As filed with the Securities and Exchange Commission on May 22, 2006
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 20-F

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                                       OR
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2005
                                       OR
[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
           For the transition period from ____________ to ____________

[ ]  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                       Commission file number: 333-122268

                            Mastellone Hermanos S.A.
             (Exact name of registrant as specified in its charter)

                            Mastellone Brothers Inc.
                 (Translation of Registrant's name into English)
                                    Argentina
                         (Jurisdiction of incorporation
                                or organization)
                         E. Ezcurra 365, Piso 2, Of. 310
                       (C1107CLA) Buenos Aires, Argentina
                              (011 5411) 4318-5000
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
                                      None

 Securities registered or to be registered pursuant to Section 12(g) of the Act:
                                      None

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act:
                    8% Series A2 and B2 Senior Notes due 2012

         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report:
               Class A Ordinary Shares, one vote each:  263,119,267
              Class B Ordinary Shares, five votes each: 194,428,002
         Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
                                 Yes [ ]  No [X]

         If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
                                 Yes [ ]  No [X]

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
                                 Yes [X]  No [ ]

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):

 Large accelerated filer [ ]  Accelerated filer [ ]  Non-accelerated filer [X]

         Indicate by check mark which financial statement item the registrant
has elected to follow:

                             Item 17 [X]  Item 18 [ ]


<PAGE>

         If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
                                 Yes [ ]  No [X]

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

<PAGE>


                                TABLE OF CONTENTS

                                                                           Page


FACTORS AFFECTING FORWARD-LOOKING STATEMENTS..................................iv

INTRODUCTION AND USE OF CERTAIN TERMS.........................................iv

PART I.........................................................................1

         Item 1. Identity of Directors, Senior Management and Advisers.........1
         Item 2. Offer Statistics and Expected Timetable.......................1
         Item 3. Key Information...............................................1
         Item 4. Information on the Company...................................16
         Item 4A.  Unresolved Staff Comments..................................33
         Item 5. Operating and Financial Review and Prospects.................33
         Item 6. Directors, Senior Management and Employees...................51
         Item 7. Major Shareholders and Related Party Transactions............54
         Item 8. Financial Information........................................58
         Item 9. The Offer and Listing........................................59
         Item 10. Additional Information......................................59
         Item 11. Quantitative and Qualitative Disclosures about Market
                  Risk........................................................65

PART II.......................................................................65

         Item 12. Description of Securities other than Equity Securities......66
         Item 13. Defaults, Dividend Arrearages and Delinquencies.............66
         Item 14. Material Modifications to the Rights of Security Holders
                  and Use of Proceeds.........................................67
         Item 15. Controls and Procedures.....................................67
         Item 16. [Reserved]..................................................67

PART III......................................................................67

         Item 17. Financial Statements........................................68
         Item 18. Financial Statements........................................69
         Item 19. Exhibits....................................................69



                                      iii


<PAGE>


                  FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

         This annual report on Form 20-F contains "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. Specifically,
certain statements under the caption "Item 4.B Business overview" relating to
the operation and performance of Mastellone Hermanos S.A. and under the caption
"Item 5. Operating and Financial Review and Prospects" are forward-looking
statements. You can identify forward-looking statements by, among other things,
the use of forward-looking language, such as the words "believe", "expect",
"anticipate" and similar expressions. These forward-looking statements reflect
our expectations for future events and financial performance. These statements
are based on current plans, estimates and projections. Such statements are
subject to certain risks and uncertainties, such as changes in export and import
controls and duties, and changes in prices or demand for products produced and
sold by Mastellone Hermanos S.A. or its subsidiaries either in the domestic or
in international markets as a result of competitive, economic, political and
other factors, the availability of continued access to banking and financial
resources on favorable terms, regulatory compliance requirements, labor disputes
and the performance by third parties of their contractual obligations, etc.
Although we believe that the expectations reflected by such forward-looking
statements are reasonable based on information currently available to us, we
cannot assure you that such expectations will prove to be correct. Actual
results could differ materially from the results projected in the
forward-looking statements as a result of the risks described above.
Accordingly, readers are cautioned not to place undue reliance on the
forward-looking statements. Forward-looking statements speak only as of the date
they were made. We undertake no obligation to publicly release any revision to
these forward-looking statements to reflect events or circumstances after the
date of this annual report.

                     INTRODUCTION AND USE OF CERTAIN TERMS

         Mastellone Hermanos is a sociedad anonima incorporated under the laws
of the Republic of Argentina since 1973. In this document, any reference to
"we," "our," "us" or "Mastellone Hermanos" means Mastellone Hermanos S.A. and
its subsidiaries on a consolidated basis, except where we make clear that the
term means Mastellone Hermanos S.A. or a particular subsidiary or business group
only, and except that references to "our shares", matters relating to our shares
or matters of corporate governance shall refer to the shares and corporate
governance of Mastellone Hermanos S.A. In this annual report on Form 20-F,
references to "Argentine pesos," "Pesos," or "Ps." are to the lawful currency of
the Republic of Argentina and references to "dollars," "US dollars," "USD" or
"$" are to the lawful currency of the United States. Similarly, any reference to
the "Government" or the "Argentine Government" is to the government of the
Republic of Argentina.

         Our principal executive office is currently located at E. Ezcurra 365,
Piso 2, Of. 310 (C1107CLA) Buenos Aires, Argentina and our telephone number is
+(011 5411) 4318-5000.


                                       iv

<PAGE>


Item 1.  Identity of Directors, Senior Management and Advisers

         Not Applicable.

Item 2.  Offer Statistics and Expected Timetable

         Not Applicable.

Item 3.  Key Information

A.       Selected financial data

         Introduction
         ------------

         The following tables set forth certain of our financial data for the
years ended December 31, 2005, 2004, 2003, 2002 and 2001. This financial data
should be read in conjunction with, and are qualified in their entirety by, our
consolidated financial statements for the years ended December 31, 2005, 2004
and 2003 and the information contained in Item 5-"Management's Discussion and
Analysis of Financial Condition and Results of Operations". The financial data
for the years ended December 31, 2005, 2004 and 2003 have been derived from such
consolidated financial statements.

         We maintain our financial books and records and publish our
consolidated financial statements in Pesos. We prepare our consolidated
financial statements in accordance with Argentine GAAP. Our consolidated
financial statements included herein contain a reconciliation to accounting
principles generally accepted in the United States of America, to which we refer
as "US GAAP", of our shareholders' equity and net (loss) income. Our
consolidated financial statements for the years ended December 31, 2005, 2004
and 2003 are included in this annual report on Form 20-F.

         Inflation Accounting
         --------------------

         Prior to September 1, 1995, to account for the effects of inflation in
Argentina and in accordance with Argentine GAAP, our financial statements were
periodically restated based on changes in the Argentine wholesale price index
published by the National Institute of Statistics and Census. On August 15,
1995, the Argentine government issued Decree No. 316/1995 discontinuing the
requirement that financial statements be restated for inflation for any date or
period after August 31, 1995. Effective as of September 1, 1995, as required by
General Resolution No. 272 of the Argentine National Securities Commission, we
discontinued the inflation restatement methodology into constant Pesos,
maintaining the effects of inflation accounted for in the prior periods.

         As a result of the inflationary environment in Argentina (the wholesale
price index increased 118% during 2002) and the conditions created by the Public
Emergency Law, the Professional Council in Economic Science of the City of
Buenos Aires (Consejo Profesional de Ciencias Economicas de la Ciudad Autonoma
de Buenos Aires or the "CPCECABA") approved on March 6, 2002 Resolution Mesa
Directiva, to which we refer as "MD", No. 3/2002 applicable to financial
statements for fiscal years or interim periods ending on or after March 31, 2002
and requiring the reinstatement of inflation accounting in financial statements
in accordance with the guidelines contained in Technical Resolution No. 6
(including the changes recently incorporated by Technical Resolution No. 19)
issued by the Argentine Federation of Professional Councils in Economic Science
(Federacion Argentina de Consejos Profesionales de Ciencias Economicas) adopted
by Resolution Consejo Directivo, to which we refer as "CD", No. 262/01 of the
CPCECABA, and providing that all recorded amounts restated by changes in general
purchasing power through August 31, 1995, as well as those arising between that
date and December 31, 2001, are considered to be stated in constant currency as
of December 31, 2001.

         On July 16, 2002, the Argentine government issued Decree No. 1,269/02
repealing Decree No. 316/95 and instructing the Argentine National Securities
Commission, among others, to issue the necessary regulations relating to
preparation of financial statements in constant currency. On July 25, 2002,
under



                                       1
<PAGE>

Resolution No. 415/02, the Argentine National Securities Commission reinstated
the requirement that financial statements for periods beginning after December
31, 2001 be prepared in constant currency.

         On March 25, 2003, Decree No. 664/03 eliminated the requirement that
financial statements for periods ending after that date be prepared in constant
currency. On April 8, 2003, the Argentine National Securities Commission issued
Resolution No. 441/03 discontinuing inflation accounting as from March 1, 2003.
This decision was not in accordance with current professional accounting rules
which required restatement to recognize the effects of inflation until September
30, 2003.

         As a result of the foregoing, our financial statements for the years
ended December 31, 2003 and our financial data for the years ended December 31,
2003, 2002 and 2001 included herein for comparative purposes have been restated
or adjusted for inflation through February 28, 2003. Effective March 1, 2003, we
discontinued the restatement of our financial statements to reflect the effects
of inflation.

         Miscellaneous
         -------------

         Unless otherwise indicated, our consolidated balance sheets and
consolidated statements of operations use the exchange rates as of each relevant
date or period-end quoted by Banco de la Nacion Argentina. The rates quoted by
Banco de la Nacion Argentina for such exchange rates were Ps.3.032 per US$1.00
and Ps.3.5869 per 1(euro) at December 31, 2005. The reader should not construe
the translation of currency amounts in this annual report on Form 20-F to be
representations that the Peso amounts actually represent US Dollar or Euro
amounts or that any person could convert the Peso amounts into US Dollars or
Euros at the rate indicated or at any other exchange rate. See "Exchange Rates"
for information regarding exchange rates. See also "Presentation of Financial
and Other Information" above.

         Certain amounts and ratios set forth in the following table (including
percentage amounts) have been rounded up or down in order to facilitate the
footing of tables in which they are included. The effect of such rounding is not
material. Such amounts, as so rounded, are also used in the text of this
document.



                                       2
<PAGE>

                           Financial Statements' Data

<TABLE>
<CAPTION>
                                              Year ended December 31,
------------------------------------------------------------------------------------------------------------------
                                                              2001       2002        2003       2004        2005
                                                           ---------  ---------   ---------  ---------   ---------
                                             In millions of Pesos (1)
<S>                                                        <C>         <C>         <C>        <C>         <C>
Statement of Operations Data
Argentine GAAP
Net Sales                                                    1,426.0    1,178.9     1,132.1    1,385.4     1,599.2
Cost of Sales                                               (1,087.9)    (930.5)     (945.4)  (1,127.0)   (1,267.0)
                                                           ---------  ---------   ---------  ---------   ---------
Gross Income                                                   338.1      248.4       186.7      258.4       332.2
Expenses:
Selling                                                       (284.5)    (191.4)     (175.6)    (220.4)     (277.3)
General & Administrative & Other Expenses                      (64.6)     (61.1)      (54.6)     (58.0)      (60.3)
                                                           ---------  ---------   ---------  ---------   ---------
Operating Income (Loss)                                        (11.0)      (4.1)      (43.5)     (20.1)       (5.3)
Other Income (Expenses), net                                   (13.4)     (22.0)      (23.8)     (23.4)      (10.4)
Equity in Results of Unconsolidated Entities (2)                 0.8       (1.1)        0.0        0.0         0.0
Interest Expense                                               (83.7)     (94.0)     (123.7)    (117.7)      (53.1)
Interest Income                                                  8.6        7.7         7.8        2.4         5.1
Financial & Holding Results                                    (19.9)      68.5        (2.4)     (25.2)       (7.2)
                                                           ---------  ---------   ---------  ---------   ---------
Net ordinary loss before Income Tax, Minority
Interest and Extraordinary Item                               (118.6)     (45.0)     (185.7)    (184.0)      (71.0)
Income Tax                                                       0.0        0.0         0.2       (0.3)        0.0
Minority Interest                                                0.4        0.3        (0.1)       0.0         0.0
                                                           ---------  ---------   ---------  ---------   ---------
Loss before Extraordinary Item                                (118.2)     (44.7)     (185.6)    (184.3)      (71.1)
Extraordinary Item, net                                          0.0     (258.2)        0.0      510.0        37.8
                                                           ---------  ---------   ---------  ---------   ---------
Net (Loss) Income                                             (118.2)    (302.9)     (185.6)     325.7       (33.3)
Number of shares                                               409.9      409.9       409.9      409.9       457.5
Earnings (loss) per common share:
Ordinary loss                                                  (0.29)     (0.11)      (0.45)     (0.45)      (0.15)
Extraordinary (loss) income                                     -         (0.63)       -          1.24        0.08
Total (loss) income                                            (0.29)     (0.74)      (0.45)      0.79       (0.07)
                                                           =========  =========   =========  =========   =========
</TABLE>


                                       3
<PAGE>


<TABLE>
<CAPTION>
                                              Year ended December 31,
----------------------------------------------------------------------------------------------------------------
                                                              2001       2002        2003       2004        2005
                                                           ---------  ---------   ---------  ---------   ---------
                                             In millions of Pesos (1)
<S>                                                         <C>        <C>          <C>         <C>        <C>
U.S. GAAP
Net Loss before cumulative effect of change in accounting
    principle                                               (617.2)     (91.1)      (41.4)      (95.6)      54.8
Cumulative effect of change in accounting principle            -        (53.0)        -           -          -
Net Loss                                                    (617.2)    (144.1)      (41.4)      (95.6)      54.8
Number of shares                                             409.9      409.9       409.9       409.9      457.5
Earnings (loss) per common share:
Income (loss) before cumulative effect of change in
    accounting principle                                      (1.51)     (0.22)      (0.10)      (0.23)      0.12
Cumulative effect of change in accounting principle            -         (0.13)       -           -          -
Total earnings (loss)                                         (1.51)     (0.35)      (0.10)      (0.23)      0.12
OTHER DATA
Argentine GAAP
Capital Expenditures                                          93.8       21.2        19.2        28.1       35.6
Cash Flows from:
Operating Activities                                         187.8      113.0        59.5       128.2       82.5
Investment Activities                                       (112.3)    (123.0)      (10.8)      (21.8)     (31.3)
Financing Activities                                         (58.0)     (23.0)       (6.5)     (188.8)     (46.7)
Increase (decrease) in cash and cash equivalents              17.0       77.7        42.1       (82.4)       4.5
Cash and cash equivalents at beginning of year                21.6       38.6       116.5       158.6       76.2
Cash and cash equivalents at end of year                      38.6      116.3       158.6        76.2       80.7
U.S. GAAP
Cash Flows from:
Operating Activities                                         109.1       90.0        55.2       104.0       28.2
Investment Activities                                       (112.8)     (12.3)      (10.8)      (21.8)     (31.3)
Financing Activities                                          21.4       (0.6)       (2.2)     (164.6)       7.6
Increase (decrease) in cash and cash equivalents              17.7       77.1        42.1       (82.4)       4.5
Cash and cash equivalents at beginning of year                21.7       39.4       116.5       158.6       76.2
Cash and cash equivalents at end of year                      39.4      116.5       158.6        76.2       80.7
OTHER RATIOS
Argentine GAAP
Ratio of Total Debt to Capitalization                         48.5%      70.6%       77.9%       48.5%      45.8%
Current Ratio (3)                                              1.12       0.78        0.72        1.74       1.84
Solvency Ratio (4)                                             0.49       0.42        0.28        1.06       1.18
Ratio of Non-current Assets to Total Assets                    0.73       0.78        0.72        0.75       0.71
Profitability (Return on shareholder's equity)               (13.0%)    (43.6%)     (41.2%)      62.6%      (4.8%)
U.S. GAAP
</TABLE>


                                       4
<PAGE>


<TABLE>
<CAPTION>
                                              Year ended December 31,
---------------------------------------------------------------------------------------------------------------
                                                          2001        2002         2003        2004        2005
                                                       ---------  ---------   ---------  ---------   ---------
                                             In millions of Pesos (1)
<S>                                                    <C>          <C>         <C>          <C>         <C>
BALANCE SHEET DATA
Argentine GAAP
Cash and Cash Equivalents                                 38.6        116.3       158.6         76.2        80.7
Property, Plant & Equipment                            1,280.7      1,490.1     1,186.0      1,046.1       974.2
Total Assets                                           2,044.7      2,061.6     1,863.2      1,592.1     1,588.3
Total Debt                                               795.4      1,304.4     1,261.8        642.8       589.4
Total Liabilities                                      1,192.2      1,512.5     1,501.4        909.0       890.8
Capital stock                                            409.9        409.9       409.9        409.9       457.5
Shareholders' Equity                                     846.0        543.1       357.4        683.1       697.5
U.S. GAAP
Capital stock                                            409.9        409.9       409.9        409.9       457.5
Shareholders' Equity                                     293.5        149.5       108.1         12.5       114.9
</TABLE>

Footnotes
---------
(1)  The requirement to restate in constant pesos to recognize the effects of
     inflation was suspended as of March 1, 2003. All of the figures in the
     table, corresponding to the fiscal years 2001 through 2003 are stated in
     constant pesos of February 2003.
(2)  Reflects our unconsolidated subsidiaries and other long-term investments.
     (3) Current Ratio is the ratio of current assets to current liabilities.
     (4) Solvency Ratio is the ratio of shareholders' equity to financial debt.


         Exchange Rates
         --------------

         Historically, the Argentine foreign exchange market has been subject to
exchange controls. Between April 1, 1991, when Law No. 23,928 and Decree No.
529/91 (together referred to as the Convertibility Law) became effective, and
January 5, 2002, pesos were freely convertible into US dollars at a fixed
one-to-one exchange rate. Pursuant to the Convertibility Law, the Central Bank
of Argentina, or the Central Bank, had to (1) maintain a reserve in foreign
currencies, gold and certain public bonds denominated in foreign currency equal
to the amount of outstanding Argentine currency and (2) sell US dollars to any
requesting person at a fixed US$1.00 to P$1.00 exchange rate.

         On January 6, 2002, the Argentine Congress passed Law No. 25,561 (the
Public Emergency Law) which superseded certain provisions of the Convertibility
Law, including the fixed one-to-one exchange rate. This law granted the federal
executive branch the power to set the exchange rate between the Peso and foreign
currencies and to issue regulations related to the foreign exchange market. On
January 6, 2002, the executive branch established a temporary dual exchange rate
system. As of February 11, 2002, a single and free exchange market had been
established for all exchange transactions. Within this new exchange regime and
for the purpose of supporting the Peso exchange rate, the Central Bank initially
intervened several times in the exchange rate market by selling US dollars.

         In light of a growing demand for US dollars during the six months ended
June 30, 2002 and the shortage of US dollars available to satisfy this demand,
the Argentine Government adopted a series of measures to mitigate the demand for
US dollars and increase its US dollar international reserves. As a result, (1)
the export sector had to exchange on a short-term basis its non-Argentine
currency into Argentine pesos through the Central Bank, (2) new restrictions on
the transfer of funds abroad were implemented, (3) the purchase of foreign
exchange was limited and (4) requirements relating to the purchase of foreign
currency from banks and exchange agencies became more stringent. Subsequently,
the demand from private parties for US dollars significantly declined and the
Central Bank gradually started to accumulate US dollar reserves. Towards the end
of 2002, the Argentine Government implemented different measures aimed at
stimulating the economy and reducing certain restrictions in order to gradually
normalize the foreign exchange market and the commercial and financial flow of
foreign currency.



                                       5
<PAGE>

         In 2003, the balance of trade yielded a strong surplus, which, together
with the continuing default in a substantial part of foreign debt payments by
the Government declared at the end of 2001, caused an excess supply of foreign
currency. As a result, the Peso appreciated significantly against the US dollar
during 2003. Only numerous currency purchases by the Central Bank, supported by
the explicit intention of the Argentine Government to maintain a high rate of
exchange, prevented greater appreciation of the Peso against the US dollar. In
addition, on June 26, 2003, through Decree No. 285, the Government fixed the
minimum period that currencies may enter the country with speculative purposes
at 180 days in order to reduce volatility in the exchange rate.

         During 2004 and 2005, the Peso was relatively stable, again supported
by the Government's explicit position in favor of a high exchange rate. To such
respect, the Central Bank's intervention in the exchange market steadily
increased due to an ongoing excess supply of foreign currency, again determined
both by a still wide but contracting trade balance surplus and the continuation
of the partial default on the sovereign external debt, and, to a lesser extent,
due to foreign capital inflows. The trade balance evidenced new surpluses,
although not as sizable as the previous year due to the increase in imports. In
an effort to maintain the rate of exchange at about P$3 to US$1 during 2004 and
2005, the Central Bank made substantial levels of purchases in the exchange
market, with records in excess of US$100 million per day. In addition, on May
24, 2005, through Resolution No. 292/05, the Government extended the minimum
period for which currencies may enter the country with speculative purposes from
180 to 365 days, as an additional measure to mitigate the volatility of the
exchange rate.

         On June 9, 2005, the federal executive branch issued Decree 616/05. As
a result of this executive order any cash inflow to the domestic market derived
from foreign loans to the Argentine private sector shall have a maturity for
repayment of at least 365 days as from the date of inflow of cash. In addition,
30% of the amount shall be deposited with domestic financial institutions. This
deposit must be (1) registered, (2) non-transferable, (3) non-interest bearing,
(4) made in US dollars, (5) have a term of 365 days and (6) cannot be used as
security or collateral in connection with other credit transactions. Export and
import financing operations, as well as primary public offerings of debt
securities listed on self-regulated markets are exempt from the foregoing
provisions. However, the Central Bank issued since September 2005 several
regulations tightening the control and requirements on pre-financing and
financing facilities for exports.

         During January 2006, the Argentine Government paid in full its debt
with the International Monetary Fund, which amounted to approximately $9.5
billion, using part of the free liquid position held by the Argentine Central
Bank (which is deemed to be the excess of Central Bank foreign reserves as
compared with the domestic monetary base). Argentine Central Bank's foreign
reserves decreased by about one-third after this payment.


                                       6
<PAGE>


         The following table sets forth, for the periods indicated, the high,
low, average and period end exchange rates for the purchase of US dollars,
expressed in nominal pesos per US dollar. The Federal Reserve Bank of New York
does not report a noon buying rate for pesos.

<TABLE>
<CAPTION>
                                                              Exchange Rate (1)
                                                 -----------------------------------------------
                                                 High          Low      Average (2)   Period End
                                                 ----          ---      -----------   ----------
                                                                  (in pesos)
<C>                                               <C>           <C>          <C>           <C>
Year Ended December 31,
2001                                              1.00          1.00         1.00          1.00
2002                                              3.90          1.60         3.14          3.38
2003                                              3.37          2.73         2.95          2.94
2004                                              2.99          2.94         2.97          2.98
2005                                              3.04          2.86         2.92          3.03

Most Recent Six Months:

November 2005                                     2.99          2.94         2.97          2.97
December 2005                                     3.04          2.98         3.01          3.03
January 2006                                      3.06          3.03         3.05          3.07
February 2006                                     3.07          3.07         3.07          3.07
March 2006                                        3.08          3.07         3.08          3.08
April 2006                                        3.09          3.04         3.07          3.05
</TABLE>

Footnotes
---------
(1) Source: Banco de la Nacion Argentina.
(2) Based on monthly average exchange rates.


         On May 19, 2006, the exchange rate for the purchase of US dollars
published by Banco de la Nacion Argentina was Ps. 3.07 per $1.00 US dollar.

B.       Capitalization and indebtedness

         Not Applicable.

C.       Reasons for the offer and use of proceeds

         Not Applicable.

D.       Risk factors

         You should carefully consider all of the information set forth in this
annual report and the following risk factors. The risks below are not the only
ones we face. Additional risks not currently known by us may also impair our
business operations. Our business, financial condition or results of operations
could be materially adversely affected by any of these risks. This annual report
also contains forward-looking statements that involve risks and uncertainties.
Our results could materially differ from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
we face as described below and elsewhere in this annual report. See "Factors
Affecting Forward-Looking Statements."

Risk Factors Relating to Argentina

         Substantially all our revenues are earned in Argentina and, thus, are
highly dependent on economic and political conditions in Argentina.

         We are a stock corporation, or sociedad anonima, organized under the
laws of Argentina and substantially all of our operations, facilities and most
of our customers are located in Argentina. Accordingly, our financial condition
and results of operations depend significantly on macroeconomic and political
conditions prevailing from time to time in Argentina.



                                       7
<PAGE>

         Argentina experienced an economic and political crisis in recent years,
marked by a severe recession and the abandonment of US dollar-peso parity, which
led to a significant devaluation of the Peso against foreign currencies. These
conditions have had and may continue to have an adverse effect on our financial
condition and results of operations.

         In the last quarter of 2001, following almost four years of recession,
high levels of external indebtedness and the highest country risk ratings level
yet, Argentina found itself in a critical economic situation marked by a
significant decrease in deposit levels, high interest rates, a significant
decline in the demand of products and services and a substantial increase in
unemployment levels. The economic debacle was accompanied by a political crisis
that led to the resignation of President Fernando De la Rua in December 2001,
which was followed by a quick succession of interim presidents that ended with
the election by the Legislative Assembly of Senator Eduardo Duhalde as president
in January 2002.

         The Government's ability to fulfill its obligations and the
availability of credit lines were greatly diminished. On December 23, 2001,
interim President Adolfo Rodriguez Saa declared the suspension of debt payments
on a significant portion of Argentina's sovereign debt.

         By late 2001, significant deposits were withdrawn from financial
institutions as a result of the lack of confidence in the country's economic
future and the Government's ability to sustain the parity of the Peso to the US
dollar. This run on deposits had a material adverse effect on the Argentine
financial system as a whole as banks suspended the disbursement of new loans and
focused on collection activities in order to be able to pay their
accountholders. However, the general unavailability of external or local credit
created a liquidity crisis that hindered collections by financial institutions
thus adversely affecting their ability to refund deposits. On December 1, 2001,
in light of the severe withdrawal of deposits from the financial system, the
Government established tight restrictions on cash withdrawals from banks and
imposed controls on the transfer of funds outside of Argentina. The restrictions
on cash withdrawals from banks, known as the "corralito," were lifted on
December, 2002.

         The rapid and radical nature of the changes in the Argentine social,
political, economic and legal environment, and the absence of a clear political
consensus in favor of the Government or any particular set of economic policies,
created an atmosphere of great uncertainty. During 2002, the Government
implemented measures to address the effects of amending the Convertibility Law
and the asymmetric conversion into pesos of foreign currency denominated debts
and bank deposits subject to Argentine law. Moreover, these measures were also
designed to allow the Government to recover access to financing, reduce
Government spending, restore liquidity to the financial system, reduce
unemployment, and generally stimulate the economy. Beginning in July 2002, the
demand for pesos began to grow as the currency appreciated, the consumer
inflation rate decreased sharply with deposits returning to the financial system
attracted by high interest rates. Employment in the private sector also showed a
modest increase in the second part of the year as a result of growth in the
tradable goods sector. Industrial activity, driven by exports and import
substitution, began to recover in April 2002.

         On May 25, 2003, Nestor Kirchner was elected as the new the President
of Argentina. Since 2003, there has been a favorable evolution in the Argentine
economy ending the economic recession that lasted over four years. The following
economic indicators are worth mentioning: (i) an increase in the Treasury
primary surplus; (ii) a decrease and stabilization in the foreign exchange
parity as a result of substantial commercial surplus; (iii) an increase of
approximately 9% in the Gross Domestic Product during each of the years 2004 and
2005; (iv) stabilization of wholesale and retail inflation rates (although with
a further increase during 2005); (v) a steadier financial context with an
increase in the deposits made in financial institutions; and (vi) a marked
increase in the market value of Government securities. Moreover, unemployment
levels also showed considerable improvements reaching 10.1% during the fourth
quarter of 2005, 5.2 percentage points below the rate for the third quarter of
2003.

         In February 2005, the Argentine Government announced its plan to
restructure the Sovereign defaulted bonds approximately amounting to US$80
billion. The Government offered to exchange the bonds for new bonds worth
roughly 35% of the defaulted bonds, which was accepted by approximately 76% of
bondholders. The exchange offer was closed during 2005. Additionally, during
January 2006, the


                                       8
<PAGE>

Government paid in full the debt with the International Monetary Fund, which
approximately amounted to $9.5 billion, to a great extent using part of the free
liquid position of the Argentine Central Bank (which is deemed to be the excess
of Central Bank foreign reserves as compared with the domestic monetary base).

         While economic indicators have shown considerable improvement in the
Argentine economy since the start of the recession, and the restructuring of the
Government debt is a positive development, there are still a number of
macroeconomic and political uncertainties that affect the normalization of the
Argentine economy.

         Although the restructuring of the Argentine sovereign debt has been
completed with a high degree of acceptance, hold-out creditors to such
restructuring process could represent a critical issue to the Government.

         On January 14, 2004, the restructuring process started for a
substantial part of Argentina's sovereign debt, in default since late 2001 (for
an aggregate principal amount of approximately US$80 billion). For this purpose,
the Government offered three types of bonds in exchange for the defaulted
securities, the characteristics at which were established pursuant to Decree No.
1753/04. The proposal contemplated the issuance of bonds with significant grace
periods both for the amortization of principal and interest. This would allow
the Government to schedule maturities on a staggered basis and have financial
flexibility, as it would thus be able to adequately meet debt payments for the
recently restructured and to continue to honor the payments already committed in
the framework of the debt restructured during 2002 (primarily the Secured Loans
issued by the Government). The exchange period came to an end on February 25,
2005. The level of acceptance received by the exchange offer was significant. On
March 3, 2005, the Government announced an approximate 76% degree of acceptance
of the exchange offer. In June 2005, the Government issued and delivered the new
bonds in exchange for the defaulted bonds.

         Although the Government announced that it would not make payments on
bonds that were not tendered, as of the date of this report it has not adopted
any final resolution regarding the subject. Moreover, the hold-out creditors'
issue has triggered a legal action that delayed the issuance of the bonds in
connection with the exchange offer and may in the future lead to more legal
actions. Together with the international pressure to come to an agreement with
the hold-out creditors, this litigation and any future legal actions may impair
the continuity of the current economic recovery.

         Argentina's financial sector remains vulnerable to further shocks.

         The economic crisis in 2001 and 2002 resulted in the withdrawal of a
significant amount of bank deposits from the Argentine financial system in a
short period of time. This precipitated a liquidity crisis, which prompted the
Argentine Government to impose exchange controls and transfer restrictions, and
to require the conversion of US Dollar deposits and loans into Pesos at
Government established rates for depositors and financial institutions.
Additionally, the payment default of the Argentine Government on part of its
Argentine bonds held by Argentine banks also had an adverse and material impact
on their financial condition. Ultimately, many financial institutions became
insolvent. As a result, the Central Bank was forced to provide substantial
financial aid to many banks in the financial sector. Although the financial
system experienced a significant recovery since 2004, many Argentine financial
institutions remain weakened by the effects of the economic crisis and the
Argentine Government's response to it. Depositors' confidence in the Argentine
financial system remains fragile.

         In the event of a future shock, such as the failure of one or more
banks or a crisis due to depositors' lack of confidence in the financial system,
another run on deposits could result and the Argentine Government could reimpose
exchange controls or transfer restrictions. There can be no assurance that the
Argentine Government would choose or be able to effectively intervene to prevent
a significant deterioration or even a collapse of the financial system. Such a
collapse would have a material and adverse effect on the prospects for economic
recovery and political stability, resulting in a loss of consumer confidence,
lower disposable income and fewer financing alternatives for consumers.



                                       9
<PAGE>

         A significant deterioration or a collapse of the financial system and
its effect on consumers could also have a material and adverse effect on us,
including lower consumption of our products and a higher level of delinquent and
uncollectible accounts. Furthermore, our capacity to obtain new financing in the
Argentine financial system, either for working capital requirements or to repay
our restructured debt at maturity could be materially and adversely affected.

         The devaluation of the Peso has had, and may continue to have, a
material adverse effect on our results of operations and financial condition.

         The Argentine Government's economic policies and any future decrease in
the value of the Peso against the US Dollar could adversely affect our financial
condition and results of operations. The Peso has been subject to large
devaluation in the past and may be subject to significant fluctuations in the
future.

         The Public Emergency Law put an end to ten years of US Dollar-Peso
parity and authorized the Argentine Government to set the exchange rate between
the Peso and other currencies. The Argentine Government initially established a
dual exchange rate of Ps.1.40 per US$1.00 for certain transactions and a
free-floating rate for all other transactions. This dual system was later
eliminated in favor of a single free-floating exchange rate for all
transactions. Since the floating of the Peso, the Peso-Dollar exchange rate has
fluctuated significantly, causing the Central Bank to intervene in the market to
limit changes in the value of the Peso by selling US Dollars and, lately, by
buying US Dollars. As of May 19, 2006, the exchange rate was Ps.3.07 per
US$1.00. See "Exchange Rates" for additional information regarding Peso/US
Dollar exchange rates.

         We cannot assure you that future policies adopted by the Argentine
Government will be able to limit the volatility of the value of the Peso and,
therefore, the Peso could be subject to significant fluctuations which could
materially and adversely affect our financial conditions and results of
operations.

         We realize substantially all of our revenues in Argentina and in Pesos
and, as a result, the devaluation of the Peso had a material adverse effect on
our ability to service our indebtedness which is largely denominated in foreign
currency. In addition, such devaluation (combined in some cases, with
significant increases in international prices and the availability of technical
improvements) encouraged the shift in the use of substantial amounts of land
from raising dairy cattle to produce milk for domestic sale in Pesos to the
production of soybeans, corn and beef for export sale in Dollars, resulting in a
substantial decline in the production and a substantial increase in the price of
raw milk, our principal raw material. Furthermore, the devaluation of the Peso
has had a material adverse effect on our financial condition as the
Peso-denominated book value of our assets has not increased at the same rate as
has the Peso-denominated book value of our largely foreign currency-denominated
indebtedness. Any further depreciation of the Peso against the US Dollar will
correspondingly increase the amount of our debt in Pesos and make the use of
land to raise exportable commodities economically more attractive than the use
of such land to raise dairy cattle, with further adverse effects on our results
of operations and financial condition. As of December 31, 2005, the principal of
and accrued interest on our debt in foreign currency aggregated the equivalent
of approximately US$240.8 million.

         The Argentine economy may continue to experience significant inflation
and we may be adversely affected if we are unable to increase prices
accordingly.

         Although Argentina historically experienced high levels of inflation,
after the enactment of the Convertibility Law in 1991, its domestic inflation
rate fell significantly, even reaching deflation during some years. Following
the devaluation of the Peso at the beginning of 2002, inflation rates increased
again. The following is the evolution of the inflation rates since 2001, as
measured by the Consumer Price Index (CPI) or the Wholesale Price Index (WPI):

                                Year                CPI               WPI
                                ----                ---               ---
                                2001                (1.5%)            (5.3%)
                                2002                41.0%            118.0%
                                2003                 3.7%              2.0%


                                       10
<PAGE>

                                2004                 6.1%              7.9%
                                2005                12.3%             10.7%

         Some of the reactions of the Argentine Government to the escalation of
inflation rates seen during 2005 were directed toward private companies -
primarily those manufacturing products included in the inflation baskets - to
keep prices in low levels, and the imposition of additional export duties to
reduce the profitability of the export business and encourage domestic sales.
The dairy sector was subject during 2005 to both types of pressure from the
Government (which deepened during 2006).

         In the past, inflation materially undermined the Argentine economy and
the Argentine Government's ability to create conditions that would permit
economic growth. If the value of the Peso cannot be stabilized by positive
expectations for Argentina's economic future, as well as by strict fiscal and
monetary policies, an increase in inflation rates can be expected. Additionally,
in case of a further increase in the inflation rates, we cannot discard the
possibility of the deepening of the governmental actions seen during 2005 to
control inflation, or even some kind of more formal price control. Any
significant inflation that affects our costs and which we cannot pass on to our
customers could have a negative effect on our results of operations.

         Exchange controls may prevent us from servicing our foreign
currency-denominated debt obligations.

         Beginning in early December 2001, the Argentine Government implemented
a number of monetary and currency exchange control measures that included
restrictions on the withdrawal of funds deposited with banks and tight
restrictions on making certain transfers abroad, including transfers in
connection with repayments to foreign creditors. These regulations, which were
constantly modified since they were first enacted and which applied to us, have
been lifted. Currently, local companies may, without the Central Bank's
approval:

         o    transfer funds abroad for the payment of interest when due (or up
              to 15 days in advance of the due date)

         o    transfer funds abroad for the payment of principal at maturity (or
              up to 365 days in advance of the due date)

         o    transfer funds abroad to prepay principal with an anticipation
              greater than 365 days, provided that (x) the amount prepaid does
              not exceed the present value of the debt which is being prepaid or
              (y) in the context of a restructuring process, the terms and
              conditions of the new indebtedness, if any, do not result in an
              increase of the present value of the entire debt (the present
              value is to be calculated based on the implied interest rate for
              US Dollar forward transactions in regulated markets) and

         o    transfer funds abroad, to create a portfolio specifically for the
              payment of capital and interest of financial debt maturing within
              360 days.

         Prior to the transfer of funds abroad for the payment or redemption of
principal and interest, the financial entity making the transfer must verify
that the debtor has complied with all information requirements, and, if
applicable, with the minimum terms established for the debt to be paid. We
cannot assure you that the restrictions for transferring funds abroad will not
be reinstated and if they are, whether they will prevent us from servicing our
foreign currency-denominated financial debt.

         Argentina is experiencing energy shortages and restrictions on the
supply of energy to our facilities in Argentina could curtail our production and
impact our results of operations.

         As a result of a number of factors (including Argentina's financial
crisis, effective limits on prices at which natural gas producers may sell the
natural gas they produce, the conversion from dollars to pesos at a one-to-one
ratio of previously dollar-denominated gas and electricity transportation and
distribution tariffs



                                       11
<PAGE>

and the effective freezing of such tariffs), oil and natural gas producers, gas
and electricity transporters, electricity generators and gas and electricity
distributors have dramatically reduced their investments in capital assets. In
addition, during the last three years demand for natural gas has increased
substantially as a result of Argentina's economic recovery and the relatively
low price of natural gas in comparison to alternative fuels. These factors have
resulted in shortages of natural gas and electricity and consequent supply
restrictions.

         The Argentine Government is taking a number of measures to alleviate
the short-term impact of these supply restrictions on residential and industrial
users, including measures to rationalize residential consumption, to increase
the price of compressed natural gas and to import natural gas from Bolivia,
electricity from Brazil and fuel oil from Venezuela and the creation of a
program for the rationing of gas exports and for the regulation of the use of
transportation capacity. The Government has announced several measures intended
to address theses shortages in the medium and longer-term, including allowing
natural gas price to industrial users to rise and the imposition of an increase
in export duties for the export of petroleum and a new tax on the export of
natural gas.

         Our most critical production plants are designed to operate on a
dual-fuel basis, that is, on natural gas or on liquid fuels such as fuel oil. We
have storage capacity for liquid fuels equivalent to nine days of our
consumption of liquid fuels. Such storage facilities have recently been
refurbished or repaired as required and we maintain them at full capacity to
respond to potential shortages in our supply of natural gas.

         We do not expect the current shortage of natural gas to have a
substantial impact on our operations as long as we are able to purchase liquid
fuels. Prolonged lack of access to natural gas could, however, negatively affect
our results of operations as the cost of operating our facilities on natural gas
is substantially lower than the cost of operating such facilities on liquid
fuels. If, for any reason, we were not able to purchase fuel oil at a time when
our supply of natural gas is reduced or suspended, our results of operations
could be negatively affected.

         Risk Factors Relating to the Argentine Diary Industry

         We can be materially and adversely affected by changes in raw milk
production in Argentina.

         Raw milk is the basic raw material required to produce substantially
all of our products. If, for any reason, we are unable to procure sufficient
quantities of raw milk at reasonable prices, we will be materially and adversely
affected. The level of raw milk production in Argentina is affected by a number
of factors, many of which are beyond our control. These factors include not only
climatic conditions, such as prolonged droughts or floods, but also

         o    economic factors, including the value of the Peso in terms of
              other currencies and the international prices of exportable
              agricultural commodities (mainly soybeans), which may make the use
              of land to grow exportable products economically more attractive
              than the use of such land to raise dairy cattle,

         o    the ability of consumers to accept cost-related price increases in
              our products and

         o    the ability of consumers to forego the use of our products.

         After failing to produce sufficient raw milk to satisfy domestic demand
during the period from 1991 to 1994, the amount of raw milk produced in
Argentina increased sharply, reaching 10.3 billion liters in 1999 and resulting
in an excess of supply in the domestic market and a reduction in prices for
dairy products paid by Argentine consumers as well as in the prices paid to raw
milk producers. As a result, dairy farmers began to shift the use of the land
they had used to raise dairy cattle to other uses, which, in turn, led to a
decrease in the production of raw milk in Argentina.



                                       12
<PAGE>

         The devaluation of the Peso in 2002 made the production of exportable
commodities, including soybeans, corn and beef, more attractive than it had been
before the Peso was devalued. As a result of such devaluation, the rate at which
the use of land shifted from raising dairy cattle to produce milk for domestic
sale for Pesos to growing soybeans, corn and beef for sale internationally for
Dollars accelerated in 2002, a trend that has been strengthened by the increase
in the international prices of those products. This change in the use of
agricultural land is relatively more feasible in Argentina than in many other
milk producing nations because of the relatively high fertility of the land in
the areas in which milk is produced in Argentina as compared to the land in the
areas in which milk is produced in other countries. As a result of the foregoing
and as a result of the decrease in the productivity of Argentine dairy cattle,
production of raw milk declined approximately 23.0% from approximately 10.3
billion liters in 1999 to approximately 8.0 billion liters in 2003. Raw milk
production posted a significant increase in 2004, with a total volume of 9.2
billion liters, 15.3% over 2003 raw milk production and a further increase in
2005, with a total output of 9.7 billion liters, or 6.1%, as compared to 2004.
See "The Argentine Dairy Industry--Production of Milk and Other Dairy Products
in Argentina".

         We have been materially and adversely affected by this decrease in
production of raw milk because we have been unable to acquire sufficient raw
milk to permit us to operate at levels which make efficient use of our
processing facilities. We could also be adversely affected again if there is
another drop in raw milk production.

         We could also be affected by an excess in raw milk production above
domestic consumption and the drying capacity of the powdered milk plants in
Argentina, which could result in an excess of milk in the domestic market that
could drive down prices and margins for the Argentine dairy industry.

         In light of numerous factors affecting raw milk production in
Argentina, we cannot assure you that there will not be shortages or excesses in
raw milk production in the foreseeable future.

         We have been materially and adversely affected by a significant drop in
milk consumption in Argentina and a decrease in our margins.

         Consumption of dairy products in Argentina (expressed in terms of
liters of milk required to produce the products consumed, to which we refer as
"liters of milk equivalent") fell significantly over the last few years as a
result of the economic crisis. On the basis of information from the Centro de la
Industria Lechera, we estimate that per capita consumption dropped 16.1% in the
period from 1999 to 2005 from 230.9 liters of milk equivalent in 1999 to 193.8
liters of milk equivalent in 2005. Our capacity to pass on to our customers
through increased prices the cost increases experienced in such period has been
negatively affected, resulting in a compression of our margins. Additionally, it
is possible that in the future we may continue to earn lower margins if we are
unable to pass on to our customers such cost increases. This might cause us to
experience lower results than expected, even if there is a recovery in Argentine
dairy consumption.

Risk Factors Relating to Us

         Our financial condition depends on Argentina's governmental policies.

         Argentine Government economic measures have had and may continue to
have a substantial effect on us and on other private sector entities. We may
also be affected by:

         o    currency fluctuations,

         o    inflation,

         o    interest rates,

         o    price controls,



                                       13
<PAGE>

         o    taxation and changes in taxation policy of the provinces and the
              federal government,

         o    social unrest, and

         o    other political, social and economic developments in and affecting
              Argentina.

         We are highly leveraged. The level of our leverage may have material
adverse impacts on us.

         We are highly leveraged. At December 31, 2005 our consolidated
financial debt under Argentine GAAP (including accrued interest) amounted to
Ps.589.4 million, or 45.8%, of our total capitalization. Under Argentine GAAP,
our restructured financial debt is required to be recorded at its net present
value. Should it be recorded at its nominal or face value, our consolidated debt
would amount to Ps.710.5 million, representing 55.2% of our total
capitalization. We expect that we will continue to be highly leveraged over the
next few years and that the level of our leverage may have material adverse
impacts on us, including the following:

         o    limiting our ability to secure additional financing;

         o    requiring the allocation of substantial portions of our operating
              cash flows to meet debt service, thereby reducing funds available
              for our operations and future business opportunities;

         o    limiting our ability to invest in or develop new products and
              technologies;

         o    limiting our ability to compete with companies with lower levels
              of leverage; and

         o    limiting our ability to react to changing market conditions,
              changes in the dairy industry and economic downturns.

         We may be unable to pay interest or principal on our financial debt

         We believe we will be able to service our financial debt. However, this
belief is based on a number of assumptions, including, without limitation,

         o    that neither the Argentine economy nor the Dollar/Peso exchange
              rate deteriorates further,

         o    steady growth in Argentine GDP,

         o    low inflation rates,

         o    that our margins do not experience a further deterioration, and

         o    a favorable evolution of our working capital.

         If any of these assumptions is incorrect, if unforeseen events occur
that materially and adversely affect our operations or if there are restrictions
on our ability to transfer funds abroad, we may not be able to make payments of
interest or principal due on our new notes and our other financial debt.

         We may be unable to refinance the principal amount of our new financial
debt which remains outstanding on its final maturity date.

         We intend to refinance a substantial portion of the principal amount of
our financial debt on its final maturity dates in the capital or bank markets.
Our inability to refinance that principal amount could mean that we will default
on our payment obligation on such debt on its final maturity dates. Such
inability could result from, among other causes, our then current or prospective
financial condition or results of operations or from



                                       14
<PAGE>

our inability for any reason (including reasons applicable to Argentine issuers
generally) to issue debt securities or otherwise obtain credit in the capital or
bank markets.

         We are exposed to the devaluation of the Peso, and may be prohibited
from hedging such exposure.

         Our revenues are substantially Peso-denominated because most of our
sales are in Pesos and because we are required by Government regulations to
exchange any Dollars and other foreign currency revenues we generate from
exports into Pesos. Since most of our unsecured financial debt is denominated in
foreign currency (predominantly Dollars), we are exposed to potential losses as
a result of further devaluations of the Peso. Any eventual hedging of this
exposure could be prohibited by Argentine regulations.

         Our sales depend on economic conditions in Argentina, Brazil and other
markets.

         Changes in demand and prices for dairy products in Argentina usually
vary in line with changes in disposable income and economic expectations of
consumers in Argentina. The dairy industry has been adversely affected by
material and prolonged negative changes in the Argentine economy, for example,
during 1989 and 1990 when Argentina experienced a sharp recession. Once again, a
profound decrease in per capita milk consumption since 2001 through 2003 has
adversely and significantly affected the sector in general and us in particular.
Even though there was a recovery in per capita milk consumption in 2004 and
2005, we believe it is currently approximately 11% lower than during 2001.
Should the current situation endure, or new negative cycles emerge, we could be
seriously affected.

         We also sell dairy products, principally powdered milk, in Brazil
through Leitesol Industria e Comercio S.A, to which we refer as "Leitesol". We
also export powdered milk to other markets, including Algeria, Colombia, Chile,
Egypt, Iraq, Mexico and Venezuela. Any increase in our sales to these countries
is dependent upon an increase in raw milk production in excess of any additional
demand in the domestic market. These transactions also may be affected by
economic and political developments in those countries, including factors such
as:

         o    inflation,

         o    interest rates,

         o    currency fluctuations,

         o    regulations, tariffs and other governmental policies related to
              the importation of dairy products,

         o    price and wage controls,

         o    oil price in the international markets, as most of the milk
              importing countries are oil exporters,

         o    taxation, and

         o    war and other domestic hostilities.

         Seasonality in the production of milk affects our working capital.

         Production of raw milk in Argentina is seasonal, with production in the
spring exceeding production in the fall by approximately 30%. As a consequence,
working capital requirements increase at the end of the year as the spring ends
in the southern hemisphere. This results in the accumulation of powdered milk
stocks, which are exported or gradually used during the following months. At the
same time, we, following market practices, acquire all of the milk produced by
each of our suppliers. Accordingly, any increase in milk production (or a
decrease in the domestic demand) could produce an increase in our powdered milk
stocks.


                                       15
<PAGE>

         As a result of the foregoing, working capital needs can be subject to
substantial variations, which, in turn, require adequate reserves of working
capital. We cannot assure you that we will have the necessary funds for such
purpose or that we can obtain such funds from the financial system.

         We face severe competition from other dairy companies in Argentina and
in other countries.

         Our business is highly competitive. Significant changes in marketing or
pricing strategies by one or more of our major competitors could adversely
affect us. Competition in the dairy industry is based primarily on quality,
brand name recognition, price, service, and the ability to develop, produce and
distribute products that cater to changing consumer demands. Changes in consumer
demand and increased competition may increase pricing pressures on certain of
our products and adversely affect our activities.

         We are subject to restrictions on our activities.

         The indenture under which our 8% Senior Notes due 2012 will be
outstanding contains several restrictions and covenants, including limitations
on indebtedness, new investments, liens, asset sales and engaging in mergers or
acquisitions. The loan agreement under which the floating rate debt is
outstanding contains similar restrictions. These restrictions could limit our
ability to plan for or react to market conditions or meet extraordinary capital
needs or otherwise could restrict our activities. We cannot assure that these
restrictions will not adversely affect our ability to finance our future
operations or capital needs or to engage in other business activities.

         We may be subject to liabilities due to claims brought against us in
the ordinary course or due to our prior ownership of Con-Ser S.A.

         Our business exposes us to claims with regard to contractual and
statutory obligations, workers' compensation and other events in the ordinary
course, and, therefore, we could be required to pay material amounts in respect
of these claims. In addition and although we sold Con-Ser S.A. in 2000, we may
be subject to liability for any claims brought against Con-Ser S.A. arising from
transactions performed during our ownership of Con-Ser S.A. On December 2004,
October 2005 and December 2005, we received letters from Multitrans S.A., the
company that acquired Con-Ser S.A., pursuant to which we were informed of claims
brought by the Tax Authorities of Ps.69.0 million, including estimated punitive
interest, with respect to certain operations during the period when we were the
owners of Con-Ser S.A. We have agreed with Multitrans that we will work together
to contest such claim, and prepare the documents that will evidence the wrongful
criteria used by the tax authorities in determining the referred claim.

         We depend on key managers.

         The loss of key managers or our inability to attract and retain
qualified management personnel could materially and adversely affect the success
of our operations. We require experienced managers particularly in light of the
significant need to increase cash flow generation in order to service our
financial debt and succeed in a highly competitive and complex market given the
volatility of economic and financial conditions in Argentina. We cannot assure
you that we will be able to attract and retain qualified management personnel on
acceptable terms.

         Mr. Pascual Mastellone, who is 75 years old, has been our chief
executive officer since 1952. Mr. Mastellone has indicated that he plans to
continue serving as our chief executive officer for the foreseeable future.
However, if he is unable for any reason to continue to serve as chief executive
officer may have a negative impact on our business.

Item 4.  Information on the Company

A.       History and development of the Company

         Mastellone Hermanos S.A is organized in Argentina as a sociedad anonima
for a period of 99 years from November 5, 1961 and was registered as such with
the Argentine Public Registry of Commerce, General


                                       16
<PAGE>

Superintendence of Corporations of the City of Buenos Aires, on May 17, 1976,
under number 1163, Book 85, Volume "A" of Corporations.

         Our registered address is Encarnacion Ezcurra 365, 2nd Floor, Suite
310, Buenos Aires, Argentina and our telephone number is (5411) 4318-5000. Our
agent for the service of process in the United States of America is CT
Corporation, located at 111 Eight Avenue, New York, NY, 10011. Its phone and fax
numbers are 212-895-0200 and 212-895-0219, respectively.

         We are the leading processor of fresh dairy products in Argentina
(ranking first in market share in fluid milk, cream and butter, according to
market surveys made by CCR Market Knowledge, an Argentine market research
company), and one of the two biggest dairy companies in the country. We process
and distribute a broad line of fresh dairy products, including fluid milk, cream
and butter, as well as long-life dairy products, including cheese, powdered milk
and caramelized condensed milk, which is known in Argentina as dulce de leche.
We market our dairy products under several brand names, including La Serenisima,
La Armonia and Fortuna. We also package some of our products under the brands of
certain of our major clients and deliver them to those clients for sale by them
to their own customers, a strategy which we believe provides us with flexibility
in competing in different market sectors. La Serenisima and several of our other
brand names have enjoyed a high level of recognition throughout Argentina for
over 30 years. According to several independent marketing surveys conducted over
the last few years, our La Serenisima brand has consistently ranked among the
leaders in brand image among all consumer brands in Argentina, ranking first in
2004 and 2005, according to surveys made by Clarin, one of the leading Argentine
newspapers. During 2004 and 2005, we had a market share of approximately 56.6%
and 63.1% of the Argentine fluid milk market in terms of physical volume.

         We and our predecessor businesses have been actively engaged in the
dairy industry for over 76 years. During such period, we have been under the
control of members of the Mastellone family.

         For the year ended December 31, 2004, we had net sales of Ps.1,385.4
million and a net income of Ps.325.7 million. For the year ended December 31,
2005, we had net sales of Ps.1,599.2 million and a net loss of Ps.33.3 million.

         Market share information contained in this document has been obtained
from CCR Market Knowledge, an Argentine market research company.

         Principal capital expenditures and divestitures currently in progress

         Our purchases of property plant and equipment for the fiscal years
2003, 2004 and 2005 amounted to Ps.17.4 million, Ps.25.7 million and Ps.30.5
million, respectively.

         During 1998, we launched bottled fluid milk in plastic containers, a
packaging system not available until then in the Argentine market. For such
purposes, we developed jointly with, and outsourced to, Tetra Pak (a highly
recognized company specialized in the packaging of fluid and semi-fluid foods)
the production of plastic bottles. Market changes after the launching of those
products, as well as the decision of Tetra Pak to leave this business line on a
worldwide basis, forced us to evaluate alternatives to continue with the
manufacturing of this product line. Accordingly, during 2004 we agreed with
Tetra Pak the purchase of the equipment currently used to manufacture plastic
bottles, for a total consideration of approximately US$4.7 million (Ps.14.1
million, at the then prevailing exchange rate) to be paid in fifty-five equal
monthly installments, maturing since September 2004, plus an annual interest
rate of 3% on the outstanding balances.

         The balance of the purchases for property, plant and equipment made
during 2003, 2004 and 2005 can be considered as maintenance expenditures, that
is, those needed to maintain our overall production capacity.

         Given the substantial increase in raw milk production experienced in
Argentina since 2004, we expect further increase over the next few years. Due to
the high prices for dairy products in the international markets, as well as the
commercial opportunities available to us in these markets, we are planning to
enlarge


                                       17
<PAGE>

our powdered milk production capacity as well as increase our reception capacity
for raw milk. The details of this investment remain currently under review
(including both technical and cost aspects). However, we believe that the total
cost will be no less than $20 million. We expect to start construction for this
facility in 2006 and end during the first semester of 2008. We recently began
evaluating a new project to increase our own generation of electricity for our
main industrial plants in order to offset any potential shortage of energy in
Argentina over the next few years. We expect the total cost of this generation
project to reach approximately $2.0 million, to be spent during 2006 and 2007.
Excluding these projects, our future capital expenditures will be limited to
maintenance. We estimate that the amount required for this purpose in 2006 will
be close to $6.0 million. We also estimate that such capital expenditures could
increase gradually over the following years. We expect to finance our capital
expenditures through cash generated from our operations.

         There have been no public or private take over offers by third parties.

B.       Business overview

         Competitive Strengths

         We believe the following to be our principal competitive strengths:

         o    Leading Market Position. In 2005, we had a market share of
              approximately 63.1% of the Argentine fluid milk market in terms of
              physical volume, as obtained from CCR Market Knowledge. We also
              have the highest market share in Argentina (in terms of physical
              volume) in the cream, butter and dulce de leche markets according
              to Mercado, an Argentine business magazine, and the second highest
              market share in Argentina (in terms of physical volume) in the
              cheese and powdered milk markets according to Mercado. We believe
              that these market shares allow us to benefit from significant
              economies of scale in the production, marketing and distribution
              of our products and strengthen our bargaining position with our
              suppliers and customers.

         o    Raw Milk Procurement. At December 31, 2005, we acquired our raw
              milk from approximately 1,385 producers located in the principal
              milk producing areas of Argentina (principally the Province of
              Buenos Aires and, to a lesser extent, the Provinces of Santa Fe,
              Cordoba, La Pampa and Entre Rios). We believe that the breadth of
              our supplier base constitutes one of our most significant
              competitive strengths.

         o    Stable Relationship with Milk Suppliers. We consider the stability
              of our relationship with our milk suppliers to be one of our key
              strengths. At December 31, 2005, the approximately 1,385 producers
              from which we purchased milk have supplied us with milk for
              approximately 14 years on average.

         o    Strong Brand Image. We have developed one of Argentina's most
              recognized and highly regarded brand names. According to several
              independent marketing surveys conducted over the last few years,
              La Serenisima has consistently ranked among the leaders in brand
              image among all consumer brands in Argentina. The strength of our
              brands has allowed us successfully to place new products in the
              marketplace and to sell some of our products at a premium over the
              price of our competitors' comparable products. At the same time,
              our company is highly regarded in the Argentine business
              community, as consistently shown in surveys conducted in the last
              several years by Clarin, one of Argentina's leading newspapers,
              ranking first during the last two years.

         o    Superior Product Quality. We believe that our products are
              recognized throughout Argentina for their consistently superior
              quality, as identified by different market surveys, such as the
              one made in 2005 by CEOP and SEL, two Argentine research firms,
              and Apertura, an Argentine magazine. The high quality of our
              products is due to a number of factors, such as industrial



                                       18
<PAGE>

              plants meeting ISO 9000 and ISO 14000 quality standards and our
              policy not to purchase raw milk that does not meet quality and
              health standards equal to or higher than those applicable in the
              European Union, which are among the most stringent in the world.
              We believe that the quality of our products is a key factor in our
              achieving long-term commercial success.

         o    Extensive and Efficient Distribution Network. We believe that we
              have created an extensive and efficient distribution network for
              dairy products in Argentina. At December 31, 2005, this network
              included approximately 915 independent contractors that use their
              own trucks to distribute our products and those of the Argentine
              dairy subsidiary of Compagnie Gervais Danone, to which we refer as
              "Danone Argentina" and "CGD", respectively, exclusively to more
              than 77,800 customers, including hypermarkets, supermarkets,
              distributors and small retailers. We believe that we sell our
              products to substantially all the retailers that sell name-brand
              food products in Argentina. We also believe that we enjoy a
              strongly favorable reputation among our customers based in part on
              the efficient and reliable distribution of our products.

                      At the end of 1999, CGD and we agreed to establish a new
              dairy products distribution system in Argentina. This system has
              been operated since October 1, 2000 by a company named Logistica
              La Serenisima S.A., to which we will refer as "Logistica," in
              which Danone Argentina and certain other subsidiaries of CGD
              initially held 51% plus one share of Logistica's capital stock and
              voting rights, and our shareholders held the remaining balance.
              Following certain transactions completed during February 2005, our
              shareholders sold to Danone Argentina 44% of the capital stock and
              voting rights of Logistica, and contributed to us the remaining
              5%. Logistica distributes exclusively Danone Argentina's and our
              products while charging Danone Argentina and us an amount equal to
              its costs plus a 0.1% margin and any value added tax and/or
              turnover tax. Our distribution service agreement with Logistica
              was initially expired on October 1, 2020, and in February 2005, it
              was extended to 2040. At the same time, we and CGD agreed to a new
              cost allocation regarding Logistica, with an estimated reduction
              in its fees of approximately US$2.5 million per year. We believe
              this new distribution system constitutes an improvement over our
              previous distribution system. See "--Marketing, Sales and
              Distribution".

         o    Advanced Facilities. Between 1996 and 2000, we built new plants,
              including powdered milk and cheese plants, and upgraded
              substantially all of our other production facilities, thus
              allowing us to benefit from state-of-the-art equipment, minimize
              future investment needs and respond rapidly and efficiently to
              shifts in the demand for dairy products in our domestic and export
              markets. In addition, these investments provide us with greater
              operational flexibility in the use of raw milk in response to
              changing market conditions.

         o    Experienced and Dedicated Management Team. We are controlled by
              members of the Mastellone family who have been involved in the
              Argentine dairy industry for over 76 years. Our key senior
              officers have worked with us for more than 13 years on average.

         o    Export Market. We have developed a strong network of commercial
              relationships with the main importers of dairy products in the
              principal dairy importing markets which, together with our ample
              processing capacity, we expect will allow us to increase
              significantly our exports. Additionally, in accordance with the
              Mercosur trade pact, Argentine companies are entitled to export
              their products to Brazil without payment of Brazilian import
              duties. In order to obtain the maximum benefit from the Mercosur
              trade pact, during 1998 we acquired Leitesol, a dairy company that
              distributes its products (principally powdered milk) in Brazil.
              Our ownership of Leitesol facilitates the sale of our powered milk
              in the Brazilian market and gives us a platform for the eventual
              export to Brazil of additional products.



                                       19
<PAGE>

         Business Strategy

         Our strategic objective is to enhance our position as Argentina's
leading fresh dairy products company and to maximize our profitability. To
achieve this objective, we intend to capitalize on our competitive strengths in
order to:

         o    Strengthen Brand Name Recognition and Improve Product Quality. We
              intend to continue focusing on executing innovative selling,
              advertising and promotional activities designed to build, sustain
              and enhance awareness of our brands, a high level of customer
              loyalty and a strong association of our brands with high quality.
              We also plan to continue allocating substantial resources to our
              premium La Serenisima brand under which we sell higher price brand
              name dairy products in Argentina as well as powdered milk to the
              international markets.

         o    Increase Levels of Activity. We have experienced a reduction in
              our level of processing activity from 2000 to 2003 as a result of
              a decrease in raw milk production and lower consumption of dairy
              products in Argentina. The reduction in raw milk production was
              caused by (i) the shift in the use of agricultural land from
              raising dairy cattle to the economically more attractive
              production of exportable agricultural commodities, and (ii) a drop
              in productivity per cow. In response to this decrease and in order
              to avoid further decreases in our utilized plant capacity, we
              applied special efforts to increase the amount of raw milk
              produced by our milk suppliers by offering them prices which are
              sufficient to induce them to increase their raw milk production
              and allocating funds to an assistance program that extends credit
              facilities to our milk suppliers to finance the production of
              higher raw milk volumes. As a result, our raw milk purchases
              increased 31.1% in 2005 as compared to 2003. We have also
              experienced in recent years a sharp drop in the consumption of
              dairy products in Argentina. As a response to such negative
              development, we applied special efforts to increase our market
              share in the Argentine dairy market. Due to the aforementioned
              actions, our sales in the Argentine domestic market, expressed in
              physical terms, reached a historical level during 2005. In light
              of our unused plant capacity, we expect that any increase in the
              milk volumes we process will allow us to increase our cash flow
              from operations. We expect to continue with such efforts, in order
              to obtain a further increase in the use of our plant capacity.

         o    Enlarge Our Product Offering. Over time we have enlarged our
              product offering by introducing new dairy products for which our
              market research indicated there would be adequate levels of
              demand. For example, we created the largest offering of special
              milks in Argentina to satisfy the needs of different consumer
              classes identified on the basis of our market research. We expect
              to continue this practice in order to preserve and enhance our
              commercial leadership.

         o    Achieve Further Cost Reductions. In recent years, we have carried
              out a cost reduction plan in every area of our operations which is
              designed to allow us to efficiently modify our cost structure in
              response to changes in market conditions. We plan to continue
              reducing our costs in order to improve our operating efficiency.

         o    Increase Exports. To the extent we are able to purchase raw milk
              in excess of the raw milk we require to satisfy domestic demand
              for our products, we intend to increase the volume and broaden the
              range of products we currently export and increase the number of
              countries to which we export our products in significant
              quantities. We believe that we are well positioned to capitalize
              on export opportunities in the long-term due to our capital
              investments, strong brand recognition, high quality product line,
              low cost competitive advantage and geographic location. Although
              Brazil domestic production of raw milk began to cover its needs
              during the last few years, given its low per capita dairy product
              consumption, we have favorable long-term prospects for the sale of
              our powdered milk through our subsidiary Leitesol. In addition,
              under the Mercosur trade accord to which Argentina and Brazil,
              among others, are parties, we are able to export our products to
              Brazil free of import duties, whereas exports to Brazil from
              countries which are not Mercosur members currently incur a 16%
              import duty. Additionally, we believe



                                       20
<PAGE>

              that, subject to our ability to procure sufficient raw milk, we
              will also be able to increase further our exports of dairy
              products to other countries, such as Algeria, Mexico, Russia,
              Venezuela, and others. We are considering expanding our export
              offering to include various types of cheese. During 2004 we began
              exporting olive oil produced by one of our subsidiaries.

         Main Drivers Affecting Our Performance

         We are the leading producer of fresh dairy products in Argentina and
one of the two biggest dairy companies in the country. Our main markets are the
Argentine domestic retail market and the export market. We (and our
predecessors) have been active in the Argentine domestic market for more than 76
years and have been exporting dairy products (mainly powdered milk) for over 30
years. Therefore, we are affected by developments in the Argentine dairy sector
as well as developments in Argentina's economic and financial situation. Also,
due to our commercial activities in Brazil, we could also be affected by
developments in Brazil's economic and financial condition, although to a lesser
extent than in the case of Argentina. Some of the main drivers affecting our
economic and financial performance are the following:

         o    Raw milk availability: We are affected by the availability of raw
              milk. We could be affected both in case of shortages, which could
              lead to the interruption of our export business and a reduction in
              volumes in the domestic market or a sharp increase in costs if we
              need to purchase imported raw milk, as happened in the period from
              1991 to 1993, or in case of excess in raw milk production, which,
              if it exceeds the powdered milk production capacity of the
              Argentine dairy companies could result in oversupply to the
              domestic market and a sharp decrease in selling prices, as
              happened in the period from 1999 to 2000. The availability of raw
              milk also affects the price paid to the dairy farmers, and affects
              our margins as well.

         o    Selling prices: purchasing power of the Argentine population
              affects the final price we can obtain for our products in the
              country. At the same time, the increasing pressures from the
              Argentine Government to keep inflation under control could impact
              on our ability to pass higher costs to the selling prices.
              International prices, which are entirely out of our control, are
              subject to significantly fluctuations due to changes in the
              relationship between supply and demand and ultimately to the
              global economic conditions. Additionally, changes in export duties
              or incentives may also affect the profitability of our export
              business.

         o    Financial facilities: We may need to use financial facilities in
              order to (a) provide working capital, for example, increase in
              inventories during spring, when raw milk production reaches its
              highest point in the year, (b) refinance a portion of our existing
              financial debt, or (c) make capital expenditures. If we are unable
              to establish these facilities our financial position could be
              affected and our commercial activities could be impaired.

         o    Developments in the Argentine economy: We are exposed to the
              developments in the Argentina's economy, including, but not
              limited to, inflation and devaluation rates, taxes, and any prices
              controls and related measures such as additional export duties to
              encourage domestic supply.

         o    Developments in the Brazilian economy: We are exposed to
              developments in Brazil's economy, principally inflation and
              devaluation rates as those can affect the prices of our products
              in Brazil, given the mismatch between revenues (denominated in
              Brazilian reais) and the import cost of the products sold in
              Brazil (denominated in US dollars).

         The Argentine Dairy Industry

         Introduction
         ------------

         Raw milk is the primary raw material used in the dairy industry for the
production of its various products. Argentina is among the world's lowest cost
producers of raw milk due, in large part, to the



                                       21
<PAGE>

economically motivated historical use of land for grazing dairy cattle rather
than for raising crops or for other purposes, a benign climate and the
relatively high productivity of Argentina's dairy herds. As described in Item
3.D--"Risk Factors--Risk Factors Related to Us--We can be materially and
adversely affected by changes in production of raw milk in Argentina," and as
set forth below, a number of economic factors have, since 2000 through 2003,
caused land traditionally dedicated to grazing dairy cattle to be used for
raising crops which has in turn contributed to a sharp decrease in the
production of raw milk in Argentina. Raw milk production recovered substantially
in mid-2003, reaching volumes closer to those observed during the production
peak in 1999.

         The production of raw milk in Argentina is seasonal, with spring and
summer production exceeding fall and winter production by approximately 30%.

         The Argentine dairy sector is relatively free from Government
regulation other than regulations concerning hygiene and the shelf life of dairy
products. No Argentine official entity or agency is a significant producer or
processor of milk and the Argentine Government does not subsidize the dairy
industry, in contrast to the United States and certain European Union countries.
Since 2002, and in order to mitigate the impact of the Peso devaluation, the
Argentine Government established a 5% export duty on dairy products. Also in
order to reduce inflation rates, such export duties increased during July 2005
to 10% for exports of cheese and 15% for exports of the remaining dairy
products, and since November 2005, there is a suspension of the traditional tax
refunds, which accounted for 5% for dairy exports. While some government
welfare plans currently provide for the purchase of milk with government funds
for low income families and such programs have increased in size recently, the
level of such purchases is not very significant in relation to the size of the
Argentine dairy sector (approximately 5% of total production) and has no
significant effect on the dairy products or raw milk prices. Consequently,
leaving aside the impact of the changes in export incentives / duties imposed by
the Government, market forces have been the main factor in determining raw milk
prices in Argentina.

         Companies involved in the manufacture of dairy products in Argentina
must be registered with certain Argentine federal, provincial and municipal
authorities from whom they must obtain permits and approvals to manufacture and
sell dairy products. We have obtained all such permits and approvals. Our
production processes meet the requirements established by the Argentine
Nutritional Code and the Ministry of Public Health as well as by other similar
Argentine regulatory authorities supervising our activities.

         Production of Milk and Other Dairy Products in Argentina

         The size of the Argentine dairy sector is comparable to that of Italy,
Australia, Japan and Canada. The following chart sets forth for the indicated
years information regarding milk production in Argentina, exports of dairy
products from Argentina and consumption of dairy products in Argentina.


<TABLE>
<CAPTION>
                                                                                                      Per Capita
                         Total Milk          Total Milk                           Total Domestic        Domestic
        Year            Production(1)        Exports(2)       Exports (%)(3)      Consumption(4)     Consumption(5)
        ----            -------------        ----------       --------------      --------------     --------------
<S>     <C>               <C>                 <C>                  <C>               <C>                   <C>
        1994               7,777.0              527.0               6.8%             7,666.0               224.3
        1995               8,507.0            1,094.0              12.9%             7,578.0               218.0
        1996               8,865.0            1,118.0              12.6%             7,816.0               221.9
        1997               9,090.0            1,196.0              13.2%             8,142.0               228.3
        1998               9,546.0            1,322.0              13.8%             8,176.0               226.3
        1999              10,329.0            1,848.0              17.9%             8,446.0               230.9
        2000               9,817.0            1,407.0              14.3%             8,559.0               231.1
        2001               9,475.0            1,158.0              12.2%             8,199.0               218.7
        2002               8,529.0            1,701.0              19.9%             7,296.0               192.3
        2003               7,951.0            1,286.0              16.2%             6,705.0               174.6
        2004               9,169.0            2,163.0              23.6%             7,140.9               186.9
        2005               9,728.0            2,182.0              22.4%             7,596.0               193.8
</TABLE>

Source:  Argentine Dairy Industry Federation (Centro de la Industria Lechera, or
         CIL). Figures for 2005 are preliminary.
________________


                                       22
<PAGE>

Footnotes:
---------
(1) Expressed in millions of liters.
(2) Expressed in millions of liters of milk equivalent.
(3) Total Milk Exports divided by Total Milk Production.
(4) Expressed in millions of liters required to produce the products consumed.
(5) Expressed in liters required to produce the products consumed.


         Total Domestic Consumption does not equal the difference between Total
Milk Production and Total Milk Exports due to changes in inventories and
imports.

         From 1994 through 1999, raw milk production in Argentina increased at a
5.8% compound annual rate. This growth was principally due to the relatively
attractive economic return from the use of agricultural land to raise dairy
cattle in comparison to other uses that could be given of such land and strong
demand in the domestic market. During 1999 and 2000, however, the effect of
lower prices for dairy products in both the domestic and international markets
resulted in a decrease in raw milk prices. Total milk production in Argentina
began to decline in 2000 and decreased approximately 23.0% from approximately
10.3 billion liters produced in 1999 to approximately 8.0 billion liters
produced in 2003. This decrease was principally due to the shift in the use of
agricultural land from raising dairy cattle to the economically more attractive
production of exportable agricultural commodities and the resulting decrease in
the number of dairy cows as well as the decline in the amount of milk produced
on average by Argentina's dairy cows resulting from the economically motivated
decision of dairy farmers to rely more on grazing and less on supplementary food
in the raising of their dairy cattle. The price paid for the raw milk began to
recover since 2002. Accordingly, raw milk production started to increase since
mid-2003. Raw milk production during 2005 increased to 9.7 billion liters,
approximately 22.3% over the level of 2003.

         Demand for Argentine Milk and Other Dairy Products

         Domestic Market
         ---------------

         Before the onset in 2001 of Argentina's economic crisis, annual
consumption of dairy products amounted to approximately 8.5 billion liters of
milk per year, an annual per capita consumption approximated 230 liters of milk
equivalent. Consumption of dairy products per capita in Argentina before 2002
was usually the second highest in Latin America after Uruguay, but was lower
than in many developed nations. Given the significant reduction in consumption
in Argentina since 2002, it is likely that per capita consumption of milk
measured in terms of liters of milk in several other Latin American countries
exceeds that in Argentina. The consumption of dairy products in Argentina in
2005 is estimated at approximately 7.6 billion liters of milk. This reflects a
decrease of 7.6% as compared to 1999. We estimate that per capita consumption
fell from 230.9 liters per year in 1999 to 193.8 liters in 2005, a 16.1%
decrease.

         We believe that the decrease in demand for dairy products is driven by
the increase in the price of raw milk in response to the substantial decrease in
production of raw milk described above. The limited capacity of consumers to
absorb additional price increases for dairy products and the willingness of
these to forego for economic reasons the consumption of cheese, (the production
of which has traditionally required more raw milk than any other dairy product,)
has resulted in a decrease of demand for our products.

         The following chart sets forth for the indicated years the consumption
of the principal dairy products produced in Argentina:

<TABLE>
<CAPTION>
                                                                         POWDERED
               YEAR             CHEESE(1)(3)       FLUID MILK(2)        MILK(1)(3)         BUTTER(1)(3)
               ----             ------------       -------------        ----------         ------------

               <C>                    <C>               <C>                   <C>                 <C>
               1994                   365               1,976                 114                 44
               1995                   354               2,070                 105                 42
               1996                   375               2,110                 117                 45
               1997                   390               2,193                 137                 47
               1998                   392               2,238                 127                 45
               1999                   400               2,250                 129                 46


                                       23
<PAGE>

<CAPTION>
               <C>                    <C>               <C>                   <C>                 <C>
               2000                   428               2,372                 119                 43
               2001                   409               2,381                 116                 41
               2002                   352               2,094                 116                 41
               2003                   309               2,046                 102                 36
               2004                   339               2,194                 105                 41
</TABLE>

         Source:  Center for the Dairy Industry, National Institute of
                  Statistics and Census, Ministry of Economy and Public Works,
                  Secretariat of Agriculture, Cattle Farming, Fisheries and
                  Food.
         ________________
         Footnotes
         ---------
         (1) Expressed in thousands of metric tons.
         (2) Expressed in millions of liters.
         (3) Does not include exports.

         International Market
         --------------------

         General

         According to the United States Department of Agriculture, which we
refer to as "USDA", milk production in the main milk producing countries reached
413.7 billion liters during 2005, an increase of approximately 2.4% as compared
to 2004. The average annual growth rate in milk production in such countries for
the four years ended December 31, 2005 has been approximately 1.8%. The greatest
increase in the average annual rate of production of raw milk during this
four-year period occurred in China, which had an average annual growth rate of
28.5%, while Argentina's production of raw milk had an annual average
contraction of 0.9% for the same period. Excluding China, worldwide raw milk
production increased 1.2% during 2005, posting an average yearly increase of
0.7% over the last four years ended December 31, 2005.

         According to the last information issued by the USDA, the international
market for dairy products amounted to approximately 38.5 billion of liters of
milk during 2005, or approximately 9.1% of milk production in the main milk
producing countries. Given the fact that the statistics of the USDA take into
account only a group of selected countries instead of worldwide information, the
analysis based on their numbers is to be seen as a reasonable approach to the
overall situation in the dairy markets. International trade in dairy products
consists primarily of sales of commodities such as powdered milk, butter and
cheese, which are less perishable and have broader uses than other consumer and
specialties dairy products. Given the relatively small size of the international
market, changes in short-term prices tend to be substantial as demand and supply
shift. International prices of these products have fluctuated sharply over the
past nine years; for example, according to the USDA, the price of whole powdered
milk averaged approximately US$1,871 per ton from January 1, 1995 through
November 30, 2005 but during that period the price fluctuated from a low of
US$1,250 per ton in July 2002 to a high of US$2,400 per ton in November 2005. We
believe that for the foreseeable future, international prices for the dairy
products will remain closer to their current levels (specifically in the case of
the powdered milk, around US$2,000 per metric ton), over the averages of the
last decade, and subject to relatively small fluctuations.

         All of the countries in Latin America, with the exception of Argentina,
Costa Rica and Uruguay (and since 2004 Brazil), rely on imports of dairy
products. Between 1999 and 2004, the annual imports of dairy products by Mexico,
Brazil and Venezuela (the principal importers of dairy products in Latin
America) averaged 3.0 billion liters of milk equivalent per year.

         Argentina's ability to export dairy products had been historically
constrained by the inconsistent availability of exportable surplus raw milk,
high processing and distribution costs, low installed capacity for drying fluid
milk (milk powder) and competition from milk producing countries that provide
significant subsidies to their dairy industries. We believe that exports by
Argentine dairy producers will increase as raw milk production and the country's
drying capacity increases.



                                       24
<PAGE>

         Brazil

         Argentina has historically exported large quantities of dairy products
(principally powdered milk) to Brazil. However, Brazilian imports have dropped
dramatically in the last few years, and since 2004 its domestic production of
milk is enough to cover internal consumption. However, through our subsidiary
Leitesol, we continue exporting dairy products (mainly powdered milk) to the
Brazilian market for its final sale to retailers. During 2005, our exports to
Leitesol accounted for 55.9% of our total exports of dairy products, measured in
US dollar terms. We are exposed to (i) developments in Brazil, which adversely
affect the demand for milk, (ii) the price that Brazilian consumers are willing
to pay for dairy products and (ii) the exchange rate between the Brazilian real
and the US dollar. Any of these variables can have a material impact in the
volumes and margins of our exports to Brazil.

         As a result of controversy over the alleged dumping practices of
Argentine exports, in early 2000 Argentina's main dairy exporters and Brazil's
milk producers established rules for the following three years governing the
trade between Argentina and Brazil. These rules cover principally, in whole and
low-fat non-fractioned powdered milk. Such rules provide for a minimum price for
Argentine exports to Brazil based on, (i) international prices, (ii) a
consideration of seasonal factors, and (iii) an adjustment to recognize the
advantages granted to Argentina under the Mercosur agreements. These rules were
extended until February 2005, and have been recently renegotiated, and now
provide for a similar treatment for exports from each country to the other. We
believe that rules of this type will continue to be applied in the future.

         Other Export Markets

         Some Argentine dairy companies including ourselves have reached
commercial agreements with Liconsa of Mexico (a state owned company) that ensure
the supply to Mexico of a portion of its sizeable need for dairy products. We
believe that the possibility of accessing the Mexican market substantially
improves the capacity of efficiently selling Argentina's exportable stocks
(principally powdered milk in the short term). Argentina exports significant
quantities of dairy products to Algeria, Chile, Egypt, Iraq (under United
Nations programs), Mexico, Russia and Venezuela. We have also exported cheese to
the United States under a quota system.

         Products

         We process, distribute and sell a broad line of brand name dairy
products, including fluid milk, cream, butter, dulce de leche, powdered milk and
cheese. Our cheese products include port salut, ricotta and mozzarella, among
other varieties. We market all of these products under the premium La Serenisima
brand and market some of them under other brands such as La Armonia and Fortuna.
We also package some of our products under the brands of certain of our major
clients and deliver them to those clients for sale by them to their own
customers, a strategy which we believe provides us with flexibility in competing
in different market sectors. We also process and distribute a limited line of
sausages, hams and mayonnaise under the Granja Iris brand and have recently
begun to sell olive oil produced by one of our subsidiaries under the Proliva
and Granja Iris brand names.

         We believe that our significant presence in the Argentine fluid milk
and butter markets is attributable to the reputation for quality enjoyed by our
premium brand for fresh dairy products, La Serenisima. We believe that products
sold under the La Serenisima brand are typically sold at a premium to the prices
of our competitors' comparable products.

         We are the leading processor and distributor in Argentina of
pasteurized and ultrapasteurized fluid milks, cream, butter and dulce de leche
and the second leading processor and distributor in Argentina of ultra-high
temperature, or "UHT", fluid milk and powdered milk, in each case measured by
liters of milk equivalent.



                                       25
<PAGE>

         Dairy Products
         --------------

         The following chart sets forth for the indicated periods our gross
domestic sales of the indicated dairy products.

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                           -----------------------------------------
        PRODUCT                                              2003             2004              2005
        -------                                              ----             ----              ----
                                                                     (in millions of pesos)

<S>                                                         <C>               <C>              <C>
        Fluid milk                                          607.7             626.1            763.1
        Cream                                                42.5              50.4             61.1
        Butter                                               69.0              69.0             76.9
        Cheese                                              166.8             174.2            260.9
        Dulce de leche                                       30.4              38.1             52.1
        Powdered Milk                                        47.5              91.4             97.1
                                                            -----           -------          -------

        Total                                               963.9           1,049.2          1,311.2
                                                            =====           =======          =======
</TABLE>
         ________________
         Footnotes:
         (1)  The totals are lower than our net sales as reported in our
              financial statements because they do not include revenues from
              exports, services and sales of non-dairy products such as sausages
              and mayonnaise.


         Fluid Milk

         We process and sell nationally recognized pasteurized, ultrapasteurized
and UHT fluid milks. Our sales of fluid milk accounted for 56.6% and 63.1% of
our total sales of fluid milk (in terms of physical volumes) in Argentina during
2004 and 2005.

         Ultrapasteurized and Pasteurized Milks

         We produce ultrapasteurized whole milk (3% fat content) and
ultrapasteurized low-fat milk (1.5% fat content). We package ultrapasteurized
milk in one-liter pouches and cartons, and sell it under the La Serenisima, La
Armonia and Fortuna brands. We also package ultrapasteurized whole milk and
ultrapasteurized low-fat milk under the brands of certain of our major clients
and deliver it to those clients for sale by them to their own customers.
Ultrapasteurized milk is sterilized at 130 degrees centigrade and has a shelf
life of 15 days (if packaged in pouches) or 25 days (if packaged in cartons), as
compared to a shelf life of three days for pasteurized milk. Ultrapasteurized
milk has substantially the same taste as pasteurized milk.

         Since our introduction of ultrapasteurized milk in Argentina in 1995,
it has substantially replaced pasteurized milk as the most common type of milk
purchased by consumers. We sell pasteurized milk under Government welfare plans,
principally those sponsored by the Argentine Government and the Province of
Buenos Aires. In 2004 and 2005, our combined sales of pasteurized and
ultrapasteurized milk represented 67.3% and 71.9%, respectively, of the sales of
those products (in terms of physical volume) nationwide. We are the leading
producer of ultrapasteurized milk in Argentina in terms of physical volume.

         UHT Milk

         UHT milk is sterilized at 150 degrees centigrade, has a shelf life of
four months and does not require refrigeration. We package UHT milk in one-liter
and one-half liter cartons and one-liter bottles and market it under the La
Serenisima, La Armonia and Fortuna brands. We also package UHT milk under the
brands of certain of our major clients and deliver it to those clients for sale
by them to their own customers. In 2004 and 2005, our sales of UHT milk, in
terms of physical volume, represented 25.3% and 32.7%, respectively, of the
sales of UHT milk nationwide. We are the leading producer of UHT milk in
Argentina in terms of physical volume.



                                       26
<PAGE>

         Special Milks

         We produce the largest variety of special milks in Argentina to satisfy
consumers' different needs, including iron-enriched milk, delactosed milk and
special milks for babies. We market these products under the La Serenisima
brand.

         Cream

         We produce and sell cream under the La Serenisima brand. We also
package cream under the brands of certain of our major clients and deliver it to
those clients for sale by them to their own customers. We package cream in
five-liter and one-liter packages, one-liter and one-half liter cartons and
200-gram plastic containers. In 2004 and 2005, our sales of cream, in terms of
physical volume, represented 44.2% and 46.2%, respectively, of the sales of
cream nationwide. We are the leading producer of cream in Argentina in terms of
physical volume.

         Butter

         We produce and sell butter under the La Serenisima, La Armonia and
Fortuna brands. We also package butter under the brands of certain of our major
clients and deliver it to those clients for sale by them to their own customers.
We also produce and sell low-fat butter, which contains 50% less fat than
regular butter, under the La Serenisima brand. In 2004 and 2005, our sales of
butter, in terms of physical volume, represented 34.9% and 36.2%, respectively,
of the sales of butter nationwide. We are the leading producer of butter in
Argentina in terms of physical volume.

         Cheese

         We produce and sell port salut, mozzarella, ricotta and several other
varieties of soft, semi-soft and hard cheese and grated cheese. Historically, we
sold these products under the Casanto brand. During 1999, we began marketing
most of our cheeses under our premium La Serenisima brand. We believe that we
are the second leading producer of cheese in Argentina in terms of physical
volume.

         Dulce de leche

         We produce and sell dulce de leche, a traditional Argentine
dessert/snack, under the La Serenisima, La Armonia and Fortuna brands. We also
package some of our products under the brands of certain of our major clients
and deliver them to those clients for sale by them to their own customers. In
2004 and 2005, our sales of dulce de leche, in terms of physical volume,
represented 34.5% and 40.6%, respectively, of the sales of dulce de leche
nationwide. We are the leading producer of dulce de leche in Argentina in terms
of physical volume.

         Powdered Milk

         We produce and, in Argentina, sell powdered milk under the La
Serenisima and La Armonia brands. In 2004 and 2005, our sales of powdered milk,
in terms of physical volume, represented 13.6% and 16.5%, respectively, of the
sales of powdered milk nationwide. We are the second leading producer of
powdered milk in Argentina in terms of physical volume. In addition, we sell
powdered milk in Brazil through our wholly owned subsidiary, Leitesol, under the
La Serenissima, Leitesol and Naturalat brands. We package powdered milk in 400
and 500 gram pouches for retail sale and in 25 kilogram bags for industrial use.

         Over time we have enlarged our product offering by introducing new
dairy products for which our market research indicated there would be adequate
levels of demand. For example, we created the largest offering of special milks
in Argentina to satisfy the needs of different classes of consumers identified
on the basis of our market research. We expect to continue this practice in
order to preserve and enhance our commercial leadership.



                                       27
<PAGE>

         Other than the above mentioned, there are no significant new products
being developed.

         Non-Dairy Products
         ------------------

         We recently began producing olive oil in the Province of La Rioja and
marketing it under the Proliva and Granja Iris brand. We believe that our
domestic and export sales of olive oil will increase substantially as our olive
trees gradually reach maturity. See Item 4--"--Subsidiaries--Promas". We also
process and sell a limited line of sausages, ham and mayonnaise under the Granja
Iris brand name.

         Exports

         Due to Argentina's physical proximity to Brazil and the tariff
advantages to Argentine exporters under the Mercosur trade agreement, a
significant part of the raw milk produced in Argentina, which is not consumed
domestically, was traditionally exported to Brazil as powdered milk. Over the
last few years Brazil became self sufficient to cover its domestic needs of milk
and consequently our exports have been reduced to the products (mainly powdered
milk) sold directly to the Brazilian retail market through our wholly owned
subsidiary, Leitesol. Although the percentage of our exports that we transfer to
Brazil has been declining in the last few years, it remains in the long term an
attractive market for us, given its relatively small per capita consumption of
dairy products.

         We have also exported dairy products to, among other countries,
Algeria, Colombia, Chile, Egypt, Iraq (under United Nations programs), Mexico,
Russia and Venezuela. We have also exported cheese to the United States under a
quota system. We believe that the network developed for our exports is strong
and will allow us to increase our exports if and when production of raw milk in
Argentina increases to required levels.

         Marketing, sales and distribution

         Our marketing strategy is based on manufacturing dairy products in
Argentina (as well as some non-dairy items) with the best available quality and
comparable with the highest standards worldwide. Our products are delivered to
our consumers through an efficient distribution network reaching practically
every selling point for our products in Argentina. The launching of new,
innovative products has been also part of our strategy. Based on such strategy,
we have become over the years the market leader for most of our product lines.
Such policy enabled us to develop a wide product line and to have a strong
bargaining power with our main clients and suppliers.

         The same basic strategy of having high quality products has been
adopted for our export business and, since 1998, for our activities in the
Brazilian market. It is our intention to continue applying the same marketing
policy for the foreseeable future.

         Our central sales office plays a significant role in marketing our
products to hypermarket and supermarket chains, and in negotiating pricing,
placement and advertising arrangements for such products. We market our products
through a combination of (i) television and printed advertising, (ii)
educational and promotional programs aimed at distributors, (iii) retailers and
consumers, (iv) public relations activities and (v) consumer communications. Our
marketing programs emphasize our brand names and are generally designed to
promote brand recognition, enhance our reputation for quality and to attract new
customers for our products. Our marketing department develops advertising and
promotional activities in conjunction with several advertising agencies.

         The distribution of our products in the Argentine domestic retail
market is made through Logistica La Serenisima S.A. See Item 4--"Competitive
Strengths - Extensive and Efficient Distribution Network". Logistica distributes
exclusively Danone Argentina's and our products and charges Danone Argentina and
us an amount equal to its costs plus a 0.1% margin plus any value added tax
and/or turnover tax. Our distribution service agreement with Logistica expires
on 2040. At December 31, 2005, this network included approximately 915
independent contractors that use their own trucks to distribute our products and
those of Danone Argentina and related companies to more than 77,800 customers,
including hypermarkets, supermarkets, distributors and small retailers. We
believe that we sell our products to substantially all the



                                       28
<PAGE>

retailers that sell name-brand food products in Argentina. We also believe that
we enjoy a strongly favorable reputation among our customers based in part on
the efficient and reliable distribution of our products. We believe that this
distribution network is the largest and most efficient distribution network for
dairy products in Argentina.

         We distribute our products from several distribution centers owned by
Logistica, the largest of which is located in the vicinity of our General
Rodriguez plant. Logistica has ten distribution centers, the two largest of
which are located close to the City of Buenos Aires, our most important market,
and the rest of which are located in other urban centers to provide adequate
coverage of the Argentine market. We do not use this distribution system for our
exports, sales to governmental agencies or industrial sales.

         At December 31, 2005, we employed approximately 292 sales agents
(preventistas) who solicit and process orders for products from our largest
clients in defined geographical areas and transmit those orders to the
distribution centers and the independent contractors that deliver those
products. The cost to us of employing the sales agents is more than offset by
the lower fees that we pay such independent contractors as a result of their no
longer soliciting and processing orders.

         Customers

         We marketed our products through our integrated sales and distribution
network to more than 77,800 customers as of December 31, 2005, including
hypermarkets, supermarkets, distributors and small retailers. Approximately
58.9% of our net domestic sales for 2005, excluding sales to governmental
agencies, industrial sales and services, were derived from sales to small
retailers. Deliveries to these retailers are generally made every two or three
days and payment is collected within a few days after delivery. The substantial
balance of such net sales was derived from approximately 500 supermarkets and
supermarket and hypermarket chains. Payment for these sales is generally due 35
to 40 days after delivery.

         No single customer or affiliated group of customers accounts for a
significant portion (10% or more) of our total sales. Our largest single
customer during 2005 was the Ministry for Human Resources Development and Work
(Ministerio de Desarrollo Humano y Trabajo) of the province of Buenos Aires,
which accounted for approximately 7.4% of our net sales for the year. Our second
largest customer for the same period was the Carrefour Group, one of the largest
supermarket chains in Argentina, which accounted for approximately 6.7% of our
net sales for the year.

         Raw Materials

         Our principal raw material is raw milk, which represented approximately
54.8% of our cost of sales for the year ended December 31, 2005. The following
table sets forth, for the indicated periods, information regarding the volume of
purchased raw milk.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                         -----------------------
                                                                   2003            2004            2005
                                                                   ----            ----            ----

<S>                                                                <C>             <C>             <C>
       Volume of raw milk purchased(1)                             1,252           1,500           1,641
       Percentage of domestic milk production                      16.6%           16.5%           17.0%
</TABLE>
         ________________
         (1) Expressed in millions of liters. Includes raw milk purchased on
             behalf of Danone Argentina.


         Production of raw milk is seasonal, with production in the spring and
summer months (September through February) exceeding production in the fall and
winter by approximately 30%. We acquire almost all of our raw milk from dairy
farms located in the principal milk producing regions of Argentina (principally
the Province of Buenos Aires and, to a lesser extent, the Provinces of Santa Fe,
Cordoba, La Pampa and Entre Rios). At December 31, 2005, we purchased raw milk
from approximately 1,385 producers. During the fiscal year 2005, our largest
supplier provided us with less than 1.4% of the raw milk we purchased during
that period. Prices of raw milk are not naturally volatile, but can be affected
by changes in the economy by the Argentine Government.



                                       29
<PAGE>

         Following industry practice, we do not enter into written agreements
with dairy farms for the purchase of raw milk. We announce the prices we will
pay during specified periods for raw milk having specified characteristics and
pay the purchase price 30 days after delivery. We establish the price we pay for
a particular batch of raw milk on the basis of that milk's characteristics,
including its protein content, relative cleanliness, fat content and
temperature, and the relative distance of the dairy farm from our facility at
which that milk is processed.

         We require that substantially all of the milk we purchase have been
cooled at the time of purchase. While this requirement is not imposed by all our
competitors, it permits us to produce products that have a consistent high
quality. We have built modern collection and classification centers to collect
raw milk and classify it based on quality prior to delivery to our processing
plants in order to optimize its use and to reduce processing delays.

         Employees and labor relations

         As of December 31, 2005, we employed 3,082 people. In accordance with
Argentine labor practice, employees are represented by local unions. Although
approximately 10% of our personnel are unionized, our entire labor force is
entitled to the benefits of our collective bargaining agreements. We have never
experienced a strike or any major work stoppage and consider our labor relations
to be good.

         The following table sets forth the average number of our employees
during the indicated year:

<TABLE>
<CAPTION>
                           NUMBER OF EMPLOYEES                   NUMBER OF EMPLOYEES
      YEAR                     IN ARGENTINA                           IN BRAZIL                        TOTAL
      ----                     ------------                           ---------                        -----
<C>                                <C>                                     <C>                         <C>
2002                               2,955                                   114                         3,069
2003                               2,642                                   106                         2,748
2004                               2,832                                    98                         2,930
2005                               3,013                                   101                         3,114
</TABLE>

         Environmental matters

         Our production process is governed by the laws of the Republic of
Argentina, which regulates us to minimize the possible environmental impacts
generated by the performance of our activities and prescribes certain minimum
standards of compliance, such as the Argentine Hazardous Waste Law. If we are
found not to be in compliance with these laws, we may be subject to penalties
and perhaps even the closing of our facilities. We believe that our activities
currently comply with the environmental laws and regulations that apply to us.

         In relation to waste management policies, we have developed different
treatments systems. Though our production process in itself does not generate
special wastes, we do generate waste in ancillary activities of our production
such as the maintenance of our facilities. These kinds of wastes are managed or
treated according to their special characteristics by certified companies in
accordance with applicable laws and regulations. Solid wastes resulting from
productive activities are submitted to recycling and/or final disposition
processes by certified companies that we engage to handle such wastes. The
liquid effluents derived from our production process are treated in a system of
biological stabilization lagoons for their final disposal as liquids in a more
environmentally friendly condition.

         On October 15, 2004, we implemented a "Quality and Environmental
Policy" which aims to involve our entire personnel and our suppliers to take
into consideration all the environmental impacts of their activities, with a
commitment to prevent any potential damage to the environment. On November 29,
2004, we agreed to comply with the United Nations Global Compact and assumed, as
an integral part of our business strategy and operations, its principles of
conduct and action in relation to the environment, human rights, labor standards
and anti-corruption issues. While we will continue to comply with domestic
legislation, we are also working to meet higher international environmental
standards. For this purpose, and in order to ensure that our activities are
carried out with the least environmental impact, we have voluntarily implemented
preventive and/or adjustment measures with respect to the impact of our
activities on the



                                       30
<PAGE>

environment for the furtherance of the sustainable development, according to
more demanding guidelines than those contained in the environmental laws and
regulations that govern us. We received during November 2005 the final ISO
14001:2004 certification.

         Insurance

         We maintain insurance covering risks related to property damage,
transportation, work-related injuries, third-party liability, construction and
loss of income resulting from the breakdown of machinery. Such insurance
coverage is in accordance with normal practices in the Argentine dairy industry.

         Trademarks

         We hold approximately 2,000 trademarks and slogans, all of which have
been duly registered with the Registry of Patents and Trademarks of the Republic
of Argentina. In addition, we have registered certain of our trademarks in
several foreign countries. In Argentina, trademarks may be renewed every ten
years, as long as the trademark is continually used. The most important
registered trademarks under which we sell our products include La Serenisima,
Granja Iris and La Armonia. Danone Argentina has the exclusive right to use the
brand name La Serenisima to market yogurt, spreadable cheeses, dairy desserts
and flavored milk. Danone Argentina also has the right to use the Ser brand name
for such products, as well as for cookies and mineral water.

         Legal proceedings

         We are involved in a number of legal proceedings, including
labor-related claims, incidental to the normal conduct of our business. None of
the existing legal proceedings are likely to have, in the aggregate, a material
adverse effect on our consolidated financial condition or results of operations.

C.       Organizational structure

         Subsidiaries

         The following chart lists each of our subsidiaries and indicates its
principal activity and the percentage of the capital stock of each such
subsidiary which we owned, directly or indirectly, as of December 31, 2005, and
April 30, 2006:

<TABLE>
<CAPTION>
              Name of Subsidiary                        Principal Activity               % of capital and votes
              ------------------                        ------------------               ----------------------
<S>                                             <C>                                               <C>
Con-Ser Promotora y Asesora de  Seguros         Insurance Broker                                   99.99%
Frigorifico Rydhans S.A.                        Manufacturer of meat products                     100.00%
Leitesol Industria e Comercio S.A.              Distribution of dairy products                    100.00%
Promas S.A.                                     Olive grower                                      100.00%
Marca 4 S.A.                                    Trademarks holder                                  99.99%
Mastellone Hnos do Brasil S.A.                  Inactive                                          100.00%
Puralactea S.A.                                 Manufacturer of dairy products                    100.00%
Mastellone San Luis S.A.                        Manufacturer of dairy products                    100.00%
</TABLE>

         Promas S.A.
         -----------

         Promas S.A. has planted a variety of olive trees and built an olive oil
production facility on 1,500 hectares of land in the Province of La Rioja. We
invested approximately Ps.19.5 million of our own funds to pay a portion of the
Ps.78.0 million total capital contributions made to Promas S.A. and we funded
the balance of our investment pursuant to an agricultural incentive program
under which we invested amounts in the project that we would otherwise have been
required to pay in value added and income taxes. No further investments are
required to complete this project. We are required to repay to the Argentine
Government the amounts we invested pursuant to the agricultural incentive
program in Pesos, without interest or adjustment for inflation, in installments
from December 2014 through December 2018. Our obligation to pay such amounts is
secured by a pledge of our shares of Promas S.A. Promas S.A. began producing
olive oil during



                                       31
<PAGE>

2003 and we believe that its production will increase gradually as its olive
trees mature. We believe that the cash flows we will receive from Promas S.A.
will be substantially greater than the amounts we are required to pay to the
Argentine Government as described above. During July 2004, Promas S.A. entered
into an agreement with Establecimientos Agropecuarios Lar S.A. whereby Promas
S.A. agreed to pre-purchase future olive crops and to use approximately 400
hectares of land for olive production in Miraflores, Capayan, in the Province of
Catamarca. Pursuant to this agreement, Promas S.A. has committed to pay over the
contract's life, which commenced on the date of execution and will terminate
after the olive cropping season of 2020, up to approximately US$5.2 million in
exchange for 80% of the annual olive production with a guaranteed minimum
ranging from 600 tons at the beginning of the contract term to 4,160 tons at the
end of the term.

         Mastellone San Luis S.A.
         ------------------------

         Mastellone San Luis S.A. was formed from the merger, on January 1,
2002, of Carnes Puntanas S.A. and Emexal S.A., two Argentine corporations that
we acquired in 1998 and 1999, respectively. Mastellone San Luis S.A. is located
in the city of Villa Mercedes, Province of San Luis. Under an industrial
promotion system, we partially funded the investment through the deferral of
value added tax payments as in the case of Promas S.A. We are already repaying
to the Argentine Government the amounts we invested pursuant to the
abovementioned incentive regime, the remaining balance maturing between 2006 and
2008. Mastellone San Luis S.A. under the same industrial promotion system is
allowed to receive substantial tax benefits in the form of a tax credit up to a
certain fixed amount in Pesos to be used to pay its obligations in respect of
value added taxes. The unutilized balance of such tax credits amounts to
approximately Ps.93.6 million and could be used through 2012. As we are in full
compliance of all of our obligations under the referred industrial promotion
system, we expect to utilize the full amount of these benefits.

D.       Property, plant and equipment

         Principal production facilities

         The following are our main production facilities, which are owned by
Mastellone Hnos. S.A. (the mayonnaise plant, is owned by Frigorifico Rydhans
S.A. and the plant located in the province of San Luis, is owned by Mastellone
San Luis S.A.) Exclusion made of a pledge on some fluid milk processing and
bottling equipment used in the General Rodriguez Plant securing a medium-term
commercial debt of Ps. 8.8 million, there are no other encumbrance or lien on
these facilities. For the year ended December 31, 2005, our plants operated on
average at 67% of total capacity.

         General Rodriguez Plant
         -----------------------

         Our principal production plant is located on approximately 135 hectares
of land in General Rodriguez, Province of Buenos Aires (approximately 52
kilometers northwest of Buenos Aires). We have expanded and renovated this plant
several times, most recently beginning in 1995. Our General Rodriguez plant has
a daily processing capacity of 6.5 million liters of milk and processes
ultrapasteurized milk, butter, cream, UHT milk, dulce de leche, ricotta cheese
and powdered milk.

         Other Production Facilities
         ---------------------------

         Trenque Lauquen Plant

         In June 1999, we completed the construction of a new, state-of-the-art
cheese production plant near Trenque Lauquen, Province of Buenos Aires. It can
process 1.6 million liters of milk per day. The plant principally produces port
salut and soft cheese. We believe that this plant is the largest and most
efficient cheese production plant in Argentina.

         Other Plants

         We operate other cheese production plants in the cities of Saliquelo,
Province of Buenos Aires, and Canals, Province of Cordoba, and in the Province
of San Luis. We also operate a mayonnaise production



                                       32
<PAGE>

plant in Lobos, Province of Buenos Aires. Frigorifico Rydhans S.A., one of our
wholly owned subsidiaries, operates a sausage and ham plant in Moreno, Province
of Buenos Aires. In addition, our wholly owned subsidiary, Promas S.A., owns
olive groves and produces olive oil at a plant in the Province of La Rioja.

         Capital expenditures

         We are planning to enlarge our powdered milk production capacity, as
well as increase our storage capacity for raw milk. We believe that costs
associated with these works will be no less than $20 million, to be disbursed
mostly during 2006 through the first semester of 2008. This new facility will
increase our drying capacity by about 1.2 million liters per day. We are
evaluating a new project to increase our own generation of electricity for our
main industrial plants, due to a potential shortage of energy in Argentina over
the next few years, at a cost of $2.0 million. Excluding these projects, our
future capital expenditures will be limited to maintenance activities, that is,
those necessary to maintain the productive capacity of our plants. We estimate
that the amount required for this purpose in 2006 will be about $6.0 million. We
also estimate that such capital expenditures could increase gradually over the
following years. We expect to finance our capital expenditures through cash
generated from operations. Please refer to Item 4--"Business Overview--Principal
capital expenditures and divestitures currently in progress."

         We do not expect any environmental issue that could affect the
utilization of our assets.

Item 4A.  Unresolved Staff Comments

         Not Applicable.

Item 5.  Operating and Financial Review and Prospects

         Management's Discussion and Analysis of Financial Condition and Results
of Operations

         In addition to the discussion below, you should carefully read our
audited consolidated financial statements for the years ended December 31, 2005,
2004 and 2003 and our selected financial information, all of which are included
elsewhere in this annual report on Form 20-F.

         We prepare our consolidated financial statements in accordance with
Argentine GAAP, which differ from US GAAP. See Note 14 to our consolidated
financial statements, which describes the principal differences between
Argentine GAAP and US GAAP that apply to us.

         Inflation accounting and changes in Argentine accounting standards
         ------------------------------------------------------------------

         During October and November 2001, the CPCECABA passed Technical
Resolutions No. 16 through 20. These Technical Resolutions and their amendments
became effective for the fiscal years beginning on or after July 1, 2002, with
the exception of Technical Resolution No. 20, which became effective for the
fiscal years beginning on or after January 1, 2003. These new accounting
standards became applicable to us in the fiscal year starting on January 1,
2003.

         In January 2003, through General Resolution No. 434/03, the Argentine
National Securities Commission adopted such Technical Resolutions, included some
amendments and established that they will be applied for the fiscal years
beginning on or after January 1, 2003. The main modifications introduced by the
new Technical Resolutions that had significant effects on our audited financial
statements were the following:

         o    modification to more closely align Argentine GAAP to the
              international accounting standards (the process of accommodation
              to such international rules may continue on a gradual basis)

         o    mandatory recognition of deferred taxation and exclusion of the
              cost of idle plant capacity from cost of inventories



                                       33
<PAGE>

         o    recording of non-current credits and liabilities not accruing
              interest, generally, at their discounted values

         o    the process for the impairment test for property, plant and
              equipment, and goodwill is now detailed in the Argentine
              standards.

         o    guidelines for recognizing, measuring and disclosing labor cost
              charges have been established.

         o    under the new standards the effects of a debt restructuring are to
              be reflected by crediting or charging to income the net effect of
              benefits and costs relating to the relevant agreements with
              creditors.

         o    new disclosures are required, including segment information and
              earnings per share.

         Additionally, in February 2003, the CPCECABA passed Technical
Resolution No. 21, which applies to fiscal periods beginning on or after April
1, 2003, with an early application suggested. We decided to comply with
Technical Resolution No. 21 as of January 1, 2004 by consolidating all our
subsidiaries in our financial statements (under the previous Technical
Resolution No. 4, subsidiaries whose business was of a different nature from
ours such as the business of Con-Ser Promotora y Asesora de Seguros S.A. were
not included in our consolidated financial statements) and enhancing the
disclosure on related party transactions and balances. The effect of
consolidating Con-Ser Promotora y Asesora de Seguros S.A. is not material to our
consolidated financial statements.

         Our consolidated financial statements have been prepared in constant
Pesos reflecting the overall effects of inflation through August 31, 1995. As
from that date and in accordance with Argentine GAAP, the restatement for
inflation was discontinued through December 31, 2001. Beginning January 1, 2002
and in accordance with Argentine GAAP, the recognition of inflation effects was
resumed. Accounting measurements restated as per the change in the currency
purchasing power is for up to August 31, 1995. Those whose date of origin falls
between August 31, 1995 and December 31, 2001, are stated in the currency as of
their date of origin.

         On March 25, 2003, the National Executive Power issued Decree 664 that
establishes that financial statements for fiscal years ending after that date
should be stated in nominal Pesos. Consequently, according to General Resolution
No. 441 issued by the Argentine National Securities Commission, we discontinued
the restatement of our financial statements for inflation effective as of March
1, 2003. This decision was not in accordance with current professional
accounting rules, which require restatement to recognize the effects of
inflation until September 30, 2003. Because the wholesale price indices during
the year 2003 were very low, the effect of such restatement at any of the
above-mentioned dates was not material.

         We have used restatement coefficients derived from the internal
wholesale price index, to which we refer as "IPIM", issued by the National
Institute of Statistics and Census, to which we refer as "INDEC", to restate
prior period results for inflation. The accumulated inflation rate from January
1, 2002 to February 28, 2003, as measured by IPIM, was 120%.

         The consolidated financial statements for periods until December 31,
2003 have been restated for inflation as of February 2003. Furthermore, those
consolidated financial statements reflect the application of the new accounting
standards noted above and as further described in our consolidated financial
statements.

         Critical Accounting Policies and Estimates

         There have not been any significant changes in our accounting policies.

         "Critical accounting policies" are defined as those policies that are
both most important to the portrayal of a company's financial condition and
results, and that require our most difficult, subjective or complex judgments.
In many cases, the accounting treatment of a particular transaction is
specifically



                                       34
<PAGE>

dictated by generally accepted accounting principles with no need for a judgment
call. In certain circumstances, however, the preparation of our financial
statements in conformity with generally accepted accounting principles requires
us to use our judgment to make certain estimates and assumptions. These
estimates affect assets and liabilities reported amounts and disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of net sales and expenses during such reporting period.

         The impact of changes in our estimates will basically affect the book
value of certain assets. We are not exposed to the risk that eventual adverse
developments in our financial condition could result in changes in our credit
ratings which could result in the acceleration of maturities or the suspension
in the availability of financial facilities. We are not required under our
principal financial agreements, including the indenture for the 11.75% Notes due
2008, to maintain certain financial ratios.

         In order to provide an understanding of how management forms its
judgments about future events, including the variables and assumptions
underlying these estimates, and the sensitivity of those judgments to different
variables and conditions, we have included comments related to each of the
following critical accounting policies: (i) impairment of long-lived assets,
(ii) provision for allowances and contingencies and (iii) deferred income tax.
See Note 3 to our Consolidated Financial Statements for a detailed discussion of
these and other accounting policies.

         Impairment of long-lived assets
         -------------------------------

         We periodically evaluate the carrying value of our long-lived assets.
We consider the carrying value of long-lived assets to be impaired when the
expected cash flows, undiscounted and without interest, to be derived from the
use of such assets are less than their carrying value. In that event, we would
recognize a loss based on the amount by which the carrying value exceeds the
fair market value of such assets. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate appropriate to the risk
involved.

         We believe that the accounting estimate related to the impairment of
these assets is a "critical accounting estimate" because: (1) it is highly
susceptible to change from period to period as it requires management to make
certain assumptions about future revenues and costs; and (2) the impact that
recognizing an impairment has on the assets reported on our balance sheet as
well as our net income is material. The most important estimates, and those that
could affect significantly the projected cash flows, are the selling price of
our products on the revenue side and the availability and price of raw milk from
the cost point of view.

         The recoverable value of our property, plant and equipment was analyzed
as of December 31, 2005, 2004 and 2003. We reached the conclusion that expected
cash flows before interests, income tax and repayment of debt, exceed the
carrying value of long-lived assets on those dates.

         The recoverable valued of goodwill was analyzed as of December 31,
2004. We reached the conclusion that the projected cash flows prepared for the
cheese-maturing activity (developed by Mastellone San Luis S.A.), considered
separately from the general dairy business, did not support the carrying amount
of the goodwill, which was fully written off and charged to income as an
extraordinary item in the amount of Ps.28.8 million. The separate analysis of
the two activities (general dairy business and cheese maturing) was carried out
as a method for determining the minimum level of cash-generating activities. Due
to the recurrent losses generated by Leitesol Industria e Comercio S.A., the
residual value of the goodwill corresponding to this company was also fully
written off through a charge to extraordinary items (Ps.0.5 million).

         As of December 31, 2003, our projected cash flows for the entire dairy
business and for the remaining useful life of goodwill supported the carrying
amount recorded as of such date.

         As of December 31, 2004, our estimated future cash flows, on an
undiscounted basis, exceeded the carrying value of our property, plant and
equipment related to the dairy business by approximately 15%.



                                       35
<PAGE>

         As of December 31, 2005, our estimated future cash flows, on an
undiscounted basis, exceeded the carrying value of our property, plant and
equipment related to the dairy business by approximately 79%. Any increases in
estimated future cash flows would have no impact on the reported value of PP&E.
In contrast, if our current estimates of future cash flows from sales would have
been 44.1% lower, those cash flows from sales would have been less than the
reported amount of PP&E. In that event, we would have been required to recognize
an impairment loss of approximately Ps.256 million, equal to the difference
between the fair value of the dairy business-related PP&E (which we would have
determined by calculating the discounted value of the estimated future cash
flows, using a discount rate of 8% per annum in constant currency, which we
believe is appropriate under the current circumstances) and the reported amount
of the dairy business related PP&E. Such impairment loss could be reversed in
the future under Argentine GAAP, should future cash flows from sales exceed the
carrying value of PP&E.

         Provision for allowances and contingencies
         ------------------------------------------

         We have certain contingent liabilities with respect to existing or
potential claims, lawsuits and other legal proceedings. We routinely assess the
likelihood of adverse judgments or outcomes to those proceedings. We record
accruals for such contingencies to the extent that we are able to determine that
their occurrence is probable and the financial impact, should such a decision be
rendered against us, is reasonably foreseeable.

         In determining the likely outcome of litigation proceedings, management
considers many factors, including but not limited to, past history, reports from
our counsel and other available evidence, and the specifics and status of each
proceeding. The evaluation may result in the recording of an accrual or a change
in a previously recorded accrual. Determining the outcome of claims and
litigation, and estimating related costs and exposure, involves substantial
uncertainties that could cause actual costs to vary materially from estimates
and accruals, which could have a material effect on our future results of
operations, financial conditions and liquidity.

         Accruals for litigation and other expenses amount to Ps.11.4, Ps.11.8
and Ps.8.8 million as of December 31, 2005, 2004 and 2003, respectively.
Historically, and on a global basis, there were no significant differences
between our estimates and actual results. However, it is to be noted that a
change in legislation (i.e., tax or labor legislation, which are usual in our
country) or in their interpretation (i.e., the recent new composition of the
Supreme Court, where four judges have been replaced in the last two years), may
create different views on existing situations and, therefore, affect
management's estimates.

         Deferred income tax
         -------------------

         Deferred income taxes are fully provided to reflect the net tax effects
of temporary differences between the financial reporting and the tax base for
assets and liabilities. Deferred income taxes are measured using the currently
enacted tax rates and laws in each of the relevant jurisdictions where the
assets and liabilities are located. Deferred income taxes reflect management's
assessment of actual estimates of future taxes to be paid on items reflected in
the financial statements, giving consideration to both timing and probability of
realization.

         Deferred tax assets are reduced by a valuation allowance if, at the
light of the available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.

         In fiscal years 2003, 2004 and 2005, we assessed the realizability of
our deferred tax assets following the preparation of updated financial
projections. We concluded that it was more likely than not that the deferred tax
assets of Ps.322.0 million, Ps.164.6 million and Ps.153.5 million, respectively,
related mainly to net operating loss carry forwards (NOLs) will not be
realizable and established a valuation allowance for the entire amount
in fiscal years 2003, 2004 and 2005. This conclusion was based on (i) the recent
history of losses, (ii) the continued uncertain economic conditions, (iii) the
limited tax carry forward period applicable for the NOLs of our Argentine
companies (until 2010), (iv) our expected tax losses for 2006, and the fact
that, (v) even though the NOLs from our Brazilian subsidiary, Leitesol, have an
unlimited period of time to be used, the continued losses from that subsidiary
and the heavy limitations to their use justify an allowance for its entire
amount.



                                       36
<PAGE>

         In fiscal year 2003, we had a tax loss of Ps. 6.6 million. In fiscal
year 2004 we had a net income tax payable of Ps. 102.6 million mainly offset
against tax losses carried forward. The break down of this amount is Ps. 41.3 of
income tax losses arising from ordinary results and Ps. 143.9 of net income tax
payable arising from extraordinary results attributable to our restructuring of
the financial debt. In fiscal year 2005 we had a net income tax payable of Ps.
7.6 mainly offset against tax losses carried forward. The break down of this
amount is Ps. 10.0 of income tax losses arising from ordinary results and Ps.
17.6 of net income tax payable arising from extraordinary results from the
restructuring of the financial debt.

         In Argentina, we are also subject to the payment of an alternative
minimum income tax, which is calculated, regardless of the economic results for
the period. This tax is calculated using a rate of 1% of the total value of our
assets, with certain deductions mostly to avoid double taxation and to encourage
capital expenditures. The amounts paid on such tax can be credited against
Argentine income tax obligation for a period of ten years. Our accumulated
payments under this tax (since its creation in 1998) amounted to Ps.30.6
million, Ps.39.6 million and Ps.49.4 million at the end of fiscal years 2003,
2004 and 2005, respectively. Such amounts were included under Other
Receivables-- non-current, and, for the same reasons explained above we
recognized an allowance for the entire amounts. The alternative minimum income
tax regulation will remain in force until (and including) 2007.

         We would have to generate taxable income amounting to Ps.438.5 million
for the next five years to be able to use our existing tax loss carry forwards
as of December 31, 2005 related to the NOLs, or Ps.580.7 million to be able to
use both our existing tax losses and the tax credits accumulated and to be paid
in the same period on the tax on the minimum presumed income. According to our
financial projections, we expect taxable losses at least for the fiscal year
2006, and therefore will not be able to apply the previously mentioned tax
losses carry forwards and credits. An unusual transaction or a significant
change in the business condition (selling prices for our products and raw milk
availability and cost being those that would mostly affect such condition) would
cause a change in management view concerning the current 100% provision on
assets arising from tax losses.

A.       Operating results

         Comparison of Results of Operations for the Fiscal Years Ended December
31, 2005 and 2004.

         Net sales. Our net sales consist of two principal components: (i) sales
in the Argentine (domestic) market, and (ii) export and foreign sales.

         Net sales - Argentine domestic market. During Fiscal Year 2005, our
total sales in the domestic market (including service and other domestic sales)
increased by Ps.295.5 million, or 26.4%, as compared to Fiscal Year 2004, from
Ps.1,117.3 million to Ps.1,412.8 million. Such increase is primarily the result
of (i) an increase of 15.2% in volumes sold, and (ii) a 9.8% year-on-year
increase in average prices and product mix. The increase in volumes sold was
mainly attributable to the increase in both market share and domestic
consumption, while the price increase is due principally to higher selling
prices.

         Net sales - exports and foreign sales. During Fiscal Year 2005, exports
and foreign sales as a whole decreased by Ps.81.7 million, or 30.5%, as compared
to Fiscal Year 2004, from Ps.268.1 million to Ps.186.4 million, primarily as a
consequence of (i) an increase in foreign sales (that is, those made by our
subsidiary Leitesol in the Brazilian market) of Ps.48.0 million, or 62.7% (from
Ps.76.5 million to Ps.124.5 million), and (ii) lower exports to third parties of
Ps.129.7 million, or 67.7% (from Ps.191.6 million to Ps.61.9 million). The
increase in foreign sales is primarily attributable to (a) an increase of 27.7%
in volumes of powdered milk exported to our subsidiary Leitesol and (b) a 13.4%
appreciation of the Brazilian real versus the US dollar, between December 31,
2004 and December 31, 2005. The decrease in exports to third parties is
primarily attributable to a decrease of 34.9% in volumes.

         Given the strong demand for fluid milk exports and the competition
among some dairy companies to increase their share in total raw milk production
in Argentina, the market price for raw milk increased substantially during the
first months of 2005. In fact, according to information from the Argentine
Secretariat of Agriculture, the price of raw milk increased 24.5% since December
2004 through August 2005. In order to



                                       37
<PAGE>

prevent an eventual additional impact on domestic selling prices, by the end of
July, the Argentine Government increased the export duties for powdered milk and
butter by 10% (from 5% to 15%) and 5% for cheese (from 5% to 10%). Such
additional export duties were initially scheduled for 180 days and have been, at
their expiration of the 180-day period, extended for another 180 days. Following
the increase in export duties, the price of raw milk declined by 6.6%, according
to information from the Argentine Secretariat of Agriculture.

         Cost of sales. Cost of sales for Fiscal Year 2005, as compared to
Fiscal Year 2004, increased by Ps.140.0 million, or 12.4%, from Ps.1,127.0
million to Ps.1,267.0 million.

         Our cost of raw milk represented approximately 56.2% and 54.8% of our
total cost of sales for Fiscal Years 2004 and 2005, respectively, posting an
increase of Ps.60.9 million, or 9.6%, from Ps.633.4 million to Ps.694.3 million.

         The increase in our cost of raw milk (included in the amount of cost of
sales) was mainly attributable to a decrease of 1.1% in the total volume
produced and sold in 2005, and an increase of 10.8% in the average price we paid
for the raw milk in 2005, as compared to our purchases in 2004.

         Other raw material costs increased Ps.30.0 million, or 14.1%, for
Fiscal Year 2005, as compared to 2004 (from Ps.213.5 million in 2004 to Ps.243.5
million in 2005), primarily due to the increase in volumes sold.

         During Fiscal Year 2005, other production costs increased by Ps.49.1
million, or 17.5%, as compared to Fiscal Year 2004, from Ps.280.1 million in
2004 to Ps.329.2 million in 2005. Such increase is primarily attributable to:

         o    higher transportation costs amounting to Ps.13.5 million, or
              20.2%, from Ps.67.1 million to Ps.80.6 million;

         o    an increase in salaries amounting to Ps.16.2 million, or 29.1%,
              from Ps.55.5 million to Ps.71.7 million;

         o    an increase in energy costs amounting to Ps.6.7 million, or 28.7%,
              from Ps.23.2 million to Ps.29.9 million; and

         o    an increase in maintenance expenses amounting to Ps.2.9 million,
              or 34.9%, from Ps.8.4 million to Ps.11.3 million.

         Higher transportation costs are primarily due to an increase in the
volumes of purchased raw milk. Energy costs increased primarily due to our
increase in production and sales, and their higher price for industrial uses.
The increase in salaries is primarily attributable to a new agreement negotiated
with the union which provides for gradual increases of up to approximately 50%
in labor costs, to be applied since June 2005 through the first quarter of 2006,
as well as a salary increase granted by us to non-unionized employees. Higher
maintenance costs are primarily attributable to an increase in volumes produced
during the year 2005, both those sold and those that remained in inventories.

         It should be noted that in spite of the lower volume sold during 2005
when compared to 2004, the volume produced was higher in 2005 because the
Company adopted a strategy of increasing its inventory level to facilitate
deliveries. This resulted in an increase in inventories of around Ps.75.7
million.

         Selling expenses. Selling expenses for the Fiscal Year 2005, as
compared to Fiscal Year 2004, increased by Ps.56.9 million, or 25.8%, from
Ps.220.4 million to Ps.277.3 million. Such increase was primarily attributable
to:



                                       38
<PAGE>

         o    higher transportation costs amounting to Ps.33.9 million, or
              33.3%, from Ps.101.9 million to Ps.135.8 million;

         o    an increase in advertising expenses amounting to Ps.9.0 million,
              or 41.9%, from Ps.21.4 million to Ps.30.4 million;

         o    an increase in labor costs amounting to Ps.7.7 million, or 37.4%,
              from Ps.20.5 million to Ps.28.2 million, and

         o    higher fees associated to product distribution, which increased by
              Ps.12.7 million, or 25.4%, from Ps.50.0 million to 62.7 million.

         The increase in transportation costs and fees related to distribution
of products is primarily due to the increase in volumes sold and higher labor
and other costs associated to distribution activities. The increase in salaries
is primarily attributable to a new collective bargaining agreement negotiated
with the union which provides for gradual increases for up to approximately 50%
in labor costs, to be applied from June 2005 through the first quarter of 2006,
as well as a salary increase granted to non-unionized employees.

         Administrative and other expenses. Administrative and other expenses
(which include the costs associated to the unused production capacity of certain
industrial plants) increased Ps.2.2 million, or 3.9%, during Fiscal Year 2005,
as compared to Fiscal Year 2004, from Ps.58.0 million to Ps.60.3 million. Such
increase is primarily attributable to:

         o    an increase in salaries of Ps.5.5 million, or 29.9%, from Ps.18.4
              million to Ps.24.0 million;

         o    an increase in taxes of Ps.3.3 million, or 18.1%, from Ps.18.1
              million to Ps.21.3 million; and

         o    a decrease in unused production capacity of certain industrial
              plants of Ps.5.2 million, or 74.4%, from Ps.7.0 million to Ps.1.8
              million.

         The increase in salaries is principally attributable to (i) the full
impact, during 2005, of the salary increases gradually awarded to the
administrative personnel, which received lower-than-average increases in their
remunerations over the last few years, and (ii) a new collective bargaining
agreement negotiated with the union which provides for gradual increases of up
to approximately 50% in labor costs, to be applied since June 2005 through the
first quarter of 2006, as well as a salary increase granted by us to
non-unionized employees. The increase in taxes is primarily attributable to an
increase in the tax on checking accounts, originated in turn by the increase in
sales for the period. The decrease in the costs associated to the unused
production capacity is related to a higher use of the production capacity
primarily attributable to an increase in production volumes.

         Other expenses, net. Net losses from Other Income (Expenses), net,
decreased by Ps.9.2 million, or 46.9%, during Fiscal Year 2005, as compared with
Fiscal Year 2004, from Ps.19.6 million to Ps.10.4 million. Such improvement is
primarily attributable to (i) lower provisions for litigation and expenses of
Ps.6.3 million or 96.9% (from Ps.6.5 million during Fiscal Year 2004 to Ps.0.2
million during Fiscal Year 2005), (ii) a gain of Ps.4.3 million in 2005, from
the assignment of the rights over certain brand names to Danone Argentina, and
(iii) an increase of Ps.2.7 million, or 385.7%, in charges to freighters, from
Ps.0.7 million during Fiscal Year 2004 to Ps.3.4 million during 2005. The
valuation allowance on the alternative minimum income tax credit (which amounted
to Ps.9.1 million and Ps.9.8 million during the fiscal years 2004 and 2005,
respectively) is included in this caption.

         Interest expense. Interest expense decreased during Fiscal Year 2005 by
Ps.64.6 million, or 54.9%, as compared with Fiscal Year 2004, from Ps.117.7
million to Ps.53.1, million, primarily due to the reduction in our debts and
lower average interest rates following the restructuring of our debts.


                                       39
<PAGE>


         Interest income. Interest income increased by Ps.2.7 million, or
112.5%, in Fiscal Year 2005, as compared to Fiscal Year 2004, from Ps.2.4
million to Ps.5.1 million, primarily due to higher interest rates.

         Other holding and financial results. Losses from other holding and
financial results decreased by Ps.18.0 million, or 71.4%, during Fiscal Year
2005, as compared with Fiscal Year 2004, from Ps.25.2 million in 2004 to Ps.7.2
million in 2005, primarily due to:

         o    lower losses from exchange differences of Ps.14.3 million, or
              81.7%, from a loss of Ps.17.5 million in Fiscal Year 2004 to a
              loss of Ps.3.2 million in Fiscal Year 2005, mainly due to the
              fluctuations in the Argentine Peso / US dollar exchange rate;

         o    an increase of Ps.5.4 million, or 145.9%, in gains from holding
              results from inventories, from Ps.3.7 million in Fiscal Year 2004
              to Ps.9.1 million in Fiscal Year 2005; and

         o    additional charges during 2005 of Ps.1.7 million, or 16.8%, from
              Ps.10.1 million during Fiscal Year 2004 to Ps.11.8 million in
              Fiscal Year 2005, due to the valuation of certain assets and
              liabilities (mainly our debts) at their net present value,
              pursuant to the Argentine GAAP.

         Extraordinary item. The following table summarizes our extraordinary
item for Fiscal Years 2005 and 2004 (amounts in millions of pesos):

                                                     FY05         FY04
                                                     ----         ----
  Net results due to debt restructuring (1)             37.8        411.3
  Adjustment of restructured debt to NPV (2)               -        155.9
  Write down of other assets (3)                           -       (28.0)
  Impairment of goodwill                                   -       (29.2)
                                                        ----        -----
  Total                                                 37.8        510.0
                                                        ====        =====
________________
(1)  Reflects the net results of the overall debt restructuring executed during
     2004, and certain repurchases and exchanges made during 2005 - see
     "Liquidity and Capital Resources". This item includes the impact of the
     release of accrued and unpaid interest and the payment or repurchase of
     debt at a discount, net of the associated fees and expenses.
(2)  Under Argentine GAAP, the restructured debt is accounted for at the net
     present value of the cash flows associated thereto, calculated using an
     appropriate interest rate, which was defined in our case as 12% per year.
(3)  Reflected the reduction in the carrying value of certain pledged assets
     which, under the conditions of certain restructuring, were to be sold at a
     lower price.


         Comparison of Results of Operations for the Fiscal Year Ended December
31, 2004 and 2003.

         Net sales. Our net sales consist of two principal components: (i) sales
in the Argentine domestic market and (ii) export and foreign sales.

         Net sales - Argentine domestic market. During the fiscal year ended
December 31, 2004, our sales in the domestic market increased Ps.105.5 million,
or 10.4%, as compared to the same period of 2003, from Ps.1,011.8 million in
2003 to Ps.1,117.3 million in 2004. Such increase is primarily the result of (i)
an increase of 11.0% in physical volumes sold, (ii) a 2.1% period-to-period
decrease in average prices and sales mix, and (iii) an increase in sales of
services of Ps.12.4 million, or 92.5%, from Ps.13.4 million in 2003 to Ps.25.8
million in 2004. The increase in physical volumes sold was mainly attributable
to an increase in domestic consumption, while the price decrease is due to the
increase of the sales of medium and lower-end brands as a percentage of total
sales. The increase in sales of services is primarily due to the drying
services, which is the conversion of fluid milk to powdered milk provided to
other Argentine dairy companies, mostly during the last quarter of 2004.

         Net sales - exports and foreign sales. During the fiscal year ended
December 31, 2004, exports and foreign sales increased Ps.147.7 million, or
122.7%, as compared to the same period of 2003, from Ps.120.4 million in 2003 to
Ps.268.1 million in 2004. This increase was principally attributable to an
increase of Ps.149.9 million, or 176.9%, in exports of powdered milk, from
Ps.84.7 million in 2003 to Ps.234.6 million in 2004, principally due to (i) an
increase in volumes of 140.5%, from 16,332 tons in 2003 to 39,280 tons in



                                       40
<PAGE>

2004; (ii) an increase in average US$ prices of 13.2%, from US$1,807 / ton in
2003 to US$2,046 / ton in 2004, in both cases net of exports duties, and (iii)
an improvement of the average exchange rate of 2.7%, from Ps.2.819 / US$ in 2003
to Ps.2.896 / US$ in 2004.

         Cost of sales. Cost of sales for the fiscal year ended December 31,
2004, as compared to the same period of 2003, increased Ps.181.6 million, or
19.2%, from Ps.945.4 million to Ps.1,127.0 million.

         Our cost of raw milk represented approximately 56.5% and 56.2% of our
total cost of sales for the fiscal years ended December 31, 2003 and 2004,
respectively, an increase of Ps.99.2 million, or 18.6%, from Ps.534.2 million to
Ps.633.4 million. The increase in our cost of raw milk was mainly attributable
to an increase of 28.5% in physical volumes of raw milk processed and a drop of
7.7% in the average price we paid for the milk as compared to 2003.

         During the fiscal year ended December 31, 2004, other production costs,
as compared to the same period of 2003, increased Ps.82.4 million, or 20.0%,
from Ps.411.2 million to Ps.493.6 million.

         Such increase is primarily attributable to:

         o    an increase in raw material costs (exclusive of raw milk) of
              Ps.50.8 million, or 31.2%, from Ps.162.7 million in 2003 to
              Ps.213.5 million in 2004,

         o    an increase in salaries of Ps.9.4 million, or 20.4%, from Ps.46.1
              million in 2003 to Ps.55.5 million in 2004,

         o    an increase in transportation costs of Ps.7.2 million, or 12.0%,
              from Ps.59.9 million in 2003 to Ps.67.1 million in 2004,

         o    an increase in energy costs of Ps.8.8 million, or 61.1%, from
              Ps.14.4 million in 2003 to Ps.23.2 million in 2004, and

         o    an increase in taxes of Ps.3.4 million, or 18.7%, from Ps.18.2
              million in 2003 to Ps.21.6 million in 2004.

         The increase in raw material costs, exclusive of raw milk, primarily
reflects the increase in processed physical volumes and to a lesser extent, the
increase in the cost of certain goods with costs that are tied to the price of
crude oil, principally packaging. The increase in salaries is principally
attributable to the new agreements negotiated during 2003, the full impact of
which was felt in 2004. Higher transportation costs are primarily due to the
increased volumes of raw milk to be collected. Energy costs increased primarily
due to the need to use fuel oil in lieu of natural gas to operate our main
production facilities.

         Selling expenses. Selling expenses for the fiscal year ended December
31, 2004, as compared to the same period of 2003, increased Ps.44.8 million, or
25.5%, from Ps.175.6 million in 2003 to Ps.220.4 million in 2004. Such increase
was primarily attributable to:

         o    an increase in advertising expenses of Ps.12.0 million, or 127.7%,
              from Ps.9.4 million in 2003 to Ps.21.4 million in 2004,

         o    higher transportation costs, which increased Ps.11.3 million, or
              12.5%, from Ps.90.6 million in 2003 to 101.9 million in 2004,

         o    higher fees related to selling services of Ps.9.6 million, or
              23.8%, from Ps.40.4 million in 2003 to Ps.50.0 million in 2004,
              and

         o    an increase in salaries of Ps.3.5 million, or 20.6%, from Ps.17.0
              million in 2003 to Ps.20.5 million in 2004.



                                       41
<PAGE>

         The increase of fees related to the distribution of products and
transportation costs is primarily due to the increase in volumes sold during the
fiscal year ended December 31, 2004, as compared to the same period of 2003. The
increase in salaries is principally attributable to the new agreements
negotiated during 2003, the full impact of which was felt in 2004.

         Administrative and other expenses. Administrative and other expenses
during the fiscal year ended December 31, 2004, increased Ps.3.4 million, or
6.2%, as compared to the same period of 2003, from Ps.54.6 million in 2003 to
Ps.58.0 million in 2004. Such increase is primarily attributable to

         o    an increase in taxes of Ps.3.6 million, or 24.8%, from Ps.14.5
              million in 2003 to Ps.18.1 million in 2004,

         o    an increase in salaries of Ps.5.7 million, or 44.8%, from Ps.12.7
              million in 2003 to Ps.18.4 million in 2004, and

         o    lower depreciation of fixed assets of Ps.1.2 million, or 34.3%,
              from Ps.3.5 million in 2003 to Ps.2.3 million in 2004.

         The increase in taxes is primarily attributable to the tax on checking
accounts. The increase in salaries is principally attributable to the new
agreements negotiated during 2003, the full impact of which was felt in 2004.

         Other income (expenses), net. During the fiscal year ended December 31,
2004 other income (expenses), net improved Ps.0.4 million, or 1.7%, as compared
to the same period of 2003, from a loss of Ps.23.8 million to a loss of Ps.23.4
million. This variation is primarily due to (i) a worsening of Ps.4.4 million,
or 191.3%, in the results from sales of fixed assets, from a gain of Ps.2.3
million in 2003 to a loss of Ps.2.1 million in 2004, (ii) the absence in 2004 of
severance expenses related to the restructuring of certain industrial
activities, which amounted to Ps.2.8 million in 2003, and (iii) lower charges
derived from write down of assets of Ps.1.4 million, or 46.7%, from Ps.3.0
million in 2003 to Ps.1.6 million in 2004.

         Interest expense. During the fiscal year ended December 31, 2004
interest expense decreased Ps.6.0 million, or 4.9%, as compared to 2003, from
Ps.123.7 million to Ps.117.7 million. Such difference is explained as follows:

         (i)      Up to (and including) the third quarter of 2004, we continued
                  accruing interest on our debt subject to the restructuring
                  process, applying the original contractual rates, including
                  penalty interests. During the first nine months of 2004, the
                  financial expenses increased as compared to the same period in
                  2003 by Ps.13.4 million, or 14.7%, from Ps.90.9 million during
                  the first nine months of 2003 to Ps.104.3 million for the same
                  period of 2004. Such increase is principally attributable to
                  (a) an increase of 2.3% in the exchange rate between pesos and
                  dollars (almost all of the prior debt was denominated in US
                  dollars) from Ps.2.915 / US$ as of September 30, 2003 to
                  Ps.2.981 / US$ as of September 30, 2004, and (b) the increase
                  in financial debt derived from accrued unpaid interest.

         (ii)     At the end of the third quarter of 2004, the forgiveness of
                  all the accrued and unpaid interest on the restructured
                  unsecured debt (net of the interest accrued on the new
                  indebtedness since July 30, 2004, as agreed in the
                  restructuring process) was recognized as an extraordinary
                  gain.

         (iii)    During the fourth quarter of 2004, financial expenses
                  decreased Ps.19.4 million, or 59.1%, as compared to the same
                  period of 2003, from Ps.32.8 million for the fourth quarter of
                  2003 to Ps.13.4 million for the same period of 2004, primarily
                  due to (a) the reduction in the financial debt, and (b) lower
                  interest rates applicable after the closing of the
                  restructuring process.



                                       42
<PAGE>

         Interest expense during the first nine months of 2004, annualized,
amounted to approximately US$46.6 million. Interest expense for the fourth
quarter 2004, also annualized, amounted to approximately US$18.0 million. There
was a reduction of approximately US$28.6 million, or 61.5%, due to the reduction
in total debt and a lower average interest rate, after the restructuring of our
debt consummated in October 2004.

         Interest income. Interest income decreased Ps.5.4 million, or 69.2%,
from Ps.7.8 million in the fiscal year ended December 31, 2003 to Ps.2.4 million
in the same period of 2004, primarily due to lower average balances during the
year and the decrease in the applicable interest rates, mainly in local
financial market.

         Other financial results. Other financial results include basically the
results of exposure to currency and inflationary fluctuations. This item
worsened by Ps.22.8 million, or 950.0%, from a loss of Ps.2.4 million in 2003 to
a loss of Ps.25.2 million in 2004, mainly due to (i) higher exchange losses of
Ps.15.4 million, or 733.3%, from a loss of Ps.2.1 million in 2003 to a loss of
Ps.17.5 million in 2004, and (ii) accounting charges due to the valuation of
certain debt at their present value, which generated higher losses in 2004 of
Ps.9.6 million, or 1,920.0%, from a loss of Ps.0.5 million in 2003 to a loss of
Ps.10.1 million in 2004. The higher exchange losses are due to the devaluation
of the Peso in 2004 in relation with the US dollar and euro. The losses derived
from the valuation at the net present value of certain debt are based on the
treatment given by Argentine GAAP to restructured debt, which requires that
restructured debt be valued at its present value, generating an initial gain to
be charged to results during the term of the restructured debt.

         Extraordinary results. Extraordinary results during the fiscal year
ended December 31, 2004 amounted to Ps.510.0 million, due to:

         o    the forgiveness of accrued interest on the restructured debt by
              Ps.323.3 million, according to the terms of our restructuring
              which closed on October 22, 2004,

         o    adjustment of restructured debt to present value in the amount of
              Ps.155.9 million,

         o    release from payment of principal, due to a cash tender offer, in
              the amount of Ps.100.7 million,

         o    the forgiveness of accrued interest on our secured debt by Ps.7.3
              million,

         o    the forgiveness of accrued interest on a portion of
              non-restructured original notes (purchased during 2005) in the
              amount of Ps.1.3 million,

         o    fees and expenses associated with the registration of the new
              notes, in the amount of Ps.0.8 million,

         o    fees, expenses and commissions associated with the restructuring
              of the secured debt, in the amount of Ps.1.4 million,

         o    fees, expenses and commissions associated with the restructuring
              of the original notes and original bank debt, in the amount of
              Ps.19.1 million,

         o    a write down in the value of certain assets to be sold of Ps.28.0
              million, and

         o    impairment of goodwill, in the amount of Ps.29.2 million.

         Income tax. Income tax expense increased Ps.0.5 million, from a gain of
Ps.0.2 million in the fiscal year ended December 31, 2003 to a loss of Ps.0.3
million in the same period of 2004, due to the absence of an accounting
adjustment made in 2003 in our subsidiary Promas S.A. under the interperiod tax
allocation criteria and the provision for income tax made in 2004 by the same
subsidiary. We paid no income tax for the rest of our companies, due to our
losses and accumulated losses from prior periods.



                                       43
<PAGE>

         Inflation. Please see our discussion on inflation accounting at the
beginning of this Item 5.

B.       Liquidity and capital resources

         Our debt restructuring

         General
         -------

         As a result of the financial crisis in Argentina along with the
reduction in volumes sold and the reduction in operating income in the last
quarter of 2001 due to a significant decrease in the production in Argentina of
our principal raw material (raw milk) and the resulting substantial increase in
its price, among other reasons, we announced on March 1, 2002 the suspension of
principal and interest payments on substantially all of our US dollar, Euro and
Peso denominated secured and unsecured debt obligations. In 2002 and 2003, we
met with our creditors a number of times to discuss the restructuring of our
unsecured debts.

         Unsecured debt

         In 2004, we launched an offer to exchange and/or purchase our US dollar
denominated 11.75% Senior Notes due 2008 and our originally unsecured bank debt.
On October 22, 2004, we accepted tenders of $217.9 million principal amount of
our 11.75% Senior Notes due 2008 and $104.0 million principal amount of our
originally unsecured bank debt, which represented approximately 97.8% of our
originally unsecured debts. In exchange, we paid $51 million in cash to
noteholders to purchase $85.0 million of existing debt and issued $157.2 million
of 8% Senior Notes due 2012 and approximately $79.7 million of Collateralized
Floating Rate Debt due 2011. We have a limited option to capitalize interest
accrued on the 8% Senior Notes due 2012 during 2005 and 2006, up to a maximum
amount of $10.0 million. We have not used this option, and do not expect to use
it in the near future. The 8% Senior Notes due 2012 will mature on June 30,
2012. The following table shows the amortization schedule for our Collateralized
Floating Rate Debt.

<TABLE>
<CAPTION>
                                                                                 % of Principal
                                             Payment date                            Amount
                                             ------------                            ------
<S>                      <C>                                                           <C>
                         December 31, 2007                                             5
                         June 30, 2008                                                 5
                         December 31, 2008                                             5
                         June 30, 2009                                                 5
                         December 31, 2009                                             10
                         June 30, 2010                                                 10
                         December 31, 2010                                             20
                         June 30, 2011                                                 20
                         December 31, 2011                                             20
</TABLE>

         As agreed during the restructuring negotiations, we offered to exchange
our 8% Senior Notes due 2012 for new SEC-registered 8% Senior Notes due 2012,
which carry the same terms and conditions.

         Holders of approximately $7.1 million principal amount of our 11.75%
Senior Notes due 2008 did not participate in the aforementioned restructuring.
As of December 31, 2005 such amount was reduced to $0.4 million, after we
purchased approximately $1.3 million and the exchange of approximately $5.4
million of the 11.75% Senior Notes due 2008 for the new Series C of 8% Senior
Notes due 2012, substantially with the same economic conditions as the 8% Senior
Notes due 2012 originally issued during the restructuring.

         In February 2005, we negotiated a reduction of $14.1 million in the
principal amount of our Collateralized Floating Rate Debt due to Compagnie
Gervais Danone, and the balance of $15.0 million was refinanced by a new term
loan, maturing on December 31, 2013, and bearing an interest rate of 8.0% per
year. The terms of the new loan were negotiated to follow as much as possible
the conditions of the 8% Senior Notes due 2012. In addition, in December 2005,
we amortized $2.3 million in principal amount of our 8% Senior Notes due 2012.



                                       44
<PAGE>

         Secured debt

         We also conducted separate negotiations with our secured creditors,
which held about 5% of our total debt as of September 30, 2003. On June 3, 2004,
we reached an agreement with Calyon, as successor of Credit Lyonnais, and
Eksport Kredit Fonden (the Danish export credit agency) to restructure our
secured debt owed to them approximately amounting to $9.85 million. That debt
was secured by a pledge of a cheese plant. This agreement provided for an
interest rate reduction and for the payment of principal in semi-annual
installments, the last of which will be due on March 30, 2010. In December 2005,
we paid $4.37 million, reducing the outstanding balance to $5.48 million. The
original pledge remains in place as collateral for the restructured debt. We
also restructured certain secured debt owed to Rabobank Curacao N.V. and COFACE,
which were fully paid in the first quarter of 2005.

         Consequences of the restructuring
         ---------------------------------

         After (i) the restructuring of our debt, (ii) the reduction in the debt
owed to Compagnie Gervais Danone, (iii) the repurchase of $1.3 million principal
amount of our original notes, (iv) the prepayment of our secured debt owed to
Rabobank Curacao N.V. and COFACE in a total amount of approximately $2.0
million, and (v) the agreement with the holders of 11.75% Senior Notes due 2008
in a principal amount of $5.39 million,

         o    We have achieved a reduction of our outstanding indebtedness by
              approximately $102 million;

         o    Our creditors have waived approximately $112.0 million of accrued
              and unpaid interest;

         o    We extended the average life of our indebtedness, which prior to
              the restructuring was in default and subject to immediate
              acceleration, to 6.25 years as of December 31, 2005; and

         o    Due to the reduction in total debt and the lower average interest
              rate, we reduced our interest expenses from approximately $46.6
              million per year, to approximately $17.0 million per year.

         Additionally, following the restructuring of our debt, we improved our
ability to obtain new financial facilities that were unavailable to us prior to
the successful completion of our restructuring negotiations due to the
uncertainties associated with the results of such negotiations. We believe that
available credit facilities for working capital purposes will be enough to cover
our financing needs. Our access to new facilities from Argentine banks have been
limited after the restructuring of our debt, due to, among other reasons,
certain regulations from the Argentine Central Bank pursuant to which potential
borrowers are classified in different risk categories, and the requirement that
the commercial banks create reserves depending on their exposure to the lowest
rated clients. We believe that these restrictions will gradually ease for us
over the next few years.

         Restructured debt - covenants

         The agreements governing our 8% Senior Notes due 2012 and our New
Collateralized Floating Rate Debt contain a number of restrictive covenants that
will, among other things, limit our ability and the ability of certain of our
subsidiaries:

         o    to incur additional indebtedness;

         o    to make restricted payments;

         o    to create or permit liens on our property or assets or those of
              our Restricted Subsidiaries unless our 8% Senior Notes due 2012
              and our New Collateralized Floating Rate Debt are equally and
              ratably secured;

         o    to sell assets; and



                                       45
<PAGE>

         o    to make capital expenditures.

         Our 8% Senior Notes due 2012 and our New Collateralized Floating Rate
Debt also contain cross-acceleration provisions which will make the occurrence
of any acceleration of our debt, or that of any of our Restricted Subsidiaries,
in excess of $10 million an event of default under our 8% Senior Notes due 2012
and our New Collateralized Floating Rate Debt, subject to certain exceptions.

         Our 8% Senior Notes due 2012 also contain a mandatory redemption
provision pursuant to which, if for any 12-month period commencing on January 1,
2005 or on any subsequent January 1 there is any "excess cash" (as defined in
the indenture with the terms and conditions of the 8% Senior Notes due 2012),
then upon at least 30 days; notice to the Trustee we will be required on June
30, 2006 and on each subsequent June 30 to apply 100% of such excess (i) to
redeem 8% Senior Notes due 2012 in an amount similar to the amount of the
capitalized interest, if any, and (ii) to apply 75% of any excess cash after
such payments to redeem our 8% Senior Notes due 2012, in both cases at par
value. We have no excess cash in 2005 and, accordingly, no payment will be made
in 2006.

         Sources and Uses of Funds--General
         ----------------------------------

         We expect that our principal source of liquidity will be the cash flow
from our operating activities. Our principal uses of cash are expected to be
debt service requirements, including scheduled debt service and mandatory
prepayments, working capital needs and capital expenditures.

         Our cash flows are affected by a number of factors, including the
following:

         o    Our expenses are directly influenced by the availability of raw
              milk in Argentina, as oversupply or shortages of raw milk could
              affect both volumes and profitability, as well as, from the
              seasonal point of view, the additional inventories due to the
              increase in raw milk production in our spring and summer. Our
              expenses are also affected by higher volume of sales as it brings
              a commensurate increase in costs.

         o    Our cash receipts are affected by the price at which we sell our
              products, which is, in turn, influenced by the purchasing power of
              the Argentine population and the fluctuations in international
              prices. Our cash inflows are also affected by our outstanding
              accounts receivable. Although we do not foresee significant
              changes in our payment or collection terms, we realize that we are
              exposed to adverse consequences due to the eventual extension of
              the credit terms of our customers. However, we believe that we are
              able to keep such risk under control, given our bargaining power
              due to our leading market position.

         o    Our cash flows generally may also be affected by changes in the
              Argentine and Brazilian economies, including inflation,
              devaluation and possible price controls.

         These factors may cause us to need additional funds for working capital
purposes. We believe that any working capital needs could be covered by specific
short-term loans, including pre-export financing.

         We have an agreement with Crecera Finance Company LLC, a financial
institution based in San Francisco, California, which provides a committed
pre-export facility of $5 million, valid until December 2006, and believe that
further facilities would be available from local banks and other financial
institutions. We have not drawn against such credit facility through December
31, 2005.

         Our treasury activities are controlled directly by our Chief Financial
Officer, following strict safety parameters. Following our strict treasury
policy our cash balances are kept in U.S. dollar denominated accounts, most of
them outside of Argentina, in order to match these funds with the currency of
our financial debt obligations. Cash balances are typically invested in first
class financial institutions and for terms usually not in excess of 45 days.



                                       46
<PAGE>

         Sources and Uses of Funds - Fiscal Years 2005 and 2004

<TABLE>
<CAPTION>
                                   Cash Flow Statement                                        Fiscal     Fiscal year
                                  (in millions of pesos)                                     year 2005       2004
------------------------------------------------------------------------------------------   ---------   -----------
<S>                                                                                          <C>          <C>

Cash flows from operating activities:
Net loss before extraordinary items                                                             (71.0)      (184.3)
Net interest expense and other financial results                                                 52.8        117.2
Provision for income tax                                                                          0.0          0.3
Depreciation and amortization expenses, and consumption of supplies                             103.6        107.5
Other non-cash items                                                                             41.7         55.9
                                                                                             ---------   -----------
Net cash provided by ordinary operating activities before working capital needs                 127.1         96.6
Net change in working capital and other                                                         (41.7)        47.8
                                                                                             ---------   -----------
Net cash provided by ordinary operating activities                                               85.4        144.4
Net cash used in extraordinary items                                                             (2.8)       (16.2)
                                                                                             ---------   -----------
Net cash provided by operating activities                                                        82.6        128.2
                                                                                             ---------   -----------

Cash flows from investing activities:
Purchase of property, plant and equipment                                                       (30.5)       (25.7)
Purchase of plantations in progress                                                              (5.1)        (2.4)
Proceeds from sale of property, plant and equipment and other assets                              3.7          5.7
Acquisition of other investments                                                                 (1.1)        (0.7)
Proceeds from sale of Government's bonds                                                          1.7          1.3
                                                                                             ---------   -----------
Net cash used in investing activities                                                           (31.3)       (21.8)
                                                                                             ---------   -----------

Cash flows from financing activities:
Cash contributions from shareholders                                                             42.4          0
Additional borrowings                                                                             -            9.0
Payments of principal                                                                           (34.2)      (173.6)
Payments of interests                                                                           (54.3)       (23.0)
Net decrease in other liabilities                                                                (0.6)        (1.2)
                                                                                             ---------   -----------
Net cash used in financing activities                                                           (46.7)      (188.8)
                                                                                             ---------   -----------

Increase (decrease) in cash and cash equivalents                                                  4.6        (82.4)
Cash and cash equivalents at beginning of year                                                   76.2        158.6
                                                                                             ---------   -----------
Cash and cash equivalents at end of year                                                         80.8         76.2
                                                                                             ---------   -----------
</TABLE>

         Cash flow from operating activities during Fiscal Year 2005 amounted to
Ps.82.6 million, Ps.45.6 million less than during Fiscal Year 2004. Such
reduction is primarily attributable to our working capital needs, which were
only partially offset by better economic results. Cash from operating activities
can be split in three components:
--------------------------------------------------------------------------------

         o    Cash generated from the ordinary operating activities, before
              working capital needs, which amounted to Ps.96.6 million and
              Ps.127.1 million during Fiscal Years 2004 and 2005, respectively,
              an improvement of Ps.30.5 million, or 32.0%, reflecting better
              economic results obtained during Fiscal Year 2005, as evidenced by
              a combined decrease of Ps.23.9 million in our operating losses and
              the loss originated in Other Expenses, net.

         o    Cash generated from, or applied to, changes in operating accounts,
              which represented a cash inflow of Ps.47.8 million and a cash
              outflow of Ps.41.7 million in Fiscal Years 2004 and 2005,
              respectively. Such change in operating accounts resulted
              principally from an increase in our inventories, which were in a
              low level by the end of 2004, and our higher activity level.

         o    Cash used in extraordinary activities, which amounted to Ps.16.2
              million and Ps.2.8 million during Fiscal Years 2004 and 2005,
              respectively.



                                       47
<PAGE>

         Cash used in investing activities during Fiscal Year 2005 amounted to
Ps.31.3 million, Ps.9.5 million more than in the same period for the previous
year, primarily due to an increase in capital expenditures.

         Cash used in financing activities amounted to Ps.46.7 million during
Fiscal Year 2005, which compares with Ps.188.8 million used during Fiscal Year
2004. The decrease is primarily due to the combined effect of (i) a decrease in
payments of principal and interest of Ps.108.0 million during Fiscal Year 2005
as compared with Fiscal Year 2004 (from Ps.196.5 million to Ps.88.5 million) due
to the amortization payments made during 2004, and (ii) cash capital
contributions of Ps.42.4 million, received from our shareholders during 2005.
Payments of principal and interest during Fiscal Year 2004 included the payments
associated with the execution of the restructuring of our debt.

         As a consequence of the aforementioned changes, during Fiscal Year 2005
our cash balance increased by Ps.4.6 million, from Ps.76.2 million as of
December 31, 2004 to Ps.80.8 million as of December 31, 2005.

         Debt and Debt Service

         As of December 31, 2005, our indebtedness consisted of the following:

<TABLE>
<CAPTION>
                                   Type of debt                            NPV            Nominal Value
                 -------------------------------------------------  ------------------- -------------------
<S>                                                                        <C>                 <C>
                 Senior Notes due 2008                                       0.3                 0.3
                 Secured debt due 2010                                       5.5                 5.5
                 Collateralized Floating Rate Debt due 2011                 38.9                50.6
                 Senior Notes due 2012                                     134.9               160.3
                 Fixed Rate Debt due 2013                                   12.2                15.0
                 Other                                                       2.2                 2.2
                 Total--principal                                           194.0               234.0
                 Accrued interest                                            0.4                 0.4
                 Total debt as at December 31, 2005                        194.4               234.3
                                                                    ------------------- -------------------

                 Balances as at December 31, 2004                          215.8               264.6
                                                                    ------------------- -------------------
</TABLE>

         o    These amounts are expressed in millions of US dollars, as
              practically all of our debt is US dollar denominated.

         o    The interest rate applicable to our Collateralized Floating Rate
              Debt due 2011 and our Secured debt due 2010, is capped at a
              maximum of 5% p.a.

         o    The average interest rate for our debt is 7.2% p.a., assuming that
              we pay on our Collateralized Floating Rate Debt due 2011 and our
              Secured Debt due 2010 the maximum interest rate of 5% p.a.

         o    The net present value of our restructured debt has been
              calculated, when so required by the Argentine GAAP, applying an
              interest rate of 12% p.a.



                                       48
<PAGE>

         The following is the maturity profile of the main items of our
financial debt (principal only):

<TABLE>
<CAPTION>
                                      Collateralized
                Senior Notes due    Floating Rate Debt    Fixed Rate Debt
    Year              2012               due 2011             due 2013          Secured Debt             Total
    ----        ----------------    ------------------    ---------------       ------------             -----
<S>                   <C>                   <C>                  <C>                  <C>                <C>
    2006                0.0                  0.0                  0.0                 0.5                  0.5
    2007                0.0                  2.5                  0.0                 0.6                  3.1
    2008                0.0                  5.1                  0.0                 1.1                  6.2
    2009                0.0                  7.6                  0.0                 2.2                  9.8
    2010                0.0                 15.2                  0.0                 1.1                 16.3
    2011                0.0                 20.2                  0.0                 0.0                 20.2
    2012              160.3                  0.0                  0.0                 0.0                160.3
    2013                0.0                  0.0                 15.0                 0.0                 15.0
                ----------------    ------------------    ---------------       ------------             -----
    Total             160.3                 50.6                 15.0                 5.5                231.4
                ----------------    ------------------    ---------------       ------------             -----
</TABLE>

         Non-financial Debt

         As of December 31, 2005, we had operational debt obligations (which
include account payables, obligations to pay taxes, salaries and social security
payments including obligations to federal, provincial or municipal tax or social
security authorities and other liabilities) equivalent to Ps.285.7 million, of
which Ps.237.8 are due within 12 months. We plan to meet our operational debt
obligations using our operating cash flow.

         Capital Expenditures
         --------------------

         Capital expenditures for Fiscal Year 2005 (including plantations in
progress), amounted to Ps.35.6 million, Ps.7.6 million more than during Fiscal
Year 2004.

         Given the substantial increase in the production of raw milk
experienced in Argentina since 2004, further price increases are expected over
the next few years. Due to the high prices for dairy products in the
international markets, as well as the commercial opportunities available to us
in the international markets, we are planning to enlarge our powdered milk
production capacity as well as increase our reception capacity for raw milk. The
details of this investment remain currently under review (including both
technical and cost aspects), however, we believe that its cost will be no less
than $20 million, to be disbursed mostly from 2006 through the first semester of
2008. We recently began to evaluate a new project seeking to increase our own
electricity generation for our main industrial plants, due to a potential
shortage of energy in Argentina over the next few years. This power generation
project is expected to cost about $2.0 million, to be disbursed during 2006 and
2007. Excluding these projects, our future capital expenditures will be limited
to maintenance activities, that is, those necessary to maintain the productive
capacity of our plants. We estimate that the amount required for this purpose in
2006 will be close to $6.0 million. We also estimate that such capital
expenditures could increase gradually over the following years. We expect to
finance our capital expenditures through cash generated from operations.

C.       Research and development, patents and licenses

         We do not incur in any material research and development expenses.

D.       Trend information

         See in Item 4.B--"Business overview, the main drivers affecting our
performance, and the trends of the industry under The Argentine Dairy Industry."

E.       Off-balance sheet arrangements

         The Company has not entered into any off-balance sheet arrangements.



                                       49
<PAGE>

F.       Tabular disclosure of contractual obligations

         The following table summarizes certain contractual obligations as of
December 31, 2005. The table does not include the amounts payable to Logistica
and Con-Ser on the agreements described below, accounts payable and liabilities
arising in the ordinary course of business such as salaries, wages, social
charges, taxes (excluding those mentioned below) and similar items.

<TABLE>
<CAPTION>
                                                        Payments due by period--in millions of Pesos
                                           ----------------------------------------------------------------------
       Contractual obligations             Total       Up to one year   2 - 3 years     4 - 5 years         More
-------------------------------------      -----       --------------   -----------     -----------         ----
<S>                                         <C>              <C>            <C>             <C>             <C>
Long-term Debt Obligations (1)              908.1            54.4           129.6           156.9           567.2
Tax Relief--Agricultural  Incentive
     Program (2)                             22.9             0               0               0              22.9
Tax Relief--Industrial Promotional
     System (2)                               9.9             3.3             6.6
Purchase Obligations (3)                     10.0             1.8             1.2             1.2             5.8
                                            -----            ----           -----           -----           -----
Total                                       950.9            59.5           137.4           158.1           595.9
                                            =====            ====           =====           =====           =====
</TABLE>
________________
Footnotes:
---------
(1)  Amounts in this line include interests to be paid in each of those periods.
     In the case of Collateralized Floating Rate Debt due 2011 and Secured Debt
     due 2010, the interest rate was computed at 5% (capped rate). For all other
     debts, interest was computed at their agreed fixed rate.
(2)  Maturities of deferred value-added taxes used to finance part of the
     investments in Promas and Mastellone San Luis. This obligation is peso
     denominated and non-interest bearing. In this respect, see Item 4.C under
     Promas S.A. and Mastellone San Luis S.A.
(2)  Promas S.A. entered into an agreement with Establecimientos Agropecuarios
     Lar S.A. in July 2004 for the purchase of future olive harvests and the
     exploitation of 400 hectares in the province of Catamarca, for a total
     estimated amount of US$5,200,000. The contract will expire with the
     completion of harvest in 2020. Promas S.A. will receive 80% of olives
     production, with a guaranteed minimum, ranging from 600 tons at the
     beginning of the term to 4,160 tons at the end of the contract term.


         Other material purchasing agreements are the following:

         o    Since October 1, 2000, together with our subsidiaries Frigorifico
              Rydhans S.A., Mastellone San Luis S.A., and with Danone Argentina
              S.A., we agreed on the terms of the services to be provided by
              Logistica related to the distribution of dairy and fresh products
              in Argentina. The agreement was renegotiated on February 8, 2005,
              resulting in the extension of its term to 36 years starting on
              October 1, 2004, amending the basis of the price charged by
              Logistica for its services to actual costs plus a 0.1% margin, and
              modifying the allocation of the expenses. Logistica reduced its
              fees which resulted in a 7% reduction for us, Frigorifico Rydhans
              S.A. and Mastellone San Luis S.A. During 2005 we paid Ps. 54.8
              million to Logistica for the services rendered under this
              agreement. Future payments to Logistica will depend on its
              distribution costs and our volumes of sales in the domestic
              market. The agreement provides that if any party (us, Frigorifico
              Rydhans S.A. or Mastellone San Luis S.A.) decides to cancel
              without cause the agreement before the end of the abovementioned
              term a penalty of $50 million should be paid to Logistica. This
              penalty would not be applicable if termination of the contract is
              due to non-compliance of Logistica with its duties under the
              agreement. Moreover, the same penalty should be paid by us,
              Frigorifico Rydhans S.A. or Mastellone San Luis S.A. if one of
              these companies produces products similar to products currently
              marketed by Danone.

         o    We have an agreement with Con-Ser S.A. that will expire on
              December 31, 2010 whereby Con-Ser provides freights and
              transportation services of raw milk, as well as the coordination
              and technical assistance for recollection of raw milk from the
              milk farms. Con-Ser operates assets owned by us in connection with
              the provision of the transportation services. Repairs and
              maintenance expenses are paid by us. Con-Ser charges us the cost
              of their own freights and those contracted with third parties and
              a fee for the services of coordination and technical assistance
              based on the volume of raw milk collected every month. The same
              service is provided by Con-Ser for the raw milk purchased by us on
              behalf of Danone. During 2005, we paid Ps. 5.3 million to Con-Ser
              under these agreements. Future payments to Con-Ser will depend on
              their costs and our purchases of raw milk in Argentina.



                                       50
<PAGE>

Item 6.  Directors, Senior Management and Employees

         Board of Directors, Executive Officers and Statutory Auditors'
         Committee

A.       Directors and senior management

         The following table sets forth certain information regarding our
directors and executive officers:

<TABLE>
<CAPTION>
                                           Age at
Name                                   March 31, 2006                              Position
----                                   --------------                              --------

<S>                                          <C>         <C>
Pascual Mastellone.............              75          Member of the Board of Directors, President of the Board of
                                                            Directors and Chief Executive Officer
Jose A. Moreno ................              54          Member of the Board of Directors, Vice President and Chief
                                                            Operating Officer
Carlos Agote...................              52          Member of the Board of Directors
Victorio B. Mastellone.........              70          Member of the Board of Directors
Jose Mastellone................              66          Member of the Board of Directors
Osvaldo Uhrich.................              47          Strategic Planning Director and Assistant Chief Operating
                                                            Officer
Antonino S. Mastellone.........              49          Industrial Director
Flavio M. Mastellone...........              41          Director of Raw Material Purchases
Francisco J. Boggino...........              64          Human Resources Director
Alejandro Casas................              59          Commercial Director
Jorge R. Gugliermo.............              48          Chief Administrative Officer
Rodolfo D. Gonzalez............              62          Chief Financial Officer
</TABLE>

         Our board of directors must be composed of a minimum of three and a
maximum of ten members and is elected by our shareholders. Our Board of
Directors, (the "Board"), is currently comprised of Messrs. Pascual Mastellone,
Jose A. Moreno, Carlos Agote, Victorio B. Mastellone and Jose Mastellone. Each
director serves a one year term. Messrs. Mastellone, Moreno and Agote have been
re-elected directors in our last shareholders' meeting, held on March 31, 2006,
and accordingly their term, together with Victorio Mastellone and Jose
Mastellone's term, will expire on the date of the shareholders' meeting treating
our financial statement for the fiscal year ended on December 31, 2006.

         During Fiscal Year 2005 our Board of Directors met 46 times.

         We have set forth below a brief biographical description of each of the
members of our Board and each of our executive officers, all of whom reside in
Argentina.

         Pascual Mastellone. Mr. Mastellone has been our chief executive officer
and that of our predecessors since 1952. He also serves on the board of
directors of several of our subsidiaries and affiliates, including Con-Ser
Promotora y Asesora de Seguros S.A., Logistica La Serenisima S.A., and Marca 4
S.A. He has been member of the Board since 1976 when our Company was converted
from a general partnership to a corporation. He is Mssrs. Victorio and Jose
Mastellone's brother.

         Jose A. Moreno. Mr. Moreno was one of our directors between 1987 and
1994 and was again elected to our Board in 2000. Mr. Moreno has held various
executive positions with us since 1975. He received a degree in business
administration from the John F. Kennedy University. Mr. Moreno also serves as a
member of the board of directors of Con-Ser Promotora y Asesora de Seguros S.A.,
Frigorifico Rydhans S.A., Grupo Lacteo Argentino S.A., Guifra S.A., Logistica La
Serenisima S.A., Marca 4 S.A., Mastellone San Luis S.A., Promas S.A., and
Puralactea S.A.

         Carlos Agote. Mr. Agote was elected as our director in 1999 and is the
representative of Dallpoint Investments LLC, one of our shareholders to which we
refer as "Dallpoint". Mr. Agote graduated from the Wharton School of Business
and Finance in 1976. Mr. Agote worked for fifteen years at Manufacturers



                                       51
<PAGE>

Hanover Trust Company in Argentina and New York. Mr. Agote left Manufacturers
Hanover Trust Company to become chairman of Greenwich Investments S.A.
(Dallpoint's representative in Argentina) in 1994. He also serves as a member of
the board of directors of Frigorifico Rydhans S.A., Mastellone San Luis S.A.,
and Promas S.A.

         Victorio B. Mastellone. Mr. Mastellone is one of our shareholders and
has been working with us since 1952. He was a member of our Board from 1976
(when our Company was converted from a general partnership to a corporation)
through 1988, and from 1994 through 1997. He is Mssrs. Pascual and Jose
Mastellone's brother.

         Jose Mastellone. Mr. Mastellone is one of our shareholders and has been
working with us since 1952. He was a member of our Board since 1976 (when our
Company was converted from a general partnership to a corporation) through 1988.
He is Mssrs. Pascual and Victorio Mastellone's brother.

         Osvaldo Uhrich. Mr. Uhrich joined us in 1996 as our director of cost
accounting, planning and control. He graduated from the University of Buenos
Aires with a degree in business administration. From 1984 to 1986 he worked at
Santa Rosa Estancias S.A. and from 1986 to 1996 he worked at Lactona S.A. Both
Santa Rosa and Lactona are Argentine dairy companies. Mr. Uhrich serves a member
of the board of directors of Con-Ser Promotora y Asesora de Seguros S.A., Grupo
Lacteo Argentino S.A., and Puralactea S.A.

         Antonino S. Mastellone. Mr. Mastellone has been with us since 1976 and
has served as our industrial director since 1992. He is the son of Mr. Pascual
Mastellone.

         Flavio M. Mastellone. Mr. Mastellone has been with Mastellone since
1989 and has served as our director of raw material purchases since 1992. He is
a nephew of Mr. Pascual Mastellone.

         Francisco J. Boggino. Mr. Boggino has been our director of human
resources since 1990 and served as a director in 1997 and 1998. From 1955 to
1990 he was employed by SanCor and between 1983 and 1990 served as the general
manager of SanCor. Mr. Boggino is also a member of the board of directors of
Frigorifico Rydhans S.A., Mastellone San Luis S.A., Promas S.A., and Puralactea
S.A.

         Alejandro Casas. Mr. Casas has been with us since 1969 and has served
as our commercial director since 1987 except for a brief leave in 1995 and 1996.

         Jorge Gugliermo. Mr. Gugliermo has been with us since 1977 and has
served as our chief administrative officer since 1992. He graduated from the
University of Lujan with a degree in business administration.

         Rodolfo D. Gonzalez. Mr. Gonzalez has been with us as our chief
financial officer since 1992. He graduated from the University of Buenos Aires
with a degree in accounting. From 1982 to 1992 he was a partner in a consulting
firm and, in such capacity, from 1982 to 1987, he served as commercial director
of Buxton S.A., an auto parts manufacturer.

Statutory auditors' committee

         In addition to our directors and executive officers, it is mandatory
for public companies in Argentina to have a comision fiscalizadora, or statutory
auditors' committee, consisting of three members and three alternate members
elected by our shareholders in accordance with the Argentine Companies Law No.
19,550, as amended. Our statutory auditors' committee is elected annually by our
shareholders. The members of our statutory auditors' committee are:

         Joaquin Labougle. Dr. Labougle, who is a member of our statutory
auditors' committee since 1999, is an attorney specializing in commercial law
and senior partner of the law firm Cibils | Labougle | Ibanez in Buenos Aires.
Dr. Labougle received his law degree from the University of Buenos Aires. Dr.
Labougle also serves as a member of the statutory auditors' committee of several
companies, including Afianzar S.G.R.,



                                       52
<PAGE>


Chargeurs Wool (Argentina) S.A., Coca Cola Polar Argentina S.A., Frigorifico
Rydhans S.A., Hipodromo Argentino de Palermo S.A., Logistica La Serenisima S.A.,
Marca 4 S.A., Mastellone San Luis S.A., Promas S.A., Zurich Argentina Compania
de Seguros S.A., Zurich Argentina Compania de Seguros de Retiro S.A., and Zurich
Asset Management Gerente de Fondos Comunes de Inversion S.A.

         Julio A. Barthalot. Mr. Barthalot, who was an alternate member of our
statutory auditors' committee since 1999 until 2000 and a regular member since
2000, is a public accountant with a degree from the University of Buenos Aires.
Prior to his present position he acted as an inspector in Argentina's
"Inspeccion General de Justicia". Mr. Barthalot is also a member of the
statutory auditors' committee of several companies, including Afianzar S.G.R.,
Con-Ser Promotora y Asesora de Seguros S.A., Frigorifico Rydhans S.A.,
Mastellone San Luis S.A., Promas S.A., and Puralactea S.A.

         Joaquin Ibanez. Dr. Ibanez, who was an alternate member of our
statutory auditors' committee since 1999 until 2004 and a regular member since
2004, is an attorney specializing in commercial and banking law and senior
partner of the law firm Cibils | Labougle | Ibanez in Buenos Aires. Dr. Ibanez
received his law degree from the University of Buenos Aires and a Master in Laws
degree from the London School of Economics. Dr. Ibanez also serves as a member
of the board of directors of Coca-Cola Polar Argentina S.A. and as a member of
the statutory auditors' committee of several companies, including Afianzar
S.G.R., Coca Cola Polar Argentina S.A., Frigorifico Rydhans S.A., Logistica La
Serenisima S.A., Marca 4 S.A., Mastellone San Luis S.A., Promas S.A., Zurich
Argentina Compania de Seguros S.A., Zurich Argentina Compania de Seguros de
Retiro S.A., and Zurich Asset Management Gerente de Fondos Comunes de Inversion
S.A.

         Mr. Hernan Cibils Robirosa, Mr. Eduardo Maggiora and Mrs. Pamela
Peralta Ramos are alternate members of the statutory auditors' committee since
2004.

B.       Compensation

         During 2005, we paid an aggregate of Ps.7.8 million to all of our
current directors and executive officers as a group (including the new
compensation plan for our senior management described in the next paragraph). We
do not provide our directors or executive officers with any type of pension,
retirement or similar benefits. We have no contracts with any of our directors
or executive officers under which such director or executive officer holds an
interest contrary to ours as described in Section 272 of the Argentine Companies
Law.

         We implemented in 2004 a new compensation plan for our senior
management which includes incentives based upon the consolidated performance of
Mastellone Hermanos S.A. According to such new compensation plan, which has been
applicable since fiscal year 2004, senior management will receive a percentage
of the difference (excess) between the projected EBITDA, as calculated and
presented to the creditors during our financial debt restructuring process, and
the EBITDA of each fiscal year according to our annual consolidated financial
statements. The percentage to be distributed to our senior management will be
ten percent over the first five million US Dollars of such difference and five
percent over any additional surplus.

C.       Board practices

         As referred in Section A of this Item, all of our directors and members
of the statutory auditors' committee will end their terms in their respective
positions on the date of the shareholders' meeting that will consider our
financial statement for the fiscal year ending on December 31, 2006.

         Our executive officers do not have a fixed term in their respective
positions.

         Other than explained under section D below, our directors and/or
officers do not hold service contracts or benefits upon the termination of
employment. However, our labor law provides for certain general benefits to
employees -applicable to our officers- upon termination of the employment
contract by the employer (with neither willful misconduct nor gross negligence
of the employee): severance payments to the employee based on the employee's
highest ordinary monthly salary accrued during the previous year of


                                       53
<PAGE>

employment, having the employer to pay the employee one month's salary for each
year of employment or period worked in excess of three months for which the
employee worked with such employer. However, the severance payment cannot be
less than the years of service multiplied by three times the employee's average
monthly salary provided for in the collective bargaining agreement at the time
of the dismissal.

         We do not have a remuneration committee.

D.       Employees and labor relations

         As of December 31, 2005, we employed 3,082 people. In accordance with
Argentine labor practice, employees are represented by local unions. Although
approximately 10% of our personnel are unionized, our entire labor force is
entitled to the benefits of our collective bargaining agreements. We have never
experienced a strike or any major work stoppage and consider our labor relations
to be good.

         The following table sets forth the average number of our employees
during the indicated year:

                       NUMBER OF EMPLOYEES         NUMBER OF EMPLOYEES
   YEAR                  IN ARGENTINA                 IN BRAZIL           TOTAL
-----------   -------------------------------  -------------------------  ------
   2002        2,955                           114                        3,069
   2003        2,642                           106                        2,748
   2004        2,832                            98                        2,930
   2005        3,013                           101                        3,114

E.       Share ownership

         See Item 7.

Item 7.  Major Shareholders and Related Party Transactions

A.       Major shareholders

         The following chart lists the ownership of all of our capital stock as
of the date of this annual report of Form 20-F.
<TABLE>
<CAPTION>

                                                                                           Percentage    Percentage
                              Class B Five    Class A One                                   of Total      of Total
        Shareholders           Vote Share     Vote Shares   Total Shares    Total Votes      Shares         Votes
---------------------------   -------------  -------------- -------------  -------------    ----------   ------------
<S>                             <C>            <C>            <C>          <C>                  <C>            <C>
Pascual Mastellone               41,831,639     66,301,718    108,133,357    275,459,913         23.63          22.30
Victorio B. Mastellone           38,720,788     62,091,804    100,812,592    255,695,744         22.03          20.70
Jose Mastellone                  37,359,792     60,249,969     97,609,761    247,048,929         21.33          20.00
Dallpoint Investments LLC        76,515,783     74,475,776    150,991,559    457,054,691         33.00          37.00

                              -------------  -------------- -------------  -------------    ----------   ------------
Total                           194,428,002    263,119,267    457,547,269  1,235,259,277        100.00         100.00
                              =============  ============== ============= ==============    ==========   ============
</TABLE>

         Each of our shareholders pledged a number of that shareholder's Class A
shares and/or Class B Shares representing in the aggregate 32.51% of the shares
in favor of holders of our 8% Notes and 16.49% of the shares in favor of holders
of our floating rate debt. An affirmative vote of holders representing a
majority of the outstanding principal amount of the 8% Notes will be required to
instruct the collateral agent to exercise the pledge and otherwise to act under
the pledge agreement securing such debt.

         The only difference between the Class A shares of common stock and
Class B shares of common stock is that holders of shares of the Class A shares
of common stock only have one vote while holders of shares of the Class B shares
of common stock have five votes. There has been no material change in the
percentage of shares held by the shareholders during the past three years.

Shareholders' agreement

         On March 4, 1999, our shareholders entered into a shareholders'
agreement. The shareholders' agreement will remain in effect until it is
terminated with the consent of all the shareholders or until Dallpoint


                                       54
<PAGE>

owns less than 15% of our capital stock. The following is a summary of the
material provisions of the shareholders' agreement:

         Board of Directors. Our board of directors will be comprised of at
least three directors and an equal number of alternates. There will always be an
odd number of directors. Dallpoint will have the right to elect the following
number of directors and alternates, depending on the total number of directors:

    Total Number of Directors       Number of Directors Elected by Dallpoint
    -------------------------       ----------------------------------------
                3                                      1
              5 or 7                                   2
                9                                      3

         Resolutions of our board of directors must be approved by at least one
director elected by Dallpoint, unless no director elected by Dallpoint is
present at such board meeting or his or her approval is unreasonably withheld.

         Shareholders' Resolutions. A representative of Dallpoint must be
present and vote affirmatively at any shareholders' meeting in order to approve
a shareholders' resolution related to the following items:

         o    the execution of any contract to be entered into between us or any
              of our subsidiaries with any of our shareholders or any entity
              directly or indirectly controlled by one of our shareholders;

         o    the sale, exchange, pledge, mortgage or other disposition of any
              of our assets other than in the ordinary course of business;

         o    the execution of any guarantee other than in the ordinary course
              of business;

         o    the approval of any expenditures, other than in the ordinary
              course of business, if these expenditures would result in a
              payment of more than, or cause us to incur debt in excess of, 2%
              of our net assets;

         o    an increase in our share capital if such increase would imply a
              capital contribution from the shareholders or alter relative
              ownership of our shares;

         o    charge against earnings, a payment of dividends, a merger, a
              spin-off, a reorganization, liquidation or dissolution, a
              modification of our by-laws, a reduction of our capital stock, an
              issuance of debentures, notes, convertible bonds or a repurchase
              of our shares;

         o    any decision to limit the preemptive rights of our shareholders or
              to enter into bankruptcy proceedings; or

         o    the filing of a voluntary and court-supervised reorganization
              proceeding or bankruptcy proceeding.

         Right of First Refusal. A shareholder will not sell, pledge, transfer
or otherwise dispose of our shares or any rights to acquire any of our shares
without first offering to sell such shares to the non-selling shareholders. This
right of first refusal does not apply to transfers to entities controlling, or
controlled by, such selling shareholder or in the event that our shares are
listed on any stock exchange or over the counter market or to our pledge
agreements that secure the 8% notes and the floating rate debt.

         Initial Public Offering of Shares. At Dallpoint's sole discretion, the
shareholders will do all things necessary to issue our shares to the public in
an initial public offering. In addition, any shareholder may list and sell all
or part of its shares on the Buenos Aires Stock Exchange, subject to the
non-selling shareholders' rights of first refusal described above.


                                       55
<PAGE>

         Payment of Dividends. The shareholders will do all things necessary in
order to distribute the maximum amount of dividends which will not involve a
violation of any of the contracts to which we are subject. In addition, the
board of directors may not approve the execution of any contract that creates
new restrictions on our ability to pay dividends unless such contract has been
approved by the shareholders at a meeting at which the representative of
Dallpoint is present.

B.       Related party transactions

         In the normal course of business, we enter into transactions with
affiliated entities. The outstanding balances as of December 31, 2005, 2004 and
2003, and transactions for the years then ended with the affiliated entities and
other related parties are as follows:
<TABLE>
<CAPTION>

Affiliated entity
-----------------
                                                         2005              2004              2003
                                                        ------            ------            ------
     Other current receivables
     -------------------------
<S>                                                      <C>               <C>               <C>
         Grupo Lacteo Argentino S.A.                          -                 9                 9
                                                                          =======           =======
Related parties
---------------

     Trade accounts receivable
     -------------------------
         Logistica La Serenisima S.A. (1) (6)            15,950            15,087            12,494
         Danone Argentina S.A. (2) (7)                   24,039            18,198            15,591
         Afianzar S.G.R. (1)                                  1                 -               131
         Victorio B. Mastellone (3)                           2                 1                 -
         Los Toldos S.A. (1)                                  -                 8                 -
                                                       --------          --------          --------
                  Total                                  39,992            33,294            28,216
                                                       ========          ========          ========


     Other current receivables
     -------------------------
         Afianzar S.G.R. (1)                                  -                 -               176
         Pascual Mastellone (3) (4)                           -             1,176             1,074
         Carlos Agote (4)                                     -               835               769
         Victorio Mastellone (3)                              -             1,333             1,217
         Jose Mastellone (3)                                  -             1,102             1,016
         Los Toldos S.A. (1)                                  -                62                 -
                                                       --------          --------          --------
                  Total                                       -             4,508             4,252
                                                       ========          ========          ========

     Inventories--advances to suppliers
     ----------------------------------
         Los Toldos S.A. (1)                                362               188               114
                                                       ========          ========          ========

     Accounts payable
     ----------------
         Logistica La Serenisima S.A. (1)                18,471            15,795            15,424
         Danone Argentina S.A. (2)                        6,371             5,071             6,434
         Afianzar S.G.R. (1)                                 13                69               133
         Los Toldos S.A. (1)                                  -                 -                56
         Greenwich Investments S.A. (8)                       -             2,115                45
                                                       --------          --------          --------
                  Total                                  24,855            23,050            22,092
                                                       ========          ========          ========

     Short-term borrowings and accrued interest
     ------------------------------------------
         Antonio Mastellone (5)                             486               805             3,140
         Rosa Raquel Mastellone (5)                           -               - -             1,225
         Juan Rocca S.R.L. (9)                              443               387                 -
                                                       --------          --------          --------
                  Total                                     929             1,192             4,365
                                                       ========          ========          ========

     Long-term borrowings
     --------------------

</TABLE>



                                       56
<PAGE>

<TABLE>
<CAPTION>

                                                         2005              2004              2003
                                                        ------            ------            ------
<S>                                                       <C>               <C>                   <C>
         Antonio Mastellone (5)                           1,626             2,567                 -
         Juan Rocca S.R.L. (9)                              628               928                 -
                                                       --------          --------          --------
                  Total                                   2,254             3,495                 -
                                                       ========          ========          ========
     Accrued salaries, wages, payroll taxes and others
     -------------------------------------------------
         Jose Moreno (4)                                      -                81                 -
                                                       ========          ========          ========
________________
</TABLE>
(1)  Common shareholders.
(2)  Danone as partner in Logistica La Serenisima S.A. Both Companies share the
     main trademark "La Serenisima" owned by Mastellone Hermanos S.A.
(3)  Company's shareholder.
(4)  Member of the Company's Board of Directors. (5) Member of Mastellone
     family.
(6)  Includes receivables arising from sales performed by Logistica on behalf of
     Mastellone Hermanos.
(7)  Includes receivables arising from sales of raw milk purchased on behalf of
     Danone Argentina S.A.
(8)  Company President is a member of Mastellone's Board of Directors and
     shareholder of Dallpoint Investment Ltd.
(9)  Company owned by a member of Mastellone family.




                                       57
<PAGE>


<TABLE>
<CAPTION>

                                                             2005              2004              2003
                                                          ----------        ----------         ---------
Sales of goods and services
---------------------------
<S>                                                       <C>                <C>               <C>

     Afianzar S.G.R. (1)                                          1                 -                 -
     Danone Argentina S.A. (2)                               90,651            68,829            50,757
     Jose Mastellone (3)                                         53                 3                 8
     Logistica La Serenisima S.A. (1)                         3,856             2,928             2,063
     Los Toldos S.A. (1)                                          -                26                 -
     Victorio Mastellone (3)                                      1                 2                 -
     Pascual Mastellone (3) (4)                                  71                 6                11
                                                          ----------        ----------         ---------
              Total                                          94,633            71,794            52,839
                                                          ==========        ==========         =========

Purchases of goods and services
-------------------------------
     Afianzar S.G.R. (1)                                         58                83               140
     Danone Argentina S.A. (2)                               20,379            10,295             8,514
     Greenwich Investments S.A. (5)                               -             2,901               536
     Logistica La Serenisima S.A. (1)                        66,522            49,032            37,689
     Los Toldos S.A. (1)                                      1,693             2,351             2,131
     Victorio Mastellone (3)                                      -                 -             2,336
                                                          ----------        ----------         ---------
              Total                                          88,652            64,662            51,346
                                                          ==========        ==========         =========

Financial results - interests and exchange differences
------------------------------------------------------
     Antonio Mastellone (6)                                    (100)             (230)             (455)
     Carlos Agote (4)                                            21                61                67
     Danone Argentina S.A. (2)                                  (18)                -                 -
     Greenwich Investments S.A. (5)                             (50)                -                 -
     Jose Mastellone (3)                                         77                80               102
     Juan Rocca S.R.L. (7)                                      (73)              (88)                -
     Los Toldos S.A. (1)                                          7                57                 -
     Pascual Mastellone (3) (4)                                 106               176               106
     Rosa Raquel Mastellone (6)                                   -                 -              (179)
     Victorio Mastellone (3)                                    134               107               122
                                                          ----------        ----------         ---------
              Total                                             104               163              (237)
                                                          ==========        ==========         =========

Other income
------------
     Danone Argentina S.A. (2)                                  354               781               476
     Logistica La Serenisima S.A. (1)                           837               761               665
                                                          ----------        ----------         ---------
              Total                                           1,191             1,542             1,141
                                                          ==========        ==========         =========
</TABLE>

________________

(1)  Common shareholders.
(2)  Danone as partner in Logistica La Serenisima S.A. Both Companies share the
     main trademark "La Serenisima" owned by Mastellone Hermanos S.A.
(3)  Company's shareholder.
(4)  Member of the Company's Board of Directors.
(5)  Company President is a member of Mastellone's Board of Directors and
     shareholder of Dallpoint Investment Ltd.
(6)  Member of Mastellone family.
(7)  Company owned by a member of Mastellone family.


C.   Interest of experts and counsel

         Not Applicable.

Item 8.  Financial Information

         Please refer to our 2005 consolidated financial statements attached
herein as Exhibit 8.01.


                                       58
<PAGE>

Item 9.  The Offer and Listing

A.       Offer and listing details

         Our capital stock is privately owned. See Item 7--"Principal
Shareholders". Our 8% Senior Notes due 2012, Series A-2 and B-2, were offered
pursuant to a transaction registered under the Securities Act of 1933, as
amended, and trade from time to time in the over-the-counter market. We are in
the process of listing on the Buenos Aires Stock Exchange the Series A-2 of such
Senior Notes, as well as our 8% Senior Notes due 2012 Series C (which were not
registered under the Securities Act of 1933). Additionally, our 8% Senior Notes
due 2012 Series A-1 are already listed in the Buenos Aires Stock Exchange. We
have not information issued or obtained from any stock market regarding the
prevailing prices at which our Senior Notes trade.

B.       Plan of distribution

         Not Applicable.

C.       Markets

         Not Applicable.

D.       Selling shareholders

         Not Applicable.

E.       Dilution

         Not Applicable.

F.       Expenses of the issue

         Not Applicable.

Item 10. Additional Information

A.       Share capital

         Not Applicable.

B.       Memorandum and articles of association

         We are organized under the laws of the Republic of Argentina. Our
objects and purposes, as specified in our by-laws (Estatuto Social) include the
production, marketing and trading of food products and related activities. An
updated version of our by-laws is attached to this report.

         The Board of Directors shall consist of such number of members as may
be determined at a Shareholders Meeting, between a minimum of three and a
maximum of ten directors, who will hold office for one fiscal year and may be
indefinitely reelected.

         The directors have the power to transact business on behalf of the
Company with any private or public credit institutions and any private or public
banks, whether Argentine or foreign. Total compensation for the directors is
determined by the shareholders at their annual meeting, with the Board of
Directors itself determining what sum will be granted to each director.


                                       59
<PAGE>

         Our authorized capital consists solely of common shares, divided in two
series, A and B. The only difference between the Class A shares of common stock
and Class B shares of common stock is that holders of the Class A shares of
common stock only have one vote while holders of the Class B shares of common
stock have five votes. The quorum required for an ordinary shareholders meeting
is: in its first call, half plus one of the issued and subscribed shares with
voting rights, and in second call, with those present. The quorum required for
an extraordinary shareholders meeting is: in first call, 60% of the issued and
subscribed shares with voting rights, and in second call, 50% of the issued and
subscribed shares with voting rights.

         Dividend rights are available for three years after a dividend is
declared. After the three years, the unclaimed dividends revert to the Company.
After applying profits from the fiscal year to a statutory reserve, paying
directors and statutory auditors, and paying preferred stock dividends, 50% of
the remaining profits from the fiscal year shall be made into a cash dividend
payable to common stock and the remainder divided equally among preferred and
common shares. In the event of liquidation, all liabilities have first claim on
the assets of the company. After paying all of the liabilities of the Company,
all remaining sums are treated as fiscal year profits and are distributed of in
the same manner. Changes to the rights of shareholders may be at an
extraordinary meeting of the shareholders by a minimum of 62% of all shares
outstanding voting in favor of the change.

         Meetings of the shareholders shall be called by the Board of Directors
or the Statutory Audit Committee. Upon request of shareholders holding in the
aggregate at least 5% of the Company's shares, the Board of Directors shall call
a meeting within 40 days.

         A change in the capital of the Company may be made only at an
extraordinary meeting of the shareholders attended by at least 72% of the voting
shares outstanding and passed by at least 72% of the voting shares outstanding.

         Our shareholders entered into a shareholders' agreement.  See Item 7--
"Shareholders' Agreement".

         A translation of our By-Laws are herein attached (see Item
19--Exhibits).

C.       Material contracts

         At the end of 1999, we and CDG had agreed to establish a new dairy
products distribution system in Argentina. This system has been operated since
October 1, 2000 by a company named Logistica La Serenisima S.A. in which Danone
Argentina and certain other subsidiaries of CGD initially hold 51% plus one
share of the capital stock and voting rights, and our shareholders hold the
remaining balance.

         On February 8, 2005, our shareholders and we entered into a series of
agreements with Compagnie Gervais Danone, Danone Argentina S.A. and Logistica La
Serenisima S.A. As a consequence of these agreements, our shareholders sold to
Danone Argentina 44% of the capital stock and voting rights of Logistica la
Serenisima S.A., and transferred to us the remaining 5%. Logistica distributes
exclusively Danone Argentina's and our products and charges Danone Argentina and
us an amount equal to its costs plus a 0.1% margin, plus any value added tax
and/or turnover tax. Our distribution service agreement with Logistica was
initially established for a period ending on October 1, 2020, and in February
2005, it was extended to 2040. At the same time, we and CGD agreed to a new cost
allocation regarding Logistica, with an estimated reduction in its fees of
approximately US$2.5 million per year.

         On February 8, 2005, we also executed Amendment No. 1 to the
shareholders' agreement executed by Logistica's shareholders on September 4,
2000, pursuant to which we became part of the original shareholders' agreement
as amended. The following is a summary of the material provisions of the
shareholders' agreement as amended:

                  (1) Board of Directors. Logistica's board of directors will be
         comprised of five directors and an equal number of alternates. We will
         always be entitled to elect at least two directors and equal number of
         alternates. Our representative must be present and vote affirmatively
         at a shareholders meeting in order to approve a shareholders resolution
         related to the following items: a)


                                       60
<PAGE>

         the execution of any agreement with any shareholder or any company
         directly or indirectly related to any shareholder, under terms which
         are not arm's length; b) the granting of any guarantee for an amount
         exceeding US$300,000 and/or for an annual cumulative economic value in
         excess of US$1,000,000, other than those guarantees to be granted by
         Logisitica in the ordinary course of business or as if Logistica is
         granting a guarantee in favor of banks, suppliers or customers as
         provided in the relevant agreements entered into thereby; c) the
         granting of any guarantee to any company affiliated to, controlled by
         or subject to common control with any of the shareholders of Logistica;
         and d) the amendment of the terms and conditions of the Services
         Agreement entered by and among Logistica, Danone and us.

                  (2) Shareholder Resolutions. A special majority of 97% of the
         outstanding shares and votes will be required to approve any increase
         of the capital stock of Logistica, amendment of the by-laws of
         Logistica, spin-off, merger, winding-up, liquidation, transformation,
         capital reduction and repayment, redemption, reimbursement and
         repayment of shares, or limitation or suspension of preferred rights
         and the extraordinary adjustments which may affect the net worth of
         Logisitica.

                  (3) Right of First Refusal. We will not be permitted to sell,
         pledge, transfer or otherwise dispose of Logistica's shares or any
         rights to acquire any of its shares without first offering to sell such
         shares to Danone. This right of first refusal will not apply to
         transfers to entities controlling, or controlled by us.

                  (4) Danone Call Option. In the event of a breach by us of the
         Administrative Service with Logisitica, Danone shall have a right to
         purchase from us up to 5% of the outstanding capital stock and voting
         rights of Logistica, and we shall be obliged to sell the requested
         number of shares at an aggregate price of US$1.00. Management and the
         Board of Directors evaluate the execution of this option as remote.

                  (5) Our Call Option. During five years following full
         repayment of the CGD debt, we shall have a call option for over 44% of
         the outstanding capital stock and voting rights of Logisitica and
         Danone shall be obliged to sell the necessary number of shares to such
         extent, at the price of US$18,500,000 plus an annual financial charge
         at a rate of 6-month LIBOR plus 1% per annum compounded annually from
         the date of the agreement. Management and the Board of Directors
         evaluate the exercise of this option as remote.

         On June 3, 2004, we reached an agreement with Calyon, as successor of
Credit Lyonnais, and Eksport Kredit Fonden to restructure secured debt
approximately amounting to US$9.85 million. That debt was secured by a pledge of
a cheese plant bought from APV Nordic Dairy A/S. This agreement provides for a
reduction of interest rates and for the payment of principal in semiannual
installments, the last of which will be due on March 30, 2010. It also provides
for the selling of the plant and a further reduction of the refinanced debt if
the sale is achieved. The original pledge remains as collateral for the
restructured debt.

         On December 19, 2005 we prepaid Calyon the amount of US$3.50 million to
fully settle a portion of our debt with principal amount of US$4.38 million. Our
remaining debt with Calyon after such repayment amounted to US$5.48 million.

D.       Exchange controls

         The exports of capital from Argentina are regulated by law, as well as
by resolutions from the Argentine Central Bank. However, currently an Argentine
company with securities held by non-residents, such as we are, may export
capital without any prior approval from the governmental authorities, provided
that the capital is exported to effect payments to such holders under the terms
of an agreement pertaining to such securities, such as the Indenture that
governs our 8% Senior Notes due 2012, or, subject to certain requirements and
limits, for portfolio investments out of Argentina. There are not limits on the
ability of non-residents or non-citizens of Argentina to hold or votes such
Senior Notes imposed by the laws and regulations of the Republic of Argentina or
by our by-laws or any of our constituent documents.

                                       61
<PAGE>

E.       Taxation

         The following is a summary of certain Argentine tax consequences of the
acquisition, ownership and disposition of our 8% Senior Notes due 2012 by an
Argentine holder. This summary is not a complete analysis or listing of all
possible tax considerations that may be relevant to a holder of such Senior
Notes.

         Argentine taxes

         The following is a summary of certain Argentine tax matters that may be
relevant with respect to the acquisition, ownership and disposition of our 8%
Senior Notes due 2012. Investors in and prospective purchasers of such Senior
Notes should consult their own tax advisers as to the United States, Argentine
or other tax consequences of the acquisition, ownership and disposition of them.
Such summary is based upon the tax laws of Argentina, and regulations
thereunder, in effect as of the date of this annual report and is subject to any
subsequent change in Argentine laws and regulations which may come into effect
after such date.

         Taxation of Interest Payments

         Interest payments on the 8% Senior Notes due 2012 (including original
issue discount, if any) will be exempt from Argentina income tax withholding,
provided said 8% Senior Notes due 2012 are issued in accordance with the
negotiable obligations law. Interest on the 8% Senior Notes due 2012 will be
exempt from Argentine income tax withholding if the following conditions under
Article 36 of the negotiable obligations law, to which we refer as the
"Conditions of Article 36," are satisfied:

                  (a) the 8% Senior Notes due 2012 must be placed through a
         public offering authorized by the CNV;

                  (b) the proceeds of the placement must be used by us for (i)
         working capital in Argentina, (ii) investments in tangible assets
         located in Argentina, (iii) refinancing of liabilities and (iv)
         contributions to the capital of a controlled or related corporation,
         provided the latter uses the proceeds of such contribution for the
         purposes specified in clause (a) above;

                  (c) the use of the proceeds of the placement in accordance
         with the above-mentioned criteria must be established in a corporate
         resolution which authorizes the issuance of the 8% Senior Notes due
         2012; and

                  (d) we provide evidence to the CNV in the time and manner
         prescribed by regulations that the proceeds of the placement have been
         used for the purposes described in clause (b) above.

         If we do not comply with the Conditions of Section 36, Article 38 of
the negotiable obligations law provides that we will be responsible for the
payment of any withholding taxes on interest paid by us to the holders of the 8%
Senior Notes due 2012.

         Presidential Decree 1,076 of June 30, 1992, as modified by Decree 1,157
of July 15, 1992, and ratified by Argentine Law 24,037 of December 30, 1993,
eliminated the exemption described above with respect to certain Argentine
entities (including, without limitation, entities organized or incorporated
under Argentine law, Argentine branches of foreign entities, sole
proprietorships and individuals carrying on certain commercial activities in
Argentina, to which we refer as "Argentine Entities").

         As a result of Decree 1,076, interest paid to holders that are subject
to the tax adjustments for inflation rules, pursuant to Title VI of the
Argentine Income Tax Law, is subject to withholding as prescribed by Argentine
tax law.

         In the case of interest paid on the 8% Senior Notes due 2012 to
beneficial owners which are also subject to Title VI of the Argentina Income Tax
Law (excluding financial entities subject to Argentine Law


                                       62
<PAGE>

21,526 and its modifications), the rate of withholding will be 35% and should be
considered by the holder as a payment on account of its own income tax.
Financial entities under Law 21,526 are subject to income tax for interest and
other income under the 8% Senior Notes due 2012, but are exempted from such 35%
withholding tax. In other cases, subject to the conditions explained above, if
interest is paid to beneficial owners which are foreign holders or individuals
resident in Argentina, the payment of the interests on 8% Senior Notes due 2012
are not subject to withholding of tax.

         We believe that the Series A-2 of the 8% Senior Notes due 2012 meet the
Conditions of Article 36. If the Series A-2 of the 8% Senior Notes due 2012 do
not meet the Conditions of Article 36, interest and any other payments (other
than principal) will be subject to withholding tax at a rate of 15.05%; provided
that the recipient of such interest or payment is a banking or financial entity
established in a country that is not considered a "low or void tax jurisdiction"
or in a country that has an exchange of information agreement with Argentina
and, in this case, the recipient cannot allege any type of bank or any similar
secrecy. The financial institutions that enjoy this lower tax rate are those
under supervision of the central bank or equivalent agency in their
jurisdiction. Otherwise, interest and any other payment (other than principal)
on the 8% Senior Notes due 2012 abroad will be subject to a 35% withholding tax.
We would be responsible for the payment of such withholdings.

         Law 25,784 which amended the Income Tax Law included under the scope of
the withholding tax regime for income tax, the payment of any other retribution
related to any kind of loan obtained from abroad, which are payable to foreign
holders (Section 93 of the Income Tax Law).

         Taxation of Capital Gains

         The income arising from the sale or other disposition of the 8% Senior
Notes due 2012 will be exempted from income tax in Argentina. Such exemption
will not be applicable to holders subject to Title VI of the Argentine Income
Tax Law. Such holders will be subject to the payment of 35% on income derived
from the sale or other disposition of the 8% Senior Notes due 2012.

         Value Added Tax ("VAT")

         Any financial transaction related to the issuance, placement, purchase,
transfer, payment of principal and/or interest or redemptions of the 8% Senior
Notes due 2012 will be exempt from VAT if the Conditions of Article 36 are met.

         If the Conditions of Article 36 are not met, VAT will be applicable on
any interest payments of the 8% Senior Notes due 2012: (i) at the rate of 10.5%
if made to a banking institution resident in Argentina and subject to the regime
of Law 21,526 or to a banking institution resident in a country where the
central bank or equivalent authority has adopted the standard rules of the Basle
Committee on Banking Supervision or (ii) at the rate of 21% if the requirements
described in item (i) are not met. If the holders of 8% Senior Notes due 2012
are individuals who are resident in Argentina or entities located in Argentina,
they are liable to pay the VAT applicable. When the holders of the 8% Senior
Notes due 2012 are residents of countries other than Argentina or entities
outside Argentina, we will be responsible for paying this tax.

         Tax on Personal Assets

         This tax does not apply to a United States holder.

         Other Taxes

         There are no federal inheritance or succession taxes applicable to the
ownership, transfer or disposition of the 8% Senior Notes due 2012. There is no
federal stamp, issue, registration or similar taxes or duties payable solely as
a result of holding 8% Senior Notes due 2012.


                                       63
<PAGE>

         Tax Treaties

         Argentina has entered into tax treaties with several countries.
However, there is currently no income tax treaty or convention between Argentina
and the United States.

         Further Considerations

         Holders must consider that, since 2002, the Argentine tax authorities
have been auditing Income Tax and Value Added Tax exemptions of several
negotiable obligations issued under Law 23,576 during the last ten years.

         As a consequence of a tax audit made by the Argentine tax authorities,
we have answered some inquiries made in connection with the placement of the old
notes.

         On September 14, 2004, Resolution No. 470-1738/2004, jointly issued by
the CNV and the Argentine tax authority, was published in the official Gazette,
to which we refer as the "Joint Resolution". It sets forth the general
requirements to the "placement by means of public offering" and provides that
for restructuring of old notes, the tax benefits of the notes originally placed
by means of a "public offering" will be extended to the new notes, to the extent
that the subscribers were holders of the original notes.

         We believe that the issuance of the 8% Senior Notes due 2012 Series
A-1, A-2 and C fully satisfied the general requirements regarding placements of
securities by means of public offering in accordance with the Resolution.

         Regarding the 8% Senior Notes due 2012 Series B-2, we believe that its
issuance does not meet the requirements regarding the placement of securities by
means of public offering in accordance with the Resolution. Therefore, such
Notes are subject to withholding taxes, which have been fully paid by us.

F.       Dividends and paying agents

         Not Applicable.

G.       Statement by experts

         Not Applicable.

H.       Documents on display

         You may read and copy any document that Mastellone Hermanos files at
the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330.

         You may request a copy of these filings or writing or telephoning the
offices of Mastellone Hermanos S.A., E. Ezcurra 365 Piso 2 oficina 310,
(C1107CLA) Buenos Aires, Argentina. Mastellone Hermanos' telephone number is
011-54-11-4318-5000. All requested should be addressed to Mr. Rodolfo Gonzalez,
our Chief Financial Officer.

I.       Subsidiary information

         Not Applicable.


                                       64
<PAGE>

Item 11. Quantitative and Qualitative Disclosures about Market Risk

A.       Quantitative information about market risk

         Market risk is the potential loss arising from, among other things,
adverse changes in foreign currency exchange rates, interest rates and
inflation. We have not engaged in any market risk sensitive instruments for
trading or non-trading purposes.

B.       Qualitative information about market risk

         We are exposed to various market risks, including changes in foreign
currency exchanges, interest rates and inflation rates.

         Exchange rate risk - General

         Our functional currency is the Argentine peso. At each balance sheet
date, all monetary assets and liabilities denominated in other currencies are
translated into Argentine peso using the current exchange rate. The resulting
increase or decrease is reflected on our consolidated statements of operations
as foreign exchange loss or gain.

         Exchange rate risk - Argentina

         Exchange rate risk exists principally with respect to our
foreign-currency denominated indebtedness, given the fact that our cash flows
from operations are generated in pesos, since (i) our sales in the Argentine
domestic market accounted for 88.3% of our total sales during 2005 (80.6% in
2004), and (ii) we are required by Argentine regulations to convert into pesos
the foreign currency proceeds from our exports. We continuously monitor our
exposure to changes in the exchange rates. Our foreign exchange rate-related
exposure is based on the monetary position at the parent company level. We
believe that the net position of our subsidiaries is not material. In order to
mitigate this risk, we maintain a substantial portion of our liquidity position
in US dollar denominated deposits in banks. We also believe that under the
current circumstances there are not efficient hedging alternatives in Argentina
to cover this risk. The following table shows the value (expressed in millions
of pesos) of our assets and liabilities denominated in currencies other than
pesos, as of December 31, 2005:

<TABLE>
<CAPTION>

                                                           Assets and Liabilities denominated in
                                               -----------------------------------------------------------
                                                  US$             Euro            Real             Total
                                               ---------       ----------      ----------        ---------
Current assets
<S>                                              <C>               <C>            <C>              <C>
Cash and cash equivalents                        40.1              -               3.1             43.2
Trade accounts receivable                         4.3              -              17.9             22.2
Other receivables                                 3.1              -               1.8              4.9
Advances to suppliers                             0.2              0.1             0.5              0.8
                                               ---------       ----------      ----------        ---------
Total current assets                             47.7              0.1            23.3             71.1
                                               ---------       ----------      ----------        ---------
Non-current assets
Receivable from sale of non-current
      investment                                 11.3              -               -               11.3
Advances to suppliers                             -                0.8             -                0.8
Other                                             0.5              -               1.1              1.6
                                               ---------       ----------      ----------        ---------
Total non-current assets                         11.8              0.8             1.1             13.7
                                               ---------       ----------      ----------        ---------
Total Assets                                     59.5              0.9            24.4             84.8
                                               =========       ==========      ==========        =========
Current liabilities
Accounts payable                                  8.3              0.4             2.5             11.2
Loans                                             3.2              -               -                3.2
Taxes                                             -                -               0.7              0.7
Accrued salaries wages, payroll taxes
      and other                                   1.0              -               0.9              1.9
</TABLE>



                                       65
<PAGE>

<TABLE>
<CAPTION>

                                                           Assets and Liabilities denominated in
                                               -----------------------------------------------------------
                                                  US$             Euro            Real             Total
                                               ---------       ----------      ----------        ---------
<S>                                             <C>               <C>            <C>              <C>
Accrued litigation expenses                       -                -               1.1              1.1
                                               ---------       ----------      ----------        ---------
Total current liabilities                        12.5              0.4             5.2             18.1
                                               ---------       ----------      ----------        ---------
Non-current liabilities
Accounts payable                                 14.3              -               -               14.3
Loans                                           696.9              5.9             -              702.8
Taxes                                             -                -               3.4              3.4
                                               ---------       ----------      ----------        ---------
Total non-current liabilities                   711.2              5.9             3.4            720.5
                                               =========       ==========      ==========        =========
Total Liabilities                               723.7              6.3             8.6            738.6
                                               =========       ==========      ==========        =========
Net Position                                    664.2              5.4           (15.8)           653.8
                                               =========       ==========      ==========        =========
US$ equivalent                                                                                    215.6
                                                                                                 =========

Financial Debt                                  700.1              5.9             -              706.0
Other                                           (35.9)            (0.5)          (15.8)           (52.2)
</TABLE>



         Exchange rate risk - Brazil

         Although to a lesser extent, we are also exposed to potential losses
due to the net position in Brazilian reais of our subsidiary Leitesol, which
imports powdered milk and other dairy products from Argentina for their final
sale in the Brazilian retail market. Basically and from the operational point of
view, such exposure begins when Leitesol sells its products in a
real-denominated transaction and ends when Leitesol pays the debt arising from
the importation of dairy products. We believe that, as of December 31, 2005,
this exposure amounted to approximately the equivalent of US$6.0 million.

         Interest rate risk

         We do not have any direct risk related to fluctuations in the interest
rates. From our total debt of US$234.0 million, 76.0% (US$177.9 million) has a
fixed interest rate. The interest accruing on the remaining 24.0% (US$56.1
million) is based on the lower of (i) 6-month LIBOR plus 2.5%, and (ii) 5%, and
consequently can be considered fixed interest rate obligations.

         Please see "Item 5.B--Restructured debt--covenants--Sources and Uses of
Funds-General" for an additional discussion on strategies used to ameliorate
risk.

Item 12. Description of Securities other than Equity Securities

         Not Applicable.

Item 13. Defaults, Dividend Arrearages and Delinquencies

         Please refer to the information provided on Item 5.B "Liquidity and
Capital Resources".

         The declaration, amount and payment of dividends, if any, are
determined by a majority vote of our shareholders. Under the Argentine Companies
Law, dividends may only be declared out of liquid and realized profits
determined based on financial statement prepared in accordance with Argentine
GAAP and other applicable regulations.

         Our financial covenants limit our ability to distribute dividends to
our shareholders. The shareholders' agreement establishes that our shareholders
will do all things necessary in order to distribute the maximum amount of
dividends, always observing and adhering to our financial covenants. However,
the losses experienced in the last years and the restrictions contained in our
restructuring agreements have prevented the distribution of dividends since
1998. We believe that no cash dividends will be paid during the next years.


                                       66
<PAGE>

Item 14. Material Modifications to the Rights of Security Holders and Use of
         Proceeds

         A.       Neither we nor anyone else has materially modified the
                  instruments defending the rights of holders of the registered
                  securities.

         B.       Neither we nor anyone else has materially modified or
                  qualified the rights evidenced by our registered securities.

         C.       Neither we nor anyone else has withdrawn or substituted a
                  material amount of assets securing our registered securities.

         D.       The trustee and paying agent for our registered securities
                  remain the same as informed to the SEC on the filing for
                  registration.

         E.       Not Applicable.

Item 15. Controls and Procedures

         We carried out an evaluation under the supervision and with the
participation of our management, including our chief executive officer and our
chief financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as of December 31, 2005. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can provide only reasonable assurance of
achieving the control objectives. Based upon and as of the date of our
evaluation, our chief executive officer and our chief financial officer
concluded that our disclosure controls and procedures were effective in all
material respects to ensure that information required to be disclosed in the
reports that we file and submit under the US Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, are recorded, processed,
summarized and reported as and when required.

         There were no significant changes in our internal controls over
financial reporting or in other factors during the fiscal year ended December
31, 2005 that could significantly affect these controls subsequent to the date
we completed the evaluation of our disclosure controls and procedures, nor were
there any significant deficiencies or material weaknesses in our internal
controls requiring corrective actions.

Item 16. [Reserved]

A.       Audit committee financial expert

         We are not required by Argentine or US Securities laws to have an
independent audit committee. Consequently, we do not have an audit committee
financial expert.

B.       Code of ethics

         During March 2005 our Board of Directors approved a "Code of Ethics",
which became effective during the last quarter of 2005 and applies to all
members of our management and our employees, with no exceptions. An English
translation of such Code of Ethics is attached to this document.

         No waiver has been (or is expected to be) granted in connection with
the obligations arising under our Code of Ethics.

C.       Principal accountants' fees and services

         We currently do not have an audit committee. We are not required by
Argentine law or US Securities laws to have an audit committee as our shares are
not listed in any United States stock exchange or


                                       67
<PAGE>

in Argentina. Our Board of Directors preapproves all audit and non-audit
services provided by our independent accountants. The following information
describes the different non-audit services performed by our auditors.

         (a)      Audit Fees - The aggregate fees billed for each of the last
                  two fiscal years for professional services rendered by the
                  principal accountant for the audit of the our annual financial
                  statements or services that are normally provided by the
                  accountant in connection with statutory and regulatory filings
                  or engagements for those fiscal years are:

                  For the year 2005: Ps.561,729
                  For the year 2004: Ps.407,200

         (b)      Audit-Related Fees - The aggregate fees billed in each of the
                  last two fiscal years for assurance and related services (such
                  us training and advisory services related to the
                  implementation of Section 404 of Sarbanes Oxley Act of 2002)
                  by the principal accountant that are reasonably related to the
                  performance of the audit or review of the Company's financial
                  statements and are not reported under paragraph (a) of this
                  Item are:

                  For the year 2005:  Ps.1,082,890
                  For the year 2004:  -.-

         (c)      Tax Fees - The aggregate fees billed in each of the last two
                  fiscal years for professional services rendered by the
                  principal accountant for tax compliance are:

                  For the year 2005:  Ps.518,843
                  For the year 2004:  -.-

                  Tax services in 2005 related to review of tax returns for
                  local, provincial and national taxes, and various
                  consultations on tax regulations.

         (d)      All Other Fees - The aggregate fees billed in each of the last
                  two fiscal years for products and services provided by the
                  principal accountant, other than the services reported in
                  paragraphs (a) through (c) of this Item are:

                  For the year 2005:  -.-
                  For the year 2004:  -.-

D.       Exemption from the listing standard for audit committees

         Not Applicable.

E.       Purchases of equity securities by the issuer and affiliated purchasers

         Not Applicable.

Item 17. Financial Statements

         Index to Consolidated Financial Statements

          1.   Reports of Independent Registered Public Accounting Firm

          2.   Consolidated Balance Sheets as of December 31, 2003, 2004 and
               2005

          3.   Consolidated Statements of Operations for the years ended
               December 31, 2003, 2004 and 2005


                                       68
<PAGE>

          4.   Consolidated Statements of Shareholders' Equity as of December
               31, 2003, 2004 and 2005

          5.   Consolidated Statements of Cash Flows for the years ended
               December 31, 2003, 2004 and 2005

          6.   Notes to Consolidated Financial Statements

Item 18. Financial Statements

         Not Applicable.

Item 19. Exhibits

Exhibit
Number
-------

1.1  English translation of the Estatutos of Mastellone Hermanos as amended to
     the date of filing.

2.1  Indenture for US$225,000,000 11 3/4% Senior Notes due 2008, among the
     Registrant, The Bank of New York, trustee, and as registrar and principal
     paying agent, and Banco Rio de la Plata S.A., as registrar and paying
     agent, under which only US$7.1 million aggregate principal amount of senior
     notes are outstanding (incorporated herein by reference to Exhibit 4.1 to
     the Registration Statement of Mastellone Hermanos S.A. on Form F-4 filed
     with the U.S. Securities and Exchange Commission on January 25, 2004).

2.2  Indenture for US$157,190,000 8% Collateralized Senior Notes due 2012, among
     the Registrant, the Additional Registrants, The Bank of New York, trustee,
     and as co-registrar and principal paying agent, and Banco Rio de la Plata
     S.A., as registrar, paying agent and collateral agent (incorporated herein
     by reference to Exhibit 4.2 to the Registration Statement of Mastellone
     Hermanos S.A. on Form F-4 filed with the U.S. Securities and Exchange
     Commission on January 25, 2004).

2.3  Pledge agreement among the shareholders of the Registrant, The Bank of New
     York and Banco Rio de la Plata S.A. for the benefit of holders of the 8%
     Collateralized Senior Notes due 2012 (without schedules) (incorporated
     herein by reference to Exhibit 4.5 to the Registration Statement of
     Mastellone Hermanos S.A. on Form F-4 filed with the U.S. Securities and
     Exchange Commission on January 25, 2004).

2.4  Loan Agreement among the Registrant, the Additional Registrants, Compagnie
     Gervais Danone, Banco Societe Generale S.A., as administrative agent and
     Banco Rio de la Plata S.A., as collateral agent (incorporated herein by
     reference to Exhibit 10.11 to the Registration Statement of Mastellone
     Hermanos S.A. on Form F-4 Amendment No. 1 with the U.S. Securities and
     Exchange Commission on March 29, 2005).

4.1  English summary of Milk Procurement Offer between the Registrant and Danone
     S.A., dated October 19, 2001 (incorporated herein by reference to Exhibit
     10.1 to the Registration Statement of Mastellone Hermanos S.A. on Form F-4
     filed with the U.S. Securities and Exchange Commission on January 25,
     2004).

4.2  English summary of Milk Classification Offer between the Registrant and
     Danone S.A., dated October 19, 2001 (incorporated herein by reference to
     Exhibit 10.2 to the Registration Statement of Mastellone Hermanos S.A. on
     Form F-4 filed with the U.S. Securities and Exchange Commission on January
     25, 2004).

4.3  English summary of Offer for Sale of Milk between Danone S.A. and the
     Registrant, dated October 19, 2001 (incorporated herein by reference to
     Exhibit 10.3 to the Registration


                                       69
<PAGE>

     Statement of Mastellone Hermanos S.A. on
     Form F-4 filed with the U.S. Securities and Exchange Commission on January
     25, 2004).

4.4  English summary of Milk Transportation Offer between CON-SER, S.A. and the
     Registrant, dated December 26, 2004 (incorporated herein by reference to
     Exhibit 10.4 to the Registration Statement of Mastellone Hermanos S.A. on
     Form F-4 filed with the U.S. Securities and Exchange Commission on January
     25, 2004).

4.5  English summary of Administrative Services Offer between the Registrant and
     Logistica La Serenisima S.A. dated September 4, 2004 (incorporated herein
     by reference to Exhibit 10.5 to the Registration Statement of Mastellone
     Hermanos S.A. on Form F-4 filed with the U.S. Securities and Exchange
     Commission on January 25, 2004).

4.6  English summary of Trademark Licensing Offer between Danone Argentina S.A.
     and the Registrant, dated December 5, 2001, together with an English
     summary thereof (incorporated herein by reference to Exhibit 10.6 to the
     Registration Statement of Mastellone Hermanos S.A. on Form F-4 filed with
     the U.S. Securities and Exchange Commission on January 25, 2004).

8.1  Subsidiaries of the registrant

10.1 Shareholders Agreement between the Registrant and Danone S.A. as
     shareholders of Logistica La Serenisima S.A (incorporated herein by
     reference to Exhibit 10.12 to the Registration Statement of Mastellone
     Hermanos S.A. on Form F-4 Amendment No. 1 with the U.S. Securities and
     Exchange Commission on March 29, 2005).

10.2 Amendment No. 1 to the Shareholders Agreement between Mastellone Hermanos
     and Danone S.A. as shareholders of Logistica La Serenisima S.A
     (incorporated herein by reference to Exhibit 10.13 to the Registration
     Statement of Mastellone Hermanos S.A. on Form F-4 Amendment No. 1 with the
     U.S. Securities and Exchange Commission on March 29, 2005).

10.3 Shareholders' Agreement among the shareholders of Mastellone Hermanos
     (incorporated herein by reference to Exhibit 10.14 to the Registration
     Statement of Mastellone Hermanos S.A. on Form F-4 Amendment No. 1 with the
     U.S. Securities and Exchange Commission on March 29, 2005).

11.1 Code of Ethics

12.1 Certification of Principal Executive Officer pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002.

12.2 Certification of Principal Financial Officer pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002.

13.1 Certification of Principal Executive Officer in accordance with 18 U.S.C.
     Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

13.2 Certification of Principal Financial Officer in accordance with 18 U.S.C.
     Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.



                                       70
<PAGE>




Deloitte


                                                         Deloitte & Co. S.R.L.
                                                         Florida 234 5(degree)
                                                         Capital Federal
                                                         C1005AAF
                                                         Argentina

                                                         Tel: 54 (11) 4320-2700/
                                                         4326-4046
                                                         Fax:  54 (11) 4325-8081
                                                         www.deloitte.com.ar

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

To the Board of Directors of
Mastellone Hermanos Sociedad Anonima

1.   We have audited the accompanying consolidated balance sheets of Mastellone
     Hermanos S.A. ("Mastellone"), an Argentine corporation, and its
     consolidated subsidiaries (the "Company") as of December 31, 2005, and the
     related consolidated statements of operations, shareholders' equity and
     cash flows for the year then ended. These consolidated financial statements
     are the responsibility of the Company's management. Our responsibility is
     to express an opinion on these consolidated financial statements based on
     our audit.

2.   We conducted our audit in accordance with generally accepted auditing
     standards in Argentina and the standards of the Public Company Accounting
     Oversight Board (United States). Those standards require that we plan and
     perform the audit to obtain reasonable assurance about whether the
     consolidated financial statements are free of material misstatement. The
     Company is not required to have, nor were we engaged to perform, an audit
     of its internal control over financial reporting. Our audit included
     consideration of internal control over financial reporting as a basis for
     designing audit procedures that are appropriate in the circumstances but
     not for the purpose of expressing an opinion on the effectiveness of the
     Company's internal control over financial reporting. Accordingly, we
     express no such opinion. An audit also includes examining, on a test basis,
     evidence supporting the amounts and disclosures in the financial
     statements, assessing the accounting principles used and significant
     estimates made by management, as well as evaluating the overall financial
     statements presentation. We believe that our audit provide a reasonable
     basis for our opinion.

3.   In our opinion, the consolidated financial statements referred to in the
     first paragraph above present fairly, in all material respects, the
     financial position of the Company as of December 31, 2005, the results of
     their operations and their cash flows for the year then ended in conformity
     with accounting principles generally accepted in Argentina.

4.   Note 1 to the financial statements discloses that, on October 22, 2004, the
     Board of Directors authorized the execution of contracts covering the
     restructuring of unsecured debts that was initiated by the Company in 2002
     after such restructuring was accepted by creditors representing
     approximately 97.8% of total unsecured debts. Furthermore, on various
     dates, the Company entered into several agreements to restructure secured
     debts and to purchase or renegotiate a portion of the debt that was not
     restructured in October 2004. A summary of the accepted proposals, the
     portion of debt that was not restructured and the accounting effects of the
     abovementioned restructuring are also discussed in Note 1 to the financial
     statements.

Deloitte & Co. S.R.L. - Registro de Soc. Com.                   A member firm of
C.P.C.E.C.A.B.A. -T(Degree) 1 Folio 3                   Deloitte Touche Tohmatsu


                                      F-1



<PAGE>


BDO


5.   The financial statements referred to above are presented on the basis of
     accounting principles generally accepted in Argentina. Accounting
     principles generally accepted in Argentina vary in certain significant
     respects from accounting principles generally accepted in the United States
     of America. The application of the latter would have affected the
     determination of net loss for the years ended December 31, 2005 and the
     determination of shareholders' equity at December 31, 2005 to the extent
     summarized in Note 14.


Buenos Aires, Argentina.
March 29, 2006

Deloitte & Co. S.R.L.
/s/ Hugo Alberto Luppi


          Hugo Alberto Luppi
              (Partner)
      Contador Publico (U.B.A.)
C.P.C.E.C.A.N.A. T(degree)56 -F(degree)96


Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its
member firms and their respective subsidiaries and affiliates. As a Swiss Verein
(association), neither Deloitte Touche Tohmatsu nor any of its member firms has
any liability for each other's acts or omissions. Each of the member firms is a
separate and independent legal entity operating under the names "Deloitte,"
"Deloitte & Touche," "Deloitte Touche Tohmatsu," or other related names.
Services are provided by the member firms or their subsidiaries or affiliates
and not by the Deloitte Touche Tohmatsu Verein.


                                      F-2

<PAGE>



BDO          Becher, Lichtenstein           Maipu 942 pisos 1(degree), 2(degree)
             & Asociados                      y 3(degree)
             Auditores y Consultores        C1006ACN Buenos Aires, Argentina
                                            Tel. (54) 11 4106-7000
                                            Fax: (54) 11 4106-7200
                                            E-mail general:
                                            info@bdo-argentina.com
                                            http://www.bdo-argentina.com


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

To the Board of Directors of
Mastellone Hermanos Sociedad Anonima
------------------------------------

We have audited the accompanying consolidated balance sheet of Mastellone
Hermanos S.A. ("Mastellone"), an Argentine corporation, and its consolidated
subsidiaries ("the Company") as of December 31, 2004 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in Argentina and the standards of the Public Company Accounting Oversight Board
(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 consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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 presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2004 and the results of its consolidated operations
and its consolidated cash flows for the year then ended, in conformity with
accounting principles generally accepted in the city of Buenos Aires, Argentina.

As explained in Note 1 to the consolidated financial statements, due to the
significant impact on the Company's financial position of the economic reforms
implemented by the Argentine Government in 2002, mainly the devaluation of the
Argentine peso, the Board of Directors initiated negotiations with the Company's
financial creditors to restructure the terms of the Company's outstanding
indebtedness. On March 26, 2002, the Company suspended all payments, including
both principal and interest, on most of its financial debt obligations.
Accordingly, the Company was in default on most of financial debt. The Company
completed the restructuring of in excess of 97% of its outstanding financial
debt obligations in 2004. The legal steps taken, such as the Shareholders'
Meeting held to approve the issuance of the


                                      F-3
<PAGE>


New Senior Notes, a summary of the accepted proposals and the portion of debt
that was not restructured are also discussed in Note 1.

The financial statements referred to above are presented on the basis of
accounting principles generally accepted in Argentina. Accounting principles
generally accepted in Argentina vary in certain significant respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of net income
for the year ended December 31, 2004 and the determination of shareholders'
equity at December 31, 2004 to the extent summarized in Note 14.



Buenos Aires, Argentina
March 7, 2005

                         BECHER LICHENSTEIN & ASOCIADOS
                    C.P.C.E.C.A.B.A. T(degree)II F(degree)21

                           /s/ Fabian Gustavo Marcote


                        Fabian Gustavo Marcote (Partner)
                           Contador Publico (U.B.A.)
                   C.P.C.E.C.A.B.A. T(degree)231 F(degree)165

















BDO International is a world wide network of public accounting firms, called BDO
Member Firms, serving international clients. Each BDO Member Firm is an
independent legal entity in its own country. The network is coordinated by BDO
Global Coordination B.V., incorporated in the Netherlands, with an office in
Brussels, Belgium, where the Global Coordination Office is located.


                                      F-4

<PAGE>



Deloitte


                                                         Deloitte & Co. S.R.L.
                                                         Florida 234 5(degree)
                                                         Capital Federal
                                                         C1005AAF
                                                         Argentina

                                                         Tel: 54 (11) 4320-2700/
                                                         4326-4046
                                                         Fax:  54 (11) 4325-8081
                                                         www.deloitte.com.ar




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
Mastellone Hermanos Sociedad Anonima

1.   We have audited the accompanying consolidated balance sheets of Mastellone
     Hermanos S.A. ("Mastellone"), an Argentine corporation, and its
     consolidated subsidiaries (the "Company") as of December 31, 2003, and the
     related consolidated statements of operations, shareholders' equity and
     cash flows for the year then ended. These consolidated financial statements
     are the responsibility of the Company's management. Our responsibility is
     to express an opinion on these consolidated financial statements based on
     our audit.

2.   We conducted our audit in accordance with generally accepted auditing
     standards in Argentina and the standards of the Public Company Accounting
     Oversight Board (United States). Those standards require that we plan and
     perform the audit to obtain reasonable assurance about whether the
     consolidated financial statements are free of material misstatement. The
     Company is not required to have, nor were we engaged to perform, an audit
     of its internal control over financial reporting. Our audit included
     consideration of internal control over financial reporting as a basis for
     designing audit procedures that are appropriate in the circumstances but
     not for the purpose of expressing an opinion on the effectiveness of the
     Company's internal control over financial reporting. Accordingly, we
     express no such opinion. An audit also includes examining, on a test basis,
     evidence supporting the amounts and disclosures in the financial
     statements, assessing the accounting principles used and significant
     estimates made by management, as well as evaluating the overall financial
     statements presentation. We believe that our audit provide a reasonable
     basis for our opinion.

3.   In our opinion, the consolidated financial statements referred to in the
     first paragraph above present fairly, in all material respects, the
     financial position of the Company as of December 31, 2003, the results of
     their operations and their cash flows for the year then ended in conformity
     with accounting principles generally accepted in Argentina.

4.   As explained in Note 1 to the consolidated financial statements, due to the
     significant impact on the Company's financial position of the economic
     reforms implemented by the Argentine Government in 2002, mainly the
     devaluation of the Argentine peso, the Board of Directors initiated
     negotiations with the Company's financial creditors to restructure the
     terms of the Company's outstanding indebtedness. On March 26, 2002, the
     Company suspended all payments, including both principal and interest, on
     most of its financial debt obligations. Accordingly, the Company was in
     default on most of financial debts. The Company completed the restructuring
     of in excess of 97% of its outstanding financial debt obligations in 2004.
     The legal steps taken, such as the Shareholders' Meeting held to approve
     the issuance of the New Senior Notes, a summary of the accepted proposals
     and the portion of debt that was not restructured are also discussed in
     Note 1.



Deloitte & Co. S.R.L. - Registro de Soc. Com.                   A member firm of
C.P.C.E.C.A.B.A. -T(Degree) 1 Folio 3                   Deloitte Touche Tohmatsu

                                      F-5

<PAGE>



5.   As more fully explained in Note 3.e) 1) to the consolidated financial
     statements, effective January 1, 2003, the Company adopted a new set of
     accounting standards that has been approved by the professional bodies in
     Argentina and the Argentine National Securities Commission through its
     General Resolution N(degree) 434/03. Also, effective January 1, 2004, and
     as more fully explained in Note 3.e) 1) to the consolidated financial
     statements, the Company adopted Technical Resolution N(degree) 21, issued
     by the Argentine Federation of Professional Council in Economic Sciences
     (approved by Resolution CD N(degree) 87/03 issued by the Professional
     Council in Economic Sciences of Buenos Aires), with certain modifications
     introduced by the National Securities Commission ("CNV") through its
     General Resolution N(degree) 459/04. The new accounting standard, among
     others, requires the Company to consolidate a subsidiary, Con-Ser Promotora
     y Asesora de Seguros S.A., not consolidated until fiscal year 2003, because
     of its dissimilar activity. The Company, as allowed in the new accounting
     standard, retroactively restated its consolidated financial statements for
     the year ended December 31, 2003 for comparability.

6.   In accordance with Argentine Decree N(degree) 664/03 and General Resolution
     N(degree) 441/03 issued by the Argentine National Securities Commission,
     the Company discontinued the restatement of financial statements to reflect
     the effects of inflation effective March 1, 2003. The Company restated its
     financial statements to reflect the effects of inflation through February
     2003. The Professional Council of Economic Sciences of the City of Buenos
     Aires, on its turn, required the discontinuance of the restatement of
     financial statements to reflect the effects of inflation effective October
     1, 2003. During the period from March, 1 to September 30, 2003, the
     wholesale price index decreased by 2.10%. As mentioned in Note 3 b),
     Management estimates that there is no material effect on the financial
     statements because of the deflation between February and September 2003,
     not recognized during this period.

7.   The financial statements referred to above are presented on the basis of
     accounting principles generally accepted in Argentina. Accounting
     principles generally accepted in Argentina vary in certain significant
     respects from accounting principles generally accepted in the United States
     of America. The application of the latter would have affected the
     determination of net loss for the years ended December 31, 2003 and the
     determination of shareholders' equity at December 31, 2003 to the extent
     summarized in Note 14.


Buenos Aires, Argentina.
March 7, 2005


Deloitte & Co. S.R.L.
/s/ Hugo Alberto Luppi


    Hugo Alberto Luppi (Partner)
      Contador Publico (U.B.A.)
C.P.C.E.C.A.N.A. T(degree)56 -F(degree)96













Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its
member firms and their respective subsidiaries and affiliates. As a Swiss Verein
(association), neither Deloitte Touche Tohmatsu nor any of its member firms has
any liability for each other's acts or omissions.

Each of the member firms is a separate and independent legal entity operating
under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu," or
other related names. Services are provided by the member firms or their
subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein.


                                      F-6

<PAGE>


MASTELLONE HERMANOS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005, 2004 AND 2003
(in thousands of Argentine pesos)

<TABLE>
<CAPTION>

                                                                       2005              2004             2003
                                                                    ----------        ----------        ---------
    ASSETS
    ------
CURRENT ASSETS
--------------
<S>                                                                 <C>               <C>              <C>
     Cash and cash equivalents                                         80,777            76,229          158,611
     Trade accounts receivable, net (Note 4 a)                        139,771           141,035          144,721
     Other receivables, net (Notes 4 b) and 7)                         24,415            39,504           29,287
     Inventories (Note 4 c)                                           213,797           133,634          186,061
     Other current assets (Note 4 d)                                      942                              2,036
                                                                    ----------        ----------        ---------
         Total Current Assets                                         459,702           390,402          520,716
                                                                    ----------        ----------        ---------

NON-CURRENT ASSETS
------------------
     Other receivables, net (Note 4 b)                                 41,630            37,961           48,804
     Deferred income tax (Note 4 e)                                        47                 5              289
     Investments                                                       11,886             8,257           10,898
     Spare parts and supplies (Note 4 f)                               27,031            25,723
     Property, plant and equipment, net (Notes 4 g) and 7)            974,236         1,046,110        1,185,953
     Plantations in progress (Note 4 h)                                59,207            58,509           57,788
     Intangible assets, net (Note 4 i)                                    112               149              231
     Goodwill (Note 4 j)                                                                                  35,034
     Other non-current assets (Notes 4 d) and 7)                       14,443            24,990            3,487
                                                                    ----------        ----------        ---------
         Total Non-Current Assets                                   1,128,592         1,201,704        1,342,484
                                                                    ----------        ----------       ----------
         TOTAL                                                      1,588,294         1,592,106        1,863,200
                                                                    ==========        ==========       ==========

         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------
CURRENT LIABILITIES
-------------------
     Accounts payable (Notes 4 k) and 7)                              190,011           154,569          149,332
     Loans (Note 4 l) and 7)                                            7,335            27,828          540,358
     Taxes, accrual for tax relief and other (Notes 4 m) and 7)        22,171            17,828           15,349
     Accrued salaries, wages, payroll taxes and others (Note           25,629            19,483           15,474
       4 n)
     Accrued litigation and other expenses (Note 4 o)                   4,375             5,034            4,082
                                                                    ----------        ----------        ---------
         Total Current Liabilities                                    249,521           224,742          724,595
                                                                    ==========        ==========        =========

NON-CURRENT LIABILITIES
-----------------------
     Accounts payable (Notes 4 k) and 7)                               14,262            20,220            5,994
     Loans (Notes 4 l) and 7)                                         582,021           614,934          721,439
     Taxes and accrual for tax relief (Notes 4 m), 7 and 8)            32,815            36,202           37,872
     Accrued salaries, wages, payroll taxes and others (Note              764             1,125            2,684
       4 n)
     Accrued litigation and other expenses (Note 4 o)                  11,410            11,767            8,838
                                                                    ----------        ----------        ---------
         Total Non-Current Liabilities                                641,272           684,248          776,827
                                                                    ----------        ----------        ---------
         Total Liabilities                                            890,793           908,990        1,501,422
MINORITY INTEREST                                                           1                 1            4,358

SHAREHOLDERS' EQUITY                                                  697,500           683,115          357,420
                                                                    ----------        ----------        ---------

         TOTAL                                                      1,588,294         1,592,106        1,863,200
                                                                    ==========        ==========       ==========
</TABLE>

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

                                      F-7


<PAGE>


MASTELLONE HERMANOS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(in thousands of Argentine pesos)

<TABLE>
<CAPTION>

                                                                   2005                2004               2003
                                                               ------------       -------------       ------------
<S>                                                            <C>                 <C>                 <C>
Net sales (Note 4 p)                                            1,599,203           1,385,390          1,132,141
Cost of sales (Note 4 q)                                       (1,267,011)         (1,127,035)          (945,429)
                                                               ------------       -------------       ------------
     Gross income                                                 332,192             258,355            186,712

Expenses:
   Selling (Note 4 r)                                            (277,271)           (220,418)          (175,643)
   General and administrative (Note 4 r)                          (58,426)            (50,944)           (43,601)
   Other (Note 4 r)                                                (1,830)             (7,078)           (10,986)
                                                               ------------       -------------       ------------
     Operating loss                                                (5,335)            (20,085)           (43,518)

Other expenses, net (Note 4 s)                                    (10,425)            (19,578)           (19,747)
Amortization of goodwill                                                               (3,858)            (4,077)
Interest expense                                                  (53,116)           (117,656)          (123,744)
Interest income                                                     5,066               2,353              7,764
Holding results and other financial results, including the
   effects of inflation in 2003                                    (7,200)            (25,164)            (2,418)
                                                               ------------       -------------       ------------
Loss before income tax, minority interest and
   extraordinary income                                           (71,010)           (183,988)          (185,740)

Income tax (Note 4 t)                                                 (42)               (279)               181
Minority interest                                                      (1)                  1                (86)
                                                               ------------       -------------       ------------
     Loss before extraordinary income                             (71,053)           (184,266)          (185,645)
                                                               ------------       -------------       ------------

Extraordinary item - Income (Note 4 u)                             37,793             509,961
Income tax (Note 4 v)                                          ------------       -------------       ------------

Extraordinary income                                               37,793             509,961
                                                               ------------       -------------       ------------

     NET (LOSS) INCOME                                            (33,260)            325,695           (185,645)
                                                               ============       =============       ============

Earnings per common share
     Loss before extraordinary income                               (0.15)              (0.45)             (0.45)
     Extraordinary income                                            0.08                1.24
                                                               ------------       -------------       ------------
     Total                                                          (0.07)               0.79              (0.45)
                                                               ============       =============       ============
</TABLE>

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

                                      F-8

<PAGE>



MASTELLONE HERMANOS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(in thousands of Argentine pesos)
<TABLE>
<CAPTION>

                                                                            Shareholders' contributions

                                                                            Adjustment     Additional
                                                                  Common     to common       paid-in     Irrevocable       Total
                                                                   stock      stock          capital       capital     contributions

<S>                                                               <C>         <C>            <C>               <C>        <C>
Balance as of January 1, 2003                                     409,902     490,763        44,090            366        945,121

Resolution of General Extraordinary Shareholders' Meeting
  held on April 28, 2003:
    Merger with Cabana Los Charas S.A. (Note 3 a)(1)
Net loss
Balance as of December 31, 2003                                   409,902     490,763        44,090            366        945,121

Net income
Balance as of December 31, 2004                                   409,902     490,763        44,090            366        945,121

Irrevocable capital contributions accepted by the Board
  of Directors on February 8, 2005 (Note 6):
    Shares in other company                                                                                                 5,305
    Cash                                                                                                                   42,392
Resolution of General Ordinary and Extraordinary
  Shareholders' Meeting held on March 31, 2005 (Note 6):
    Absorption of accumulated losses                                         (217,550)      (44,090)          (366)      (262,006)
    Adjustment to irrevocable capital contributions-
      shares in other company                                                                                                 (52)
    Capitalization of irrevocable capital contributions-
      shares in other company                                       5,253                                                  (5,253)
    Capitalization of irrevocable capital contributions-
      cash                                                         42,392                                                 (42,392)
Net loss
Balance as of December 31, 2005                                   457,547     273,213                      730,760        (33,260)
</TABLE>



Retained earnings

  Accumulated
    losses         Total

   (402,056)       543,065




   (185,645)      (185,645)
   (587,701)       357,420

    325,695        325,695
   (262,006)       683,115



      5,305          5,305
     42,392         42,392


    262,006

        (52)           (52)




    (33,260)       (33,260)
    697,500


(1) The increase in common stock and net equity due to the merger with Cabana
Los Charas S.A. amounted to $1.

                                      F-9

<PAGE>

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


                                      F-10



<PAGE>









MASTELLONE HERMANOS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(in thousands of Argentine pesos)

<TABLE>
<CAPTION>

                                                                             2005            2004             2003
                                                                          ----------      ----------       ----------
CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
<S>                                                                        <C>            <C>              <C>
Loss before extraordinary income                                           (71,053)       (184,266)        (185,645)
Adjustments to reconcile loss before extraordinary income to net
   cash provided by operating activities:
   Interest expense                                                         53,116         117,656          123,744
   Interest income                                                            (593)           (542)          (2,193)
   Provision for income tax                                                     42             279             (181)
   Depreciation of property, plant and equipment                            98,500         103,261          108,964
   Consumption of supplies                                                   4,689
   Amortization of intangible assets                                            37              82               65
   Amortization of other investments                                           353             336              337
   Amortization of goodwill                                                                  3,858            4,077
   Provision for doubtful accounts, sale rebates, other assets,
     litigation and contingencies                                           17,328          20,519           22,118
   Financial and holding results, net                                       23,763          35,604           (4,878)
   Loss (gain) on sale and retirements of assets                               625           2,132           (2,253)
   Change in minority interest                                                              (2,399)          (1,755)
   Payments of interest                                                         (9)            (64)             (54)
   Collection of interest                                                      311             188            1,700
                                                                          ----------      ----------       ----------
Subtotal                                                                   127,109          96,644           64,046
Net change in working capital and other components (Note 3 e) 18)          (41,744)         47,770           (4,519)
                                                                          ----------      ----------       ----------
Net cash provided by ordinary operating activities                          85,365         144,414           59,527
                                                                          ----------      ----------       ----------
Extraordinary item - Income                                                 37,793         509,961
Adjustments to reconcile extraordinary income to net cash used in
   extraordinary income:
   Net gain on renegotiation of debt                                       (40,629)       (588,546)
   Fees, commissions and other expenses related to the debt
     restructuring                                                                           5,118
   Write-down of other assets                                                               28,020
   Impairment of goodwill                                                                   29,218
                                                                          ----------      ----------       ----------
Net cash used in extraordinary income                                       (2,836)        (16,229)
                                                                          ----------      ----------       ----------
Net cash provided by operating activities                                   82,529         128,185           59,527
                                                                          ----------      ----------       ----------

Cash flows from investing activities:
   Purchase of property, plant and equipment                               (30,511)        (25,694)         (17,357)
   Purchase of plantations in progress                                      (5,129)         (2,380)          (1,858)
   Purchase of intangible assets                                                                               (150)
   Proceeds from sale of property, plant and equipment and other
     assets                                                                  3,669           5,647           10,785
   Acquisition of additional interest in a subsidiary                                                        (1,300)
   Acquisition of other investments                                         (1,073)           (663)            (961)
   Proceeds from sale of government bonds                                    1,751           1,282
                                                                          ----------      ----------       ----------
Net cash used in investing activities                                      (31,293)        (21,808)         (10,841)
                                                                          ----------      ----------       ----------

Cash flows from financing activities:
   Cash contributions from shareholders                                     42,392
   Additional borrowings                                                                     8,965            3,640
   Payments of principal                                                   (34,190)       (173,561)          (5,885)
   Payments of interest                                                    (54,284)        (22,924)          (1,341)
   Payments of other liabilities                                              (606)         (1,239)          (2,943)
                                                                          ----------      ----------       ----------
Net cash used in financing activities                                      (46,688)       (188,759)          (6,529)
                                                                          ----------      ----------       ----------

Increase (decrease) in cash and cash equivalents                             4,548         (82,382)          42,157
Cash and cash equivalents at beginning of year                              76,229         158,611          116,454
                                                                          ----------      ----------       ----------
Cash and cash equivalents at end of year                                    80,777          76,229          158,611
                                                                          ==========      ==========       ==========

</TABLE>

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

                                      F-11

<PAGE>

MASTELLONE HERMANOS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(in thousands of Argentine pesos)

NOTE 1 -FINANCIAL DEBT RESTRUCTURING

a)   Unsecured Debts
     ---------------

     The Company presented on September 16, 2004 to certain of its creditors the
     final proposal for the restructuring of its unsecured debts consisting of
     Senior Notes due 2008 and bank debts. The proposal allowed the creditors to
     choose between the two alternatives described below.

     The creditors had up to October 19, 2004 to accept the terms of the
     restructuring plan, and creditors representing approximately 97.8% of total
     unsecured debts accepted.

     The Board of Directors authorized the execution of the contracts covering
     the restructuring on October 22, 2004.

     The alternatives under the restructuring plan were the following:

          a.   Cash Tender Offer: The Company offered the repurchase of the
               unsecured debts up to US$85 million at a price equal to 60% of
               the principal amount, excluding additional payments for interest
               accrued and unpaid on the debts, subject to prorating and
               reallocation if outstanding debts of interested creditors
               exceeded the maximum cash tender offer amount. The total debts
               repurchased amounted to US$85,015,118.65.

          b.   Exchange Offer: The Company offered to exchange the existing
               unsecured debts for new debts under the following conditions:

               o    For each US$1,000 principal amount of existing Senior Notes
                    due 2008, US$1,000 principal amount of (a) a New Senior Note
                    due 2012 - Series A, or (b) a New Collateralized Floating
                    Rate Debt (U.S. Dollar-denominated); and

               o    For each item of our existing bank debts, a principal amount
                    of (a) a U.S. Dollar-denominated New Senior Note due 2012 -
                    Series B equal or equivalent to the principal amount of such
                    item of existing bank debts, or (b) a New Collateralized
                    Floating Rate Debt denominated in the currency of such item
                    of existing bank debts.

               No additional payment was made on unpaid accrued interest on the
               existing unsecured debts under the Exchange Offer.


                                      F-12
<PAGE>


               Following the closing of the foregoing restructuring, the Company
               issued New Senior Notes due 2012 (consisting of Series A and
               Series B) for a total principal amount of US$157,190,000, and New
               Collateralized Floating Rate Debt for the equivalent of
               approximately US$79,725,000.

          c.   New Senior Notes due 2012: The New Senior Notes due 2012 - Series
               A-1 are listed in the Buenos Aires Stock Exchange, Series A-2 are
               in the process of being authorized by the Buenos Aires Stock
               Exchange, and the New Senior Notes due 2012 - Series B are
               unlisted. They bear interest at a rate of 8% per annum, payable
               in cash, semi-annually (every June 30 and December 31), in
               arrears.

          d.   Certain Specific Conditions of the New Senior Notes due 2012: The
               terms of the New Senior Notes due 2012 are as follows:

               I.   Limited right to capitalize interest: On any interest
                    payment date prior to 2007, a portion of the interest
                    payment due and payable on such date could be paid through
                    the issuance of the additional New Senior Notes due 2012 in
                    an aggregate principal amount not to exceed US$10 million.

               II.  Mandatory redemption from excess cash flow: On each June 30,
                    commencing on June 30, 2006, the Company shall (a) apply the
                    excess cash from the preceding year to redeem at par the New
                    Senior Notes due 2012 in an amount up to the principal
                    amount of the New Senior Notes due 2012 issued to pay a
                    portion of interest accrued on such New Senior Notes due
                    2012 pursuant to paragraph I above, and (b) provided that
                    the excess cash flow for the preceding year exceeds by at
                    least US$1 million or its equivalent the amount applied on
                    such redemption date pursuant to the preceding clause (a),
                    apply to redeem ratably and at par a principal amount of the
                    New Senior Notes due 2012 equal to 75% of (x) such excess
                    cash for such preceding year minus (y) the amount so applied
                    pursuant to the preceding clause (a).

                    "Excess cash" is defined as EBITDA for a given fiscal year
                    adjusted for certain item as defined in the relevant
                    agreements. In no case the cash balance after these
                    mandatory repayments could be lower than US$10 million or
                    1.5% of net sales, whichever is higher (see also paragraph
                    f) of this Note).

               III. Registration Rights: The Company offered to the holders of
                    the New Senior Notes due 2012 the exchange for new notes
                    (Registered New Senior Notes due 2012), substantially with
                    the same conditions, registered with the United States of
                    America Securities and Exchange Commission ("SEC"). Such
                    registration became effective on May 24, 2005. According to
                    the terms agreed with the noteholders, the exchange of the
                    New Senior Notes due 2012 for the Registered New Senior
                    Notes due 2012 was completed on June 8, 2005 as described
                    below:

                                      F-13

<PAGE>



                                   Amount -
          Series               Thousands of US$           SEC Registered
   --------------------- ----------------------------- ---------------------

           A-1                        11,146                    No
           A-2                       142,874                   Yes
           B-2                         3,170                   Yes
                                     -------
                                     157,190
                                     =======

          e.   New Collateralized Floating Rate Debt: The principal on the New
               Collateralized Floating Rate Debt is payable as follows:


                                                       % of the
                                                       Original
                 Principal Payment Date             Principal Amount
----------------------------------------------------------------------------
December 31, 2007                                          5
June 30, 2008                                              5
December 31, 2008                                          5
June 30, 2009                                              5
December 31, 2009                                          10
June 30, 2010                                              10
December 31, 2010                                          20
June 30, 2011                                              20
December 31, 2011                                          20

               The New Collateralized Floating Rate Debt bears interest on a
               floating rate basis at an interest rate determined by reference
               to LIBOR applicable to U.S. dollar or Euro deposits, for
               successive periods, the first of which commenced on July 31,
               2004, plus 2.5%, provided, however that such rate of interest
               shall not exceed 5% per annum. Interests are payable in cash and
               in arrears on December 31 or on June 30 every year.

               Each item of the New Collateralized Floating Rate Debt is
               denominated in the currency of the existing debt exchanged for
               such item. This debt is a senior debt.

          f.   Certain terms and conditions applicable to both the New Senior
               Notes due 2012 and the New Collateralized Floating Rate Debt:

               I.   Collateral: Both types of debt are secured on a first
                    priority basis by two pledges provided to the collateral
                    agent by the shareholders of Mastellone Hermanos Sociedad
                    Anonima, of a number of shares equal to 49% of the Company's
                    capital stock and voting rights multiplied by a fraction,
                    the numerator of which is the aggregate principal amount of
                    the New Senior Notes due 2012 (or of the New Collateralized
                    Floating Rate Debt, as the case may be), and the denominator
                    of which is such aggregate principal amount of the New
                    Senior Notes due 2012 plus the aggregate principal amount of
                    the New Collateralized Floating Rate Debt.


                                      F-14
<PAGE>


               II.  Subsidiary Guarantee: The subsidiaries Leitesol Industria e
                    Comercio Ltda., Mastellone San Luis S.A. and Promas S.A.
                    guarantee the New Senior Notes due 2012 and the New
                    Collateralized Floating Rate Debt.

               III. Additional Amounts: The Company is obligated to pay such
                    additional amounts as may be necessary so that the amount
                    received by holders of the New Senior Notes due 2012 after
                    tax-related withholdings or deductions in relation to the
                    New Senior Notes due 2012, will not be less than the amount
                    that holders of the New Senior Notes due 2012 would have
                    received in the absence of the withholding or deduction. If
                    an item of the New Collateralized Floating Rate Debt is
                    transferred to a holder that is subject to a higher
                    withholding tax than the tax that is applicable to the
                    transferor, the Company shall only pay the withholding tax
                    applicable to the transferor on the date of the transfer.

               IV.  Optional redemptions or voluntary repayments: (a) The
                    Company may redeem the New Senior Notes due 2012, in whole
                    or part, at any time or from time to time, at face value
                    plus interest accrued to the redemption date on the amount
                    redeemed; (b) subject to certain conditions, the Company may
                    repurchase New Senior Notes due 2012 in the open market, or
                    by a tender or through direct transactions, at any price;
                    (c) additionally, subject to compliance with the Indenture
                    Agreement, the Company may repay the New Collateralized
                    Floating Rate Debt in whole or in part, at any time, at face
                    value plus interest accrued to the repayment date on the
                    amount repaid, inasmuch as such prepayment is funded by
                    means of new financial facilities, with comparable or better
                    financial costs and payment terms.

               V.   Certain covenants: The Company has issued the New Senior
                    Notes due 2012 under an Indenture Agreement and the New
                    Collateralized Floating Rate Debt under a loan agreement.
                    The Company is bound under both agreements by certain
                    covenants, including reporting requirements, and limitations
                    affecting the Company's ability and the restricted
                    subsidiaries' ability to: borrow money, pay dividends on
                    stock, redeem stock or redeem subordinated debt, make
                    investments, sell capital stock of subsidiaries, guarantee
                    other indebtedness, enter into agreements that restrict
                    dividends or other distributions from restricted
                    subsidiaries, enter into transactions with unrestricted
                    subsidiaries and affiliates outside the ordinary course of
                    business, create or assume liens, engage in mergers or
                    consolidations, and enter into a sale of all or
                    substantially all of the Company's assets, and prepay the
                    New Collateralized Floating Rate Debt (a covenant applicable
                    only to the New Senior Notes due 2012).

               VI.  Other Penalties: There are several clauses relating to
                    change of control and other events of default, which will
                    permit acceleration of the payment of the principal of and
                    accrued interest on the New Senior Notes

                                      F-15

<PAGE>


                    due 2012 and the New Collateralized Floating Rate Debt.
                    Moreover, under certain circumstances, the Company shall
                    repay both debts with the proceeds from the sale of assets.

               VII. Governing Law: The governing law for the Indenture Agreement
                    covering the New Senior Notes due 2012 and the loan
                    agreements covering the New Collateralized Floating Rate
                    Debt and subsidiary guarantee is the law of the State of New
                    York (United States). The Argentine Law applies for the
                    pledge of shares as collateral of the New Senior Notes due
                    2012 and the New Collateralized Floating Rate Debt.

          g.   Public Offering and Listing of the New Senior Notes Due 2012:
               -------------------------------------------------------------

               The Argentine National Securities Commission (Comision Nacional
               de Valores or CNV) approved the issuance of the New Senior Notes
               due 2012 into the Public Offering Regime through its Resolution
               N(degree) 14,925 dated October 7, 2004, with the New Senior Notes
               due 2012 - Series A authorized for listing in the Buenos Aires
               Stock Exchange starting on October 14, 2004 (see also paragraph
               c) 1. of this Note 1).

b)   Secured Debt
     ------------

     The Company separately negotiated with creditors holding secured debts
     representing about 5% of the total existing debts as of September 30, 2003.

         o    The Company reached an agreement on November 7, 2003 to
              restructure the debt with Rabobank Curacao N.V. that was secured
              by the main powdered milk plant and the assets in the plant. The
              restructuring agreement provided for a reduction of interest rates
              and for the repayment of principal in quarterly installments. The
              restructured debt was paid in full in March 2005.

         o    The Company agreed on April 6, 2004 with COFACE to restructure its
              debt that was secured by a pledge over tanks used to transport
              milk. This agreement provided for a reduction of interest rates
              and for the repayment of principal in semiannual installments. The
              restructured debt was paid in full in March 2005.

         o    The Company agreed to refinance its secured loan with Calyon
              (successor of Credit Lyonnais S.A. - France). The proceeds from
              the original loan were used to finance the acquisition of a cheese
              plant, which was never placed in operations. Such plant was
              pledged as collateral for the debt. On June 4, 2004 the Company's
              Board of Directors approved the refinancing agreement consisting
              in releasing the Company from the payment of interest accrued
              through June 3, 2004 and the repayment of the entire outstanding
              principal of US$9,852,998 in increasing semi-annual installments,
              with the first payment due on March 30, 2006 and the final payment
              due on March 30, 2010, bearing interest at LIBOR plus 2.5%, with a
              cap of 5% annually. Calyon, on December 20, 2005, accepted payment
              for a portion of the loan with face value US$4,375,000, at 80% of
              face value. As of December 31, 2005 the outstanding principal
              amounts to US$5,477,998 (US$9,852,998 as of December 31, 2004).


                                      F-16
<PAGE>




c)   The effects of the restructuring of the unsecured debts pursuant to the
     terms described in the paragraphs above were as follows:

     1.   Senior Notes due 2008 (issued on March 31, 1998):

                                                          Amount - Thousands
       Balances and Effects of the Restructuring                 of US$
--------------------------------------------------------------------------------

Total amount issued                                            225,000
Less - portion settled in a cash tender offer                  (63,832)
Less - portion exchanged for:
     New Senior Notes due 2012 - Series A                     (154,020)
     New Collateralized Floating Rate Debt                         (57)
                                                              ------------
Amount not restructured                                          7,091
                                                              ============

     In addition, bank debts amounting to thousands of US$3,170 were exchanged
     for New Senior Notes due 2012 - Series B. Consequently, the New Senior
     Notes due 2012 - Series A and B amount to thousands of US$157,190.

     The Company paid, in 2005, Senior Notes due 2008 with principal amount
     totaling thousands of US$1,350, from holders that did not participate in
     the restructuring agreed in October 2004. The Company recognized gains on
     the settlement of such debt in extraordinary income.

     Furthermore, on June 23, 2005, the Company agreed with the holders of the
     Senior Notes due 2008 (which did not participate in the renegotiation
     agreed in October 2004) the restructuring of Senior Notes due 2008 with
     face value of thousands of US$5,390. This agreement stipulates the exchange
     of the above mentioned Senior Notes due 2008 for New Senior Notes due 2012
     - Series C, essentially under the same conditions as the New Senior Notes
     due 2012 issued in October 2004, including the right to collect interest
     accrued starting from July 31, 2004. The exchange of the Senior Notes due
     2008 for the New Senior Notes due 2012 - Series C was approved by the CNV
     on September 7, 2005. The Company recognized gain of 7,031 as a result of
     the waiver of unpaid accrued interests.

     As of December 31, 2005, the remaining face value of the Senior Notes due
     2008 after taking into account the foregoing amounted to thousands of
     US$351.

                                      F-17

<PAGE>


2.   Existing Unsecured Bank Debts:

                                                          Amount - Thousands
      Balances and Effects of the Restructuring                 of US$
--------------------------------------------------------------------------------

Existing bank debt                                             104,021
Less - portion settled in a cash tender offer                  (21,183)
Less - portion exchanged for:
        New Senior Notes due 2012 - Series B                    (3,170)
        New Collateralized Floating Rate Debt                  (79,668)
                                                            -------------
Amount not restructured
                                                            -------------

     New Collateralized Floating Rate Debt amounts to the equivalent of
     thousands of US$79,725, which consisted of amount exchanged with Senior
     Notes due 2008 of thousands of US$57 and amount exchanged with unsecured
     bank debts of thousands of US$79,668.

     On February 8, 2005 the loan agreement with Compagnie Gervais Danone,
     renegotiated together with the other debts on October 22, 2004 and
     converted into New Collateralized Floating Rate Debt in that renegotiation,
     was amended as follows:

     a.   The principal of the related New Collateralized Floating Rate Debt was
          reduced through a waiver from US$29,131,433 to US$15,000,000.

     b.   Payment of the reduced balance in a single payment on December 31,
          2013 instead of repayment in installments starting 2007 up to 2011 as
          previously agreed.

     c.   Payment of a fixed interest rate at 8% commencing from January 1, 2005
          instead of a floating interest rate of LIBOR plus 2.5% with a cap of
          5%.

     d.   Other revisions were made to the loan agreement to incorporate, to the
          extent possible, the other conditions of this debt to those of the New
          Collateralized Senior Notes due 2012.

     The portion of the debt with Compagnie Gervais Danone that was waived of
     US$14,131,433 (thousands of pesos 41,260) was recognized in extraordinary
     income in February 2005.

3.   Waiver of unpaid interest accrued up to July 30, 2004 on the Senior Notes
     due 2008 and the existing unsecured debts, including penalty on interest,
     amounting to an equivalent of thousands of US$111,233 or thousands of pesos
     331,585 was recognized in extraordinary income in 2004.

4.   The outstanding balance of non-restructured Senior Notes due 2008 continues
     to accrue the originally agreed interest rates, including the pertinent
     penalty interest.



                                      F-18
<PAGE>




d)   Accounting for the Debt Restructuring:

     1.   The following were charged or credited to extraordinary results for
          the year ended December 31, 2004:
<TABLE>
<CAPTION>

                                                                                Amount - Thousands
                                    Item                                             of Pesos
------------------------------------------------------------------------------ ----------------------
<S>                                                                                    <C>
Waiver of unpaid accrued interest and penalty interest computed at the
    interest rates applicable before the debt restructuring                            323,292
Restructuring expenses for the Senior Notes due 2008 and the bank debt,
    either those capitalized up to June 30, 2004, or those accrued as agreed
    for the closing of the transaction                                                 (19,089)
Income arising from the Cash Tender of US$85,015                                       100,709
Income arising from the recording of the fair value of the new debt (see
    point 2. below)                                                                    155,945
                                                                                    --------------
Extraordinary gain arising from the restructuring of the unsecured debts               560,857
                                                                                    ==============
</TABLE>

     2.   The exchange of debt instruments with substantially different terms is
          considered an extinguishment of the old debt instrument under
          Argentine accounting standards with the old debt instrument
          derecognized from the consolidated balance sheets. The new debt
          instrument should be initially recorded at fair value and such amount
          is used to determine the debt extinguishment gain or loss to be
          recognized. Fair value is determined as the present value of the
          future cash flows to be paid (including payment of interest) under the
          terms of the new debt instrument discounted at a rate commensurate
          with the risks of the debt instrument and time value of money. Debt
          extinguishment gain of Ps155,945 thousands, using a market interest
          rate of 12% per annum to determine the present value of the future
          cash flows of the new debts, was credited to income as an
          extraordinary item in 2004.

     3.   The debt not included in the restructuring agreements is presented as
          a non-current liability based on its original maturity date (2008).


                                      F-19

<PAGE>


The restructured and non-restructured debts as of December 31, 2005, net of
payments made through December 31, 2005, consisted of the following:

<TABLE>
<CAPTION>

                Debt                   Amount in the Original                Amount in           Registration (*)
                                       currency - in thousands            thousand pesos
----------------------------------------------------------------------------------------------------------------------
Restructured Debts:
------------------
New Senior Notes due 2012:
<S>                                       <C>          <C>                   <C>                   <C>
Series A-1                                US$           11,146                33,795               CNV, BCBA, MAE
Series A-2                                US$          140,574               426,221               CNV, SEC; MAE
Series B-2                                US$            3,170                 9,611               CNV, SEC
Series C                                  US$            5,390                16,342               CNV
                                                    ----------             ---------
Total                                     US$          160,280               485,969
                                                    ==========             =========
New Collateralized Floating Rate Debt     US$           48,512               147,088               N/R
New Collateralized Floating Rate Debt     (euro)         1,631                 5,851               N/R
New Collateralized Floating Rate Debt      $               480                   480               N/R
                                                                           ---------
                                                                             153,419
                                                                           =========
Fixed Rate Debt                           US$           15,000                45,480               N/R
                                                                           =========
Secured Debt                              US$            5,478                16,609               N/R
Non-restructured Debts:
----------------------
Senior Notes due 2008                     US$              351                 1,064               CNV, BCBA, MAE
                                                                           =========
</TABLE>

         (*)      CNV:        National Securities Commission
                  BCBA:       Buenos Aires Stock Exchange
                  MAE:        Electronic Open Market
                  SEC:        Securities and Exchange Commission (United States)
                  N/R:        Debt not registered

e)   Determination of excess cash as of December 31, 2005:

     The excess cash as of December 31, 2005 determined pursuant to section a)
     d. II. of this Note is as follows:
<TABLE>
<CAPTION>

                                           Item                                                      Consolidated
                                                                                                       amounts
                                                                                                 -------------------
<S>                                                                                                    <C>
Net loss                                                                                               (33,260)
Income tax expense                                                                                          42
Amortization expense                                                                                        37
Depreciation expense (including depreciation of assets presented as non-current
     investments)                                                                                       98,853
Fixed charges (interest expense)                                                                        53,116
Add:  Non-cash item reducing net income                                                                 27,893
Minus:  Non-cash item increasing net income                                                            (40,629)
                                                                                                 -------------------
         EBITDA for the year 2005                                                                      106,052
                                                                                                 -------------------
Minus:  Capital expenditures (net of those made with cash proceeds from the sale of
     assets)                                                                                           (21,792)
Minus:  Cash income taxes                                                                               (9,756)
Minus:  Cash used to make interest payments                                                            (54,284)
Minus:  Cash used to repay principal of the Senior Notes due 2012, secured debt and leases             (24,655)
                                                                                                 -------------------
         Excess cash (deficit)                                                                          (4,435)
                                                                                                 ===================
</TABLE>


                                      F-20

<PAGE>

NOTE 2 - THE COMPANY - OPERATIONS AND MAJOR CUSTOMERS

Mastellone Hermanos Sociedad Anonima and its consolidated subsidiaries (the
"Company") is Argentina's leading processor and manufacturer of fresh
consumption dairy products.

Its sales are concentrated in the Buenos Aires metropolitan area, Argentina's
largest market for such products, but the Company's operations cover practically
every significant market throughout the rest of the country.

The Company also exports dairy products (mainly powdered milk) and provides
various services (such as raw milk procurement and industrial services) to
Danone Argentina S.A. under long-term agreements (see Note 9).

Ministerio de Desarrollo Humano y Trabajo (Ministry of Human Resources
Development and Work) accounts for 7.4% of the Company's net sales for the year
ended December 31, 2005 (7.8% and 10.8% in 2004 and 2003, respectively). No
other single customer accounts in excess of 10% of the Company's net sales.

The Company's net sales by distribution channels are as follows:
<TABLE>
<CAPTION>

                                                         2005          2004             2003
                                                      ----------    ----------       ----------
Domestic sales:
<S>                                                   <C>           <C>              <C>
     Traditional retailers and supermarkets           1,176,732       906,771          848,259
     Government and commercial bids                     146,512       150,007          124,008
     Other                                               58,874        34,698           26,072
     Services                                            30,647        25,778           13,421
Export /  Foreign                                       186,438       268,136          120,381
                                                      ----------    ----------       ----------
                  Total                               1,599,203     1,385,390        1,132,141
                                                      ==========    ==========       ==========
</TABLE>

NOTE 3 - ACCOUNTING POLICIES

a)   Consolidated financial statements
     ---------------------------------

     The accompanying consolidated financial statements have been prepared in
     accordance with accounting principles generally accepted in Argentina
     ("Argentine GAAP"). The format and disclosures have been adapted to conform
     more closely to the form and content of financial statements presented in
     accordance with generally accepted accounting principles in the United
     States of America ("U.S. GAAP"). In this respect, see also Note 14 Summary
     of significant differences between Argentine GAAP and U.S. GAAP.

     The consolidated financial statements include the accounts of the Company
     and its majority owned subsidiaries. All material intercompany accounts and
     transactions have been eliminated in the consolidation.

                                      F-21

<PAGE>


     The accounts of the following companies were included in consolidation:
<TABLE>
<CAPTION>

                                                                            % of Holding
Company                                                 2005            2004            2003
-------------------------------------------        --------------- --------------- ---------------
Cabana Los Charas S.A.                                                                    (1)
<S>                                                      <C>            <C>            <C>
Con-Ser Promotora y Asesora de Seguros S.A.               99.99          99.99          99.96
Frigorifico Rydhans S.A.                                 100.00         100.00         100.00
Leitesol I.C.S.A. (2)                                    100.00         100.00         100.00
Marca 4 S.A.                                              99.99          99.99          99.99
Mastellone Hermanos do Brasil Comercial                  100.00         100.00         100.00
    e Industrial Ltda. (dormant company)
Mastellone San Luis S.A.                                 100.00         100.00          94.05
Promas S.A.                                              100.00         100.00          99.97
Puralactea S.A.                                          100.00         100.00          99.99
</TABLE>


     (1)  Cabana Los Charas S.A. merged into Mastellone Hermanos Sociedad
          Anonima effective January 1, 2003. The merger was approved by the
          National Securities Commission on October 1, 2003.

     (2)  Leitesol I.C.S.A. is a Brazilian subsidiary of Mastellone Hermanos
          Sociedad Anonima. It is an integrated subsidiary, with no independent
          cash flow, trading exclusively Company's products in the Brazilian
          market. The remeasurement from Brazilian real to Argentine peso was
          credited or charged to the consolidated statements of operations.

b)   Argentine Peso devaluation
     --------------------------

     The Argentine Convertibility Law, which pegged the exchange rates between
     the Argentine peso and the United States dollar as reported by Banco de la
     Nacion Argentina in the range of approximately 0.99/ 1.00 pesos per dollar,
     was in force since April 1, 1991.

     The Argentine Government announced on January 2, 2002 that the one-to-one
     exchange rate would no longer be maintained and, on January 6, 2002,
     enacted Law N(degree) 25,561, titled "Public Emergency and Reform of the
     Exchange regime".

     At December 31, 2005 the rate of exchange for the United States dollar as
     reported by Banco de la Nacion Argentina was of $3.03 per dollar. At the
     date of issuance of the accompanying financial statements (March 29, 2006),
     such rate of exchange increased to approximately $3.08 per dollar. At
     December 31, 2004 and 2003 the rate of exchange for the same currency and
     reported by the same Bank was of $2.98 and $2.93 per dollar, respectively.


                                      F-22
<PAGE>


c)   Inflation in Argentina
     ----------------------

     The wholesale price index increased 172% up to February 2006 (10.7% in
     2005) subsequent to the devaluation of the Argentine peso in 2002.

     On March 6, 2002, the Professional Council in Economic Sciences of the City
     of Buenos Aires issued its Resolution MD 3/2002, which required the
     restatement of financial statements as from March 31, 2002 to reflect the
     effects of inflation, with a procedure similar to the one established by
     the IAS 29 (Financial Reporting in Hyperinflationary Economies) issued by
     the International Accounting Standards Board.

     The procedure requires the restatement of non-monetary items (mainly
     property, plant and equipment, intangible assets, shareholders' equity and
     profit and loss accounts) based on the movement of the wholesale price
     index, published by the National Institute of Statistics and Census, while
     monetary assets are stated at their nominal value. The result on exposure
     of monetary items to the variations in the purchasing power of the
     Argentine peso is charged or credited to consolidated statements of
     operations.

     The Company discontinued the restatement of the consolidated financial
     statements to reflect the effects of inflation effective March 1, 2003
     pursuant to Decree N(degree) 664/2003 and General Resolution N(degree)
     441/03 issued by the National Securities Commission. Accordingly, the
     Company has restated its consolidated financial statements to reflect the
     effects of inflation only through February 2003. The Professional Council
     of Economic Sciences of the City of Buenos Aires, however, required the
     discontinuance of the restatement of consolidated financial statements to
     reflect the effects of inflation on October 1, 2003, through the Resolution
     CD N(degree) 190/2003. The wholesale price index decreased by 2.10% for the
     period from March 1, 2003 to September 30, 2003. Accordingly, management
     estimated that the effect of the discontinuance of the reflection of the
     effects of inflation effective March 1, 2003 did not materially affect the
     consolidated financial statements.

d)   Revenue recognition
     -------------------

     The Company and its foreign subsidiary recognize revenue from product sales
     when a product has been delivered and risk of loss has passed to the
     customer, collection of the resulting receivable is probable, persuasive
     evidence of an arrangement exists, and the price is fixed or determinable.
     Delivery occurs, in the case of product sales to domestic customers, when
     products are received by or physically transferred to the custody of the
     customers, generally at their respective warehouses as the term of such
     shipments is usually FOB Destination. In the case of product sales to
     customers outside Argentina, delivery occurs after the Company has
     completed customs shipment procedures domestically and has transferred
     custody of the product to buyer's transportation carrier as the term of
     such shipments is usually FOB Shipping Point. The Company records cash
     discounts and volume rebates at the time the related revenue from product
     sale is recognized. Such discounts are reported as reduction from the
     related revenue from product sale. It also recognizes allowance for
     doubtful accounts based on customer collection history and for trade
     discounts and sales returns based on historical experience.


                                      F-23
<PAGE>


     The Company recognizes service revenues as follows: (i) production of
     specific products on behalf of other companies ("facon" agreements) - when
     a customer picks up the product produced from the Company's manufacturing
     facilities; (ii) procurement of raw milk for Danone- when the Company
     delivers the raw milk it procured to the manufacturing facility of Danone;
     and (iii) provision of marketing and other administrative services to
     Logistica La Serenisima Sociedad Anonima - over the agreed service period.

e)   Valuation criteria
     ------------------

     1)   Accounting principles
          ---------------------

          o    Applied since 2003
               ------------------

               Effective 2004, the Company adopted Technical Resolution
               N(degree) 21, issued by the Argentine Federation of Professional
               Council in Economic Sciences (approved through Resolution CD
               N(degree) 87/2003 issued by the Professional Council in Economic
               Sciences of the City of Buenos Aires), with certain modifications
               introduced by the National Securities Commission ("CNV") through
               its General Resolution N(degree) 459/04. According to the
               requirements of the CNV, Technical Resolution N(degree) 21 should
               have been adopted by the Company for the preparation of its 2005
               financial statements; however, early application was permitted.
               Such accounting standard requires the disclosure of balances and
               operations with related parties and resulted in the consolidation
               of the subsidiary company Con-Ser Promotora y Asesora de Seguros
               S.A., not consolidated until fiscal year 2003, because of its
               dissimilar activity.

               The Company, as allowed in Technical Resolution N(degree) 21,
               retroactively restated its consolidated financial statements for
               the year ended December 31, 2003 for comparability.

               In addition, Technical Resolutions N(degree) 8, 9 and 16 to 21,
               which were issued by the Argentine Federation of Professional
               Councils in Economic Sciences and adopted by the National
               Securities Commission through its General Resolution N(degree)
               434/2003, became effective January 1, 2003. The Company has
               adopted the foregoing accounting standards in the preparation of
               the accompanying financial statements.

          o    Applicable in 2006
               ------------------

               The Argentine Federation of Professional Councils of Economic
               Sciences introduced certain revisions to Argentine accounting
               principles through Resolution N(degree) 312/2005. The foregoing
               Resolution was adopted on August 10, 2005 by the Professional
               Council of Economic Sciences of the City of Buenos Aires
               (Resolution CD N(degree) 93/2005) and became effective beginning
               January 1, 2006.


                                      F-24

<PAGE>


               The National Securities Commission issued General Resolution
               N(degree) 485/2005 on December 29, 2005 re-affirming the
               effectivity of the above mentioned Resolution CD N(degree)
               93/2005 for fiscal years or interim periods beginning on or after
               January 1, 2006. General Resolution N(degree) 485/2005 was
               subsequently modified by General Resolution N(degree) 487/2006
               issued on January 26, 2006 (the amendment concerns the accounting
               treatment in deferred taxation of the restatement of property,
               plant and equipment to reflect the impact of inflation, which is
               more fully explained in point (ii) of the following paragraph).

               It is the Company's Board of Directors' and Management's view
               that application of the new accounting standards will not have
               material impact on the financial position or the results for the
               year ending December 31, 2006. The two most important standards
               are: (i) the standard requiring the estimate of the recoverable
               value of property, plant and equipment on the basis of projected
               discounted cash flows and comparing the recoverable value with
               the net carrying amounts of those assets as a first step in an
               impairment analysis, while the current accounting standard
               requires as a first step in the impairment analysis, the
               comparison with the projected undiscounted cash flows expressed
               in nominal values. Had the new standard been applied in 2005, the
               recoverable value would have been higher than the net carrying
               amount of property, plant and equipment, and, therefore, no
               impairment losses would have been recognized; (ii) the Company
               will not apply the option of considering as a temporary
               difference the restatement of property, plant and equipment
               balances to reflect the impact of inflation, recorded in 2002,
               thus maintaining the current approach of considering such
               difference as a permanent difference for deferred taxation
               purposes. For this reason, the new accounting standard requires
               the disclosure in a note to the financial statements of the
               effect, if any, that would have caused in deferred taxation to
               consider the above mentioned restatement in accordance with
               inflation as a temporary difference. The deferred tax liability
               that would have been recognized as of December 31, 2005 had the
               Company elected to recognize as temporary difference the impact
               of inflation would have amounted to Ps 95,521.

          2)   Monetary items - Cash, cash equivalents, receivables and
               liabilities stated in Argentine pesos, have been valued at their
               nominal values plus accrued interest as of the end of each year,
               when applicable.

               Non-interest earning long-term receivables and non-interest
               bearing long-term payables have been valued at their present
               value.

          3)   Foreign currency denominated assets and liabilities - Foreign
               currency denominated assets and liabilities have been stated at
               the closing exchange rate. On March 6, 2002, the Professional
               Council in Economic Sciences of the City of Buenos Aires issued
               Resolution MD N(degree) 3/2002 that mandated the capitalization
               of exchange differences arising from foreign currency denominated
               liabilities used to finance, directly, the acquisition,
               production or construction of an asset. Resolution MD N(degree)
               3/2002 included also an option to capitalize exchange differences
               in other assets financed indirectly with foreign currency
               denominated liabilities. The Company


                                      F-25
<PAGE>


               adopted such optional treatment for the acquisition or
               construction of property, plant and equipment indirectly financed
               in foreign currencies (see points 7) and 8) below).

               Resolution CD N(degree) 87/2003 issued by the Professional
               Council in Economic Sciences of the City of Buenos Aires and
               which became effective on July 28, 2003 superseded Resolution MD
               N(degree) 3/2002 so that the Company capitalized exchange
               differences generated up to the abovementioned date, which are
               currently part of the assets' cost, net of the corresponding
               depreciation.

               Foreign currency denominated non-interest earning long-term
               receivables and non-interest bearing long-term payables have been
               valued at their present value.

          4)   Inventories
               -----------

               o    Finished goods - These are stated at the current replacement
                    cost at each year end, net of those expenses related to
                    production inefficiencies or idle capacity of plants if any.
                    Such expenses are recognized in earnings under caption
                    "Other", included in operating expenses in the consolidated
                    statements of operations.

               o    Raw materials, packaging materials, spare parts and
                    supplies, and work in progress - These are valued at their
                    current replacement cost at each year end. Inventories
                    write-offs are directly charged to the consolidated
                    statements of operations.

               o    Cuts of bovine meat - These are valued at their net
                    realizable value at year end.

               The value of inventories thus determined, taken as a whole, does
               not exceed their estimated recoverable value (which is net
               realizable value, or net selling price less direct selling
               expenses).

               The Company, starting in 2004, classifies spare parts and
               supplies that had turnover of less than one per year as
               non-current assets and included them in "Non-current assets -
               Spare parts and supplies". Also included in that account are
               special trays used in transporting the Company's products.

          5)   Other current and non-current assets
               ------------------------------------

               These consist of property, plant and equipment (all included in
               the dairy products segment) held for sale and valued at their net
               realizable value at each year end (that is, fair market value
               less selling expenses). These assets are not depreciated.

               As of December 31, 2005 and December 31, 2004, this caption
               includes mainly the cheese plant mentioned in Note 1 b).

               Other current assets as of December 31, 2003 mainly included
               parcels of land owned by the Company in the Province of Cordoba,
               which were sold in January

                                      F-26

<PAGE>


               2004; other non-current assets included mainly an inoperative
               plant located in the city of Canuelas, Province of Buenos Aires,
               which was sold in December 2004. Such assets were sold to
               generate funds to finance certain improvements in other
               facilities.

               Loss related to the write-down to fair value less selling
               expenses is included under caption "Other income (expenses),
               net".

          6)   Investments
               -----------

               These mainly consist of Argentine government bonds and
               non-governmental/ private bonds (valued at historical cost plus
               interest accrued), certain properties and an aircraft (valued at
               cost as restated to reflect the effects of inflation, net of
               accumulated depreciation), investments in other companies valued
               at cost, and contributions to environmental projects valued at
               amount contributed.

          7)   Property, plant and equipment
               -----------------------------

               - Original value:
                 --------------

                    o    Technically appraised assets - These assets are stated
                         using the values determined in an independent technical
                         appraisal as of September 30, 1986, as restated to
                         reflect the effects of inflation (see paragraph c) of
                         this Note).

                    o    Assets not appraised - These assets are valued at cost
                         as restated to reflect the effects of inflation.
                         Construction in progress includes interest capitalized
                         during the construction period related to loans
                         obtained to finance these constructions, also as
                         restated to reflect the effects of inflation.

                    o    Technical appraisal reserve - This amount represents
                         the difference between the carrying value and the net
                         technical appraisal of property, plant and equipment.
                         Up to December 31, 2001, the technical appraisal
                         reserve was amortized proportionally to the
                         depreciation and disposal of the technically appraised
                         assets. The Shareholders' meeting held on April 3,
                         2002, that approved the financial statements as of
                         December 31, 2001, decided to offset the Technical
                         appraisal reserve with accumulated losses as of that
                         date.

                    o    Capitalization of exchange losses - As discussed in
                         point 3) above, exchange losses generated through July
                         27, 2003 arising from the direct or indirect financing
                         for the acquisition, construction or installation of
                         property, plant and equipment, have been capitalized as
                         part of the cost of such assets, net of the effect of
                         restating the historical costs to reflect the effects
                         of inflation.

               -    Depreciation - Depreciation is calculated using the
                    straight-line method on the restated balances of the assets.

                    Rates applicable are as follows


                                      F-27

<PAGE>



                                                                  %
                                                     ---------------------------
Land and buildings                                        2.5, 2.86 and 4
Machinery and equipment, containers and tools             5, 10, 20 and 33
Fittings, laboratory equipment and furniture                 10 and 25
Vehicles                                                         20
Buildings improvements                                            4

               The carrying value of these assets does not exceed their economic
               recoverable value. As from December 31, 2004 the analysis was
               carried out separately for the cheese maturing activity and the
               general dairy business since the cash flows from the cheese
               maturing business is independent from the cash flows from the
               general dairy business of the Company. Such analysis is updated
               every year.

          8)   Plantations in progress
               -----------------------

               These are valued at cost as restated to reflect the effects of
               inflation, and will be transferred to a definitive account and
               will be amortized from the time the plantation (mainly olives)
               starts producing at the standard commercial level considered by
               the industry. The balance includes development costs for the
               plantation, as well as the capitalization of interest and
               exchange differences related to loans obtained to finance the
               aforementioned plantations.

               The carrying value of these assets, taken as a whole, does not
               exceed their economic recoverable value.

          9)   Intangible assets
               -----------------

               - Trademarks:
                 ----------

                    o    Original value - These are carried at cost as restated
                         to reflect the effects of inflation.

                    o    Amortization - It was computed on a straight-line
                         basis, over its estimated useful life (10 years). It is
                         computed on the restated cost of the assets.

          10)  Goodwill
               --------

                    o    Original value - included the excess of the purchase
                         price paid for the shares of Leitesol Industria e
                         Comercio S.A. and Mastellone San Luis S.A. over their
                         equity values as of the dates of acquisition. These had
                         been restated to reflect the effects of inflation.

                         The net carrying amount as of December 31, 2004 of the
                         goodwill arising from the acquisition of Leitesol
                         Industria e Comercio S.A. of Ps464 was fully written
                         off in 2004 and included in extraordinary item. The
                         goodwill impairment is attributable to the recurring
                         losses incurred by Leitesol Industria e Comercio S.A.


                                      F-28
<PAGE>


                         In addition, as of December 31, 2004, the projected
                         cash flows prepared for the cheese maturing business
                         (developed by Mastellone San Luis Sociedad Anonima)
                         that was considered to be independent from the cash
                         flows from the general dairy business, did not support
                         the carrying amount of the goodwill attributable to the
                         acquisition of Mastellone San Luis Sociedad Anonima.
                         Accordingly, the net carrying amount of the goodwill of
                         Ps 28,754 was fully written off and charged to income
                         as an extraordinary item in 2004. The separate analysis
                         of the two activities (general dairy business and
                         cheese maturing business) was carried out since
                         their cash flows were independent from each other.

                         In January 2003, the Company purchased an additional
                         1.4% equity interest in Mastellone San Luis Sociedad
                         Anonima and recognized goodwill of Ps 1,300. Also, in
                         January 2004, the Company purchased an additional
                         5.95% equity interest in Mastellone San Luis Sociedad
                         Anonima and recognized a negative goodwill of Ps
                         1,958.

                         As of December 31, 2003, the projected cash flows
                         prepared by the Company for the whole of the dairy
                         business and for the remaining useful life of
                         goodwill, supported the carrying amount recorded as
                         of such date.

                    o    Amortization - until it was fully written off, goodwill
                         was amortized on a straight-line basis over its
                         estimated useful life, and it was computed based on the
                         restated cost of these assets.

          11)  Loans - These are stated at nominal value of the principal plus
               remaining contractual interest payments at each year end, net of
               adjustment to present value as explained in Note 1.

          12)  Capital stock - Total capital consists of common stock,
               additional paid-in capital and irrevocable capital contributions.
               These have been restated to reflect the effects of inflation, the
               excess over their nominal value being credited to a supplementary
               account named Adjustment to capital. General Ordinary and
               Extraordinary Shareholders' Meeting held on March 31, 2005
               approved the absorption of accumulated losses as of December 31,
               2004 through total application of the outstanding balances as of
               December 31, 2004 of irrevocable capital contributions,
               adjustment to irrevocable capital contributions and additional
               paid-in capital, and the partial application of adjustment to
               capital.

               Irrevocable capital contributions consist of cash contributions
               and contributions in kind made by the shareholders which are
               accepted by the Company's Board of Directors on account of
               future capital increases, and are formalized through an
               agreement with those shareholders. The agreement provides that
               these contributions should exclusively be destined to the
               issuance of new shares whenever the shareholders so decide. If
               at any time the Board proposes to return them to the
               shareholders, such resolution must be taken in an extraordinary
               shareholders' meeting with same formalities as those required by
               the Argentine Corporations Law


                                      F-29

<PAGE>


               for capital stock reductions. Provided that these conditions are
               met, these contributions are presented as part of shareholders'
               equity in accordance with Argentine GAAP and with regulations of
               the Argentine National Securities Commission.

          13)  Holding results, foreign exchange (loss) gain, net, and other
               financial results - These consist of the difference between the
               carrying value of inventories and their historical cost and the
               gain or losses on foreign currency transactions. They are
               presented, for the period ended December 31, 2003, net of the
               inflationary effect included therein (up to February 2003 as
               explained in paragraph c) of this Note).

          14)  Advertisement expense - All advertisement costs are expensed as
               incurred.

          15)  Income taxes - The income tax amounts shown in the consolidated
               statements of operations were accrued by each of the consolidated
               entities. Deferred tax assets and liabilities are recognized for
               the future tax effects of temporary differences between the
               financial statement carrying amounts of existing assets and
               liabilities and their respective tax bases. Future tax benefits
               of tax loss carry-forwards are also recognized as deferred tax
               assets. Deferred tax assets are reduced by a valuation allowance
               to the extent the Company concludes that, more likely than not,
               this assets will not be realized. Deferred tax assets and
               liabilities are measured using enacted tax rates in effect for
               the year in which those temporary differences are expected to be
               recovered or settled. The effect on deferred taxes of a change in
               tax rates is recognized in income in the period that the change
               is enacted. Based on projections prepared as of the end of each
               year, a valuation allowance has been recorded to reduce the
               deferred tax assets of the Company and most of its subsidiaries,
               since the realization of these assets is uncertain.

               The statutory income tax rate for the years ended December 31,
               2005, 2004 and 2003 was 35%.

          16)  Earnings per common share - It has been computed on the basis of
               the average number of 457,547,269 and 409,902,378 shares as of
               December 31, 2005 and December, 2004 and 2003, respectively, and
               broken-down in the ordinary and the extraordinary amounts. There
               is no EPS dilution, as there is no preferred stock or
               convertible-bonds issued.

          17)  Segment information - This is presented in Note 13 with the
               information required by Argentine GAAP.

                                      F-30

<PAGE>


          18)  Cash flow information - The detail of the net change in working
               capital and other components is as follows:
<TABLE>
<CAPTION>

                                                                 2005         2004          2003
                                                              ----------   ----------    ----------
<S>                                                           <C>           <C>           <C>
 Trade accounts receivable                                       (522)         961        (13,787)
 Other receivables                                              1,482       (8,781)        (8,932)
 Inventories                                                  (75,732)      20,615         (3,486)
 Spare parts and supplies                                      (1,442)
 Accounts payable                                              28,658       29,002         10,658
 Taxes, accrual for tax relief and other                          872        4,674         10,299
 Accrued salaries, wages, payroll taxes and other               6,391        3,689          3,927
 Accrued litigation and other expenses                         (1,451)      (2,390)        (3,198)
                                                              ----------   ----------    ----------
      Total                                                   (41,744)      47,770         (4,519)
                                                              ==========   ==========    ==========
</TABLE>

          19)  Use of estimates - The preparation of financial statements
               requires management to make estimates and assumptions that affect
               the reported amounts of assets and liabilities and disclosure of
               contingent assets and liabilities at the date of the financial
               statements and the reported amounts of revenues and expenses
               during the reporting period. Actual results could differ from
               those estimates.

          20)  Contingencies - The Company and its subsidiaries are parties to
               various legal and administrative actions arising in the course
               of their businesses. Although the amount of any liability that
               could arise with respect to such actions cannot be reasonably
               estimated, in the opinion of the Company, such actions would
               not, individually or in the aggregate, have a material effect on
               the Company's financial position or results of operations.

          21)  Risk management - The Company operates principally in Argentina.
               The Company's financial performance is affected by inflation,
               exchange rates and regulations, price controls, interest rates,
               changes in governmental economic policy, taxation and political,
               economic or other developments in or affecting Argentina. The
               majority of the Company's assets are either non-monetary or
               denominated in Argentine pesos, and the majority of its
               liabilities are denominated in U.S. dollars and, to a lesser
               extent, in Euros. A significant portion of the Company's debt
               has a fixed interest rate or a capped floating rate, thereby
               limiting the Company's interest rate risk exposure.

               The Company, as of December 31, 2005, does not have any unsettled
               foreign currency forward contracts.

          22)  Labor agreements - As per country regulations most of labor force
               is subject to collective bargaining agreements.


                                      F-31
<PAGE>


NOTE 4 - BREAKDOWN OF MAIN ACCOUNTS
<TABLE>
<CAPTION>

                                                                         2005             2004             2003
                                                                       --------         --------         ---------

a) Trade accounts receivable, net
   ------------------------------

<S>                                                                     <C>             <C>              <C>
        Third parties (domestic)                                        109,685          91,580          106,904
        Logistica La Serenisima S.A. and Danone Argentina S.A.
            (Note 5)                                                     39,989          33,285           28,085
        Other related parties (domestic - Note 5)                             3               9              131
        Third parties (foreign) and tax incentives on exports             4,574          31,246           25,213
                                                                       --------         --------         ---------
                Subtotal                                                154,251         156,120          160,333
        Allowance for doubtful accounts                                 (13,225)        (13,885)         (14,462)
        Allowance for trade discounts and volume rebates                 (1,255)         (1,200)          (1,150)
                                                                       --------         --------         ---------
                Total                                                   139,771         141,035          144,721
                                                                       ========         ========         =========

        The movement of the allowance for doubtful accounts is as follows:

        Balance at the beginning of the year                             13,885          14,462           13,866
        Additions                                                           123           1,360              938
        Write-offs                                                         (822)         (1,889)            (370)
        Remeasurement of foreign subsidiaries allowances                     39              25
        Transfer (to) from allowance for other non current
            receivables                                                                     (73)             124
        Effects of inflation                                                                                 (96)
                                                                       --------         --------         ---------
                Balance at the end of the year                           13,225          13,885           14,462
                                                                       ========         ========         =========

        The movement of the allowance for trade discounts and volume rebates is
as follows:

        Balance at the beginning of the year                              1,200           1,150            4,692
        Additions                                                         1,624           1,365            2,380
        Actual trade discounts and volume rebates granted                (1,569)         (1,315)          (5,890)
        Effects of inflation                                                                                 (32)
                                                                       --------         --------         ---------
                Balance at the end of the year                            1,255           1,200            1,150
                                                                       ========         ========         =========
</TABLE>


                                      F-32
<PAGE>

<TABLE>
<CAPTION>

                                                                         2005             2004             2003
                                                                       --------         --------         ---------
<S>                                                                      <C>             <C>              <C>
b) Other receivables, net
   ----------------------

        Current
        -------
        Prepaid expenses                                                  1,451           1,767            5,403
        Net value added tax                                              13,847          17,476           12,540
        Other tax credits                                                 2,887           1,334              505
        Affiliated entity (Note 5)                                                            9                9
        Related parties (Note 5)                                                          4,508            4,252
        Guarantee deposits (Note 7)                                       2,701           9,515            1,326
        Receivable from sale of non-current investments                                   1,317            1,290
        Prepaid insurance claims                                                          5,357            5,449
        Advances to suppliers                                             1,227           1,168            2,035
        Receivables from customers in receivership and in
            bankruptcy (*)                                                  354             331              835
        Receivable from financial advances to farmers                       876             602              137
        Other                                                             1,602           1,663            1,112
                                                                       --------         --------         ---------
                Subtotal                                                 24,945          45,047           34,893
        Allowance for doubtful accounts                                    (530)         (5,543)          (5,606)
                                                                       --------         --------         ---------
                Total                                                    24,415          39,504           29,287
                                                                       ========         ========         =========

        Non-current
        -----------
        Receivables from customers in receivership and in
            bankruptcy (*)                                                8,956           8,142            6,672
        Net value added tax                                              18,974          19,674           19,516
        Alternative minimum income tax (Note 10)                         49,374          39,620           30,648
        Other tax credits                                                   640             740            1,804
        Receivable from sale of non-current investments                  11,341           9,480           10,580
        Advances to suppliers                                             6,408           3,704            1,636
        Notes receivables                                                                                    403
        Prepaid expenses and commissions                                                                  11,200
        Other                                                             2,071           2,875            3,301
                                                                       --------         --------         ---------
                Subtotal                                                 97,764          84,235           85,760
        Allowance for doubtful accounts and for doubtful
            alternative minimum income tax                              (56,134)        (46,274)         (36,956)
                                                                       --------         --------         ---------
                Total                                                    41,630          37,961           48,804
                                                                       ========         ========         =========
        (*) Most of these receivables are covered by the allowance for doubtful
accounts.

        The movement of the allowance for doubtful accounts is as follows:

        Current
        -------
        Balance at the beginning of the year                              5,543           5,606            5,542
        Additions                                                           350             443               67
        Write-offs                                                       (5,363)           (506)
        Effects of inflation                                                                                  (3)
                                                                       --------         --------         ---------
                Balance at the end of the year                              530           5,543            5,606
                                                                       ========         ========         =========
</TABLE>


                                      F-33

<PAGE>
<TABLE>
<CAPTION>

                                                                         2005             2004             2003
                                                                       --------         --------         ---------
<S>                                                                     <C>             <C>              <C>
        Non-current
        -----------
        Balance at the beginning of the year                             46,274          36,956           27,218
        Additions                                                         9,842           9,175           10,215
        Transfer from (to) allowance for trade accounts
            receivable                                                                       73             (124)
        Reversals                                                          (176)
        Write-offs                                                          (10)                            (304)
        Remeasurement of foreign subsidiaries allowances                    204              70              145
        Effects of inflation                                                                                (194)
                                                                       --------         --------         ---------
                Balance at the end of the year                           56,134          46,274           36,956
                                                                       ========         ========         =========

c)      Inventories
        -----------

        Finished goods                                                   65,906          44,596           72,332
        Cuts of bovine meat                                               2,283
        Work in progress                                                 36,509          24,433           19,849
        Raw materials, packaging and other materials                    105,932          62,731           90,822
        Advances to suppliers (including related parties for
            362, 188 and 114 in 2005, 2004 and 2003,
            respectively - Note 5)                                        3,167           1,874            3,058
                                                                       --------         --------         ---------
                Total                                                   213,797         133,634          186,061
                                                                       ========         ========         =========

d)      Other assets
        ------------

        Current
        -------
        Property, plant and equipment held for sale                       1,594                            2,066
        Valuation allowance                                                (652)                             (30)
                                                                       --------                          ---------
                Total                                                       942                            2,036
                                                                       ========                          =========

        Non-current
        -----------
        Property, plant and equipment held for sale                      47,439          58,652           17,170
        Valuation allowance                                             (32,996)        (33,662)         (13,683)
                                                                       --------         --------         ---------
                Total                                                    14,443          24,990            3,487
                                                                       ========         ========         =========

        The movement of valuation allowance for other assets is as follows:

        Current
        -------
        Additions                                                           652                               30
                                                                       --------                          ---------
                Balance at the end of the year                              652                               30
                                                                       ========                          =========

        Non-current
        -----------
        Balance at the beginning of the year                             33,662          13,683           10,711
        Additions                                                         4,743          29,633            3,025
        Write-offs                                                       (5,409)         (9,654)             (53)
                                                                       --------         --------         ---------
                Balance at the end of the year                           32,996          33,662           13,683
                                                                       ========         ========         =========
</TABLE>

                                      F-34

<PAGE>

<TABLE>
<CAPTION>
                                                                         2005             2004             2003
                                                                       --------         --------         ---------
<S>                                                                    <C>             <C>              <C>
e) Deferred income tax
   -------------------

        Deferred tax assets
            Tax loss carryforwards                                      185,578         195,643          298,829
            Exchange differences deductible in future fiscal
               years                                                      9,141          18,282           27,423
            Allowances, accrual for litigation expenses and
               other non-deductible accruals                              9,283           9,162            8,359
            Other temporary differences                                                     323
                                                                       --------         --------         ---------
                                                                        204,002         223,410          334,611
        Valuation allowance                                            (153,479)       (164,595)        (321,967)
                                                                       --------         --------         ---------
                Subtotal                                                 50,523          58,815           12,644
                                                                       ========         ========         =========
        Deferred tax liabilities
            Inventories                                                  (1,742)           (787)          (2,277)
            Property, plant and equipment                                (6,129)         (6,759)          (7,737)
            Adjustment to present value                                 (42,605)        (51,264)
            Other temporary differences                                                                   (2,341)
                                                                       --------         --------         ---------
                Subtotal                                                (50,476)        (58,810)         (12,355)
                                                                       --------         --------         ---------
                Total                                                        47               5              289
                                                                       ========         ========         =========
</TABLE>


The movement of temporary differences between book carrying amounts and tax
basis of assets and liabilities and tax loss carry-forwards is as follows:
<TABLE>
<CAPTION>

                                 Balance at
                                     the                        Reduction of      Charge        Balance at
                                beginning of     Effects of       tax loss     (credit) for     the end of
                                  the year       inflation     carry-forwards    the year        the year
                               --------------    ----------    --------------  ------------     -----------
Temporary differences between
   book carrying amounts and
   tax basis of assets and

<S>                                <C>           <C>                <C>            <C>           <C>
   liabilities                     (31,043)                                        (1,009)       (32,052)
Tax loss carry-forwards            195,643                          (20,943)       10,878        185,578
                               --------------    ----------    --------------  ------------     -----------
       Total 2005                  164,600                          (20,943)        9,869        153,526
                               ==============    ==========    ==============  ============     ===========
Temporary differences between
   book carrying amounts and
   tax basis of assets and
   liabilities                      23,427                                        (54,470)       (31,043)
Tax loss carry-forwards            298,829                         (144,912)       41,726        195,643
                               --------------    ----------    --------------  ------------     -----------
       Total 2004                  322,256                         (144,912)      (12,744)       164,600
                               ==============    ==========    ==============  ============     ===========
Temporary differences between
   book carrying amounts and
   tax basis of assets and
   liabilities                      31,893           (220)                         (8,246)        23,427
Tax loss carry-forwards            300,019         (2,071)           (5,717)        6,598        298,829
                               --------------    ----------    --------------  ------------     -----------
       Total 2003                  331,912         (2,291)           (5,717)       (1,648)       322,256
                               ==============    ==========    ==============  ============     ===========
</TABLE>


The unused tax loss carryforwards recorded by Mastellone Hermanos S.A. and its
subsidiaries as of December 31, 2005 (balance is fully covered by a valuation
allowance), are as follows:


                                      F-35
<PAGE>



<TABLE>
<CAPTION>




                                                                                       Expiration - date
                                                                                       for submission of
                                                                 Credit due to tax    tax returns fiscal
Year of generation      Tax loss amount    Applicable tax rate   loss carry-forward          years
------------------      ---------------    -------------------   ------------------   -------------------
<S>    <C>                   <C>                  <C>                  <C>                 <C>
       2000                    1,631              35.0%                    571                (2)
       2001                    9,266              35.0%                  3,243               2006
       2002                  423,312              35.0%                148,158               2007(3)
       2003                   18,924              35.0%                  6,623               2008
       2004                   14,913              35.0%                  5,220               2009
       2005                    3,701              35.0%                  1,295               2010
       (1)                    59,613              34.3%                 20,468             Unlimited
                           ---------                                  --------
      Total                  531,360                                   185,578
                           =========                                  ========
</TABLE>


(1)  Tax losses generated by foreign subsidiaries, which can be offset up to 30%
     of each year's tax profit, have no expiration date. They were converted at
     the exchange rate applicable at year-end.

(2)  No expiration date (arising from sale of non-current investments).

(3)  Includes Ps 21 with no expiration date (arising from sale of non-current
     investments).

<TABLE>
<CAPTION>
                                                                   2005             2004            2003
                                                                 --------         --------        --------
The movement of the valuation allowance is as follows:

<S>                                                               <C>             <C>             <C>
Balance at the beginning of the year                              164,595          321,967        331,912
Write-offs                                                         (2,595)            (582)
Net reversal for the year                                          (8,521)        (156,790)        (7,654)
Effects of inflation                                                                               (2,291)
                                                                 --------         --------        --------
         Balance at the end of the year                           153,479          164,595        321,967
                                                                 ========         ========        ========


f) Spare parts and supplies
   ------------------------

        Spare parts                                                19,388           19,637
        Supplies                                                    7,643            6,086
                                                                   ------           ------
                 Total                                             27,031           25,723
                                                                   ======           ======
</TABLE>

g) Property, plant and equipment, net
   ----------------------------------
<TABLE>
<CAPTION>

<S>                                                             <C>            <C>            <C>
        Land and buildings                                      314,337          326,290        344,428
        Machinery and equipment, containers and tools           413,988          465,724        508,645
        Fittings, laboratory equipment and furniture            177,337          194,488        217,722
        Vehicles (*)                                             19,035           23,488         29,410
        Buildings improvements                                   32,644           34,374         36,436
        Construction in progress                                 12,751              982         48,248
                                                                -------        ---------      ---------
                 Subtotal                                       970,092        1,045,346      1,184,889
        Advances to suppliers                                     4,144              764          1,064
                                                                -------        ---------      ---------
                 Total                                          974,236        1,046,110      1,185,953
                                                                =======        =========      =========
</TABLE>

(*) This included vehicles operated by third parties amounting to Ps 18,575, Ps
23,150 and Ps 28,782 as of December 31, 2005, 2004 and 2003, respectively (Note
9 a).


                                      F-36
<PAGE>

<TABLE>
<CAPTION>

                                                                           2005            2004            2003
                                                                        ----------      ----------      ----------

        The movement of property, plant and equipment, net is as follows:

<S>                                                                     <C>              <C>            <C>
        Net value at the beginning of the year                          1,046,110        1,185,953      1,438,180
        Acquisitions                                                       30,511           25,997         13,378
        Retirement and disposals                                           (2,592)          (9,210)        (9,042)
        Decreases of capitalized exchange differences                                                    (145,763)
        Transfer to inventory (spare parts)                                                                  (501)
        Depreciation                                                      (98,500)        (103,261)      (108,964)
        Transfer to spare parts and supplies                                                               (6,086)
        Transfer to other current and non current assets and to
             investments                                                   (1,293)         (47,283)        (1,335)
                                                                        ----------      ----------      ----------
        Net value at the end of the year                                  974,236        1,046,110      1,185,953
                                                                        ==========      ==========      ==========


h)   Plantations in progress
     -----------------------

     The movement of olive and carob trees plantations in progress is as
     follows:

Net value at the beginning of the year                                     58,509           57,788         51,951
Additions                                                                   5,129            2,077          5,837
Retirement and disposals                                                                    (1,356)
Harvest of olives                                                          (4,431)
                                                                          --------         --------       --------
Net value at the end of the year                                           59,207           58,509         57,788
                                                                          ========         ========       ========

     Olive plantations will be applied to produce olive oil.

i)   Intangible assets
     -----------------

        Net value:
             Trademarks                                                       112              149            187
             Other                                                                                             44
                                                                            -----            -----          -----
                 Total                                                        112              149            231
                                                                            =====            =====          =====

     The movement of intangibles assets is as follows:

        Net value at the beginning of the year                                149              231            146
        Acquisitions                                                                                          150
        Amortization                                                          (37)             (82)           (65)
                                                                            -----            -----          -----
        Net value at the end of the year                                      112              149            231
                                                                            =====            =====          =====


j)   Goodwill
     --------

        Leitesol I.C.S.A.                                                                                     730
        Mastellone San Luis S.A.                                                                           34,304
                                                                                                          -------
                 Total                                                                                     35,034
                                                                                                          =======
</TABLE>

                                      F-37

<PAGE>

<TABLE>
<CAPTION>
                                                                           2005            2004            2003
                                                                        ----------      ----------      ----------

k)   Accounts payable
     ----------------

        Current
        -------
<S>                                                                       <C>              <C>            <C>
        Trade payables                                                    162,929          129,331        125,366
        Logistica La Serenisima S.A. and Danone
          Argentina S.A. (Note 5)                                          24,842           20,866         21,858
        Other related parties (Note 5)                                         13            2,184            234
        Notes payable - Collateralized (Note 7)                             2,227            2,188          1,874
                                                                        ----------      ----------      ----------
                 Total                                                    190,011          154,569        149,332
                                                                        ==========     ===========      ==========

        Non-current
        -----------
        Trade payables                                                      8,356           12,664          1,801
        Notes payable - Collateralized (Note 7)                             5,906            7,556          4,193
                                                                        ----------      ----------      ----------
                 Total                                                     14,262           20,220          5,994
                                                                        ==========      ==========      ==========

l)   Loans
     -----

        Short-term debt
        ---------------
        Unsecured debt - principal                                          4,059            9,993        270,556
        Unsecured debt - principal - related parties (Note 5)                 546              715          2,998
        Senior Notes due 2008 - principal                                                    2,979
        Secured debt - principal (Note 1)                                   1,661            4,832         19,301
        Accrued interest:
        - Unsecured and secured debt                                            6              743         53,643
        - 8% Collateralized Debt due 2013 and New Collateralized
             Floating Rate Debt                                                31               33
        - Related parties (Note 5)                                            383              477          1,367
        - Senior Notes due 2008                                               649            8,056        192,493
                                                                        ----------      ----------      ----------
                 Total                                                      7,335           27,828        540,358
                                                                        ==========      ==========      ==========

        Long-term debt
        --------------
        Unsecured debt - principal                                                             976         40,469
        Unsecured debt - principal - related parties (Note 5)               2,254            3,495
        Secured debt - principal                                           14,948           31,122         21,720
        8% Collateralized Debt due 2013 - principal                        45,480
        8% Collateralized Debt due 2013 - adjustment to net present
          value                                                            (8,510)
        New Collateralized Floating Rate Debt - principal                 153,419          238,402
        New Collateralized Floating Rate Debt - adjustment to net
          present value                                                   (35,695)         (64,130)
        New Senior Notes due 2012                                         485,969          468,269
        New Senior Notes due 2012 - adjustment to net present value       (76,908)         (81,345)
        Senior Notes due 2008                                               1,064           18,145        659,250
                                                                        ----------      ----------      ----------
                 Total                                                    582,021          614,934        721,439
                                                                        ==========      ==========      ==========
</TABLE>

                                      F-38


<PAGE>


<TABLE>
<CAPTION>

                                                                           2005            2004            2003
                                                                        ----------      ----------      ----------

m)   Taxes, accrual for tax relief and other
     ---------------------------------------

        Current
        -------
<S>                                                                      <C>                <C>            <C>
        Taxes, rates and contributions (net of advances)                  6,298              4,797          5,372
        Value added tax, turnover tax and income tax withheld             9,033              6,271          5,102
        Accrual for tax relief - Law N(degree) 22,021
           (Notes 7 and 8)                                                3,344              3,344          2,971
        Tax - Law N(degree) 23,966                                        3,496              3,416          1,904
                                                                      ----------        ----------      ----------
                 Total                                                   22,171             17,828         15,349
                                                                      ==========        ==========      ==========

        Non-current
        -----------
        Accrual for tax relief - Law N(degree) 22,021
           (Notes 7 and 8)                                               29,415             32,759         34,611
        Taxes, rates and contributions                                    3,400              3,443          3,261
                                                                      ----------        ----------      ----------
                 Total                                                   32,815             36,202         37,872
                                                                      ==========        ==========      ==========


n)   Accrued salaries, wages, payroll taxes and others
     -------------------------------------------------

        Current
        -------
        Payroll and bonus to management                                   16,594            13,303         10,228
        Social security taxes                                              6,515             3,934          3,070
        Advances from customers                                            1,070             1,104            909
        Debt due to acquisition of subsidiaries                              889               606            205
        Related parties (Note 5)                                                                81
        Other                                                                561               455          1,062
                                                                      ----------        ----------      ----------
                  Total                                                   25,629            19,483         15,474
                                                                      ==========        ==========      ==========
        Non-current
        -----------
        Deferred income - brands license (net of adjustment to
            present value for 685)                                           734
        Social security taxes                                                                  211            130
        Debt due to acquisition of subsidiaries                                                889          2,529
        Other                                                                 30                25             25
                                                                      ----------        ----------      ----------
                   Total                                                     764             1,125          2,684
                                                                      ==========        ==========      ==========
</TABLE>

                                      F-39

<PAGE>


<TABLE>
<CAPTION>

                                                                           2005            2004            2003
                                                                        ----------      ----------      ----------

o)   Accrued litigation and other expenses
     -------------------------------------

        Current
        -------
<S>                                                                     <C>            <C>               <C>
        Accrued litigation expenses                                         2,939          3,091             1,905
        Other accrued expenses                                              1,436          1,943             2,177
                                                                        ----------      ----------      ----------
                 Total                                                      4,375          5,034             4,082
                                                                        ==========      ==========      ==========

        Non-current
        Accrued litigation expenses                                        10,932         11,394             8,353
        Other accrued expenses                                                478            373               485
                                                                        ----------      ----------      ----------
                 Total                                                     11,410         11,767             8,838
                                                                        ==========      ==========      ==========

        The movement of accrued litigation and other expenses is as follows:


        Current
        -------
        Balance at the beginning of the year                                5,034          4,082             6,040
        Increases                                                                            158               367
        Reversals                                                            (199)
        Payments made                                                      (1,092)        (2,234)           (2,685)
        Remeasurement of foreign subsidiaries allowances                      265            205               394
        Effects of inflation                                                                                   (42)
        Reclassification to tax debt in foreign subsidiaries                                (393)           (3,261)
        Transfer from non current allowance                                   367          3,216             3,269
                                                                        ----------      ----------      ----------
                 Balance at the end of the year                             4,375          5,034             4,082
                                                                        ==========      ==========      ==========

        Non-current
        -----------
        Balance at the beginning of the year                               11,767          8,838             6,947
        Increases                                                             369          6,301             5,208
        Payments made                                                        (359)          (156)
        Effects of inflation                                                                                 (48)
        Transfer to current allowance                                        (367)        (3,216)           (3,269)
                                                                        ----------      ----------      ----------
                 Balance at the end of the year                            11,410         11,767             8,838
                                                                        ==========      ==========      ==========

p)   Net sales
     ---------

        Product sales                                                   1,720,784      1,507,984         1,232,452
        Services provided                                                  32,047         25,941            13,989
        Turnover tax                                                      (60,082)       (46,786)          (30,024)
        Sales discounts and volume rebates                                (72,110)       (83,069)          (59,625)
        Sales returns                                                     (21,436)       (18,680)          (24,651)
                                                                        ----------      ----------      ----------
                 Total                                                  1,599,203      1,385,390         1,132,141
                                                                        ==========     ===========      ==========
</TABLE>


                                      F-40
<PAGE>

<TABLE>
<CAPTION>
                                                2005                       2004                       2003

                                        ----------------------     ----------------------     ------------------------
<S>                                     <C>          <C>            <C>         <C>            <C>           <C>

q)   Cost of sales
     -------------

        Cost of goods sold:
        ------------------
        Inventories at the
          beginning of the year
        Finished goods                    44,596                     72,332                     60,687
        Work in progress                  24,433                     19,849                     26,385
        Raw materials, packaging
          and other materials             62,731       131,760       71,435       163,616       90,773       177,845
                                        --------                   --------                   --------
        Purchases                                    1,012,022                    819,526                    710,981
        Production expenses
          (Note 4 r)                                   310,070                    264,915                    241,805
        Holding results generated by
          inventories                                    9,077                      3,735                      1,923
        Remeasurement of foreign
          subsidiaries inventories         1,830                                    1,129                        797
        Benefits from
          industrial promotion                         (11,377)                   (13,344)                   (13,493)
        Inventories at the end
          of the year
        Finished goods                   (65,906)                   (44,596)                   (72,332)
        Cuts of bovine meat               (2,283)
        Work in progress                 (36,509)                   (24,433)                   (19,849)
        Raw materials, packaging
          and other materials           (105,932)     (210,630)     (62,731)     (131,760)     (90,822)     (183,003)
                                        ---------    ----------     --------    ----------     --------     ---------
          Subtotal - cost of goods sold              1,242,752                  1,107,817                    936,855
                                                     ---------                  ---------                   ---------
        Cost of services rendered:
        Purchases                                        5,195                      4,039                      1,820
        Production expenses
          (Note 4 r)                                    19,064                     15,179                      6,754
                                                     ---------                  ---------                   ---------
          Subtotal - cost of services
             rendered                                   24,259                     19,218                      8,574
                                                     ---------                  ---------                   ---------
          Total cost of sales                        1,267,011                  1,127,035                    945,429
                                                     =========                  =========                   =========

</TABLE>

                                      F-41
<PAGE>


r)   Information required by section 64, sub-section b) of Law N(degree) 19,550
     --------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                    2005
                                                             -----------------------------------------------------------------------
                                                                Total      Production      Cost of       Selling       General
                                                                            expenses       services     expenses         and
                                                                                                                    administrative
                                                                                                                      expenses
<S>                                                             <C>          <C>             <C>          <C>           <C>
     Remuneration to members of the Board of Directors
       and members of the statutory auditors' committee             648                                                    648
Fees and compensation for services                               77,183        6,804            281        62,703        7,395
Payroll, bonus and social security charges                      123,887       66,374          5,347        28,197       23,969
Depreciation of property, plant and equipment                    98,500       86,186          7,005         3,466        1,843
Supplies consumption                                              4,689        4,689
Amortization of intangible assets                                    37
Provision for bad debts                                             383                                       383
Freights                                                        216,451       80,610                      135,838            3
Maintenance and repair                                           12,764        9,825          1,463         1,392           84
Office and communication                                            983          479            199           305          975
Fuel, gas and energy                                             31,569       27,256          2,607         1,646           60
Vehicles expenses                                                 6,406        4,111                        1,968          327
Publicity and advertising                                        30,429                                    30,429
Taxes, rates and contributions                                   44,128       20,322          2,083           407       21,316
Insurance                                                         3,685        2,363            124           836          362
Traveling                                                         2,127          863                          850          414
Export and import                                                 3,024                                     2,968           56
Miscellaneous                                                     9,768        1,981            154         5,989        1,644
Idle capacity of plants                                                       (1,793)
                                                               --------      --------       -------       -------       ------
                           TOTAL 2005                           666,661      310,070         19,064       277,271       58,426
                                                               ========      ========       =======       =======       ======
                           TOTAL 2004                                        264,915         15,179       220,418       50,944
                                                                             ========       =======       =======       ======
                           TOTAL 2003                                        241,805          6,754       175,643       43,601
                                                                             ========       =======       =======       ======
</TABLE>

                2004         2003
---------    ---------    ---------
  Other        Total         Total
expenses




                   628           450
                64,337        53,348
                94,510        75,814
               103,261       108,964

       37           82            65
                 1,865         1,005
               168,989       150,419
                10,675         9,620
                 1,084
                24,575        15,665
                 5,233         5,435
                21,448         9,410
                40,067        33,142
                 3,382         3,278
                 1,812         1,878
                 4,051         1,818
                12,644         7,394
    1,793
  -------      -------       -------
    1,830
  =======
    7,078      558,534
  =======      =======       =======
   10,986                    478,789
  =======                    =======


                                      F-42


<PAGE>

<TABLE>
<CAPTION>
                                                             2005            2004            2003
                                                           --------        --------        --------
<S>                                                        <C>            <C>             <C>
s)   Other expenses, net
     -------------------

     o    Other income
          ------------
          Gain on assignment of trademarks                   4,311
          (Note 12)
          Rental income                                      1,110            868             704
          Royalties and licenses                                96            654             467
          Gain on sale of property, plant and
            equipment                                                                       2,253
          Charges to freighters                              3,422            679             164
          Other                                                258            357           1,253
                                                           --------        --------        --------
              Subtotal                                       9,197          2,558           4,841
                                                           --------        --------        --------

     o    Other expenses
          --------------
          Loss on sale of property, plant and
            equipment                                         (625)        (2,132)
          Provision for litigation and other
            expenses                                          (170)        (6,459)         (5,493)
          Impairment of other assets                        (5,395)        (1,613)         (3,025)
          Impairment of alternative minimum
            income tax                                      (9,756)        (9,113)        (10,215)
          Donations                                           (628)          (660)           (913)
          Health care center                                (1,450)
          Other                                             (1,598)        (2,159)         (4,942)
                                                           --------       ---------       ---------
              Subtotal                                     (19,622)       (22,136)        (24,588)
                                                           --------       ---------       ---------
              Total                                        (10,425)       (19,578)        (19,747)
                                                           ========       =========       =========

t)   Income tax (included in ordinary loss)
     --------------------------------------

     Income tax:
        Current income tax                                    (881)          (386)         (5,825)
        Net change in other temporary
          differences                                       (1,009)       (54,470)         (8,246)
        Tax loss carryforwards for the year                 10,878         41,726           6,598
                                                           --------        --------        --------
            Subtotal                                         8,988        (13,130)         (7,473)
        Net (increase) reversal of the valuation
          allowance on deferred income tax asset            (9,030)        12,851           7,654
                                                           --------        --------        --------
            Total                                              (42)          (279)            181
                                                           ========        ========        ========
</TABLE>

The reconciliation of income tax expense to the amount derived by applying the
applicable statutory income tax rate to income before income tax for the year is
as follows:


                                      F-43


<PAGE>


<TABLE>
<CAPTION>
                                                             2005            2004            2003
                                                           --------        --------        --------

<S>                                                        <C>            <C>            <C>
     Net (loss) income before income tax                   (33,302)       325,974        (185,826)
     Statutory income tax rate                                  35%            35%             35%
                                                           --------       ---------       --------

          Income tax expense at statutory
            income tax rate                                 11,656       (114,091)         65,039
                                                           --------       ---------       --------

     Effects of inflation                                  (16,869)       (19,830)        (21,428)
     Exchange differences capitalized                       (2,912)        (3,023)        (52,630)
     Amortization and impairment of goodwill               (11,577)        (1,427)
     Impairment of other assets and property,
       plant and equipment                                  (1,888)       (10,876)
     Alternative minimum income tax                         (3,415)        (3,190)         (3,575)
     Benefits form industrial promotion                      3,982          4,670           4,723
     Tax incentives on exports                                                                346
     Other                                                     883            848           1,479
                                                           --------       ---------       --------
          Total permanent differences                      (20,219)       (42,978)        (72,512)
     Net reversal of the valuation allowance on
       deferred incometax asset                              8,521        156,790           7,654
                                                           --------       ---------       --------
          Total                                                (42)          (279)            181
                                                           ========       =========       ========
</TABLE>


u)   Extraordinary item - Income
     ---------------------------
<TABLE>

<S>                                                                       <C>            <C>
     Release from payment of the principal of renegotiated
        floating rate debt (Note 1 c) 2.)                                  41,179
     Release from payment of accrued interest                               7,660         331,892
     Adjustment to present value of non-
        current renegotiated floating rate debt                           (12,352)
     Fees and expenses related to the
        renegotiation and registration of debt                             (2,836)        (21,347)
     Gain arising from purchase of debt                                     4,142
     Adjustment to present value of debt
        restructured in 2004                                                              155,945
     Release from payment of principal
        pursuant to cash tender offer                                                     100,709
     Write-down of other assets                                                           (28,020)
     Impairment of goodwill                                                               (29,218)
                                                                          --------        --------
          Total                                                            37,793         509,961
                                                                          ========        ========
</TABLE>


                                      F-44
<PAGE>



<TABLE>
<CAPTION>
                                                         2005           2004        2003
                                                      ----------     ----------  ----------
<S>                                                    <C>           <C>         <C>
v)   Income tax (included in extraordinary income)
     --------------------------------------------

        Income tax                                     (17,551)      (143,939)
        Reversal of valuation allowance                 17,551        143,939
                                                      ---------     ---------
             Total
                                                      =========     =========
</TABLE>


NOTE 5 - OUTSTANDING BALANCES AND TRANSACTIONS WITH RELATED PARTIES


In the normal course of business, the Company enters into transactions with
affiliated entities or other related parties. The outstanding balances as of
December 31, 2005, 2004 and 2003 with the affiliated entities and other related
parties are as follows:

o    Affiliated entity
     -----------------

<TABLE>
<CAPTION>
                                                           2005            2004            2003
                                                         --------        --------        --------
<S>                                                        <C>            <C>             <C>
        Other current receivables
        -------------------------
           Grupo Lacteo Argentino S.A.                                         9               9
                                                                         =======         =======
o    Related parties
     ---------------

        Trade accounts receivable
        -------------------------
           Logistica La Serenisima S.A. (1) (6)            15,950         15,087          12,494
           Danone Argentina S.A. (2) (7)                   24,039         18,198          15,591
           Afianzar S.G.R. (1)                                  1                            131
           Victorio Mastellone (3)                              2              1
           Los Toldos S.A. (1)                                                 8
                                                          -------        -------         -------
                 Total                                     39,992         33,294          28,216
                                                          =======        =======         =======

        Other current receivables
        -------------------------
           Afianzar S.G.R. (1)                                                               176
           Pascual Mastellone (3) (4)                                      1,176           1,074
           Carlos Agote (4)                                                  835             769
           Victorio Mastellone (3)                                         1,333           1,217
           Jose Mastellone (3)                                             1,102           1,016
           Los Toldos S.A. (1)                                                62
                                                                         -------         -------
                 Total                                                     4,508           4,252
                                                                         =======         =======

        Inventories - advances to suppliers
        -----------------------------------
           Los Toldos S.A. (1)                                362            188             114
                                                          =======        =======         =======
</TABLE>

                                      F-45

<PAGE>


<TABLE>
<CAPTION>
                                                            2005            2004            2003
                                                          --------        --------         --------
<S>                                                         <C>            <C>             <C>
Accounts payable
----------------

   Logistica La Serenisima S.A. (1)                         18,471         15,795          15,424
   Danone Argentina S.A. (2)                                 6,371          5,071           6,434
   Afianzar S.G.R. (1)                                          13             69             133
   Los Toldos S.A. (1)                                                                         56
   Greenwich Investments S.A. (8)                                           2,115              45
                                                          --------        --------         --------
         Total                                              24,855         23,050          22,092
                                                          ========        ========         ========
Short term borrowings and accrued interest
------------------------------------------
   Antonio Mastellone (5)                                      486            805           3,140
   Rosa Raquel Mastellone (5)                                                               1,225
   Juan Rocca S.R.L. (9)                                       443            387
                                                          --------        --------         --------
         Total                                                 929          1,192           4,365
                                                          ========        ========         ========
Long term borrowings
--------------------
   Antonio Mastellone (5)                                    1,626          2,567
   Juan Rocca S.R.L. (9)                                       628            928
                                                          --------        --------
         Total                                               2,254          3,495
                                                          ========        ========
Accrued salaries, wages, payroll taxes and others
-------------------------------------------------

   Jose Moreno (4)                                                             81
                                                                          ========
</TABLE>

(1) Common shareholders
(2) Partner in Logistica La Serenisima S.A. and both Companies share
    the main trademark "La Serenisima" owned by Mastellone Hermanos S.A.
(3) Company's shareholder
(4) Member of the Company's Board of Directors
(5) Member of Mastellone family
(6) Includes receivables arising from sales performed by Logistica on
    behalf of Mastellone Hermanos S.A.
(7) Includes receivables arising from sales of raw milk purchased on behalf of
    Danone Argentina S.A.
(8) Company presided by a member of Mastellone's Board of Directors and
    shareholder of Dallpoint Investment Ltd.
(9) Company owned by a member of Mastellone family

Transactions with related parties for the years ended December 31, 2005, 2004
and 2003, are as follows:


                                                  2005        2004        2003
                                                --------    --------    --------
Sales of goods and services
---------------------------
   Afianzar S.G.R. (1)                               1
   Danone Argentina S.A. (2)                    90,651       68,829     50,757
   Jose Mastellone (3)                              53            3          8
   Logistica La Serenisima S.A. (1)              3,856        2,928      2,063
   Los Toldos S.A. (1)                                           26
   Victorio Mastellone (3)                           1            2
   Pascual Mastellone (3) (4)                       71            6         11
                                               -------      -------    --------
         Total                                  94,633       71,794     52,839
                                               =======      =======    =======


                                      F-46
<PAGE>

<TABLE>
<CAPTION>

                                                         2005            2004            2003
                                                       --------        --------       ---------
<S>                                                     <C>            <C>             <C>
Purchases of goods and services
-------------------------------

   Afianzar S.G.R. (1)                                      58             83             140
   Danone Argentina S.A. (2)                            20,379         10,295           8,514
   Greenwich Investments S.A. (5)                                       2,901             536
   Logistica La Serenisima S.A. (1)                     66,522         49,032          37,689
   Los Toldos S.A. (1)                                   1,693          2,351           2,131
   Victorio Mastellone (3)                                                              2,336
                                                       --------        --------       ---------
         Total                                          88,652         64,662          51,346
                                                       ========        ========       =========
Financial results - interests and exchange differences
------------------------------------------------------
   Antonio Mastellone (6)                                 (100)          (230)           (455)
   Carlos Agote (4)                                         21             61              67
   Danone Argentina S.A. (2)                               (18)
   Greenwich Investments S.A. (5)                          (50)
   Jose Mastellone (3)                                      77             80             102
   Juan Rocca S.R.L. (7)                                   (73)           (88)
   Los Toldos S.A. (1)                                       7             57
   Pascual Mastellone (3) (4)                              106            176             106
   Rosa Raquel Mastellone (6)                                                            (179)
   Victorio Mastellone (3)                                 134            107             122
                                                       --------        --------       ---------
         Total                                             104            163            (237)
                                                       ========        ========       =========

Other income
------------
   Danone Argentina S.A. (2)                               354            781             476
   Logistica La Serenisima S.A. (1)                        837            761             665
                                                       --------        --------       ---------
         Total                                           1,191          1,542           1,141
                                                       ========        ========       =========
</TABLE>

(1) Common shareholders
(2) Partner in Logistica La Serenisima S.A. and both companies share
    the main trademark "La Serenisima" owned by Mastellone Hermanos S.A.
(3) Company's shareholder
(4) Member of the Company's Board of Directors
(5) Company presided by a member of Mastellone's Board of Directors and
    shareholder of Dallpoint Investment Ltd.
(6) Member of Mastellone family
(7) Company owned by a member of Mastellone family

NOTE 6 - SHAREHOLDERS' EQUITY

On February 8, 2005 the Company's shareholders made irrevocable capital cash
contributions of 42,392 and in shares of Logistica La Serenisima S.A. of 5,305,
which were accepted by the Board of Directors in the meeting held on the
abovementioned date. The amount of the contribution made in shares was
provisionally recorded until the final valuation was obtained. The
capitalization of the irrevocable capital contributions made by the shareholders
was approved in the General Ordinary and Extraordinary Shareholders' Meeting
held on March 31, 2005. A public accountant report determined the final value of


                                      F-47

<PAGE>


the contribution made in shares, therefore capitalizing irrevocable capital
contributions in cash and in shares for a total amount of 42,392 and 5,253,
respectively.

As of December 31, 2005, subscribed capital amounts to 457,547. There are two
classes of Ps. 1 par value common stock, with 5 votes each 194,428 shares, and
with 1 vote each 263,119 shares.

The current Argentine legal regulations require the Company to appropriate 5% of
its net income per year to a "Legal reserve" until the balance of such reserve
equals 20% of the capital stock (as restated to reflect the effects of
inflation). In accordance with the Corporate Law N(degree) 19,550, the Company
should apply future earnings amounting to 13,137 to restore legal reserve. The
balance of such reserve was reduced to absorb accumulated losses as of December
31, 2001 as approved in the General Shareholders' Meeting held on April 3, 2002.

NOTE 7 - PLEDGED AND RESTRICTED ASSETS

Certain assets owned by the Company are pledged as collateral to secure bank and
financial liabilities, notes payable, and tax debt (tax regime for promoted
activities) totaling 57,507, 82,540 and 90,193 as of December 31, 2005, 2004 and
2003, respectively. The detail of the pledged assets is as follows:

<TABLE>
<CAPTION>

                                                                    2005            2004            2003
                                                                  --------        --------       ----------
<S>                                                                <C>            <C>            <C>
Other current receivables                                           2,701          9,515           1,326
Other non-current assets                                           14,960         17,634
Property, plant and equipment                                      46,250         97,480         142,611
Equity value of holding in subsidiary company Promas S.A. (*)      71,732         69,552          63,141
</TABLE>

         (*) This item does not appear as an asset in the accompanying balance
sheets as Promas S.A. is a consolidated subsidiary.

NOTE 8 - TAX REGIME FOR PROMOTED ACTIVITIES

Mastellone Hermanos Sociedad Anonima, as an investor in Mastellone San Luis
Sociedad Anonima and Promas Sociedad Anonima, pursuant to several fiscal laws
deferred payment of value added taxes and income taxes, provided that these
amounts are invested in the above-mentioned subsidiaries. These obligations are
secured by term deposits, shares of Promas Sociedad Anonima owned by Mastellone
Hermanos Sociedad Anonima, and buildings owned by Mastellone San Luis Sociedad
Anonima, as required by applicable regulations.

The value-added taxes and income taxes deferred are recorded as liabilities in
the balance-sheets.



                                      F-48
<PAGE>


The promotional regimes granted to Mastellone San Luis Sociedad Anonima and to
Promas Sociedad Anonima also included the benefit of receiving from the Federal
Government an amount in the form of government bonds determined taking into
account the investments to be made, the level of activity, the number of
employees and other parameters, at the authorization of the inclusion in such
regimes. The Company uses the government bonds as payment mainly for value added
tax (and a minor amount for other national taxes). A benefit, which is a credit
to cost of sales, is recognized when the government bonds are used to pay tax
obligations.

NOTE 9 - PURCHASE AND SALES COMMITMENTS

a)   Purchase commitments
     --------------------

     o    Since October 1, 2000 the Company and its subsidiaries Frigorifico
          Rydhans S.A. ("FR"), Mastellone San Luis S.A. ("MSL"), and Danone
          Argentina S.A. ("DA"), agreed on the terms of the services to be
          provided by Logistica La Serenisima S.A. ("Logistica") related to the
          distribution of dairy and fresh products in Argentina. The agreement
          was renegotiated on February 8, 2005, resulting in the extension of
          its term to 36 years counted as from October 1, 2004, amending the
          basis of the price charged by Logistica for its services to actual
          costs plus a 0.1% margin, and modifying the allocation of the expenses
          to Logistica resulting in a reduction of costs for Mastellone Hermanos
          Sociedad Anonima, FR and MSL of about 7%. The agreement provides that
          if any party (Mastellone Hermanos Sociedad Anonima, FR or MSL) decides
          to cancel without cause the agreement before the end of the
          abovementioned term a penalty of US$50,000,000 should be paid to
          Logistica. This penalty would not be applicable if termination of the
          contract is due to non-compliance of Logistica with its duties under
          the agreement. Moreover, the same penalty should be paid by the
          Company, FR or MSL if one of these companies produces products similar
          to products currently marketed by Danone.

     o    The Company has an agreement with Con-Ser Sociedad Anonima (Con-Ser)
          that will expire on December 31, 2010 whereby Con-Ser provides
          freights and transportation services of raw milk, as well as the
          coordination and technical assistance for recollection of raw milk
          from the milk farms. Con-Ser operates assets owned by Mastellone
          Hermanos Sociedad Anonima in connection with the provision of the
          transportation services. Repairs and maintenance expenses are paid by
          Mastellone Hermanos Sociedad Anonima. Con-Ser charges Mastellone
          Hermanos Sociedad Anonima the cost of their own freights and those
          contracted with third parties and a fee for the services of
          coordination and technical assistance based on the volume of raw milk
          collected every month. The same service is provided by Con-Ser for the
          raw milk purchased by Mastellone Hermanos Sociedad Anonima on behalf
          of Danone.

     o    Promas S.A. entered into an agreement with Establecimientos
          Agropecuarios Lar S.A. in July 2004 for the purchase of future olive
          harvests and the exploitation of 400 hectares in the province of
          Catamarca, for a total estimated amount of

                                      F-49

<PAGE>


          US$5,200,000. The contract will expire with the completion of harvest
          in 2020. Promas S.A. will receive 80% of olives production, with a
          guaranteed minimum, ranging from 600 tons at the beginning of the
          contract term to 4,160 tons at the end of the contract term.

          In addition, on March 5, 2005, Promas S.A. entered into an agreement
          with Agropecuaria Huaycama S.A. for the processing and preservation of
          400 tons of extra-virgin olive oil, for the months of March and April
          2005. Grinding, processing and preservation price is US$50 each ton;
          filtering US$3.4 each ton; and fractioning US$0.05 each 500 ml. of
          bottled oil, and US$0.14 each 3 lt. can. Payment term is 30 days after
          the completion of the process. The agreement, which includes oil's
          preservation, was already completed as of December 31, 2005.

          Moreover, on March 31, 2005, Promas S.A. entered into a "multure"
          agreement with Cerro Plateado S.A. for the processing of 600 tons of
          extra-virgin olive oil, for the months of April to June 2005 whereby,
          as compensation, Promas S.A. retained 15% of the total olive oil
          produced. The agreement, which included oil's preservation, was
          already completed as of December 31, 2005.

b)   Sales commitments
     -----------------

     o    The Company has entered into certain term supply agreements through
          which it procures raw material and provides industrial services to
          Danone.

     o    The Company has agreed to meet export commitments for the period from
          January through May 2006 of powdered milk, butter, fluid milk and whey
          for a total of approximately 9,300 tons with an estimated contract
          value of US$18,200,000.

     o    The Company has entered into agreements with various national and
          provincial public agencies for the sale of approximately 2,500 tons of
          powdered and fluid milk with an estimated contract value of 20,700.

c)   Pre-export facility
     -------------------

On December 20, 2004, the Company signed an agreement with Crecera Finance
Company LLC, a financial institution based in San Francisco, United States,
which provides a committed pre-export facility of US$5 million, valid until
December 2006. The Company has not drawn against this credit facility through
December 31, 2005.

NOTE 10 - ALTERNATIVE MINIMUM INCOME TAX

The alternative minimum income tax was established by Law N(degree) 25,063
initially for a period of ten fiscal years. This tax, which was subsequently
modified by the Competitiveness Program enacted by Decrees N(degree) 1,054/01
and 1,185/01 up to December 31, 2002, is complementary to regular income tax,
since while regular income tax is calculated based on taxable income,
alternative minimum income tax is calculated based on the potential gain derived
from certain productive assets at a rate of 1%, the Company's income tax
liability being the higher amount. However, when alternative minimum income tax
for a fiscal year exceeds regular income


                                      F-50
<PAGE>


tax, the excess can be utilized as credit for any excess of the regular income
tax over alternative minimum income tax that could arise during the following
ten fiscal years.

Due to the changes in the economic situation and considering income tax loss
carry-forwards and the estimated future taxable income, the Company recognized
valuation allowance on the total amount of alternative minimum income tax.

NOTE 11 - CLAIM AGAINST A FORMER COMPANY'S SUBSIDIARY

On December 30, 2004, October 6, 2005 and December 15, 2005 the Company received
letters from Multitrans S.A. - acquirer of Con-Ser S.A., a subsidiary which was
sold in 2000 - informing of assessments brought by the tax authorities with
respect to certain activities undertaken while Mastellone Hermanos Sociedad
Anonima was still the owner of Con-Ser S.A. The Company has agreed with
Multitrans S.A. to work together to contest such claims, and prepare the
documents that would evidence the wrongful criteria used by the tax authorities
in determining the referred assessments.

The status as of December 31, 2005 of those tax assessments is as follows:

a)   formal assessment issued by the tax authorities, appealed before the
     National Tax Court ("Tribunal Fiscal de la Nacion", an administrative
     court), in the total amount of 16,985 (including punitive interest of
     10,723);

b)   preliminary assessment issued by the tax authorities contested by the
     Company, whose arguments are being evaluated by such authorities, in the
     amount of 17,084. In case the arguments presented by the Company are
     rejected, punitive interest would be added in an amount estimated at
     34,916, increasing the assessment to approximately 52,000. It should be
     mentioned that the Company has already decided to appeal before the
     National Tax Court in case its arguments are rejected and a formal
     assessment is issued by the tax authorities.

The tax and legal counselors advising the Company in contesting the assessments
and who are assisting the Company in the appeal mentioned in a) above and will
assist the Company in an appeal before the National Tax Courts (if necessary),
as well as the Company's Board of Directors and Management, believe that its
position will result in a favorable decision for the Company from the tax
authorities or in the tax courts.

NOTE 12 - TRANSACTIONS AND AGREEMENTS EXECUTED

a)   The following transactions related to Company's trademarks occurred in
     2005:

     o    Assignment of trademark Casancrem to Danone Argentina S.A. -except for
          certain similarly named products already being sold by Mastellone
          Hermanos Sociedad Anonima (or the Company) that will continue to be
          sold by the Company- at a price of US$1,000,000 (collected in cash).

                                      F-51

<PAGE>


     o    Assignment of trademark SER (already shared for certain products) to
          Danone Argentina S.A., for certain new products (not currently sold by
          the Company or Danone Argentina) at a price of US$500,000 (collected
          in cash).

     o    A license for 30 years of trademark Casanto-Casancrem to Danone
          Argentina S.A. (for products not produced by the Company) for a price
          of US$500,000 (collected in cash).

     o    Other agreements that regulate the use of trademarks SER and Casancrem
          that the Company and Danone Argentina S.A. are and will continue to
          share.

     o    Agreement with Danone Argentina S.A. ratifying a previous agreement
          signed in 1999 for the assignment of trademark SER for waters,
          redefining the scope and terms of such agreement.

          The entire cash consideration totaling US$1,500,000 related to the
          assignments of the trademarks was credited to income in 2005 (since
          those trademarks do not have a carrying value). The cash consideration
          of US$500,000 received related to the licensing of a trademark for 30
          years was recorded as a deferred income and will be recognized in
          income over the entire term of the agreement.

b)   On February 23, 2005, Frigorifico Rydhans S.A. entered into an agreement
     with a third party for the management of one of its production lines for a
     period of five years, beginning upon the commencement of the operations of
     the new production line. For this line of production, performance of
     purchases policies, identification of markets and customers, determination
     of credit risks and the operating management will be in charge of a third
     party while control and certain final decisions will remain with
     Frigorifico Rydhans S.A. This project involves the line of cuts of bovine
     meat for sale in the domestic market and abroad. The compensation consists
     of a fixed monthly fee plus variable fees, in accordance with an agreed
     scale. Frigorifico Rydhans S.A. has started developing transactions
     relating to the new activity since second quarter of 2005.

NOTE 13 - SEGMENT INFORMATION

The reporting operating segment information is based on the way that financial
information prepared by the Company is organized for senior management in making
operating decisions, evaluating performance and allocating resources. The
comparative information on prior years on the same basis of segmentation is also
presented.

The Company also prepares, for internal reporting purposes, limited financial
information (primarily net sales) based on its different markets, including
domestic and foreign.

                                      F-52

<PAGE>


a)   Primary segments: business lines
     --------------------------------
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
                                   As of and for the year ended December 31, 2005
-------------------------------------------------- -------------------------------------------------------------------
                                                                             Business lines
                                                       Dairy         Meat         Olive        Other         Total
                                                      ---------      ---------    ---------    ---------     ---------
<S>                                                   <C>               <C>          <C>           <C>       <C>
Net sales to external customers                       1,575,388         20,937          660        2,218     1,599,203
Net intersegment sales                                      458            492        5,704                      6,654
Interest income                                           5,066                                                  5,066
Interest expense                                        (53,056)            (3)         (57)                   (53,116)
Income tax loss                                              (3)                                     (39)          (42)
Extraordinary item                                       37,793                                                 37,793
Net income (loss) for the year                          (31,144)          (437)      (1,721)          42       (33,260)
Assets allocated to the business lines                1,497,206         12,957       77,108        1,023     1,588,294
Liabilities allocated to the business lines             886,089          3,315          987          402       890,793
Additions to property, plant and equipment               29,437            864          168           42        30,511
Additions to plantations in progress                                                  5,129                      5,129
Depreciation of property, plant and equipment            97,671            329          293          207        98,500
Amortization of intangible assets                            37                                                     37
Amortization of other investments                           353                                                    353
Charges not representing uses of cash (except
   amortization and depreciation, net of
   reversals)                                            21,749           (232)          94          406        22,017
Net domestic sales                                    1,390,974         18,913          660        2,218     1,412,765
----------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
                                   As of and for the year ended December 31, 2004
-------------------------------------------------- -------------------------------------------------------------------
                                                                             Business lines
                                                       Dairy         Meat         Olive        Other         Total
                                                      ---------      ---------    ---------    ---------     ---------
<S>                                                   <C>               <C>          <C>           <C>       <C>
Net sales to external customers                       1,373,747          8,652          989        2,002     1,385,390
Net intersegment sales                                      309            451          166           57           983
Interest income                                           2,353                                                  2,353
Interest expense                                       (117,509)           (68)         (79)                  (117,656)
Income tax loss                                              (4)                       (182)         (93)         (279)
Extraordinary item                                      509,961                                                509,961
Net income (loss) for the year                          329,520         (2,364)      (2,275)         814       325,695
Assets allocated to the business lines                1,508,076          8,574       73,673        1,783     1,592,106
Liabilities allocated to the business lines             904,779          3,542          407          262       908,990
Additions to property, plant and equipment               24,389                       1,252           53        25,694
Additions to plantations in progress                                                  2,380                      2,380
Depreciation of property, plant and equipment           102,680            326          204           51       103,261
Amortization of intangible assets                            82                                                     82
Amortization of goodwill                                  3,858                                                  3,858
Amortization of other investments                           336                                                    336
Charges not representing uses of cash (except
   amortization and depreciation)                        19,498            746          275                     20,519
Net domestic sales                                    1,105,611          8,652          989        2,002     1,117,254
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-53

<PAGE>

<TABLE>
<CAPTION>


----------------------------------------------------------------------------------------------------------------------
                                   As of and for the year ended December 31, 2003
-------------------------------------------------- -------------------------------------------------------------------
                                                                             Business lines
                                                       Dairy         Meat         Olive        Other         Total
                                                      ---------      ---------    ---------    ---------     ---------
<S>                                                 <C>               <C>          <C>           <C>       <C>
Net sales to external customers                     1,123,954          6,145                     2,042     1,132,141
Net intersegment sales                                     77                                                     77
Interest income                                         7,691              3           70                      7,764
Interest expense                                     (123,699)           (45)                               (123,744)
Income tax result                                          (1)                        182                        181
Net (loss) income for the year                       (182,899)        (2,668)        (868)         790      (185,645)
Assets allocated to the business lines              1,785,113          8,831       68,186        1,070     1,863,200
Liabilities allocated to the business lines         1,497,853          1,524        1,749          296     1,501,422
Additions to property, plant and equipment             12,797              1        4,477           82        17,357
Additions to plantations in progress                                                1,858                      1,858
Additions to intangible assets                            150                                                    150
Depreciation of property, plant and equipment         108,520            438            6            6       108,964
Amortization of intangible assets                          63              2                                      65
Amortization of goodwill                                4,077                                                  4,077
Amortization of other investments                         337                                                    337
Charges not representing uses of cash (except
amortization and depreciation)                         21,138            980                                  22,118
Net domestic sales                                  1,003,573          6,145                     2,042     1,011,760
----------------------------------------------------------------------------------------------------------------------
</TABLE>

b)   Secondary segments: geographic division (client based)
     -----------------------------------------------------
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
          Information on Net Sales           |                  Geographic division (client based)
---------------------------------------------|------------------------------------------------------------------------
                                             |       Domestic        |        Exports         |        Total
                                             |        market         |                        |
---------------------------------------------|-----------------------|------------------------|-----------------------

<S>                                                   <C>                       <C>                    <C>
For the year ended December 31, 2005                  1,412,765                 186,438                1,599,203

For the year ended December 31, 2004                  1,117,254                 268,136                1,385,390

For the year ended December 31, 2003                  1,011,760                 120,381                1,132,141
----------------------------------------------------------------------------------------------------------------------
</TABLE>



                                      F-54
<PAGE>


NOTE 14 - SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN ARGENTINA ("ARGENTINE GAAP") AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE UNITED STATES ("U.S. GAAP")

The consolidated financial statements have been prepared in accordance with
Argentine GAAP, which differ in certain respects from U.S. GAAP as follows:

1.   Property, Plant and Equipment

     i.   Foreign Exchange Gains or Losses. As more fully discussed in Note 3 e)
          3), foreign exchange gains or losses generated from January 6, 2002 to
          July 27, 2003 on non-Argentine peso denominated direct or indirect
          obligations related to the acquisitions, construction or installation
          of property, plant and equipment, were included as part of the
          historical cost of such assets, net of the effect of restating the
          historical cost to reflect the effects of inflation. The inclusion of
          foreign exchange gains or losses as part of the historical cost of
          property, plant and equipment is not allowed under U.S. GAAP, which
          requires that foreign exchange gains or losses are to be immediately
          credited or charged to income.

     ii.  Technical Revaluation. The Company's property, plant and equipment are
          carried under Argentine GAAP at their historical cost restated for the
          effects of inflation. The Company recognized as addition to historical
          cost, in 1986, as allowed under Argentine GAAP, a revaluation increase
          of about 89 million based on technical appraisals performed by
          independent parties. The net revaluation increase (that is, the excess
          of the net appraised value over the carrying value of the property,
          plant and equipment) was included in the technical reserve account (a
          component of shareholders' equity). The revaluation increase (as
          adjusted for the effects of inflation) is also depreciated with the
          depreciation expense on the revaluation increase charged to the
          technical reserve account. The remaining balance of the technical
          reserve account was off-set against cumulative losses in April 2002
          and, thereafter, the depreciation expense on the revaluation increase
          was charged to income. Under U.S. GAAP, revaluation of property, plant
          and equipment is not permitted.

     iii. Impairment - The Company acquired a property in 2002 that it planned
          to use as facility for the production of cheese (the "Cheese
          Facility"). The Company began construction of the Cheese Facility in
          February 2002 but had to temporarily halt the construction in October
          2002 because of an adverse change in the business climate in Argentina
          that it expected to result in lower demand for cheese products.
          Subsequently, in 2003, the Company considered the permanent
          discontinuance of the construction of the Cheese Facility and explored
          other options to recover its investment (including its sale or
          disposal).

          The Company and Calyon (successor of Credit Lyonnais S.A) agreed on
          June 4, 2004 to re-finance the loan secured by the Cheese Facility. In
          connection with such re-financing, the Company agreed with Calyon to
          attempt to sell the Cheese Facility for a floor price of US$4.5
          million with the proceeds from the sale used to settle a portion of
          the re-financed loan. The Company, under Argentine GAAP, recognized



                                      F-55
<PAGE>


          an impairment loss on the Cheese Facility at the time of the closing
          of re-financing agreement (the "Agreement"). The impairment loss was
          based on the excess of the carrying value of the Cheese Facility over
          the floor price indicated in the Agreement since the Company believed
          that such floor price approximated the fair value of the Cheese
          Facility.

          Under U.S. GAAP, the Cheese Facility was tested for recoverability in
          2003 as a result of the continued deterioration of the business
          climate in Argentina and the decision to discontinue the construction
          of the Cheese Facility. The Company recognized an impairment loss of
          20,784 in 2003 for the excess of the carrying value of the Cheese
          Facility over its fair value since the undiscounted cash flows
          expected to result from the use and eventual disposition of the Cheese
          Facility exceeded its carrying amount.

2.   Goodwill - The Company acquired: (a) 100% equity interest in Leitesol
     Industria y Comercio S.A. ("LIC") in 1998 and recognized goodwill of
     34,948; (b) 100% equity interest in Cabana Los Charas S.A. ("CLC") in 2000
     and recognized goodwill of 2,508; (c) 84% equity interest in Mastellone San
     Luis S.A. ("MSL") in 1999 and recognized goodwill of 48,473; (d) an
     additional 1.4% equity interest in MSL in 2003 and recognized goodwill of
     1,300 (the "additional MSL goodwill") and (e) in January 2004, the Company
     acquired an additional 5.95% equity interest in MSL and recognized a
     negative goodwill of 1,958. The LIC and MSL goodwill are different under
     U.S. GAAP because of the effect of deferred taxation. Deferred taxes were
     not considered in accounting for business combinations under the Argentine
     GAAP applicable in 1998 and 1999. Thus, under U.S. GAAP, goodwill
     recognized on the LIC acquisition was 32,695, on the CLC acquisition was
     2,508 and on the MSL acquisition was 46,104.

     i.   Amortization of Goodwill. Goodwill was amortized over its estimated
          useful life ranging from 8 years to 13 years under both Argentine GAAP
          and U.S. GAAP prior to 2002. Under U.S. GAAP, the Company adopted
          Statement of Financial Accounting Standards ("SFAS") No. 142,
          'Goodwill and Other Intangible Assets', on January 1, 2002 and, at
          that time, ceased amortizing goodwill.

     ii.  Goodwill Impairment

          An impairment loss on goodwill might be determined under Argentine
          GAAP applicable as of December 31, 2002 based on current and expected
          future profitability of a legal entity from which acquisition the
          goodwill arose. The Company recognized, in 2002, impairment losses of
          1,922 on the CLC goodwill and 13,821 on the LIC goodwill since CLC and
          LIC were not currently profitable and the Company believed that their
          return to future profitability was not currently determinable. The
          Company did not recognize an impairment loss on the MSL goodwill in
          2002 since MSL was profitable and the Company believed that it would
          continue to be profitable.

          Effective in 2003, Argentine GAAP allows goodwill impairment testing
          to be made at a level higher than the legal entities (such as an
          operating segment) and requires goodwill to be tested for impairment
          together with property, plant and equipment (the "PPE"). The new
          accounting standard requires goodwill and PPE to be tested


                                      F-56
<PAGE>


          for impairment using a two-step process. The first step is the
          comparison of the undiscounted cash flows for a period equivalent to
          the remaining useful life of an operating segment with the carrying
          value of the goodwill and PPE. The second step, which is performed
          only if the undiscounted cash flows for a period equivalent to the
          remaining useful life of an operating segment is less than the total
          carrying value of the goodwill and PPE, is the comparison of the total
          carrying value of the goodwill and PPE with the total fair value of
          the PPE and goodwill. An impairment loss is recognized for the excess
          of the total carrying value of the goodwill and PPE over the total
          fair value of the goodwill and PPE. The Company did not recognize any
          impairment loss on the additional MSL goodwill in 2003.

          As of December 31, 2004, under Argentine GAAP, the projected cash
          flows prepared for the cheese maturing activity (developed by MSL)
          that was considered separately from the general dairy business, did
          not support the accounting value of the goodwill, which was fully
          written off and charged to income as an extraordinary item in the
          amount of 28,754. The separate analysis of the two activities (general
          dairy business and cheese maturing) was carried out as an approach to
          considering the minimum level of cash generating activities. Due to
          the recurrent losses generated by LIC, the residual value of the
          goodwill corresponding to this company was also fully written off
          through a charge to extraordinary items (464).

          SFAS No. 142 requires an evaluation of goodwill for impairment at a
          reporting unit level upon adoption, annually thereafter, and more
          frequently if circumstances indicate a possible impairment. This
          impairment test is comprised of two steps. The initial step is
          designed to identify potential goodwill impairment by comparing an
          estimate of the fair value of a reporting unit to its carrying value,
          including goodwill. If the carrying value exceeds the fair value of
          the reporting unit, a second step is performed, which compares the
          implied fair value of the applicable reporting unit's goodwill with
          the carrying amount of that goodwill, to measure the amount of
          goodwill impairment, if any. Under U.S. GAAP, the fair value of a
          reporting unit is measured based on management's best estimates of
          future discounted cash flows. Each reporting unit's discounted cash
          flow analysis used a discount rate that corresponded to the reporting
          unit's estimated cost of capital, which was consistent with that used
          for investment decisions and took into account the specific risks
          associated with the reporting unit and the general risk of the
          economic environment in which it operates. Certain other key
          assumptions utilized, including changes in revenue, product cost and
          operating expenses, were based on estimates related to the reporting
          unit's initiatives. Such assumptions were also consistent with those
          utilized in the reporting unit's annual planning processes. As
          required under SFAS No. 142, the Company performed transitional
          impairment test on the goodwill on each of its reporting units upon
          adoption of SFAS No. 142 on January 1, 2002. The impairment loss
          amounting to 2,173 recognized under Argentine GAAP on the CLC goodwill
          was the same under SFAS No. 142, while the impairment loss recognized
          on the LIC goodwill under SFAS No. 142 amounted to 12,261. The Company
          also recognized, upon its adoption of SFAS No. 142 on January 1, 2002,
          an impairment loss of 38,518 on the entire carrying amount as of
          December 31, 2001 of the goodwill related the 1999 acquisition of MSL.
          The impairment losses on CLC


                                      F-57
<PAGE>


          goodwill, LIC goodwill and the MSL goodwill totaling to 52,952 was
          recognized as cumulative effect of a change in accounting principle
          under U.S. GAAP in 2002. An impairment loss was recognized for the
          entire amount of the additional MSL goodwill in 2003 under SFAS No.
          142 since management's estimate of the implied value of goodwill was
          zero.

     iii. Negative goodwill allocated to property, plant and equipment - As
          explained below, in January 2004, the Company acquired an additional
          5.95% equity interest in MSL. The negative goodwill was accounted for
          under Argentine GAAP as a reduction of the carrying amounts of the
          goodwill that arose from previous acquisitions of equity interests in
          MSL. Under US GAAP, the excess of the fair value of assets acquired
          and liabilities assumed over the purchase price related to the
          acquisition of the 5.95% equity interest in MSL was allocated as a pro
          rata reduction of the amounts that otherwise would have been assigned
          to certain assets acquired primarily "property, plant and equipment".

3.   Inventories

     i.   Replacement Cost under Argentine GAAP versus Lower of Cost or Market
          under U.S. GAAP. Replacement cost under Argentine GAAP is determined,
          in part, by valuing imported material costs (primarily packaging
          materials) at their exchange rates prevailing at the balance sheet
          dates. Thus, replacement cost under Argentine GAAP differed from
          historical cost (or market, if lower) under U.S. GAAP to the extent
          that exchange rates when the packaging materials were actually
          purchased differed from the exchange rates prevailing at the balance
          sheet dates. Replacement cost under Argentine GAAP exceeded historical
          cost under U.S. GAAP as of December 31, 2005, 2004 and 2003 by 10,432,
          15,201 and 16,973, respectively.

     ii.  Net Realizable Value under Argentine GAAP versus Lower of Cost or
          Market under U.S. GAAP. Certain finished good inventories, primarily
          high turnover products such as fluid milk and cream, through December
          31, 2002, were carried at net realizable value under Argentine GAAP;
          which is net selling price less direct selling expenses. Net
          realizable value under Argentine GAAP exceeded historical cost (or
          market, if lower) under U.S. GAAP as of December 31, 2002 by 678.

4.   Restructuring and extinguishment of financial debts

     i.   Restructuring of secured loan with Calyon (see Note 1 b)

          a.   Under Argentine GAAP, total amount of the gain related with the
               waiver of unpaid interest arising from this restructuring was
               recorded. Under U.S. GAAP, SFAS No. 15 establishes that if the
               total future cash payments specified by the new terms of a
               payable, including both payments designated as interest and those
               designated as face amount, are less than the carrying amount of
               the payable, the debtor shall reduce the carrying amount to an
               amount equal to the total future cash payments specified by the
               new terms and shall recognize a gain on restructuring of payables
               equal to the amount of the reduction. As total future payments
               are less than the carrying amount of the loan, a gain was
               recorded under U.S. GAAP in 2004 (5,145).


                                      F-58
<PAGE>


               Extinguishment of Debt:

               Calyon, on December 20, 2005, accepted payment of US$3,500,000
               (Ps 10,612) for a portion of the loan with principal amount of
               US$4,375,000 (Ps 13,265) or at 80% of the principal amount. The
               principal of such portion of the loan was Ps 13,265 under
               Argentine GAAP while its carrying amount was Ps 14,311 under U.S.
               GAAP. The gain recognized under Argentine GAAP on the settlement
               of the portion of the loan of Ps 2,653 was reversed under U.S.
               GAAP. A gain of Ps 3,699, representing the difference between the
               carrying amount of the portion of the loan extinguished and the
               amount paid, was recognized under U.S. GAAP.

          b.   Interest expense on restructured debts continues to be recognized
               under Argentine GAAP based on the terms under the restructuring
               agreement. Under U.S. GAAP, no interest expense is recognized on
               restructured debts for any period between the date of
               restructuring and maturity of the debts and, consequently, post
               restructuring interests accrued under Argentine GAAP were
               reversed under U.S. GAAP

     ii.  Restructuring and extinguishment of unsecured debts (see Note 1 c) 1.,
          2. and 3.)

          The accounting for debt restructuring under Argentine GAAP is more
          fully discussed in Note 1 d).

          Under Argentine GAAP, total amount of:

          a.   The gain related to the waiver of interest arisen from the
               restructuring celebrated on October 22, 2004,

          b.   the gain arising from the cash tender, and

          c.   the profit arising from the recognition of the fair value of the
               new debt were recorded in 2004. Such amounts were reversed for
               U.S. GAAP purposes. Under U.S. GAAP, SFAS 15 establishes that if
               the total future cash payments specified by the new terms of a
               payable, including both payments designated as interest and those
               designated as face amount, are less than the carrying amount of
               the payable, the debtor shall reduce the carrying amount to an
               amount equal to the total future cash payments specified by the
               new terms and shall recognize a gain on restructuring of payables
               equal to the amount of the reduction.

          d.   As total future payments are less than the carrying amount of the
               payable, a gain was recorded under U.S. GAAP in 2004.

               The Company, on December 16, 2005, paid US$1,932,000 (Ps 5,858)
               for New Senior Notes due 2012 with principal amount of
               US$2,300,000 (Ps6,974). The principal amount of such New Senior
               Notes due 2012 was Ps6,974 under Argentine GAAP while its
               carrying amount was Ps10,501 under U.S. GAAP. The gain of
               Ps1,116, representing the difference between amount paid and
               carrying amount of the principal of such New Senior Notes due
               2012


                                      F-59
<PAGE>


               recognized under Argentine GAAP, was reversed under U.S. GAAP. A
               gain of Ps4,643, representing the difference between the carrying
               amount of such New Senior Notes due 2012 and the amount paid, was
               recognized under U.S. GAAP.

               e.   Interest expense on restructured unsecured debts continues
                    to be recognized under Argentine GAAP based on the terms
                    under the restructuring agreement. Under U.S. GAAP, no
                    interest expense is recognized for any period between the
                    date of the restructuring and maturity of the restructured
                    unsecured debts and, consequently, post restructuring
                    interests accrued under Argentine GAAP were reversed under
                    U.S. GAAP.

          iii. Restructuring of Senior Notes due 2008 (exchanged for New Senior
               Notes due 2012). (see Note 1. c) 1 )

               The accounting for debt restructuring under Argentine GAAP is
               more fully discussed in Note 1 d).

               a.   The gain recognized under Argentine GAAP of Ps7,031
                    representing the unpaid interest waived pursuant to the
                    restructuring agreement entered into on June 23, 2005 was
                    reversed under U.S. GAAP.

                    No gain was recognized under U.S. GAAP pursuant to the
                    guidance in SFAS No. 15 since the total future cash payments
                    specified under the restructuring agreement (including both
                    payments designated as interest and those designated as face
                    amount) are higher than the carrying amount of the Senior
                    Notes due 2008 (including unpaid interest thereon).

               b.   Interest expense on the New Senior Notes due 2012 under U.S.
                    GAAP is computed in a way that a constant effective interest
                    rate is applied to the carrying amount of the New Senior
                    Notes due 2012 at the beginning of each period between the
                    date of the restructuring and maturity date. The new
                    effective interest rate is the discount rate that equates to
                    the present value of the total future cash payments
                    specified under the New Senior Notes due 2012 with the
                    carrying amount of the Senior Notes due 2008 at the date of
                    the restructuring.

               c.   The interest expense on the New Senior Notes due 2012, which
                    continues to be recognized under Argentine GAAP based on the
                    terms under the restructuring agreement, was reversed under
                    U.S. GAAP. The interest expense under U.S. GAAP is
                    recognized as explained in (b.) above.

               The accounting for loans or long-term debts under Argentine GAAP
               are more fully discussed in Note 3 e) 11) and in Note 1 d).

               d.   The adjustment recognized under Argentine GAAP representing
                    the difference between the carrying amount of the Senior
                    Notes due 2008 (principal only) of Ps16,342 and its fair
                    value of Ps13,668 was reversed under U.S. GAAP.

          iv.  Renegotiation of the previously restructured New Collateralized
               Floating Rate Debt with Compagnie Gervais Danone (see Note 1 c)
               2.)


                                      F-60
<PAGE>


               The accounting for debt restructuring under Argentine GAAP is
               more fully discussed in Note 1 d).

               a.   The gain recognized under Argentine GAAP of Ps 41,179
                    (US$14,131,433) representing the principal of the debt that
                    was waived under the restructuring agreement entered into on
                    February 8, 2005 was reversed under U.S. GAAP.

               b.   A gain of Ps 36,345 was recognized under U.S. GAAP pursuant
                    to the guidance in SFAS No. 15, representing the excess of
                    the carrying amount of the debt being restructured over the
                    total future cash payments specified under the restructuring
                    agreement (including both payments designated as interest
                    and those designated as face amount).

               c.   Interest expense on restructured debts continues to be
                    recognized under Argentine GAAP based on the terms under the
                    restructuring agreement. Under U.S. GAAP, no interest
                    expense is recognized on restructured debts for any period
                    between the date of the restructuring and maturity of the
                    debts and, consequently, post restructuring interests
                    accrued under Argentine GAAP were reversed under U.S. GAAP.

                    The accounting for loans or long-term debts under Argentine
                    GAAP are more fully discussed in Note 3 e) 11) and in Note 1
                    d).

               d.   The gain recognized under Argentine GAAP of Ps 8,510
                    representing the difference between the principal amount of
                    the debt of Ps 45,480 and its fair value of Ps 36,970 was
                    reversed under U.S. GAAP.

          v.   Waiver of unpaid interest on non-restructured Senior Notes due
               2008. Under Argentine GAAP, the gain amounting to 1,323 related
               to the waiver of unpaid interest on a portion of the
               non-restructured Senior Notes due 2008 paid by the Company on
               February 4, 2005 (see Note 1 c) 1.) was recorded as of December
               31, 2004. The payment of such non-restructured Senior Notes due
               2008 was accounted for under U.S. GAAP as an extinguishment of
               debt pursuant to the guidance under SFAS No. 140. Accordingly,
               the non-restructured Senior Notes due 2008 were derecognized and
               a gain on extinguishment of debt was recognized in February 2005.

          vi.  Direct Costs Incurred to Effect Debt Restructurings. The Company
               incurred certain costs directly related to the restructuring or
               refinancing of its debts. Under U.S. GAAP, the restructuring of a
               portion of the Company's debt completed in 1998 and 2003 and the
               restructuring of the majority of its unsecured debts that was
               completed in 2004 were considered troubled debt restructurings
               under SFAS No. 15, `Accounting by Debtors and Creditors for
               Troubled Debt Restructurings'. Accordingly, all costs incurred
               directly related the foregoing restructurings were included in
               expense for the period incurred, under U.S. GAAP. Under Argentine
               GAAP, and up to December 31, 2002, all direct costs incurred to
               effect debt restructurings were deferred and amortized on a
               straight-line basis over the term of the restructured debt.
               Effective January 1, 2003, all direct costs incurred to effect
               debt restructurings are deferred up to the date when the
               restructuring is completed,


                                      F-61
<PAGE>


               and at that date, they are expensed together with the recognition
               of other effects on net income (such as income recognized on
               accrued interest expense waived). Any unamortized direct costs
               existing as of December 31, 2002, incurred to effect 1998 debt
               restructuring were, under the new standards, charged to income in
               2003.

5.   Organization costs - Costs totaling to 222 incurred in 1997 and 1998 by
     Carnes Puntanas (a wholly-owned consolidated subsidiary that merged with
     Mastellone San Luis S.A., another consolidated subsidiary, in 2001) related
     to its incorporation (commonly referred to as "organization costs") were
     deferred and amortized over five years (up to 2004) under Argentine GAAP.
     Such costs are expensed as incurred under U.S. GAAP.

6.   Extraordinary Item - The Company presented as extraordinary item in the
     consolidated statements of operations under Argentine GAAP for the fiscal
     years ended December 31, 2005 and 2004 the gain on restructuring and
     renegotiation of debt, and the write-down or impairment losses on assets
     (including goodwill) for the fiscal year ended December 31, 2004. Under
     U.S. GAAP, an event or transaction is presumed to be an ordinary and usual
     activity of an entity, the effects of which should be included in income
     from operations, unless the evidence clearly supports its classification as
     an extraordinary item. Thus, under U.S. GAAP, the Company believed that
     write-down or impairment losses on assets and gain on restructuring and
     renegotiation of debt are considered usual in nature since they are
     expected to recur as a consequence of customary and continuing business
     activities.

7.   Income Taxes - The differences in Argentine GAAP and U.S. GAAP described in
     Item 1 to Item 5 above had no significant impact on current income tax
     expenses for all periods and had no significant impact on net deferred tax
     assets of the Company as of December 31, 2005, 2004 and 2003.

The table below presents the reconciliation of net (loss) income and
shareholders' equity under Argentine GAAP as reported in the accompanying
consolidated financial statements to net loss and shareholders' equity amounts
determined under U.S. GAAP giving effect to the differences set out above.
Argentine GAAP, as more fully discussed in Note 3 c), restated the accompanying
consolidated financial statements to recognize the effects of inflation for the
period from January 2002 through February 2003. The table below, as permitted
under Item 17 of Form 20-F, did not include in the reconciliation the effects of
inflation on U.S. GAAP net loss/income and shareholders' equity except to the
effect of inflation where the carrying amounts of assets and liabilities under
Argentine GAAP differed from U.S. GAAP.



                                      F-62

<PAGE>


<TABLE>
<CAPTION>



                                                                               2005           2004            2003
                                                                            ----------     ----------      ----------
<S>                                                                          <C>            <C>             <C>
Net (loss) income as reported under Argentine GAAP                           (33,260)        325,695        (185,645)
U.S. GAAP adjustments:
1. Property, Plant and Equipment
    i. Foreign exchange gains and losses
       a.  Amounts of foreign exchange gains and losses                         (214)          2,553         154,924
       b.  Depreciation expense related to foreign exchange gains and
           losses                                                              8,879           8,739           1,182
   ii. Technical revaluation - depreciation expense on revaluation
       increase                                                                3,007           3,286           6,185
  iii. Impairment loss                                                                        20,784         (20,784)
2. Goodwill
   i.  Amortization                                                                            3,858           4,077
   ii. Impairment loss                                                                        31,176          (1,300)
   iii.  Negative goodwill allocated to property, plant and equipment
       a.  Original value                                                                     (1,958)
       b.  Depreciation expense                                                   52              52
3. Inventories
   i. Difference between replacement cost under Argentine GAAP and
       lower of cost or market under U.S. GAAP.                                4,769           1,772           2,451
   ii. Difference between net realizable value under Argentine GAAP
       versus lower of cost or market under U.S. GAAP.                                                           678
4. Restructuring and extinguishment of financial debts
   i. Restructuring of secured loan with Calyon
       a.  Debt restructuring adjustment under U.S. GAAP                       1,046          (5,145)
       b.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                      1,442             739
   ii. Restructuring and extinguishment of unsecured debts
       a.  Waiver of unpaid interests                                                       (327,386)
       b.  Gain arising from the cash tender                                                (100,709)
       c.  Adjustment to record the fair value of the unsecured debts         35,546        (145,475)
       d.  Gain on the debt restructuring under U.S. GAAP                      3,527          68,866
       e.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                     47,921          11,835
   iii.  Restructuring of Senior Notes due 2008 (exchanged for New
       Senior Notes due 2012)
       a.  Waiver of unpaid interests                                         (7,031)
       b.  Accrual of interest under U.S. GAAP                                  (120)
       c.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                        635
       d.  Adjustment to record the New Senior Notes due 2012 at fair
           value                                                              (2,674)
   iv. Renegotiation of the previously restructured New
       Collateralized Floating Rate Debt with Compagnie Gervais Danone
       a.  Waiver of a portion of the principal                              (41,179)
       b.  Gain on the debt restructuring under U.S. GAAP                     36,345
       c.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                      3,275
       d.  Adjustment to record the New Collateralized Floating Rate
           Debt at fair value                                                 (8,510)
   v.  Waiver of unpaid interest on Senior Notes due 2008                      1,323          (1,323)
   vi. Direct costs incurred to effect debt restructurings                                     6,993          (3,188)
5. Amortization of organization costs, net of minority interest                                   44              38
                                                                            ----------     ----------      ----------
Net income (loss) under U.S. GAAP (in Argentine pesos)                        54,779         (95,604)        (41,382)
                                                                            ==========     ==========      ==========

Net income (loss) per share under U.S. GAAP                                     0.12           (0.23)          (0.10)
                                                                            ==========     ==========      ==========
Weighted average number of shares                                            457,547         409,902         409,902
                                                                            ==========     ==========      ==========
</TABLE>

                                      F-63

<PAGE>


The consolidated condensed statements of operations for the years ended December
31, 2005, 2004 and 2003 under U.S. GAAP are as follows:

<TABLE>
<CAPTION>

                                                                           2005             2004             2003
                                                                       ------------     ------------     ------------
<S>                                                                    <C>              <C>              <C>
Net sales                                                               1,599,203        1,385,390        1,132,141
Cost and expenses                                                      (1,601,426)      (1,443,477)      (1,200,894)
Other income (expenses), net                                               57,045          (37,232)          27,277
Income tax                                                                    (42)            (279)             181
Minority interest                                                              (1)              (6)             (87)
                                                                       ------------     ------------     ------------
     NET INCOME (LOSS)                                                     54,779          (95,604)         (41,382)
                                                                       ============     ============     ============

                                                                           2005             2004             2003
                                                                       ------------     ------------     ------------

Shareholders' equity as reported under Argentine GAAP                     697,500          683,115          357,420
U.S. GAAP adjustments:
1. Property, Plant and Equipment
   i. Foreign exchange gains and losses
       a.  Amounts of foreign exchange gains and losses                  (163,670)        (163,456)        (166,012)
       b.  Accumulated depreciation related to foreign exchange
           gains and losses                                                35,497           26,618           17,879
   ii. Technical revaluation
       a.  Revaluation increase                                           (48,380)         (48,380)         (48,380)
       b.  Accumulated depreciation on revaluation increase                33,296           30,289           27,003
   iii.Impairment loss (20,784)
2. Goodwill                                                                                                 (20,784)
   i.  Accumulated amortization                                                                               3,475
   ii. Impairment                                                                                           (38,509)
   iii.Negative goodwill allocated to property, plant and
       equipment
       a.  Original value                                                  (1,958)          (1,958)
       b.  Accumulated depreciation                                           104               52
3. Inventories
    Difference between replacement cost under Argentine GAAP and
    lower of cost or market under U.S. GAAP                               (10,432)         (15,201)         (16,973)
4. Restructuring and extinguishment of financial debts
   i. Restructuring of secured loan with Calyon
       a.  Debt restructuring adjustment under U.S. GAAP                   (4,099)          (5,145)
       b.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                   2,181              739
   ii. Restructuring and extinguishment of unsecured debts
       a.  Waiver of unpaid interests                                    (327,386)        (327,386)
       b.  Gain arising from the cash tender                             (100,709)        (100,709)
       c.  Adjustment to record the fair value of the unsecured
           debts                                                         (109,929)        (145,475)
       d.  Gain on the debt restructuring under U.S. GAAP                  72,393           68,866
       e.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                  59,756           11,835
   iii.  Restructuring of Senior Notes due 2008 (exchanged for
         New Senior Notes due 2012)
       a.  Waiver of unpaid interests                                      (7,031)
       b.  Accrual of interest under U.S. GAAP                               (120)
       c.  Reversal of post-restructuring accrued interests under
           Argentine GAAP                                                     635
       d.  Adjustment to record the New Senior Notes due 2012 at
           fair value                                                      (2,674)
   iv. Renegotiation of the previously restructured New
       Collateralized Floating Rate Debt with Compagnie Gervais
       Danone
       a. Waiver of a portion of the principal                            (41,179)
       b. Gain on the debt restructuring under U.S. GAAP                   36,345
       c. Reversal of post-restructuring
          accrued interests under Argentine GAAP                            3,275
       d.  Adjustment to record the New Collateralized Floating
           Rate Debt at fair value                                         (8,510)
   v.  Waiver of unpaid interest on Senior Notes due 2008                                   (1,323)
   vi. Direct costs incurred to effect debt restructurings                                                   (6,993)
5. Unamortized organization costs                                                                               (41)
                                                                       ------------     ------------     ------------
Shareholders' equity under U.S. GAAP (in Argentine pesos)                 114,905           12,481          108,085
                                                                       ============     ============     ============
</TABLE>


                                      F-64
<PAGE>


The consolidated condensed balance sheets as of December 31, 2005, 2004 and 2003
under U.S. GAAP are as follows:


                                             2005          2004          2003
                                         ------------  ------------  -----------
Current assets                            459,702       390,402        503,172
Property, plant and equipment, net        888,332       947,784      1,074,282
Other non-current assets                   84,717        81,884         36,478
                                        ------------  ------------   -----------
     TOTAL                              1,432,751     1,420,070      1,613,932
                                        ============  ============   ===========
Current liabilities                       250,585       244,210        745,435
Non-current liabilities                 1,067,260     1,163,378        756,061
Minority interest                               1             1          4,351
Shareholders' equity                      114,905        12,481        108,085
                                        ------------  ------------   -----------
     TOTAL                              1,432,751     1,420,070      1,613,932
                                        ------------  ------------   -----------

The unrestructured debts were reclassified as current liabilities (in the
Argentine GAAP financial statements they are shown as non-current liabilities,
except in 2004 for the portion of principal of a loan that was fully paid by the
Company after year-end which was also classified as current liabilities under
Argentine GAAP).

The consolidated condensed statements of shareholders' equity as of December 31,
2005, 2004 and 2003 under U.S. GAAP are as follows:

<TABLE>
<CAPTION>

                                                                                           Retained
                                                  Shareholders' contributions              earnings         Total
                                         ---------------------------------------------  ---------------
                                                          Additional
                                                            paid-in
                                          Common stock    capital and
                                              and         Irrevocable
                                         adjustment to      capital                      Accumulated
                                          common stock   contributions      Total           losses

<S>                                        <C>               <C>           <C>            <C>              <C>
Balance as of December 31, 2002             900,665          44,456        945,121        (795,654)        149,467

Net loss                                                                                   (41,382)        (41,382)
                                          ----------       ---------      ---------      ----------       ---------
Balance as of December 31, 2003             900,665          44,456        945,121        (837,036)        108,085
                                          ==========       =========      =========      ==========       =========

Net loss                                                                                   (95,604)        (95,604)
                                          ----------       ---------      ---------      ----------       ---------
Balance as of December 31, 2004             900,665          44,456        945,121        (932,640)         12,481
                                          ==========       =========      =========      ==========       =========

Absorption of accumulated losses           (217,550)        (44,456)      (262,006)        262,006
Capitalization of shareholders'
   contributions                             47,645                         47,645                          47,645
Net income                                                                                  54,779          54,779
                                          ----------       ---------      ---------      ----------       ---------
Balance as of December 31, 2005             730,760                        730,760        (615,855)        114,905
                                          ==========       =========      =========      ==========       =========
</TABLE>


                                      F-65
<PAGE>


The consolidated condensed statements of cash flows as of December 31, 2005,
2004 and 2003 under U.S. GAAP are as follows:
<TABLE>
<CAPTION>

                                                              2005         2004         2003
                                                            --------     --------     --------

<S>                                                         <C>          <C>           <C>
 Net cash provided by operating activities                   28,245       104,022       55,243
 Net cash used in investing activities                      (31,293)      (21,808)     (10,841)
 Net cash provided by (used in) financing activities          7,596      (164,596)      (2,245)

 Increase (decrease) in cash and cash equivalents             4.548       (82,382)      42,157
 Cash and cash equivalents at beginning of year              76,229       158,611      116,454
                                                            -------      ---------     --------
 Cash and cash equivalents at end of year                    80,777        76,229      158,611
                                                            =======      ========      ========
</TABLE>

Effects of reconciliation items on deferred tax assets and liabilities under
U.S. GAAP as of December 31, 2005, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>

                                                                      2005          2004            2003
                                                                    --------      --------        --------
<S>                                                                  <C>           <C>             <C>
 Deferred tax assets

    Tax loss carryforwards                                           185,578       195,643         298,545
    Exchange differences deductible in future fiscal years             9,141        18,282          27,423
    Inventories                                                        1,909         4,533           3,664
    Allowances, accrual for litigation expenses and other
       non-deductible accruals                                         9,283         9,162           8,330
    Trouble debt restructuring adjustment                            107,078       123,130
    Other temporary differences                                                        786             107
                                                                    --------      --------        --------
                                                                     312,989       351,536         338,069
 Valuation allowance                                                (156,075)     (179,152)       (146,472)
                                                                    --------      --------        --------
          Subtotal                                                   156,914       172,384         191,597
 Deferred tax liabilities
    Property, plant and equipment                                   (156,652)     (172,031)       (191,308)
    Other temporary differences                                         (215)         (348)
                                                                    --------      --------        --------
          Subtotal                                                  (156,867)     (172,379)       (191,308)
                                                                    --------      --------        --------
          Total                                                           47             5             289
                                                                    ========      ========        ========
</TABLE>


NOTE 15 - GUARANTOR SUBSIDIARIES

Leitesol Industria e Comercio S.A. ("LIC"), Mastellone San Luis Sociedad Anonima
("MSL") and Promas Sociedad Anonima ("Promas") guarantee the new Senior Notes
(see Note 1). LIC is incorporated in Brazil and MSL and Promas are Argentine
companies. LIC, MSL and Promas are wholly owned by Mastellone Hermanos Sociedad
Anonima as of December 31, 2005 and 2004 and the guarantees are full,
unconditional joint and several. The condensed consolidated financial
information of MHSA, LIC, combined MSL and Promas, and all other consolidated
subsidiaries of MHSA is detailed below.

                                      F-66

<PAGE>


Income statement for the year ended December 31, 2005:

<TABLE>
<CAPTION>

                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                          <C>              <C>             <C>             <C>           <C>              <C>
Net sales                     1,505,660        116,996         124,527         23,700       (171,680)         1,599,203
Cost and expenses            (1,525,176)      (111,292)       (116,180)       (24,074)       172,184         (1,604,538)
Other income (expenses),
  net                             8,621           (988)            605            (59)       (18,604)           (10,425)
Interests and other
  financial results             (60,158)         1,827           2,377            749            (45)           (55,250)
Income tax                                                                        (42)                              (42)
Minority interest                                                                                 (1)                (1)
Extraordinary items              37,793                                                                          37,793
                           -------------    ------------     ----------   ------------    -------------      -----------
  NET (LOSS) INCOME FOR
    THE YEAR                    (33,260)         6,543          11,329            274        (18,146)           (33,260)
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

Balance sheet as of December 31, 2005:
<TABLE>
<CAPTION>

                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                           <C>              <C>              <C>            <C>          <C>               <C>
Current assets                  421,489         23,959          42,824          8,728        (37,298)           459,702
Non-current assets            1,151,195        140,936           6,564          8,322       (178,425)         1,128,592
                           -------------    ------------     ----------   ------------    -------------      -----------
      TOTAL                   1,572,684        164,895          49,388         17,050       (215,723)         1,588,294
                           =============    ============     ==========   ============    =============      ===========
Current liabilities             238,480          8,933          29,945         14,007        (41,844)           249,521
Non-current liabilities         636,704            820           3,400            417            (69)           641,272
                           -------------    ------------     ----------   ------------    -------------      -----------
Total liabilities               875,184          9,753          33,345         14,424        (41,913)           890,793
Minority interest                                                                                  1                  1
Shareholders' equity            697,500        155,142          16,043          2,626       (173,811)           697,500
                           -------------    ------------     ----------   ------------    -------------      -----------
      TOTAL                   1,572,684        164,895          49,388         17,050       (215,723)         1,588,294
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

Cash flows for the year ended December 31, 2005:

<TABLE>
<CAPTION>

                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                             <C>             <C>              <C>           <C>            <C>               <C>
Net cash provided by
  (used in) operating
  activities                     79,826          4,647           1,562            129         (3,635)            82,529
Net cash (used in)
  provided by investing
  activities                    (29,607)        (5,391)           (120)        (1,053)         4,878            (31,293)
Net cash (used in)
  provided by financing
  activities                    (46,688)         4,653                          1,609         (6,262)           (46,688)
                           -------------    ------------     ----------   ------------    -------------      -----------

Increase (decrease) in
  cash and cash
  equivalents                     3,531          3,909           1,442            685         (5,019)             4,548
Cash and cash
  equivalents at
  beginning of year              72,139            798           1,678          1,614                            76,229
                           -------------    ------------     ----------   ------------    -------------      -----------
Cash and cash
  equivalents at end of
  year                           75,670          4,707           3,120          2,299         (5,019)            80,777
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

                                      F-67

<PAGE>


Income statement for the year ended December 31, 2004:

<TABLE>
<CAPTION>
                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                          <C>               <C>             <C>            <C>           <C>              <C>
Net sales                     1,336,425         93,202          76,477         11,234       (131,948)         1,385,390
Cost and expenses            (1,353,791)       (89,546)        (82,846)       (12,009)       132,717         (1,405,475)
Other income (expenses),
  net                           (24,359)        (3,722)             (2)          (562)         5,209            (23,436)
Interests and other
  financial results            (142,541)          (125)          1,862            337                          (140,467)
Income tax                                        (182)                           (97)                             (279)
Minority interest                                                                                  1                  1
Extraordinary items             509,961         (2,637)                                        2,637            509,961
                           -------------    ------------     ----------   ------------    -------------      -----------
  NET INCOME (LOSS) FOR
  THE YEAR                      325,695         (3,010)         (4,509)        (1,097)         8,616            325,695
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

Balance sheet as of December 31, 2004:

<TABLE>
<CAPTION>
                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                           <C>              <C>              <C>            <C>          <C>               <C>

Current assets                  373,407         18,020          26,295          4,369        (31,689)           390,402
Non-current assets            1,203,362        141,285           6,192          7,642       (156,777)         1,201,704
                           -------------    ------------     ----------   ------------    -------------      -----------
      TOTAL                   1,576,769        159,305          32,487         12,011       (188,466)         1,592,106
                           =============    ============     ==========   ============    =============      ===========
Current liabilities             214,582         14,100          24,778          7,510        (36,228)           224,742
Non-current liabilities         679,072            588           3,443          2,055           (910)           684,248
                           -------------    ------------     ----------   ------------    -------------      -----------
Total liabilities               893,654         14,688          28,221          9,565        (37,138)           908,990
Minority interest                                                                                  1                  1
Shareholders' equity            683,115        144,617           4,266          2,446       (151,329)           683,115
                           -------------    ------------     ----------   ------------    -------------      -----------
      TOTAL                   1,576,769        159,305          32,487         12,011       (188,466)         1,592,106
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

Cash flows for the year ended December 31, 2004:

<TABLE>
<CAPTION>
                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                            <C>              <C>              <C>           <C>           <C>                <C>
Net cash provided by
  (used in) operating
  activities                    140,162         (7,449)           (198)        (1,501)        (2,829)           128,185
Net cash (used in)
  provided by investing
  activities                    (30,730)        (3,698)            (37)         1,025         11,632            (21,808)
Net cash (used in)
  provided by financing
  activities                   (188,759)        11,537                            970        (12,507)          (188,759)
                           -------------    ------------     ----------   ------------    -------------      -----------

(Decrease) increase in
  cash and cash equivalents     (79,327)           390            (235)           494         (3,704)           (82,382)
Cash and cash
  equivalents at
  beginning of year             155,170            408           1,913          1,120                           158,611
                           -------------    ------------     ----------   ------------    -------------      -----------
Cash and cash
  equivalents at end of
  year                           75,843            798           1,678          1,614         (3,704)            76,229
                           =============    ============     ==========   ============    =============      ===========
</TABLE>


                                      F-68
<PAGE>


Income statement for the year ended December 31, 2003:

<TABLE>
<CAPTION>
                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                          <C>              <C>              <C>             <C>          <C>              <C>
Net sales                     1,074,894        100,535          61,187          8,369       (112,844)         1,132,141
Cost and expenses            (1,113,765)      (102,645)        (63,087)        (8,737)       112,575         (1,175,659)
Other income (expenses),
  net                           (22,962)           (64)           (583)        (2,096)         1,881            (23,824)
Interests and other
  financial results            (123,812)         2,043           2,746            984           (359)          (118,398)
Income tax                                         182                             (1)                              181
Minority interest                                                                                (86)               (86)
                           -------------    ------------     ----------   ------------    -------------      -----------
  NET (LOSS) INCOME FOR
    THE YEAR                   (185,645)            51             263         (1,481)         1,167           (185,645)
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

Balance sheet as of December 31, 2003:

<TABLE>
<CAPTION>
                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                           <C>              <C>              <C>            <C>          <C>               <C>
Current assets                  510,293         11,774          21,463          3,644        (26,458)           520,716
Non-current assets            1,335,790        144,077           6,499          7,962       (151,844)         1,342,484
                           -------------    ------------     ----------   ------------    -------------      -----------
      TOTAL                   1,846,083        155,851          27,962         11,606       (178,302)         1,863,200
                           =============    ============     ==========   ============    =============      ===========

Current liabilities             715,255         16,440          15,839          6,492        (29,431)           724,595
Non-current liabilities         773,408          3,321           3,261          2,054         (5,217)           776,827
                           -------------    ------------     ----------   ------------    -------------      -----------
Total liabilities             1,488,663         19,761          19,100          8,546        (34,648)         1,501,422
Minority interest                                                                              4,358              4,358
Shareholders' equity            357,420        136,090           8,862          3,060       (148,012)           357,420
                           -------------    ------------     ----------   ------------    -------------      -----------
      TOTAL                   1,846,083        155,851          27,962         11,606       (178,302)         1,863,200
                           =============    ============     ==========   ============    =============      ===========
</TABLE>

Cash flows for the year ended December 31, 2003:

<TABLE>
<CAPTION>
                            Mastellone
                             Hermanos
                           S.A. (parent     Combined MSL                    All Other     Consolidation
                              issuer)        and Promas          LIC      Subsidiaries      adjustments         Total
                           -------------    ------------     ----------   ------------    -------------      -----------
<S>                             <C>                <C>            <C>            <C>           <C>               <C>
Net cash provided by
  (used in) operating
  activities                     59,207            (47)             312            162           (107)            59,527
Net cash (used in)
  provided by investing
  activities                     (6,982)        (8,332)             606            (83)         3,950            (10,841)
Net cash (used in)
  provided by financing
  activities                    (10,381)         3,265                             828           (241)            (6,529)
                           -------------    ------------     ----------   ------------    -------------      -----------
Increase (decrease) in
  cash and cash
  equivalents                    41,844         (5,114)             918            907          3,602             42,157
Cash and cash
  equivalents at
  beginning of year             113,326          5,522              995            213         (3,602)           116,454
                           -------------    ------------     ----------   ------------    -------------      -----------
Cash and cash
  equivalents at end of
  year                          155,170            408            1,913          1,120                           158,611
                           =============    ============     ==========   ============   =============      ============
</TABLE>


                                      F-69

<PAGE>


The following summarizes the effect on net income and shareholders' equity of
the differences between Argentine GAAP and U.S. GAAP. Please refer to Note 14
for a detailed description of reconciling items.

Income statement for the year ended December 31, 2005:



<TABLE>
<CAPTION>



                                                 Mastellone
                                                  Hermanos
                                                    S.A.         Combined
                                                  (parent         MSL and               All Other   Consolidation
                                                  issuer)         Promas       LIC     Subsidiaries  adjustments      Total
                                                -----------      ---------   -------   ------------ -------------    -------
Net income (loss) as reported under Argentine GAAP
<S>                                               <C>             <C>        <C>             <C>      <C>            <C>
U.S. GAAP adjustments:                            (33,260)        6,543      11,329          274      (18,146)       (33,260)
1. Property, Plant and Equipment
   i. Foreign exchange gains and losses
       a.  Amounts of foreign exchange gains
           and losses                                              (214)                                                (214)
       b. Depreciation expense related to
           foreign exchange gains and losses        8,707           172                                                8,879
   ii. Technical revaluation
       Depreciation expense
       on revaluation increase                      3,007                                                              3,007
2. Goodwill
       Negative goodwill allocated to
       property, plant and equipment
Depreciation expense                                   52                                                                 52
3. Inventories
       Difference between replacement cost
       under Argentine GAAP and lower of cost
       or market under U.S. GAAP.                   4,737            32                                                4,769
4. Restructuring and extinguishment of
   financial debts
   i. Restructuring of secured loan with Calyon
       a. Debt restructuring
          adjustment under U.S. GAAP                1,046                                                              1,046
       b. Reversal of post-restructuring
          accrued interests under Argentine
          GAAP                                      1,442                                                              1,442
   ii. Restructuring and extinguishment of
       unsecured debts
        c.  Adjustment to record the fair
            value of the unsecured debts           35,546                                                             35,546
        d.  Gain on the debt restructuring
            under U.S. GAAP                         3,527                                                              3,527
        e.  Reversal of post-restructuring
            accrued interests under Argentine
            GAAP                                   47,921                                                             47,921
   iii. Restructuring of Senior Notes due 2008
        (exchanged for New Senior Notes due 2012)
        a.  Waiver of unpaid interests             (7,031)                                                            (7,031)
        b.  Accrual of interest under U.S. GAAP      (120)                                                              (120)
        c.  Reversal of post-restructuring
            accrued interests under Argentine
            GAAP                                      635                                                                635
        d.  Adjustment to record the New
            Senior Notes due 2012 at fair value    (2,674)                                                            (2,674)
   iv. Renegotiation of the previously
       restructured New Collateralized
       Floating Rate Debt with Compagnie
       Gervais Danone
        a.  Waiver of a portion of the
            principal                             (41,179)                                                           (41,179)
        b.  Gain on the debt restructuring
            under U.S. GAAP                        36,345                                                             36,345
        c.  Reversal of post-restructuring
            accrued interests under Argentine
            GAAP                                    3,275                                                              3,275
        d.  Adjustment to record the New
            Collateralized Floating Rate Debt
            at fair value                          (8,510)                                                            (8,510)
   v.  Waiver of unpaid interest on Senior
       Notes due 2008                               1,323                                                              1,323
                                                -----------      ---------   -------   ------------ -------------    -------
Net gain (loss) under U.S. GAAP (in Argentine
pesos)                                             54,789         6,533      11,329          274      (18,146)        54,779
                                                ===========      =========   =======   ============ =============    =======
</TABLE>

                                      F-70

<PAGE>


Balance sheet as of December 31, 2005:

<TABLE>
<CAPTION>
                                                 Mastellone
                                                  Hermanos
                                                    S.A.       Combined
                                                  (parent       MSL and               All Other   Consolidation
                                                  issuer)       Promas       LIC     Subsidiaries  adjustments     Total
                                               ------------   ----------  --------  ------------- -------------   ---------
<S>                                              <C>           <C>         <C>          <C>       <C>            <C>
Shareholders' equity as reported under
Argentine GAAP                                    697,500       155,142    16,043        2,626     (173,811)      697,500
U.S. GAAP adjustments:
1. Property, Plant and Equipment
   i.  Foreign exchange gains and losses
       a.  Amounts of foreign exchange gains
           and losses                            (161,430)       (2,240)                                         (163,670)
       b.  Accumulated depreciation related
           to foreign exchange gains and
           losses                                  34,861           636                                            35,497
   ii. Technical revaluation
       a.  Revaluation increase                   (48,380)                                                        (48,380)
       b   Accumulated depreciation on
           revaluation increase                    33,296                                                          33,296
2. Goodwill
   iii. Negative goodwill allocated to property,
        plant and equipment
       a.  Original value                          (1,958)                                                         (1,958)
       b.  Accumulated depreciation                   104                                                             104
3. Inventories
   Difference between replacement cost under
   Argentine GAAP and lower of cost or market
   under U.S. GAAP                                (10,339)          (93)                                          (10,432)
4. Restructuring and extinguishment of
   financial debts
   i.  Restructuring of secured loan with Calyon
       a.  Debt restructuring adjustment
           under U.S. GAAP                         (4,099)                                                         (4,099)
       b.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                     2,181                                                           2,181
   ii. Restructuring and extinguishment of
       unsecured debts
       a.  Waiver of unpaid interests            (327,386)                                                       (327,386)
       b.  Gain arising from the cash tender     (100,709)                                                       (100,709)
       c.  Adjustment to record the fair
           value of the unsecured debts          (109,929)                                                       (109,929)
       d.  Gain on the debt restructuring
           under U.S. GAAP                         72,393                                                          72,393
       e.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                    59,756                                                          59,756
   iii. Restructuring of Senior Notes due 2008
        (exchanged for New Senior Notes due 2012)
       a.  Waiver of unpaid interests              (7,031)                                                         (7,031)
       b.  Accrual of interest under U.S. GAAP       (120)                                                           (120)
       c.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                       635                                                             635
       d.  Adjustment to record the New
           Senior Notes due 2012 at fair value     (2,674)                                                         (2,674)
   iv. Renegotiation of the previously
       restructured New Collateralized
       Floating Rate Debt with Compagnie
       Gervais Danone
       a.  Waiver of a portion of the
           principal                              (41,179)                                                        (41,179)
       b.  Gain on the debt restructuring
           under U.S. GAAP                         36,345                                                          36,345
       c.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                     3,275                                                           3,275
       d.  Adjustment to record the New
           Collateralized Floating Rate Debt
           at fair value                           (8,510)                                                         (8,510)
                                                 ---------     ---------  -------      -------    ----------     ----------
Shareholders' equity under U.S. GAAP (in
Argentine pesos)                                  116,602       153,445    16,043        2,626     (173,811)      114,905
                                                 =========     =========  =======      =======    ==========     ==========
</TABLE>



                                      F-71

<PAGE>


Income statement for the year ended December 31, 2004:

<TABLE>
<CAPTION>
                                                 Mastellone
                                                  Hermanos
                                                    S.A.       Combined
                                                  (parent       MSL and               All Other   Consolidation
                                                  issuer)       Promas       LIC     Subsidiaries  adjustments     Total
                                                ----------   -----------  --------  ------------- -------------   ---------
<S>                                               <C>            <C>       <C>          <C>           <C>           <C>
Net income (loss) as reported under
  Argentine GAAP                                  325,695        (3,010)   (4,509)      (1,097)       8,616         325,695
U.S. GAAP adjustments:
1. Property, Plant and Equipment
   i.  Foreign exchange gains and losses
       a.  Amounts of foreign exchange gains
           and losses                               2,660          (107)                                              2,553
       b.  Depreciation expense related to
           foreign exchange gains and losses        8,567           172                                               8,739
   ii. Technical revaluation
       Depreciation expense on revaluation
       increase                                     3,286                                                             3,286
   iii.  Impairment loss                           20,784                                                            20,784
2. Goodwill
   i.  Amortization                                 3,858                                                             3,858
   ii. Impairment loss                             31,176                                                            31,176
   iii.  Negative goodwill allocated to
       property, plant and equipment
       a.  Original value                          (1,958)                                                           (1,958)
       b.  Depreciation expense                        52                                                                52
3. Inventories
   i.  Difference between replacement cost
       under Argentine GAAP and lower of
       cost or market under U.S. GAAP.              1,833           (57)                                 (4)          1,772
4. Restructuring of financial debts
   i.  Restructuring of secured loan with Calyon
       a.  Debt restructuring adjustment                                                                                   )
           under U.S. GAAP                         (5,145)                                                           (5,145
       b.  Reversal of post-restructuring accrued
           interests under Argentine GAAP             739                                                               739
   ii. Restructuring of unsecured debts
       a.  Waiver of unpaid interests            (327,386)                                                         (327,386)
       b.  Gain arising from the cash tender     (100,709)                                                         (100,709)
       c.  Adjustment to record the fair
           value of the unsecured debts          (145,475)                                                         (145,475)
       d.  Gain on the debt restructuring
           under U.S. GAAP                         68,866                                                            68,866
       e.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                    11,835                                                            11,835
   v.  Waiver of unpaid interest on Senior
       Notes due 2008                              (1,323)                                                           (1,323)
   vi. Direct costs incurred to effect debt
       restructurings                               6,993                                                             6,993
5. Amortization of organization costs                                47                                  (3)             44
                                               -----------      ---------  --------     --------    --------      ----------
Net (loss) gain under U.S. GAAP (in Argentine
pesos)                                            (95,652)       (2,955)   (4,509)      (1,097)       8,609         (95,604)
                                               ===========      =========  ========     ========    ========      ==========
</TABLE>


                                      F-72


<PAGE>


Balance sheet as of December 31, 2004:

<TABLE>
<CAPTION>
                                                 Mastellone
                                                  Hermanos
                                                    S.A.       Combined
                                                  (parent       MSL and             All Other   Consolidation
                                                  issuer)       Promas      LIC    Subsidiaries  adjustments      Total
                                                ------------  ----------  -------  ------------ -------------    ---------
<S>                                              <C>            <C>         <C>        <C>       <C>             <C>
Shareholders' equity as reported under
   Argentine GAAP                                 683,115       144,617     4,266      2,446     (151,329)        683,115
U.S. GAAP adjustments:
1. Property, Plant and Equipment
   i.  Foreign exchange gains and losses
       a.  Amounts of foreign exchange gains
           and losses                            (161,430)       (2,026)                                         (163,456)
       b.  Accumulated depreciation related
           to foreign exchange gains and
           losses                                  26,154           464                                            26,618
   ii. Technical revaluation
       a.  Revaluation increase                   (48,380)                                                        (48,380)
       b   Accumulated depreciation on
           revaluation increase                    30,289                                                          30,289
2. Goodwill
   iii. Negative goodwill allocated to
        property, plant and equipment
       a.  Original value                          (1,958)                                                         (1,958)
       b.  Accumulated depreciation                    52                                                              52
3. Inventories
   Difference between replacement cost under
   Argentine GAAP and lower of cost or market
   under U.S. GAAP                                (15,076)         (125)                                          (15,201)
4. Restructuring of financial debts
   i.  Restructuring of secured loan with Calyon
       a.  Debt restructuring adjustment
           under U.S. GAAP                         (5,145)                                                         (5,145)
       b.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                       739                                                             739
   ii. Restructuring of unsecured debts
       a.  Waiver of unpaid interests            (327,386)                                                       (327,386)
       b.  Gain arising from the cash tender     (100,709)                                                       (100,709)
       c.  Adjustment to record the fair
           value of the unsecured debts          (145,475)                                                       (145,475)
       d.  Gain on the debt restructuring
           under U.S. GAAP                         68,866                                                          68,866
       e.  Reversal of post-restructuring
           accrued interests under Argentine
           GAAP                                    11,835                                                          11,835
   v.  Waiver of unpaid interest on Senior
       Notes due 2008                              (1,323)                                                         (1,323)
                                                ------------  ----------  -------  ------------ -------------    ---------
Shareholders' equity under U.S. GAAP (in
Argentine pesos)                                   14,168       142,930     4,266      2,446     (151,329)         12,481
                                                ============  ==========  =======  ============ =============    =========

</TABLE>

                                      F-73

<PAGE>


Income statement for the year ended December 31, 2003:

<TABLE>
<CAPTION>
                                           Mastellone
                                         Hermanos S.A.    Combined
                                            (parent        MSL and               All Other     Consolidation
                                            issuer)        Promas       LIC    Subsidiaries     adjustments       Total
                                         --------------  ----------  --------  ------------    --------------  -----------
<S>                                       <C>                <C>          <C>     <C>             <C>           <C>
Net income (loss) as reported under
Argentine GAAP                            (185,645)             51        263     (1,481)         1,167         (185,645)
U.S. GAAP adjustments:
1. Property, Plant and Equipment
   i.  Foreign exchange gains and losses
       a.  Amounts of foreign exchange
           gains and losses                153,027           1,897                                               154,924
       b.  Depreciation expense related
           to foreign exchange
           gains and losses                  1,005             177                                                 1,182
   ii. Technical revaluation
       Depreciation expense on revaluation
       increase                              6,185                                                                 6,185
   iii.  Impairment loss                   (20,784)                                                              (20,784)
2. Goodwill
   i.  Amortization                          4,077                                                                 4,077
   ii. Impairment                           (1,300)                                                               (1,300)
3. Inventories
   i.  Difference between replacement
       cost under Argentine GAAP and lower
       of cost or market under
       U.S. GAAP                             2,522             (67)                                  (4)           2,451
   ii. Difference between net
       realizable value under
       Argentine GAAP versus lower of
       cost or market under U.S. GAAP.         678                                                                   678
4. Restructuring of financial debts
   Financial direct costs incurred to
   effect debt restructurings               (3,188)                                                               (3,188)
5. Amortization of organization costs                           35                                    3               38
                                         --------------  ----------  ---------  ------------    --------------  -----------
Net (loss) gain under U.S. GAAP (in
Argentine pesos)                           (43,423)          2,093        263     (1,481)         1,166          (41,382)
                                         ==============  ==========  =========  ============    ==============  ===========
</TABLE>


                                      F-74


<PAGE>


<TABLE>
<CAPTION>
Balance sheet as of December 31, 2003:

                                            Mastellone      Combined
                                          Hermanos S.A.      MSL and               All Other     Consolidation
                                         (parent issuer)     Promas       LIC    Subsidiaries     adjustments      Total
                                         ---------------   ----------  --------  ------------    --------------    --------
<S>                                       <C>                <C>          <C>        <C>         <C>                <C>
Shareholders' equity as reported under
Argentine GAAP                             357,420           136,090      8,862      3,060       (148,012)          357,420
U.S. GAAP adjustments:
1. Property, Plant and Equipment
   i.  Foreign exchange gains and losses
       a.  Amounts of foreign exchange
           gains and losses               (164,090)           (1,922)                                              (166,012)
       b.  Accumulated depreciation
           related to foreign exchange
           gains and losses                 17,587               292                                                 17,879
   ii. Technical revaluation
       a.  Revaluation increase            (48,380)                                                                 (48,380)
       b   Accumulated depreciation on
           revaluation increase             27,003                                                                   27,003
   iii.  Impairment loss                   (20,784)                                                                 (20,784)
2. Goodwill
   i.  Accumulated amortization              3,475                                                                    3,475
   ii. Impairment                          (38,509)                                                                 (38,509)
3. Inventories
   Difference between replacement cost
   under Argentine GAAP and lower of
   cost or market under U.S. GAAP.         (16,909)              (68)                                   4           (16,973)
4. Restructuring of financial debts
   Financial direct costs incurred to
   effect debt restructurings               (6,993)                                                                  (6,993)
5. Unamortized organization costs                                (44)                                   3               (41)
                                         ---------------   ----------  --------  ------------    --------------    --------
Shareholders' equity under U.S. GAAP
(in Argentine pesos)                       109,820           134,348      8,862      3,060       (148,005)          108,085
                                         ===============   ==========  ========  ============    ==============    ========

</TABLE>

                                      F-75


<PAGE>


NOTE 16 - SUBSEQUENT EVENTS

The Company agreed with the National Ministry of Economy and Production on
January 13, 2006, to maintain the prevailing prices for six products for a
period of one year. This agreement is part of the efforts by the Argentine
National Government to manage inflation. The agreement also implies the analysis
of variations in costs, already produced or those costs that will occur in the
future, and its transfer to selling prices. The Board of Directors and the
Management of the Company do not foresee material effects on the financial
position or the results as a consequence of the Government's policy or the
execution of this agreement in particular.


                                      F-76


<PAGE>


                                   SIGNATURES

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and has duly caused and authorized the undersigned to
sign this Annual Report on its behalf.

                                     MASTELLONE HERMANOS, S.A.



                                     By:      /s/ Pascual Mastellone
                                              ------------------------------
                                              Name:  Pascual Mastellone
                                              Title: Chief Executive Officer





                                     MASTELLONE HERMANOS, S.A.



                                     By:      /s/ Rodolfo D. Gonzalez
                                              --------------------------------
                                              Name:  Pascual Mastellone
                                              Title: Chief Executive Officer


Date:  May 22, 2006