding Company v. Corporacion Pipasa, S.A., No. C 99-2160 CRB (N.D. Calif.), was dismissed, without prejudice for the plaintiff to refile the action after resolution of the Florida action as well as a similar action,
brought by the same plaintiff against Pipasa, that is pending in Costa Rica.



On December 29, 2003, Pipasa entered into a settlement agreement (the Settlement Agreement) with Polaris pursuant to which Mr. Chaves will provide Polaris with a one-time payment in the amount of $1,950,000 (the Settlement
Amount) in exchange for Polaris agreement to dismiss any and all litigation instituted against Pipasa and release any and all claims which they have or may have against Pipasa in connection with the litigation, except for any claim that
may arise in connection with the Indemnification Obligation (as defined below). In addition, Polaris has agreed to release its security interest in the Collateral, which is currently valued at approximately $5 million. Mr. Chaves has entered into an
agreement with the Company pursuant to which he has acknowledged and agreed that his payment of the Settlement Amount is neither an equity investment in the Company nor a loan to the Company.



Pipasa has attempted to secure the participation of Aero in the settlement but Aero has been
relatively unresponsive. As of the date of the Settlement Agreement, Aero had not yet agreed to participate in the settlement.



Because Aero has not agreed to participate in the settlement, as a condition of the Settlement Agreement, Pipasa agreed to enter into an indemnification agreement with
Polaris pursuant to which Pipasa has agreed to indemnify Polaris in the event that Aero initiates any claims against Polaris (the Indemnification Obligation). Although Pipasa and Polaris have executed the definitive Settlement Agreement,
as of December 31, 2003, the parties have not yet filed definitive settlement documents with the courts of Costa Rica or Florida.



In October and November of 2003, Citibank (Costa Rica), S.A. (Citibank) filed a number of lawsuits against the Company in various local Costa Rican courts
seeking repayment of approximately $6.2 million of outstanding indebtedness extended by Citibank to the Company pursuant to 18 letters of credit. Since the



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lawsuits have been initiated, the Company has repaid in full two letters of credit owed to Citibank totaling approximately $900,000 and, accordingly,
Citibank is currently seeking repayment of approximately $5.3 million which is the current aggregate outstanding indebtedness. The Company has filed preliminary defenses and appeals to the lawsuits alleging a variety of procedural and substantive
defenses. No rulings have been made with respect to any of Citibanks claims or the Companys appeals and the Costa Rican courts have yet to schedule any hearings with regards to the dispute between Citibank and the Company. Pursuant to
Costa Rican law, the Company is entitled to file additional defenses and appeals. The Company and Citibank are currently engaged in settlement negotiations.



On August 15, 2003 , the Commission filed a settled civil injunctive action against the Company, the Companys Chief Executive Officer (the CEO) and the
Companys Chief Financial Officer (the CFO) for violations of the CEO and CFO certification requirements of the Sarbanes-Oxley Act of 2002. The Company, the CEO and the CFO have consented, without admitting or denying the
allegations in the Commissions complaint, to the entry of a Final Judgment of Permanent Injunction and Other Relief (Final Judgment).



According to the Commissions complaint, on January 13, 2003, the Company filed a Form 10-K annual report with the Commission containing a purportedly unqualified
independent auditors report from Deloitte & Touche. The audit report represented that the Companys consolidated financial statements were presented fairly and in conformity with generally accepted accounting principles. At the time
of the filing, however, Deloitte & Touche had not provided the Company with a signed audit report and, according to the Commissions complaint, the Companys financial statements contained material classification errors.



The Final Judgment permanently enjoins the Company from violating Sections 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule 12b-20 and 13a-1 thereunder, which governs the accuracy of the issuer books and records and financial disclosures. The Final Judgment also permanently
enjoins the CEO and CFO from violating Section 13(b)(5) of the Exchange Act and Rule 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
Pursuant to the Final Judgment, the CEO was ordered to pay $25,000 in civil penalties. A penalty was not imposed against the CFO based on the sworn financial statements and other financial information she provided to the Commission.



Except for the legal proceedings disclosed above, no legal proceedings of a material nature
against to which the Company or subsidiaries are a party, exist or were pending as of the date of this report. Except for the legal proceedings disclosed above, the Company knows of no other legal proceedings of a material nature pending or
threatened or judgments entered against any director or officer of the Company in his capacity as such.



The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of the Companys 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. |  | SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- |  | ----------------------------------------------------



The Annual Meeting of Stockholders (the Annual Meeting) was held at the Mayfair Hotel in Miami, Florida, on November 3, 2003, for the following purposes:



| | 1. | To elect eight members of the Companys Board of Directors to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected and
qualified;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 2. | To consider and vote upon a proposal to approve of and ratify the selection of Stonefield Josephson, Inc. as the Companys independent auditors for the fiscal year ending
September 30, 2003.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The number of outstanding shares of the
Companys Common Stock as of the date for the Annual Meeting was 12,864,321 out of which a total number of 12,031,773 shares were represented at the Annual Meeting.



The following directors were elected at the Annual Meeting: (1) Calixto Chaves, (ii) Monica Chaves, (iii) Jorge Quesada, (iv) Federico
Vargas, (v) Luis Lauredo, (vi) Jack Peeples, (vii) Alfred Smith, IV and (viii) Jose Vidal.



The following table sets forth the number of votes cast for, against, or withheld for each director nominee, as well as the number of abstentions and broker non-votes as to each such director nominee:



|Director Nominee |  | Votes CastFor |  | Votes Cast Against |  | VotesWithheld |  | Abstentions |  | BrokerNon-Votes
|---------------- |  | ------------- |  | ------------------ |  | ------------- |  | ----------- |  | ---------------
|Calixto Chaves   |  | 12,016,107    |  | 15,666             |  | 0             |  | 0           |  | 0              
|Monica Chaves    |  | 12,016,109    |  | 15,664             |  | 0             |  | 0           |  | 0              
|Jorge Quesada    |  | 12,016,109    |  | 15,664             |  | 0             |  | 0           |  | 0              
|Federico Vargas  |  | 12,016,259    |  | 15,514             |  | 0             |  | 0           |  | 0              
|Luis Lauredo     |  | 12,016,259    |  | 15,514             |  | 0             |  | 0           |  | 0              
|Jack Peeples     |  | 12,016,272    |  | 15,501             |  | 0             |  | 0           |  | 0              
|Alfred Smith, IV |  | 12,016,122    |  | 15,651             |  | 0             |  | 0           |  | 0              
|Jose Vidal       |  | 12,016,107    |  | 15,666             |  | 0             |  | 0           |  | 0              



With respect to the proposal to
approve of and ratify the selection of Stonefield Josephson, Inc. as the Companys independent auditors for the fiscal year ending September 30, 2003: (i) 12,028,796 votes were cast for such proposal and (ii) 2,977 votes were cast against such
proposal. No votes were withheld nor were there any abstentions or broker non-votes with respect to such proposal. Accordingly, the proposal to approve of and ratify Stonefield Josephson, Inc. as the Companys independent auditors for the
fiscal year ending September 30, 2003, was approved by the shareholders.



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PART II



|ITEM 5. |  | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- |  | -------------------------------------------------------------------------



The Companys common stock is listed on the American Stock Exchange (AMEX) under the symbol RCF since May 14, 1999 and
prior to that date traded on the NASDAQ National market under the symbol RICA.



From January 21, 2003 to October 13, 2003, trading of the Companys common stock on the AMEX was halted due to, among other things, the Companys failure to file financial statements with the Securities and Exchange Commission and
the AMEX that satisfied the AMEXs continued listing standards.



On March
4, 2003, the Company received notice from the staff of the AMEX indicating that the Company was not in compliance with Section 1003(d) of the AMEXs continued listing standards due to having filed a Form 10-K for the period ended September 30,
2002, which did not have a signed Independent Auditors Opinion, as well as a Form 10-Q for the period ended December 31, 2002, which was not reviewed by an Independent Auditor. Subsequent to the notice, the Company also filed a Form 10-Q for
the period ended March 31, 2003, which was not reviewed by an Independent Auditor. On July 7, the Company announced that it had received notice from the AMEX indicating that the Company was no longer in compliance with certain continued listing
standards and that the staff of the AMEX intended to file an application with the Securities and Exchange Commission to strike the Companys common stock listing and registration on the AMEX. The Company exercised its right to appeal the
decision and requested a formal hearing to continue its listing on the AMEX.



On July 28, 2003, the Company filed Amendment No. 2 to its Form 10K/A, which included signed audited financial statements. On August 19, 2003, the Company also filed amendments to its Form 10-Qs for the quarters ended December 31, 2002 and
March 21, 2003, each of which were reviewed by the Companys Independent Auditor. On September 16, 2003, the Company announced that it had received notice from the AMEX indicating that the Company may not be in compliance with certain of the
AMEXs continued listing requirements and requesting that the Company with the AMEX with certain additional information regarding the Company.



More specifically, the AMEX expressed (i) public interest concerns arising from the filing and settlement by the commission of a civil injunctive action against the
Company, the CEO and the CFO and (ii) concerns stemming from the Companys alleged noncompliance with various loan provisions and working capital deficit. In light of these concerns, the AMEX requested, and the Company prepared, a plan for
submission to the AMEX that addressed the actions the Company will take to resolve the foregoing concerns.



Following the Companys submission of the appropriate financial statements and a compliance plan and discussions between the Company and the AMEX, the Companys common stock resumed trading on the AMEX on
October 13, 2003.



|                      |  |                       |  | MarketHigh |      |     | Price RangeLow
|--------------------- |  | --------------------- |  | ---------- | ---- | --- | --------------
|                      |  | Fiscal Year 2004      |  |            |      |     |               
|First Fiscal Quarter  |  | (10/1/03 to 12/31/03) |  | $          | 1.07 | (1) |               
|                      |  |                       | 
|                      |  | Fiscal Year 2003      |  |            |      |     |               
|Fourth Fiscal Quarter |  | (07/1/03 to 09/30/03) |  |            | N/A  |     |               
|Third Fiscal Quarter  |  | (04/1/03 to 06/30/03) |  |            | N/A  |     |               
|Second Fiscal Quarter |  | (01/1/03 to 03/31/03) |  | $          | 1.01 | (2) |               
|First Fiscal Quarter  |  | (10/1/02 to 12/31/02) |  | $          | 1.07 |     |               



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|                      |  | Fiscal Year 2002      |  |   |      |  |   |     
|--------------------- |  | --------------------- |  | - | ---- |  | - | ----
|Fourth Fiscal Quarter |  | (07/1/02 to 09/30/02) |  | $ | 1.02 |  | $ | 0.70
|Third Fiscal Quarter  |  | (04/1/02 to 06/30/02) |  | $ | 1.56 |  | $ | 1.00
|Second Fiscal Quarter |  | (01/1/02 to 03/31/02) |  | $ | 1.50 |  | $ | 0.45
|First Fiscal Quarter  |  | (10/1/01 to 12/31/01) |  | $ | 3.89 |  | $ | 1.30



|(1) | As indicated above, trading of the Companys common stock resumed on October 13, 2003.
|--- | --------------------------------------------------------------------------------------



|(2) | As indicated above, trading of the Companys common stock was halted on January 21,
2003.
|--- | -----------------------------------------------------------------------------------------



As of January 7, 2004, the Company had 12,811,469 shares
of Common Stock outstanding and approximately 1,000 holders of record of such stock, and no shares of preferred stock were outstanding as of that date.



Dividends



The Company has never paid any dividends on its Common Stock. The Company does not anticipate paying cash dividends on Common Stock in the foreseeable future based on its expected operating cash flow requirements (see
Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources). The Nevada General Corporation Law prohibits the Company from paying dividends or otherwise distributing funds to its
stockholders, except out of legally available funds. The declaration and payment of dividends on the Companys Common Stock and the amount thereof will be dependent upon the Companys results of operations, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board of Directors. No assurance can be given that the Company will pay any dividends on Common Stock in the future.



Subsidiaries Legal Reserve



Current legislation in Costa Rica requires that 5% of annual net income (in local currency)
up to an amount equivalent to 20% of total capital stock be allocated to a legal reserve. As of September 30, 2003 and 2002, the Companys Subsidiaries have allocated retained earnings of $2,0720261 and $2,039,806, respectively, for the
creation of a legal reserve.



Securities Authorized For Issuance Under
Equity Compensation Plans



|                                                           |  | Number ofsecurities to beissued uponexercise ofoutstanding options |  | Weighted-averageexercise price ofoutstandingoptions |  | Number of securitiesremaining availablefor issuance underequity compensationplans
|---------------------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------------------------------------------- |  | ---------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 0                                                                  |  | n/a                                                 |  | 192,400                                                                          
|Equity compensation plans not approved by security holders |  | n/a                                                                |  | n/a                                                 |  | n/a                                                                              



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##### Table of Contents

|ITEM 6. |  | SELECTED FINANCIAL DATA
|------- |  | -----------------------



The selected financial data presented below should be read in conjunction with the consolidated financial statements and related notes, Managements Discussion and
Analysis of Financial Condition and Results of Operations and the other financial information included elsewhere in this Form 10-K. The data as of September 30, 2003 and 2002 and for the fiscal years ended September 30, 2003, 2002 and 2001, are
derived from the Companys audited consolidated financial statements for fiscal years 2003, 2002 and 2001 included elsewhere in this Form 10-K. The data as of September 30, 2001, 2000 and 1999 and for the fiscal years ended September 30, 2000
and 1999 is derived from the Companys audited financial statements not included in this Form 10-K.



|                                                        |  | 2003                                                          |   |  | 2002       |  | 2001       |  | 2000       |  | 1999     
|------------------------------------------------------- |  | ------------------------------------------------------------- | - |  | ---------- |  | ---------- |  | ---------- |  | ---------
|                                                        |  | (In thousands of US dollars, except share and per share data)
|Sales                                                   |  | 127,905                                                       |   |  | 130,665    |  | 127,336    |  | 123,628    |  | 118,550  
|Cost of sales                                           |  | 91,454                                                        |   |  | 87,487     |  | 86,841     |  | 83,757     |  | 77,275   
|Income from operations                                  |  | 4,500                                                         |   |  | 9,908      |  | 5,694      |  | 6,385      |  | 12,427   
|Income (loss) before income taxes and minority interest |  | (828                                                          | ) |  | 4,180      |  | 1,188      |  | 3,725      |  | 8,174    
|Net income (loss) applicable to stockholders            |  | (930                                                          | ) |  | 2,917      |  | 1,349      |  | 2,889      |  | 3,041    
|Basic earnings (loss) per common share                  |  | (0.07                                                         | ) |  | 0.23       |  | 0.11       |  | 0.24       |  | 0.43     
|Diluted earnings (loss) per common share                |  | (0.07                                                         | ) |  | 0.23       |  | 0.11       |  | 0.24       |  | 0.42     
|Total assets                                            |  | 90,653                                                        |   |  | 90,847     |  | 90,850     |  | 88,182     |  | 70,323   
|Long-term debt, net of current portion                  |  | 6,728                                                         |   |  | 16,018     |  | 20,890     |  | 21,821     |  | 21,444   
|Basic weighted average number of shares outstanding     |  | 12,811,469                                                    |   |  | 12,811,469 |  | 12,810,021 |  | 11,874,190 |  | 7,122,170
|Diluted weighted average number of shares outstanding   |  | 12,811,469                                                    |   |  | 12,811,469 |  | 12,810,021 |  | 11,878,474 |  | 7,269,769



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##### Table of Contents

|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



General



Management is responsible for preparing the Companys consolidated financial statements and related information that appears in this Form 10-K. Management believes
that the consolidated financial statements fairly reflect the form and substance of transactions and reasonably present the Companys consolidated financial condition and results of operations in conformity with generally accepted accounting
principles in the United States of America (GAAP). Management has included in the Companys consolidated financial statements amounts that are based on estimates and judgments, which it believes are reasonable under the
circumstances. The Company maintains a system of internal accounting policies, procedures and controls intended to provide reasonable assurance, at the appropriate cost, that transactions are executed in accordance with the Companys
authorization and are properly recorded and reported in the consolidated financial statements, and that assets are adequately safeguarded.



The Companys operations are primarily conducted through its 100% owned subsidiaries, Pipasa and As de Oros and their respective subsidiaries. The Company is the
largest poultry company in Costa Rica. As de Oros also owns and operates a chain of quick service restaurants in Costa Rica operated under the name Restaurantes As de Oros and Kokoroko.



Seasonality



The Company has historically experienced and has come to expect seasonal fluctuations in net sales and results of operations. The Company has generally experienced higher
sales and operating results in the months from October to January, which fall in the first and second quarters of each fiscal year. This variation is primarily due to holiday celebrations that occur during these periods in which Costa Ricans prepare
traditional meals that include dishes with chicken as the main ingredient. The Company expects this seasonal trend to continue for the foreseeable future.



Fiscal Year 2003 compared to Fiscal Year 2002



For the year ended September 30, 2003, of the Company generated a net loss applicable to common stockholders of $930,396 ($0.07 losses per share) compared to the
generation of net income applicable to common stockholders of $2,917,291 ($0.23 earnings per share) for the year ended September 30, 2002. For fiscal year 2003, sales decreased by 2.11%, when compared to fiscal year 2002, mainly due to decreases in
the sales of the broiler, by-products and exports segments, which was partly offset by an increase in the animal feed and quick service segments. Cost of sales increased by 4.53%, mainly due to an increase in the cost of imported raw material, such
as corn and soybean meal, and the increased costs associated with the renting of facilities to permit continued production of by-products following the fire to the Companys by-product processing plant in February 2003.



The following describes the performance by segment (in millions of U.S. dollars) for
following fiscal years ending September 30, 2003, 2002 and 2001:



|Segments:                                        |  | 2003 |        |   | 2002 |   |        | 2001 | 
|------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|Sales, net                                       |  |      |        |   |      |   |        |      | 
|Broiler                                          |  | $    | 58.75  |   |      | $ | 67.87  |      | 
|Animal Feed                                      |  |      | 31.51  |   |      |   | 26.00  |      | 
|By-Products                                      |  |      | 14.41  |   |      |   | 14.78  |      | 
|Exports                                          |  |      | 7.45   |   |      |   | 7.94   |      | 
|Quick Service                                    |  |      | 7.43   |   |      |   | 5.58   |      | 
|Other                                            |  |      | 8.35   |   |      |   | 8.50   |      | 
|                                                 |  |      |        |   |      |   |        |      | 
|Total net sales                                  |  |      | 127.90 |   |      |   | 130.67 |      | 
|                                                 |  |      |        |   |      |   |        |      | 
|Segment Profit (Loss)                            |  |      |        |   |      |   |        |      | 
|Broiler                                          |  |      | 12.44  |   |      |   | 16.89  |      | 
|Animal Feed                                      |  |      | 2.71   |   |      |   | 3.40   |      | 
|By-Products                                      |  |      | 0.71   |   |      |   | 2.68   |      | 
|Exports                                          |  |      | 1.38   |   |      |   | 0.80   |      | 
|Quick Service                                    |  |      | 0.18   |   |      |   | 0.06   |      | 
|Other                                            |  |      | (0.07  | ) |      |   | 0.13   |      | 
|Corporate                                        |  |      | (12.85 | ) |      |   | (14.05 | )    | 
|                                                 |  |      |        |   |      |   |        |      | 
|Income from operations                           |  |      | 4.50   |   |      |   | 9.91   |      | 
|                                                 |  |      |        |   |      |   |        |      | 
|Other non-operating expenses                     |  |      | 5.33   |   |      |   | 5.73   |      | 
|Extraordinary gainBy-Product Segment            |  |      | 0.31   |   |      |   |        |      | 
|                                                 |  |      |        |   |      |   |        |      | 
|Income (loss) before taxes and minority interest |  | $    | (0.52  | ) |      | $ | 4.18   |      | 
|                                                 |  |      |        |   |      |   |        |      | 



18



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The Company uses segment profit margin information to analyze segment performance, which is defined as the ratio between
the income or loss from operations associated with a segment and the net sales associated with the subject segment.



Broiler sales decreased by 13.4%, mainly due to a 11.3% decrease in volume. The Company believes this decrease is mainly due to an increase in domestic competition. The
profit margin of this segment decreased from 24.9% to a 21.2%, mainly due to an increase in the cost of imported raw material.



Animal feed sales increased by 21.2% for fiscal year 2003 when compared to fiscal year 2002, which reflects a relative increase in volume of 20.9%. The Company believes
that the increase in volume is mainly attributable to an increase in the number of commercial animal feed customers and an increase in the sales of aquaculture and live-stock feed. In addition, the Companys sale of pet food products increased
as a result of intensified marketing efforts and the addition of new distribution channels. Segment profit decreased from 13.1% for fiscal year 2002 to 8.6% for fiscal year 2003, mainly due to an increase in the costs of imported raw material and
variations in the sales mix.



By-product sales decreased by 2.5% for fiscal
year 2003 when compared to fiscal year 2002, mainly due to a relative decrease in production volume of 0.7% and a decrease in the sales of higher priced products. The increased costs associated with the renting of three by-product production
facilities when the Companys by-products processing plant was being reconstructed following a fire in February 2003, and the increase in the costs of imported raw material a decrease in the segments profit margin from 18.1% for fiscal
year 2002 to 5.0% for fiscal year 2003.



Export sales decreased by 6.2% for
fiscal year 2003 when compared to fiscal year 2002, mainly due to the discontinuation of broiler exports to Honduras as a result of the Honduran governments restriction as of March 2002 of the import of poultry related products, a decrease in
the export of by-products as a result of the fire in the Companys by-product processing plant and a decrease in the number of aquaculture feed customers. This decrease was partially offset by an increase in the sale of pet foods. However, in
November 2003, the Honduras government lifted its restriction on the import of poultry-related products. Accordingly, the Company has once again initiated exporting poultry-related products to Honduras. Profit margin increased from 10.1% for fiscal
year 2002 to 18.6% for fiscal year 2003, mainly due to a variation in the product mix to more profitable products.



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Quick service sales increased by 33.2% for fiscal year 2003 when compared to fiscal year 2002, mainly due to the
Companys sales price campaign. Profit margin increased from 1.1% to 2.4%, primarily due to the adoption of cost efficiency measures.



Sales for the other products segment did not vary significantly, decreasing by 1.8% for fiscal year 2003 when compared to fiscal year 2002. The profit margin in this
segment decreased from 1.5% for fiscal year 2002 to -0.8% for fiscal year 2003, mainly due to an increase in the cost of raw materials.



For fiscal 2003, general and administrative expenses decreased by $1.20 million or 8.53% when compared to fiscal year 2002 mainly due to Companys effort to improve
efficiencies and adopt cost measures. For fiscal year 2003, selling expenses did not vary significantly, decreasing by $121,025 or 0.63% when compared to fiscal year 2002. Operating expenses represented 24.98% and 25.46% of net sales for fiscal
years 2003 and 2002, respectively.



For fiscal year 2003, other expenses
decreased by 6.97%. This decrease was primarily the result of a decrease in interest expenses and foreign exchange loss, mainly attributable to a decrease in the Companys average indebtedness and a decrease in the related average interest
rate. The Company also recognized as an extraordinary item a gain in the amount of $304,501, which gain is the result of the Companys receipt of insurance proceeds in excess of the book value of equipment and building facilities damaged in the
by-product plant fire.



The Companys income tax expense was $206,475 for
fiscal year 2003, compared to $1,041,596 for fiscal year 2002. Effective rates for fiscal years 2003 and 2002 were 39.44% and 24.92%, respectively. The decrease is mainly due to a decrease in taxable income.



Fiscal Year 2002 Compared to Fiscal Year 2001



For the year ended September 30, 2002, the Company generated net income applicable to common
stockholders of $2,917,291 ($0.23 earnings per share), compared to $1,348,784 ($0.11 earnings per share) for the year ended September 30, 2001. For fiscal year 2002, net sales increased by 2.61% when compared to fiscal year 2001, mainly due to
increases in the sales of the animal feed, by-products and export segments. Consolidated segment profit margin has also increased due to lower production costs as a result of efficiencies due to new investments in production facilities and
equipments made during fiscal years 2001 and 2000.



Broiler sales decreased by
3.3%, mainly due to a 5.7% decrease in volume. The Company believes this decrease is mainly due to a relative reduction in consumer purchasing power due to economic conditions in Costa Rica, which causes a reduction in the consumption of Broiler
Chickens. The profit margin of this segment increased from 21.0% to a 24.9%, mainly due to production efficiencies and better distribution logistics, which resulted in lower costs.



Animal Feed sales increased by 5.6% for fiscal year 2002 when compared to fiscal year 2001, which reflects a relative increase in volume and
per unit sales prices. Segment profit increased from 11.5% for fiscal year 2001 to 13.1% for fiscal year 2002, mainly due to a shift in product mix to more profitable products, production efficiencies and change to more efficient distribution
logistics.



By-product sales increased by 7.6% for fiscal year 2002 when
compared to fiscal year 2001, mainly due to relative increase in volume and per unit sales prices. Production efficiencies and a change in the product mix to more profitable products also contributed to an increase in segment profit from 14.7% for
fiscal year 2001 to 18.1% for fiscal year 2002.



Export sales increased by
28.5% for fiscal year 2002 when compared to fiscal year 2001, mainly due to an increase in sales of extruded feed and pellet feed, pet foods and baby chicks. This increase was partly offset by a decrease in the exports of broiler chickens, but not
other chicken related products, to Honduras. Since March 2002, exports to the country of Honduras have been suspended due to a Honduran restriction on the



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import of broiler chickens. Profit margin increased from 7.3% for fiscal year 2001 to 10.1% for fiscal year 2002, mainly due to a variation in the product
mix to more profitable products.



Quick service sales decreased by 13.8% for
fiscal year 2002 when compared to fiscal year 2001, mainly due to strong market competition. The Company believes that strong market competition also resulted in a decrease in profit margin from 5.6% to 1.1%.



Sales for the other products segment increased by 38.7% for fiscal year 2002 when compared to
fiscal year 2001, mainly due to an increase in the sale of raw material. Profit margin decreased from 10.4% for fiscal year 2001 to 1.5% for fiscal year 2002, mainly due to variations in the sales mix to less profitable products.



Operating expenses decreased by 4.4% or $1.53 million for fiscal year 2002 when compared to
fiscal year 2001. The decrease was mainly due to the discontinuation of the amortization of goodwill in fiscal year 2002. For fiscal 2002, General and Administrative expenses decreased by $494,402 or 3.4% when compared to fiscal year 2001 mainly due
to Companys effort to improve efficiencies and adopt cost measures. Likewise, Selling expenses decrease of $249,128 or 1.28% for fiscal year 2002, when compared to fiscal 2001, was mainly due to efficiencies in distribution logistics.
Operating expenses represented 25.5% and 27.3% of net sales for fiscal years 2002 and 2001, respectively.



For fiscal year 2002, non-operating expenses increased by 27.1%, mainly due to an increase in the devaluation rate in Costa Rica, which resulted in an increase in the foreign exchange loss, and the absence of
offsetting gains from the sale of fixed assets in fiscal year 2002 when compared to fiscal year 2001.



The Companys income tax expense was $1,041,596 for fiscal year 2002, compared to a benefit of $390,833 for fiscal year 2001. Effective rates for fiscal years 2002 and 2001 were 24.9% and 32.9%, respectively. The
variation is mainly due to the elimination of significant tax benefits in Costa Rica and an increase in taxable income for fiscal year 2002. During 2001, the government of Costa Rica enacted changes in the income tax law, applicable for fiscal years
ending after September 30, 2001. Such changes provide, among other things, the elimination of the restatement of property, plant and equipment, thereby significantly reducing the related tax depreciation; and elimination of the one-time deduction
equivalent to 50% of the prior years investment in property, plant and equipment to be used in agricultural and industrial activities.



For September 30, 2002 and 2001 the Company established a full valuation allowance for the tax depreciation resulting from the restatement of property, plant and
equipment. The Company believed that it was more likely than not that this depreciation would not continue to be deductible in the future, and therefore, recorded a full valuation allowance.



The Company also included the effect of net operating loss carry forwards related to
operations in the United States to determine the valuation allowance for 2002 and 2001. Management believed that it was more likely than not that these net operating losses would not be utilized in the future, based on the projected financial
performance of Rica Foods, Inc. in the United States.



Financial Condition



As of September 30, 2003, the Company had $3.34 million in cash and cash
equivalents. The working capital deficit was $21.0 million and $9.78 million as of September 30, 2003 and 2002, respectively. The current ratios were 0.66 and 0.79 as of September 30, 2003 and 2002, respectively.



Cash provided by operating activities amounted to approximately $363,376 and $6,659,590 for
fiscal years 2003 and 2002, respectively. This decrease is primarily the result of a reduction net income ($3.86 million) and a reversal of the rate of account payable growth, to account payable reduction ($6.31 million). The



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decrease in cash provided by operations was partially offset by a reduction in the rate of satisfying notes and account receivable ($2.40 million), an
increase in accrued expenses ($240,000) and a decrease in the rate of cash use for inventory ($1.32 million).



Cash utilized for investing activities was approximately $6.82 million and $6.46 million for fiscal year 2003 and 2002, respectively. The Companys higher utilization of cash for investing activities was
primarily due to increased rates of spending for property, plant and equipment ($325,000) and a decrease in the rate of sales of productive assets ($2.71 million), which increase was tempered by a decrease ($1.66 million) and a decreased in the rate
of other assets acquired ($894,000).



Additions to property, plant and
equipment for fiscal year 2003, primarily relate to the reconstruction of the fire-damaged, by-product processing plant and the replacement of production equipment damaged in the fire. Of the $5.32 million invested in property, plant and equipment,
approximately $2.5 million relates to the reconstruction of the by-product processing plant, which was finalized by the end of September 2003. The remaining amount is primarily related to investments in equipment for the by-product production plant
and additions to the Companys vehicle fleet.



As a result of the fire to
the by-product processing plant, the Company received approximately $1.14 million in insurance proceeds which were used to fund the cost of reconstruction. However, The Company also had to use cash generated from operations as well as incur
additional debt to finance the plant reconstruction.



For fiscal 2003, the
Company retired $1.16 million in assets. Of this $1.07 million, approximately $750,000 related to the retirement of assets damaged by the fire. Notwithstanding the Companys expenditure of $5.3 million in fiscal 2003 for property, plant and
equipment, the Companys property, plant and equipment assets decreased from $39.6 million in fiscal 2002 to $36.8 million in fiscal 2003, primarily due to the Companys retirement of assets and the depreciation of assets.



In the fiscal year ended September 30, 2003, the Company invested approximately $1.4 million
in connection with the potential acquisition of Logistica. If the acquisition is consummated, the Company anticipates an additional investment of approximately $1.1 million. See Item 1 for further discussion of the potential acquisition of
Logistica.



The Company believes it will need at a minimum funds of
approximately $5.0 million for investment activities for the next fiscal year, which figure includes the Companys remaining projected investment in Logistica.



Cash provided by financing activities for fiscal year 2003, amounted to $6.29 million compared to cash used by financing activities
amounting to $4.41 million for fiscal year 2002. The cash provided by financing activities ($6, 293,889) was primarily generated by short-term financings ($41,013,389), which were principally used to refinance other short-term financings
($20,855,551), retire long-term debt ($15,629,818) and fund the Companys operations. Long-term financings also provided $1,793,455 of cash.



Relative to fiscal 2002, the increase in funds provided by financing activities is primarily due to a $14.51 million increase in short-term loans when compared to fiscal
year 2002, in addition to a lower amortization of short-term debt ($6.81 million ).



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Debt Utilization



The Companys obligations under short-term and long-term debt and operating leases as of September 30, 2003 are as follows:



|                |  |       |            | Payments due by Period
|--------------- |  | ----- | ---------- | ----------------------
|                |  | Total |            | Less than 1 Year      
|Short-term debt |  | $     | 36,547,238 |                       
|Long-term debt  |  |       | 10,706,485 |                       
|Leases          |  |       | 701,213    |                       
|                |  |       |            |                       
|Total           |  | $     | 47,954,936 |                       
|                |  |       |            |                       



The Company projects that it will need
to satisfy at least $41.04 million of short-term debt, long-term debt and capital lease payments within the fiscal year ended September 30, 2004. The Company also projects that it will seek to acquire the use of additional $5.0 million of property,
plant and equipment within fiscal 2004, the use of which equipment may be secured by purchase or lease.



Debt Restructure



During the first
quarter of 1998, the Company completed a private placement with Pacific Life Insurance Company (PacLife) of $20 million in notes payable, $8 million of which was outstanding as of September 23, 2003 (the Outstanding PacLife
Indebtedness), bearing an annual interest rate of approximately 12%. In connection with the private placement of the Notes, the Company entered into certain negative covenants, restricting, among other things, the Companys ability to
provide collateral to other existing or potential lenders. These restrictive covenants limited the Companys ability to obtain additional financing from third parties. To continue to allow the Company to fund its operations through the use of
debt financing and eliminate the restrictive covenants, on September 24, 2003, the Company repaid the Outstanding PacLife Indebtedness. The Company was not required to pay a prepayment penalty to PacLife.



As a result of the Companys repayment in full, on September 24, 2003, of the
Outstanding PacLife Indebtedness, the Company was released from certain negative covenants, including, among other things, restrictions on the Companys ability to provide collateral to other lenders.



In September 2003, the Company entered into a trust agreement (the Trust
Agreement) pursuant to which it restructured its debt obligations with respect to $36.3 million in principal amount of indebtedness. Ten of the Companys lenders were signatories to the Trust Agreement (the Participating
Lenders) and, as of September 2003, the Company owed an aggregate of $36.3 million to the Participating Lenders. The Company contributed or pledged substantially all of the assets of the Companys wholly-owned subsidiaries (the
Subsidiaries) to a trust (the Trust), which, as of September 30, 2003 secured the Subsidiaries obligations with respect to the aggregate $36.3 million of indebtedness owed to the Participating Lenders.



As of December 31, 2003, the Company owed an aggregate of approximately $35.2 million to the
Participating Lenders, all of which was secured by the Trust.



In consideration
for the establishment of the Trust, the Participating Lenders have agreed to waive any and all defaults, excluding defaults resulting from the failure to pay interest as due, that the Subsidiaries have committed or may commit prior to March 22, 2004
(the Amnesty Period) with respect to outstanding indebtedness owed to the Participating Lenders. Accordingly, the Subsidiaries have been relieved of any obligation to make principal payments to the Participating Lenders until the end of
the Amnesty Period. The Subsidiaries are still required to pay interest to the Participating Lenders in accordance with the terms of an



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agreed upon schedule. After the end of the Amnesty Period, the Subsidiaries are required to resume the payment of principal.



In order to fund the Trust, the Subsidiaries have transferred or pledged substantially all of
their real and personal assets to the Trust (the Trust Assets). Under the terms of the trust agreement, the appraised value of the Trust Assets, which are being appraised under the supervision of the Trustee, must, at all times, be equal
to or greater than 143% of the aggregate amount of the indebtedness secured by the Trust. The Participating Lenders have the right to designate experts to validate the appraised valuations. The Trust Agreement provides that, subject to the
Trustees approval, additional Participating Lenders may execute and become subject to the terms of the Trust Agreement if the value of the Trust Assets continues to be equal to or greater than 143% of the aggregate amount of the indebtedness
secured by the Trust. In addition, with the Trustees approval, the Participating Lenders may secure additional debt that it extends to the Company with the Trust provided that the value of the Trust Assets continues to be equal to or greater
than 143% of the aggregate amount of the indebtedness secured by the Trust.



The Company believes the Trust Assets will have an appraised value sufficient to collateralize the indebtedness of the Participating Lenders in accordance with the terms of the Trust Agreement. As of December 31, 2003, the Company estimates
that more than 80% of the appraisals have already been completed. Based on information provide to the Company by the independent appraiser, the appraised value of the assets which have been appraised as of the December 31, 2003 equals
approximately $50 million. Accordingly, the Company believes that the final appraised value of the Trust Assets may be sufficient to collateralize additional loans in accordance with the terms of the Trust Agreement.



If the Subsidiaries, among other things, fail to make any principal or interest payment to
any of the Participating Lenders when due or become insolvent, the Subsidiaries will be in breach of the Trust Agreement (a Breach). In the event the Trustee notifies the Subsidiaries of a Breach, the Subsidiaries will have fifteen days
to cure such Breach (the Cure Period). If the Breach is not cured within the Cure Period, the Trustee must sell all of the Trust Assets and use the proceeds of such sale to repay to the Participating Lenders all outstanding indebtedness
due and owed to them by the Subsidiaries. Any proceeds remaining after repayment is made in full to all of the Participating Lenders will be returned to the Subsidiaries. The Trust will terminate in accordance with its terms in the event of such a
sale.



The Trust is governed by a Trust Agreement governed by the laws of Costa
Rica. The Trust has a stated term of ten years but may terminate earlier in the event that all of the outstanding indebtedness owed to the Participating Lenders is repaid.



Certain of the Companys other existing creditor banks (the Non-Participating Lenders) are not signatories to the Trust
Agreement. As of September 30, 2003 and December 31, 2003, the Company has borrowed from the Non-Participating Lenders an aggregate of approximately $11.2 million and approximately $10.0 million, respectively. Three of the Non-Participating Lenders
with an aggregate indebtedness amounting to $3.3 million are collaterized with property with an estimated fair market value of $4.9 million.



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Short-term debt



As of September 30, 2003 the Company had issued short-term promissory notes with respect to an aggregate of approximately $36.5 million to
10 lenders. These notes payable consist of the following:



|                                  |  | September 30,2003 |            |   | September 30,2002 |  
|--------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|Loans payable in U.S. Dollars     |  | $                 | 36,436,852 |   |                   | $
|Loans payable in Colones          |  |                   | 140,652    |   |                   |  
|Less deferred debt issuance costs |  |                   | (30,266    | ) |                   |  
|                                  |  |                   |            |   |                   |  
|                                  |  | $                 | 36,547,238 |   |                   | $
|                                  |  |                   |            |   |                   |  



The Companys notes payable
primarily originate from lines of credit and bank commitments and are mainly utilized to support operations of the Company. As of September 30, 2003, $30.2 million of the notes payable were secured by the Trust. The Company estimates that, as of
December 31, 2003, approximately $28.2 million of the notes payable were secured by the Trust. Notes payable are generally due from October 2003 through May 2004 and bear annual interest rates ranging from 3.62% to 9.50% in dollars and from
16.73% to 24.0% in colones.



Of the $36.5 million of short-term debt
outstanding as of September 30, 2003, approximately $16.6 million of such short-term debt was payable to Banco Internacional de Costa Rica (BICSA), a Panamanian financial institution pursuant to nine letters of credit. The interest rate
at which the funds borrowed from BICSA pursuant to the letters of credit bear interest ranges from 8.5% to 9.95%. The letters of credit mature between October 2003 and March 2004 although payment of principal on the letters of credit has been
deferred until March 2004 pursuant to the terms of the Trust. As of September 30, 2003 the aggregate amount if indebtedness owed to BICSA was secured by the Trust.



As of December 31, 2003, the Company incurred an additional $8.9 million of indebtedness to BICSA pursuant to 9 letters of
credit and used $8.4 million of the proceeds to repay approximately $8.4 million of existing indebtedness. As of December 31, 2003, the aggregate indebtedness owed to BICSA is approximately $17.1 million. The interest rate at which the
additional indebtedness borrowed from BICSA pursuant to the letters of credit bears interest is 8.50%. These letters of credit mature between February 2004 to December 2005, although payment of principal on the letter of credit has
been deferred until March 2004 pursuant to the terms of the Trust.



Of the
$36.5 million of short-term debt outstanding as of September 30, 2003, approximately $3.9 million of such debt was payable to Transamerica Bank (Transamerica) pursuant to 5 letters of credit and/or promissory notes. The interest rate at
which the funds borrowed from Transamerica pursuant to the letters of credit and/or promissory notes bear interest ranges from 7.75% to 8.25%. The letters of credit and/or promissory notes mature in March 2004.



As of September 30, 2003, the Company had also borrowed approximately $2.6 million of
long-term debt from Transamerica pursuant to five letters of credit maturing between February 2004 and October 2008. As of September 30, 2003 the aggregate $6.5 million of indebtedness owed to Transamerica was secured by the Trust. The
aggregate amount of the indebtedness owed to Transamerica as of December 31, 2003 was $6.5 million, the entirety of which was secured by the Trust.



Of the $36.5 million of short-term debt outstanding as of September 30, 2003, approximately $5.3 million of such debt was payable to Citibank pursuant to 14 letters of
credit and/or promissory notes. As of September 30, 2003, the Company had also borrowed approximately $900,000 of long-term debt from Citibank pursuant to four letters of credit. The interest rate at which the funds borrowed from Citibank pursuant
to the letters of credit bear interest ranges from 7.75% to 6.25%. The letters of credit matured between June 2003 and December 2003. Citibank is not a signatory to the trust agreement and all of the indebtedness owed to Citibank is
unsecured. As indicted above, as of September 30, 2003 and December 31, 2003, the



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Company had not made payments of approximately $800,000 and $5.3 million, respectively to Citibank. In October 2003, the Company repaid in full two letters
of credit owed to Citibank totaling in the aggregate $899,266. The Company has received a demand for payment of the outstanding amount of the indebtedness owed to Citibank, which equals approximately $5.3 million as of December 31, 2003 and has been
served with notices of court actions pursuant to which Citibank is seeking payment of the $5.3 million. See Item 3 Legal Proceedings for further discussion.



Long-term debt



As of September 30, 2003, the Company has incurred long-term debt in the aggregate amount of approximately $10.71 million to nine lenders. Long-term debt consists of the
following:



|                                              |  | September 30,2003 |            |   | September 30,2002 |  
|--------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|Series A Senior Notes                         |  | $                 | 0          |   |                   | $
|Series B Senior Notes                         |  |                   | 0          |   |                   |  
|Bank loans denominated in U.S. dollars        |  |                   | 10,560,693 |   |                   |  
|Bank loans denominated in Costa Rican colones |  |                   | 188,443    |   |                   |  
|Less: Deferred debt issuance costs            |  |                   | (42,597    | ) |                   |  
|                                              |  |                   |            |   |                   |  
|                                              |  |                   | 10,706,485 |   |                   |  
|Less: Current portion                         |  |                   | 3,978,580  |   |                   |  
|                                              |  |                   |            |   |                   |  
|                                              |  | $                 | 6,727,905  |   |                   | $
|                                              |  |                   |            |   |                   |  



Bank loans are due from January 2004
to October 2008. Debt issuance costs are deferred and then amortized over the term of the debt. Interest rates for long-term debt are as follows:



|                        |  | September 30,2003 |  | September 30,2002
|----------------------- |  | ----------------- |  | -----------------
|Private Placement       |  |                  |  | 11.96%           
|U.S. dollar loans       |  | 2.57% -10.50%     |  | 2.47% -11.00%    
|Costa Rican colon loans |  | 24.00%            |  | 24.00% - 24.50%  



Future payments on long-term debt as
of September 30, 2003 are as follows:



|Year       |  | Amount
|---------- |  | ------
|2004       |  | $     
|2005       |  |       
|2006       |  |       
|2007       |  |       
|2008       |  |       
|Thereafter |  |       



$6.1 million of the long-term
indebtedness is secured by the Trust and approximately $2.5 million of the long-term indebtedness owed to Non-Participating Lenders is secured by other collateral provided by the Company with an estimated fair market value of $4.0 million. The
Company defers debt issuance costs and then amortizes such costs over the term of the debt.



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Although the Company has entered into the Trust Agreement, the Company has not yet secured an alternative long-term
financing source that would insulate it from the risks associated with the inability to satisfy its obligations as they come due or the loss of one of its relatively short-term financing sources. The Company is seeking to address its anticipated
short-term funding requirements by various means including, but not limited to, entering into negotiations with the Participating Lenders to extend the maturity date on the short-term indebtedness owed to such Participating Lenders. In addition, the
Company is seeking to secure long-term financing through the private or public issuance of debt instruments. Although the Company has entered into discussions with a number of potential capital sources, there can be no assurances that the Company
will be successful in its efforts to secure long-term financing on terms acceptable to the Company. The Companys ability to maintain sufficient liquidity to meet its short-term cash needs is highly dependent on achieving these initiatives.
There is no assurance that these initiatives will be successful, and failure to successfully complete these initiatives could have a material adverse effect on the Companys liquidity and operations, and could require the Company to consider
alternative measures, including, but not limited to, the deferral of planned capital expenditures and the further reduction of discretionary spending.



As a general practice in Costa Rica, banks require high-ranking executives of the companies to serve as guarantors of loans. Accordingly, Mr. Calixto Chaves and/or Mr.
Jorge Quesada personally guaranteed (the Guarantee Services) the repayment of certain lines of credit, and certain short and long-term bank lines. As of September 30, 2003, Mr. Chaves and Mr. Quesada had provided Guarantee Services with
respect to bank lines with a maximum principal balance of $31,640,791 and $12,110,633, respectively. Mr. Quesada has not had in the past, nor does he currently have an obligation to provide Guarantee Services to the Company in the future. On
December 22, 2003, Mr. Chaves sold all of his shares of the Companys common stock. See Item 12 for further information. In connection with such sale, Mr. Chaves entered into an agreement with the Company whereby he has agreed to indemnify the
Company from and against any losses or damages caused by his failure within the next year to provide, if requested, his personal guarantee with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of.
There can be no assurances that Mr. Chaves future guarantees will be sought by the Companys lenders and, if sought, will be procured.



Potential Acquisitions



The Company is continuing to explore the acquisition of majority of the outstanding common stock of Industrias Avicolas Integradas, S.A. (Indavinsa) and Avicola Core Etuba Ltda. (Core), both
engaged in the production and distribution of poultry. The Company would acquire the majority of the outstanding stock of Core from the Companys Chief Executive Officer. The Company is closely evaluating the performance of these companies to
determine if, when and how the Company should integrate its business with the acquisition targets, and has postponed indefinitely investments in these two companies.



On February 20, 2003, Port Ventures, S.A. (Port Ventures) and As de Oros entered into a Stock Purchase Agreement pursuant to
which As de Oros agreed to acquire from Port Ventures 2,040 shares of common stock of Logistica, representing 51% of the issued and outstanding shares of capital stock of Logistica, for a purchase price of US $2,580,000. See Item 1 for further
discussion of the potential acquisition of Logistica



As with any business
acquisition, there can be no assurance that the Company will close these acquisitions and there can be no assurance that these acquisition efforts will prove to be beneficial to the Company. Even if the Companys board of directors, audit
committee and management team believe the Company should pursue a development or acquisition opportunity and successfully negotiate the contracts critical to such venture. The Company will continue to evaluate financial performance and giving the
necessary collaboration in order to obtain the necessary judging elements to arrive to a definite decision.



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Critical Accounting Policies



The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America, which require the Company to make estimates and assumptions. The Company believes that of its significant accounting policies (see Note 1 to the Companys audited consolidated financial statements), the following may involve a higher
degree of judgment and complexity.



Impairment of long-lived assets and
goodwill: The Company assesses long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual
disposition. If impairment indicators are present, the Company must measure the fair value of the assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of
Long-lived Assets to determine if adjustments are to be recorded. Management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective asset.



Although to date the Companys assessment has not required it to record any impairment
of long-lived assets, if the estimates and assumptions used to make such assessment should change in the future, the Company could be required to record impairment charges. On October 1, 2001, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets, and was required to assess its goodwill for impairment issues upon adoption, and then at least annually thereafter. During the years ended September 30, 2003 and 2002, the Company was not required to record any
impairment losses related to goodwill and other intangible assets.



Income
taxes: The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset
will not be realized. In assessing a valuation allowance for a deferred tax asset, the Company estimates future taxable income and provides a valuation allowance when it is more likely than not to be recovered. Future taxable income could be
materially different than amounts estimated, in which case the valuation allowance would need to be adjusted. As of September 30, 2003 and 2002, the Company had valuation allowances amounting to $2,473,943 and $2,921,271, respectively.



Allowance for doubtful accounts: The allowance for doubtful accounts reflects estimated
losses resulting from the inability to collect required payments from our customers. The allowance for doubtful accounts is based on managements review of the overall condition of accounts receivable balances and review of significant past due
accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. For the years ended September 30, 2003 and 2002, the Company recorded a
write-off of doubtful receivables amounting to approximately $312,000 and $375,000, respectively.



Inventory: Inventories are stated at the lower of cost or market and their cost is determined using the weighted-average method, except for inventories in transit, which are valued at specific cost. The costs
associated with breeder hens during their growth period are capitalized as inventories until they reach their production stage, which is approximately 20 weeks after they hatch. Capitalized costs are amortized over the productive life of the hens
based on a percentage calculated according to the estimated production cycle of the hen. The productive life of hens is estimated based on historical data. Finished products, raw materials



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and other supplies are regularly evaluated to determine that market conditions are correctly reflected in their recorded carrying value.



Property, plant and equipment: Property, plant and equipment are recorded at cost. Property
plant and equipment acquired through purchase method accounting reflect market value at the date of acquisition. Management must evaluate whether improvements to property, plant and equipment that extend their useful lives are capitalized or
expensed. The Company uses the straight-line method over the estimated useful live. Useful lives assigned to depreciable assets are based on guidelines used for manufacturing companies. The Company has reviewed these guidelines and has deemed them
appropriate based on assessments made by engineers and past experience.



Impact of Recently Issued Accounting Standards



In December
2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years
ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.
The Company does not currently have any recorded stock based compensation expense, thus the adoption of SFAS 148 does not have a material impact on its financial position or results of operations.



In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing such guarantee. FIN 45 also requires additional disclosure requirements about the guarantors obligations under certain guarantees that it has issued. The initial recognition and measurement
provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statement periods ending after December 15, 2002. The
Company does not expect the adoption of FIN 45 will have a material impact on its financial position, results of operations or cash flows.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies
financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This Statement amends Statement 133 for decisions made (1) as part of the Derivatives Implementation Group process that effectively required amendments to Statement 133, (2) in connection with
other Board projects dealing with financial instruments, and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative, in particular, the meaning of an initial net investment that is
smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors, the meaning of underlying, and the characteristics of a derivative that contains financing components. The
Company does not anticipate that the adoption of this pronouncement will have a material effect on the financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.



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It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining provisions of this
Statement are consistent with the Boards proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established
between the holder and the issuer. While the Board still plans to revise that definition through an amendment to Concepts Statement 6, the Board decided to defer issuing that amendment until it has concluded its deliberations on the next phase of
this project. That next phase will deal with certain compound financial instruments including puttable shares, convertible bonds, and dual-indexed financial instruments. The Company does not anticipate that the adoption of this pronouncement will
have a material effect on the financial statements.



In January 2003, the FASB
issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based
on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or entitled to
receive a majority of the entitys residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable interest entity was established. During October 2003, the FASB issued Staff Position No. FIN 46 deferring the effective date for applying the provisions of FIN 46 until the
end of the first interim or annual period ending after December 31, 2003, if the variable interest was created prior to February 1, 2003 and the public entity has not issued financial statements reporting such variable interest entity in accordance
with FIN 46. The FASB also indicated that it would be issuing a modification to FIN 46 prior to the end of the 2003 calendar year. Accordingly, the Company has deferred the adoption of FIN 46 with respect to variable interest entities created prior
to February 1, 2003. Management is currently assessing the impact, if any, FIN 46 may have on the Company; however, management of the Company does not anticipate the adoption will have a material impact to the Companys financial position or
results of operations.



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



The Company and its representatives may, from time to time, make written or oral forward-looking statements with respect to their current views and estimates of future
economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Companys actual results and experiences to
differ materially from the anticipated results and expectations expressed in such forward-looking statements. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Among the
factors that may affect the operating results of the Company are the following: (i) fluctuations in the cost and availability of raw materials, such as feed grain costs in relation to historical levels; (ii) market conditions for finished products,
including the supply and pricing of alternative proteins which may impact the Companys pricing power; (iii) risks associated with leverage, including cost increases attributable to rising interest rates; (iv) changes in regulations and laws,
including changes in accounting standards, environmental laws, occupational and labor laws, health and safety regulations, and currency fluctuations; and (v) the effect of, or changes in, general economic conditions.



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This management discussion and analysis of the financial condition and results of operations of the Company may include
certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements with respect to
anticipated future operations and financial performance, growth and acquisition opportunity and other similar forecasts and statements of expectation. Words such as expects, anticipates, intends, plans, believes, seeks, estimates, should and
variations of those words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management
at the time of such statements and are not guarantees of future performance. The Company disclaims any obligations to update or review any forward-looking statements based on the occurrence of future events, the receipt of new information or
otherwise.



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



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



General



Market risks relating to the Companys operations result primarily from changes in currency exchange rates, interest rates and commodity prices. The sections below describe the Companys exposure to interest
rates, foreign exchange rates and commodities prices. The sensitivity analyses presented below are illustrative and should not be viewed as predictive of future financial performance. Additionally, the Company cannot assure that the Companys
and/or its subsidiaries actual results in any particular year will not differ from the amounts indicated below.



Foreign Exchange Risk



The subsidiaries of the Company operate in Costa Rica and are exposed to market risk from changes in U.S. currency exchange rates. Foreign exchange risk derives from the fact that the Company makes its payments in
U.S. dollars for the majority of its imported raw materials and bank facilities, and its revenues are mostly denominated in colones. The Company does not currently maintain a trading portfolio and does not utilize derivative financial instruments to
manage such risks. To mitigate its exposure to variations in devaluations, the Company periodically increases sales prices of some of its products during the year, varies the product mix to those with higher profit and seeks efficiencies in its
costs. In addition, the company seeks to increase its exports sales.



The
exchange rate between the colon and the U.S. dollar is determined in a free exchange market, supervised by the Banco Central de Costa Rica (BCCR). For the last 20 years, the BCCR has utilized the crawling peg method whereby the colon is
devalued daily on a systematic basis.



As of September 30, 2003, the Company
had outstanding indebtedness of approximately $46.87 million denominated in U.S. dollars. The potential foreign exchange loss resulting from a hypothetical 10% increase during the year in the devaluation of the colon/dollar exchange rate would be
approximately $479,000. This loss would be reflected in the balance sheet as increases in the principal amount of its dollar-denominated indebtedness and in the income statement as an increase in foreign exchange losses, reflecting the increased
cost of servicing dollar-denominated indebtedness. This analysis does not take into account the positive effect that the hypothetical increase would have on accounts receivable and other assets denominated in U.S. dollars.



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Interest Rate Risk



As of September 30, 2003, the Company had outstanding a total of approximately $47.2 million in loans and other debt primarily in U.S. Dollars. During the fiscal year
ended September 30, 2003, on average, approximately $31.5 million of such debt bore variable interest rates, based on LIBOR or Prime Rate. A hypothetical, simultaneous and unfavorable change of 10% in the Companys variable rate in effect as of
September 30, 2003 would result in a potential increase in interest expense of $335,650. The sensitivity analysis model may overstate the impact of the Companys interest rate risk, as uniform increases of all interest rates applicable to its
financial liabilities are unlikely to occur simultaneously.



Commodity Risk



The Company imports all of its corn and soybean meal, the primary
ingredients in chicken feed, from the United States. Fluctuations in the price of corn may significantly affect the Companys profit margin. The price of corn and soybean meal, like most grain commodities, is fairly volatile and requires
constant and daily hedging in order to minimize the effect of price increases on the Companys profit margin.



The Company purchases its corn through the Chicago Board of Trade (CBOT) and has been actively hedging its exposure to corn price fluctuations since 1991. The
Companys strategy is to hedge against price increases in corn and soybean meal, and it is not involved in speculative trading. Contract terms range from one month to six months. The Company buys directly from the spot market if market
conditions are favorable, but as a general rule, the Company purchases most of its corn through contracts. The Companys hedging strategy is set in its annual budget, which determines how much corn and soybean meal the Company will need and the
price the Company must pay in order to meet budget forecasts. The Company uses an internal pricing model to prepare sensitivity analyses. The Company bases its target prices on the worst case price assumptions (i.e. high prices). The prices paid by
the Company for corn and soy bean meal were 6.61% below its budgeted prices, for the year ended September 30, 2003. The Company purchases its soybean meal through a company in Costa Rica, INOLASA, in which the Company holds a 10% equity interest. In
Costa Rica, there is an applicable 5% tax for soybean meal imports, which is not levied if such imports are purchased through INOLASA. If for any reason INOLASA cannot deliver the soybean meal to the Company, the Company can buy its soybean meal
directly from the CBOT. Thus far, the Company has never had to purchase soybean meal directly from the CBOT.



The Company accounts for its futures transactions in accordance with the Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities. The contracts that effectively meet risk reduction criteria are recorded using hedge accounting. Derivatives that are not hedges are adjusted to fair value through income. No ineffectiveness was recognized on cash flow hedges
during fiscal 2003 or 2002. The Company expects that losses in the amount of $174,537 recorded in other comprehensive loss as of September 30, 2003, related to cash flow hedges, will be recognized within the following 3 months. The Company generally
does not hedge anticipated transactions beyond 6 months.



The Company has a
$500,000 credit line with Futures U.S.A., Inc. (FIMAT) and draws upon this credit line to cover its initial margin deposit. The interest rate paid on this line of credit averages an annual rate of less than 10% on drawn amounts.



For the year ended September 30, 2003, a hypothetical 10% increase in the
monthly price of corn and soybean meal would have resulted in an increase in cost of sales of approximately $2.81 million.



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|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- |  | --------------------------------------------



The information required by this item is incorporated by reference to the independent Auditors Report issued by Stonefield Josephson Inc. on and Arthur Andersen on
December 7, 2001 included on page F-2 and from the consolidated financial statements and supplementary data, on pages F-3 through F-39 on this Form 10-K.



|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



None



|ITEM 9A. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------



|(a) | Evaluation of Disclosure Controls and Procedures
|--- | ------------------------------------------------



The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Companys disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and
procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.



|(b) | Change in Internal Control over Financial Reporting
|--- | ---------------------------------------------------



No change in the Companys internal control over financial reporting occurred during the Companys most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART III



|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- |  | --------------------------------------------------



The directors and executive officers of the Company, their ages and present positions held in the Company, as of the date of this report, are as follows:



|Officer Name         |  | Age |  | Position Held                                                                    
|-------------------- |  | --- |  | ---------------------------------------------------------------------------------
|Calixto Chaves       |  | 57  |  | Chairman, Chief Executive Officer, President and Director                        
|Federico Vargas      |  | 70  |  | Director and Chairman of the Audit Committee                                     
|Jorge M. Quesada     |  | 54  |  | Director, Treasurer and President of the Board of Directors Pipasa and As De Oros
|Luis J. Lauredo      |  | 54  |  | Director and Member of the Audit Committee                                       
|Alfred E. Smith, IV  |  | 52  |  | Director                                                                         
|Jose Vidal           |  | 59  |  | Director                                                                         
|Monica Chaves        |  | 32  |  | Director and Secretary,                                                          
|Gina Sequeira        |  | 33  |  | Chief Financial Officer                                                          
|Grant Jack Peeples |  | 73  |  | Director and Member of the Audit Committee                                       
|Victor Oconitrillo   |  | 46  |  | President of each of the Subsidiaries                                            
|Pedro Dobles         |  | 52  |  | Vice President of each of the Subsidiaries                                       
|Alfonso Gutierrez    |  | 55  |  | Secretary of each of the Subsidiaries                                            
|Eladio Villalta      |  | 72  |  | Treasurer of each of the Subsidiaries                                            
|Carlos Ceciliano     |  | 64  |  | Supervisor of the Board of Directors of each of the Subsidiaries                 
|Jose Zamora          |  | 50  |  | Production Vice President of each of the Subsidiaries                            



The Companys directors will
serve in such capacity until the next annual meeting of stockholders of the Company and until their successors have been elected and qualified. The officers serve at the discretion of the Companys directors. Monica Chaves, Carlos Zamora and
Jorge M. Quesada are the daughter, cousin and brother-in-law of Calixto Chaves, respectively. Otherwise, there are no family relationships among the Companys officers and directors, nor are there any arrangements or understandings between any
of the directors or officers of the Company or any other person pursuant to which any officer or director was or is to be selected as an officer or director.



Mr. Calixto Chaves. Mr. Chaves is Chairman of the Board, Chief Executive Officer and President of the Company and has served as such since 1996. Mr. Chaves also
founded Pipasa in 1969 and served as its Chairman of the Board until September of 2003. He has served on the board of directors of Central American Oils and Derivatives, S.A. and American Oleaginous Industry from 1991 to present. From 1994 to
1996, he was a board member of Cerveceria Americana, a private brewery. In 1994, he served as an advisor to the President of Costa Rica and the Ministry of Economic Business Affairs. From 1983 to 1985, he was a member of the Board of Directors of
the Sugar Cane Agricultural League. From 1982 to 1986, he served as Minister of the Costa Rican Ministry of Industry, Energy and Mines and became Minister of Natural Resources in 1986.



Mr. Jorge M. Quesada. Mr. Quesada has been a member of the Board of Directors of the Company since August 1996 and was the
Companys Chief Financial Officer from August 1996 to September 1998. Mr. Quesada served on the Companys Audit Committee from August 1996 until June 2001. Mr. Quesada has held numerous positions with Pipasa since 1985, and was
Pipasas Executive Vice President from 1990 to 1999. Mr. Quesada has served as the Executive President of Pipasa and Corporacion As de Oros, S.A. (As de Oros) since March 1, 1999. He was a member of the board of directors of Banco
de Fomento Agricola (d/b/a Banco Cuscatlán) from 1991 to 1996. From 1987 to 1991, he was on the board of directors of Financiera Belen, S.A. Mr. Quesada has conducted numerous seminars regarding marketing topics. He obtained his Degree in
Business Administration, with an emphasis on Public Accounting, from the University of Costa Rica in 1984.



Mr. Jose Vidal.: Mr. Vidal attended college at University of Costa Rica where he graduated from the Economic Science School with a Masters Degree in Business Administration with an emphasis in finance. Mr.
Vidal has more than 34 years of experience in different administrative areas in Costa Rican as well as United States companies. From 1977 until the present, Mr. Vidal last worked as the General Manager of the Potomac Electric Power Company. He has
also been member of the American Management Association.



Dr. Federico
Vargas. Dr. Vargas has been a member of the Board of Directors since August 1996 and Chairman of the Audit Committee since July, 2001. Dr. Vargas has also served on the board of directors of



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Pipasa since January 1995, served on the board of directors of Restaurantes As de Oros, a subsidiary of As de Oros, from November 1999 until June 2001, and
served as a member of the board of directors of Financiera Belén from February 1999 until July 2001. 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
extensively involved in 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 Partido Liberacion Nacional of Costa Rica. Prior to
1990, Dr. Vargas held a number of political offices including Minister of Finance on two occasions, Ambassador of Costa Rica to the United States, Ambassador of Costa Rica to the Organization of American States, Counselor to the President of Costa
Rica in Finance and External Debt, with the rank of Minister of Economics, and Advisor to the President of Costa Rica. Dr. Vargas serves on the boards of directors and advisory bodies of numerous charitable and educational organizations and is the
author of a number of publications in economic and educational matters. He obtained his Bachelors degree in Business Administration from Nichols College in Massachusetts in 1954 and his Ph.D. from the University of Colorado in 1967. He has
also attended the Wharton School of Finance and Commerce at the University of Pennsylvania. Dr. Vargas graduated from the University of Costa Rica with a degree in Business Administration.



Mr. Alfred E. Smith, IV. Mr. Smith has been a member of the Board of Directors of the
Company since June, 1994. Mr. Smith has been the Managing Partner of the Wall Street firm of Bear Wagner since April, 2001 and was the Managing Director of Hunter Specialists, LLC, New York, from January 1997 to April, 2001. From 1979 to 1996, he
was with CMJ Partners, a New York Stock Exchange member firm. Mr. Smith is the Chairman of the Government Relations Committee of the New York Stock Exchange, Director and Secretary of the Alfred Emanuel Smith Memorial Foundation, Chairman of the
Cardinals Committee for the Laity-Wall Street Division since 1985, Founder and Chairman of Hackers for Hope since 1989, Director of the Center for Hope since 1989, a Director at the Catholic Youth Organization until 1997, member of the
Presidents Council of Memorial Sloan Kettering Hospital since 1986, and a member of the New York City Advisory Board of the Enterprise Foundation. Mr. Smith is also a member of the Board of Trustees of St. Vincents Hospital and Medical
Center, since 1986, and the Cavalry Hospital since 1998, and was a member of the Board of Trustees of Iona Prep School, Saint Agnes Hospital, and Our Lady of Mercy Medical Center. Mr. Smith is a member of the Association of the Sovereign Military
Order of Malta. He has received numerous awards for his charity humanitarian work, including Wall Street 50 Honoree Humanitarian Award, Terence Cardinal Cooke Center in 1999; Man of the Year Award at Iona Prep in 1986, Club of Champions
Gold Medal Award of the Catholic Youth Organization, Ellis Island Medal of Honor, the National Brotherhood Award of the National Conference of Christians and Jews, the Graymoor Community Service Award by the Franciscan Friars of the Atonement, the
American Cancer Societys Gold Sword of Hope Award, and the Terence Cardinal Cooke Humanitarian Award by Our Lady of Mercy Medical Center. Mr. Smith was educated at Villanova University.



Honorable Ambassador Luis Lauredo. Mr. Lauredo has served as Director and a member of
the Audit Committee of the Company since August 2001. Mr. Lauredo also served as a director from August 1996 until December 1999, at which time he resigned to serve as the United States Ambassador to the Organization of American States. Mr. Lauredo
served as Ambassador until June 2001. Mr. Lauredo served as the Chairman of the Audit Committee from August 1996 to July 2000. Mr. Lauredo joined the law firm of Hunton & Williams in July 2001 and works out of its Miami and Washington, D.C.
offices, focusing on international trade and governmental affairs. Mr. Lauredo is and has served as a director of Colonial Bank of South Florida since October, 2001. From 1995 to 1999, Mr. Lauredo was President of Greenberg Traurig Consulting, Inc.,
an affiliate of the international law firm, Greenberg Traurig, Hoffman, Lipoff, Rosen & Quentel. From 1994 to 1995, he was Executive Director of the Summit of the Americas. From 1992 to 1994, he was a Commissioner on the Florida Public Service
Commission, as well as Chairman of the International



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Relations Committee of the National Association of Regulatory Utility Commissioners. In his career, Mr. Lauredo has held a number of positions in the banking
industry, including Senior Vice President of the Export-Import Bank of the United States of America. He has represented the President of the United States as special U.S. Ambassador to the inaugurations of the Presidents of Colombia, Venezuela,
Brazil, and Costa Rica. He also served as a founding Director of the Hispanic Council on Foreign Affairs (Washington, D.C.). Mr. Lauredo received his B.A. from Columbia University in New York City and has attended the University of Madrid in Spain
and Georgetown University Law Center in Washington, D.C.



Mr. Grant
Jack Peeples. Mr. Peeples has served as a Director and a member of the Audit Committee since August 2001. He served in the Korean War as an Airborne Infantry Officer and Rifle Company Commander. He was awarded Combat Infantryman
Badge, Bronze Star for Valor and Purple Heart. He graduated from the University of Florida College of Law in 1957, joined the law firm of former Governor Leroy Collins in Tallahassee, Florida. Mr. Peeples was appointed as Legislative Counsel to
Governor Collins in 1958 and appointed to the Governors Cabinet as State Beverage Director in 1959. Mr. Peeples returned to the private practice of law in 1961, specializing in legislative and administrative practice in Tallahassee, Florida;
and became the founding partner of Peeples, Earl & Blank in 1970, specializing in environmental law and acting as Senior Trial Counsel in numerous landmark environmental and regulatory cases. Mr. Peeples retired from Peeples, Earl & Blank in
1994 and joined White & Case as Of Counsel. He served as Campaign Chairman and Chairman of the Transition Team for Governor Lawton Chiles as well as the Legislative and Senior Counsel to the Governor. Mr. Peeples has also served as the
Vice-Chairman of the Governors Commission on Governance, the Vice-Chairman of Governors Commission on the Homeless, the Chairman of Florida Aviation Commission, the Co-Chairman of the Dade County Homeless Trust, a Board Member of the
Florida Independent College Fund, a Member of the Board of Overseers, a member of the board of the University of Florida Medical School, and representative of the Governor and the Cabinet on the Downtown Development Authority. He has also served as
General Counsel and as a member of the Board of Directors of Deltona Corporation, a NYSE company, as a member of the Board of Directors and Chairman of the Audit Committee of United Petroleum Group, a Hunt family company, and as Senior Counsel and a
member of the Board of Directors of Senior Networks, Inc.



Ms. Monica
Chaves. Ms. Chaves has served as a Director and the Secretary of the Company since 1996 and as a director of Pipasa from October 1999 until September 2003. Ms. Chaves joined Pipasa as assistant manager in the companys Finance Division in
1991 where she was in charge of Pipasas Special Investment Department. In 1996, when the Company went public, Ms. Chaves assumed the Companys Investor Relations Department. Ms. Chaves also served as the Vice President of Administration
of Pipasa and As de Oros from March 1, 1999 until August 2003. Ms. Chaves received a Bachelors degree in Business Administration from Saint Michaels College, located in Vermont. Ms. Chaves is the daughter of Mr. Calixto Chaves.



Ms. Gina Sequeira. Ms. Sequeira was appointed Chief Financial Officer of the Company
on November 8, 2002. She joined the Company in April of 1996 and has served in the financial and accounting divisions of the Company. Ms. Sequeira obtained her degree in accounting from the Universidad Internacional de las Americas in 1994 and has
been a member of the Institute of Certified Public Accountants of Costa Rica since 1998. Ms. Sequeira worked in external auditing prior to her employment with the Company.



Mr. Victor Oconitrillo. Mr. Oconitrillo was appointed as President of each of the Companys Subsidiaries in December 2003. From
1994 until the present, Mr. Oconitrillo has served as the General Manager and as a director of Grupo Consolidado SAMA, S.A. (SAMA), a privately held financial advisory corporation, and certain of its privately held affiliated companies,
including Inversiones Sama, S.A., Puesto de Bolsa, Sama Internacional (G.S.), S.A. and Sama Valores (G.S.), S.A. Mr. Oconitrillo received his Bachelors Degree in



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Sociology and his Masters in Business Administration with an emphasis in international business from the University of Costa Rica. Since 1982, Mr.
Oconitrillo has also been accredited as a stock broker by the Bolsa Nacional de Valores, S.A, the Costa Rican stock exchange.



Mr. Pedro Dobles. Mr. Dobles was appointed as the Vice President of the Companys Subsidiaries in December 2003. From October 1995 until July 2003, Mr. Dobles
served as the General Director of Florida Ice and Farm (Cervecceria Costa Rica), the largest privately held brewery company in Costa Rica. His responsibilities as General Director included, among other things, overseeing all of the companys
operations. Mr. Dobles has also served as a member of the Board of Directors of SAMA from August 2003 until the present. Mr. Dobles received his Bachelors Degree in Industrial Engineering from the University of Houston and his Masters in
Business Administration from Instituto Centroamericano de Administracion de Empresas. Mr. Dobles also attended strategic marketing management seminars at Harvard Business School in June 1993 and business strategy seminars at Columbia University in
1991.



Mr. Alfonso Gutierrez. Mr. Gutierrez was appointed as the
Secretary of the Companys Subsidiaries in August 2003. From 1976 until the present, Mr. Gutierrez has worked as an attorney for a private law firm owned by him. Mr. Guiterrez has also served as President of SAMAs Board of Directors from
November 2002 until the present. Mr. Guiterrez received his Licenciatura in Law from the Universidad de Costa Rica and has engaged in post-graduate study in commercial law from the Instituto de Comercial y Comparado Lorenzo Moss.



Mr. Eladio Villalta. Mr. Villalta was appointed as the Treasurer of the Companys
Subsidiaries in August 2003. From 1988 until June 1993, Mr. Villalta worked as an Independent Accounting Advisor to Conferencia Episcopal. Mr. Villalta retired in June 1993, Mr. Villalta has served as a member of the Board of Directors of SAMA from
April 2003 until the present. Mr. Villalta received his Licenciature in Business Administration with an emphasis in accounting from the Universidad de Costa Rica and has engged in post-graduate study at the University CEARA de Brasil and the
University of California in Los Angelas. Mr. Villalta is a Certified Public Accountant.



Mr. Carlos Ceciliano. Mr. Ceciliano was appointed as the Supervisor of the Board of Directors of the Companys Subsidiaries in December 2003. Prior to such appointment, Mr. Ceciliano served as the Vice President of the
Companys operating subsidiaries from August 2003 until December 2003. From June 2002 until the present, Mr. Ceciliano has served as the President of Ceciliano Consultores, S.A., a business consulting firm which he owns and operates. From
June 1974 until May 2002, Mr. Ceciliano was a partner in Ceciliano y Compania, a Costa Rican privately held accounting firm. Mr. Ceciliano has also served as the Fiscal of SAMA from 1976 until the present. Mr. Ceciliano received his
Bachelors Degree in Economics and Social Science with an emphasis in business administration from the University of Costa Rica.



Legal Proceedings



On January 24, 2003, the Staff (the Staff) of the Securities and Exchange Commission (the Commission) notified the Company that it was conducting an informal inquiry of the Company.



On August 15, 2003 , the Commission filed a settled civil injunctive action against the
Company, the Companys Chief Executive Officer (the CEO) and the Companys Chief Financial Officer (the CFO) for violations of the CEO and CFO certification requirements of the Sarbanes-Oxley Act of 2002. The
Company, the CEO and the CFO have consented, without admitting or denying the allegations in the Commissions complaint, to the entry of a Final Judgment of Permanent Injunction and Other Relief (Final Judgment). According to the
Commissions complaint, on January 13, 2003, the Company filed a Form 10-K annual report with the Commission containing a purportedly unqualified independent auditors report from Deloitte & Touche. The audit report represented that
the Companys consolidated financial statements were presented fairly and in conformity with generally accepted accounting principles. At the time of the filing, however, Deloitte & Touche had not provided the Company with a signed audit
report and, according to the Commissions complaint, the Companys financial statements contained material classification errors.



The Final Judgment permanently enjoins the Company from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the Exchange
Act) and Rule 12b-20 and 13a-1



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thereunder, which governs the accuracy of the issuer books and records and financial disclosures. The Final Judgment also permanently enjoins the CEO and CFO
from violating Section 13(b)(5) of the Exchange Act and Rule 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. Pursuant to the Final
Judgment, the CEO was ordered to pay $25,000 in civil penalties. A penalty was not imposed against the CFO based on the sworn financial statements and other financial information she provided to the Commission.



Except for the legal proceedings discussed above, the Company is not aware of any pending,
material legal proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of any class of voting securities of the Company, or any associate of any such director, officer,
affiliate of the Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse the Company.



Code of Ethics



The Company has adopted a code of ethics applicable to all employees of the Company, including the Chief Executive Officer and the Chief Financial Officer.



Audit Committee



The Companys Audit Committee currently consists of Messrs. Lauredo, Peeples and Vargas. Each member of the Audit Committee is an independent director pursuant to
Rule 10A-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act). However, Mr. Lauredo may not be deemed to be independent under newly adopted Section 121A of the AMEX Company Guide which will become
effective on the earlier of (i) the Companys first annual shareholders meeting after January 15, 2004 or (ii) October 31, 2004. Although each of Mr. Lauredo, Mr. Peeples and Mr. Vargas possesses extensive business and financial experience,
they Board of Directors has determined that they do not appear to meet the financial expert requirements set forth in the rules established pursuant to the Sarbanes-Oxley Act of 2002. The Company has not yet identified an individual
satisfying those criteria as well as other criteria that the Company believes are important for an individual to make a meaningful contribution to the deliberations of the Board of Directors as a whole. Within the next year, the Board of Directors
plan to consider options for attracting a qualified financial expert to serve on the Audit Committee.



Compliance with Section 16(a) of the Securities Exchange Act of 1934



Sec 16(a) of 1934 Act requires the Companys directors and executive officers, and persons who own more than ten percent (10%) of the Companys outstanding Common Stock, to file with the Securities and
Exchange Commission (the SEC) initial report of ownership and report changes in ownership of Common Stock. Such persons are required by SEC regulations to furnish the Company with copies of all such reports they file.



To our knowledge, based solely on a review of the copies of reports furnished to us and
written or oral representations that no other reports were required for such persons, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent (10%) beneficial owners have been complied with respect to
the fiscal years ended September 30, 2003 and September 30, 2002.



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|ITEM  11. |  | EXECUTIVE COMPENSATION
|--------- |  | ----------------------



The following table sets forth, for the fiscal years ended September 30, 2003, 2002 and 2001 the aggregate compensation awarded to, earned by or paid to Mr. Chaves, the
Companys Chief Executive Officer. The table also sets forth the aggregate compensation awarded to, earned by or paid to the other two most highly compensated officers for the fiscal year ended September 30, 2003. No Executive Officer of the
Company or its subsidiaries, other than Mr. Chaves, Mr. Quesada and Mr. Zamora, earned compensation in excess of $100,000 during fiscal year ended September 30, 2003. No Executive Officer of the Company, other than Mr. Chaves, earned compensation in
excess of $100,000 during the fiscal year ended September 30, 2001. The Company neither granted any restricted stock awards or stock appreciation rights to nor made any long-term incentive plan payouts to any of the Named Executive Officers during
the fiscal years ended September 30, 2003, 2002, and 2001.



|Name and Principal Position                 |  | Fiscal Year |  | Salary Compensation(1) |         | Bonus Compensation (2) |   | All Other | 
|------------------------------------------- |  | ----------- |  | ---------------------- | ------- | ---------------------- | - | --------- | 
|Calixto Chaves                              |  | 2003        |  | $                      | 166,546 |                        | $ | 13,308    | 
|Chief Executive Officer                     |  | 2002        |  | $                      | 160,336 |                        | $ | 3,491     | 
|                                            |  | 2001        |  | $                      | 145,233 |                        |   |           | 
|                                            |  |             |  |                       
|Jorge Quesada                               |  | 2003        |  | $                      | 137,456 |                        | $ | 10,383    | 
|Treasurer, Director and Executive President |  | 2002        |  | $                      | 124,796 |                        | $ | 3,106     | 
|                                            |  |             |  |                       
|Jose Zamora                                 |  | 2003        |  | $                      | 101,972 |                        | $ | 7,680     | 
|Production Vice-President of Subsidiaries   |  | 2002        |  | $                      | 88,159  |                        | $ | 2,229     | 



|(1) | Salary compensation was paid in Costa Rican colones and in 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 and other incentive compensation.
|--- | -------------------------------------------------------------------------------------------------------



|(3) | Includes $3,195 for meetings of the Companys Board of Directors, $262,765 for Mr. Chaves provision of loan guarantee services, and $168,906 in accrued
vacation benefits. (see Item 13 for further discussion)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation of Directors



The Company reimburses all members
of the Board of Directors for their expenses in connection with their activities as Directors of the Company. Directors of the Company receive additional compensation for their services as Directors at a rate of $200 for each Board Meeting that they
attend. Members of the Companys Audit Committee receive additional compensation for their services as Audit Committee members at a rate of $300 for each Audit Committee meeting that they attend.



Employment Agreements and Change in Control Agreements



The Company has no employment agreements and no change in control agreements with any
executive officer.



Compensation Committee Interlocks and Insider
Participation



The Company has a Compensation Committee currently
consisting of the members of the Companys Audit Committee: Mr. Lauredo, Mr. Vargas and Mr. Peeples. None of the members of the Compensation Committee are or ever have been officers of the Company. This Committee makes the determinations for
stock issuances pursuant to the Companys compensation plans. Except for payments paid upon the severance or termination of an employee as required by Costa Rican law, the Company has no retirement,



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pension or profit sharing plans covering its officers and directors, but has contemplated the implementation of such a plan in the future.



Board Compensation Committee Report on Executive Compensation



The Compensation Committee is responsible for establishing and administering the policies
for the Companys compensation programs and for approving the compensation levels of the executives and managers of the Company and its subsidiaries, including its Chief Executive Officer. The Committee also reviews with the Chief Executive
Officer guidelines for salaries and bonus awards applicable to the Companys employees other than its executives and managers.



Statement of Philosophy of Executive Compensation



The executive compensation program of the Company is designed to (i) provide base compensation reasonably comparable to that offered by other leading companies to their
executives and managers so as to attract and retain talented personnel, (ii) motivate certain executives and managers to achieve the strategic goals set by the Company, and (iii) further align the interests of the executives and managers with the
long-term interests of the Shareholders. To implement this philosophy, the Company offers its executives and managers compensation packages that include a mix of salary, the opportunity to receive discretionary incentive bonus awards, and, at times,
stock options.



In determining the level and form of executive compensation to
be paid or awarded, the Committee relies primarily on the recommendations of the Human Resources Department, which provides the Committee an assessment of the subject executives performance and the Companys performance in light of its
strategic objectives. The Committee considered a number of factors in establishing compensation in the fiscal year ended September 30, 2003, none of which was quantified, ranked or assigned relative weight.



| |  | The Companys retention of its position as one of the leading producers and distributors of poultry products in Costa Rica.
| | - | ---------------------------------------------------------------------------------------------------------------------------



| |  | The further diversification, expansion, and broadening of the Companys core business and new service offerings.
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | Individual performance and contributions to the Company.
| | - | --------------------------------------------------------



| |  | Individual compensation history.
| | - | --------------------------------



Salary



The base salary of executives and managers is determined initially by analyzing and evaluating the responsibilities of the position and comparing the proposed base salary with that of executives and managers in
comparable positions in other companies. Adjustments are determined by objective factors such as the Companys performance and the individuals contribution to that performance and subjective considerations such as additional
responsibilities taken on by the executive or manager. The Committee awarded increases in base salary to certain of the executive officers and managers of the Company, including the Chief Executive Officer.



Incentive Awards



In addition to paying a base salary, the Company offers its executives and managers an opportunity to earn discretionary incentive bonuses
as a component of overall compensation based on the performance of the individual and the individuals business unit. For the fiscal year ended September 30, 2003, the Committee awarded bonuses to certain of the Companys executives and
managers.



CEO Compensation



Mr. Calixto Chaves, the Companys Chief Executive Officer, was paid a salary of
$166,546 for the fiscal year ended September 30, 2003. The Committee considered the same factors described above in establishing Mr. Chaves compensation, with particular emphasis on Mr. Chaves service and various contributions to the
Company.



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PERFORMANCE GRAPH



The following graph sets forth the cumulative total shareholder return on the Companys Common Stock over the last six fiscal years, as
compared to the total returns of the NASDAQ Stock Market Index and a group of peer companies (the Peer Group). The graph assumes $100 was invested on September 30, 1998 and that all dividends were reinvested in the Companys Common
Stock, the NASDAQ Stock Market Index and the Peer Group.



Because trading of
the Companys Common Stock on the AMEX was halted from January 21, 2003 until the end of the fiscal year ended September 30, 2003, the graph has been prepared using the closing price of the Companys Common Stock as reported by the AMEX on
January 21, 2003.



The Peer Group includes the Company, Cagles, Inc.,
Industrias Bachoco S.A., Pilgrims Pride Corporation (CLA and CLB) Sanderson Farms, Inc., Seaboard Corporation, Tyson Foods, Inc., and WLR Food, Inc. The Peer Group consists of companies that are engaged in the poultry slaughtering and
processing business. Companies included in the Peer Group were weighted by market capitalization from the beginning of each period for which a return is indicated.



ASSUMES $100 INVESTED ON SEPTEMBER 30, 1998

ASSUMES DIVIDEND REINVESTED

FISCAL YEAR ENDING SEPTEMBER 30, 2003



LOGO



|                    |  | 1998   |  | 1999   |  | 2000   |  | 2001  |  | 2002  |  | 2003   |    
|------------------- |  | ------ |  | ------ |  | ------ |  | ----- |  | ----- |  | ------ | ---
|RICA FOODS, INC.    |  | 100.00 |  | 227.16 |  | 325.93 |  | 71.11 |  | 15.41 |  | 18.77  | (1)
|SIC GROUP INDEX     |  | 100.00 |  | 79.82  |  | 58.99  |  | 62.55 |  | 58.94 |  | 135.54 |    
|NASDAQ MARKET INDEX |  | 100.00 |  | 161.77 |  | 221.30 |  | 90.67 |  | 72.95 |  | 111.80 |    



|(1) | Calculated using the closing price of the Companys Common Stock as reported by the AMEX on January 21, 2003.
|--- | -------------------------------------------------------------------------------------------------------------



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|ITEM  12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|--------- |  | ----------------------------------------------------------------------------------------------



The Company has been informed that on December 22, 2003, Calixto Chaves (Mr. Chaves), Monica Chaves (Ms. Chaves), JP
Chaves, Comercial Angui and certain other shareholders (the Selling Shareholders), have sold (the Stock Sale) all 9,933,154 shares of the common stock held by the Selling Shareholders (the Shares), representing
approximately 77.2% of the Companys issued and outstanding shares of common stock, to Avicola Campesinos, Inc., a Nevada corporation (Avicola), for a cash purchase price of approximately U.S.$12.5 million.



Based upon information contained in an executed Schedule 13D provided by Avicola to the
Company (the Schedule 13D), it appears that Avicola is wholly owned by Tenedora G.S., S.A., a Costa Rican corporation (Tenedora).



Also as indicated in the Schedule 13D, Mavipel, S.A., a Costa Rican corporation (Mavipel), Inversiones Harenaz L III, S.A. (Harenaz), a Costa
Rican corporation, CYS Asesores de Mercadeo y Finanzas, S.A, a Costa Rican corporation (CYS), Sarita Trading, S.A., a Panamanian corporation (Sarita), Corporacion Adral, S.A., Costa Rican corporation (Adral),
Centro, S.A., a Costa Rican corporation (Centro), Hoy por Hoy, S.A., a Costa Rican corporation (Hoy), Asociacion Solidarista de Empleados Grupo Sama y Afines, a Costa Rican labor entity (ASEGSA) and Quirinal, S.A.
(Quirinal) are the holders of approximately 35.3%, 14.2%, 13%, 13.4%, 8.1%, 9.2%, 2.3%, 1.7%, and 2.8%, respectively of the outstanding common stock of Tenedora. Together, Mavipel, Harenaz, CYS, Sarita, Adral, Centro, Hoy, ASEGSA and
Quirinal may be deemed to control Tenedora.



The Company has been informed,
pursuant to the Schedule 13D, that Victor Oconitrillo is the holder of 100% of the outstanding common stock of Mavipel. Henry Zamora is the holder of 100% of the outstanding common stock of Harenaz. Rolando Cervantes is the holder of 100% of the
outstanding common stock of CYS. Jorge Torres is the holder of 100% of the outstanding common stock of Sarita. Mariangel Solera is the holder of 100% of the outstanding common stock of Adral. Robert Aspinall is the holder of 100% of the outstanding
common stock of Centro. Oscar Hernandez is the holder of 100% of the outstanding common stock of Hoy. Alfonso Gutierrez is the holder of 100% of the outstanding common stock of Quirinal.



The Stock Sale was conditioned upon the approval of the board of directors of the Company, which was granted after the board considered a
number of factors, including the following:



| |  | Approximately $6.9 million of the proceeds of the Stock Sale were used to satisfy Mr. Chaves existing indebtedness to the Company and approximately $1.95 million of the
proceeds were used to settle certain litigation.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Mr. Chaves and Mr. Jorge Quesada have, at various times, personally guaranteed the Companys repayment of various debts. As of the closing of the Stock Sale, Mr. Chaves and Mr.
Quesada had outstanding personal guarantees with respect to approximately $27.9 million and $9.2 million of the Companys indebtedness. The guarantees extended by Mr. Chaves and Mr. Quesada will remain in place notwithstanding the Stock Sale.
In addition, Mr. Chaves has entered into an agreement with the Company whereby he has agreed to indemnify the Company from and against any losses or damages caused by his failure within the next year to provide, if requested, his personal guarantee
with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Mr. Chaves has agreed to indemnify the Company from and against certain damages or losses that could directly or indirectly result from or in connection with the Stock Sale.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mr. Chaves, Mr. Quesada, Ms. Chaves continue to serve on the
board of directors of the Company. However, as the holder of a majority of the Common Stock, Avicola will generally have the power to elect directors to serve on the Companys board of directors. Although Avicola has not directly or indirectly
taken any actions to initiate any changes with regards to the Companys board of directors, Avicola has indicated to the Company in the Schedule 13D that it does anticipate seeking to influence the nomination and election of directors in the
future.



The Purchasers conditioned the closing of the Stock Sale on the
Companys electing seven affiliates of Avicola to serve on the eight person board of directors of each of the Companys subsidiaries and elected affiliates of Avicola to serve as the president, vice president, secretary, treasurer and
controller of each subsidiary.



As reported in the 13D, in order to fund the
purchase of the Shares, on December 15, 2003 (the Effective Date), Avicola entered into a financing agreement (the Financing Agreement) with Servicios Bursatiles Internacionales Sociedad Anonima (SBI), a
Panamanian corporation pursuant to which SBI extended a loan to Avicola in the amount of approximately $12.5 million (the Purchase Loan). The entire Purchase Loan was used by Avicola to purchase the Shares.



Under the terms of the Financing Agreement, interest on the Purchase Loan will be payable
annually, with the first payment due one year from the Effective Date, at the rate of prime plus four. The outstanding principal amount of the Purchase Loan plus any accrued but unpaid interest will be payable on December 15, 2008. As security for
the Purchase Loan, Avicola has pledged the Shares to SBI pursuant to the terms of a stock pledge agreement. In addition, Tenedora has extended a guarantee with respect to the Purchase Loan.



The following table sets forth, as of December 31, 2003, the number of shares of Common Stock
of the Company which were owned beneficially by (i) each person who is known by the Company to own beneficially more than 5% of its Common Stock, (ii) each director and nominee for director, (iii) certain executive officers of the Company, and (iv)
all directors and officers as a group. Unless otherwise indicated, the address of each beneficial owner is Rica Foods, Inc., 1840 Coral Way 101 Miami, Florida 33145.



|Name and Address of
Beneficial Owner                         |  | Amount and Nature ofBeneficial Ownership (1)(2) |      |  | Percentage ofShares Owned (1) |  
|------------------------------------------------------------ |  | ----------------------------------------------- | ---- |  | ----------------------------- | -
|Avicola Campesinos, S.A.                                     |  | 9,933,154                                       | (3)  |  | 77.2                          | %
|Tenedora G.S., S.A.                                          |  | 9,933,154                                       | (4)  |  | 77.2                          | %
|Mr. Victor Oconitrillo                                       |  | 0                                               | (4)  |  | *                             |  
|Mr. Pedro Dobles                                             |  | 0                                               |      |  | *                             |  
|Mr. Alfonso Gutierrez                                        |  | 0                                               | (4)  |  | *                             |  
|Mr. Eladio Villalta                                          |  | 0                                               |      |  | *                             |  
|Mr. Carlos Ceciliano                                         |  | 0                                               |      |  | *                             |  
|Mr. Calixto Chaves                                           |  | 0                                               |      |  | *                             |  
|Mr. Jorge M. Quesada                                         |  | 45,794                                          | (5)  |  | *                             |  
|Ms. Monica Chaves                                            |  | 0                                               |      |  | *                             |  
|Mr. Alfred E. Smith IV                                       |  | 34,534                                          | (6)  |  | *                             |  
|Dr. Federico Vargas                                          |  | 0                                               | (7)  |  | *                             |  
|Hon. Amb. Luis Lauredo                                       |  | 0                                               | (8)  |  | *                             |  
|Mr. Grant Jack Peeples                                     |  | 0                                               | (9)  |  | *                             |  
|Mr. Jose Zamora                                              |  | 47,295                                          |      |  | *                             |  
|Ms. Gina Sequeira                                            |  | 200                                             |      |  | *                             |  
|Mr. Jose Vidal                                               |  | 0                                               | (10) |  | *                             |  
|All directors and executive officers as a group (15 persons) |  | 127,823                                         |      |  | 1                             | %



|* | Indicates less than 1% of outstanding shares owned.
|- | ---------------------------------------------------



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|(1) | A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from December 31, 2003 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 December 31, 2003 have been exercised.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Avicolas principal business address is 6100 Neil Road, Suite 500, Reno, NV 89551.
|--- | ----------------------------------------------------------------------------------



|(4) | Includes 9,933,514 shares held of record by Avicola, a corporation wholly owned by Tenedora G.S., S.A. Tenedora principal business address is Bufete Chaverri Soto
& Asociados, Barrio Escalante, de cine Magaly 400 metros al este, San Jose, Costa Rica. Mavipel, S.A., a Costa Rican corporation (Mavipel), Inversiones Harenaz L III, S.A. (Harenaz), a Costa Rican corporation, CYS
Asesores de Mercadeo y Finanzas, S.A, a Costa Rican corporation (CYS), Sarita Trading, S.A., a Panamanian corporation (Sarita), Corporacion Adral, S.A., Costa Rican corporation (Adral), Centro, S.A., a Costa Rican
corporation (Centro), Hoy por Hoy, S.A., a Costa Rican corporation (Hoy), Asociacion Solidarista de Empleados Grupo Sama y Afines, a Costa Rican labor entity (ASEGSA) and Quirinal, S.A. (Quirinal) are
the holders of approximately 35.3%, 14.2%, 13%, 13.4%, 8.1%, 9.2%, 2.3%, 1.7%, and 2.8%, respectively of the outstanding common stock of Tenedora. Together, Mavipel, Harenaz, CYS, Sarita, Adral, Centro, Hoy, ASEGSA and Quirinal may be deemed to
control Tenedora. Victor Oconitrillo is the holder of 100% of the outstanding common stock of Mavipel. Henry Zamora is the holder of 100% of the outstanding common stock of Harenaz. Rolando Cervantes is the holder of 100% of the outstanding common
stock of CYS. Jorge Torres is the holder of 100% of the outstanding common stock of Sarita. Mariangel Solera is the holder of 100% of the outstanding common stock of Adral. Robert Aspinall is the holder of 100% of the outstanding common stock of
Centro. Oscar Hernandez is the holder of 100% of the outstanding common stock of Hoy. Alfonso Gutierrez is the holder of 100% of the outstanding common stock of Quirinal. Avicola, Tenedora, Mavipel, Harenaz, CYS, Sarita, Adral, Centro, Hoy, ASEGSA,
Quirinal, Victor Oconitrillo, Henry Zamora, Rolando Cervantes, Jorge Torres, Mariangel Solera, Robert Aspinall, Oscar Hernandez and Alfonso Gutierrez are members of a group for purposes of Section 13(d) of the Exchange Act. Each of
Mavipel, Harenaz, CYS, Sarita, Adral, Centro, Hoy, ASEGSA, Quirinal, Victor Oconitrillo, Henry Zamora, Rolando Cervantes, Jorge Torres, Mariangel Solera, Robert Aspinall, Oscar Hernandez and Alfonso Gutierrez disclaims beneficial ownership of these
securities and this report shall not be deemed an admission that such Reporting Persons are the beneficial owners of the securities for purposes of Section 16 or for any other purposes.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes 45,794 shares held by Jorque, S.A., a closely-held Costa Rican company whose principal shareholders are the wife and sons of Mr. Jorge Quesada.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Mr. Smiths address is 40 Wall Street, 42nd floor, New York, NY 10005.
|--- | ----------------------------------------------------------------------



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|(7) | Mr. Vargas address is P.O. Box 1154-1000, San Jose, Costa Rica.
|--- | ----------------------------------------------------------------



|(8) | Mr. Lauredos principal business address is 1111 Brickell Avenue, Suite 2500, Miami, FL 33131.
|--- | ----------------------------------------------------------------------------------------------



|(9) | Mr. Peeples address is Wachovia Financial Center, 200 South Biscayne Blvd. Suite 4530, Miami, FL 33131.
|--- | --------------------------------------------------------------------------------------------------------



|(10) | Mr. Vidals address is P.O. Box 595-3100, Santo Domingo de Heredia, Costa Rica.
|---- | -------------------------------------------------------------------------------



Potential Change in Control



As indicated above, as security for the Purchase Loan, Avicola has pledged the 9,933,154 shares of Common Stock purchased in the Stock Sale to SBI pursuant to the terms
of the Stock Pledge Agreement. Pursuant to the Stock Pledge Agreement, Avicola has agreed that it shall not sell, assign or otherwise transfer any of the 9,933,154 shares of Common Stock to any person except to SBI.



The Stock Pledge Agreement contains certain ordinary default provisions. In addition, in the
event that, among other things, (i) Avicola or the Company defaults in any payment of principal or interest on any indebtedness, except the Purchase Loan, in excess of $250,000 beyond the grace period, if any or (ii) Avicola or the Company defaults
in the observance or performance of any other agreement or condition relating to any indebtedness, except the Purchase Loan, or any other event shall occur, the effect of which default or other event is to cause or permit the holders of such
indebtedness to cause such indebtedness to become due prior to its stated maturity, SBI can, among other things, take ownership of or sell any or all of the 9,933,154 shares.



|ITEM  13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|--------- |  | ----------------------------------------------



Related Party Guarantees



Since the Companys inception in 1969 and since 1991, Mr. Chaves and Mr. Quesada, respectively, have personally guaranteed the repayment of the various notes, loans
and credit facilities (the Credit Arrangements) of the Company and its various operating subsidiaries. As of September 30, 2003, an aggregate of $31,640,791 of the Companys Credit Arrangements were personally guaranteed by either
Mr. Chaves or Mr. Quesada, and Mr. Chaves and Mr. Quesada had personally guaranteed the repayment of $31,640,791 and $13,190,785 of Credit Arrangements, respectively. As noted above, the guarantees extended by Mr. Chaves and Mr. Quesada will remain
in place notwithstanding the Stock Sale. Mr. Chaves has entered into an agreement with the Company whereby he has agreed to indemnify the Company from and against any losses or damages caused by his failure within the next year to provide, if
requested, his personal guarantee with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of.



The Company agreed to compensate Mr. Chaves for the guarantee services described above in an amount equal to 1% per annum of the aggregate loan amount subject to his
personal guarantee (the Financial Service Fee). In satisfaction of the Financial Service Fee, the Company will, as of the end of each fiscal quarter, make a quarterly payment to Mr. Chaves in an amount equal to .25% of the daily average
aggregate loan balance subject to the personal guarantees (the Quarterly Payment). If, as of the end of the fiscal quarter, Mr. Chaves is indebted to the company, Mr. Chaves has the option in his sole discretion to either, (i) direct the
Company to use the quarterly payment to off-set the amount he owes the Company or (ii) receive the Quarterly Payment in cash. Mr. Quesada does not receive, nor has he ever received, any compensation for providing the guarantee services described
above.



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Loans to Related Parties



|Name              |  | September 30,2001 |           |     | September 30,2002 |   |           | September 30,2003 | 
|----------------- |  | ----------------- | --------- | --- | ----------------- | - | --------- | ----------------- | 
|Calixto Chaves    |  | $                 | 7,665,688 | (1) |                   | $ | 6,894,658 | (3)               | 
|Monica Chaves     |  | $                 | 133,645   |     |                   | $ | 0         |                   | 
|Maya Tiamx, S.A   |  | $                 | 30,523    | (2) |                   | $ | 30,626    | (2)               | 
|Jose Pablo Chaves |  | $                 | 61,596    |     |                   | $ | 0         |                   | 



|(1) | Includes $5,570,126, $431,938 and $903,427 owed to the Company by Ribera, Atisbos and O.C.C., Costa Rican companies owned by Mr. Chaves and his wife. The figure
provided also includes $213,551 owed to the Company by Avicola Core Etuba, Ltda. (Core), a Brazilian company of which the majority of outstanding shares are beneficially owned by Mr. Chaves.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Maya TIAMX, S.A., is a Costa Rican company owned by Mr. Jose Pablo Chaves.
|--- | --------------------------------------------------------------------------



|(3) | Consists of $5,495,438, $354,442, $793,707 and $251,072 owed to the Company by Ribera, Atisbos, O.C.C. and Core.
|--- | ----------------------------------------------------------------------------------------------------------------



|(4) | Consists of $5,490,329, $338,089, $792,865 and $255,186 owed to the Company by Ribera, Atisbos, O.C.C. and Core.
|--- | ----------------------------------------------------------------------------------------------------------------



At various times in the past, Mr. Chaves and companies controlled by him have borrowed money
from the Company. Since September 30, 2000, Mr. Chaves largest aggregate amount of indebtedness outstanding occurred at September 30, 2001. The loans made to Ribera, Atisbos and O.C.C., all Costa Rican companies owned by Mr. Calixto Chaves and
his wife, were evidenced by thirteen promissory notes payable on demand (the Loans), nine of which are denominated in U.S. dollars and accrue interest at the rate of 8%, and four of which are denominated in Costa Rican colones and which
accrue interest at rates ranging from 16% to 24%.



The amounts outstanding from
Core as of September 30, 2003, 2002 and 2001, include a promissory note of $128,628, bearing an interest rate of 11%, and other account receivables that originate mainly from expenses incurred in a due diligence process.



Mr. Chaves had provided collateral for the Loans by the subscription of a guarantee trust
contract for the benefit of Pipasa. The guarantee contract contained two assets, two farms, with an aggregate value of approximately $4 million, as estimated by real estate brokers as of May 2002.



On December 22, 2003, in connection with the Stock Sale, Mr. Chaves used approximately $6.9
million of the proceeds of the Stock Sale to satisfy his existing indebtedness to the Company. Accordingly, as of December 31, 2003, Mr. Chaves is not indebted to the Company and the Company has agreed to cancel the guarantee contract.



Since September 30, 2000, the largest aggregate amount of indebtedness outstanding for
both Mr. Jose Pablo Chaves and Ms. Monica Chaves occurred at September 30, 2001. The loans to Mr. Jose Pablo Chaves and Ms. Monica Chaves were evidenced by Notes, which bore interest at a rate of 10.5%.



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Loans from Related Parties



|Name           |  | September 30,2001 |        | September 30,2002 |   | September 30,2003
|-------------- |  | ----------------- | ------ | ----------------- | - | -----------------
|Calixto Chaves |  | $                 | 67,671 |                   | $ | 0                
|Monica Chaves  |  | $                 | 22,331 |                   | $ | 0                



The loans to the Company identified
above were principally generated in instances where, for the sake of convenience, expediency or efficiency, the lender advanced expenses for the benefit of the Company. The lenders were repaid but not remunerated for providing such services.



Litigation Settlement



Until December 2003, Pipasa was one of two defendants in a lawsuit brought in Costa Rica,
pursuant to which the plaintiff in such action was seeking damages in an amount equal to $3.6 million. The other defendant in the litigation was Aero Costa Rica, S.A. (Aero), a corporation that, prior to entering receivership, was wholly
owned by Mr. Chaves.



On December 29, 2003, Pipasa entered into a settlement
agreement (the Settlement Agreement) with Polaris pursuant to which Mr. Chaves will provide Polaris with a one-time payment in the amount of $1,950,000 (the Settlement Amount) in exchange for Polaris agreement to
dismiss any and all litigation instituted against Pipasa and release any and all claims which they have or may have against Pipasa in connection with the Litigation, except for any claim that may arise in connection with the Indemnification
Obligation (as defined below). Mr. Chaves has entered into an agreement with the Company pursuant to which he has acknowledged and agreed that his payment of the Settlement Amount is neither an equity investment in the Company nor a loan to the
Company. See Item 3 for further discussion.



Indemnification Agreement



In connection with the Stock Sale, the Chief Executive Officer entered
into an agreement (the Indemnification Agreement) with the Company whereby he has agreed to indemnify the Company from and against any losses or damages caused by his failure within the next year to provide, if requested, his personal
guarantee with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of. Pursuant to the Indemnification Agreement, the Chief Executive Officer has also agreed to indemnify the Company from and against
certain damages or losses that could directly or indirectly result from or in connection with the Stock Sale.



Future Acquisition Agreement



In
connection with the Stock Sale, Avicola entered into an agreement with the Company pursuant to which Avicola and its affiliates have agreed to refrain from purchasing any additional shares of the Companys Common Stock for a one-year period
from the date of the Stock Sale unless the per share price paid by Avicola or its affiliates for any additional shares is greater than or equal to the greater of (i) 100% of the purchase price paid for the shares purchased pursuant to the Stock Sale
or (ii) the lowest price per share identified by an investment bank as a fair price in a fairness opinion delivered to the Company.



Consulting Agreement



Pursuant to a Consulting Agreement dated as of June 1, 2003 between Grupo SAMA Consolidado, S.A., a Panamanian corporation (SAMA), and the Company (the Consulting Agreement), various employees
of



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##### Table of Contents

SAMA began providing the Company with financial and strategic advisory services with respect to a variety of different matters related to the restructuring
of the Companys indebtedness, including:



(i) negotiating
on behalf of the Company with respect to the prepayment of the PacLife indebtedness, including negotiating with Banco Internacional de Costa Rica (BICSA) to assist the Company to secure from BICSA an approximate $8.5 million loan
enabling the Company to prepay the PacLife indebtedness;



(ii)
negotiating with the Companys key suppliers of raw materials to assist the Company to maintain its existing lines of credit with such suppliers;



(iii) negotiating with many of the Companys creditors to assist the Company in restructuring certain of its existing credit lines; and



(iv) negotiating on behalf of the Company with respect to the settlement
of the litigation with Polaris. See Item 3 for further discussion of the settlement of the Polaris litigation.



Pursuant to the Consulting Agreement, which has a three year term, the Company has agreed to compensate SAMA for the above-described services in the
amount of up to $120,000 per month. Except for the payments made to SAMA pursuant to the Consulting Agreement, the Company believes that neither the Company nor any third party has made any payments to SAMA with respect to the financial and
strategic advisory services SAMA has provided to the Company.



Certain principals of SAMA, including Victor Oconitrillo, Pedro Dobles, Carlos Ceciliano, Alfonso Gutierrez, Eladio Villalta, Henry Zamora and Rolando Cervantes serve as executive officers and/or directors of the Companys
Subsidiaries. More specifically, Mr. Oconitrillo serves as President of each of the Subsidiaries, Mr. Dobles serves as Vice President of each of the Subsidiaries, Mr. Villalta serves as Treasurer of each of the Subsidiaries, Mr. Gutierrez serves as
Secretary of each of the Subsidiaries, and Mr. Ceciliano serves as the Controller of each of the Subsidiaries. Mr. Zamora and Mr. Cervantes each serve as a director for each of the Companys subsidiaries as do Mr. Oconitrillo, Mr. Dobles, Mr.
Ceciliano, Mr. Gutierrez and Mr. Villalta. In addition, each of Mr. Oconitrillo, Mr. Gutierrez, Mr. Zamora and Mr. Cervantes wholly own corporations which own shares in Tenedora, the sole shareholder of Avicola, which following the Stock Sale owns a
majority of the Companys Common Stock.



Severance Payments and Accrued
Vacation Benefits



As of September 2003 and 2002, the Chief Executive
Officer had accrued approximately $450,000 and $405,000 of severance benefits for serving as Chairman of the Board of the Companys subsidiaries, Pipasa and As de Oros as a result of his approximate over 30 years of employment with the
subsidiaries. During fiscal year 2002, the subsidiaries of the Company authorized the Chief Executive Officer to apply approximately $275,000 as an advanced payment with respect to his accrued severance benefits. In September 2003, the Chief
Executive Officer resigned as Chairman of the Board of the subsidiaries. In accordance with Costa Rican law, Mr. Chaves was entitled to receive his remaining accrued severance benefits and accordingly was authorized to apply approximately $175,000.
Approximately $425,000 of the severance benefits which Mr. Chaves was authorized to receive in 2002 and 2003 were used to satisfy interest expenses on outstanding loans owed to the subsidiaries by the Chief Executive Officer. The remaining $25,000
was set aside in a reserve account for the payment of Mr. Chaves future interest obligations and, as of December 31, 2003, had been used by the Company in its entirety towards interest payments owed on Mr. Chaves indebtedness during the
first quarter of fiscal 2004. No cash was disbursed or paid to the Chief Executive Officer in these transactions.



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##### Table of Contents

This has been presented as a non cash reconciling item on the accompanying consolidated statement of cash flows.



In addition, as of September, 2003, Mr. Chaves had accumulated approximately $168,906 of
accrued vacation benefits as a result of his employment with the subsidiaries. Pursuant to Costa Rican law, accrued vacation benefits must be paid upon an employees departure from the company. Following his resignation as Chairman of the Board
of the subsidiaries, the accrued vacation benefits which Mr. Chaves was authorized to receive were used to satisfy interest expenses on outstanding loans owed to the subsidiaries by the Chief Executive Officer. No cash was disbursed or paid to the
Chief Executive Officer in this transaction. This has been presented as a non cash reconciling item on the accompanying consolidated statement of cash flows.



As of September 2003, Monica Chaves, the Secretary of the Company and a member of the Board of Directors had accrued approximately $30,000 of severance benefits for
serving as Vice President of Administration of the Companys subsidiaries, Pipasa and As de Oros as a result of her approximate 4 years of employment with the subsidiaries. In September 2003, Ms. Chaves resigned as Vice President of
Administration of the subsidiaries. In accordance with Costa Rican law, Ms. Chaves is authorized to receive $30,000 in accrued severance benefits. However, as of September 30, 2003, these severance benefits had not yet been paid to Ms. Chaves and,
accordingly, were a liability of the Company.



Proposed Transaction



The Company is continuing to explore the development and/or acquisition
of strategic business opportunities that it perceives as complementary with its core business. For instance, in December 2000, the Company announced its intent to acquire a majority of the outstanding common stock of Avicola Core Etuba, Ltda.
(Core), a Brazilian company engaged in the production and distribution of poultry products, from the Companys Chief Executive Officer. In March 2001, the Company agreed to acquire a 75% stake of Core for $3.5 million, and an option
for the remaining 25% stake for $1.7 million. The Company is evaluating closely the performance of Core to determine if, when and how the Company should integrate its business with Core, and has postponed indefinitely its acquisition of Core.



On February 20, 2003, Port Ventures, S.A. (Port Ventures) and As
de Oros entered into a Stock Purchase Agreement pursuant to which As de Oros agreed to acquire from Port Ventures 2,040 shares of common stock of Logistica de Granos, S.A. (Logistica), representing 51% of the issued and outstanding
shares of capital stock of Logistica for a purchase price of US$2,580,000.



Port Ventures is the sole shareholder of Logistica and Port Ventures is directly owned and controlled by Jose Pablo Chaves Zamora (Mr. JP Chaves). Prior to the Stock Sale on December 22, 2003, Mr. JP Chaves was the indirect
holder of approximately 2.17% of the outstanding shares of the Company. Mr. JP Chaves is also the son of the Companys Chief Executive Officer, Mr. Calixto Chaves. Mr. JP Chaves does not hold any positions or titles with the Company or any of
its subsidiaries. Se Item 1 for further discussion of the potential acquisition of Logistica.



There can be no assurance that the Company will close the Core or Logistica transactions or any other transaction and there can be no assurance that the Companys acquisition efforts will prove to be beneficial
to the Company.



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##### Table of Contents

|ITEM  14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- |  | --------------------------------------



AUDIT FEES



Stonefield Josephson, Inc. (Stonefield) performed the audit of the Companys annual financial statements for the fiscal years ended September 30, 2002 and September 30, 2003. The aggregate fees billed
for professional services rendered by Stonefield for the audit of the Companys annual financial statements for the fiscal year ended September 30, 2002 and the estimated fees for the audit for the fiscal year ended September 30, 2003 areas
follows:



|Year |  | Audit Fees
|---- |  | ----------
|2003 |  | $         
|2002 |  | $         



Stonefield reviewed the Companys
financial statements included in the Companys Form 10-Qs during the fiscal year ended September 30, 2003. Arthur Andersen, LLP (Arthur Andersen) and Deloitte & Touch reviewed the Companys financial statements included in
three and one, respectively, of the Companys Form 10-Qs during the fiscal year ended September 30, 2002. The aggregate fees billed for professional services rendered by Stonefield for the review of such financial statements during the fiscal
year ended September 30, 2003 and by Arthur Andersen and Deloitte & Touche for the review of such financial statements during the fiscal year ended September 30, 2002 were as follows:



|2003              |  |   |       
|----------------- |  | - | ------
|Stonefield        |  |   |       
|Quarterly Reviews |  | $ | 34,925
|2002              |  |   |       
|Arthur Andersen   |  |   |       
|Quarterly Reviews |  | $ | 75,480
|Deloitte & Touche |  |   |       
|Quarterly Reviews |  | $ | 21,500



AUDIT RELATED FEES



No audit-related services were rendered by Stonefield in fiscal year 2002 or fiscal year
2003.



TAX FEES



The aggregate fees billed by Stonefield Josephson, the Companys principal accountant,
for professional services for tax compliance, tax advice and tax planning for the fiscal year ended September 30, 2003 and the estimated fees for the fiscal year ended September 30, 2003 are as follows:



|Year |  | Tax Fees
|---- |  | --------
|2003 |  | $       
|2002 |  | $       



ALL OTHER FEES



No other services were rendered by Stonefield in fiscal year 2002 or fiscal year 2003.



The Audit Committee has considered whether the provision of the non-audit
services listed as All Other Fees are compatible with maintaining the independence of the Companys independent auditors. Our Audit Committee has also pre-approved all services (audit and non-audit) to be provided to us by
Stonefield. All of the audit and non-audit services performed by Stonefield in the 2003 and 2002 fiscal years were pre-approved by our Audit Committee.



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##### Table of Contents

PART IV



|ITEM  15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|--------- |  | ---------------------------------------------------------------



(a)(1) Financial Statements



The financial statements incorporated by reference in Item 8 of this Form 10-K are included beginning on page F-1 as follows:



(A) Independent Auditors Report



(B) Consolidated Balance Sheets for September 30, 2003 and, 2002.



(C) Consolidated Statements of Income for the years ended September 30, 2003, 2002 and 2001.



(D) Consolidated Statements of Stockholders Equity for the years ended September 30, 2003, 2002 and 2001.



(E) Consolidated Statements of Cash Flows for the years ended September 30, 2003, 2002 and
2001.



(F) Notes to Consolidated Financial Statements for fiscal years 2003,
2002 and 2001.



(2) Financial Statement Schedules



All financial statement schedules have been omitted as the required information is
inapplicable or has been included in the Notes to Consolidated Financial Statements.



(b) The following is a list of Current Reports on Form 8-K filed during the fourth quarter of fiscal 2003:



The Company filed a Current Report on Form 8-K dated July 7, 2003 under Item 5 relating to the notification from the American Stock Exchange (the AMEX)
indicating the Company is no longer in compliance with certain listing standards and that the staff of the AMEX intends to file an application with Securities and Exchange Commission to strike the Companys common stock from listing and
registration on the AMEX.



The Company filed a Current Report on Form 8-K dated
August 28, 2003, under Item 5 relating to the receipt of a conditional waiver from Pacific Life Insurance (PacLife) Company with respect to the Companys breach during the fiscal quarter ending June 30, 2003, of certain negative
covenants.



The Company filed a Current Report on Form 8-K dated September 4,
2003, under Item 5, relating to the notification from AMEX, indicating that the Company had evidenced compliance with the applicable AMEX continued listing requirements based upon the Companys recent filings and that the Companys hearing
file had been closed



The Company filed a Current Report on Form 8-K dated
September 16, 2003, under Item 5 relating to the notification from AMEX, indicating the Company may not be in compliance with certain of the AMEXs listing requirements.



The Company filed a Current Report on Form 8-K dated September 29, 2003, under Item 5 relating to the repayment of PacLifes entire
amount of the Companys outstanding indebtedness to PacLife.



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##### Table of Contents

The Company filed a Current Report on Form 8-K dated October 9, 2003, under Item 5 indicating that the Company had
entered into a trust agreement pursuant to which it had restructured its debt obligations .



The Company filed a Current Report on Form 8-K/A dated October 9, 2003, under Item 5, which includes a copy of Trust Agreement translated from Spanish, dated September 22, 2003, relating to debt restructure.



The Company filed a Current Report on Form 8-K, dated December 23, 2003, under
Item 1 relating to the Change in Control following the Stock Sale.



(c)
Exhibits



The following exhibit is filed with this report.



|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|3.1         |  | Amended and Restated Articles of Incorporation of the Company (2)                                                                                                                                                                                              
|            | 
|3.2         |  | Amended and Restated Bylaws of the Company (1)                                                                                                                                                                                                                 
|            | 
|10.1        |  | Trust Agreement, dated September 22, 2003, by and between Corporacion Pipasa, S.A. and Corproacion As de Oros, S.A., as Trustors, Consultores Financieros Cofin S.A., as Trustee
and various of the Companys lenders (translated from Spanish), as amended (3)
|            | 
|14.1        |  | Code of Ethics*                                                                                                                                                                                                                                                
|            | 
|21          |  | Subsidiaries of registrant*                                                                                                                                                                                                                                    
|            | 
|31.1        |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                        
|            | 
|31.2        |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                        
|            | 
|32.1        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                        
|            | 
|32.2        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                        

---

|* | Filed herewith
|- | --------------



|1 | Incorporated by Reference to the Companys 10-KSB40, as filed with the Commission on October 13, 1995.
|- | ------------------------------------------------------------------------------------------------------



|2 | Incorporated by Reference to the Companys 10-K/A, as filed with the Commission on July 28, 2003.
|- | -------------------------------------------------------------------------------------------------



|3 | Incorporated by Reference to the Companys Form 8-K/A, as filed with the Commission on October 9, 2003.
|- | -------------------------------------------------------------------------------------------------------



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##### Table of Contents

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.
|---------------------- |  |  |  | ----------------
|                       |  |  | 
|DATE: January 13, 2004 |  |  |  | By :            
|                       |  |  |  |                 



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.



|                       |  | 
|---------------------- |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 
|                       |  | 
|DATE: January 13, 2004 |  | 
|                       |  | 



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INDEPENDENT AUDITORS
REPORT



To the Board of Directors and Stockholders of Rica Foods, Inc.



We have audited the consolidated balance sheets of Rica Foods, Inc. (a Nevada
corporation) and subsidiaries, as of September 30, 2003 and 2002 and the related consolidated statements of operations, stockholders equity and cash flows for the years ended September 30, 2003 and 2002. 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 audits in accordance with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated financial position of Rica Foods, Inc. and subsidiaries, as of September 30, 2003 and 2002, and the results of its consolidated operations and their consolidated cash flows
for the years ended September 30, 2003 and 2002, in conformity with accounting standards generally accepted in the United States of America.



Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II in Item 14 of Part IV herein is
presented for purposes of complying with the Securities and Exchange Commissions rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the
basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.



/s/    STONEFIELD JOSEPHSON,
INC.Stonefield Josephson, Inc. Santa Monica, California. December 29,
2003




F-1



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##### Table of Contents

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders of



RICA FOODS, INC.,



We have audited the accompanying consolidated balance sheets of RICA FOODS, INC. (a Nevada corporation) and subsidiaries as of September 30,
2001 and 2000, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RICA FOODS,
INC. and subsidiaries as of September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the
United States.



Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II listed in Item 14 of Part IV herein is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.



ARTHUR ANDERSEN



Mexico City, Mexico December 7, 2001, (except with respect to the matter discussed in Note
9, as to which the date is January 14, 2002).



This is a copy of the audit
report previously issued by Arthur Andersen in connection with Rica Foods, Inc. filing on Form 10-K for the year ended September 30, 2001. This audit report has not been reissued by Arthur Andersen in connection with this filing on Form 10-K.



F-2



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##### Table of Contents

RICA FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2003 and 2002



|                                           |  | 2003 |             |   | 2002 |  
|------------------------------------------ |  | ---- | ----------- | - | ---- | -
|Assets                                     |  |      |             |   |      |  
|Current assets:                            |  |      |             |   |      |  
|Cash and cash equivalents                  |  | $    | 3,343,255   |   |      | $
|Short-term investments                     |  |      | 2,469,301   |   |      |  
|Notes and accounts receivable              |  |      | 17,760,056  |   |      |  
|Due from related parties                   |  |      | 1,415,821   |   |      |  
|Inventories                                |  |      | 14,132,819  |   |      |  
|Deferred income taxes                      |  |      | 255,064     |   |      |  
|Prepaid expenses                           |  |      | 742,984     |   |      |  
|                                           |  |      |             |   |      |  
|Total current assets                       |  |      | 40,119,300  |   |      |  
|Property, plant and equipment              |  |      | 36,782,594  |   |      |  
|Long-term receivables-trade                |  |      | 627,831     |   |      |  
|Long-term investments                      |  |      | 3,784,470   |   |      |  
|Other assets                               |  |      | 7,782,744   |   |      |  
|Goodwill                                   |  |      | 1,555,828   |   |      |  
|                                           |  |      |             |   |      |  
|Total assets                               |  | $    | 90,652,767  |   |      | $
|                                           |  |      |             |   |      |  
|Liabilities and Stockholders Equity       |  |      |             |   |      |  
|Current liabilities:                       |  |      |             |   |      |  
|Accounts payable                           |  | $    | 17,195,317  |   |      | $
|Accrued expenses                           |  |      | 3,320,497   |   |      |  
|Notes payable                              |  |      | 36,547,238  |   |      |  
|Current portion of long-term debt          |  |      | 3,978,580   |   |      |  
|Due to stockholders                        |  |      | 51,872      |   |      |  
|                                           |  |      |             |   |      |  
|Total current liabilities                  |  |      | 61,093,504  |   |      |  
|Long-term debt, net of current portion     |  |      | 6,727,905   |   |      |  
|Deferred income taxes                      |  |      | 2,101,856   |   |      |  
|                                           |  |      |             |   |      |  
|Total liabilities                          |  |      | 69,923,265  |   |      |  
|Minority interest                          |  |      | 1,336,445   |   |      |  
|Commitments and contingencies (Note 17)    |  |      |             |   |      |  
|Stockholders equity:                      |  |      |             |   |      |  
|Common stock                               |  |      | 12,865      |   |      |  
|Preferred stock                            |  |      | 2,216,072   |   |      |  
|Additional paid-in capital                 |  |      | 25,800,940  |   |      |  
|Accumulated other comprehensive loss       |  |      | (15,586,903 | ) |      |  
|Retained earnings                          |  |      | 12,723,806  |   |      |  
|                                           |  |      |             |   |      |  
|                                           |  |      | 25,166,780  |   |      |  
|Less:                                      |  |      |             |   |      |  
|Due from stockholders                      |  |      | (5,490,329  | ) |      |  
|Treasury stock, at cost                    |  |      | (283,394    | ) |      |  
|                                           |  |      |             |   |      |  
|Total stockholders equity                 |  |      | 19,393,057  |   |      |  
|                                           |  |      |             |   |      |  
|Total liabilities and stockholders equity |  | $    | 90,652,767  |   |      | $
|                                           |  |      |             |   |      |  



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



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##### Table of Contents

RICA FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended September 30, 2003, 2002
and 2001



|                                                                             |  | 2003 |             |   | 2002 |   |             | 2001 | 
|---------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- | 
|Sales                                                                        |  | $    | 127,904,718 |   |      | $ | 130,665,439 |      | 
|Cost of sales                                                                |  |      | 91,453,513  |   |      |   | 87,487,065  |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Gross profit                                                                 |  |      | 36,451,205  |   |      |   | 43,178,374  |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Operating expenses:                                                          |  |      |             |   |      |   |             |      | 
|General and administrative                                                   |  |      | 12,856,723  |   |      |   | 14,054,980  |      | 
|Selling                                                                      |  |      | 19,094,306  |   |      |   | 19,215,331  |      | 
|Amortization of goodwill                                                     |  |      |            |   |      |   |            |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|                                                                             |  |      | 31,951,029  |   |      |   | 33,270,311  |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Income from operations                                                       |  |      | 4,500,176   |   |      |   | 9,908,063   |      | 
|Other expenses (income):                                                     |  |      |             |   |      |   |             |      | 
|Interest expense                                                             |  |      | 4,536,841   |   |      |   | 4,662,341   |      | 
|Interest income                                                              |  |      | (1,586,920  | ) |      |   | (1,501,963  | )    | 
|Foreign exchange loss, net                                                   |  |      | 2,978,590   |   |      |   | 3,298,051   |      | 
|Miscellaneous, net                                                           |  |      | (600,114    | ) |      |   | (730,610    | )    | 
|                                                                             |  |      |             |   |      |   |             |      | 
|                                                                             |  |      | 5,328,392   |   |      |   | 5,727,819   |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Income (loss) before income taxes, minority interest and extraordinary items |  |      | (828,221    | ) |      |   | 4,180,244   |      | 
|Extraordinary itemgain in insurance reimbursement                           |  |      | 304,760     |   |      |   |            |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Income (loss) before income taxes and minority interest                      |  |      | (523,461    | ) |      |   | 4,180,244   |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Income tax expense (benefit)                                                 |  |      | 206,475     |   |      |   | 1,041,596   |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Income (loss) before minority interest                                       |  |      | (729,936    | ) |      |   | 3,138,648   |      | 
|Minority interest                                                            |  |      | 68,975      |   |      |   | 75,959      |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Net income (loss)                                                            |  |      | (798,911    | ) |      |   | 3,062,689   |      | 
|Preferred stock dividends                                                    |  |      | 131,485     |   |      |   | 145,398     |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Net income (loss) applicable to common stockholders                          |  |      | (930,396    | ) |      | $ | 2,917,291   |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Basic earnings (losses) per share                                            |  | $    | (0.07       | ) |      | $ | 0.23        |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Diluted earnings (losses) per share                                          |  | $    | (0.07       | ) |      | $ | 0.23        |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Basic weighted average number of common shares outstanding                   |  |      | 12,811,469  |   |      |   | 12,811,469  |      | 
|                                                                             |  |      |             |   |      |   |             |      | 
|Diluted weighted average number of common shares outstanding                 |  |      | 12,811,469  |   |      |   | 12,811,469  |      | 
|                                                                             |  |      |             |   |      |   |             |      | 



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



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##### Table of Contents

RICA FOODS INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity Years ended September 30, 2003, 2002 and 2001



|                                                 |  | Common Stock |  | Treasury Stock |        |        | PreferredStock |        | AdditionalPaid-InCapital |         | Due fromStockholders |  |   | AccumulatedOtherComprehensive(Loss) |  |   | RetainedEarnings |  |    | TotalStockholdersEquity |   |  | ComprehensiveIncome for thePeriod |            
|------------------------------------------------ |  | ------------ |  | -------------- | ------ | ------ | -------------- | ------ | ------------------------ | ------- | -------------------- |  | - | ----------------------------------- |  | - | ---------------- |  | -- | ------------------------ | - |  | --------------------------------- | -----------
|                                                 |  | Shares       |  | Amount         |        | Shares |                | Amount |                          |         |                      |  |   |                                     |  |  
|Balance, September 30, 2000                      |  | 12,854,321   |  | $              | 12,855 |        | 47,752         |        | ($                       | 268,394 | )                    |  | $ | 2,216,072                           |  | $ | 25,760,950       |  | ($ | 4,900,499                | ) |  | ($                                | 8,758,737  
|Cash dividends on preferred stock of Pipasa      |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Interest and other amounts due from stockholders |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    | (1,355,590               | ) |  |                                   |           
|Issuance of common stock                         |  | 10,000       |  |                | 10     |        |               |        |                          |        |                      |  |   |                                    |  |   | 39,990           |  |    |                         |   |  |                                   |           
|Net income                                       |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Translation adjustment                           |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   | (866,298   
|Total comprehensive income                       |  |              |  |                |        |        |                |        |                          |         |                      |  |   |                                     |  |   |                  |  |    |                          |   |  |                                   |            
|Balance, September 30, 2001                      |  | 12,864,321   |  | $              | 12,865 |        | 47,752         |        | ($                       | 268,394 | )                    |  | $ | 2,216,072                           |  | $ | 25,800,940       |  | ($ | 6,256,089                | ) |  | ($                                | 9,625,035  
|Cash dividends on preferred stock of Pipasa      |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Payment received from stockholders               |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    | 760,652                  |   |  |                                   |           
|Repurchase of common stock                       |  |             |  |                |       |        | 5,100          |        |                          | (15,000 | )                    |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Net income                                       |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Translation adjustment                           |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   | (2,484,637 
|Derivative unrealized loss                       |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   | (96,989    
|Total comprehensive income                       |  |              |  |                |        |        |                |        |                          |         |                      |  |   |                                     |  |   |                  |  |    |                          |   |  |                                   |            
|Balance, September 30, 2002                      |  | 12,864,321   |  | $              | 12,865 |        | 52,852         |        | ($                       | 283,394 | )                    |  | $ | 2,216,072                           |  | $ | 25,800,940       |  | ($ | 5,495,437                | ) |  | ($                                | 12,206,661 
|Cash dividends on preferred stock of Pipasa      |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Exchange rate adjustment                         |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    | 5,108                    |   |  |                                   |           
|Net loss                                         |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Translation adjustment                           |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   | (3,265,419 
|Derivative unrealized loss                       |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   | (114,823   
|Total comprehensive loss                         |  |             |  |                |       |        |               |        |                          |        |                      |  |   |                                    |  |   |                 |  |    |                         |   |  |                                   |           
|Balance, September 30, 2003                      |  | 12,864,321   |  | $              | 12,865 |        | 52,852         |        | ($                       | 283,394 | )                    |  | $ | 2,216,072                           |  | $ | 25,800,940       |  | ($ | 5,490,329                | ) |  |                                   | (15,586,903



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



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##### Table of Contents

RICA FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended September 30, 2003, 2002 and 2001



|                                                                                         |  | 2003 |             |   | 2002 |   |             | 2001 | 
|---------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- | 
|Cash flows from operating activities:                                                    |  |      |             |   |      |   |             |      | 
|Net income (loss)                                                                        |  | $    | (798,911    | ) |      | $ | 3,062,689   |      | 
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |             |   |      |   |             |      | 
|Depreciation and amortization                                                            |  |      | 4,542,469   |   |      |   | 5,078,259   |      | 
|Production poultry                                                                       |  |      | 3,531,655   |   |      |   | 3,463,403   |      | 
|Uncollected sale of equipment                                                            |  |      | 63,588      |   |      |   | 365,072     |      | 
|Allowance for inventory obsolescence                                                     |  |      | 71,958      |   |      |   | 139,340     |      | 
|Amortization of goodwill                                                                 |  |      |            |   |      |   |            |      | 
|Derivative unrealized loss                                                               |  |      | (114,823    | ) |      |   | (96,989     | )    | 
|Gain on sale of productive assets                                                        |  |      | (44,825     | ) |      |   | (227,557    | )    | 
|Deferred income tax benefit                                                              |  |      | 108,483     |   |      |   | (78,471     | )    | 
|Provision for doubtful accounts                                                          |  |      | 308,765     |   |      |   | 449,598     |      | 
|Minority interest                                                                        |  |      | 68,975      |   |      |   | 75,959      |      | 
|Changes in operating assets and liabilities:                                             |  |      |             |   |      |   |             |      | 
|Notes and trade receivables                                                              |  |      | (2,133,231  | ) |      |   | (4,534,814  | )    | 
|Inventories                                                                              |  |      | (3,591,361  | ) |      |   | (4,910,227  | )    | 
|Prepaid expenses                                                                         |  |      | 180,809     |   |      |   | 211,142     |      | 
|Accounts payable                                                                         |  |      | (1,785,210  | ) |      |   | 4,530,138   |      | 
|Accrued expenses                                                                         |  |      | (240,011    | ) |      |   | (489,080    | )    | 
|Long-term receivables-trade                                                              |  |      | 195,046     |   |      |   | (378,872    | )    | 
|                                                                                         |  |      |             |   |      |   |             |      | 
|Net cash provided by operating activities                                                |  |      | 363,376     |   |      |   | 6,659,590   |      | 
|                                                                                         |  |      |             |   |      |   |             |      | 
|Cash flows from investing activities:                                                    |  |      |             |   |      |   |             |      | 
|Short-term investments                                                                   |  |      | 22,965      |   |      |   | (1,640,361  | )    | 
|Additions to property, plant and equipment                                               |  |      | (5,321,399  | ) |      |   | (4,996,703  | )    | 
|Increase in long-term investments                                                        |  |      | (79,998     | ) |      |   | (186,731    | )    | 
|Proceeds from sales/retirement of productive assets                                      |  |      | 1,074,094   |   |      |   | 4,145,084   |      | 
|Increase in other assets                                                                 |  |      | (2,519,252  | ) |      |   | (3,778,447  | )    | 
|                                                                                         |  |      |             |   |      |   |             |      | 
|Net cash used in investing activities                                                    |  |      | (6,823,590  | ) |      |   | (6,457,158  | )    | 
|                                                                                         |  |      |             |   |      |   |             |      | 
|Cash flows from financing activities:                                                    |  |      |             |   |      |   |             |      | 
|Preferred stock cash dividends                                                           |  |      | (200,459    | ) |      |   | (221,357    | )    | 
|Short-term financing:                                                                    |  |      |             |   |      |   |             |      | 
|New loans                                                                                |  |      | 41,013,389  |   |      |   | 26,507,366  |      | 
|Payments                                                                                 |  |      | (20,855,551 | ) |      |   | (27,664,430 | )    | 



(Continued on next page)



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##### Table of Contents

RICA FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended September 30, 2003, 2002 and 2001



(Continued)



|                                                                                                                      |  | 2003 |             |   | 2002 |   |             | 2001 | 
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- | 
|Long-term financing:                                                                                                  |  |      |             |   |      |   |             |      | 
|New loans                                                                                                             |  |      | 1,793,455   |   |      |   | 6,152,158   |      | 
|Payments                                                                                                              |  |      | (15,629,818 | ) |      |   | (10,101,843 | )    | 
|Deferred debt costs                                                                                                   |  |      | 121,001     |   |      |   | 22,043      |      | 
|Common stock issued                                                                                                   |  |      |            |   |      |   |            |      | 
|Treasury stock acquired                                                                                               |  |      |            |   |      |   | (15,000     | )    | 
|Due from stockholders and related party                                                                               |  |      | 51,872      |   |      |   | 913,203     |      | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 
|Net cash provided by (used in) financing activities                                                                   |  |      | 6,293,889   |   |      |   | (4,407,860  | )    | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 
|Effect of exchange rate changes on cash and cash equivalents                                                          |  |      | 781,287     |   |      |   | 2,012,951   |      | 
|Increase (decrease) in cash and cash equivalents                                                                      |  |      | 614,962     |   |      |   | (2,192,577  | )    | 
|Cash and cash equivalents at beginning of year                                                                        |  |      | 2,728,293   |   |      |   | 4,920,870   |      | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 
|Cash and cash equivalents at end of year                                                                              |  | $    | 3,343,255   |   |      | $ | 2,728,293   |      | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 
|Supplemental disclosures of cash flow information:                                                                    |  |      |             |   |      |   |             |      | 
|Cash paid during year for:                                                                                            |  |      |             |   |      |   |             |      | 
|Interest                                                                                                              |  | $    | 5,795,125   |   |      | $ | 4,911,103   |      | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 
|Income taxes                                                                                                          |  | $    | 650,524     |   |      | $ | 283,758     |      | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 
|Supplemental schedule of non-cash investing activities:                                                               |  |      |             |   |      |   |             |      | 
|Severance and Accrued Vacation Benefits for Chief Executive Officer and Vice President of Administration (see Note
3) |  | $    | 382,315     |   |      | $ | 275,411     |      | 
|                                                                                                                      |  |      |             |   |      |   |             |      | 



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



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Operations



Rica Foods, Inc. (the
Company), formerly Quantum Learning Systems, Inc., was incorporated under the laws of the State of Utah on February 6, 1986 and filed a public offering in 1987. In April 1994, the Company changed its state of incorporation from Utah to
Nevada. The Companys operations are largely conducted through its 100% owned subsidiaries, Corporacion Pipasa, S.A. and subsidiaries (Pipasa) and Corporacion As de Oros, S.A. and subsidiaries (As de Oros). The
Companys subsidiaries primary business is derived from the production and sale of broiler chickens, processed chicken, beef and pork by-products, commercial eggs, and premixed feed and concentrate for livestock and domestic animals. The
Companys subsidiaries own 91 urban and rural outlets throughout Costa Rica, three modern processing plants and four animal feed plants. As de Oros also owns and operates two chains of 28 quick service restaurants in Costa Rica called
Restaurantes As de Oros and Kokoroko. Pipasa and As de Oros export its products to all countries in Central America, Colombia, Dominican Republic and Hong Kong.



In April 1996, Pipasa, entered into an agreement and plan of reorganization with the Company, pursuant to which the Company acquired 59.56% of the common stock of
Pipasa in exchange for the issuance of 5,191,190 shares of the Companys common stock to the stockholders of Pipasa. On December 7, 1999, the Company consummated the acquisition of 40.44% remaining minority interest in exchange for a total of
3,683,595 shares of the Companys common stock valued at $4.7 per share (as of the date in which the purchase agreement was announced), resulting in an aggregate purchase price of $17,312,897. These acquisitions were accounted for as a reverse
acquisition, whereby Pipasa was treated as the accounting acquirer and the Company as the legal acquirer; therefore, first and second acquisitions are under common control. No goodwill resulted from these transactions.



On February 26, 1998, the Company consummated an agreement with Comercial Angui, S.A., a
Corporation in Costa Rica, to purchase 56.38% of the outstanding common stock of As de Oros for consideration consisting of a promissory note with a stated amount of $2.4 million due in January, 2000, and 815,686 shares of the Companys common
stock, having a then current market value of approximately $2.6 million. On November 22, 1999, the Company consummated the acquisition of the remaining 43.62% shares of common stock of As de Oros in exchange for a total of 1,670,921 shares of the
Companys common stock valued at $4.7 per share (as of the date in which the purchase agreement was announced), resulting in an aggregate purchase price of $7,853,328. The Company accounted for these acquisitions under the purchase method of
accounting and allocated $11.5 million of excess purchase price over book value to property, plant and equipment and $3.9 million to goodwill. These transactions did not involve common control.



The Companys references herein to fiscal years 2003, 2002 or 2001 encompass the years
ended September 30, 2003, 2002 and 2001, respectively.



Accounting
Principles



The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accounting records of the subsidiaries, Pipasa and As de Oros, which are maintained in Costa Rican colones and in accordance with
accounting principles generally accepted in Costa Rica, have been translated into U.S. dollars and converted into U.S. GAAP for consolidation purposes.



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Principles of Consolidation



The consolidated financial statements include the accounts of Rica Foods, Inc. and its subsidiaries, Pipasa and As de Oros. Subsidiaries of
Pipasa (Pipasa de El Salvador de C.V. and Pipasa de Honduras de C.V.) and As de Oros (Planeta Dorado, S.A. and Corasa Estudiantes, S.A.) have been included in the consolidated financial statements for
the Company.



All significant intercompany balances and transactions have been
eliminated in consolidation. For fiscal years prior to 2001, before adoption of SFAS 142, the Company used the straight-line method to amortize the excess of the purchase price over the fair market value of the net assets acquired over a period of
five years (See Change in Accounting Policies - Accounting for Goodwill).



Minority Interest



Minority Interest is comprised of Preferred
Shares of As de Oros, amounting to $1,336,445. Preferred cash dividends (see Note 9) distributed to As de Oros preferred share holders are treated as a reduction to income.



Reclassifications



Certain prior period balances have been reclassified to conform to the fiscal year 2003 presentation.



Use of Estimates in the Preparation of Financial Statements



The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of 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 valuation of inventories, estimated useful life, the possible outcome of litigations and the ultimate collection of customer receivables. Actual results in subsequent periods could differ from
managements estimates.



Foreign Currency Translation



Most of the Companys transactions take place in Costa Rica and are denominated in
local currency, the colon (cent). The exchange rate between the colon and the U.S. dollar is determined in a free exchange market, supervised by the Banco Central de Costa Rica. As of September 30, 2003, 2002 and 2001, commercial exchange rates were
(cent) 408.88, (cent) 369.12 and (cent) 334.58 per $1.00, respectively.



The
financial statements of Pipasa and As de Oros have been translated into U.S. dollars on the basis of the colon (cent) as the functional currency, as follows: assets and liabilities have been translated at the commercial exchange rates in effect on
the balance sheet dates; stockholders equity has been translated at historical exchange rates and income and expenses have been translated at average exchange rates in effect during the fiscal years. Foreign currency gains and losses resulting
from transactions denominated in foreign currencies, including intercompany gains and losses resulting from transactions, are included in the results of operations. The related translation adjustments for each fiscal year, along with the cumulative
amounts as of the balance sheets dates, are reflected in the accumulated other comprehensive loss section of the consolidated statements of stockholders equity.



F-9



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Cash, Cash Equivalents and Short-term Investments/Fair Value of Financial Instruments



The Company classifies as cash and cash equivalents all interest-bearing deposits with
original maturities of three months or less. The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.



As of September 30, 2003, Short-term investments were primarily comprised of
certificate of deposits in U.S. dollars, and are carried on the balance sheet at fair market value, which approximates cost. Certificates have a maturity from 6 to 12 months and bear interest at rates from 1.75% to 13.5%.



The carrying value of cash and cash equivalents, short-term investments, notes and accounts
receivable, due from related parties, accounts payable, notes payable and due to stockholders, are a reasonable estimate of their fair value due to the short-term nature of those instruments. The Company estimates that the carrying value of current
installments of long-term debt and long-term debt approximates fair value because interest rates are adjustable based on market interest rates.



Earnings per Share



Earnings per share is computed on the basis of the weighted average number of common shares outstanding according to SFAS No. 128, Earnings per Share (SFAS 128). SFAS 128 was intended to
simplify the earnings per share computations and make them more comparable from company to company. The Company has a simple capital structure and there was no dilutive effect for fiscal years ended September 30, 2003, 2002 and 2001.



Long-term Investments



Long-term investments are comprised of equity securities and trust accounts. Equity securities do not exceed 10% participation and are thus
recorded at their historical cost. Long-term investments are comprised of non-marketable equity and debt Securities from privately held companies. Although market value of the investments in equity securities is not readily determinable, management
assesses these investments for other-than-temporary impairment and believes that the fair value of these investments exceeds its carrying amount.



Futures Contracts



Futures and option contracts with original maturities of less than one year are used to hedge fluctuations in corn and soybean meal prices, which are considered to be a hedge against changes in the amount of future
cash flows related to commodities purchases. The Company does not enter into derivative transactions for speculative purposes. The Company accounts for its futures transactions in accordance with the Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The contracts that effectively meet risk reduction criteria according to Companys policy to determine effectiveness, is reported in Other
Comprehensive Income (Loss). No ineffectiveness was recognized on cash flow hedges during fiscal 2003 or 2002. The Company expects that losses in the amount of $174,537 recorded in other comprehensive loss as of September 30, 2003, related to cash
flow hedges, will be recognized into costs of production within the next 3 months. The ineffective portion of the contracts that do not meet risk reduction criteria are recognized in earnings immediately. The adoption of SFAS No. 133 effective
beginning in fiscal year 2001 did not have a material effect on the Companys financial position or results of operations. As of September 30, 2003, the Company has futures contracts in place to hedge purchases of commodities for $785,963, with
a fair value of $748,875. The Company generally does not hedge anticipated transactions beyond 6 months.



Inventories



Inventories are stated at
the lower of cost or market. Cost is determined using the weighted-average method, except for inventories in transit, which are valued at specific cost. Live poultry inventory represents chicks in grow-out stage, breeders and layer hens. Breeder and
layer hen costs are accumulated up to the production stage (approximately 20 weeks) and are amortized over the estimated production lives (approximately 65 weeks for breeder and approximately 80 weeks for layer hens) based on a percentage calculated
according to the estimated



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



production cycle of the hen, including a residual value. After approximately 43 days, chicks in grow-out stage are transferred to the processing plants.
Accumulated costs consist primarily of animal feed and labor costs. Production poultry represents the accumulated amortization of breeder and layer hens in their productive stage.



The Company contracts farmers for its grow-out process. These farmers have a long-term contract with the Company to raise the baby chicks to
adult birds. Ownership of the chickens is not transferred to the farmers, and all animal feed, medicine and other expenses incurred are accumulated as Live Poultry inventory. These farmers are paid according to the weight and quality of the chickens
produced, which is recorded as inventory.



Property, Plant and Equipment



Property, plant and equipment are stated at cost. Improvements to
property, plant and equipment that extend their useful lives are capitalized. Costs for maintenance, repairs and minor renewals are charged to expense when incurred.



Depreciation expense is recorded using the straight-line method over the following estimated useful lives: buildings and facilities-50
years; machinery and equipment from 5 to 20 years. Guidelines used to establish useful life of depreciable assets are primarily tax driven. The Company has reviewed these guidelines and has deemed them appropriate based on assessments made by
engineers and past experience, which are consistent with managements estimates of the useful lives. Land is recorded at cost and is not depreciated.



Costs of leasehold improvements on properties that are accounted for as operating leases are capitalized and amortized over the respective lease term using the
straight-line method. Net capitalized leasehold rights amounted to approximately $340,000 and $493,000 as of September 30, 2003 and 2002, respectively.



Applicable interest charges incurred during the construction of new facilities are capitalized as one of the cost elements and are amortized over the assets
estimated useful lives. Interest capitalized during fiscal years 2003 and 2002 was $11,950 and $187,600, respectively.



Impairment Charges



The Company assesses long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the undiscounted estimated future cash flows expected to
result from its use and eventual disposition. Impairments will be recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations. The Company did not recognize any impairment losses for the years
ended September 30, 2003, 2002 or 2001.



Software Development Costs



The Company capitalizes costs associated with software developed for
internal use. The Company accounts internally developed software according to Statement of Position 98-1 Software for Internal Use (SOP-98-1). Under the provisions of SOP 98-1, the Company capitalizes costs associated with
software developed for internal use when both the preliminary project stage is completed and management has authorized further funding for the project, which it deems probable of completion and use for the function intended. Capitalized costs
include direct costs of materials, services consumed in developing the software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project, and interest costs incurred
while developing the software. Capitalization of such costs ceases when the project is substantially



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



completed and ready for its intended use. The carrying value, net of amortization of software and development costs included in other assets in the
consolidated balance sheets amounting to $427,630 and $749,643 as of September 30, 2003 and 2002, respectively, is regularly reviewed by the Company to determine if an impairment loss should be recognized.



Capitalized internal software development costs are amortized using the straight-line method
over a period of five years, which totaled $262,096, $290,400 and $291,316 for the years ended September 30, 2003, 2002 and 2001, respectively.



Comprehensive Income



The Company reports comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income. Accumulated other comprehensive income includes the cumulative translation adjustment and
adjustments of commodity future contracts to fair value.



Deferral of Loan
Costs



The Company is deferring certain commitment fees and other direct
loan origination costs. These charges are being amortized over the contractual life of the related loans.



Advertising Costs



Advertising costs
are expensed as incurred. Advertising costs amounted to $831,000, $1,335,980 and $1,306,599 for the fiscal years ended September 30, 2003, 2002 and 2001, respectively. Advertising expenses are included in selling expenses in the accompanying
consolidated statements of income.



Income Taxes



The Company files a tax return in the United States, which does not include operations of
any of its subsidiaries. The Companys subsidiaries, As de Oros and Pipasa, file individual tax returns in Costa Rica. The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.



Change in Accounting Policies - Accounting for Goodwill



As of October 1, 2001, the Company early adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142). SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead tested for impairment at least annually and written down
with a charge to operations when the carrying amount exceeds the estimated fair value. The purchase of As de Oros resulted in recording goodwill of $3,937,676, which prior to the adoption of SFAS 142 the Company amortized such goodwill over a period
of five years. As of September 30, 2001, goodwill, net of amortization, amounted to $2,186,090. In connection with the transition provisions for adopting this standard, the Company performed a transitional impairment test using discounted cash flows
and found no impairment. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective October 1, 2001. The amount of goodwill is accounted for in colones, and the decrease from prior year is due to exchange rate
differences. Had the provisions of SFAS No. 142 been in effect during fiscal years 2001 and 2000, a reduction of



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



amortization expense and an increase in net income of $787,535 and $953,828 or an increase of $0.06 and $0.08 per share, respectively, would have been
recorded in those years.



Revenue Recognition



The Company recognizes revenue upon transfer of ownership of the product to the customer
which occurs when the product is physically received by the customer. Sales discounts are primarily recorded in the period in which the related sale is recognized. Returned products due to damaged products for which the Company assumes
responsibility are minimal and are recorded in the period in which they are received. Returned products amounted to $36,580, $28,900 and $63,430, respectively, for the fiscal years ended September 30, 2003, 2002 and 2001.



Employee Benefit Plan



The Company has a Stock Option Plan (the Plan), in which certain directors, officers, employees and entities that provide
services to the Company and its subsidiaries are participants. In October 1999, the Company granted to seventy-six (76) officers and employees 7,600 shares of the Companys common stock, which vested upon issuance. Officers and employees were
restricted from selling the shares granted and exercised for a period of one year. In addition, 7,600 options to purchase shares of common stock of the Company were issued on the same date to those same officers and employees, at an exercise price
of $6.00 which vested upon issuance and had to be exercised within a period of one year, after which the officers and employees are restricted from selling such shares of common stock for one additional year. Market price per share on the date of
the grant and issuance of the stock options was $11.40. As of September 30, 2000, 64 employees exercised their stock options, which totaled to 6,400 shares of common stock. All options under this plan expired on September 30, 2000 and no options
were outstanding as of September 30, 2003, 2002 or 2001.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Impact of Recently Issued Accounting Standards



In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which
amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on
reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions
are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company does not currently have any recorded stock based compensation expense, thus the adoption of SFAS 148 does not have
a material impact on its financial position or results of operations.



In
November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that the
guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantee. FIN 45 also requires additional disclosure requirements about the guarantors obligations under
certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are
effective for financial statement periods ending after December 15, 2002. The Company does not expect the adoption of FIN 45 will have a material impact on its financial position, results of operations or cash flows.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement amends Statement 133 for decisions made (1) as part of the Derivatives Implementation Group process
that effectively required amendments to Statement 133, (2) in connection with other Board projects dealing with financial instruments, and (3) in connection with implementation issues raised in relation to the application of the definition of a
derivative, in particular, the meaning of an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors, the meaning of underlying, and
the characteristics of a derivative that contains financing components. The Company does not anticipate that the adoption of this pronouncement will have a material effect on the financial statements.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of
liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining provisions of this Statement are consistent with the Boards proposal to revise that definition to encompass certain obligations that a reporting
entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. While the Board still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment until it has concluded its deliberations on the next phase of this project. That next phase will deal with certain compound financial instruments including puttable shares, convertible bonds, and
dual-indexed financial instruments. The Company does not anticipate that the adoption of this pronouncement will have a material effect on the financial statements.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation 46 changes
the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or entitled to receive a majority of the entitys residual returns or both. A company that consolidates a variable interest
entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. During
October 2003, the FASB issued Staff Position No. FIN 46 deferring the effective date for applying the provisions of FIN 46 until the end of the first interim or annual period ending after December 31, 2003, if the variable interest was created prior
to February 1, 2003, and the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46. The FASB also indicated it would be issuing a modification to FIN 46 prior to the end of 2003.
Accordingly, the Company has deferred the adoption of FIN 46 with respect to variable interest entities created prior to February 1, 2003. Management is currently assessing the impact, if any, FIN 46 may have on the Company; however, management does
not believe there will be any material impact on its financial statements, results of operations or liquidity resulting from the adoption of this interpretation.



2. NOTES AND ACCOUNTS RECEIVABLE AND LONG-TERM RECEIVABLES-TRADE



Notes and accounts receivable consist of the following:



|                                             |  | 2003 |            |   | 2002 |  
|-------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Accounts:                                    |  |      |            |   |      |  
|Trade receivables                            |  | $    | 12,298,516 |   |      | $
|Other receivables                            |  |      | 4,153,859  |   |      |  
|                                             |  |      |            |   |      |  
|                                             |  |      | 16,434,375 |   |      |  
|Less: Allowance for doubtful accounts        |  |      | (492,061   | ) |      |  
|                                             |  |      |            |   |      |  
|                                             |  |      | 15,942,314 |   |      |  
|Add: Short-term notes-trade                  |  |      | 1,817,742  |   |      |  
|                                             |  |      |            |   |      |  
|Total short term notes and trade receivables |  | $    | 17,760,056 |   |      | $
|                                             |  |      |            |   |      |  



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Short-term notes as of September 30, 2003, trade bear market interest rates that range from 8% to 11.50% in U.S.
dollars (From 8% to 10.5% in U.S. dollars and 24% in Colones as of September 30, 2002).



Other accounts receivables include amount dues from Industrias Avicolas Integradas, S.A. (Indavinsa) amounting to $2,500,084 and $1,004,354 as of September 30, 2003 and 2002 respectively. Short-term notes include promissory
notes from Indavinsa amounting to $1,201,000 and $1,201,000 as of September 30, 2003 and 2002, respectively, which bear market interest rates that range from 6% to 11.5%. As of September 30, 2003 and 2002, Trade receivables include amounts due from
Indavinsa amounting to $2,254,643 and $926,689 respectively. The Company regularly enters into commercial transactions with Indavinsa, whereby it sells companys products such as pet food and live chickens. The Company has also sold used
poultry equipment to Indavinsa. During December 2003, the Company collected from Indavinsa $2.5 million.



The Company maintains an allowance for doubtful accounts receivable upon the expected collectibility of receivables. For the years ended September 30, 2003 and 2002, the Company recorded a write-off of doubtful
receivables amounting to approximately $312,380 and $375,000, respectively.



Long-term receivables consist of the following:



|                            |  | 2003 |         | 2002
|--------------------------- |  | ---- | ------- | ----
|Accounts:                   |  |      |         |     
|Trade receivables           |  | $    | 238,289 |     
|Other                       |  |      | 389,542 |     
|                            |  |      |         |     
|Total long-term receivables |  | $    | 627,831 |     
|                            |  |      |         |     



Long-term trade receivables consist of
promissory notes that bear interest rates of 34% in colones and 8% in U.S. dollars. Other long-term receivables originate from credit to customers and a receivable from a trust fund.



3. BALANCES AND TRANSACTIONS WITH STOCKHOLDERS AND RELATED PARTIES



Related Party Guarantees



Since the Companys inception in 1969 and since 1991, Mr. Chaves and Mr. Quesada, respectively, have personally guaranteed the repayment of the various notes, loans
and credit facilities (the Credit Arrangements) of the Company and its various operating subsidiaries. As of September 30, 2003, an aggregate of $31,640,791 of the Companys Credit Arrangements were personally guaranteed by either
Mr. Chaves or Mr. Quesada, and Mr. Chaves and Mr. Quesada had personally guaranteed the repayment of $31,640,791 and $13,190,785 of Credit Arrangements, respectively. As noted above, the guarantees extended by Mr. Chaves and Mr. Quesada will remain
in place notwithstanding the Stock Sale. Mr. Chaves has entered into an agreement with the Company whereby he has agreed to indemnify the Company from and against any losses or damages caused by his failure within the next year to provide, if
requested, his personal guarantee with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of.



The Company agreed to compensate Mr. Chaves for the guarantee services described above in an amount equal to 1% per annum of the aggregate loan amount subject to his
personal guarantee (the Financial Service Fee). In satisfaction of the Financial Service Fee, the Company will, as of the end of each fiscal quarter, make a quarterly payment to Mr. Chaves in an amount equal to .25% of the daily average
aggregate loan balance subject to the personal guarantees (the Quarterly Payment). If, as of the end of the fiscal



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



quarter, Mr. Chaves is indebted to the company, Mr. Chaves has the option in his sole discretion to either, (i) direct the Company to use the quarterly
payment to off-set the amount he owes the Company or (ii) receive the Quarterly Payment in cash. Mr. Quesada does not receive, nor has he ever received, any compensation for providing the guarantee services described above.



Loans to Related Parties



|Name              |  | September 30,2001 |           |     | September 30,2002 |   |           | September 30,2003 | 
|----------------- |  | ----------------- | --------- | --- | ----------------- | - | --------- | ----------------- | 
|Calixto Chaves    |  | $                 | 7,665,688 | (1) |                   | $ | 6,894,658 | (3)               | 
|Monica Chaves     |  | $                 | 133,645   |     |                   | $ | 0         |                   | 
|Maya Tiamx, S.A   |  | $                 | 30,523    | (2) |                   | $ | 30,626    | (2)               | 
|Jose Pablo Chaves |  | $                 | 61,596    |     |                   | $ | 0         |                   | 



|(1) | Includes $5,570,126, $431,938 and $903,427 owed to the Company by Ribera, Atisbos and O.C.C.,
Costa Rican companies owned by Mr. Chaves and his wife. The figure provided also includes $213,551 owed to the Company by Avicola Core Etuba, Ltda. (Core), a Brazilian company of which the majority of outstanding shares are beneficially
owned by Mr. Chaves.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Maya TIAMX, S.A., is a Costa Rican company owned by Mr. Jose Pablo Chaves.
|--- | --------------------------------------------------------------------------



|(3) | Consists of $5,495,438, $354,442, $793,707 and $251,072 owed to the Company by Ribera,
Atisbos, O.C.C. and Core.
|--- | ----------------------------------------------------------------------------------------------------------------



|(4) | Consists of $5,490,329, $338,089, $792,865 and $255,186 owed to the Company by Ribera,
Atisbos, O.C.C. and Core.
|--- | ----------------------------------------------------------------------------------------------------------------



At various times in the past, Mr.
Chaves and companies controlled by him have borrowed money from the Company. Since September 30, 2000, Mr. Chaves largest aggregate amount of indebtedness outstanding occurred at September 30, 2001. The loans made to Ribera, Atisbos and
O.C.C., all Costa Rican companies owned by Mr. Calixto Chaves and his wife, were evidenced by thirteen promissory notes payable on demand (the Loans), nine of which are denominated in U.S. dollars and accrue interest at the rate of 8%,
and four of which are denominated in Costa Rican colones and which accrue interest at rates ranging from 16% to 24%.



The amounts outstanding from Core as of September 30, 2003, 2002 and 2001, include a promissory note of $128,628, bearing an interest rate of 11%, and other account
receivables that originate mainly from expenses incurred in a due diligence process.



Mr. Chaves had provided collateral for the Loans by the subscription of a guarantee trust contract for the benefit of Pipasa. The guarantee contract contained two assets, two farms, with an aggregate value of approximately $4 million, as
estimated by real estate brokers as of May 2002.



On December 22, 2003, in
connection with the Stock Sale, Mr. Chaves used approximately $6.9 million of the proceeds of the Stock Sale to satisfy his existing indebtedness to the Company. Accordingly, as of December 31, 2003, Mr. Chaves is not indebted to the Company and the
Company has agreed to the guarantee contract.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Since September 30, 2000, the largest aggregate amount of indebtedness outstanding for both Mr. Jose Pablo Chaves and
Ms. Monica Chaves occurred at September 30, 2001. The loans to Mr. Jose Pablo Chaves and Ms. Monica Chaves were evidenced by Notes, which bore interest at a rate of 10.5%.



Loans from Related Parties



|Name           |  | September 30,2001 |        | September 30,2002 |   | September 30,2003
|-------------- |  | ----------------- | ------ | ----------------- | - | -----------------
|Calixto Chaves |  | $                 | 67,671 |                   | $ | 0                
|Monica Chaves  |  | $                 | 22,331 |                   | $ | 0                



The loans to the Company identified
above were principally generated in instances where, for the sake of convenience, expediency or efficiency, the lender advanced expenses for the benefit of the Company. The lenders were repaid but not remunerated for providing such services.



Litigation Settlement



Until December 2003, Pipasa was one of two defendants in a lawsuit brought in Costa Rica,
pursuant to which the plaintiff in such action was seeking damages in an amount equal to $3.6 million. The other defendant in the litigation was Aero Costa Rica, S.A. (Aero), a corporation that, prior to entering receivership, was wholly
owned by Mr. Chaves.



On December 29, 2003, Pipasa entered into a settlement
agreement (the Settlement Agreement) with Polaris pursuant to which Mr. Chaves will provide Polaris with a one-time payment in the amount of $1,950,000 (the Settlement Amount) in exchange for Polaris agreement to
dismiss any and all litigation instituted against Pipasa and release any and all claims which they have or may have against Pipasa in connection with the Litigation, except for any claim that may arise in connection with the Indemnification
Obligation (as defined below). Mr. Chaves has entered into an agreement with the Company pursuant to which he has acknowledged and agreed that his payment of the Settlement Amount is neither an equity investment in the Company nor a loan to the
Company. See Item 3 for further discussion.



Indemnification Agreement



In connection with the Stock Sale, the Chief Executive Officer entered
into an agreement (the Indemnification Agreement) with the Company whereby he has agreed to indemnify the Company from and against any losses or damages caused by his failure within the next year to provide, if requested, his personal
guarantee with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of. Pursuant to the Indemnification Agreement, the Chief Executive Officer has also agreed to indemnify the Company from and against
certain damages or losses that could directly or indirectly result from or in connection with the Stock Sale.



Future Acquisition Agreement



In
connection with the Stock Sale, Avicola entered into an agreement with the Company pursuant to which Avicola and its affiliates have agreed to refrain from purchasing any additional shares of the Companys Common Stock for a one-year period
from the date of the Stock Sale unless the per share price paid by Avicola or its affiliates for any additional shares is greater than or equal to the greater of (i) 100% of the



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



purchase price paid for the shares purchased pursuant to the Stock Sale or (ii) the lowest price per share identified by an investment bank as a fair price
in a fairness opinion delivered to the Company.



Consulting Agreement



Pursuant to a Consulting Agreement dated as of June 1, 2003 between Grupo
SAMA Consolidado, S.A., a Panamanian corporation (SAMA), and the Company (the Consulting Agreement), various employees of SAMA began providing the Company with financial and strategic advisory services with respect to a
variety of different matters related to the restructuring of the Companys indebtedness, including:



(i) negotiating on behalf of the Company with respect to the prepayment of the PacLife indebtedness, including negotiating with Banco Internacional de
Costa Rica (BICSA) to assist the Company to secure from BICSA an approximate $8.5 million loan enabling the Company to prepay the PacLife indebtedness;



(ii) negotiating with the Companys key suppliers of raw materials to assist the Company to maintain its existing lines
of credit with such suppliers;



(iii) negotiating with many of
the Companys creditors to assist the Company in restructuring certain of its existing credit lines; and



(iv) negotiating on behalf of the Company with respect to the settlement of the litigation with Polaris. See Item 3 for further discussion of the
settlement of the Polaris litigation.



Pursuant to the
Consulting Agreement, which has a three year term, the Company has agreed to compensate SAMA for the above-described services in the amount of up to $120,000 per month. Except for the payments made to SAMA pursuant to the Consulting Agreement, the
Company believes that neither the Company nor any third party has made any payments to SAMA with respect to the financial and strategic advisory services SAMA has provided to the Company.



Certain principals of SAMA, including Victor Oconitrillo, Pedro Dobles, Carlos Ceciliano, Alfonso Gutierrez, Eladio
Villalta, Henry Zamora and Rolando Cervantes serve as executive officers and/or directors of the Companys Subsidiaries. More specifically, Mr. Oconitrillo serves as President of each of the Subsidiaries, Mr. Dobles serves as Vice President of
each of the Subsidiaries, Mr. Villalta serves as Treasurer of each of the Subsidiaries, Mr. Gutierrez serves as Secretary of each of the Subsidiaries, and Mr. Ceciliano serves as the Controller of each of the Subsidiaries. Mr. Zamora and Mr.
Cervantes each serve as a director for each of the Companys subsidiaries as do Mr. Oconitrillo, Mr. Dobles, Mr. Ceciliano, Mr. Gutierrez and Mr. Villalta. In addition, each of Mr. Oconitrillo, Mr. Gutierrez, Mr. Zamora and Mr. Cervantes wholly
own corporations which own shares in Tenedora, the sole shareholder of Avicola, which following the Stock Sale owns a majority of the Companys Common Stock.



Severance Payments and Accrued Vacation Benefits



As of September 2003 and 2002, the Chief Executive Officer had accrued approximately $450,000 and $405,000 of severance benefits for serving
as Chairman of the Board of the Companys subsidiaries, Pipasa and As de Oros as a result of his approximate over 30 years of employment with the subsidiaries. During fiscal year 2002, the subsidiaries of the Company authorized the Chief
Executive Officer to apply approximately $275,000 as an advanced payment with respect to his accrued severance benefits. In September 2003, the Chief



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Executive Officer resigned as Chairman of the Board of the subsidiaries. In accordance with Costa Rican law, Mr. Chaves was entitled to receive his remaining
accrued severance benefits and accordingly was authorized to apply approximately $175,000. Approximately $425,000 of the severance benefits which Mr. Chaves was authorized to receive in 2002 and 2003 were used to satisfy interest expenses on
outstanding loans owed to the subsidiaries by the Chief Executive Officer. The remaining $25,000 was set aside in a reserve account for the payment of Mr. Chaves future interest obligations and, as of December 31, 2003, had been used by the
Company in its entirety towards interest payments owed on Mr. Chaves indebtedness during the first quarter of fiscal 2004. No cash was disbursed or paid to the Chief Executive Officer in these transactions. This has been presented as a non
cash reconciling item on the accompanying consolidated statement of cash flows.



In addition, as of September, 2003, Mr. Chaves had accumulated approximately $168,906 of accrued vacation benefits as a result of his employment with the subsidiaries. Pursuant to Costa Rican law, accrued vacation benefits must be paid upon
an employees departure from the company. Following his resignation as Chairman of the Board of the subsidiaries, the accrued vacation benefits which Mr. Chaves was authorized to receive were used to satisfy interest expenses on outstanding
loans owed to the subsidiaries by the Chief Executive Officer. No cash was disbursed or paid to the Chief Executive Officer in this transaction. This has been presented as a non cash reconciling item on the accompanying consolidated statement of
cash flows.



As of September 2003, Monica Chaves, the Secretary of the Company
and a member of the Board of Directors had accrued approximately $30,000 of severance benefits for serving as Vice President of Administration of the Companys subsidiaries, Pipasa and As de Oros as a result of her approximate 4 years of
employment with the subsidiaries. In September 2003, Ms. Chaves resigned as Vice President of Administration of the subsidiaries. In accordance with Costa Rican law, Ms. Chaves is authorized to receive $30,000 in accrued severance benefits. However,
as of September 30, 2003, these severance benefits had not yet been paid to Ms. Chaves and, accordingly, were a liability of the Company.



Proposed Transaction



The Company is continuing to explore the development and/or acquisition of strategic business opportunities that it perceives as complementary with its core business. For instance, in December 2000, the Company
announced its intent to acquire a majority of the outstanding common stock of Avicola Core Etuba, Ltda. (Core), a Brazilian company engaged in the production and distribution of poultry products, from the Companys Chief Executive
Officer. In March 2001, the Company agreed to acquire a 75% stake of Core for $3.5 million, and an option for the remaining 25% stake for $1.7 million. The Company is evaluating closely the performance of Core to determine if, when and how the
Company should integrate its business with Core, and has postponed indefinitely its acquisition of Core.



On February 20, 2003, Port Ventures, S.A. (Port Ventures) and As de Oros entered into a Stock Purchase Agreement pursuant to which As de Oros agreed to acquire from Port Ventures 2,040 shares of common
stock of Logistica de Granos, S.A. (Logistica), representing 51% of the issued and outstanding shares of capital stock of Logistica for a purchase price of US$2,580,000.



Port Ventures is the sole shareholder of Logistica and Port Ventures is directly owned and controlled by Jose Pablo Chaves Zamora (Mr.
JP Chaves). Prior to the Stock Sale on December 22, 2003, Mr. JP Chaves was the indirect holder of approximately 2.17% of the outstanding shares of the Company. Mr. JP Chaves is also the son of the Companys Chief Executive Officer, Mr.
Calixto Chaves. Mr. JP Chaves does



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



not hold any positions or titles with the Company or any of its subsidiaries. See Note 14 for further discussion of the potential acquisition of Logistica.



There can be no assurance that the Company will close the Core or Logistica
transactions or any other transaction and there can be no assurance that the Companys acquisition efforts will prove to be beneficial to the Company.



4. INVENTORIES



Inventories consist of the following:



|                           |  | 2003 |            | 2002
|-------------------------- |  | ---- | ---------- | ----
|Finished products          |  | $    | 4,022,884  |     
|In-process                 |  |      | 2,257,042  |     
|Live poultry - net         |  |      | 3,101,915  |     
|Materials and supplies-net |  |      | 1,653,093  |     
|Raw materials              |  |      | 2,732,675  |     
|In-transit                 |  |      | 365,210    |     
|                           |  |      |            |     
|                           |  | $    | 14,132,819 |     
|                           |  |      |            |     



Amortization of Live Poultry amounted
to $1,511,798 in 2002 and $1,396,406 in 2001. Production poultry amortization amounted to $3,531,655, $3,463,403 and $3,262,770 for fiscal years 2003, 2002 and 2001, respectively, and are recorded as cost of sales.



5. PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment is summarized as follows:



|                               |  | 2003 |             |   | 2002 |  
|------------------------------ |  | ---- | ----------- | - | ---- | -
|Land                           |  | $    | 8,407,387   |   |      | $
|Buildings and facilities       |  |      | 14,879,106  |   |      |  
|Machinery and equipment        |  |      | 29,486,703  |   |      |  
|Machinery in-transit           |  |      | 93,502      |   |      |  
|Construction in-process        |  |      | 46,628      |   |      |  
|                               |  |      |             |   |      |  
|                               |  |      | 52,913,326  |   |      |  
|Less: Accumulated depreciation |  |      | (16,130,732 | ) |      |  
|                               |  |      |             |   |      |  
|                               |  | $    | 36,782,594  |   |      | $
|                               |  |      |             |   |      |  



Depreciation expense for the years
ended September 30, 2003, 2002 and 2001 amounted to $3,950,700, $4,353,948 and $3,769,728, respectively.



Applicable interest charges incurred during the construction of new facilities are capitalized as one of the cost elements and are amortized over the assets estimated useful lives. Interest capitalized during
fiscal years 2003 and 2002 were $11,900 and $187,600, respectively.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



6. LONG-TERM INVESTMENTS



Long-term investments, which are carried at cost, consist of the following:



|                                              |  | 2003 |           | 2002
|--------------------------------------------- |  | ---- | --------- | ----
|Grupo Industrias Oleaginosas S.A. (INOLASA) |  | $    | 2,542,372 |     
|La Condesa, S.A.                              |  |      | 489,141   |     
|Investment trusts                             |  |      | 741,610   |     
|Other (less than 50% ownership)               |  |      | 11,347    |     
|                                              |  |      |           |     
|                                              |  | $    | 3,784,470 |     
|                                              |  |      |           |     



Short-term investments are comprised
primarily of certificates of deposits in U.S. Dollars that are due from 6 to 12 months, and bear interest rates from 1.75% to 13.5%.



INOLASA is the only supplier of soybean meal in Costa Rica. The Company has a 10% ownership interest in INOLASA, which is accounted for under the cost method and
dividends are recorded in income when they are declared. During the years ended September 30, 2003 and 2002, the Company received cash dividends from INOLASA amounting to approximately $450,000 and $392,000, respectively. These dividends are
included in miscellaneous income, net in the accompanying consolidated statements of operations.



During 1998, the Company acquired 200,000,000 preferred shares of La Condesa, S.A., a corporation in Costa Rica engaged in the hotel business. Such shares do not provide an ownership interest to the Company.



Investment trusts are carried at market value and bear interest rates that
range from 1.80% to 15.46% in U.S. Dollars and comprise debt investments from the public and private sector of the Costa Rican market. The Company is continually reinvests in these funds.



7. OTHER ASSETS



Other assets consist of the following:



|                                              |  | 2003 |            |   | 2002 |  
|--------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Guarantee deposits                            |  | $    | 172,583    |   |      | $
|Self insurance trust (see Note 17)            |  |      | 278,586    |   |      |  
|Real estate held for development, at cost     |  |      | 3,774,970  |   |      |  
|Logistica de Granos, S.A.                     |  |      | 1,317,050  |   |      |  
|Software                                      |  |      | 1,716,442  |   |      |  
|Reforestry lands                              |  |      | 594,855    |   |      |  
|Trademarks                                    |  |      | 477,634    |   |      |  
|Other                                         |  |      | 482,766    |   |      |  
|                                              |  |      |            |   |      |  
|                                              |  |      | 8,814,886  |   |      |  
|                                              |  |      |            |   |      |  
|Accumulated amortization of intangible assets |  |      | (1,032,142 | ) |      |  
|                                              |  |      |            |   |      |  
|                                              |  | $    | 7,782,744  |   |      | $
|                                              |  |      |            |   |      |  



Reforestation projects are in
developing stage, and as such, all expenses incurred related to maintenance of the project are capitalized until the developing stage is completed in accordance with Companys policy of capitalizing overhead costs incurred during construction
period for property, plant and equipment and other long-lived assets. Capitalized amounts approximate $55,000 per year.



Capitalized software is comprised of internally developed software and purchased software which is ready for service. Real estate held for future development mainly
consist of land, located in urban and rural areas which can either



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



be used for chicken farms, distribution warehouses and for production facilities. These are recorded at cost of acquisition which is lower than its fair
market value as determined by independent appraisals.



Trademarks are related
to the purchase of the Zaragoza by-product brand name. The Company accounts for Trademarks in accordance with SFAS 142, and accordingly is tested for impairment annually. No impairment was recorded for fiscal year 2003 or 2002.



During fiscal year 2003, the Company paid approximately $1.43 million to Port
Ventures, S.A. as part of an agreed upon purchase price for 51% of outstanding shares of Logistica de Granos, S.A. (Logistica) Logistica will have a 19% participation in a project in Costa Rica, to refurbish and operate the major seaport
in the Pacific Ocean. See Note 14 under Acquisitions and Disposal of Assets for further discussion.



8. NOTES PAYABLE AND LONG-TERM DEBT:



Notes Payables consist of the following:



|                                  |  | 2003 |            |   | 2002 |  
|--------------------------------- |  | ---- | ---------- | - | ---- | -
|Loans payable in U.S. Dollars     |  | $    | 36,436,852 |   |      | $
|Loans payable in Colones          |  |      | 140,652    |   |      |  
|Less deferred debt issuance costs |  |      | (30,266    | ) |      |  
|                                  |  |      |            |   |      |  
|                                  |  | $    | 36,547,238 |   |      | $
|                                  |  |      |            |   |      |  



The Companys notes payable
primarily originate from lines of credit and bank commitments and are mainly utilized to support operations of the Company. As of September 30, 2003, $30.2 million of the notes payable were secured by the Trust. Notes payable are generally due from
October 2003 through May 2004 and bear annual interest rates ranging from 3.62% to 9.50% in dollars and from 16.73% to 24.0% in colones.



Long-term debt consists of the following:



|                                              |  | 2003 |            |   | 2002 |  
|--------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Series A Senior Notes                         |  | $    |           |   |      | $
|Series B Senior Notes                         |  |      |           |   |      |  
|Bank loans denominated in U.S. dollars        |  |      | 10,560,639 |   |      |  
|Bank loans denominated in Costa Rican colones |  |      | 188,443    |   |      |  
|Less: Deferred debt issuance costs            |  |      | (42,597    | ) |      |  
|                                              |  |      |            |   |      |  
|                                              |  |      | 10,706,485 |   |      |  
|Less: Current portion                         |  |      | 3,978,580  |   |      |  
|                                              |  |      |            |   |      |  
|                                              |  | $    | 6,727,905  |   |      | $
|                                              |  |      |            |   |      |  



Long-term debt is due from January
2004 to October 2008. Debt issuance costs are deferred and then amortized over the term of the debt. Interest rates for long-term debt are as follows:



|                          |  | 2003          |   |  | 2002           |  
|------------------------- |  | ------------- | - |  | -------------- | -
|Private Placement         |  |              |   |  | 11.96          | %
|U.S. dollar loans         |  | 2.57% - 10.50 | % |  | 2.47% - 11.00  | %
|Costa Rican colones loans |  | 24.00         | % |  | 24.00% - 24.50 | %



Future payments on long-term debt as
of September 30, 2003 are as follows:



|Year       |  | Amount
|---------- |  | ------
|2004       |  | $     
|2005       |  |       
|2006       |  |       
|2007       |  |       
|2008       |  |       
|Thereafter |  |       



During the first quarter of 1998, the
Company completed a private placement with Pacific Life Insurance Company (PacLife) of $20 million in notes payable, $8 million of which was outstanding as of September 23, 2003 (the Outstanding PacLife Indebtedness), bearing
an annual interest rate of approximately 12%. In connection with the private placement of the Notes, the Company entered into certain negative covenants, restricting, among other things, the Companys ability to provide collateral to other
existing or potential lenders. These restrictive covenants limited the Companys ability to obtain additional financing from third parties. To continue to allow the Company to fund its operations through the use of debt financing and eliminate
the restrictive covenants, on September 24, 2003, the Company repaid the Outstanding PacLife Indebtedness. The Company was not required to pay a prepayment penalty to PacLife.



In September 2003, the Company entered into a trust agreement (the Trust Agreement) pursuant to which it restructured its debt
obligations with respect to $36.3 million in principal amount of indebtedness. Ten of the Companys lenders were signatories to the Trust Agreement (the Participating Lenders) and as of September 2003, the Company owed an aggregate
of $36.3 million to the Participating Lenders. The Company contributed or pledged substantially all of the assets of the Companys wholly-owned subsidiaries (the Subsidiaries) to a trust (the Trust), which, as of
September 30, 2003 secured the Subsidiaries obligations with respect to the aggregate $36.3 million of indebtedness owed to the Participating Lenders.



In consideration for the establishment of the Trust, the Participating Lenders have agreed to waive any and all defaults, excluding defaults resulting from the failure to
pay interest as due, that the Subsidiaries have committed or may commit prior to March 22, 2004 (the Amnesty Period) with respect to outstanding indebtedness owed to the Participating Lenders. Accordingly, the Subsidiaries have been
relieved of any obligation to make principal payments to the Participating Lenders until the end of the Amnesty Period. The Subsidiaries are still required to pay interest to the Participating Lenders in accordance with the terms of an agreed upon
schedule. After the end of the Amnesty Period, the Subsidiaries are required to resume the payment of principal.



In order to fund the Trust, the Subsidiaries have transferred or pledged substantially all of their real and personal assets to the Trust (the Trust Assets).
Under the terms of the trust agreement, the appraised value of the Trust Assets, which are being appraised under the supervision of the Trustee, must, at all times, be equal to or greater than 143% of the aggregate amount of the indebtedness secured
by the Trust. The Participating Lenders have the right to designate experts to validate the appraised valuations. The Trust Agreement provides that, subject to the Trustees approval, additional Participating Lenders may execute and become
subject to the terms of the Trust Agreement if the value of the Trust Assets continues to be equal to or greater than 143% of the aggregate amount of the indebtedness secured by the Trust. In addition, with the Trustees approval, the
Participating Lenders may secure additional debt that it extends to the Company with the Trust provided that the value of the Trust Assets continues to be equal to or greater than 143% of the aggregate amount of the indebtedness secured by the
Trust.



The Company believes the Trust Assets will have an appraised value
sufficient to collateralize the indebtedness of the Participating Lenders in accordance with the terms of the Trust Agreement. As of December 31, 2003, the Company estimates that more than 80% of the appraisals have already been completed by the
Participating Lenders. Based on information provide to the Company by an independent appraiser, the appraised value of the assets which have been appraised as of the December 31, 2003 equals approximately $50 million. Accordingly, the Company
believes that the final appraised value of the Trust Assets may be sufficient to collateralize additional loans in accordance with the terms of the Trust Agreement.



If the Subsidiaries, among other things, fail to make any principal or interest payment to any of the Participating Lenders when due or
become insolvent, the Subsidiaries will be in breach of the Trust Agreement (a Breach). In the event the Trustee notifies the Subsidiaries of a Breach, the Subsidiaries will have fifteen days to cure such Breach (the Cure
Period). If the Breach is not cured within the Cure Period, the Trustee must sell all of the Trust Assets and use the proceeds of such sale to repay to the Participating Lenders all outstanding indebtedness due and owed to them by the
Subsidiaries. Any proceeds remaining after repayment is made in full to all of the Participating Lenders will be returned to the Subsidiaries. The Trust will terminate in accordance with its terms in the event of such a sale.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



The Trust is governed by a Trust Agreement governed by the laws of Costa Rica. The Trust has a stated term of ten
years but may terminate earlier in the event that all of the outstanding indebtedness owed to the Participating Lenders is repaid.



Certain of the Companys other existing creditor banks (the Non-Participating Lenders) are not signatories to the Trust Agreement. As of September 30,
2003, the Company has borrowed from the Non-Participating Lenders an aggregate of approximately $11.2 million. Three of the Non-Participating Lenders with an aggregate indebtedness amounting to $3.3 million are collaterized with property with an
estimated fair market value of $4.9 million.



As of September 30, 2002, the
Company outstanding debt to PacLife amounted to $12 million. Costs associated with issuance of private placement amounted to $540,000, which was deferred through out the life of the loan using straight-line method of amortization.



Prior to the Company repaying the Outstanding PacLife Indebtedness on September 24, 2003, the
Company had made all required payments to PacLife, in accordance with the private placement agreement. In addition, during the period in which the indebtedness to PacLife was outstanding, the Company the Company obtained a number of waivers at
different times, in relation to certain possible breaches with respect to certain restrictive covenants. The potential breaches did not involve any payment violation.



Employees of the Company are also provided with a profit sharing program. If either one of the Companys subsidiaries has a successful
year and generates profits in excess of certain budgeted levels, that entity will distribute a percentage of its net income to its employees. This incentive is calculated monthly and distributed every two months. During fiscal year 2003, the Company
did not provide its employees with incentives.



9. STOCKHOLDERS EQUITY



Common Stock



As of September 30, 2003 and 2002, 20,000,000 shares of common stock with a par value of
$0.001 were authorized.



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, 2003 and 2002,
the Company had repurchased 52,852 shares for $283,394. These shares have been included in treasury stock as of September 30, 2003 and 2002.



Preferred Stock



On September 30, 2003 and 2002, 1,000,000 shares of preferred stock of the Company were authorized. No shares of preferred stock of the Company had been issued as of September 30, 2003 and 2002. Preferred shares
issued by the subsidiaries of the Company are as follows:



Pipasa



Preferred shares issued consist of Class C preferred shares and TCA
preferred shares, which refer to Titulos de Capital in Costa Rica, amounting to 317,831 shares and 637,000 shares, respectively. As of September 30, 2003 and 2002, there were 317,831 shares of Class C preferred shares outstanding which
amount to $2,216,072. This amount has been included in preferred stock in the accompanying balance sheets due to reverse merger accounting resulting from the Companys acquisition of Pipasa in 1996, as discussed in Note 1. These preferred
shares are not redeemable, are not convertible into common stock and the holders have no voting rights. These preferred shares are comprised of subcategories and receive dividends based on the following:



| | Class C-A, C-B and C-D preferred shares, which amount to 186,431 shares, receive a 10% annual dividend payable monthly and adjustable by the Board of Directors.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Class C-C preferred shares, which amount to 131,400 shares, receive an annual dividend equal to the prime rate set by
the Banco Central de Costa Rica plus two percent, payable monthly, which as of September 30, 2003 averaged approximately 18.52%.



During fiscal years 2003, 2002 and 2001 dividends of $131,485, $145,398 and $152,346 respectively, were paid on these preferred shares and are reflected as preferred
stock dividends in the accompanying consolidated statements of income.



As of
September 30, 2003 and 2002, there were no preferred dividends in arrears.



As de Oros



As of September 30, 2003 and 2002, 1,200,000 Class
C preferred shares of As de Oros were authorized, of which 158,374 had been issued for a total of $1,003,287. These preferred shares are not convertible into common stock and the holders have not voting rights. The holders of these preferred shares
receive dividends based on the following:



| | Class C Series 1 preferred shares, which amount to 87,600 shares, receive a monthly dividend equal to the prime rate set by the Banco Central de Costa Rica plus two percent.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Class C Series 2 preferred shares, which amount to 70,774 shares, receive a monthly dividend of no less than 10%, adjustable annually by the Board of Directors.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



These preferred shares are included in minority interest in the
accompanying consolidated balance sheets as of September 30, 2003, and 2002. During fiscal years 2003, 2002 and 2001 dividends of $68,975, $75,959 and $77,293, respectively, were paid on these preferred shares and are reflected as part of the
minority interest as a reduction to income in the accompanying consolidated statements of income.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



As of September 30, 2003 and 2002, there were no preferred dividends in arrears.



Treasury Stock



As of September 30, 2003 and 2002, the Company held 52,852 shares of common stock as treasury stock, amounting to $283,394.



Retained Earnings



Current legislation in Costa Rica requires that 5% of annual net income (in local currency) up to an amount equivalent to 20% of total
common stock be allocated to a legal reserve. As of September 30, 2003 and 2002, the Company has allocated retained earnings of $2,072,261 and $2,039,806, respectively, for the creation of a legal reserve.



10. OPERATING LEASES



As of September 30, 2003, the Company had operating leases for vehicles, cooling equipment and building facilities for its restaurants and
retail outlets. These lease agreements expire between October 2003 and October 2006. At the end of the lease term, the Company has the option of returning or buying the vehicles or the equipment at estimated market value.



Rental expense for operating leases amounted to $2,123,00, $1,839,386 and $2,170,084 for
fiscal years 2003, 2002 and 2001, respectively.



The future minimum lease
payments under the Companys operating leases are as follows:



|Fiscal Year |  |  
|----------- |  | -
|2004        |  | $
|2005        |  |  
|2006        |  |  
|            |  |  
|            |  | $
|            |  |  



11. INCOME TAXES



Income tax expense (benefit) attributable to income from continuing operations for the years
ended September 30, 2003, 2002 and 2001 consists of:



|                               |  | 2003 |         | 2002 |   |           | 2001 | 
|------------------------------ |  | ---- | ------- | ---- | - | --------- | ---- | 
|Current:                       |  |      |         |      |   |           |      | 
|Estimated in the United States |  | $    |        |      | $ |          |      | 
|Costa Rica                     |  |      | 95,525  |      |   | 1,120,068 |      | 
|                               |  |      |         |      |   |           |      | 
|Total current taxes            |  |      | 95,525  |      |   | 1,120,068 |      | 
|                               |  |      |         |      |   |           |      | 
|Deferred:                      |  |      |         |      |   |           |      | 
|United States                  |  |      |        |      |   |          |      | 
|Costa Rica                     |  |      | 110,950 |      |   | (78,472   | )    | 
|                               |  |      |         |      |   |           |      | 
|Total deferred income taxes    |  |      | 110,950 |      |   | (78,472   | )    | 
|                               |  |      |         |      |   |           |      | 
|Total                          |  | $    | 206,475 |      | $ | 1,041,596 |      | 
|                               |  |      |         |      |   |           |      | 



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Income tax expense differs from the amounts computed by applying the corporate tax rate in Costa Rica of 30% to
pretax income from continuous operations. In December 2002, the government of Costa Rica enacted temporary changes in the income tax law, applicable for the twelve months beginning in January 2003 through December 2003. Such changes provided a
temporary increase in the tax rate from 30% to 36%, as part of the Costa Rican government solution to decrease the actual governmental deficit. As a result, the composite tax rate for the Companys fiscal year 2003 is of 34%.



For fiscal years ended 2003, 2002 and 2001, the Company presented a loss for its operations
in the United States and is not subject to any income taxes, for which a statutory rate of 35% is required. The following table summarized the significant differences between the Costa Rican statutory tax rate and the Companys effective tax
rate:



|                                                                                                                                                              |  | 2003 |          |   | 2002 |   |           | 2001 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | --------- | ---- | 
|Computed statutory income tax expense                                                                                                                         |  | $    | (198,056 | ) |      | $ | 1,254,074 |      | 
|Increase (reduction) in income taxes resulting from:                                                                                                          |  |      |          |   |      |   |           |      | 
|Non-taxable (income) loss, net                                                                                                                                |  |      | (355,097 | ) |      |   | (195,016  | )    | 
|Increase (decreases) in provisions                                                                                                                            |  |      | 62,607   |   |      |   | (111,024  | )    | 
|Tax benefit under Costa Rican Income Tax Law Article 8, Section T for Agricultural Companies and Article 8, Section
F                                         |  |      | (37,502  | ) |      |   | (44,838   | )    | 
|Deduction for reinvestment of prior year earnings in machinery and equipment under Costa Rican Income Tax Law Article 8, Section T
for Agricultural Companies |  |      |         |   |      |   |          |      | 
|Additional depreciation permitted equivalent to 50% of assets invested in the production process                                                              |  |      | (154,893 | ) |      |   | (174,830  | )    | 
|Amortization of excess market value over book value of property plant and equipment acquired in As de Oros                                                    |  |      | 253,040  |   |      |   | 202,690   |      | 
|Depreciation of revalued assets                                                                                                                               |  |      | (146,581 | ) |      |   | (177,443  | )    | 
|Amortization of cost in excess of net assets of acquired business                                                                                             |  |      |         |   |      |   |          |      | 
|Utilization of loss carry forwards                                                                                                                            |  |      |         |   |      |   |          |      | 
|Losses from subsidiaries and holding company                                                                                                                  |  |      | 766,683  |   |      |   | 287,983   |      | 
|Trademark amortization                                                                                                                                        |  |      | (16,602  | ) |      |   |          |      | 
|Equity Tax                                                                                                                                                    |  |      | 32,876   |   |      |   |          |      | 
|                                                                                                                                                              |  |      |          |   |      |   |           |      | 
|                                                                                                                                                              |  | $    | 206,475  |   |      | $ | 1,041,596 |      | 
|                                                                                                                                                              |  |      |          |   |      |   |           |      | 



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at September 30, 2003 and 2002 are presented below:



|                                                                                                           |  | 2003 |            |   | 2002 |  
|---------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Deferred tax assets:                                                                                       |  |      |            |   |      |  
|Allowance for doubtful accounts                                                                            |  | $    | 117,359    |   |      | $
|Restatement of property, plant and equipment depreciable for tax purposes in Costa Rica                    |  |      | 2,095,793  |   |      |  
|Net operating losses in the United States                                                                  |  |      | 378,150    |   |      |  
|Vacation accrual                                                                                           |  |      | 137,705    |   |      |  
|                                                                                                           |  |      |            |   |      |  
|Total gross deferred tax assets                                                                            |  |      | 2,729,007  |   |      |  
|Less valuation allowance                                                                                   |  |      | (2,473,943 | ) |      |  
|                                                                                                           |  |      |            |   |      |  
|Total                                                                                                      |  | $    | 255,064    |   |      | $
|                                                                                                           |  |      |            |   |      |  
|Deferred tax liabilities:                                                                                  |  |      |            |   |      |  
|Labor costs capitalized in internally developed software, expensed for income tax purposes                 |  | $    | 23,182     |   |      | $
|Book and tax basis differences of Property, plant and equipment, resulting from the As de Oros acquisition |  |      | 2,078,674  |   |      |  
|                                                                                                           |  |      |            |   |      |  
|Total                                                                                                      |  | $    | 2,101,856  |   |      | $
|                                                                                                           |  |      |            |   |      |  



Until July 2001, Costa Rican tax laws
permitted companies to restate their depreciable assets by increasing their book value by 5% annually, which resulted in additional deductible expense when the restated portion was depreciated. Changes in the income tax law, applicable for fiscal
years ending after September 30, 2001 provide among other things, the following changes in the Costa Rican income tax law:



| |  | Elimination of restatement of property, plant and equipment, thereby significantly reducing the related tax depreciation. In December 2001, the government of Costa Rica issued a
decree amending this change stating that this depreciation expense could be deducted if it pertained to restatements of property, plant and equipment carried out before August 2001.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Eliminated the one-time deduction equivalent to 50% of the prior years investment in property, plant and equipment to be used in agricultural and industrial activities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For September 30, 2003 and 2002 the Company established a full
valuation allowance for the deferred tax asset derived from the tax depreciation resulting from the restatement of property, plant and equipment. A deferred tax asset has been recorded since the Company believes that it is more likely than not that
this depreciation will continue to be deductible in the future, and it has also recorded a full valuation allowance against the deferred tax asset. This allowance could be adjusted in the future, based on changing conditions. In addition, as of
September 30, 2002, the Company had approximately $378,150, of net operating loss carry forwards for U.S. Federal income tax purpose, which are available to offset future regular taxable income for the parent level entity only. Due to the recent
ownership change (See note 3), these losses are subject to Section 382 of the Internal Revenue Code. The losses expire in 2022 , and it estimates that it has the same amount as of September 30, 2003. The Company has established a valuation allowance
for these operating loss carry forwards. Management believes, based on projected future results of operations, that it is more likely than not that the tax benefit of these loss carry forwards will not be realized. This allowance could be adjusted
in the future based on changing conditions.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Taxes in the United States have not been provided on undistributed earnings of foreign subsidiaries, as such earnings
are being retained indefinitely by such subsidiaries for reinvestment. The amount of unremitted earnings of foreign subsidiaries totaled approximately $4.7 million as of September 30, 2003. It is not practicable to calculate the unrecognized
deferred tax liability on those earnings.



For fiscal years 2001 As de Oros
applied loss carryforwards in the amount of approximately $240,000 as a credit to the income tax determined in Costa Rica. As of September 30, 2001, the Company had utilized all net operating loss carryforwards in Costa Rica.



In accordance with income tax regulations in Costa Rica, the subsidiaries are required to
file annual income tax returns for the twelve-month period ended September 30 of each year. According to Costa Ricans tax law, the income tax returns of Pipasa and As de Oros for the years ended September 30, 2003, 2002, 2001 and 2000 are open
to examination by the tax authorities in Costa Rica.



12. SEGMENT AND
GEOGRAPHIC INFORMATION



The Companys operation is involved in the
production and marketing of poultry products, animal feed and quick service chicken restaurants. The Companys subsidiaries distribute these products throughout Costa Rica and export mostly within Central America and the Caribbean. The basis
for determining the Companys operating segments is the manner in which financial information is used by management in its operations. Management operates and organizes the financial information according to the types of products offered to its
customers. The following is a brief description of the main business segments of the Company:



Broiler Chicken: Poultry is a popular food item in Costa Rica because of its easy preparation, nutritional value and low price when compared to other available meats, according to information provided by the Junta de
Fomento Avicola, a Costa Rican governmental institution. Poultry is a generic product, consumed at all social levels and is not defined by geographic markets. The Companys main brand names for broiler chicken, chicken parts, mixed cuts and
chicken breasts are Pipasa(TM) and As de Oros(TM). Polls and consumer information gathered by the Company indicate that Costa Ricans eat chicken at least once a week. Chicken is sold to institutional customers, schools, hospitals, hotels,
supermarkets, restaurants and small grocery stores.



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, shrimp and domestic pets. The
Companys animal feed products are sold through the Ascan(TM), Aguilar y Solis(TM), Dogpro(TM), Mimados(TM) Kan Kan(TM), and Nutribel(TM) brand names. Customers for the commercial animal feed brands are mainly large wholesalers and high scale
breeders. This customer group focuses on quality and price. Products marketed through the Mimados(TM), Dogpro(TM) Kan Kan(TM), and Ascan(TM) brand names are targeted towards veterinarians, pet stores and supermarkets and are sold typically to
consumers with medium to higher income levels. The Company is currently the leader in the animal feed market in Costa Rica, with an approximate 28% market share.



By-products: By-products include sausages, bologna, chicken nuggets, chicken patties, frankfurters, salami and pate. The Zaragoza (TM) brand
name includes chicken, beef and pork by-products. The Companys chicken by-products are sold through the Kimby(TM), Tiquicia(TM), Chulitas(TM), Zaragoza(TM), Pimpollo (TM) and As de Oros(TM) brand names and are sold to all social and economic
levels. These products are sold mainly in supermarkets, and sales are predominantly driven by price. The Kimby(TM) brand name is the leading seller of chicken by-products in Costa Rica.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Exports: Subsidiaries of the Company export different products to all countries in Central America and the Caribbean
and make occasional exports to Hong Kong and Colombia. The Company exports the majority of its products, including broiler chicken, by-products, animal feed and pet foods.



Quick Service: Corporacion Planeta Dorado, S.A. and its subsidiary operate 28 restaurants (the Restaurants) located in rural and
urban areas throughout Costa Rica, including express delivery service in some restaurants. This segment is comprised of quick service restaurants, which offer a diversified menu of chicken meals. The Restaurants distinguish themselves from other
quick service chains by offering dishes and using recipes and ingredients that appeal to the taste of consumers in Costa Rica. The quick service restaurant business is highly competitive in Costa Rica, as several other quick service chains operate
in Costa Rica.



Other: This segment includes sales of commercial eggs,
non-recurring sales of fertile eggs, fertilizers and raw material, among others.



Corporate: Corporate is responsible for the treasury, tax and legal operations of the Companys businesses and maintains and/or incurs certain assets, liabilities, income, expenses, gains and losses related to the overall management of
the Company which are not allocated to the other reportable segments. These items include general and administrative expenses and the Companys amortization of goodwill. This segment does not generate any revenue for the Company.



Business Segments (In millions):



|                                      |  | Broiler |       | AnimalFeed |   | By -Products |  | QuickService |       | Exports |   | Other |  |   | Corporate |  |   | Consolidated
|------------------------------------- |  | ------- | ----- | ---------- | - | ------------ |  | ------------ | ----- | ------- | - | ----- |  | - | --------- |  | - | ------------
|2003                                  |  |         |       |            |   |              |  |              |       |         |   |       |  |   |           |  |   |             
|Net sales                             |  | $       | 58.75 |            | $ | 31.51        |  | $            | 14.41 |         | $ | 7.43  |  | $ | 7.45      |  | $ | 8.35        
|Income from operations                |  |         | 12.44 |            |   | 2.71         |  |              | 0.71  |         |   | 0.18  |  |   | 1.38      |  |   | (0.07       
|Depreciation and amortization expense |  |         | 1.85  |            |   | 0.61         |  |              | 0.27  |         |   | 0.35  |  |   | 0.02      |  |   | 0.04        
|Goodwill                              |  |         | 1.14  |            |   | 0.16         |  |              |      |         |   | 0.19  |  |   |          |  |   |            
|Total assets                          |  |         | 34.04 |            |   | 11.24        |  |              | 6.64  |         |   | 4.21  |  |   | 0.83      |  |   | 3.86        
|2002                                  |  |         |       |            |   |              |  |              |       |         |   |       |  |   |           |  |   |             
|Net sales                             |  | $       | 67.87 |            | $ | 26.00        |  | $            | 14.78 |         | $ | 5.58  |  | $ | 7.94      |  | $ | 8.50        
|Income from operations                |  |         | 16.89 |            |   | 3.40         |  |              | 2.68  |         |   | 0.06  |  |   | 0.80      |  |   | 0.13        
|Depreciation and amortization expense |  |         | 2.41  |            |   | 0.43         |  |              | 0.27  |         |   | 0.39  |  |   | 0.03      |  |   | 0.01        
|Goodwill                              |  |         | 0.91  |            |   | 0.37         |  |              | 0.00  |         |   | 0.39  |  |   | 0.00      |  |   | 0.00        
|Total assets                          |  |         | 37.84 |            |   | 9.50         |  |              | 5.48  |         |   | 3.79  |  |   | 1.15      |  |   | 3.29        
|2001                                  |  |         |       |            |   |              |  |              |       |         |   |       |  |   |           |  |   |             
|Net sales                             |  | $       | 70.20 |            | $ | 24.62        |  | $            | 13.74 |         | $ | 6.47  |  | $ | 6.18      |  | $ | 6.13        
|Income from operations                |  |         | 14.74 |            |   | 2.82         |  |              | 2.02  |         |   | 0.36  |  |   | 0.45      |  |   | 0.64        
|Depreciation and amortization expense |  |         | 1.86  |            |   | 0.60         |  |              | 0.08  |         |   | 0.37  |  |   | 0.03      |  |   | 0.02        
|Total assets                          |  |         | 36.46 |            |   | 13.79        |  |              | 4.66  |         |   | 4.92  |  |   | 1.44      |  |   | 1.31        



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Geographic Information



The following represents net sales and long-lived assets by geographic location:



|                   |  | 2003 |        | 2002 |   | 2001  
|------------------ |  | ---- | ------ | ---- | - | ------
|Net sales:         |  |      |        |      |   |       
|Costa Rica         |  | $    | 120.45 |      | $ | 122.73
|Other              |  |      | 7.45   |      |   | 7.94  
|                   |  |      |        |      |   |       
|Total              |  | $    | 127.90 |      | $ | 130.67
|                   |  |      |        |      |   |       
|Long-lived assets: |  |      |        |      |   |       
|Costa Rica         |  | $    | 36.74  |      | $ | 38.48 
|Other              |  |      | 0.04   |      |   | 1.15  
|                   |  |      |        |      |   |       
|Total              |  | $    | 36.78  |      | $ | 39.63 
|                   |  |      |        |      |   |       



13. OTHER INCOME AND EXTRAORDINARY
ITEMS



Miscellaneous, net consists of the following:



|                                                                       |  | 2003 |         | 2002 |   | 2001   
|---------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|Dividends from INOLASA                                                 |  | $    | 445,475 |      | $ | 392,000
|Gains on sale of assets                                                |  |      | 53,064  |      |   | 227,557
|Services charged and materials and supplies sold to contracted farmers |  |      | 13,506  |      |   | 42,161 
|Income tax refund                                                      |  |      |        |      |   |       
|Other                                                                  |  |      | 88,069  |      |   | 68,892 
|                                                                       |  |      |         |      |   |        
|                                                                       |  | $    | 600,114 |      | $ | 730,610
|                                                                       |  |      |         |      |   |        



During fiscal 2001, the Company made
an over-payment of income taxes, which was subsequently refunded.



Extraordinary items:



During fiscal 2003, the Company received
an excess of approximately $304,706, net of tax ($0.02 earnings per share) over book value of equipment and building facilities of the by-products processing plant, damaged by a fire that took place in the month of February 2003.



14. ACQUISITIONS AND DISPOSALS OF ASSETS



The Company is continuing to explore the acquisition of majority of the outstanding common
stock of Industrias Avicolas Integradas, S.A. (Indavinsa), and Avicola Core Etuba Ltda. (Core), both engaged in the production and distribution of poultry. The Company would acquire the majority of the outstanding stock of
Core from the Companys Chief Executive Officer. The Company is evaluating closely the performance of these companies to determine if, when and how the Company should integrate its business with the acquisition target, and has postponed
indefinitely investments in these two companies.



On February 20, 2003, Port
Ventures, S.A. (Port Ventures) and Corporacion As de Oros, S.A. (As de Oros), a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the Agreement), pursuant to which As de Oros agreed
to acquire from Port Ventures, 2,040 shares of common stock of Logistica de Granos, S.A. (Logistica), representing 51% of the issued and outstanding shares of capital stock of Logistica (the Shares), for a purchase price of
US $2,580,000 (the Purchase Price). Logistica is the owner of 19% of the issued and outstanding capital stock of Sociedad Portuaria de Caldera, S.A. (SPC) and



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Sociedad Portuaria Port Granelera de Caldera, S.A. (SPGC) (collectively, the Port Companies). The Companies are seeking to acquire
concessions (the Concession) being granted by the Government of Costa Rica to refurbish and operate Puerto Caldera, a major seaport located on the Pacific coast of Costa Rica and is Considered by the Company as Strategic to its raw
material purchases.



The closing of the purchase and sale of the Shares is
subject to: (i) the final grant by the Government of Costa Rica of the Concessions and (ii) the execution of definitive agreements between the Government of Costa Rica and each of the Port Companies regarding the construction and operation of Puerto
Caldera.



The Agreement provides that Port Ventures may require that As de Oros
remit the Purchase Price for the Shares in installments, prior to the fulfillment of the conditions to closing set forth above. Upon such payment, As de Oros will receive and a bill of exchange for the amount of such Purchase Price and a
pro rata amount of shares will be issued and held by a Trust representing all participants in the Consortiums in escrow until the closing. In the event that the transactions contemplated under the Agreement are not closed, Port Ventures must return
to As de Oros the pro rata portion of the Purchase Price paid, plus interest, and As de Oros, must return the bills of exchange. If Port Ventures does not return the portion of the Purchase Price paid, As de Oros may, in its discretion, seek to
enforce the bill of exchange.



During fiscal year 2003, As de Oros remitted
approximately 55% of the Purchase Price to Port Ventures (the Remitted Payment) in exchange for bills of exchange, recorded as part of other assets on the Balance Sheet. The bills of exchange are not secured by tangible assets or readily
marketable collateral. In the event the Concessions are not ratified to the Port Companies, the Company anticipates that As de Oros will have limited ability to recoup its investment in Port Ventures. Port Ventures has agreed for As de Oros not need
to make any further payments until the Concessions are finally ratified. The Company expects to close this transaction during the 2004 fiscal year, when the definitive approval of the Government of Costa Rica is expected to be obtained.



As with any business acquisition, there can be no assurance that the Company will close
these acquisitions and there can be no assurance that these acquisitions efforts will prove to be beneficial to the Company. Even if the Companys board of directors, audit committee and management team believe the Company should pursue a
development or acquisition opportunity and successfully negotiate the contracts critical to such venture. The Company will continue to evaluate financial performance in order to obtain the necessary information to make a decision.



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



15. QUARTERLY FINANCIAL DATA



Unaudited summarized financial data by quarter for fiscal 2003 and 2002 is as follows:



|                                    |  | First Quarter |            | Second Quarter |   |            | Third Quarter |  |   | Fourth Quarter |   |  | Total |           
|----------------------------------- |  | ------------- | ---------- | -------------- | - | ---------- | ------------- |  | - | -------------- | - |  | ----- | ----------
|2003                                |  |               |            |                |   |            |               |  |   |                |   |  |       |           
|Net Sales                           |  | $             | 35,858,870 |                | $ | 30,833,541 |               |  | $ | 31,074,055     |   |  | $     | 30,838,252
|Gross profit                        |  |               | 11,460,023 |                |   | 8,866,742  |               |  |   | 8,620,531      |   |  |       | 7,503,909 
|Net income (loss)                   |  |               | 1,055,537  |                |   | (741,840   | )             |  |   | (134,807       | ) |  |       | (1,109,286
|Basic earnings (losses) per share   |  | $             | 0.08       |                | $ | (0.06      | )             |  | $ | (0.01          | ) |  | $     | (0.08     
|                                    |  |               |            |                |   |            |               |  |   |                |   |  |       |           
|Diluted earnings (losses) per share |  | $             | 0.08       |                | $ | (0.06      | )             |  | $ | (0.01          | ) |  | $     | (0.08     
|                                    |  |               |            |                |   |            |               |  |   |                |   |  |       |           
|2002                                |  |               |            |                |   |            |               |  |   |                |   |  |       |           
|Net Sales                           |  | $             | 34,782,652 |                | $ | 30,598,961 |               |  | $ | 31,925,390     |   |  | $     | 33,358,436
|Gross profit                        |  |               | 12,424,878 |                |   | 10,524,159 |               |  |   | 10,379,595     |   |  |       | 9,849,742 
|Net income                          |  |               | 1,813,277  |                |   | 436,270    |               |  |   | 349,236        |   |  |       | 318,508   
|Basic earnings per share            |  | $             | 0.14       |                | $ | 0.03       |               |  | $ | 0.03           |   |  | $     | 0.02      
|                                    |  |               |            |                |   |            |               |  |   |                |   |  |       |           
|Diluted earnings per share          |  | $             | 0.14       |                | $ | 0.03       |               |  | $ | 0.03           |   |  | $     | 0.02      
|                                    |  |               |            |                |   |            |               |  |   |                |   |  |       |           



16. CONCENTRATION OF CREDIT RISK



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



The majority of the Companys customers are located in Costa Rica. No single customer
accounted for more than ten percent of the Companys net sales or account receivable in fiscal 2003, 2002 and 2001. Credit risk is mitigated due to the fact that the Companys customer base is diverse and is located throughout Costa Rica.
The Company estimates an allowance for doubtful accounts based on the credit worthiness of its customers, and general economic conditions. Consequently, an adverse change in these factors could affect the Companys estimate of the bad debt
allowance.



17. COMMITMENTS AND CONTINGENCIES



Insurance



The Company does not have damage insurance or a specific self-insurance fund for vehicles that are not under lease agreements. For vehicles
under lease agreement, the Company has an insurance trust fund in the amount of $278,586. The Company has various other insurance coverage policies for some of its facilities, productive assets and inventory that insure the Company for an
approximate amount of $29.0 million as of September 30, 2003. In addition, the Company has an umbrella policy amounting to approximately $980,000.



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##### Table of Contents

RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Severance Pay



At the present time, labor laws in Costa Rica require all companies to make a severance payment under certain conditions. This law requires all companies in Costa Rica to
make a payment equivalent to 5.6% of an employees yearly gross salary for every year of employment up to 8 years of labor, as part of a severance payment upon the termination of an employee. This benefit is payable after the employees
death, retirement, or termination without cause. An employee who resigns voluntarily or is terminated for cause forfeits his right to any severance benefit. Since 1991, the Company has waived the 8-year limit dictated by the labor law, and pays
severance based on years of service. The Company is also required by Costa Rican law to deposit an additional 3% of each employees yearly gross salary into a pension fund.



The Company deposits every month in ASERICA 5.33% of each employees yearly gross salary as part of severance pay, and the employees
are required to make a monthly deposit equivalent to 4% of their monthly salary as part of a savings program. Every February of each year, ASERICA pays each employee 1.33% of the 5.33% initially deposited. Amounts paid or transferred to ASERICA may
not completely cover the severance payment at the time the employee leaves, since the severance payment calculation is based on the average of the last 6 months salary. Any remaining amount owed by the Company must be settled when the employee
is terminated. As of September 30, 2003, the Company has recorded an accrual in the amount of approximately $422,140 for future severance payments, which has been included in accrued expenses. The Company believes this amount is adequate based on
past experience.



Construction Commitments



In the normal course of business, the Company enters into commitments for construction or
renovations of its buildings, plant facilities and leased outlets. As of September 30, 2003, the Company did not have any outstanding amounts under these construction commitments.



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RICA FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Litigation, Claims and Assessments



Until December 2003, Pipasa was one of two defendants in a lawsuit brought in Costa Rica, pursuant to which the plaintiff in such action was
seeking damages in an amount equal to $3.6 million. The other defendant in the litigation was Aero Costa Rica, S.A. (Aero), a corporation that, prior to entering into a receivership, was wholly owned by Mr. Chaves, the Companys
Chief Executive Officer. Pipasa had been served with prejudgment liens for $1.5 million and, with the approval of the Juzgado Sexto Civil, the court with jurisdiction over the lawsuit, certain parcels of real estate owned by Pipasa had been
substituted for such liens. This approval was ratified by the Superior Court on November 11, 1999, and all funds initially attached were released and returned to Pipasa. Costa Rican law requires the posting of guarantees by a plaintiff seeking
prejudgment liens. A ruling on these objections had been pending. Pipasa had filed several pleadings in opposition to the underlying lawsuit; a ruling on these pleadings also had been pending.



In connection with this pending lawsuit, the plaintiff also brought suit against Pipasa in
the State of California and the State of Florida. The California lawsuit was dismissed without prejudice.



In Response to plaintiffs amended complaint filed in Miami-Dade County Circuit Court on May 7, 1999, Pipasa, on July 19, 1999, filed a motion to dismiss for lack of personal jurisdiction. The motion was denied
on March 31, 2003. Pipasa had appealed the denial to Floridas Third District Court of Appeal. No decision on Pipasas appeal has been made. Pipasa had also moved in the Circuit Court for a stay of the Circuit Court case pending appeal.
The Circuit Court had taken the stay request under advisement.



A separate
lawsuit against Pipasa, filed by the same plaintiff in the North District of California and styled Polaris Holding Company v. Corporacion Pipasa, S.A., No. C 99-2160 CRB (N.D. Calif.), was dismissed, without prejudice for the plaintiff to refile the
action after resolution of the Florida action as well as a similar action, brought by the same plaintiff against Pipasa, that is pending in Costa Rica.



On December 29, 2003, Pipasa entered into a settlement agreement (the Settlement Agreement) with Polaris pursuant to which Mr. Chaves will provide Polaris
with a one-time payment in the amount of $1,950,000 (the Settlement Amount) in exchange for Polaris agreement to dismiss any and all litigation instituted against Pipasa and release any and all claims which they have or may have
against Pipasa in connection with the litigation, except for any claim that may arise in connection with the Indemnification Obligation (as defined below). Mr. Chaves has entered into an agreement with the Company pursuant to which he has
acknowledged and agreed that his payment of the Settlement Amount is neither an equity investment in the Company nor a loan to the Company.



Pipasa has attempted to secure the participation of Aero in the settlement but Aero has been relatively unresponsive. As of the date of the Settlement Agreement, Aero had
not yet agreed to participate in the settlement.



Because Aero has not agreed
to participate in the settlement, as a condition of the Settlement Agreement, Pipasa agreed to enter into an indemnification agreement with Polaris pursuant to which Pipasa has agreed to indemnify Polaris in the event that Aero initiates any claims
against Polaris (the Indemnification Obligation).



Although Pipasa
and Polaris have executed the definitive Settlement Agreement, as of December 31, 2003, the parties have not yet filed papers with the Costa Rican or Florida courts regarding the settlement.



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##### Table of Contents

From October 2003 to November 2003, Citibank (Costa Rica), S.A. (Citibank) filed a number of lawsuits
against the Company in various local Costa Rican courts seeking repayment of approximately $6.2 million of outstanding indebtedness extended by Citibank to the Company pursuant to 18 letters of credit. Since the lawsuits have been initiated, the
Company has repaid in full two letters of credit owed to Citibank totaling approximately $900,000 and, accordingly, Citibank is currently seeking repayment of approximately $5.3 million which is the current aggregate outstanding indebtedness. The
Company has filed preliminary defenses and appeals to the lawsuits alleging a variety of procedural and substantive defenses. No rulings have been made with respect to any of Citibanks claims or the Companys appeals and the Costa Rican
courts have yet to schedule any hearings with regards to the dispute between Citibank and the Company. Pursuant to Costa Rican law, the Company is entitled to file additional defenses and appeals. The Company and Citibank are currently engaging in
settlement negotiations.



On January 24, 2003, the Staff (the
Staff) of the Securities and Exchange Commission (the Commission) notified the Company that it was conducting an informal inquiry of the Company. In response to such notification, the Company began providing the Staff
information. The Company and the Staff have been in detailed settlement conversations since February 10, 2003.



On August 15, 2003, the Commission filed a settled civil injunctive action against the Company, the Companys Chief Executive Officer (the CEO) and the Companys Chief Financial Officer (the
CFO) for violations of the CEO and CFO certification requirements of the Sarbanes-Oxley Act of 2002. The Company, the CEO and the CFO have consented, without admitting or denying the allegations in the Commissions complaint, to the
entry of a Final Judgment of Permanent Injunction and Other Relief (Final Judgment).



According to the Commissions complaint, on January 13, 2003, the Company filed a Form 10-K annual report with the Commission containing a purportedly unqualified independent auditors report from Deloitte
& Touche. The audit report represented that the Companys consolidated financial statements were presented fairly and in conformity with generally accepted accounting principles. At the time of the filing, however, Deloitte & Touche had
not provided the Company with a signed audit report and, according to the Commissions complaint, the Companys financial statements contained material classification errors.



The Final Judgment permanently enjoin the Company from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act
of 1934 (the Exchange Act) and Rule 12b-20 and 13a-1 thereunder, which governs the accuracy of the issuer books and records and financial disclosures. The Final Judgment also permanently enjoin the CEO and CFO from violating Section
13(b)(5) of the Exchange Act and Rule 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. The Final Judgment further ordered the CEO to
pay $25,000 in civil penalties. A penalty was not imposed against the CFO based on the sworn financial statements and other financial information she provided to the Commission.



Except for the legal proceedings disclosed above, no legal proceedings of a material nature against to which the Company or subsidiaries are
a party, exist or were pending as of the date of this report. Except for the legal proceedings disclosed above, the Company knows of no other legal proceedings of a material nature pending or threatened or judgments entered against any director or
officer of the Company in his capacity as such.



The Company is involved in
various other claims and legal actions arising in the ordinary course of business. In the opinion of the Companys 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.



18. SUBSEQUENT
EVENT



The Company has been informed that on December 22, 2003, Calixto
Chaves (Mr. Chaves), Monica Chaves (Ms. Chaves), JP Chaves, Comercial Angui and certain other shareholders (the Selling Shareholders), have sold (the Stock Sale) all 9,933,154 shares of the common
stock held by the Selling Shareholders (the Shares), representing approximately 77.2% of the Companys issued and outstanding shares of common stock, to Avicola Campesinos, Inc., a Nevada corporation (Avicola), for a
cash purchase price of approximately U.S.$12.5 million.



Based upon information
contained in an executed Schedule 13D provided by Avicola to the Company (the Schedule 13D), it appears that Avicola is wholly owned by Tenedora G.S., S.A., a Costa Rican corporation (Tenedora).



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Also as indicated in the Schedule 13D, Mavipel, S.A., a Costa Rican corporation (Mavipel), Inversiones
Harenaz L III, S.A. (Harenaz), a Costa Rican corporation, CYS Asesores de Mercadeo y Finanzas, S.A, a Costa Rican corporation (CYS), Sarita Trading, S.A., a Panamanian corporation (Sarita), Corporacion Adral,
S.A., Costa Rican corporation (Adral), Centro, S.A., a Costa Rican corporation (Centro), Hoy por Hoy, S.A., a Costa Rican corporation (Hoy), Asociacion Solidarista de Empleados Grupo Sama y Afines, a Costa Rican
labor entity (ASEGSA) and Quirinal, S.A. (Quirinal) are the holders of approximately 35.3%, 14.2%, 13%, 13.4%, 8.1%, 9.2%, 2.3%, 1.7%, and 2.8%, respectively of the outstanding common stock of Tenedora. Together, Mavipel,
Harenaz, CYS, Sarita, Adral, Centro, Hoy, ASEGSA and Quirinal may be deemed to control Tenedora.



The Company has been informed, pursuant to the Schedule 13D, that Victor Oconitrillo is the holder of 100% of the outstanding common stock of Mavipel. Henry Zamora is the holder of 100% of the outstanding common stock
of Harenaz. Rolando Cervantes is the holder of 100% of the outstanding common stock of CYS. Jorge Torres is the holder of 100% of the outstanding common stock of Sarita. Mariangel Solera is the holder of 100% of the outstanding common stock of
Adral. Robert Aspinall is the holder of 100% of the outstanding common stock of Centro. Oscar Hernandez is the holder of 100% of the outstanding common stock of Hoy. Alfonso Gutierrez is the holder of 100% of the outstanding common stock of
Quirinal.



The Stock Sale was conditioned upon the approval of the board of
directors of the Company, which was granted after the board considered a number of factors, including the following:



| |  | Approximately $6.9 million of the proceeds of the Stock Sale were used to satisfy Mr. Chaves existing indebtedness to the Company and approximately $1.95 million of the
proceeds were used to settle certain litigation.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Mr. Chaves and Mr. Jorge Quesada have, at various times, personally guaranteed the Companys repayment of various debts. As of the closing of the Stock Sale, Mr. Chaves and Mr.
Quesada had outstanding personal guarantees with respect to approximately $27.9 million and $9.2 million of the Companys indebtedness. The guarantees extended by Mr. Chaves and Mr. Quesada will remain in place notwithstanding the Stock Sale.
In addition, Mr. Chaves has entered into an agreement with the Company whereby he has agreed to indemnify the Company from and against any losses or damages caused by his failure within the next year to provide, if requested, his personal guarantee
with respect to any loan which he has previously guaranteed and the Company is seeking to defer repayment of.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Mr. Chaves has agreed to indemnify the Company from and against certain damages or losses that could directly or indirectly result from or in connection with the Stock Sale.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mr. Chaves, Mr. Quesada, Ms. Chaves continue to serve on the
board of directors of the Company. However, as the holder of a majority of the Common Stock, Avicola will generally have the power to elect directors to serve on the Companys board of directors. Although Avicola has not directly or indirectly
taken any actions to initiate any changes with regards to the Companys board of directors, Avicola has indicated to the Company in the Schedule 13D that it does anticipate seeking to influence the nomination and election of directors in the
future.



The Purchasers conditioned the closing of the Stock Sale on the
Companys electing seven affiliates of Avicola to serve on the eight person board of directors of each of the Companys subsidiaries and elected affiliates of Avicola to serve as the president, vice president, secretary, treasurer and
controller of each subsidiary.



As reported in the 13D, in order to fund the
purchase of the Shares, on December 15, 2003 (the Effective Date), Avicola entered into a financing agreement (the Financing Agreement) with Servicios Bursatiles Internacionales Sociedad Anonima (SBI), a
Panamanian corporation pursuant to which SBI extended a loan to Avicola in the amount of approximately $12.5 million (the Purchase Loan). The entire Purchase Loan was used by Avicola to purchase the Shares.



Under the terms of the Financing Agreement, interest on the Purchase Loan will be payable
annually, with the first payment due one year from the Effective Date, at the rate of prime plus four. The outstanding principal amount of the Purchase Loan plus any accrued but unpaid interest will be payable on December 15, 2008. As security for
the Purchase Loan, Avicola has pledged the Shares to SBI pursuant to the terms of a stock pledge agreement. In addition, Tenedora has extended a guarantee with respect to the Purchase Loan.



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Potential Change in Control



As indicated above, as security for the Purchase Loan, Avicola has pledged the 9,933,154 shares of Common Stock purchased in the Stock Sale
to SBI pursuant to the terms of the Stock Pledge Agreement. Pursuant to the Stock Pledge Agreement, Avicola has agreed that it shall not sell, assign or otherwise transfer any of the 9,933,154 shares of Common Stock to any person except to SBI.



The Stock Pledge Agreement contains certain ordinary default provisions. In
addition, in the event that, among other things, (i) Avicola or the Company defaults in any payment of principal or interest on any indebtedness, except the Purchase Loan, in excess of $250,000 beyond the grace period, if any or (ii) Avicola or the
Company defaults in the observance or performance of any other agreement or condition relating to any indebtedness, except the Purchase Loan, or any other event shall occur, the effect of which default or other event is to cause or permit the
holders of such indebtedness to cause such indebtedness to become due prior to its stated maturity, SBI can, among other things, take ownership of or sell any or all of the 9,933,154 shares.



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SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001



|Description                          |  | BeginningBalanceAccrual |           | AdditionsCharged toIncome |         | CashReductions |         | Non-cashReductions(Additions) |         | Reversal |   | EndingBalanceAccrual
|------------------------------------ |  | ----------------------- | --------- | ------------------------- | ------- | -------------- | ------- | ----------------------------- | ------- | -------- | - | --------------------
|Provision for doubtful receivables   |  |                         |           |                           |         |                |         |                               |         |          |   |                     
|2003                                 |  | $                       | 546,671   |                           | 308,765 |                |        |                               | 363,375 |          |  |                     
|2002                                 |  |                         | 656,543   |                           | 449,598 |                |        |                               | 559,470 |          |  |                     
|2001                                 |  |                         | 797,611   |                           | 122,150 |                |        |                               | 263,218 |          |  |                     
|Provision for inventory obsolescence |  |                         |           |                           |         |                |         |                               |         |          |   |                     
|2003                                 |  | $                       |          |                           | 68,592  |                |        |                               |        |          |  |                     
|2002                                 |  |                         | 86,819    |                           | 139,340 |                |        |                               | 226,159 |          |  |                     
|2001                                 |  |                         | 74,682    |                           | 17,428  |                |        |                               | 5,291   |          |  |                     
|Deferred tax valuation allowance     |  |                         |           |                           |         |                |         |                               |         |          |   |                     
|2003                                 |  | $                       | 2,921,271 |                           |        |                |        |                               | 192,262 |          |  |                     
|2002                                 |  |                         | 3,622,772 |                           | 149,528 |                |        |                               | 851,029 |          |  |                     
|2001                                 |  |                         | 3,461,326 |                           | 774,943 |                | 450,661 |                               | 162,836 |          |  |                     



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EXHIBIT INDEX



|Exhibit No. |  | Exhibit Description                                                                                   
|----------- |  | ------------------------------------------------------------------------------------------------------
|            | 
|14.1        |  | Code of Ethics                                                                                        
|            | 
|21          |  | Subsidiaries of registrant                                                                            
|            | 
|31.1        |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|31.2        |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|32.1        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|            | 
|32.2        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002