10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended November 30, 2003

OR

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

For the transition period from                      to                     

COMMISSION FILE NUMBER 0-22793

PriceSmart, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0628530
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4649 Morena Boulevard

San Diego, California 92117

(Address of principal executive offices)

(858) 581-4530

(Registrant’s telephone number, including area code)

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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
 Yes ¨ No x

The registrant had 7,362,005 shares of its common stock, par value $.0001 per share, outstanding at December 31, 2003.

PRICESMART, INC.

INDEX TO FORM 10-Q

		Page
PART I—FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
	Consolidated Balance Sheets	19
	Consolidated Statements of Operations	20
	Consolidated Statements of Cash Flows	21
	Consolidated Statements of Stockholders’ Equity	22
	Notes to Consolidated Financial Statements	23
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8
ITEM 4.	CONTROLS AND PROCEDURES	9
PART II—OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	11
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS	11
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	11
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	12
ITEM 5.	OTHER INFORMATION	12
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	17

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The Company’s unaudited consolidated balance sheet as of November 30, 2003, the consolidated balance sheet as of August 31, 2003, the unaudited consolidated statements of operations for the three months ended November 30, 2003 and 2002, the unaudited consolidated statements of cash flows for the three months ended November 30, 2003 and 2002, and the unaudited consolidated statements of stockholders’ equity for the three months ended November 30, 2003 are included elsewhere herein. Also included within are notes to the unaudited consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q contains forward-looking statements concerning PriceSmart’s anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would” and like expressions, and the negative thereof. Forward-looking statements are not guarantees of performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements, including foreign exchange risks, political or economic instability of host countries, and competition as well as those risks described in the Company’s SEC reports, including the risk factors referenced in this Form 10-Q. See “Part II – Item 5 – Factors That May Affect Future Performance.”

The following discussion and analysis compares the results of operations for the quarter ended November 30, 2003 (fiscal 2004) and November 30, 2002 (fiscal 2003), and should be read in conjunction with the consolidated financial statements and the accompanying notes included within.

The Company’s business strategy is to operate warehouse clubs in Latin America, the Caribbean and Asia that sell high quality merchandise at low prices to our members, provide fair wages and benefits to our employees and a fair return to our stockholders.

PriceSmart’s business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation as of November 30, 2003 and 2002, the Company’s ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:

Country/Territory	Number of Warehouse Clubs in Operation (as of November 30, 2002)	Number of Warehouse Clubs in Operation (as of November 30, 2003)	Ownership		Basis of Presentation
Panama	4	4	100	%	Consolidated
Costa Rica	3	3	100	%	Consolidated
Dominican Republic	3	2	100	%	Consolidated
Guatemala	3	2	66	%	Consolidated
Philippines	4	3	52	%	Consolidated
El Salvador	2	2	100	%	Consolidated
Honduras	2	2	100	%	Consolidated
Trinidad	2	2	90	%	Consolidated
Aruba	1	1	90	%	Consolidated
Barbados	1	1	100	%	Consolidated
Guam	1	1	100	%	Consolidated
U.S. Virgin Islands	1	1	100	%	Consolidated
Jamaica	—	1	67.5	%	Consolidated
Nicaragua	—	1	51	%	Consolidated
Totals	27	26
Mexico	2	3	50	%	Equity
Grant Totals	29	29

No warehouse clubs were opened or closed during the first quarter of fiscal 2004. However, the Company did announce the planned closure of its warehouse club in Guam. The last day of operations was December 24, 2003. During the first quarter of fiscal 2003, the Company opened one new U.S.-style membership shopping warehouse club in Alabang, Philippines, and as part of a 50/50

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joint venture with Grupo Gigante, S.A. de C.V. (“Gigante”), the Company also opened two new U.S.-style membership shopping warehouse clubs in Mexico.

At the end of the first quarter of fiscal year 2004, the total number of consolidated warehouse clubs in operation was 26 in 12 countries and two U. S. territories, in comparison to 27 consolidated warehouse clubs in operation in ten countries and two U. S. territories at the end of the first quarter of fiscal year 2003. The average life of the 26 and 27 warehouse clubs in operation at the end of November 30, 2003 and 2002 was 40 and 28 months, respectively.

In addition to the warehouse clubs operated directly by the Company or through joint ventures, there were 14 warehouse clubs in operation (13 in China and one in Saipan, Micronesia), licensed to and operated by local business people, through which the Company primarily earns a licensee fee on a per warehouse club basis, at the end of the first quarter of fiscal 2004, compared to eleven licensed warehouse clubs at the end of the first quarter of fiscal 2003.

COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002

Net warehouse sales decreased 9.1% to $143.7 million in the first quarter of fiscal 2004, from $158.0 million in the first quarter of fiscal 2003. Excluding $4.8 million in wholesale telephone card sales in the Philippines (which began in September 2002 and were discontinued in May 2003), net warehouse sales decreased 6.2% from the comparable period sales of $153.2 million. Management believes net warehouse sales excluding wholesale telephone card sales provides a better measure of ongoing operations and a more meaningful comparison of past and present operating results than total warehouse sales because wholesale phone card sales were only for a limited time, were discontinued in May 2003 and fell outside of the Company’s core business of operating international membership warehouse clubs. The decrease of $9.5 million in net warehouse sales excluding wholesale telephone card sales consists primarily of a decrease of $5.6 million in sales in the Dominican Republic due to the closure of a warehouse club and reduced sales of U.S. sourced merchandise as a result of a currency devaluation of approximately 113% from the first quarter of fiscal 2003, lower sales in certain warehouse clubs operating in Central America as well as the closure of a warehouse club in Guatemala, and lower sales in the Philippines due to the closure of one warehouse club, partially offset by sales from the two new warehouse clubs opened since the end the first quarter of fiscal 2003 and positive sales growth in the warehouse clubs operating in the Caribbean region.

The Company’s warehouse gross profit margins (defined as net warehouse sales less associated cost of goods sold divided by net warehouse sales) in the first quarter of fiscal 2004 decreased to 12.6% from 15.0% in the first quarter of fiscal 2003. The decrease in gross profit margins of 2.4% resulted primarily from decreased gross margins attained period over period in Guam as merchandise markdowns were taken to liquidate inventories in advance of that warehouse club’s closure, the impact of the currency devaluation in the Dominican Republic, overall lower merchandise selling prices to provide increased value to warehouse club members, and reduced margins in order to dispose of slower moving merchandise compared to the same period last year.

Same warehouse club sales, which are for warehouse clubs open at least 12 full months, decreased 9.9% for the 13-week period ended November 30, 2003, compared to the same period last year. Excluding the wholesale telephone card sales, comparative same warehouse club sales decreased 8.4%.

Export sales represent U.S. merchandise exported to the Company’s licensee warehouse operating in Saipan and direct sales to third parties through the Company’s distribution centers, which include sales to PriceSmart Mexico, an unconsolidated affiliate (see “Note 8-Related Party Transactions” in the Notes to Consolidated Financial Statements (unaudited) included within). Export sales in the first quarter of fiscal 2004 were $505,000 compared to $2.6 million in the first quarter of fiscal 2003. The change between periods is primarily due to the elimination of direct sales to third parties from the Company’s distribution centers. Additionally, export sales to PriceSmart Mexico were $262,000 in the first quarter of fiscal year 2004 compared to $970,000 in the first quarter of fiscal year 2003, a period in which the two new warehouse clubs opened by PriceSmart Mexico resulted in high export sales associated with the initial stocking of merchandise at those locations.

Membership fees, which are recognized into income ratably over the one-year life of the membership, were $2.1 million, or $1.5% of net warehouse sales, in the first quarter of fiscal 2004 compared to $2.1 million, or 1.4% of net warehouse sales, in the first quarter of fiscal 2003.

Other income consists of commission revenue, rental income, advertising revenues, construction revenue, vendor promotions and rebates, and fees earned from licensees. Other income, excluding licensee fees, decreased to $1.3 million, or 0.9% of net warehouse sales, in the first quarter of fiscal 2004 from $1.8 million, or 1.1% of net warehouse sales, in the first quarter of fiscal 2003. The decrease in amounts in the current year was primarily related to a decrease in commission revenues, construction management revenues, vendor promotions and ad revenue in the current year. Licensee fees increased to $341,000 in the first quarter of fiscal 2004 from $313,000 in the first quarter of fiscal 2003 due to the opening of three additional licensee warehouse clubs.

Warehouse club operating expenses increased to $20.6 million, or 14.3% of net warehouse sales, in the first quarter of fiscal 2004 from $18.9 million, or 12.0% of net warehouse sales, in the first quarter of fiscal 2003. The increase in operating expenses as a

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percentage of net warehouse sales is primarily attributable to lower net warehouse sales and an increase in utilities, repairs and maintenance, and increased wages in certain warehouse club locations.

General and administrative expenses were $5.2 million, or 3.6% of net warehouse sales, in the first quarter of fiscal 2004 compared to $4.4 million, or 2.8% of net warehouse sales, in the first quarter of fiscal 2003. The increase in general and administrative expense is largely attributable to stock compensation expense related to stock option repricing, which occurred in fiscal year 2003, of $109,000, severance costs of $368,000 related to the Company’s former Chief Financial Officer and a Senior Vice President of Operations both of whom left the Company in the first quarter of 2004, and increases in insurance costs related to workers compensation and directors and officers liability.

Pre-opening expenses, which represent expenses incurred before a warehouse club is in operation, decreased to $10,000 in the first quarter of fiscal 2004 from $576,000 in the first quarter of fiscal 2003. In the current quarter, pre-opening expenses were associated with the planned opening of the fourth site in the Philippines in April 2004. The Company opened one warehouse club during the first quarter of fiscal 2003 in the Philippines, which incurred pre-opening expenses, and incurred costs in that period associated with a warehouse club that was subsequently opened in Jamaica in the third quarter of fiscal 2003.

Interest income primarily reflects earnings on cash and cash equivalents, restricted cash deposits securing long-term debt, marketable securities and certain secured notes receivable from buyers of formerly owned properties. Interest income was $636,000 in the first quarter of fiscal 2004 compared to $705,000 in the first quarter of fiscal 2003. The decrease in interest income primarily relates to lower daily cash balances and lower interest rates throughout the first quarter of fiscal 2004 in comparison to the prior year period.

Interest expense primarily reflects borrowings by the Company’s majority or wholly owned foreign subsidiaries to finance the capital requirements of warehouse club operations and for local currency loans secured by U.S. dollar deposits in the Philippines to lessen foreign exchange risks in that country. Interest expense increased to $2.7 million in the first quarter of fiscal 2004 from $2.5 million in the first quarter of fiscal 2003. The increase is attributable to an increase in the amount of debt held by the Company and its subsidiaries between the periods presented.

Equity of unconsolidated affiliate represents the Company’s 50% share of losses from its Mexico joint venture. The joint venture is accounted for under the equity method of accounting, in which the Company reflects its proportionate share of income or loss of the unconsolidated joint venture’s results from operations.

Minority interest relates to the allocation of the joint venture income or loss to the minority stockholders’ respective interests.

The Company recorded an income tax benefit of $52,000 and an income tax provision of $763,000 for the three months ended November 30, 2003 and 2002, respectively. The current period benefit represents the net effect of income tax expense in certain subsidiaries and income tax credits for those companies generating losses where recoverability of the loss was deemed more likely than not as of August 31, 2003. Due to the current interplay of income and losses within the different subsidiaries, the Company does not believe that the resulting effective tax rate is an adequate measurement tool at this time.

Preferred dividends of $840,000 reflect dividends that accrued but that were not paid on the Company’s preferred stock for the first quarter of fiscal 2004. In fiscal 2002, the Company issued 20,000 shares of Series A Preferred Stock on January 22, 2002, which accrue 8% annual dividends that are cumulative and payable in cash. In fiscal 2003, the Company issued 22,000 shares of Series B Preferred Stock on July 9, 2003, which accrue 8% annual dividends that are cumulative and payable in cash, and are subordinate to the Series A Preferred Stock. On September 5, 2003, the Company determined it would not declare dividends on the preferred stock for the foreseeable future, but the preferred dividends will continue to accrue.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

The Company’s primary capital requirements are the financing of land, construction, equipment costs, pre-opening expenses and working capital requirements associated with new warehouse clubs.

The Company had a negative working capital position as of November 30, 2003 of $18.0 million, compared to a positive working capital position of $15.6 million as of November 30, 2002. The decrease in net working capital of $33.6 million was primarily due to a decrease of cash and marketable securities of $9.6 million, receivables of $9.7 million and inventories of $29.8 million, which were only partially offset by a net decrease in accounts payable and accrued expenses of $28.1 million. Additionally, short-term debt increased $6.9 million.

Net cash flows provided by (used in) operating activities were $(1.6) million and $8.9 million in the first quarters of fiscal 2004 and 2003, respectively. The decrease of $10.5 million is primarily due to results from operating activities.

Net cash used in investing activities was $2.0 million and $13.2 million in the first quarters of fiscal 2004 and 2003, respectively. The decrease in the use of cash of approximately $11.2 million resulted from $4.5 million for capital investment in the Mexico joint

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venture occurring in the first quarter of 2003, and a decrease period over period in additions to property and equipment for new warehouse clubs constructed or under construction of $6.7 million.

Net cash provided by financing activities was $6.0 million and $5.9 million in the first quarters of fiscal 2004 and 2003, respectively. The difference in composition of the underlying movements between periods can mainly be summarized as $7.1 million more in financing from banks in the first quarter of 2003, $5.4 million less in restricted cash used in the first quarter of 2004 and $2.4 more in proceeds from issuance of common stock in the first quarter of 2004.

The Company’s 50% owned Mexico joint venture, accounted for under the equity method of accounting, made capital expenditures in the first quarter of fiscal 2003 totaling $1.7 million towards the construction of the third PriceSmart warehouse club in Mexico. During the first quarter 2003, the Company and Gigante each contributed $4.5 million for a total of $31 million of cumulative capital investment. In the first quarter of 2004, the Company did not make any contributions, and, as of November 30, 2003, the joint venture had approximately $2.25 million of cash on hand.

The Company believes that borrowings under its current and future credit facilities, together with its other sources of liquidity, will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future. However, if such sources of liquidity are insufficient to satisfy the Company’s liquidity requirements, the Company may need to sell equity or debt securities, obtain additional credit facilities or consider alternative financing arrangements. Furthermore, the Company has and will continue to consider sources of capital, including reducing restricted cash and the sale of equity or debt securities to strengthen its financial position and liquidity. There can be no assurance that such financing alternatives will be available under favorable terms, if at all. In addition, some of the Company’s vendors extend trade credit to the Company and allow payment for products upon delivery. If these vendors extend less credit to the Company or require prepayment for products, the Company’s cash requirements and financing needs may increase further.

Financing Activities

On October 22, 2003, an entity affiliated with Robert E. Price, Interim President and Chief Executive Officer, Chairman of the Board of Directors and a significant shareholder of PriceSmart, Inc., and an entity affiliated with Sol Price, a significant stockholder of PriceSmart, Inc., purchased an aggregate of 500,000 shares of PriceSmart’s Common Stock, for an aggregate purchase price of $5.0 million.

On September 5, 2003, the Company determined it would not declare a dividend on the 8% Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) for the fourth quarter of 2003. Also, no dividends can be declared or paid on the 8% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) until full cumulative dividends have been declared and paid on the Series A Preferred Stock. Instead, dividends on the Series A Preferred Stock and the Series B Preferred Stock will accrue in accordance with the terms of the Certificate of Designation for the Series A Preferred Stock and the Series B Preferred Stock.

Short-Term Borrowings and Long-Term Debt

As of November 30, 2003, the Company, through its majority or wholly owned subsidiaries, had $25.7 million outstanding in short-term borrowings through 12 separate facilities, which are secured by certain assets of its subsidiaries and are guaranteed by the Company up to its respective ownership percentage. Each of the facilities expires during the year and typically is renewed. As of November 30, 2003, the Company had approximately $10.1 million available on these facilities.

The Company’s long-term debt is collateralized by certain land, building, fixtures and equipment of each respective subsidiary and guaranteed by the Company up to its respective ownership percentages, except for approximately $28.5 million as of November 30, 2003, which is secured by collateral deposits for the same amount and which deposits are included in restricted cash on the balance sheet.

Under the terms of debt agreements to which the Company and/or one or more of its wholly owned or majority owned subsidiaries are parties, the Company must comply with specified financial maintenance covenants, which include among others, current, debt service, interest coverage and leverage ratios. The Company has obtained waivers or reached agreements with lenders to amend financial covenants for all reported noncompliance as of August 31, 2003 except for the debt service ratio for a $4.9 million note (current amount outstanding $4.3 million), for which the Company has requested, but not yet received, a written waiver. The Company anticipates receiving a written waiver from the lender in due course. As of November 30, 2003, the Company was in compliance with all of these covenants, except for the following: (i) current ratio and cash flow to debt service and projected debt service ratio for a $4.7 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance;

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(ii) debt service ratio for a $4.9 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iii) current ratio and interest cost/EBIT (earnings before interest and taxes) ratio for a $4.7 million note (current outstanding amount $4.5 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iv) interest coverage ratio and total debt/EBITDA (earnings before interest taxes, depreciation and amortization) ratio for a $2.8 million note (current outstanding amount $2.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; (v) debt service ratio, cash coverage ratio, and interest coverage ratio for a $1.7 million note (current outstanding amount $1.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; and (vi) debt to equity ratio and current ratio for a $4.5 million note (current outstanding amount $4.1 million), for which the Company has received a written waiver.

Additionally, the Company has debt agreements, with an aggregate principal amount outstanding as of November 30, 2003 of $30.6 million that, among other things, allow the lender to accelerate the indebtedness upon a default by the Company under other indebtedness and prohibit the Company from incurring additional indebtedness unless the Company is in compliance with specified financial ratios set forth in those debt agreements. As of November 30, 2003, the Company did not satisfy these ratios. As a result, the Company is prohibited from incurring additional indebtedness and would need to obtain a waiver from the lender as a condition to incurring additional indebtedness. If the Company is unsuccessful in obtaining the necessary waivers or fails to comply with these financial covenants in future periods, the lenders may elect to accelerate the indebtedness described above and foreclose on the collateral pledged to secure the indebtedness. In such a case, the Company would need additional financing in order to service or extinguish the indebtedness. Accordingly, to address these potential needs for additional capital, the Company has entered into an agreement with the Sol and Helen Price Trust, a trust affiliated with Sol Price, a significant stockholder of the Company, giving the Company the right to sell all or a portion of specified real property to the Trust at any time on or prior to August 31, 2004 at a price equal to the Company’s net book value for the respective properties and other commercially reasonable terms. The specified real property covers both the land and building at nine warehouse club locations. As of November 30, 2003, the net book value of this real property is approximately $54.2 million with approximately $30.7 million of encumbrances. Under the terms of the agreement, the Company would have the option, but not the obligation, to lease back one or more warehouse club buildings at an annual lease rate equal to 9% of the selling price for the building and other commercially reasonable terms.

The Company has a credit agreement for $7.5 million, which can be used for short-term borrowings or standby letters of credit. As of November 30, 2003, short-term borrowings include $2.5 million and there are $4.4 million of outstanding letters of credit related to this agreement.

Contractual Obligations

As of November 30, 2003, the Company’s commitments to make future payments under long-term contractual obligations were as follows (amounts in thousands):

	Payments Due by Period
Contractual obligations	Total		Less than 1 Year		1 to 3 Years		4 to 5 Years		After 5 Years
Long-term debt	$	109,381	$	14,032	$	35,018	$	25,393	$	34,938
Operating leases		137,034		9,993		18,185		17,305		91,551
Total	$	246,415	$	24,025	$	53,203	$	42,698	$	126,489

Critical Accounting Policies

The preparation of the Company’s financial statements requires that management make estimates and judgments that affect the financial position and results of operations. Management continues to review its accounting policies and evaluate its estimates, including those related to merchandise inventory and impairment of long-lived assets. The Company bases its estimates on historical experience and on other assumptions that management believes to be reasonable under the present circumstances.

Merchandise Inventories: Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or market. The Company provides for estimated inventory losses and obsolescence between physical inventory counts on the basis of a percentage of sales. The provision is adjusted periodically to reflect the trend of actual physical inventory count results, which occur primarily in the second and fourth fiscal quarters.

Impairment of Long-lived Assets: The Company periodically evaluates its long-lived assets for indicators of impairment. Management’s judgments are based on market and operational conditions at the time of the evaluation. Future events could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair market value.

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Future circumstances may result in the Company’s actual future closing costs or the amount recognized upon the sale of the property differing substantially from the estimates.

Stock-Based Compensation: As of November 30, 2003, the Company had four stock-based employee compensation plans. Beginning September 1, 2002, the Company adopted the fair value based method of recording stock options contained in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” which is considered the preferable accounting method for stock-based employee compensation. Beginning September 1, 2002, all future employee stock option grants will be expensed over the stock option vesting period based on the fair value at the date the options are granted. Historically, and through August 31, 2002, the Company had applied Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans.

Basis of Presentation: The consolidated financial statements include the assets, liabilities and results of operations of the Company’s majority and wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company’s 50% owned Mexico joint venture is accounted for under the equity method of accounting.

Accounting Pronouncements

In July 2002, the FASB issued SFAS No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recorded as a liability when incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged. The Company recorded closure costs of approximately $220,000 in the first quarter of fiscal year 2004.

In December 2003, the FASB revised its previously issued FASB Interpretation No. 46 (“Interpretation No. 46”), “Consolidation of Variable Interest Entities.” In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either does not have equity investors with voting rights nor has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The provisions of this interpretation are currently being evaluated, but management believes its adoption will not have a material impact on the Company’s consolidated results of operations, financial position or cash flows. The Company intends to apply this Interpretation no later than the quarter ended May 31, 2004.

Emerging Issues Task Force Issue No. 02-16 (“EITF 02-16”), “Accounting by a Customer (Including a Reseller) for Certain Consideration Received by a Vendor,” addresses how a reseller should account for cash consideration received from a vendor. Under this provision, effective for arrangements entered into or modified after December 31, 2002, cash consideration received from a vendor is generally presumed to be a reduction of the prices of the vendor’s products and, therefore, should be characterized as a reduction of these costs. The adoption of the provisions of EITF 02-16 did not result in any changes in the Company’s reported net income, but certain consideration which had been classified as other income in prior years is now reflected as a reduction of cost of sales. As permitted by the transition provisions of EITF 02-16, other income and cost of sales in prior periods have been reclassified to conform to the current period presentation. This resulted in a decrease in other income and an offsetting decrease in net warehouse cost of goods sold of $17,000 and $580,000 in the quarters ended November 30, 2003 and 2002, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, through its majority or wholly owned subsidiaries, conducts foreign operations primarily in Latin America, the Caribbean and Asia, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. As of November 30, 2003, the Company had a total of 26 consolidated warehouse clubs operating in 12 foreign countries and two U.S. territories (excluding the three warehouse clubs owned in Mexico through its 50/50 joint venture). Eighteen of the 26 warehouse clubs operate under foreign currencies other than the U.S. dollar. For the quarters ended November 30, 2003 and 2002, approximately 76% and 74%, respectively, of the Company’s net warehouse sales were in foreign currencies. The Company expects to enter into or expand within additional foreign countries in the future, which may increase the percentage of net warehouse sales denominated in foreign currencies.

The Company may enter into additional foreign countries in the future or open additional locations in existing countries, which may involve similar economic and political risks as well as challenges that are different from those currently encountered by the Company. Foreign currencies in most of the countries where the Company operates have historically devalued against the U. S. dollar and are expected to continue to devalue. For example, the Dominican Republic experienced a currency devaluation of approximately 113% between the quarter ended November 30, 2002 and the quarter ended November 30, 2003. There can be no assurance that the

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Company will not experience any other materially adverse effect on the Company’s business, financial condition, operating results, cash flow or liquidity from currency devaluations in other countries as a result of the economic and political risks of conducting an international merchandising business.

Translation adjustments from the Company’s non-U.S. denominated majority or wholly owned subsidiaries resulting from the translation of the assets and liabilities of the subsidiaries into U. S. dollars were $1.1 million and $7.7 million for the quarter and year ended November 30, 2003 and August 31, 2003, respectively.

Foreign currencies in most of the countries where the Company operates have historically devalued against the U.S. dollar and are expected to continue to devalue. The Company manages foreign currency risks at times by hedging currencies through non-deliverable forward exchange contracts, or NDFs, that are generally for durations of six months or less and that do not provide for physical exchange of currency at maturity (only the resulting gain or loss). However, due to the volatility and lack of derivative financial instruments in the countries in which the Company operates, significant risk from devaluation of local currencies exists. There were no NDFs during the periods presented. Foreign exchange transaction losses, which are included as a part of the costs of goods sold in the consolidated statement of operations, were approximately $1.2 million and $268,000 for the three months ended November 30, 2003 and 2002, respectively.

The following is a listing of each country or territory where the Company currently operates or anticipates operating in and their respective currencies, as of November 30, 2003:

Country/Territory	Number of Warehouse Clubs in Operation	Anticipated Warehouse Club Openings in Fiscal 2004	Currency
Panama	4	—	U.S. Dollar
Costa Rica	3	—	Costa Rican Colon
Philippines	3	1	Philippine Peso
Mexico*	3	—	Mexican Peso
Dominican Republic	2	—	Dominican Republic Peso
Guatemala	2	—	Guatemalan Quetzal
El Salvador	2	—	U.S. Dollar
Honduras	2	—	Honduran Lempira
Trinidad	2	—	Trinidad Dollar
Aruba	1	—	Aruba Florin
Barbados	1	—	Barbados Dollar
Guam	1	—	U.S. Dollar
U.S. Virgin Islands	1	—	U.S. Dollar
Jamaica	1	—	Jamaican Dollar
Nicaragua	1	—	Nicaragua Cordoba Oro
Totals	29	1

^* Warehouse clubs are operated through a 50/50 joint venture, which is accounted for under the equity method.

The Company is exposed to changes in interest rates on various debt facilities. A hypothetical 100 basis point adverse change in interest rates along the entire interest rate yield curve could adversely affect the Company’s pretax net loss (excluding any minority interest impact) by approximately $615,000 on an annualized basis.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Interim Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on the

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foregoing, its Interim Chief Executive Officer and Chief Financial Officer determined that disclosure controls and procedures were effective at a reasonable assurance level.

During the fiscal quarter, the Company implemented remedial measures to address material weaknesses in internal controls previously identified by Ernst & Young LLP in connection with its audit of fiscal year 2003. Management believes these measures materially improved its internal controls over financial reporting during the quarter. Actions taken included the replacement of management, including senior management, with responsibility for functions where control issues were noted, hiring a new controller in the Philippines, the appointment of an interim Chief Financial Officer to oversee the accounting activities in the quarter, the engagement of a financial consultant to support the interim Chief Financial Officer, and generally heightened scrutiny by the Company’s management and finance and accounting departments related to revenue recognition issues and financial reporting in all of the Company’s geographic segments. The Company believes the measures it has taken and additional measures it continues to implement are reasonable likely to have a material, positive impact on its internal controls over financial reporting in future periods.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company and its subsidiaries are subject to legal proceedings and claims in the ordinary course of business, including those identified below. The Company evaluates such matters on a case by case basis, and vigorously contests any such legal proceedings or claims which the Company believes are without merit.

On November 10, 2003, the Company announced it would be restating its financial statements for the fiscal year ending August 31, 2002 and for the nine months ending May 31, 2003. Subsequent to the announcement, seven separate class action complaints have been filed against the Company and certain of its current and former directors and officers in the United States District Court for the Southern District of California for alleged violations of federal securities laws. The complaints purport to be class actions on behalf of purchasers of the Company’s common stock (with one complaint also filed on behalf of purchasers of the Series A preferred stock in a January 2002 private placement) between December 20, 2001 and November 7, 2003 with respect to all but one of the purported class action complaints and between November 1, 2001 and November 7, 2003 with respect to the complaint that also addresses the Series A preferred stock, and seek damages, rescission (in the case of the Series A preferred stock) and attorney’s fees.

On December 5, 2003, a shareholder derivative complaint was filed against the Company as a nominal defendant, the members of the Company’s Board of Directors, two former officers and three current officers in the Superior Court of the State of California, County of San Diego. The derivative complaint purportedly alleges claims for breach of fiduciary duty, abuse of control, gross mismanagement, wasted corporate assets, unjust enrichment and violations of the California Corporations Code.

The Company believes that the ultimate resolution of any such legal proceedings or claims will not have a material adverse effect on its business, financial condition, operating results, cash flow or liquidity. However, such matters are inherently unpredictable and it is possible that the ultimate outcome could have a material adverse effect on its business, financial condition, operating results, cash flow or liquidity in any particular period by the resolution of one or more of these contingencies.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

On October 22, 2003, the Company sold 500,000 shares of the Company’s common stock, for an aggregate purchase price of $5.0 million, to an entity affiliated with Robert E. Price, Interim President and Chief Executive Officer, Chairman of the Board of Directors and a significant stockholder of PriceSmart, and an entity affiliated with Sol Price, a significant stockholder of PriceSmart, in a private placement pursuant to Rule 506 under the Securities Act of 1933, as amended. In connection with the sale, each of the purchasers represented to the Company that it is an accredited investor, the shares were acquired for its own account and not with a view to any distribution thereof to the public, and to the absence of general solicitation or advertising. In addition, the Company affixed appropriate legends to the share certificates.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Under the terms of debt agreements to which the Company and/or one or more of its wholly owned or majority owned subsidiaries are parties, the Company must comply with specified financial maintenance covenants, which include among others, current, debt

11

service, interest coverage and leverage ratios. The Company has obtained waivers or reached agreements with lenders to amend financial covenants for all reported noncompliance as of August 31, 2003 except for the debt service ratio for a $4.9 million note (current amount outstanding $4.3 million), for which the Company has requested, but not yet received, a written waiver. The Company anticipates receiving a written waiver from the lender in due course. As of November 30, 2003, the Company was in compliance with all of these covenants, except for the following: (i) current ratio and cash flow to debt service and projected debt service ratio for a $4.7 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (ii) debt service ratio for a $4.9 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iii) current ratio and interest cost/EBIT (earnings before interest and taxes) ratio for a $4.7 million note (current outstanding amount $4.5 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iv) interest coverage ratio and total debt/EBITDA (earnings before interest taxes, depreciation and amortization) ratio for a $2.8 million note (current outstanding amount $2.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; (v) debt service ratio, cash coverage ratio, and interest coverage ratio for a $1.7 million note (current outstanding amount $1.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; and (vi) debt to equity ratio and current ratio for a $4.5 million note (current outstanding amount $4.1 million), for which the Company has received a written waiver.

Additionally, the Company has debt agreements, with an aggregate principal amount outstanding as of November 30, 2003 of $30.6 million that, among other things, allow the lender to accelerate the indebtedness upon a default by the Company under other indebtedness and prohibit the Company from incurring additional indebtedness unless the Company is in compliance with specified financial ratios set forth in those debt agreements. As of November 30, 2003, the Company did not satisfy these ratios. As a result, the Company is prohibited from incurring additional indebtedness and would need to obtain a waiver from the lender as a condition to incurring additional indebtedness. If the Company is unsuccessful in obtaining the necessary waivers or fails to comply with these financial covenants in future periods, the lenders may elect to accelerate the indebtedness described above and foreclose on the collateral pledged to secure the indebtedness. In such a case, the Company would need additional financing in order to service or extinguish the indebtedness. Accordingly, to address these potential needs for additional capital, the Company has entered into an agreement with the Sol and Helen Price Trust, a trust affiliated with Sol Price, a significant stockholder of the Company, giving the Company the right to sell all or a portion of specified real property to the Trust at any time on or prior to August 31, 2004 at a price equal to the Company’s net book value for the respective properties and other commercially reasonable terms. The specified real property covers both the land and building at nine warehouse club locations. As of November 30, 2003, the net book value of this real property is approximately $54.2 million with approximately $30.7 million of encumbrances. Under the terms of the agreement, the Company would have the option, but not the obligation, to lease back one or more warehouse club buildings at an annual lease rate equal to 9% of the selling price for the building and other commercially reasonable terms.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

Factors That May Affect Future Performance

The Company had a substantial net loss in fiscal 2003, a net loss in the first quarter of 2004, and may continue to incur losses in future periods. The Company incurred net losses available to common stockholders of approximately $32.1 million in fiscal 2003, including asset impairment and closing cost charges of approximately $11.7 million, and approximately $6.9 million in the first quarter of 2004, including $220,000 of closing charges, and expects to incur additional net losses in fiscal 2004. The Company is seeking ways to improve sales, margins, expense controls, and inventory management in an effort to return the Company to profitability. However, if these efforts fail to adequately reduce costs, or if the Company’s sales are less than it projects, the Company may continue to incur losses in future periods.

The Company believes it may not have adequate cash to meet its operating and capital needs for fiscal 2004. The Company has estimated the timing and amounts of cash receipts and disbursements during fiscal 2004, and it believes it will have adequate cash to meet its operating and capital needs for fiscal 2004. However, if its assumptions about cash generation and usage are incorrect, the Company may be forced to withhold payment to its lenders and others and to file for bankruptcy protection. If the Company is forced to seek bankruptcy protection because of its inability to make required payments, the Company’s common stock may become worthless and an investment in the common stock would be lost.

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At November 30, 2003, the Company had cash of $18.9 million, and its net working capital was in a deficit position of $18.0 million. The Company has developed plans to manage its cash resources that include controlling expenditures and timely and effective management of its inventory and other asset procurements. The Company also continues to pursue other financing alternatives. However, the Company may not obtain additional financing on terms that are acceptable to the Company, or at all.

Under the terms of debt agreements to which the Company and/or one or more of its wholly owned or majority owned subsidiaries are parties, the Company must comply with specified financial maintenance covenants, which include among others, current, debt service, interest coverage and leverage ratios. The Company has obtained waivers or reached agreements with lenders to amend financial covenants for all reported noncompliance as of August 31, 2003 except for the debt service ratio for a $4.9 million note (current amount outstanding $4.3 million), for which the Company has requested, but not yet received, a written waiver. The Company anticipates receiving a written waiver from the lender in due course. As of November 30, 2003, the Company was in compliance with all of these covenants, except for the following: (i) current ratio and cash flow to debt service and projected debt service ratio for a $4.7 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (ii) debt service ratio for a $4.9 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iii) current ratio and interest cost/EBIT (earnings before interest and taxes) ratio for a $4.7 million note (current outstanding amount $4.5 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iv) interest coverage ratio and total debt/EBITDA (earnings before interest taxes, depreciation and amortization) ratio for a $2.8 million note (current outstanding amount $2.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; (v) debt service ratio, cash coverage ratio, and interest coverage ratio for a $1.7 million note (current outstanding amount $1.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; and (vi) debt to equity ratio and current ratio for a $4.5 million note (current outstanding amount $4.1 million), for which the Company has received a written waiver. The Company also has $30.6 million of indebtedness outstanding that allows the lender to accelerate the indebtedness upon a default by the Company under other indebtedness.

If the Company fails to comply with the covenants governing its indebtedness, the lenders may elect to accelerate the Company’s indebtedness and foreclose on the collateral pledged to secure the indebtedness. In addition, if the Company fails to comply with the covenants governing its indebtedness, the Company may need additional financing in order to service or extinguish the indebtedness. Some of the Company’s vendors also extend trade credit to the Company and allow payment for products upon delivery. If these vendors extend less credit to the Company or require prepayment for products, the Company’s cash requirements and financing needs may further increase. The Company may not be able to obtain financing or refinancing on terms that are acceptable to the Company, or at all.

The Company’s financial performance is dependent on international operations, which exposes it to various risks. The Company’s international operations account for nearly all of the Company’s total sales. The Company’s financial performance is subject to risks inherent in operating and expanding the Company’s international membership business, which include: (i) changes in tariffs and taxes, (ii) the imposition of foreign and domestic governmental controls, (iii) trade restrictions, (iv) greater difficulty and costs associated with international sales and the administration of an international merchandising business, (v) thefts and other crimes, (vi) limitations on U.S. company ownership in foreign countries, (vii) product registration, permitting and regulatory compliance, (viii) volatility in foreign currency exchange rates, (ix) the financial and other capabilities of the Company’s joint venturers and licensees, and (x) general political as well as economic and business conditions.

Any failure by the Company to manage its growth could adversely affect the Company’s business. The Company began an aggressive growth strategy in April 1999, opening 20 new warehouse clubs over a two and a half year period, resulting in a total of 22 warehouse clubs operating in ten countries and one U.S. territory at the end of fiscal 2001 (12 months ended August 31, 2001). The Company also opened four additional new warehouse clubs in fiscal 2002 and six additional new warehouse clubs in fiscal 2003, three of which were opened through the Company’s 50/50 joint venture, resulting in a total of 32 new warehouse clubs (before recent closures) operating in 13 countries and two U.S. territories since 1999. The Company did not open any new warehouse clubs in the first quarter of 2004. The Company anticipates opening one new warehouse club in the third quarter of fiscal 2004 in Aseana City, Metropolitan Manila, Philippines.

The Company’s warehouse club on the east side of Santo Domingo, Dominican Republic was closed on June 15, 2003. Also, the Company closed a warehouse club operating in the Philippines, in Pasig City, Metropolitan Manila, on August 3, 2003 and closed a warehouse club operating in Guatemala City, Guatemala on August 15, 2003. As of November 30, 2003, the Company had in operation 26 consolidated warehouse clubs in 12 countries and two U.S. territories (four in Panama; three each in Costa Rica and the Philippines; two each in the Dominican Republic, El Salvador, Guatemala, Honduras and Trinidad; and one each in Aruba, Barbados, Guam, Jamaica, Nicaragua and the United States Virgin Islands). In the first quarter of fiscal 2004, the Company announced that it would be closing its warehouse club currently operating in Guam. The last day of operations was December 24, 2003. Management continually evaluates individual warehouse club performance, and additional warehouse club closures may occur.

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The success of the Company’s strategy will depend to a significant degree on the Company’s ability to (i) efficiently operate warehouse clubs on a profitable basis and (ii) maintain positive comparable warehouse club sales growth in the applicable markets. In addition, the Company will need to continually evaluate the adequacy of the Company’s existing systems and procedures, including warehouse management, financial and inventory control and distribution channels and systems. Moreover, the Company will be required to continually analyze the sufficiency of the Company’s inventory distribution methods and may require additional facilities in order to support the Company’s operations. The Company may not adequately anticipate all the changing demands that will be imposed on these systems. The Company’s failure to update the Company’s internal systems or procedures as required could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company’s auditors have indicated to the Company that they believe there were material weaknesses in the Company’s internal controls for the year ended August 31, 2003. In connection with the completion of its audit of, and the issuance of an unqualified report on the Company’s financial statements for the year ended August 31, 2003, Ernst & Young LLP advised the Company that it plans to deliver a management letter identifying deficiencies that existed in the design or operation of the Company’s internal controls that it considers to be material weaknesses in the effectiveness of the Company’s internal controls pursuant to standards established by the American Institute of Certified Public Accountants. The deficiencies to be reported by Ernst & Young LLP are that the Company’s internal controls relating to revenue recognition did not function properly to prevent the recordation of net warehouse sales that failed to satisfy the requirements of SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” and the Company’s internal controls failed to identify that the Philippines and Guam subsidiaries failed to perform internal control functions to reconcile their accounting records to supporting detail on a timely basis. These material control weaknesses were identified during fiscal 2003 by the Company and brought to the attention of Ernst & Young LLP and the Audit Committee of the Company’s Board of Directors.

The Company has taken steps to strengthen control processes in order to identify and rectify past accounting errors and to prevent the situations that resulted in the need to restate prior period financial statements from recurring. These measures may not completely eliminate the material weaknesses in the Company’s internal controls identified to the Company by Ernst & Young LLP, and the Company may have additional material weaknesses or significant deficiencies in its internal controls that neither Ernst & Young LLP nor the Company’s management has yet identified. The existence of one or more material weaknesses or significant deficiencies could result in errors in the Company’s consolidated financial statements, and substantial costs and resources may be required to rectify any internal control deficiencies.

The Company is currently defending several stockholder lawsuits. Following the announcement of the restatement of its financial results, the Company has received notice of seven class action lawsuits filed against it and certain of its current and former directors and officers purportedly brought on behalf of certain of its current and former holders of the Company’s common stock and Series A preferred stock. These suits generally allege that the Company issued false and misleading statements during fiscal years 2002 and 2003 in violation of federal securities laws. If the Company chooses to settle these suits without going to trial, it may be required to pay the plaintiffs a substantial sum in the form of damages. Alternatively, if these cases go to trial and the Company is ultimately adjudged to have violated federal securities laws, the Company may incur substantial losses as a result of an award of damages to the plaintiffs. In addition, the Company is party to a stockholder derivative suit purportedly brought on the Company’s own behalf against its current and former directors and officers, alleging among other things, breaches of fiduciary duty. The same complaint also alleges that various officers and directors violated California insider trading laws when they sold shares of the Company’s stock in 2002 because of their alleged knowledge of the accounting issues that caused the restatement. The indemnification provisions contained in the Company’s Certificate of Incorporation and indemnification agreements between the Company and its current and former directors and officers require the Company to indemnify its current and former directors and officers who are named as defendants against the allegations contained in these suits unless the Company determines that indemnification is unavailable because the applicable current or former director or officer failed to meet the applicable standard of conduct set forth in those documents. While the Company has directors and officers liability insurance (subject to a $1.0 million retention), it is uncertain whether the insurance will be sufficient to cover all damages that the Company may be required to pay. Further, regardless of insurance coverage and the ultimate outcome of these suits, litigation of this type is expensive and will require that the Company devote substantial resources and management attention to defend these proceedings. Moreover, the mere presence of these lawsuits may materially harm the Company’s business and reputation.

The Company expects to incur substantial legal and other professional service costs. The Company has and will continue to incur substantial legal and other professional service costs in connection with the stockholder lawsuits and responding to the inquiries of the SEC. The amount of any future costs in this respect cannot be determined at this time.

The Company faces significant competition. The Company’s international merchandising businesses compete with exporters, wholesalers, other membership merchandisers, local retailers and trading companies in various international markets. Some of the Company’s competitors may have greater resources, buying power and name recognition. There can be no assurance that the Company’s competitors will not decide to enter the markets in which the Company operates, or expects to enter, or that the Company’s existing

14

competitors will not compete more effectively against the Company. The Company may be required to implement price reductions in order to remain competitive should any of the Company’s competitors reduce prices in any of the Company’s markets. Moreover, the Company’s ability to operate profitably in new markets, particularly small markets, may be adversely affected by the existence or entry of competing warehouse clubs or discount retailers.

The Company faces difficulties in the shipment of and inherent risks in the importation of merchandise to its warehouse clubs. The Company’s warehouse clubs import approximately 50% of the inventories that they sell, which originate from varying countries and are transported over great distances, typically over water, which results in: (i) substantial lead times needed between the procurement and delivery of product, thus complicating merchandising and inventory control methods, (ii) the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods, (iii) product markdowns as a result of it being cost prohibitive to return merchandise upon importation, (iv) product registration, tariffs, customs and shipping regulation issues in the locations the Company ships to and from, and (v) substantial ocean freight and duty costs. Moreover, each country in which the Company operates has differing governmental rules and regulations regarding the importation of foreign products. Changes to the rules and regulations governing the importation of merchandise may result in additional delays or barriers in the Company’s deliveries of products to its warehouse clubs or product it selects to import. For example, most of the countries in which the Company’s warehouse clubs are located have banned the importation of U.S. beef because of concerns about Bovine Spongiform Encephalopathy (BSE), commonly referred to as “mad cow disease.” As a result of this ban, the Company may experience losses on product that was in transit to these countries because of spoilage. In addition, future sales of U.S. beef may be impaired for the duration of these bans and may continue following the lifting of these bans because of perceptions about the safety of U.S. beef among people living in these countries. In addition, only a limited number of transportation companies service the Company’s regions. The inability or failure of one or more key transportation companies to provide transportation services to the Company, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or the importation of products, or any other disruption in the Company’s ability to transport the Company’s merchandise could have a material adverse effect on the Company’s business, financial condition and results of operations.

The success of the Company’s business requires effective assistance from local business people with whom the Company has established strategic relationships. Several of the risks associated with the Company’s international merchandising business may be within the control (in whole or in part) of local business people with whom it has established formal and informal strategic relationships or may be affected by the acts or omissions of these local business people. For example, the Company had a relationship with one of its minority interest shareholders in the Philippines, under which it previously utilized the minority shareholder’s importation and exportation businesses for the movement of merchandise inventories both to and from the Asian regions to its warehouse clubs operating in Asia. In some cases, these local business people previously held minority interests in joint venture arrangements and now hold shares of the Company’s common stock. No assurances can be provided that these local business people will effectively help the Company in their respective markets. The failure of these local business people to assist the Company in their local markets could harm the Company’s business, financial condition and results of operations.

Also, the Company has an agreement with Banca Promerica and Banco Promerica (collectively “Promerica”) in which the Company and Promerica have issued co-branded credit cards, used primarily in its Latin American segment, that do not require the Company to pay credit card processing fees associated with the use of these cards in its warehouse clubs. Edgar Zurcher, who is a director of the Company, is also Chairman of the Board of Banca Promerica (Costa Rica) and is also a director of Banco Promerica (El Salvador). If, for any reason, the Company were unable to continue to offer the co-branded credit card, the result would be an increase in the Company’s costs and potentially a negative effect on sales.

The Company is exposed to weather and other risks associated with international operations. The Company’s operations are subject to the volatile weather conditions and natural disasters such as earthquakes, typhoons and hurricanes, which are encountered in the regions in which the Company’s warehouse clubs are located or are planned to be located, and which could result in delays in construction or result in significant damage to, or destruction of, the Company’s warehouse clubs. For example, in the past, the Company’s two warehouse clubs in El Salvador have experienced minimal inventory loss and disruption of their businesses as a result of earthquakes that have occurred. Also, in the past, the Company’s warehouse club in Guam experienced typhoons that resulted in minimal business interruptions and property losses. Losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on the Company’s business, financial condition and results of operations.

Further declines in the economies of the countries in which the Company operates its warehouse clubs would harm its business. The success of the Company’s operations depends to a significant extent on a number of factors that affect discretionary consumer spending, including employment rates, business conditions, consumer spending patterns and customer preferences and other economic factors in each of the Company’s foreign markets. Adverse changes in these factors, and the resulting adverse impact on discretionary consumer spending, would affect the Company’s growth, sales and profitability. In Latin America and Southeast Asia, in particular, several countries are suffering recessions and economic instability. As a result, sales, gross profit margins and membership renewals have been negatively impacted in the current year, and in the event these factors continue, sales, gross profit margins and membership renewals may continue to be adversely affected. In addition, a worsening of these economies may lead to increased governmental ownership or regulation of the economy, higher interest rates, increased barriers to entry such as higher tariffs and taxes, and reduced

15

demand for goods manufactured in the United States. Any further decline in the national or regional economies of the foreign countries in which the Company currently operates, or will operate in the future, could have a material adverse effect on the Company’s business, financial condition and results of operations.

A few of the Company’s stockholders have substantial control over the Company’s voting stock, which may make it difficult to complete some corporate transactions without their support and may prevent a change in control. As of November 30, 2003, Robert E. Price, who is the Company’s Interim President and Chief Executive Officer and Chairman of the Board, and Sol Price, a significant stockholder of the Company and father of Robert E. Price, beneficially owned approximately 47.1% of the Company’s outstanding common stock and approximately 8.3% of the Company’s outstanding shares of Series A Preferred Stock, which is convertible, at the holder’s option, into approximately 1% of the Company’s outstanding common stock. In addition, Messrs. R. Price and S. Price beneficially owned all of the Company’s outstanding Series B Preferred Stock, which is convertible, at the holder’s option, into approximately 13.0% of the Company’s outstanding common stock. As a result, these stockholders may effectively control the outcome of all matters submitted to the Company’s stockholders for approval, including the election of directors. In addition, this ownership could discourage the acquisition of the Company’s common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of the Company’s common stock.

The loss of key personnel could harm the Company’s business. The Company depends to a large extent on the performance of its senior management team and other key employees, such as U.S. ex-patriots in certain locations where the Company operates, for strategic business direction. The loss of the services of any members of the Company’s senior management or other key employees could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company is subject to volatility in foreign currency exchange. The Company, primarily through majority or wholly owned subsidiaries, conducts operations primarily in Latin America, the Caribbean and Asia, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. As of November 30, 2003, the Company had a total of 26 consolidated warehouse clubs operating in 12 foreign countries and two U.S. territories, 18 of which operate under currencies other than the U.S. dollar. For the three months ended November 30, 2003, approximately 76% of the Company’s net warehouse sales were in foreign currencies. Also, as of November 30, 2003, the Company had three warehouse clubs in Mexico, through a 50/50 joint venture accounted for under the equity method of accounting, which operate under the Mexican Peso. The Company may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net warehouse sales denominated in foreign currencies.

Foreign currencies in most of the countries where the Company operates have historically devalued against the U.S. dollar and are expected to continue to devalue. For example, the Dominican Republic experienced a currency devaluation of 113% between the quarter ended November 30, 2002, and the quarter ended November 30, 2003. The Company manages foreign currency risks at times by hedging currencies through non-deliverable forward exchange contracts (“NDFs”) that are generally for durations of six months or less and that do not provide for physical exchange of currency at maturity (only the resulting gain or loss). However, due to the volatility and lack of derivative financial instruments in the countries in which the Company operates, significant risk from unexpected devaluation of local currencies exists. There were no NDFs during the periods presented. Foreign exchange transaction losses realized, including repatriation of funds, which are included as a part of the costs of goods sold in the consolidated statement of operations, for the three months ended November 30, 2003 and 2002, were approximately $1.2 million and $268,000, respectively.

The Company faces the risk of exposure to product liability claims, a product recall and adverse publicity. The Company markets and distributes products, including meat, dairy and other food products, from third-party suppliers, which exposes the Company to the risk of product liability claims, a product recall and adverse publicity. For example, the Company may inadvertently redistribute food products that are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at the foodservice or consumer level. The Company generally seeks contractual indemnification and insurance coverage from its suppliers. However, if the Company does not have adequate insurance or contractual indemnification available, product liability claims relating to products that are contaminated or otherwise harmful could have a material adverse effect on the Company’s ability to successfully market its products and on the Company’s business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that the Company’s products caused illness or injury could have a material adverse effect on the Company’s reputation with existing and potential customers and on the Company’s business, financial condition and results of operations.

The adoption of the Financial Accounting Standards Board Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” could adversely affect the Company’s future results of operations and financial position. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets,” which was adopted by the Company, effective September 1, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statement. As of August 31, 2002, the Company had goodwill valued at approximately $23.1 million. The Company performed its impairment test of the goodwill as of August 31, 2003, and no impairment losses were recorded. In the future, the Company will test for impairment at least

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annually. Such tests may result in a determination that these assets have been impaired. If at any time the Company determines that an impairment has occurred, the Company will be required to reflect the impaired value as a part of operating income, resulting in a reduction in earnings in the period such impairment is identified and a corresponding reduction in the Company’s net asset value. A material reduction in earnings resulting from such a charge could cause the Company to fail to be profitable in the period in which the charge is taken or otherwise to fail to meet the expectations of investors and securities analysts, which could cause the price of the Company’s stock to decline.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

10.1	Common Stock Purchase Agreement by and Among PriceSmart, Inc. and the Investors Listed on Exhibit A Attached Thereto, dated as of October 22, 2003.
10.2	Loan Agreement between Banco Bilboa Vizcaya Argentaria (Panama), S.A. and PriceSmart Panama, S.A. dated March 31, 2003 for $3.0 million. (English Translation)
10.3	Loan Agreement between Citibank, NA Sucursal Guatemala and PriceSmart Guatemala, S.A. dated March 1, 2003 for 18,063,750 quetzales. (English Translation)
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

(b) Reports on Form 8-K:

On September 5, 2003, the Company filed a Form 8-K under Item 5 announcing the appointment of James Cahill as Interim Chief Financial Officer.

On November 12, 2003, the Company filed a Form 8-K under Item 5 announcing the issuance of a press release regarding the restatement of the Company’s financial statements for fiscal 2002 and the first three quarters of fiscal 2003, and the reporting of certain fourth quarter and fiscal year 2003 anticipated results.

17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PRICESMART, INC.
Date: January 14, 2004	By:	/s/    ROBERT E. PRICE
		Robert E. Price Interim Chief Executive Officer

Date: January 14, 2004	By:	/s/    JOHN M. HEFFNER
		John M. Heffner Chief Financial Officer

18

PRICESMART, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

	November 30, 2003			August 31, 2003
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	18,869		$	17,722
Receivables, net of allowance for doubtful accounts of $772 and $698, respectively		5,466			5,970
Receivables from unconsolidated affiliate		1,169			1,086
Merchandise inventories		74,126			73,668
Prepaid expenses and other current assets		6,677			8,004
Income tax receivable		1,648			1,331
Total current assets		107,955			107,781
Restricted cash		32,139			32,129
Property and equipment, net		184,764			186,027
Goodwill, net		23,071			23,071
Deferred tax assets		16,760			16,502
Other assets		8,432			8,579
Investment in unconsolidated affiliate		16,591			16,996
TOTAL ASSETS	$	389,712		$	391,085
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	25,652		$	20,086
Accounts payable		67,688			68,504
Accrued salaries and benefits		4,145			3,556
Deferred membership income		4,185			4,080
Other accrued expenses		10,390			9,142
Long-term debt, current portion		13,862			14,426
Total current liabilities		125,922			119,794
Deferred rent		957			968
Accrued closure costs		3,082			3,128
Long-term debt, net of current portion		95,519			99,616
Total liabilities		225,480			223,506
Minority interest		7,647			8,160
Commitment and contingencies		—			—
STOCKHOLDERS’ EQUITY:
Preferred stock, $.0001 par value (stated at cost), 2,000,000 shares authorized;
Series A convertible preferred stock– 20,000 shares designated, 20,000 shares issued and outstanding (liquidation preference of $20,667 and $20,267, respectively)		19,914			19,914
Series B convertible preferred stock– 30,000 shares designated, 22,000 shares issued and outstanding (liquidation preference of $22,694 and $22,254, respectively)		21,975			21,983
Common stock, $.0001 par value, 15,000,000 shares authorized; 7,775,655 and 7,285,563 shares issued, respectively		1			1
Additional paid-in capital		169,106			164,120
Tax benefit from exercise of stock options		3,379			3,379
Notes receivable from stockholders		(467	)		(685	)
Deferred compensation		(1,260	)		(1,314	)
Accumulated other comprehensive loss		(15,125	)		(14,022	)
Accumulated deficit		(31,541	)		(24,560	)
Less: treasury stock at cost; 413,650 shares		(9,397	)		(9,397	)
Total stockholders’ equity		156,585			159,419
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	389,712		$	391,085

See accompanying notes.

19

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED—AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended November 30,
	2003			2002
Revenues:
Sales:
Net warehouse	$	143,741		$	158,040
Export		505			2,576
Membership income		2,113			2,146
Other income		1,600			2,116
Total revenues		147,959			164,878
Operating expenses:
Cost of goods sold:
Net warehouse		125,623			133,820
Export		514			2,443
Selling, general and administrative:
Warehouse operations		20,576			18,896
General and administrative		5,166			4,388
Preopening expenses		10			576
Closure costs		220			—
Total operating expenses		152,109			160,123
Operating income (loss)		(4,150	)		4,755
Other income (expense):
Interest income		636			705
Interest expense		(2,696	)		(2,500	)
Other income (expense)		(91	)		10
Equity in loss of unconsolidated affiliate		(404	)		(765	)
Minority interest		512			(4	)
Total other expense		(2,043	)		(2,554	)
Income (loss) before provision (benefit) for income taxes		(6,193	)		2,201
Provision (benefit) for income taxes		(52	)		763
Net income (loss)		(6,141	)		1,438
Preferred dividends		840			400
Net income (loss) available to common stockholders	$	(6,981	)	$	1,038
Earnings (loss) per share – common stockholders:
Basic	$	(0.99	)	$	0.15
Fully diluted	$	(0.99	)	$	0.15
Shares used in per share computation:
Basic		7,079			6,846
Fully diluted		7,079			6,970

See accompanying notes.

20

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED—AMOUNTS IN THOUSANDS)

	Three Months Ended November 30,
	2003			2002
OPERATING ACTIVITIES:
Net income (loss)	$	(6,141	)	$	1,438
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		3,423			3,851
Allowance for doubtful accounts		74			(22	)
Deferred income taxes		(258	)		1,143
Minority interest		(512	)		4
Equity in losses of unconsolidated affiliate		404			758
Compensation expense recognized for stock options		134			25
Cancellation of note receivable from stockholder		114			—
Change in operating assets and liabilities:
Change in accounts receivable, prepaids, other current assets, accrued salaries, deferred membership and other accruals		2,403			(8,643	)
Merchandise inventory		(458	)		(24,676	)
Accounts payable		(816	)		35,010
Net cash flows provided by (used in) operating activities		(1,633	)		8,888
INVESTING ACTIVITIES:
Additions to property and equipment		(2,014	)		(8,739	)
Investment in unconsolidated affiliate		—			(4,500	)
Net cash flows used in investing activities		(2,014	)		(13,239	)
FINANCING ACTIVITIES:
Proceeds from bank borrowings		23,906			24,495
Repayment of bank borrowings		(23,001	)		(16,469	)
Issuance of common stock		5,000			—
Restricted cash		(10	)		(5,397	)
Dividends on convertible preferred stock		—			(400	)
Contributions by minority interest shareholders		—			1,028
Sale of treasury stock – Nicaragua joint venture		—			2,609
Proceeds from exercise of stock options		—			97
Issuance costs of Series B Preferred stock		(8	)		—
Payment on note receivable from stockholder		10			—
Net cash flows provided by financing activities		5,897			5,963
Effect of exchange rate changes on cash and cash equivalents		(1,103	)		(1,302	)
Net increase in cash and cash equivalents		1,147			310
Cash and cash equivalents at beginning of period		17,722			25,097
Cash and cash equivalents at end of period	$	18,869		$	25,407
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	2,642		$	2,787
Income taxes	$	789		$	275

See accompanying notes.

21

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003

(UNAUDITED—AMOUNTS IN THOUSANDS)

	Preferred Stock – Series A & Series B				Common Stock				Additional Paid-in Capital			Tax Benefit from Exercise of Stock Options		Notes Receivable from Stockholders			Deferred Compensation			Accumulated Other Comprehensive Loss			Accumulated Deficit			Less: Treasury Stock				Total Stockholders’ Equity
	Shares	Amount			Shares		Amount																			Shares	Amount
Balance at August 31, 2003	42	$	41,897		7,286		$	1	$	164,120		$	3,379	$	(685	)	$	(1,314	)	$	(14,022	)	$	(24,560	)	414	$	(9,397	)	$	159,419
Dividends on preferred stock	—		—		—			—		—			—		—			—			—			(840	)	—		—			(840	)
Issuance of common stock	—		—		500			—		5,000			—		—			—			—			—		—		—			5,000
Cancellation of stockholders notes receivable	—		—		(10	)		—		(94	)		—		208			—			—			—		—		—			114
Common stock issued and stock compensation expense	—		—		—			—		80			—		—			(80	)		—			—		—		—			—
Amortization of deferred compensation	—		—		—			—		—			—		—			134			—			—		—		—			134
Payment on notes receivable from stockholders	—		—		—			—		—			—		10			—			—			—		—		—			10
Issuance costs on series B preferred stock	—		(8	)	—			—		—			—		—			—			—			—		—		—			(8	)
Net loss	—		—		—			—		—			—		—			—			—			(6,141	)	—		—			(6,141	)
Translation adjustment	—		—		—			—		—			—		—			—			(1,103	)		—		—		—			(1,103	)
Comprehensive Loss	—		—		—			—		—			—		—			—			—			—		—		—			(7,244	)
Balance at November 30, 2003	42	$	41,889		7,776		$	1	$	169,106		$	3,379	$	(467	)	$	(1,260	)	$	(15,125	)	$	(31,541	)	414	$	(9,397	)	$	156,585

See accompanying notes.

22

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

November 30, 2003

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION

PriceSmart, Inc.’s (“PriceSmart” or the “Company”) business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. As of November 30, 2003, the Company had 26 consolidated warehouse clubs in operation in 12 countries and two U.S. territories (four in Panama, three each in Costa Rica and the Philippines, two each in Dominican Republic, El Salvador, Guatemala, Honduras and Trinidad and one each in Aruba, Barbados, Guam, Jamaica, Nicaragua and the United States Virgin Islands), of which the Company owns at least a majority interest. The Company also had three warehouse clubs in operation in Mexico as part of a 50/50 joint venture with Grupo Gigante, S.A. de C.V. During the first quarter of fiscal year 2004, the Company announced the planned closure of it warehouse club in Guam. In fiscal 2003, the Company closed three warehouse clubs, one each in Guatemala, Dominican Republic and Philippines. There also were 14 warehouse clubs in operation (13 in China and one in Saipan, Micronesia) licensed to and operated by local business people as of November 30, 2003. The Company principally operates under one segment in three geographic regions.

Basis of Presentation – The consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of $31.5 million and a working capital deficit of $18.0 million as of November 30, 2003. For the quarter ended November 30, 2003, the Company had a net loss available to common stockholders of $7.0 million and used cash in operating activities of $1.7 million. At November 30, 2003, the Company was not in compliance with certain maintenance covenants related to certain long-term debt arrangements. The Company has obtained or requested, but not yet received, all necessary waivers for covenant violations as of August 31 and November 30, 2003. The Company’s ability to fund its operations and service debt during fiscal 2004 is dependent on its ability to generate cash flow from operations, extend or refinance short-term credit facilities, continue to be granted vendor credit and continue to receive waivers from those lenders where covenant violations exist. As of August 31, 2003, the Company closed three unprofitable warehouses and announced plans to close an additional warehouse by December 31, 2003 to increase cash flows for fiscal 2004. The Company also intends to reduce certain controllable warehouse expenses. The Company believes it will be successful in funding its fiscal 2004 operations, obtaining any necessary covenant violation waivers and extending or refinancing its indebtedness with short term credit maturities beyond fiscal 2004. Should the Company be unsuccessful in obtaining the necessary waivers or extending or refinancing its indebtedness with short term maturities from third-parties when they come due, it has entered into an agreement with the Sol and Helen Price Trust giving the Company the right to sell all or a portion of specified real property to the Trust at any time on or prior to August 31, 2004 at a price equal to the Company’s book value for the respective properties. The specified real property covers both the land and building at nine warehouse club locations. As of November 30, 2003, the net book value of this real property is approximately $54.2 million, with approximately $30.7 million of encumbrances. Under the terms of the agreement, the Company would have the option, but not the obligation, to lease back one or more warehouse club buildings at an annual lease rate equal to 9% of the selling price for the building. Management believes that its existing working capital along with existing availability in credit facilities, are sufficient to fund its operations through at least August 31, 2004.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The consolidated interim financial statements of the Company included herein include the assets, liabilities and results of operations of the Company’s majority and wholly owned subsidiaries as listed below. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated interim financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to fairly present the financial position, results of operations, and cash flows for the interim period presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for interim periods are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Form 10-K for the year ended August 31, 2003.

23

	Ownership		Basis of Presentation
Ventures Services, Inc.	100.0	%	Consolidated
PriceSmart Panama	100.0	%	Consolidated
PriceSmart U.S. Virgin Islands	100.0	%	Consolidated
PriceSmart Guam	100.0	%	Consolidated
PriceSmart Guatemala	66.0	%	Consolidated
PriceSmart Trinidad	90.0	%	Consolidated
PriceSmart Aruba	90.0	%	Consolidated
PriceSmart Barbados	100.0	%	Consolidated
PriceSmart Jamaica	67.5	%	Consolidated
PriceSmart Philippines	52.0	%	Consolidated
PriceSmart Nicaragua	51.0	%	Consolidated
PriceSmart Mexico	50.0	%	Equity
PSMT Caribe, Inc:
Costa Rica	100.0	%	Consolidated
Dominican Republic	100.0	%	Consolidated
El Salvador	100.0	%	Consolidated
Honduras	100.0	%	Consolidated

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents—Cash and cash equivalents represent cash and short-term investments with maturities of three months or less when purchased.

Restricted Cash—Restricted cash represents time deposits that are pledged as collateral for majority-owned and wholly-owned subsidiary loans.

Merchandise Inventories—Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or market. The Company provides for estimated inventory losses and obsolescence between physical inventory counts on the basis of a percentage of sales. The provision is adjusted periodically to reflect the trend of actual physical inventory count results, which occur primarily in the second and fourth fiscal quarters. In addition, the Company may be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise.

Property and Equipment—Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. The useful life of fixtures and equipment ranges from 3 to 15 years and that of buildings from 10 to 25 years. Leasehold improvements are amortized over the shorter of the life of the improvement or the expected term of the lease. In some locations, leasehold improvements are amortized over a period longer than the initial lease term as management believes it is probable that the renewal option in the underlying lease will be exercised.

Revenue Recognition—The Company recognizes sales revenue when title passes to the customer. Membership fee income represents annual membership fees paid by the Company’s warehouse members, which are recognized over the 12-month term of the membership. The historical membership fee refunds have been minimal and, accordingly, no reserve has been established for membership refunds for the periods presented.

Pre-Opening Costs—The Company expenses pre-opening costs (the costs of start-up activities, including organization costs) as incurred.

Foreign Currency Translation—In accordance with Statement of Financial Accounting Standards No. 52 “Foreign Currency Translation,” the assets and liabilities of the Company’s foreign operations are primarily translated to U.S. dollars using the exchange rates at the balance sheet date and revenues and expenses are translated at average rates prevailing during the period. Related translation adjustments are recorded as a component of accumulated comprehensive loss.

Stock-Based Compensation—As of November 30, 2003, the Company had four stock-based employee compensation plans. Prior to September 1, 2002, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Effective September 1, 2002, the Company adopted the fair value recognition provisions of SFAS No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” using the prospective method with guidance from SFAS No. 148, “Accounting for Stock-Based

24

Compensation – Transition and Disclosure,” to all employee awards granted, modified, or settled after September 1, 2002. Awards under the Company’s plans typically vest over five years and expire in six years. The cost related to stock-based employee compensation included in the determination of net income for the quarters ended November 30, 2003 and 2002 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123.

The following table illustrates the effect on net income (loss) and earnings (loss) per share if the fair value based method had been applied to all outstanding and unvested awards each period (in thousands, except per share data):

	Three Months Ended November 30,
	2003			2002
Net income (loss), as reported	$	(6,981	)	$	1,038
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects		134			25
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(637	)		(723	)
Pro forma net income (loss)	$	(7,484	)	$	340
Earnings (loss) per share:
Basic-as reported	$	(0.99	)	$	0.15
Basic-pro forma	$	(1.06	)	$	0.05
Diluted-as reported	$	(0.99	)	$	0.15
Diluted-pro forma	$	(1.06	)	$	0.05

Accounting Pronouncements—In July 2002, the FASB issued SFAS No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS 146 and Issue 94-3 relates to SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recorded as a liability when incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged. The Company recorded closure costs of $220,000 for the quarter ended November 30, 2003 in accordance with SFAS 146.

In December 2003, the FASB revised its previously issued FASB Interpretation No. 46 (“Interpretation No. 46”), “Consolidation of Variable Interest Entities.” In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The provisions of this interpretation are currently being evaluated, but management believes its adoption will not have a material impact on the Company’s consolidated results of operations, financial position or cash flows. The Company intends to apply this Interpretation no later than the quarter ended May 31, 2004.

Emerging Issues Task Force Issue No. 02-16 (“EITF 02-16”), “Accounting by a Customer (Including a Reseller) for Certain Consideration Received by a Vendor,” addresses how a reseller should account for cash consideration received from a vendor. Under this provision, effective for arrangements entered into or modified after December 31, 2002, cash consideration received from a vendor is generally presumed to be a reduction of the prices of the vendor’s products and, therefore, should be characterized as a reduction of these costs. The adoption of the provisions of EITF 02-16 did not result in any changes in the Company’s reported results, but certain consideration which had been classified as other income in prior years is now reflected as a reduction of cost of sales. As permitted by the transition provisions of EITF 02-16, other income and cost of sales in prior periods have been reclassified to conform to the current period presentation. This resulted in a decrease in other income and an offsetting decrease in net warehouse cost of goods sold of $17,000 and $580,000 in the quarters ended November 30, 2003 and 2002, respectively.

25

Reclassifications – Certain amounts in the prior period consolidated financial statements have been reclassified to conform to current period presentation.

NOTE 3—PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

	November 30, 2003			August 31, 2003
Land	$	34,335		$	34,289
Building and improvements		124,828			124,345
Fixtures and equipment		68,771			69,108
Construction in progress		4,602			2,780
		232,536			230,522
Less: accumulated depreciation		(47,772	)		(44,495	)
Property and equipment, net	$	184,764		$	186,027

Building and improvements includes capitalized interest costs of $1.6 million and $1.5 million as of November 30, 2003 and August 31, 2003, respectively.

NOTE 4—EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share are computed based on the weighted average common shares outstanding in the period. Diluted earnings (loss) per share is computed based on the weighted average common shares outstanding in the period and the effect of dilutive securities (options, preferred stock and warrants) except where the inclusion is antidilutive (in thousands, except per share data):

	Three Months Ended November 30,
	2003			2002
Income (loss) available to common stockholders	$	(6,981	)	$	1,038
Determination of shares:
Average common shares outstanding		7,079			6,846
Assumed conversion of:
Stock options		—			124
Preferred stock		—			—
Warrants		—			—
Diluted average common shares outstanding		7,079			6,970
Net income (loss) available to common stockholders:
Basic earnings (loss) per share	$	(0.99	)	$	0.15
Diluted earnings (loss) per share	$	(0.99	)	$	0.15

26

NOTE 5—CLOSURE COSTS

During fiscal 2003, the Company closed three warehouse clubs, one each in Dominican Republic, Philippines and Guatemala. The warehouse clubs were closed June 15, 2003, August 3, 2003 and August 15, 2003, respectively. The decision to close these warehouse clubs resulted from the determination that the locations were not conducive to the successful operation of a PriceSmart warehouse club. During the first quarter of fiscal year 2004, the Company announced the planned closure of its warehouse club in Guam. The last day of operations was December 24, 2003. During the first quarter of fiscal year 2004, the Company recorded approximately $220,000 of additional closure costs related to the three warehouse clubs closed in fiscal year 2003.

A reconciliation of the initial reserve to the ending liability for warehouse club locations that were closed as of November 30, 2003 is as follows (in thousands):

	Provided for at August 31, 2003		Charged to Expense	Non-cash Amounts	Costs paid		Provided for at November 30, 2003
Lease obligations	$	3,788	—	—	(63	)	$	3,725
Other associated costs		190	220	—	(308	)		102
Total	$	3,978	220	—	(371	)	$	3,827

NOTE 6—COMMITMENTS AND CONTINGENCIES

From time to time the Company and its subsidiaries are subject to legal proceedings and claims in the ordinary course of business, including those identified below. The Company evaluates such matters on a case by case basis, and vigorously contests any such legal proceedings or claims which the Company believes are without merit.

On November 10, 2003, the Company announced it would be restating its financial statements for the fiscal year ending August 31, 2002 and for the nine months ending May 31, 2003. Subsequent to the announcement, seven separate class action complaints have been filed against the Company and certain of its current and former directors and officers in the United States District Court for the Southern District of California for alleged violations of federal securities laws. The complaints purport to be class actions on behalf of purchasers of the Company’s common stock and Series A preferred stock between December 20, 2001 and November 7, 2003 with respect to all but one of the purported class action complaints and between November 1, 2001 and November 7, 2003 with respect to the complaint that also addresses the Series A preferred stock, and seek damages, rescission (in the case of the Series A preferred stock) and attorney’s fees.

On December 5, 2003, a shareholder derivative complaint was filed against the Company as a nominal defendant, the members of the Company’s Board of Directors, two former officers and three current officers in the Superior Court of the State of California, County of San Diego. The derivative complaint purportedly alleges claims for breach of fiduciary duty, abuse of control, gross mismanagement, wasted corporate assets, unjust enrichment and violations of the California Corporations Code.

In July, 2003, the Company’s 34% minority interest shareholder in the Company’s Guatemalan operations (PriceSmart (Guatemala) S.A.) contended, among other things, that both the Company and the minority interest shareholder are currently entitled to receive a 15% return upon respective capital investments in the Guatemalan operations. The Company has reviewed the claim and other pertinent information in relationship to the Guatemalan joint venture agreement, as amended, and does not concur with the minority shareholder’s conclusion.

The Company believes that the ultimate resolution of any such legal proceedings or claims will not have a material adverse effect on its business, financial condition, operating results, cash flow or liquidity. However, such matters are inherently unpredictable and it is possible that the ultimate outcome could have a material adverse effect on its business, financial condition, operating results, cash flow or liquidity in any particular period by the resolution of one or more of these contingencies.

NOTE 7—SHORT-TERM BORROWINGS AND LONG-TERM DEBT

As of November 30, 2003, the Company, through its majority or wholly owned subsidiaries, had $25.7 million outstanding in short-term borrowings through 12 separate facilities, which are secured by certain assets of its subsidiaries and are guaranteed by the Company up to its respective ownership percentage. Each of the facilities expires during the year and typically is renewed. As of November 30, 2003, the Company had approximately $10.1 million available on the facilities.

The Company’s long-term debt is collateralized by certain land, building, fixtures and equipment of each respective subsidiary and guaranteed by the Company up to its respective ownership percentages, except for approximately $28.5 million as of November 30, 2003, which is secured by collateral deposits for the same amount and which deposits are included in restricted cash on the balance sheet.

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Under the terms of debt agreements to which the Company and/or one or more of its wholly owned or majority owned subsidiaries are parties, the Company must comply with specified financial maintenance covenants, which include among others, current, debt service, interest coverage and leverage ratios. The Company has obtained waivers or reached agreements with lenders to amend financial covenants for all reported noncompliance as of August 31, 2003 except for the debt service ratio for a $4.9 million note (current amount outstanding $4.3 million), for which the Company has requested, but not yet received, a written waiver. The Company anticipates receiving a written waiver from the lender in due course. As of November 30, 2003, the Company was in compliance with all of these covenants, except for the following: (i) current ratio and cash flow to debt service and projected debt service ratio for a $4.7 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (ii) debt service ratio for a $4.9 million note (current outstanding amount $4.3 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iii) current ratio and interest cost/EBIT (earnings before interest and taxes) ratio for a $4.7 million note (current outstanding amount $4.5 million), for which the Company has requested, but not yet received, a written waiver of its noncompliance; (iv) interest coverage ratio and total debt/EBITDA (earnings before interest taxes, depreciation and amortization) ratio for a $2.8 million note (current outstanding amount $2.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; (v) debt service ratio, cash coverage ratio, and interest coverage ratio for a $1.7 million note (current outstanding amount $1.6 million), for which the Company has reached an agreement to amend the financial covenants and is in the process of finalizing an amendment to the loan agreement; and (vi) debt to equity ratio and current ratio for a $4.5 million note (current outstanding amount $4.1 million), for which the Company has received a written waiver.

The Company has a credit agreement for $7.5 million, which can be used for short-term borrowings or standby letters of credit. As of November 30, 2003, short-term borrowings include $2.5 million and there are $4.4 million of outstanding letters of credit related to this agreement.

NOTE 8—RELATED-PARTY TRANSACTIONS

The Company sells inventory to PriceSmart Mexico and charges it for salaries and other administrative services. Such transactions are in the ordinary course of business at negotiated prices comparable to those of transactions with other customers. For the first quarter of fiscal 2004, export sales to PriceSmart Mexico were approximately $262,000, and are included in total export sales of $505,000 on the consolidated statements of operations. Under equity accounting, for export sales to PriceSmart Mexico, the Company’s investment in unconsolidated affiliate has been reduced by the Company’s portion of the gross profit margin realized from these sales. Salaries and other administrative services charged to PriceSmart Mexico in the same period were approximately $83,000.

In October 2003, entities affiliated with Robert E. Price, Chairman of the Board and Interim President and Chief Executive Officer of PriceSmart, and Sol Price, a significant shareholder of PriceSmart and father of Robert E. Price, purchased an aggregate of 500,000 shares of PriceSmart common stock for $5.0 million.

The Company previously utilized the importation and exportation businesses of one of its minority shareholder in the Philippines for the movement of merchandise inventories both to and from the Asian regions to its warehouse clubs operating in Asia. As of November 30, 2003, the Company had a total of approximately $800,000 in net receivables due from the minority interest shareholder’s importation and exportation businesses, which is included in accounts receivable on the consolidated financial statements.

In conjunction with the departure of the Company’s former Chief Financial Officer and a Senior Vice President of Operations, 9,908 shares of the Company’s common stock purchased by those officers with notes receivable from the Company were retired. This resulted in a charge of $114,000 to severance costs.

NOTE 9—SEGMENT REPORTING

The Company is principally engaged in international membership shopping warehouses operating primarily in Latin America, the Caribbean and Asia as of November 30, 2003 (see Note 1). The Company operates as a single reportable segment based on geographic area and measures performance based on operating income. Segment amounts are presented after converting to U.S. dollars and consolidating eliminations. Certain revenues and operating costs included in the United States segment have not been allocated, as it is impractical to do so. The Mexico joint venture is not segmented for the periods presented and is included in the United States segment. The Company’s reportable segments are based on management responsibility.

	United States Operations			Latin American Operations			Caribbean Operations			Asian Operations			Total
Three Months Ended November 30, 2003
Total revenue	$	954		$	92,460		$	35,744		$	18,801		$	147,959
Operating income (loss)		(1,873	)		419			(1,106	)		(1,590	)		(4,150	)
Identifiable assets		78,530			181,961			72,662			56,559			389,712
Three Months Ended November 30, 2002
Total revenue	$	3,030		$	106,159		$	27,545		$	28,144		$	164,878
Operating income (loss)		(821	)		5,188			110			278			4,755
Identifiable assets		80,741			207,076			77,573			68,071			433,461
Year Ended August 31, 2003
Total revenue	$	8,469		$	416,091		$	121,343		$	114,794		$	660,697
Operating income (loss)		(5,954	)		(1,238	)		(7,035	)		(10,043	)		(24,270	)
Identifiable assets		83,853			181,338			73,797			52,097			391,085

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EX-10.1

EXHIBIT 10.1

COMMON STOCK PURCHASE AGREEMENT

BY AND AMONG

PRICESMART, INC.

and

THE INVESTORS LISTED ON

EXHIBIT A ATTACHED HERETO

Dated as of October 22, 2003

TABLE OF CONTENTS

COMMON STOCK PURCHASE AGREEMENT			1
1.	AGREEMENT TO PURCHASE AND SELL STOCK		1
2.	CLOSING		1
3.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY		2
	3.1	Organization, Good Standing and Qualification	2
	3.2	Authorization	2
	3.3	Valid Issuance of the Shares	2
	3.4	Capitalization	3
	3.5	Noncontravention	3
	3.6	Absence of Certain Changes	4
	3.7	No General Solicitation	4
	3.8	Disclosure	5
4.	REPRESENTATIONS AND WARRANTIES OF THE INVESTORS		5
	4.1	Organization and Qualification	5
	4.2	Authorization	5
	4.3	Purchase for Own Account	5
	4.4	Accredited Investor Status	5
	4.5	Restricted Securities	6
	4.6	Due Diligence and No Solicitation	6
	4.7	Further Limitations on Disposition	6
	4.8	Legends	6
5.	PRE-CLOSING COVENANTS OF THE PARTIES		7
	5.1	General	7
	5.2	Notice of Developments	7
6.	POST-CLOSING COVENANTS OF THE PARTIES		7
	6.1	Listing	7
7.	CONDITIONS TO THE INVESTORS’ OBLIGATIONS AT CLOSING		7
	7.1	Representations and Warranties True	7
	7.2	Compliance with Covenants	8
	7.3	No Litigation	8
	7.4	Securities Exemptions	8
	7.5	Proceedings	8
	7.6	No Material Adverse Effect	8
8.	CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING		9
	8.1	Representations and Warranties True	9
	8.2	Payment of Consideration	9
	8.3	No Litigation	9
	8.4	Securities Exemptions	9

9.	REGISTRATION STATEMENT FOR RESALE OF THE SHARES		9
	9.1	Registration	9
	9.2	Company Obligations	9
	9.3	Restrictions on Registrations	11
	9.4	Investor Obligations and Rights	11
	9.5	Indemnification	12
	9.6	Expenses	15
10.	TERMINATION		15
	10.1	Termination	15
	10.2	Effect of Termination	15
11.	MISCELLANEOUS		16
	11.1	Survival of Warranties	16
	11.2	Specific Performance	16
	11.3	Successors and Assigns	16
	11.4	Governing Law	16
	11.5	Counterparts	17
	11.6	Headings	17
	11.7	Notices	17
	11.8	No Finder’s Fees	18
	11.9	Amendments and Waivers	18
	11.10	Attorneys’ Fees	18
	11.11	Severability	18
	11.12	Entire Agreement	18
	11.13	No Third Party Beneficiaries	18
	11.14	Public Announcements	19
	11.15	Further Assurances	19
	11.16	Fees and Expenses	19
	11.17	Waiver of Jury Trial	19

SCHEDULES

Schedule 3.4(b)

EXHIBITS

Exhibit A Schedule of Investors

COMMON STOCK PURCHASE AGREEMENT

This COMMON STOCK PURCHASE AGREEMENT (including any Exhibits and Schedules hereto, this “Agreement”) is made and entered into as of October 22, 2003 by and among PriceSmart, Inc., a Delaware corporation (the “Company”), and the investors listed on Exhibit A attached hereto (each an “Investor” and, collectively, the “Investors”). The Investors and the Company are referred to herein individually as a “Party” and together as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Company desires to sell to the Investors, and the Investors desire to purchase from the Company, an aggregate of 500,000 shares (the “Shares”) of the Company’s common stock, par value $.0001 per share (“Common Stock”), on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:

1. AGREEMENT TO PURCHASE AND SELL STOCK. Subject to the terms and conditions of this Agreement, the Company agrees to sell to each of the Investors at the Closing (as defined below), and each of the Investors severally agrees to purchase from the Company at the Closing, that number of Shares set forth opposite each such Investor’s name on Exhibit A attached hereto at a purchase price of $10.00 per share (the “Purchase Price”).

2. CLOSING. The purchase and sale of the Shares (the “Closing”) will take place at the offices of Latham & Watkins LLP, 12636 High Bluff Drive, Suite 300, San Diego, CA 92130 at 10:00 a.m. Pacific Time, on October 29, 2003, or at such other time and place mutually agreed upon by the Parties, or if any of the conditions set forth in Section 7 (other than conditions with respect to actions the respective Parties will take at the Closing itself) has not been satisfied, a later date selected by the Investors, which date shall be within five (5) Business Days (as defined below) following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions to occur at the Closing (other than conditions with respect to actions the respective Parties will take at the Closing itself) (such date, the “Closing Date”). “Business Day” means any day, other than a Saturday, Sunday or a day on which banking institutions in the State of California are authorized or obligated by law, regulation or executive order to close. At the Closing, the Company will cause its transfer agent to deliver to each of the Investors (i) a certificate registered in the Investor’s name and in the denominations designated by such Investor prior to the Closing Date representing the Shares and (ii) the other documents and certificates to be delivered pursuant to Section 7 hereof, all against payment of the Purchase Price by wire transfer of immediately available funds as directed pursuant to instructions delivered by the Company to the Investors prior to the Closing Date. The number of Shares to be purchased at the Closing by each Investor and the portion of aggregate Purchase Price to be paid by each Investor are set forth next to each Investor’s name on Exhibit A hereto.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to, and agrees with, the Investors that the statements in the following paragraphs of this Section 3 are true and correct:

3.1 Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries (as defined below) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own or lease and operate its properties and to conduct its business as it is currently being conducted and is proposed to be conducted. Each of the Company and its Subsidiaries is duly licensed, authorized or qualified as a foreign corporation, partnership or limited liability company for the transaction of business and is in good standing under the laws of each other jurisdiction in which its ownership, lease or operation of property or conduct of business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the assets, liabilities, condition (financial or otherwise), results of operations, prospects or business of the Company and its Subsidiaries taken as a whole (“Material Adverse Effect”). The Company is not in default under or in violation of any provision of its amended and restated certificate of incorporation (the “Certificate of Incorporation”) or its bylaws (the “Bylaws”). “Subsidiary” means as to any Person (as defined below), any other Person of which more than 50% of the shares of the voting stock or other voting interests are owned or controlled, or the ability to select or elect more than 50% of the directors or similar managers is held, directly or indirectly, by such first Person or one or more of its Subsidiaries or by such first Person and one or more of its Subsidiaries. “Person” means any individual, corporation, company, association, partnership, limited liability company, joint venture, trust, unincorporated organization or Governmental Authority (as defined below).

3.2 Authorization. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All corporate action on the part of the Company necessary for the authorization, execution and delivery of this Agreement, the performance of the obligations of the Company at the Closing, the performance of the obligations of the Company under Section 9 hereof and the issuance and delivery of the Shares has been taken, and this Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally; (ii) the effect of rules of law governing the availability of equitable remedies; and (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy or prohibited by law.

3.3 Valid Issuance of the Shares. The Shares have been duly and validly authorized, reserved for issuance and, when issued, sold and delivered by the Company in accordance with the terms of this Agreement for the consideration provided for herein, will have been duly and validly issued, will be fully paid and nonassessable and will be free of any mortgage, pledge, lien, security interest, claim, voting agreement, conditional sale agreement, title retention agreement, restriction, option or encumbrance of any kind, character or description whatsoever (“Lien”) (other than those that may be created by the Investors) and free of any

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restrictions on transfer other than restrictions on transfer under applicable federal and state securities laws and, assuming the truth and correctness of the Investors’ representations and warranties in Section 4 below, will be issued in compliance with all applicable federal and state securities laws.

3.4 Capitalization.

(a) The entire authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, of which 6,871,913 shares (not including 413,650 shares held by the Company as treasury shares) were issued and outstanding as of October 17, 2003, and 2,000,000 shares of preferred stock, par value $.0001 per share, of which 20,000 shares of the Company’s 8% Series A Cumulative Convertible Redeemable Preferred Stock and 22,000 shares of the Company’s 8% Series B Cumulative Convertible Redeemable Preferred Stock are issued and outstanding as of the date of this Agreement. Except as set forth in the SEC Documents (as defined below), there are no outstanding or authorized warrants, options, purchase rights, subscription rights, conversion rights, exchange rights or other contracts, commitments or obligations that could require the Company or any of its Subsidiaries to issue, grant, deliver or sell or otherwise cause to be issued, granted, delivered or sold or become outstanding any capital stock of the Company or any of its Subsidiaries, except for those granted in the ordinary course of business since the dates of the SEC Documents. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Company or any of its Subsidiaries. To the Company’s knowledge, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of the capital stock of the Company.

(b) Except as set forth on Schedule 3.4(b) hereto, the registration of the Shares pursuant to Section 9 hereof will not give rise to any registration rights on behalf of any Person under any agreement or instrument applicable to the Company. Except as set forth on Schedule 3.4(b) hereto, other than pursuant to Section 9 hereof, no Person has any right to require the Company to register securities of the Company under the Securities Act of 1933, as amended (the “1933 Act”).

3.5 Noncontravention.

(a) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, ordinance, code, injunction, judgment, order, decree, ruling, charge, writ, determination or other restriction (“Law”) of any government or political subdivision or department thereof, any governmental regulatory body, commission, board, agency or instrumentality, or any court or arbitrator or alternative dispute resolution body, in each case whether federal, state, local or foreign (“Governmental Authority”) to which the Company or any of its Subsidiaries is subject or any provision of the Certificate of Incorporation or the Bylaws or the certificate of incorporation or bylaws or similar constituent documents of the Company’s Subsidiaries or (ii) conflict with, result in a breach or violation of, constitute a default (with or without notice or the passage of time) under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or give rise to a right to put or to compel a tender offer for outstanding securities of the Company or any of its Subsidiaries or

3

require any notice, consent, waiver or approval under any agreement, contract, lease, license, loan, debt instrument, note, bond, indenture, mortgage, deed of trust, joint venture agreement, approval of a Governmental Authority or other arrangement to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the Company’s or its Subsidiaries’ assets is subject (or result in the imposition of any mortgage, pledge, Lien, encumbrance, charge or other security interest upon any of such assets or properties), except in either case, where such violation, conflict or default would not have a Material Adverse Effect.

(b) Except for the filing of a Form D with the Securities and Exchange Commission (the “SEC”) and filings which may be required under state securities laws, for which filings the Company shall be responsible, neither the Company nor any of its Subsidiaries is required to give any notice to, make any filing or registration with, or obtain any authorization, consent or approval of any Governmental Authority in connection with the execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby.

(c) No consent or approval of the Company’s stockholders is required by Law, the Certificate of Incorporation, the Bylaws, the rules and regulations of the Nasdaq Stock Market, or otherwise, for the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby.

(d) The execution, delivery and performance of this Agreement by the Company and the consummation of transactions contemplated hereby will not constitute a “Change of Control” as such term is defined in any contract, agreement, indenture, mortgage, note, lease or other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any such Subsidiary is bound or to which the properties of the Company or any such Subsidiary is subject.

3.6 Absence of Certain Changes. Except as disclosed in the reports required to be filed by the Company under the 1934 Act in the preceding twelve (12) months (the “SEC Documents”) or otherwise disclosed in public announcements or press releases, since August 31, 2002, the Company and its Subsidiaries have conducted their consolidated business in the ordinary and usual course and there has been no change to the business, properties, assets, operations, prospects, results of operations or condition (financial or otherwise) of the Company or its Subsidiaries (taken as a whole), except for such changes which could not be reasonably expected to have a Material Adverse Effect.

3.7 No General Solicitation. Neither the Company, nor any of its Affiliates (as defined below), nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D (“Regulation D”) promulgated under the 1933 Act) in connection with the offer or sale of the Shares. “Affiliate” has the meaning set forth in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”), as in effect on the date hereof. The term “Affiliated” has a correlative meaning.

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3.8 Disclosure. No information that has been provided to the Investors by the Company or any of its representatives in connection with the transactions contemplated by this Agreement, and no exhibit, document, statement, certificate or schedule furnished or to be furnished to the Investors pursuant to this Agreement, contains or will contain, as the case may be, any untrue statement of a material fact, or omits or will omit, as the case may be, to state a material fact necessary to make the statements or facts contained therein not misleading.

4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the Investors severally and not jointly represents and warrants to the Company that the statements in the following paragraphs of this Section 4 are true and correct with respect to such Investor:

4.1 Organization and Qualification. The Investor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Investor has all requisite power and authority to enter into and perform this Agreement and to carry out the transactions contemplated by this Agreement.

4.2 Authorization. All action on the part of the Investor necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Investor hereunder has been taken, and this Agreement has been duly executed and delivered by the Investor and constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms, except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally; (b) the effect of rules of law governing the availability of equitable remedies; and (c) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy or prohibited by law.

4.3 Purchase for Own Account. Except as permitted pursuant to Section 11.3 hereof, the Shares to be acquired by the Investor hereunder will be acquired for investment for the Investor’s own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the 1933 Act, and the Investor has no present intention of selling or otherwise distributing the same. The Investor does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to the Shares. The Investor also represents that it has not been formed for the specific purpose of acquiring the Shares.

4.4 Accredited Investor Status. The Investor is an “accredited investor” within the meaning of Regulation D. By reason of its business and financial experience, sophistication and knowledge, the Investor is capable of evaluating the risks and merits of the investment made pursuant to this Agreement. The Investor confirms that it is able (a) to bear the economic risk of this investment, as well as other risk factors as more fully set forth herein and in the SEC Documents, (b) to hold the Shares for an indefinite period of time and (c) to bear a complete loss of the Investor’s investment; and the Investor represents that it has sufficient liquid assets so that the illiquidity associated with this investment will not cause any undue financial difficulties or affect the Investor’s ability to provide for its current needs and possible financial contingencies.

5

4.5 Restricted Securities. The Investor understands that the Shares are characterized as “restricted securities” under the 1933 Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the 1933 Act and applicable regulations thereunder such securities may be resold without registration under the 1933 Act only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the 1933 Act (“Rule 144”), as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. The Investor understands that the Company is under no obligation to register any of the securities sold hereunder except as provided in Section 9 hereof.

4.6 Due Diligence and No Solicitation. The Investor has had a reasonable opportunity to ask questions of and receive answers from the Company and its officers, and all such questions have been answered to the full satisfaction of the Investor. At no time was the Investor presented with or solicited by any leaflet, public promotional meeting, circular, newspaper or magazine article, radio or television advertisement or any other form of general advertising.

4.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Shares unless and until:

(a) there is then in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) (i) the Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) the Investor shall have furnished the Company at the Investor’s expense an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such securities under the 1933 Act; provided that the Company shall not require an opinion of counsel for routine sales of shares pursuant to Rule 144.

4.8 Legends. It is understood that the certificates evidencing the Shares will bear the legends set forth below:

(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.

(b) The legend referred to in Section 4.8(a) above shall be removed from a certificate representing such Shares if the securities represented thereby are sold pursuant to an effective registration statement under the 1933 Act, or there is delivered to the Company such satisfactory evidence, which may include an opinion of independent counsel, as reasonably

6

may be requested by the Company, to confirm that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such securities will not violate the registration requirements of the 1933 Act.

5. PRE-CLOSING COVENANTS OF THE PARTIES. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing:

5.1 General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Sections 7 and 8 below).

5.2 Notice of Developments. Each Party will give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Section 3 or 4 above. No disclosure by any Party pursuant to this Section 5.2, however, shall be deemed to cure any misrepresentation, breach of warranty or breach of covenant.

6. POST-CLOSING COVENANTS OF THE PARTIES.

6.1 Listing. So long as the Investors or their respective Affiliates Beneficially Own any Shares, the Company shall use its best efforts to ensure that the shares of Common Stock continue to be quoted on the Nasdaq Stock Market; provided, however, this Section 6.1 shall not restrict the Company from engaging in any reclassification, capital reorganization or other change in the outstanding shares of Common Stock or any consolidation or merger of the Company with or into another corporation or any other transaction in which the stockholders of the Company are required to exchange their shares of Common Stock for stock or other securities of the Company or any other Person. “Beneficially Own” with respect to any securities means having “beneficial ownership” of such securities (as determined pursuant to Rule 13d-3 promulgated under the 1934 Act as in effect on the date hereof, except that a Person shall be deemed to Beneficially Own all such securities that such Person has the right to acquire by conversion, exercise of option or otherwise whether such right is exercisable immediately or after the passage of time). The terms “Beneficial Ownership” and “Beneficial Owner” have correlative meanings.

7. CONDITIONS TO THE INVESTORS’ OBLIGATIONS AT CLOSING. The obligations of the Investors under Section 2 of this Agreement with respect to the Closing are subject to the fulfillment or waiver, on the Closing Date, of each of the following conditions:

7.1 Representations and Warranties True. The representations and warranties of the Company contained in Section 3 qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except where such representation and warranty speaks by its terms as of a different date, in which case it shall be true and correct as of such date). The Company shall have delivered to the Investors at the Closing a certificate in form and substance reasonably satisfactory to the Investors dated the Closing Date and signed by the Chief Executive Officer or an Executive Vice President and the Chief Financial Officer or Senior Vice President

7

of Accounting of the Company to the effect that the condition set forth in this Section 7.1 has been satisfied.

7.2 Compliance with Covenants. The Company shall have performed all of its obligations hereunder in all material respects and complied with all agreements, undertakings, covenants and conditions required hereunder to be performed by it at or prior to the Closing. The Company shall have delivered to the Investors at the Closing a certificate in form and substance reasonably satisfactory to the Investors dated the Closing Date and signed by the Chief Executive Officer or an Executive Vice President and the Chief Financial Officer or Senior Vice President of Accounting of the Company to the effect that the condition set forth in this Section 7.2 has been satisfied.

7.3 No Litigation.

(a) No Law shall have been promulgated, enacted or entered that restrains, enjoins, prevents, materially delays, prohibits or otherwise makes illegal the performance of this Agreement or the transactions contemplated hereby.

(b) No action, suit or proceeding shall be pending or threatened before any Governmental Authority wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent, materially delay, prohibit or otherwise make illegal the consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect) or (iii) affect adversely the right of the Investors to own the Shares.

7.4 Securities Exemptions. The offer and sale of the Shares to the Investors pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act, the qualification requirements of the California Corporate Securities Law of 1968 (the “California Securities Law”) and the registration and/or qualification requirements of all other applicable state securities laws.

7.5 Proceedings. All corporate and other proceedings to be taken by the Company in connection with this Agreement and with respect to the transactions contemplated hereby to be completed at or prior to the Closing and documents incident thereto shall have been completed in form and substance reasonably satisfactory to the Investors, and the Investors shall have received all such counterpart originals or certified or other copies of this Agreements and such other documents as it may reasonably request.

7.6 No Material Adverse Effect. No event shall have occurred and no condition shall have arisen or been created since the date of this Agreement which has had, or would be reasonably likely to have, a Material Adverse Effect.

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8. CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING. The obligations of the Company to the Investors under this Agreement with respect to the Closing are subject to the fulfillment or waiver on the Closing Date of each of the following conditions:

8.1 Representations and Warranties True. The representations and warranties of the Investors contained in Section 4 qualified as to materiality shall have been true and correct in all respects, and those not so qualified shall have been true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except where such representation and warranty speaks by its terms as of a different date, in which case it shall be true and correct as of such date).

8.2 Payment of Consideration. The Investors shall have paid the Purchase Price in accordance with the provisions of Section 1.

8.3 No Litigation.

(a) No Law shall have been promulgated, enacted or entered that restrains, enjoins, prevents, materially delays, prohibits or otherwise makes illegal the performance of this Agreement or the transactions contemplated hereby.

(b) No action, suit or proceeding shall be pending or threatened before any Governmental Authority wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent, delay, prohibit or otherwise make illegal the consummation of any of the transactions contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect).

8.4 Securities Exemptions. The offer and sale of the Shares to the Investors pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws.

9. REGISTRATION STATEMENT FOR RESALE OF THE SHARES.

9.1 Registration. As promptly as practicable after the Closing but in any event within ninety (90) days following the Closing Date, the Company shall prepare and file with the SEC a registration statement on Form S-3 (the “Registration Statement”), and maintain effective for the period specified in Section 9.2(a) for use by the Investors and their respective Affiliates at any time during such period with respect to the offering and sale or other disposition of the Shares.

9.2 Company Obligations. In the case of each registration effected by the Company pursuant to this Section 9, the Company will keep the Investors, as applicable, advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will:

(a) use its best efforts to cause such registration to remain effective at all times until the earlier of (i) such time as the distribution described in the registration statement relating to the Shares has been completed and (ii) two (2) years from the Closing Date;

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(b) prepare and file with the SEC such amendments and post-effective amendments to such registration statement and supplements to the prospectus as may be (i) reasonably requested by the holders of a majority of the Shares, (ii) reasonably requested by any participating holder (to the extent such request relates to information relating to such holder), or (iii) necessary to keep such registration effective for the period of time required by this Section 9;

(c) prepare and deliver to the Investors as many copies of each preliminary and final prospectus and other documents incident thereto as each of the Investors from time to time may reasonably request;

(d) immediately notify the Investors, at any time when a prospectus relating to a registration of Shares is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the request of the Investors, prepare a supplement or amendment to such registration statement so that, as thereafter delivered to the purchasers of such Shares, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements therein not misleading;

(e) use its best efforts to register or qualify and maintain the qualification of the Shares covered by such registration under such state securities or “blue sky” laws for offers and sales to the public as the Investors shall reasonably request; provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of or become subject to taxation in, any jurisdiction in which it shall not be then qualified, or to file any general consent to service of process;

(f) otherwise use its best efforts to comply with the securities laws of the United States and other applicable jurisdictions and all applicable rules and regulations of the SEC and comparable Governmental Authorities in other applicable jurisdictions;

(g) notify the Investors (i) when the Registration Statement or any amendment thereto has been filed or become effective, when the prospectus or any amendment or supplement thereto has been filed and to furnish the Investors with copies thereof, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the preliminary prospectus or the Final Prospectus (as defined below) or the initiation or threatening of any proceedings for such purposes, and (iii) the receipt by the Company of any notification with respect to the suspending of the qualification of the Shares for offering or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and

(h) with a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of restricted securities to the public without registration, the Company agrees to: (i) make and keep public information available as those terms are understood and defined in Rule 144; (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and

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the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as an Investor or transferee of an Investor owns any Shares, furnish to such Investor or transferee of such Investor upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the 1933 Act and the 1934 Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as such Investor or transferee of such Investor may reasonably request in availing itself of any rule or regulation of the SEC allowing such Investor or transferee of such Investor to sell any such securities without registration.

9.3 Restrictions on Registrations. If at any time or from time to time after the effective date of the Registration Statement, the Company promptly notifies the Investors in writing of the existence of a Potential Material Event (as defined below), the Investors shall not offer or sell any Shares or engage in any other transaction involving or relating to the Shares, from the time of the giving of notice with respect to a Potential Material Event until the Investors receive written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then notwithstanding Section 9.1 above, the Company’s obligation to file the Registration Statement shall be delayed until such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event. “Potential Material Event” means any of the following: (a) the possession by the Company of material information not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors that disclosure of such information in a Registration Statement would be materially detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors, be materially adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors that the applicable Registration Statement would be materially misleading absent the inclusion of such information. In no event shall the suspension of the Registration Statement (or the permissible delay in filing a Registration Statement) (i) exceed ninety (90) days on any one occasion as a result of a Potential Material Event or (ii) be permitted more than once during any 12-month period.

9.4 Investor Obligations and Rights.

(a) Each of the Investors shall cooperate as reasonably requested by the Company with the Company in connection with the preparation of the Registration Statement, and for so long as the Company is obligated to file and keep effective the Registration Statement, shall provide to the Company, in writing, for use in the Registration Statement, all such information regarding such Investor and its plan of distribution of the Shares as may be reasonably necessary to enable the Company to prepare the Registration Statement and prospectus covering the Shares, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith. Each of the Investors shall have the right to prepare any portions of the Registration Statement requiring information regarding such Investor and its plan of distribution of the Shares.

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(b) During such time as an Investor may be engaged in a distribution of the Shares, such Investor shall comply with Regulation M promulgated under the 1934 Act and pursuant thereto it shall, among other things, (i) not engage in any stabilization activity in connection with the securities of the Company in contravention of such regulation; (ii) distribute the Shares under the Registration Statement solely in the manner described in the Registration Statement; and (iii) cease distribution of such Shares pursuant to such Registration Statement upon receipt of written notice from the Company that the prospectus covering the Shares contains any untrue statement of a material fact or omits a material fact required to be stated therein or necessary to make the statements therein not misleading.

(c) Each of the Investors hereby covenants with the Company not to make any sale of the Shares without effectively causing the prospectus delivery requirements under the 1933 Act to be satisfied unless the sale is made pursuant to an exemption from registration.

(d) Each of the Investors acknowledges and agrees that the Shares sold pursuant to the Registration Statement are not transferable on the books of the Company unless the stock certificate submitted to the transfer agent evidencing the Shares is accompanied by a certificate reasonably satisfactory to the Company to the effect that (i) the Shares have been sold in accordance with this Agreement and the Registration Statement and (ii) the requirement of delivering a current prospectus has been satisfied.

(e) Following termination of the effectiveness of the Registration Statement, each of the Investors shall discontinue sales of Shares pursuant thereto upon receipt of notice from the Company of its intention to remove from registration the Shares covered thereby which remain unsold, and each of the Investors shall promptly notify the Company of the number of Shares registered that remain unsold immediately upon receipt of the notice from the Company.

(f) Each of the Investors will observe and comply with the 1933 Act, the 1934 Act and the general rules and regulations thereunder, as now in effect and as from time to time amended and including those hereafter enacted or promulgated, in connection with any offer, sale, pledge, transfer or other disposition of the Shares or any part thereof.

9.5 Indemnification.

(a) The Company will indemnify and hold harmless to the fullest extent permitted by law each of the Investors, as applicable, each of its Affiliates and each of their respective officers, directors, shareholders, employees, advisors, agents and partners, and each person controlling each of the Investors, with respect to each registration which has been effected pursuant to this Section 9 against all Losses (as defined below) jointly and severally arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any amendment or supplement thereto or any documents incorporated by reference therein and any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any

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violation by the Company of the 1933 Act or the 1934 Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each of the Investors, each of its Affiliates and each of their respective officers, directors, shareholders, employees, advisors, agents and partners, and each person controlling each of the Investors for any legal and any other expenses reasonably incurred in connection with investigating and defending any such Losses; provided, however, that the Company will not be liable in any such case to the extent that any such Losses arise out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Investors and stated expressly to be specifically for use therein. “Losses” shall mean, collectively, any and all losses, penalties, judgments, suits, costs, claims, liabilities, damages and expenses (including, without limitation, reasonable attorneys’ fees and disbursements).

(b) Each of the Investors will, if Shares held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless to the fullest extent permitted by law the Company, each of its Affiliates and their respective directors, employees, advisors, agents and officers and each person who controls the Company, against all Losses arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document made by such Investor in writing, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements by such Investor therein not misleading, and will reimburse the Company and its directors, officers, partners, persons, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such Losses, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Investor and stated expressly to be specifically for use therein; provided, however, that the obligations of each of the Investors hereunder shall be limited to an amount equal to the net proceeds to such Investor of securities sold as contemplated herein.

(c) Each party entitled to indemnification under this Section 9.5 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at such party’s expense (unless (i) the Indemnifying Party has agreed in writing to pay such fees or expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such claim within a reasonable time after receipt of notice of such claim from the Person entitled to indemnification hereunder and employ counsel reasonably satisfactory to such Person, (iii) the Indemnified Party has reasonably concluded (based on the written advice of counsel) that there may be legal defenses available to it or other Indemnified Parties that are different from or in addition to those available to the Indemnifying Party, or (iv) the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party in

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such action, in which case the fees and expenses of counsel shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 9 unless the Indemnifying Party is materially prejudiced thereby. If such defense is not assumed by the Indemnifying Party, the Indemnifying Party will not be subject to any liability for any settlement made without its consent, but such consent may not be unreasonably withheld. If the Indemnifying Party assumes the defense, the Indemnifying Party shall not have the right to settle such action without the written consent of the Indemnified Party. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

If the indemnification provided for in this Section 9.5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any Losses referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue (or alleged untrue) statement of a material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding anything in this Section 9.5 to the contrary, no Indemnifying Party (other than the Company) shall be required pursuant to this Section 9.5 to contribute any amount in excess of the amount by which the net proceeds received by such Indemnifying Party from the sale of Shares in the offering to which the Losses of the Indemnified Party relates exceeds the amount of any damages which such Indemnifying Party has otherwise been required to pay by reason of such untrue statement or omission.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9.5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(d) The foregoing indemnity agreement of the Company and Investors is subject to the condition that, insofar as they relate to any Losses made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed

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with the SEC pursuant to Rule 424(b) promulgated under the 1933 Act (the “Final Prospectus”), such indemnity or contribution agreement shall not inure to the benefit of an Investor if a copy of the Final Prospectus was timely furnished to such Investor in sufficient quantities for delivery and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the 1933 Act.

(e) Notwithstanding any other provision of this Agreement, the obligations of the parties under this Section 9.5 shall survive indefinitely.

9.6 Expenses. The Company shall pay all expenses incident to the registration of the Shares under this Section 9 including without limitation, all registration and filing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, and the fees and disbursements of counsel for the Company and its independent public accountants. With respect to sales of the Shares, the Investors shall pay all underwriting discounts and commissions and fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Shares to be sold by the Investors, the fees and disbursements of counsel retained by the Investors and transfer taxes, if any.

10. Termination.

10.1 Termination . This Agreement may be terminated at any time prior to the Closing:

(a) by mutual written agreement of the Company and the Investors;

(b) by either the Investors or the Company (provided that the terminating Party is not then in material breach of any representation, warranty, covenant or other agreement contained in this Agreement) if the Closing shall not have been consummated on or before November 30, 2003;

(c) by either the Investors or the Company if a court of competent jurisdiction or a Governmental Authority shall have issued a non-appealable final judgment, injunction, order, ruling or decree or taken any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement; provided that the Party seeking to terminate this Agreement pursuant to this clause (c) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling or decree lifted, vacated or denied; or

(d) by either the Investors or the Company (provided that the terminating Party is not then in material breach of any representation, warranty, covenant or other agreement contained in this Agreement) in the event of a material breach by the other Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching Party of such breach.

10.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 10.1, this Agreement shall forthwith become void and there shall be no

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liability on the part of any Party hereto (or any stockholder, director, officer, partner, employee, agent, consultant or representative of such Party) except as set forth in this Section 10.2, provided that nothing contained in this Agreement shall relieve any party from liability for any breach of this Agreement and provided further that Section 11 shall survive termination of this Agreement.

11. MISCELLANEOUS.

11.1 Survival of Warranties. The representations and warranties of the Company and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of twenty-four (24) months from the Closing Date and shall in no way be affected by any knowledge or investigation of the subject matter thereof made by or on behalf of the Investors or the Company, as the case may be.

11.2 Specific Performance. The parties hereto specifically acknowledge that monetary damages are not an adequate remedy for violations of this Agreement, and that any party hereto may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable Law and to the extent the party seeking such relief would be entitled on the merits to obtain such relief, each party waives any objection to the imposition of such relief.

11.3 Successors and Assigns.

(a) This Agreement shall bind and inure to the benefit of the Company and the Investors and their respective successors, permitted assigns, heirs and personal representatives; provided that the Company may not assign its rights or obligations under this Agreement to any Person without the prior written consent of the Investors.

(b) Nothwithstanding Section 11.3(a) or any other provision to the contrary in this Agreement, the Investors may assign any and all of their rights and obligations under Section 9 hereof in connection with the transfer to such assignee of at least 1,000 Shares.

11.4 Governing Law.

(a) This Agreement shall be governed by and construed under the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within that State, without reference to principles of conflict of laws or choice of law thereof.

(b) The Parties hereto hereby agree that the appropriate and exclusive forum for any disputes arising out of this Agreement solely between the Company and any of the Investors shall be the United States District Court for the Southern District of California, and, if such court will not hear any such suit, the courts of the state of Delaware, and the parties hereto hereby irrevocably consent to the exclusive jurisdiction of such courts, and agree to comply with all requirements necessary to give such courts jurisdiction. The Parties hereto further agree that the Parties will not bring suit with respect to any disputes arising out of this Agreement except as

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expressly set forth below for the execution or enforcement of judgment, in any jurisdiction other than the above specified courts. Each of the Parties hereto irrevocably consents to the service of process in any action or proceeding hereunder by the mailing of copies thereof by registered or certified airmail, postage prepaid, to the address specified in Section 11.7 hereof. The foregoing shall not limit the rights of any party hereto to serve process in any other manner permitted by the law or to obtain execution of judgment in any other jurisdiction. The Parties further agree, to the extent permitted by law, that final and unappealable judgment against any of them in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of indebtedness.

11.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

11.6 Headings. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs, exhibits and schedules shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto, all of which exhibits and schedules are incorporated herein by this reference.

11.7 Notices. All notices, requests, demands, claims and other communications hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given if (and then four (4) Business Days after) it is sent by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

To the Company:	PriceSmart, Inc.
	4649 Morena Boulevard
	San Diego, CA 92117-3650
	Attention: Robert M. Gans, Esq.
	Telephone: (858) 581-7726
	Facsimile: (858) 581-4707
with a copy to:	Latham & Watkins LLP
	12636 High Bluff Drive, Suite 300
	San Diego, CA 92130
	Attention: Robert E. Burwell, Esq.
	Telephone: (858) 523-5400
	Facsimile: (858) 523-5450
To the Investors:	To the names and addresses set forth on the signature pages hereto

Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service or ordinary mail), but no such notice, request,

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demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

11.8 No Finder’s Fees. Each Party represents that it neither is nor will be obligated for any finder’s or broker’s fee or commission in connection with this transaction. The Company agrees to indemnify and hold harmless each of the Investors from any liability for any commission or compensation in the nature of a finder’s or broker’s fee (and any asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

11.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Investors.

11.10 Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

11.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.

11.12 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings duties or obligations between the Parties with respect to the subject matter hereof.

11.13 No Third Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, except that the provisions of Section 9.5 shall inure to the benefit of and be enforceable by each Indemnified Party.

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11.14 Public Announcements. The Investors and the Company shall consult with each other before issuing any press release with respect to this Agreement or the transactions contemplated hereby and neither shall issue any such press release or make any such public statement without the prior consent of the other, which consent shall not be unreasonably withheld; provided, however, that a Party may, without the prior consent of the other Party, issue such press release or make such public statement as may upon the advice of counsel be required by law if it has used commercially reasonable efforts to consult with the other Party prior thereto. The Parties hereby consent to the filing of this Agreement by the Company and a Schedule 13D and Form 4 by each of the Investors, as applicable, with the SEC.

11.15 Further Assurances. From and after the date of this Agreement, upon the request of any of the Investors or the Company, the Company and the Investors shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.

11.16 Fees and Expenses. Except as otherwise provided in this Agreement, each of the Parties shall each bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby.

11.17 Waiver of Jury Trial. THE COMPANY AND THE INVESTORS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

THE COMPANY:

PRICESMART, INC.
By:
Name:	Robert M. Gans
Title:	Executive Vice President and General Counsel

THE INVESTORS:

SOL AND HELEN PRICE TRUST
By:
Name:
Title:
Address:	7979 Ivanhoe Avenue, #520 La Jolla, California 92037
Facsimile:	(858) 551-2314
Phone:	(858) 551-2311

ROBERT & ALLISON PRICE TRUST 1/10/75
By:
Name:
Title:
By:
Name:
Title:
Address:	7979 Ivanhoe Avenue, #520 La Jolla, California 92037
Facsimile:	(858) 551-2314
Phone:	(858) 551-2311

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SCHEDULE 3.4(b)

Piggyback: Under a Common Stock Purchase Agreement dated April 12, 2002 (the “IFC Purchase Agreement”), if the Company proposes to register any shares of its Common Stock in connection with an underwritten public offering, International Finance Corporation (“IFC”) possesses piggyback registration rights to require the Company to include up to an aggregate of 300,000 shares of the Company’s Common Stock in such registration on the same terms and conditions as the securities otherwise being sold through the underwriters. These piggyback registration rights are in effect until the earlier of (1) such time as IFC has completed the resale of its shares, (2) such time as IFC is able to freely sell its shares without registration and without regard to volume or manner of sale and (3) two years from IFC’s purchase of the shares.

Other registration rights:

1. Under a Registration Rights Agreement dated June 3, 2000, PSC, S.A. (“PSC”) possesses registration rights with respect to an aggregate of 679,500 shares of the Company’s Common Stock. Pursuant to the Registration Rights Agreement, the Company filed registration statements on Form S-3 on July 27, 2000 and August 8, 2001, which were subsequently declared effective. PSC has the right to require that the registration statement be kept effective until PSC or a permitted assignee has completed the distribution of its shares as described in the registration statements.

2. Under Series A Preferred Stock Purchase Agreements dated January 15, 2002 and January 18, 2002, Grupo Gigante, S.A. de C.V., The Price Family Charitable Fund, The Price Family Charitable Trust, The Sol and Helen Price Trust, Oppenheimer—Close Investment Partnership, L.P., P. Oppenheimer Investment Partnership, L.P., Performance Capital II, Little Wing LP, Trade Winds Fund Ltd., Terrier Partners LP, Wynnefield Partners Small Cap Value, LP, Wynnefield Partners Small Cap Value, LP I, and Wynnefield Small Cap Value Offshore Fund, Ltd. (collectively, the “Series A Investors”) possess registration rights with respect to an aggregate of 533,329 shares of the Company’s Common Stock. Pursuant to the Series A Preferred Stock Purchase Agreements, the Company filed a registration statement on Form S-3 on February 26, 2002, which was subsequently declared effective. The Series A Investors have the right to require that the registration statement be kept effective until the earlier of (1) such time as the Series A Investors have completed the distribution of their shares as described in the registration statement and (2) two years from their purchase of the shares of Series A Preferred Stock.

3. Under the IFC Purchase Agreement, IFC possesses registration rights with respect to an aggregate of 300,000 shares of the Company’s Common Stock. Pursuant to the IFC Purchase Agreement, the Company filed a registration statement on Form S-3 on April 18, 2002, which was subsequently declared effective. IFC has the right to require that the registration statement be kept effective until the earlier of (1) such time as IFC is able to freely sell its shares without registration and without regard to volume or manner of sale and (2) two years from its purchase of the shares.

4. Under Common Stock Purchase Agreements dated June 24, 2002, Green Hill Investments, Inc., Chancellor Holdings Limited and Nithyananda Ent. Ltd. (collectively, the “GCN Investors”) possess registration rights with respect to an aggregate of 47,808 shares of the Company’s Common Stock. Pursuant to the Common Stock Purchase Agreements, the Company filed a registration statement on Form S-3 on July 19, 2002, which was subsequently declared effective. The GCN Investors have the right to require that the registration statement be kept effective until the earlier of (1) such time as the GCN Investors are able to freely sell their shares without registration and without regard to volume or manner of sale and (2) two years from their purchase of the shares.

5. Under a Common Stock Purchase Agreement dated August 9, 2002, PSC possesses registration rights with respect to an aggregate of 79,313 shares of the Company’s Common Stock. Pursuant to the Common Stock Purchase Agreement, the Company filed a registration statement on Form S-3 on October 25, 2002, which was subsequently declared effective. PSC has the right to require that the registration statement be kept effective until the earlier of (1) such time as PSC is able to freely sell its shares without registration and without regard to volume or manner of sale and (2) two years from its purchase of the shares.

6. Under a Series B Preferred Stock Purchase Agreement dated July 8, 2003, the Sol and Helen Price Trust, The Price Family Charitable Fund, The Price Group LLC, the Robert & Allison Price Charitable Remainder Trust and the Robert & Allison Price Trust 1/10/75 (collectively, the “Series B Investors”) possess registration rights with respect to an aggregate of 1,100,000 shares of the Company’s Common Stock. On August 5, 2003, the Company and the Series B Investors entered into a letter agreement extending to 180 days the period in which the Company must file a registration statement on Form S-3 with respect to the registrable shares. Once filed and declared effective, the Series B Investors have the right to require that the registration statement be kept effective until the earlier of (1) such time as the Series B Investors have completed the distribution of their shares as described in the registration statement and (2) two years from their purchase of the shares of Series B Preferred Stock.

EXHIBIT A

Schedule of Investors

Investor	Number of Shares	Aggregate Purchase Price
Sol and Helen Price Trust	330,000	$	3,300,000
Robert & Allison Price Trust 1/10/75	170,000	$	1,700,000
TOTAL	500,000	$	5,000,000

EX-10.2

EXHIBIT 10.2

TRANSLATION

LOAN CONTRACT

Between the undersigned, BANCO BILBAO VIZCAYA ARGENTARIA (PANAMA), S.A., a corporation duly recorded on Microjacket 099364, Roll 9705 and Image 0163 of the Microfilm (Mercantile) Section of the Public Registry, duly represented in this proceeding by JENNY G. FONG AND MARINELLY ARCE DE SALAZAR, holders of personal identity cards No. 8-229856 and 6-269-925, respectively, in their capacity as joint attorneys-in-fact thereof, on the one hand, hereinafter known as the BANK, and on the other, Messrs. JESUS VON CHONG AND JULIO WONG, holders of personal identity cards number 8-25-806 and 8-427-573, respectively, acting in the name and on behalf of the corporation called PRICESMART PANAMA, S.A., recorded on Microjacket No. 308071, Roll No. 47,670 and Image No. 0060, duly authorized for this act by means of a resolution of the General Meeting of Stockholders of said corporation, adopted at its meeting of                             , of which an authentic copy is attached to this Contract, hereinafter called THE DEBTOR, a Loan Contract is entered into which is contained in the following clauses:

AMOUNT AND PURPOSE

ONE: The BANK states that upon request of the DEBTOR it has opened a loan facility in favor of the DEBTOR in the amount of THREE MILLION DOLLARS USA (USD 3,000,000.00), legal tender of the United States of America, which amount may be used by the DEBTOR, solely and exclusively through:

XX The contracting of a Loan for a period not longer than five (5) years.

It is expressly agreed that, in any case, the sum total of the amounts owed as loans granted may not exceed the amount of THREE MILLION U.S. DOLLARS (USD 3,000,000.00), legal tender of the United States of America, maximum limit of this loan.

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AVAILABILITY

TWO: In order to use any of the amounts of money and credit facilities made available to the DEBTOR, the said party must sign, accept and deliver to the BANK the form(s) which the BANK has available to this effect for the DEBTOR, for this transaction, as well as the promissory note(s) or negotiable document(s) to be used. Said negotiable or credit document(s) will meet all requirements and be filled as directed by the BANK. It is also agreed that the signing, acceptance and delivery of the aforementioned documents by the DEBTOR do not constitute novation.

THREE: Nevertheless, the BANK may refuse to allow the DEBTOR to use any unused amounts and facilities when, in the opinion of the BANK, the DEBTOR has failed to comply with this contract or if its financial condition does not sufficiently guarantee the credits of the BANK, according to the latter’s opinion.

FOUR: For the payment of the amounts disbursed by the BANK in connection with the Loan, the DEBTOR will have a maximum period of FIVE (5) years counted from the date on which the disbursement is caused.

FIVE: To facilitate the payment of the amount disbursed by BANK with respect to the Loan, the DEBTOR undertakes to draw up a promissory note or negotiable document in favor of the BANK in the amount disbursed with respect to the Loan. The BANK may agree to divide the amount disbursed into a number of promissory notes or negotiable documents.

SIX: The BANK may, at its entire discretion, agree to a refinancing of the already financed promissory note(s) or negotiable document(s) when, in the opinion of the BANK, this may be convenient to its interests. In this event, the BANK may accept a new term or terms for the refinanced document(s), which will be understood to be included in this Loan Contract with respect to all of its effects.

SEVEN: It is understood by the parties that the promissory note(s) or negotiable document(s) mentioned in the preceding clause constitute simple means to facilitate the payments and that,

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consequently, in no event will this mean a novation of the obligations which are contracted by virtue of the present Contract.

EIGHT: The DEBTOR hereby assumes the position of Principal Payee and obligor of all of the obligations contracted in favor of the BANK, under the present contract, and certifies that said obligations shall not be considered extinguished or diminished because of any act or omission by the BANK, or if, upon making the presentation thereof for payment it does not receive it and allows time to elapse, because the DEBTOR expressly waives the notices or notifications which may correspond thereto, as well as any request for it to grant its consent for any extension thereof or other act in connection with the contracted obligations and accept all clauses of all and any documents signed between the BANK, as principal debtor of said obligations.

TERM

NINE: The duration of this Contract if FIVE (5) years beginning on April 30, 2003.

It is expressly agreed that the BANK may at any time serve notice of termination by means of a telegram addressed to the DEBTOR and in such a case the Loan Contract will be understood to be closed beginning on the date of the respective telegram. In such a case, the DEBTOR may choose to pay within a period of thirty (30) days the total amount of all sums owed to the BANK or to pay not later than the term agreed to in the documents mentioned in clause FIVE.

Should it select this last alternative, the DEBTOR will continue to be obliged to fulfill all of the obligations imposed by this contract and the documents described in clause FIVE until such a time as all sums owed to the BANK are paid and it will be relieved from its obligations.

Notwithstanding the foregoing, if the BANK declares the contract terminated for the reasons listed in clause TWENTY ONE, the total amount owed by the DEBTOR to the BANK shall be considered due and payable without need for notification or prior notice and will be immediately payable to the BANK.

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In turn, the DEBTOR may at any time declare the account terminated by paying the amount owed to date and giving notice to the BANK in writing, upon making the payment, that it wishes the account to be terminated.

INTEREST

TEN: On the amount(s) owed by way of loan or loans, the DEBTOR undertakes to pay interest to the BANK at the rate that results from adding TWO AND ONE HALF (2.5) BASIC POINTS to the LIBOR1M rate, quoted to the BANK for MONTHLY periods. The quotation received by the BANK will be regarded as full proof. This rate will be adjusted MONTHLY by the BANK.

The DEBTOR undertakes to pay a minimum interest rate of Five (5%) per cent, per annum.

The DEBTOR agrees to the payment of interest in the manner stipulated and any variation thereof, on the bases stipulated in this clause. The DEBTOR agrees to pay, in the event of a variation in the clause regarding interest, the new interest rate on the amount owing beginning on the date on which the increase or decrease of the interest rate takes effect. The BANK may communicate to the DEBTOR the changes in the interest rate in the receipts or other vouchers regarding the payment of the credit.

In the event of default on the payment of the promissory notes financed by the BANK, the DEBTOR undertakes to pay to the BANK on the amounts due and payable, a delinquency rate of interest of FOUR (4%) per cent per annum, in addition to the interest agreed to in this clause or EIGHTEEN (18%) per cent per year, whichever is higher. Interest will be capitalized if it is not paid at the appropriate time.

The interest corresponding to the loan(s) used by the DEBTOR, financed by the BANK, will be paid by the DEBTOR not later than the thirtieth (30th) or thirty first (31st) day of each month.

PAYMENTS

TWELVE: The DEBTOR, on the due dates, will make all payments due at the offices of the BANK in Panama City, or at any place designated by it in writing. The amount of said

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payments, whether applicable to the principal, commissions or interest or any other concept will be paid in legal tender of the United States of America, and in no other currency, from funds immediately available, free from any income tax, stamp taxes or taxes of any other nature, as well as from any assessments, fees, duties, fiscal levies, taxes, deductions or withholdings, present or future, which may have to be paid with respect to said payments to any Government or to any political subdivision or fiscal authority of any country, which will be for the account of the DEBTOR, because in such case the amounts owing will be increased so that the BANK will always receive the amounts it would otherwise receive if such rates, taxes, deductions, withholdings, charges, levies, etc. did not exist.

It is also agreed that the DEBTOR assumes and will assume any losses resulting from political risks, monetary restrictions, devaluations, transfers and the costs thereof, withholdings, exchange commissions and other similar charges or monetary, fiscal or economic changes which may affect its debt to the BANK because the latter must receive the amounts owing to it and the interest and commissions totally and without any discounts, devaluations or reductions.

The DEBTOR agrees that the payments be made by means of debits to the current account it maintains at BANK, in which the DEBTOR will keep the necessary funds available on the date of the corresponding payment. In no event will such debits produce novation.

GUARANTEES

THIRTEEN: The DEBTOR undertakes to give to the BANK any guarantees that may be agreed to additionally, if the BANK so requests, specially in such cases when changes occur in the economic situation of the DEBTOR, or if the value of the guarantees already offered or given to the BANK has diminished in the opinion of the BANK.

AFFIRMATIVE AGREEMENTS

FOURTEEN: During the life of this contract, the DEBTOR undertakes to maintain its legal existence, not to merge, dissolve or liquidate its assets, without prior authority in writing from the BANK.

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FIFTEEN: Taxes. The DEBTOR undertakes to comply with all laws, rules, regulations and orders which may be applicable thereto and also to pay all of its obligations when they become payable on demand and to pay in a timely manner all of its taxes and levies, whether national or municipal in nature.

SIXTEEN: Equity. The DEBTOR undertakes not to allow variations in the percentage or proportion of ownership of the capital stock of the DEBTOR and not to allow or record the transfer of the shares of stock, shares or participations which are currently owned by its shareholders, or partners, without prior consent in writing form the BANK.

SEVENTEEN: Financial Statements. The DEBTOR undertakes to carry accounting records of its financial condition, inventories, books and files in accordance with the laws and government regulations and with the generally accepted accounting principles. It also undertakes to present to the BANK within the three (3) months following the closing of each fiscal period, a balance sheet and statement of its financial condition and in regard to the status of each one of its businesses, as well as a cash flow sheet each semester and each fiscal year or at any other time that the BANK so requests while this contract is in effect. Said balance sheets, reports and statements will be audited by persons who are competent and accepted by the BANK.

EIGHTEEN: Compensatory Balances. The DEBTOR will maintain a current account with confirmed credit balances whose daily average will be equivalent to that agreed to by the parities. The verification of the confirmed average daily balances will be made the last day of each quarter.

NINETEEN: Application. The DEBTOR authorizes and empowers the BANK to apply any amounts of money which the DEBTOR has on deposit at the BANK, be these in current accounts, savings accounts, time deposits, or accounts of any other kind, whether joint or individual, to the payment of the obligations arising from this Line of Credit, the BANK being allowed to make debits to such accounts for the payment of the obligations due.

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In the event of expiration of any of the obligations due, the BANK may retain until such a time as the obligations referred to are paid, the assets, credits and valuables owned by the DEBTOR which are as of that date in the possession, control, custody or tenancy of the BANK, which assets will, as of that moment, be pledged, in addition, in favor of the BANK, which may, consequently, request the judicial sale thereof in order to collect with privilege the amount owed from its proceeds or to exercise the right of compensation. It is understood that the BANK may exercise, against the DEBTOR, simultaneously or successively, the right of compensation or action of pledge referred to in this paragraph.

INFORMATION

TWENTY: The DEBTOR fully authorizes the BANK to gather information from third parties regarding the, economic situation of the DEBTOR and regarding any matter directly or indirectly related thereto. Similarly, it authorizes (the BANK) to provide information to third parties. The DEBTOR relieves the BANK and other banks, firms, lending companies and third parties from any liability concerning the information they provide. Instead, it instructs them thereby to provide and obtain any and all information they require or feet they need.

The BANK and all other third parties will only be answerable for willful misconduct or bad faith in the use and handling of said information.

EVENTS OF DEFAULT

TWENTY ONE: In addition to whatever has been agreed to by the parties in other clauses of this contract and auxiliary documents, the BANK may declare this contract terminated and/or due and payable all amounts owing to it by the DEBTOR and to take judicial action for all sums owed, if any of the following occurs

a) Should the DEBTOR fail to pay upon expiration any installment or payment against capital or interest or commissions agreed to in this contract or in the credit documents used in the development of this Line of Credit.

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b) Should the DEBTOR or any of its sureties or guarantors become insolvent or become subject to a creditors agreement or if it is declared bankrupt or the assets or business of the DEBTOR or of its sureties or guarantors are attached or seized or in any other manner pursued.

c) Default by the same persons on any of the clauses or provisions of the present contract or default on any of the clauses or provisions of the credit instruments used in the development of this Loan Contract or default on any other obligation they maintains with the BANK.

d) If the DEBTOR has committed or commits in the future omissions or inaccuracies in its reports to the BANK or in the balance sheet or financial statements it has supplied or supplies to the BANK.

e) If the credit facilities are used in activities other than the ordinary course of business of the company or for purposes other than those agreed to, or if they are used, by itself or by others, in investments or businesses other than those of the current course of business of the DEBTOR.

The parties agree that if the BANK declares the contract terminated for the reasons listed in this clause, the total amount owed by the DEBTOR to the BANK will be considered due and payable without any need for notification or notice and will be immediately payable to the BANK.

INSURANCE

TWENTY TWO: The DEBTOR undertakes to maintain its assets and properties insured against fire, earthquakes, flooding, damages of any sort, theft and larceny.

If the DEBTOR fails to take out the necessary insurance or fails to renew it in due time, the BANK may do so for the account of the DEBTOR. Any sums due on this account will earn interest on balances due at the maximum interest rates allowed, the DEBTOR being obliged to pay them to the BANK upon the latter’s request. The DEBTOR assigns and conveys to the BANK up to the limit of this Loan, all moneys on indemnity which in the event of loss it may have to pay to the insurer and it will consequently endorse and immediately deliver to the BANK the respective policies and their renewals. In the event of loss, the BANK will recover the

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indemnity provided for in the policies, applying the proceeds thereof to the payment of the amounts owed thereto and the balance, if any, will be delivered to the DEBTOR.

EXPENSES

TWENTY THREE: For the account of the DEBTOR and payable upon request by the BANK will be any expenses in which it incurs for reason in this contract and any documents which are issued for the development thereof. Also for the account of the DEBTOR will be the expenses and lawyers’ fees, notarial fees, deeds, fiscal and registration fees incurred for reason of this contract, as well as judicial or extrajudicial costs and fees required to demand compliance with this contract; also for the account of the DEBTOR will be all expenses and obligations incurred by the BANK in good faith under the belief that it is responsible for or is obliged to make such disbursements, whether or not they are directly or indirectly related to this contract or to the promissory notes, negotiable documents (instruments); letters of credit, guarantees or any other document issued for reason of this contract, whether such responsibility or obligation existed or not and any vouchers submitted by the BANK will constitute full proof against the DEBTOR. The sums disbursed by the BANK for the account of the DEBTOR shall earn interest on the balance due, at the interest rate established by the BANK for this type of disbursement and the interest will accrue during the time the disbursements made are not reimbursed to the BANK.

NOTICES

TWENTY FOUR: Any notice which the BANK should or wishes to give to the DEBTOR for reason of this contract may be given at the following address: PriceSmart Panama, Esquina de Via Brasil and Via España, Panama.

The notice will be understood to have been given once the letter, telex, fax or telegram has been posted, or deposited or delivered at any office intended for such communications.

WAIVERS

TWENTY FIVE: The DEBTOR waives domicile, the steps of executory proceedings and presentation, and any notice of failure to honor the debt and demand thereon.

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ASSIGNABILITY

TWENTY SIX: The DEBTOR agrees that the BANK may assign, all or part of the credits and guarantees referred to in the present contract, to any credit institution or to any third party, without the need for prior consent by the DEBTOR or notice from the DEBTOR or notice thereto.

JURISDICTION AND APPLICABLE LAW

TWENTY SEVEN: The parties agree that any legal proceeding that has to be carried out in connection with the interpretation, application or termination of this contract, as well as its auxiliary documents, will be submitted to any competent court domiciled in Panama City, Republic of Panama or, at the option and discretion of the BANK, to any courts domiciled in any city or country the BANK my designate or select in that regard; and irrevocably that any definitive ruling in any such actions or proceedings will be conclusive and may be demanded or enforced in any other jurisdiction through a suit on the basis of said ruling or in any other manner provided by law.

The parties also agree that all matters related directly or indirectly to this contract, as well as its auxiliary documents, will be subject to the laws of the Republic of Panama except in the case of actions or proceedings instituted by the BANK at the courts of a different country or jurisdiction, in which case said actions or proceedings will be subject to the laws of said jurisdiction or country, without giving effect to the principles of selection of the laws thereof.

ACCEPTANCE

TWENTY EIGHT: The BANK accepts the obligations established in its favor in this contract and other documents related to this Line of Credit.

POWERS

TWENTY NINE: The person(s) signing and accepting this document on behalf of the DEBTOR declares(s) that he(they) have the necessary power(s) and authority(ies) to negotiate and to sign it, as well as the power to bind it.

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He(they) similarly declare that all natural or juridical persons who in one way or the other bind themselves under this contract are corporations duly registered and existing under the laws of the place where they were constituted and that on the date of the signing of this contract he(they) has(have) any knowledge of the existence of any damage or action against said persons before any court or government institution, which may in any way adversely affect the financial position or operation thereof.

In witness whereof, the present contract is signed in Panama City on 31 of the month of March, 2003.

The DEBTOR	The BANK
	/s/    Edda Lia Noriega
	EDDA LIA NORIEGA TRADUCTORA PUBLICA AUTORIZADA RESOLUCION No. 201              de Agosto de 1970

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TRANSLATION

GUARANTY

The undersigned Jesus Von Chong and Julio Wong, holders of personal identity documents No. 8-251-806 and No. 8-427-563 respectively acting in the name and on behalf of PRICESMART REAL ESTATE PANAMA, S.A., hereinafter called the guarantor, hereby agree to become joint guarantors of the obligations which PRICESMART PANAMA, S.A. may have in favor of the BILBAO VISCAYA ARGENTARIA (PANAMA), S.A., BANK, hereinafter called THE BANK, regardless of their origin, during all the time they subsist, partially or totally, and state that they will not be regarded as extinguished or diminished by virtue of any action or omission by THE BANK, or if upon making the presentation for payment it does not obtain said payment and allows time to elapse, because the guarantor expressly waives the notices or notifications that may correspond thereto, as well as the obtention of its consent for any extension or any other action in connection with the obligations hereby incurred and accepts all clauses of any and all documents signed between THE BANK and PRICESMART PANAMA, S.A., as if it were the principal debtor, including the payment of collection charges or costs in the event of execution. Similarly and for all legal effects it expressly waives domicile, presentation, the benefit of excussion, protest, notice of default on any document, or any future demand in the event of default, the proceedings of executive suit and as of now relieves THE BANK of the obligation to post bond for the payment of costs in connection with any execution or suit in connection with this obligation and agrees to bear all expenses and costs that may be incurred or caused by any execution or suit resulting from this obligation or the obligations it guarantees, whether these be judicial or extrajudicial, and agrees that the amount for which any

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suit is filed in connection with the obligations it is guaranteeing will serve as the basis for auction.

Similarly, it authorizes THE BANK to change to its account, if it deems it is wise, the outstanding balance of this obligation.

/s/    Edda Lia Noriega        

EDDA LIA NORIEGA

TRADUCTORA PUBLICA AUTORIZADA

RESOLUCION No. 201

             de Agosto de 1970

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EX-10.3

EXHIBIT 10.3

Registry number 364535

NUMBER EIGHTEEN (18).- CONTRACT OF CREDIT AND ESTABLISHMENT OF COLLATERAL OVER MERCANTILE AND FIDUCIARY ENTERPRISES. In the city of Guatemala, on February twenty eight two thousand three, before me, HENRY PHILIP COMTE VELASQUEZ, Notary, appears for one part Mr. JUAN ANTONIO MIRO LLORT, forty eight years old, married, banker, Salvadoran and from this dwelling, who mediates in his capacity of General Agent with the Representation of CITIBANK, N.A. SUCURSAL GUATEMALA (GUATEMALAN BRANCH), capacity which he certifies with the first testimony of public deed number forty nine (49) authorized in this city by Notary Anabella Bruni de Bermúdez on September fourth nineteen ninety six, which contains Official Record of the General Power of Attorney with Representation granted by CITIBANK, N.A. on favor of Mr. Juan Antonio Miró Llort, document that was registered in the Protocols’ General Files Management to number four hundred sixteen thousand eight hundred thirty seven (416837) on September seventeenth nineteen ninety six, and at the General Mercantile Registry from the Republic to number twenty one thousand five hundred seventeen (21517), folio three hundred twenty four (324) from book fifteen (15) of Powers of Attorneys dated September nineteenth nineteen ninety six. And on the other part appears: I) Engineer MICHAEL EDWARD ASCOLI GIRON, who declares to be forty eight years old, married, Guatemalan, Chemical

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Engineer and of this dwelling, who acts in the following authorities: A) in his capacity of President of the Board of Directors and in the legal representation of the entity “PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, particulars which he proves with notarial certificate in which it is evident his appointment, which was authorized in this city by Notary Liliana Yolanda Sánchez Mack, on December ninth two thousand two and registered at the General Mercantile Registry from the Republic to number two hundred thousand one hundred seventeen (200117), folio thirty five (35)

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from Book one hundred twenty seven (127) from the Commerce Auxiliaries dated December tenth two thousand two. Engineer Michael Edward Ascoli Giron in representation of “PriceSmart (Guatemala) Sociedad Anonima” declares to be dully authorized to grant this contract, according to the contents of the notarial certificate granted in this city by Notary Liliana Yolanda Sanchez Mack on January twenty sixth two thousand two, which transcribes the relevant parts of the record that belongs to the meeting celebrated by the Board of Director’s of “PriceSmart (Guatemala), Sociedad Anonima” on July twenty five two thousand two; and B) in his authority of GENERAL AGENT with Representation in the entity GRUPO SOLID, S.A. (founded with initials and according to the laws from the Republic of Panama) authority which he proves with the second testimony of public deed number thirteen (13) authorized in this city by Notary Mario Rodolfo Virula Boy on January fourteenth nineteen ninety four, which records officially the public deed number eight hundred twenty seven (827) authorized in the city of Panama by the Notary Public of the Lawyer’s Circuit of Panama, Noemi Moreno Alba on January twenty first nineteen ninety four, which at the same time records officially the Record that belongs to the meeting celebrated by “Grupo Solid, ..S.A.” on January twenty nineteen ninety four, which contains the General Power of

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Attorney with Representation granted by “GRUPO SOLID, S.A.” (founded with initials and according to the laws from the Republic of Panama) on favor of Mr. Michael Edward Ascoli Giron, appointment which is dully certified and proven to become effective in the Republic of Guatemala, which was recorded at the Protocol’s General File Management to number four hundred thirty eight thousand seven hundred fifteen (438715) on February twenty six nineteen ninety seven.; the same document was registered at the General Mercantile Registry from the Republic to number twenty two thousand three hundred four (22304), folio

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REGISTRY NUMBER 364536

four hundred fifteen (415), from book fifteen (15) of Powers of Attorneys dated March tenth nineteen ninety six. Also appears Mr. DAVID CARLOS EKMAN KHAN, who declares to be thirty years old, married, businessman, of Swedish nationality and of this dwelling, who acts in his capacity of General Manager and in the legal representation of the entity “GESTIONES MERCANTILES, SOCIEDAD ANONIMA” particulars which he certifies by means of a notarial certificate in which it is evident his appointment, which was authorized in this city by Notary Ana Gabriela Contreras Garcia, on June nineteenth two thousand two and registered in the General Mercantile Registry from the Republic to number one hundred ninety three thousand six hundred sixty seven (193667) of the Commerce Auxiliaries on June twenty fifth two thousand two. Mr. David Carlos Ekman Khan in representation of “Gestiones Mercantiles, Sociedad Anomima” declares to be dully authorized to grant this type of contract, according to the contents of the notarial certificate authorized in this city by Notary Liliana Yolanda Sánchez Marck on July twenty fifth two thousand two, which transcribes the pertinent parts of the certificate that belongs to the Regular General Stockholders Meeting of “Gestiones Mercantiles Sociedad Anonima” celebrated on July twenty fifth two thousand

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two. I ATTEST: a) to have previously known the first of the appearing persons, not so Mr. Michael Edward Ascoli Girón and Mr. David Carlos Ekman Khan, who identified themselves respectively by means of their personal identity cards numbers in order A dash 1 (A-1), and of registry five hundred fourteen thousand nine hundred eighty five (514985), issued by the Municipal Mayor of Guatemala, department of Guatemala and number of order A dash 1 (A-1) and of registry sixteen thousand sixteen (16016) issued by the Municipal Mayor of Fraijanes, department of Guatemala, respectively: b) that the representation that are exercised are sufficient according to the law and to my judgment to celebrate the present proceedings

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c) of having had at sight the documents and provisions which authorize them, as well as the personal identity cards which numbers have been already mentioned; d) that according to the declarations made by the appearing, such representations are in force and their appointments and authorizations have not suffered any restriction nor any modification that prevents or conditions them to grant this deed; and e) that I have made sure that all of them are in the free exercise of their civil rights, they declared that by the present act grant CONTRACT OF CREDIT AND CONSTITUTION OF COLATERAL OVER EMPRESAS MERCANTILES AND FIDUCIARIA (MERCANTILE ENTERPRISES AND FIDUCIARY) according to the following clauses: FIRST: OF THE CREDIT.- Mr. Juan Antonio Miro Llort declares that his represented Citibank, N.A., through its branch in Guatemala, which hereafter in this instrument can also be denominated as the Bank grants and opens to PRICESMART GUATEMALA SOCIEDAD ANONIMA, entity that in this deed can also be identified as the DEBTOR, a credit for the amount of EIGHTEEN MILLIONS SIXTY THREE THOUSAND SEVEN HUNDRED FIFTY QUETZALES (Q18,063,750.00) which will disbursed and given to the debtor on the day following the date in which is presented to the Bank the testimony of this deed in which is evident the reason of inscription of the collateral placed by the General Mercantile Registrar from the Republic in the form indicated father on, as well as the

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certification of that same Registry of the collateral securities in which is evident that such collateral of enterprise to which this instrument is referring occupies first place on favor of the Bank. The joint presentation date of those documents which will be the one that is apparent in the reception seal of the Bank. SECOND.-STIPULATIONS OF THE CREDIT. The credit referred in the precedent clause is liable among others, to the following stipulations; a) Use. - The debtor will use the credit to pay the debts and as working capital; b) Term. - The term of the credit is of TWO YEARS AND SIX MONTHS

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REGISTRY NO 364537

counted from March first two thousand three, for which it will expire on August thirty first two thousand five. If such day is a nonworking day, the term will conclude on the previous immediate working banking day. c) Form of Payment.-. The Debtor will pay the credit by means of TEN TRIMESTRAL AND CONSECUTIVE PAYMENTS, thus: i). The first two payments will be for the amount of ONE MILLION SEVEN HUNDRED FIFTY NINE THOUSAND FIVE HUNDRED QUETZALES ( Q1,759,500.00) each one and must be paid respectively on the last working day of the month of May two thousand three and August two thousand three ii) from the third to the sixth payment will be for the amount of ONE MILLION SIX HUNDRED EIGHTY SIX THOUSAND ONE HUNDRED EIGHTY SEVEN WITH FIFTY CENTS QUETZALES (Q1,686,187,50) each one, and must be paid respectively on the last working day of the month of November two thousand and three, February two thousand four, May two thousand four and August two thousand four, and iii) from the seventh to the tenth and last payment will be for the amount of ONE MILLION NINE HUNDRED FIFTY THOUSAND QUETZALES EXACT AMOUNT (Q1,950.000.00) each one, and must be paid respectively on the last working day of the month of November two thousand four, February two thousand five, May two thousand five and August two thousand five. Such amounts do not include the interest

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equivalent to the period of time elapsed and the payments must be made on the last working day of the month on which the payment of capital must be made, according to the establishment made in this clause. During the term of the present contract, the Debtor is not allowed to make advanced payments of capital during the Periods of Interests agreed. If in spite of this prohibition, the debtor manifests its wish to make advance payments of capital, it is obligated to pay for such advanced payment a recharge imposed by the Bank. Any balance must be cancelled at its maturity. The payments must be made on the last working day of each month in which the payment of capital must be made according to the establishment made in this clause. d) Interest and Commissions- The contracting parties agree that the present

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credit is subjected to variable interest rate which, from time to time will be fixed by the Bank, deciding in this act as initial interest rate ELEVEN POINT SEVENTY FIVE PER CENT (11.75%) yearly. Therefore the Bank can change in any moment and up to the actual and total compliance of the obligation, the initial interest rate, and the subsequent ones which can be increased or decreased. These interest rates will be applied automatically to the credit’s debit balances without the need of any requirement or formalization, from the date decided by the Bank, being obligated the debtor party to pay them from that moment. The increases or decreases of the interest will not represent in any event novation of the obligation. The variation of the interest rate will become effective automatically without the need of any formal requirement, although, for effects merely informative a written communication must be sent to the debtor to the address that is appointed in this document. The interest will be calculated over the base of one year of three hundred and sixty (360) days and charged by the days actually elapsed in the period in which the interests are payable. The interest will be paid monthly on the last day of each calendar month of the in force period of this contract, making the first payment the last day of the month following the one in which the disbursement was made, and the last payment will be made together with the payment of balance on the maturity date of same. Assuming that the Monetary Board

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fixes again maximum interest rates for the Bank’s active operations, to the present obligation will be applied an interest rate that decides the Management of the Bank within the limit authorized for such application which will also be made automatically, without the need of any requirement or authorization, and from the date in which the respective resolution of the Monetary Board comes into effect. The interest rate, in this last case, will continue to be variable being able to Bank to increase or decrease it within the limits permitted by the

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REGISTRY NO 364538

resolution of the Monetary Board. Finally the debtor party accepts to pay the commissions for extensions of the term of this credit that the Bank is authorized to charge. In case the Bank authorizes any extension, accepts that if the credit’s expenses, commissions, interest and/or capital are not paid before its due date, the Bank could charge the respective value in the due date to any account that the debtor possesses in the same and apply to it up to the amount concurrent to the to the aforementioned concepts, e) Default Interests.- In case the Debtor incurs in default in any of the obligations that belong to it by virtue of this contract, it will pay over the debit balances default interests at the reason an annual interest rate equal to FIVE percent points (5%) additional to the agreed rate, which will be calculated from the first day in which the delay has been incurred until the day in which the Bank receives to its entire satisfaction the debit amounts, all without prejudice of the right that the Bank has to finish the term of the contract prematurely due to the incompliance of the Debtor f) Common Dispositions to the form of payment.- I.- The capital and interests will be paid to the Bank without the need to collect them, or without any other requirement in its offices located at the tercera avenida trece guion setenta y ocho of the 10 zona of Torres CitiBank, Planta Baja of this capital city, which the Debtor already

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knows, at the day that the payments must be made according to this contract. ii. The payments of capital and interest, in all cases, will be made in or before the seventeen hours, Guatemala’s time. In case one of the due dates is nonworking banking day the obligation will be paid on the previous working banking day and the interests will be calculated and paid until such that date. iii. For the effects of this contract, for nonworking banking day it is understood the day in which the banks can not attend the public in the City of Guatemala, Republic of Guatemala. iv. All payment that the debtor must make according to this contract will be made free of all and any retention or deduction of tributes

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commissions, charges, expenses o any other present or future concept which implies a decrease on the amount that the Bank must receive according to this contract. Accordingly, the Debtor will pay to whom it may correspond all the obligations to third parties that affect or influence at present or in the future in the amounts owned to the Bank in accordance to this contract. In an eventual case where by disposition of the law was prohibited to the Debtor to make debit payments owned to the Bank without making deduction or retentions o pay any other amount or reimburse the Bank the amounts paid for such concepts, will be increased the payments for interests published from the date of such payment in the amount necessary so once the obligations are complied by the indicated concepts, the Bank receives integrally all the amounts established in this contract. Without prejudice of the aforementioned, with the purpose to verify that such tributes, commissions and others have been dully paid by the Debtor, the Debtor is obligated to give the Bank within the fifteen working days following each payment, an authentic copy of the receipts which prove the compliance of the obligations. v.- In case the Debtor does not comply with the mentioned payments or obligations and as consequence the Bank is obligated to comply with them, the Debtor will reimburse the Bank within three working days following the notice that the Bank has

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made to the Debtor, that the Bank has made one, some or all these payments, the amounts paid for such concepts plus interests at a reason of a rate increased agreed for the value of this credit, and in its case, the commissions and expenses caused. THIRD.- FROM THE OWNERSHIP OF THE PROPERTY THAT WILL BE GIVEN IN COLLATERAL. I) Mr. Michael Edward Ascoli Giron, in representation of the entity PRICESMART (GUATEMALA) SOCIEDAD ANONIMA, declares under oath and is advised by the Undersigned Notary of the penalties related to the perjury offense, that his represented, is the only and legitimate owner of the following Mercantile Enterprises: A)

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REGISTRY NO 364539

PRICESMART PLAZA, located at sexta avenida numero zero guion setenta y nueve of the zona cuatro of the City of Guatemala (6ta Avenida 0-79, zona 4) registered in the General Mercantile Registry from the Republic under number two hundred thirty five thousand four hundred ninety four ( 235494), folio two hundred thirty six (236) from book one hundred ninety seven (197) of the Business Enterprises, according with the file number eighteen thousand one hundred ninety three dash two thousand (18193-2000); B) PRICESMART GUATEMALA, SOCIEDAD ANONIMA, located at veintiuna avenida numero siete guion noventa of the zona once of the city of Guatemala (21 Avenida 7-90) Zona 11, Guatemala city, registered in the General Mercantile Registry from the Republic under number one hundred ninety thousand two hundred twenty seven A) (190227 A), folio ninety (90) of book one hundred fifty five (155) of the Mercantile Enterprises, according with the file number twenty eight thousand nine hundred thirty four dash one thousand ninety eight (28934-1998). Mr. Michael Edward Ascoli Giron declares in the capacity in which he acts: i) That he proves the ownership of the Mercantile Enterprises, property of PRICESMART GUATEMALA, SOCIEDAD ANOMIMA, by means of the presentation to the Undersigned Notary, of the documents which consist in Certifications issued by the General Mercantile Registry from the Republic on the twenty second day of July two thousand two, in which it is established

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the property of PRICESMART (GUATEMALA) SOCIEDAD ANONIMA. ii) That all taxes of any kind that exist in the present and that are in force, that the charges and taxes against all and each one of the Mercantile Enterprises demanded by any governmental authority from the Republic of Guatemala or any other fiscal political authority, have been completely and finally paid or supplied, in particular the Tax to the Mercantile and Agricultural Companies ; iii) That the Mercantile Enterprises property of his represented PRICESMART GUATEMALA, SOCIEDAD ANOMIMA, are free and over them there are no governmental encumbrances, annotations, leasing

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impediments, seizures, burdens, rights against it, collateral, use or usufruct or limitations that could in any way affect the rights of third parties; except a collateral constituted on favor of CITIBANK, N.A. SUCURSAL GUATEMALA, which will be cancelled with funds coming from the loan that is granted through this instrument. Mr. Michael Edward Ascoli Giron adds that the declarations made belong to the properties that will be pledged. The Notary advises him of the civil and penal responsibilities in which he could incur in case the previous declarations are not attached to the truth. II) Mr. David Carlos Ekman Khan, in representation of the entity “GESTIONES MERCANTILES, SOCIEDAD ANONIMA” declares under oath and advised by the Undersigned Notary of the penalties related to the offense of perjury, that his represented is the only and legitimate owner of the following Mercantile Enterprise: GERMERSA, located at septima avenida numero seis guion cincuenta y tres (6-53) of the zona cuatro of the City of Guatemala (7a Avenida 6-53, zona 4) Edificio El Triangulo, Nivel dicisiete oficina ciento setenta y dos (172), recorded in the General Mercantile Registry from the Republic under number two hundred ninety eight thousand sixty three (298063), folio eight hundred sixty eight (868) from book two hundred fifty nine (259) of the Mercantile Enterprises, according to file number twenty six thousand five hundred

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ninety four dash two thousand two (26594-2002). Mr. David Ekman Khan declares in the authority in which he acts i) that he proves the ownership of the Mercantile Enterprise property of “GESTIONES MERCANTILES, SOCIEDAD ANONIMA”, by means of the presentation to the Undersigned Notary of the document consisting in a Certification issued by the General Mercantile Registry from the Republic dated July twenty second two thousand two, in which it is established that the owner of this is “GESTIONES MERCANTILES, SOCIEDAD ANONIMA”; ii) That all the taxes of any kind that exist at present and which are in force, that the charges of taxes against the Mercantile Enterprise demanded by any

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REGISTRY NO 364540

governmental authority from the Republic of Guatemala or any other political or fiscal authority, have been completely and finally paid or supplied in particular the tax to the Mercantile and Livestock Enterprises; iii) That the Mercantile Enterprise possession of his represented “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” its free and over it there is no encumbrances, annotations, leasing, impediment, seizures, burdens or rights against it, collateral, use o usufruct or limitation that can in any manner affect the rights of third parties, except a collateral constituted on favor of CITIBANK, N.A SUCURSAL (BRANCH) GUATEMALA, which will be cancelled with funds coming from the loan that through this instrument is granted. Mr. David Carlos Ekman Khan adds that the declarations made belong to the property that will be pledged. The Notary advises him of the civil and penal responsibilities in which he could incur in case the previous declarations are not attached to the truth. FOURTH- CONSTITUTION OF COLLATERAL OF MERCANTILE ENTERPRISES i) A. Mr. Michael Edward Ascoli Giron manifests that his represented “PRICESMART (GUATEMALA), SOCIEDAD ANONIMA constitutes in favor of CITIBANK N.A. SUCURSAL GUATEMALA, in warranty of the payment of the totality of the obligations which are contracted herein by the entity PRICESMART (GUATEMALA) SOCIEDAD ANONIMA “ including capital, interests, costs, expenses, collections and any other demandable obligation in virtue of

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the law and this contract FIRST, SOLE AND SPECIAL COLLATERAL, over the Mercantile Enterprises property of his represented, which have been described and identified in subparagraph “A” and “B” of the roman numeral marked (i) of the third clause of this instrument, as well as over all the products and yields produced by such Mercantile Enterprises. He also declares, that on the name of his represented that in the collateral is included all the elements of the Mercantile Enterprises, the inventories, all the assets and all the ordinary and extraordinary accounts receivable of PRICESMART (GUATEMALA) SOCIEDAD ANOMIMA

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and especially accounts receivables resultant from credit instruments) and in fact and by right belong to PRICESMART (GUATEMALA) SOCIEDAD ANONIMA, as well as its cited Mercantile Enterprises; he adds that according to article six hundred fifty five (655) of the Commerce Code, it is understood as Mercantile Enterprise, the joint work, of material elements and intangible assets contracted to offer the public with the purpose to make profit or in a systematic manner, goods or services. Likewise, the collateral of the Mercantile Enterprises includes all issues established in article six hundred fifty seven (657) from the Commerce Code. Mr. Michael Edward Ascoli Giron continues declaring, in the authority in which he acts, that his represented “PRICESMART (GUATEMALA) SOCIEDAD ANONIMA” has agreed explicitly with Citibank, N.A. Sucursal Guatemala that the collateral of the Mercantile Enterprises, also includes the invention patents, the manufacturing and business secrets, the exclusives, and the concessions, as well as all the registries obtained in relation to the collateral securities, including any and all proceedings, books, maintenance of sales and operations registries and other information related to the same, as well as all the rights, titles and interest of PRICESMART (GUATEMALA) SOCIEDAD ANONIMA, with the collateral security, acts, authorizations, permissions, collections, consents, privileges, authority, licenses and rights of all kind, description and characters, options, inspections, documents that at

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present or in the future become property or are owned by PRICESMART (GUATEMALA) SOCIEDAD ANONIMA, to use in connection with the effective period, the use, operations and maintenance of the COLLATERAL SECURITIES and all the others previously indicated. Has been understood between the parties of the present contract that the debtor will not have any limitation or impediment to purchase and sell legal products as well as for all the operations that belong to the

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REGISTRY NO 364541

ordinary business of the Business Enterprises. B- . Mr. David Carlos Ekman Khan declares that his represented “GESTIONES MERCANTILES, SOCIEDAD ANONIMA, constitutes in favor of CITIBANK N.A. SUCURSAL GUATEMALA in warranty of payment for the entirety of the obligations contracted herein by the entity “PRICESMART (GUATEMALA(, SOCIEDAD ANOMIMA, including capital, interests, costs, expenses, collections and any other demandable obligation in virtue of the law or of this contract FIRST, SOLE AND SPECIALLY COLLATERAL over the Mercantile Enterprises property of my represented, describe and identified at the roman numeral two (II) of the third clause of this instrument, as well as over all the products and yields produced by the Mercantile Enterprise. He also declares in the name of his represented, that in the collateral is included all the elements of the Mercantile Enterprise, the inventories, all the assets and all the ordinary or extraordinary accounts receivables of “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” (especially accounts receivables arising from credit instruments) that in fact and by right belong to “GESTIONES MERCANTIELS SOCIEDAD ANONIMA” as well as his cited Mercantile Enterprise, he also adds, that according to article six hundred fifty five (655) of the Commerce Code, it is understood

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by Mercantile Enterprise or Business Company the joint work, of elements, materials, and intangible assets coordinated, to offer the public with the purpose to make profit or in a systematic manner, goods, and services. Likewise, the collateral of Mercantile Enterprise includes all the elements established in article six hundred fifty seven (657) of the Commerce Code. Mr. David Carlos Ekman Khan continues declaring, in the authority in which acts, that his represented “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA”, has expressed and agreed with Citibank, N.A., Sucursal Guatemala, that the collateral of Mercantile Enterprise or Business Company, also includes all the invention’s patents, the manufacturing and business secrets, the exclusives and concessions as

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well as all the registries maintained in relation to the collateral securities, including any and all the diaries, books, registries of operations, sales and maintenance and all the information related to these, as well as all the rights, titles and interests of “GESTIONES MERCANTILES, SOCIEDAD ANONIMA” with the collateral securities, all these authorizations, permissions, ordinances, consents, privileges, immunities, and rights of all kind, description and character, registries, mercantile documents, that at present or in the future can become part or are controlled by GESTIONES MERCANTILES, SOCIEDAD ANONIMA to use in connection with the form, use, operation or maintenance of the COLLATERAL SECURITIES, and all the other previously indicated. It is understood between the Bank and GESTIONES MERCANTILES SOCIEDAD ANONIMA, that it will not have any limitation or impediment to buy or sell legal products, as well as for all the operations that are and belong to the ordinary business of the Mercantile Enterprises of its ownership. II) Outstanding Balance.- The parties agree that the entities GRUPO SOLID, S.A (founded with initials and according to the laws from the Republic of Panama) and PRICESMART (GUATEMALA) SOCIEDAD ANONIMA, represented in this act by Mr. Michael Edward Ascoli Giron, and the entity “GESTIONES MERCANTILES SOCIEDAD ANONIMA” represented in this act by Mr. David Carlos

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Ekman Khan agree jointly and severally with all its present and future properties by any outstanding balance that could leave the collateral constituted on favor of the Bank iii) Deposit. The contracting parties appoint as bailee of the mercantile enterprises assigned to its respective owners, who through its legal representatives declare to have acknowledged the obligations inherent to this duty, and that they accept to perform the duty free of charge. The bailee’s enterprises declare through its respective legal representatives that are in actual and total possession of the pledged Mercantile Enterprises

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REGISTRY NO 364542

Likewise, they express, that they compromise to allow that the persons or entities designated by the Bank can in any moment inspect the condition of the same and if these are suffering any type of damage or deterioration or are not getting the due attention and maintenance or at the Bank’s judgment these are in condition of abandonment, the Bank can go to a Judge to request to be substituted immediately the duty of bailee, request that will be solved completely without forming any article, previous and only audience to the interested party. In case of execution, the bailees can be removed by the Judge by means of a simple request in such a sense on behalf of the Bank. In this case, it will be appointed as bailee the person that the Bank proposes. The bailee appointed at the Bank’s request will be exempted from the contribution of any bond or warranty to perform his duties. IV) The Debtor is obligated to respond for warranty of title and right of possession or hidden defects of the properties affected with the collateral V) Insurance - . Each one of the entities owners of the collateral securities, its obligated to contract and maintain in effect during the term of the contract and its extensions and in all cases until the effective payment of capital, interests, commissions, recharges, expenses and any other amount due according to the stipulations made in this contract, an insurance with any of the insurance companies authorized to operate in the country and which has been

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previously accepted explicitly by the Bank- for the amounts and against any risks that could affect the collateral security (ies) which are customary including acts of God, force majeure and malicious damage, extremes that, in case of discrepancies between the parties, will be determined by the Bank. The insurance shall be contracted on favor of the Bank as beneficiary of the insurance and it shall cover, as a minimum the total amount of the credit, interests, or the debit balance from time to time. Each one of the entities owners of the collateral securities and especially the debtor must provide to the Bank an authentic copy of the insurance policy with all the endorses and

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related documents in which it is evident the deductible amount and other conditions of the insurance. Besides, must send an authentic photocopy of the receipt for the payment of premium and if the insurance is paid divided, it is obligated to send the Bank all the copies of the receipts within five (5) working days following the date for the payment fixed in the Policy. It also compromises to send the Bank an authentic certificate signed by the legal representative of the insurance company in the sense that in case of sinister, the indemnity will be paid directly to the Bank, once the payment of tributes, commissions and any other concept have been deducted and which the Debtor is legally obligated to pay before the indemnity. The Debtor will provide the Bank the previous documents within three (3) working days following the signature of the contract and if a renewal or extension must be made or any modification or endorsement of the insurance during the term of the contract, the delivery must be made within the fifteen (15) working days following the renewal, extension, modification and/or endorsement. If to the Bank’s judgment the estimate of the remaining of the eventual indemnity is insufficient to cover the commercial value of the insured property, in case of sinister for any reason the debtor will contract according to the Bank’s instruction an additional insurance for the difference or warranties the same constituting

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a bond or any other warranty that is satisfactory to the Bank. In all case, if the Bank will consider by any motive or circumstance that the amount is insufficient or in case the debtor does not contract and/or maintains in effect the insurance in the form indicated, the Bank will have the right, although not the obligation to contract the insurance on the Debtor’s account, who by this act authorizes such request and contracting: VI) In virtue of all the aforementioned, the grantors in their respective capacities request by this means to the Honorable General Mercantile Registrar from the Republic to subscribe, registered and annotate on favor of CITIBANK, N.A. SUCURSAL GUATEMALA, the collateral of the Mercantile Enterprises constituted in this deed, according to the testimony of

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REGISTRY NO 364543

the same certifying in the same the collaterals that by this act are constituted, as well as these occupy the first place on favor of the Bank, VII) For his part, Mr. Juan Antonio Miro Llort in the name and representation of CITIBANK N.A. SUCURSAL GUATEMALA, accepts the collateral, that by this act its constituted on favor for his represented. FIFTH.- OTHER STIPULATIONS.- . A) It is agreed that during the effective period of the credit and up to the total cancellation of the amounts owed to the Bank, the owner of each one of the collateral securities will not, without the previous and written authorization of the Bank, alienate, lease, mortgage, constitute usufruct, cede to any title or mortgage of the collateral securities, under sanction of nullity of the acts or contracts which are celebrated and without prejudice to the right of the Bank to end in advance the term of the credit. B) It is explicitly agreed that the collateral constituted by this act, will remain in effect, and will become effective until the actual cancellation of the totality of the credit and its extensions. C) Maintenance of the Collateral Securities.- Each one of the entities owners of the collateral securities are obliged to maintain such mercantile enterprises in perfect condition of operation, conservation and maintenance, imposing the same obligations to their employees and dependants. The maintenance expenses, as well as any tax that mortgages the pledge mercantile enterprises will be paid solidarity by the owner or the Debtor. Each one of the entities

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owner of the collateral securities will give immediate notice to the Bank, in the day in which occurs or in the first following working day if it occurred in a nonworking day, of the existence of any risk or impairment on any of the collateral securities, as well as any damage, deterioration or destruction suffered by any of them. In the same form must communicate these circumstances to insurance company or to the corresponding insurance claim adjuster for the resultant effects. SIXTH.- DECLARATIONS AND OBLIGATIONS. Without prejudice of the other declarations and obligations contracted

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in accordance to this contract of credit, Mr. Michael Edward Ascoli Giron in legal representation of the debtor and of the entity “GRUPO SOLID, S.A.” (founded with initials and according to the laws from the Republic of Panama) and David Carlos Ekman Khan in representation of the entity “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” declare and assure respectively by this act: a) that each one of their represented are business corporations dully organized, existent and in good state of solvency according to the laws of the country of founding and the ones from the Republic of Guatemala and that they compromise to preserve and maintain during whole the term of the credit its legal existence and juristic person, as well as all its rights, including privileges, commercial names and to conduct their businesses in normal, organized and efficient manner; b) that each one of these corporations has the capability to be the owner of its properties and to carry out its business in the form these are carried out at the present time; c) that the execution and compliance of this contract does not contravene any legal or contractual precept which constitutes a case of incompliance in accordance with other contracts or instruments in which his represented is a part, or by any obligation that might have contracted, neither is prohibited by any other reason; d) that the debtor’s financial statements for the fiscal year that ended on June thirtieth two thousand two were prepared according to the accounting principles generally accepted

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and applied in a consistent base for the specified period and which reasonably show the financial situation of the debtor; e) without prejudice of the aforementioned the Debtor is obligated to provide the Bank its financial statements in any moment these are requested. In all cases, its obligated to give the Bank within one hundred and twenty (120) days following the closing of the fiscal year of each one of the years during the term of this credit or its extensions or up to the total cancellation of the credit, its financial statements of each corresponding year including the general balance, profit and loss statement

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REGISTRY NO 364544

statements for the stockholder’s capital changes and statement of changes in the Debtor’s financial situation. The referred financial statements related to each fiscal year will be presented audited by an auditor’s firm and by independent public accountants of well known prestige and acceptable to the Bank, and will be prepared according to the accounting principles generally accepted and calculated in a consistent base for the specified periods, and will also present reasonably the financial situation of the Debtor at the date of the same. If the Debtor is required by the Bank, must provide or put at the Bank’s disposition at its election, the record’s books, accounting books and the corresponding documental support, rendering all the necessary collaboration to the experts elected by the Bank for the due comprehension of the same. From that account, such experts can meet with persons or officials of the Debtor to give the necessary explanations about the financial situation; f) that the Debtor and the entities of “GRUPO SOLID, S.A.” (founded with initials and according to the laws from the Republic of Panama) and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” are subjected to civil and commercial common laws with relation to its obligations under the present Contract, and the registration, granting and compliance of their obligations under this Contract, from private common laws (lure gestionis) and not public or governmental acts (lure imperii). Neither the Debtor, nor the entities of “GRUPO

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SOLID, S.A.” (founded with initials and according to the laws from the Republic of Panama) and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” neither any of its properties have jurisdiction immunity of any court or of compensation or of any legal procedure (for citation, notification, preventive seizure, judicial seizure, forced execution or of any other form) under the laws of Guatemala and the ones from the United States of America; g) the debtor’s registered address is veintiuna avenida siete guion noventa de la zona once, city of

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Guatemala and that this address belongs exactly to the location where their main offices and the headquarters of its activities are located; h) That the contract contained in this instrument legally obligates the Debtor and the entities of “GRUPO SOLID, S.A.” ( founded with initials and according to the laws from the Republic of Panama) and “GESTIONES MERCANTILES, SOCIEDAD ANONIMA” according to each one of its clauses where is demandable its compliance. i) the legal representative of the Debtor expresses that since the date of the financial statements and patrimonial statement presented at the moment that the mentioned credit was requested until today, there have not been no general changes unfavorable in the assets, obligations (contingent or others), neither in the financial situation or business of the same. These are obligated to provide the Bank within three (3) working days following the date in which they have knowledge of any substantial adverse change in its financial situation, a detailed and precise report that contains at least, the nature of the change, the obligation (s) that affect the financial situation, situations of delay in which it has incurred, the time in which has been on delay, the measures proposed to remediate the situation and other relevant information related to the adverse financial situation; j) The debtor and the entities of “GRUPO SOLID, S.A.” (founded with initials and according to the laws from the Republic

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of Panama) and “GESTIONES MERCANTILES SOCIEDAD ANONIMA” are obligated to pay punctually all the expenses, taxes, rates, arbitrament, contributions or any other tribute to which these are obligated, except in those cases that in good faith have been opposed, circumstances that will notify the Bank immediately, or at least one day before of the maturity of the term to present the opposition. When is about tributes that pledge the collateral securities and/or the credit contract and with the purpose to verify that the same have been dully paid, the debtor and the entities of “GRUPO SOLID, S.A.” (founded with initial and according to the laws from the Republic of

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REGISTRY NO 364545

of Panama) and GESTIONES MERCANTILES, SOCIEDAD ANONIMA” are obligated to deliver to the Bank within fifteen (15) working days following the payment made, an authentic copy of the receipts that prove the compliance of such obligation. In case they don’t comply with any of the payments cited in this literal, authorize the Bank from now to make those payments on their account, always that the Bank decides to do it that way. In this event, they will reimburse the Bank within three (3) working days following the notification that the Bank has made such payment, the amounts that for such concepts the Bank has paid, plus interest at a reason of a rate equal to the one agreed for the value of the credit, and in its case, any commissions or expenses produced by the same; k) the collateral securities can be inspected periodically by the person or persons .who the Bank designates, and in all cases not less than two (2) times a year. The owner will allow such person to have access to the place and will provide all the collaboration and help that they might need to carry out the inspection. i) The debtor will maintain in effect the contracts and/or relations of work or services with the present management team, being able to substitute it only with personnel with the same qualifications or much better qualified than the present one; iii) That there is no pending lawsuit or administrative procedure before any tribunal or authority or arbiters that can affect in a negative or adverse form the financial situation of the

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Debtor or of the entities of “GRUPO SOLID, S.A.” (founded with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” neither any legitimate, validity nor liability of this contract. The Debtor and the entities “GRUPO SOLID, S.A. (founded with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” will inform the Bank immediately of any litigious matter in which they could be a part, and the next day of being notified of all judicial action and/or diligence instituted against them. When it deals about precautionary measurements

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It will inform the bank immediately at the moment to have knowledge of the same. It will also inform the Bank of any contingent obligations that might have; n) The Debtor will not contract mortgages, collateral securities or other type of obligations of any kind that will lead to encumbrances or limitations over the present properties or the ones acquire in the future, without the previous and written consent of the Bank; ñ) The Debtor and the entities of “GRUPO SOLID, S.A.” (founded with initials and under the laws from the Republic of Panama ) and “GESTIONES MERCANTILES SOCIEDAD ANONIMA” will comply with all the regulations, rules, laws, orders and in general with all the norms of all nature issued by competent authorities that are applicable; o) the Debtor will give prompt notice in writing to the Bank, no later than the day following the event, of any incompliance which will be accompanied by a declaration of the action proposed by the Debtor to remediate the incompliance; p) That during the term of the present credit, the debtor must maintain and reflect the following financial situation; i) That its reason of service coverage of debt be in any moment greater than one point five (1.5) to one point zero (1.0). For the purpose of the calculus for “Reason of Debt Service Coverage” must be calculated annually from the last day of the Debtor’s fiscal year, for the period of one year ending at the date of determination of this and must be

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defined, as the Debtor’s earnings before the interests, tributes, depreciation and amortization (EBITDA) over the amount of the payments of interests, capital, and the normal portion of the long term debt (those debt payments that will be made during the period following that one to which such determination was made, all determined according to the accounting principles generally accepted and applied in consistent form; ii) That is reason of indebtedness should be in any moment no greater than three (3.0) to one (1.0) during year two thousand three, no greater then two point eighty (2.80) during year two

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REGISTRY NO 364546

thousand four and no greater then two point sixty (2.60) to one (1.00) during year two thousand five. For the purposes of the calculus, must be defined the “Reason of Indebtedness” as the Debtor’s total of liabilities (including the obligations due to the headquarters, PriceSmart Inc and to any other enterprise related to the headquarters office); over the Debtor’s earnings before interests, tributes, depreciation and amortization (EBITDA) all as they are determined according to the accounting principles generally accepted and applied consistently; iii) That the total maximum level of the Debtor’s debt, over the Debtor’s earnings before the interests, tributes, depreciation, and amortization (EBITDA) can not be in any moment greater then two (2.0) to one (1.0). For the purpose of its calculus, must be defined “Total Debt” as debt to banks, short and long term debts, plus any other amount owed to PriceSmart, Inc. and to any other company related to the head office. SEVENTH.- INCOMPLIANCE AND PREMATURE TERMINATION . The Bank could, at its discretion give as matured the term of the contract in a premature form and demand the payment of capital, interest, expenses and in some cases, judicial costs as well as any other obligations or payments owed according to this contract and in the event that any of the following cases happen: a) if the debtor no fulfills the payment of interests and capital, expenses and commissions to the Bank when these are due or payable, at its expiration or in any

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other date fixed for its payment; b) if noncompliance of the Debtor or the entities of “GRUPO SOLID, S.A. (Established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” any of the obligations that were implicit in this credit contract, or of those that according to the law will have to be assumed, c) when a material change happens which is adverse to the financial condition or to the business of the debtor, that at the Bank’s opinion affects its guarantee or increases its risks; d) when a material change

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in the political, economical and monetary situation or of any other kind in the Republic of Guatemala that to the Bank’s opinion increases its risks; e) if the Debtor is object of demand, seizure, kidnapping, or intervention, or if its declared in bankruptcy or if it promotes creditors bankruptcy proceedings or is initiated against it forced creditors bankruptcy proceedings or bankruptcy; f) if any of the properties of the Debtor or the ones of the entities of “GRUPO SOLID, S.A” (founded with initials and under the laws from the Republic of Panama) and “GESTIONES MERCANTILES, SOCIEDAD ANONIMA” but specially the collateral securities suffer such depreciation or loss that do not give enough support to the Bank, except that these offer and actually constitute a warranty that is satisfactory to the Bank; g) if the debtor reduces its properties, amortizes or acquires its own stocks, enters in dissolution, liquidation, by absorption or by consolidation in or with another person without the previous knowledge and approval of the Bank; h) if the debtor’s stockholder’s meeting agrees to distribute dividends in each fiscal period, even if these come from normal profits obtained and/or accumulated by an amount superior to the amount equivalent to sixty (60%) percent of its positive annual net income; i) if the debtor alienates a substantial part of its properties to any other title without the previous authorization of the bank; j) if the Debtor does not comply with

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the payment of any other debt including capital, interests, commissions or non-complies in any other form its obligation on its charge and on favor or the Bank, in the maturity date of its normal term or in case of advanced maturity .k) if the debtor non-fulfils with the payment of another debt contracted with these at the measure that these become demandable, if it ceases in the payment of its obligations or if it makes a general cession on favor of creditors; l) if any sentence is dictated or against the Debtor or any entity of “GRUPO SOLID, S.A (founded with initials and according to the laws from the Republic of Panama) and

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REGISTRY NO 364547

“GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” demanding the payment of more than the amount of TWO MILLION QUETZALEZ (Q2,000,000.00) or its equivalent in another currency; m) If any governmental, judicial or any other competent authority from the Republic of Guatemala initiates action to expropriate, kidnapped, or takeover all or a substantial part of the debtor’s property or of the entities of “GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” or in another manner assumes custody or control of its property for intervention or in any other form, and/or restricts, limits or forbids the Debtor or the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” the management and the faculty to control its business; n) if the pledged mercantile enterprises are moved from location without the previous consent of the Bank, or if the same resulted deteriorated, destroyed or abandoned, lost or in another way affected; and o) If the debtor or the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” will merge with another corporation or if in any other way transfer the companies by means of which they make their activities and carry out their business. EIGHT.-

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AUTHORIZATION TO DEBIT . If the credit contracted by the Debtor is demandable in virtue of any other case foreseen as noncompliance by this contract or by the law, the Bank can retain the properties of the Debtor or of the entities of “GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” that are in its power or are at its disposition. Likewise, if the cited noncompliance occurs, the Debtor and the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES

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MERCANTILES, SOCIEDAD ANONIMA” authorize irrevocably to the Bank to debit any of the deposit accounts that these maintain in the Bank to the effect of extinguishing any debt on its account, and up to the maximum amount necessary to extinguish any of the debt’s amounts. NINETH.- CESION. The debtor and the entities of “GRUPO SOLID, S.A.” (founded with initials and according the laws from the Republic of Panama) and “GESTIONES MERCANTILES, SOCIEDAD ANONIMA” accept and recognize explicitly that the Bank can cede, pledge or negotiate in any form its right resulting from this credit, without the previous authorization, notice or consent of the Debtor neither of the entities of “GRUPO SOLID, S.A.” and “GESTIONES MERCANTILES SOCIEDAD ANONIMA”, notifying only by written the name of the new creditor and the place where the debtor must make the payment of capital as well as the corresponding interests. The Debtor can not cede or transfer the rights and obligations that belong to it according to this contract, neither directly or indirectly, without the previous consent of the Bank. TENTH.- WAIVERS. No fault or lateness of the Bank in the exercise of any right or faculty that belongs to it according to this contract, will produce effects of a waiver of the same. Neither will prevent for that same motive any other right or future exercise of such rights or any other faculty, action, pretension, exception nor resource.

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Likewise it will not inherit that creditor the partial exercise of the same. All the rights, actions, pretensions, exceptions and others established in this contract, does not exclude any other foreseen by the law. ELEVENTH.- FEES AND EXPENSES. The fess and expenses that are caused due to the present business and from the inscription of the collateral at the General Mercantile Registry from the Republic, as well as the judicial and extrajudicial ones related to its collection, will be on the debtor’s account . TWELVE.- APPLICABLE SUBSTANTIVE LAW

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REGISTRY NO 364548

This contract is regulated, governed, and interpreted according to the laws from the Republic of Guatemala. THIRTEENTH. PROCESSAL EFFECTS A) the Debtor and the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA”. recognize as executive title perfect and un-objected the testimony of the present deed, resign to the jurisdiction of their dwelling and are explicitly submitted to the competence of the tribunals from the city of Guatemala elected by the Banks. In the same manner, the Debtor and the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA”. accept as liquid, demandable and of due term the amount that the Bank demands to them and as good and exact the figures that the Bank presents to them, with relation to this credit; B) The Debtor and the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES MERCANTILES, SOCIEDAD ANOMIMA” exempt the Bank of the obligation to present bond, warranty, collateral or counter-guarantee for the exercise of their rights or derived from the precautionary measure. C) For the effects of this contract, the Debtor and the entities of GRUPO SOLID, S,A.” (established with the initials and according to the laws from the Republic of Panama), and “GESTIONES

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MERCANTILES, SOCIEDAD ANOMIMA” fix and appoint as the place to receive notification, citations and communications, or mail the address indicated in the subsection g) of the sixth clause of this present instrument and obligate themselves to communicate in writing to the Bank any change, in the understood that if they do not do so, all the notification, citations or communications send or practiced to such address will be considered valid and well done. D) The Debtor party accepts that the present obligation it’s submitted to the provisions, special regimen, procedure of execution and of intervention of the

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Law of the Banks and will only be apply supplementary the regulations of other laws to supply the differences of that one. FOURTEENTH. SUBSTITUTION OF OTHER AGREEMENTS. This contract and any other documents subscribed as a result or in compliance to the same, express the complete agreement of the parties in relation to the juridical business that the parties have celebrated in this instrument. Every extension, modification, addition, novation, waiver of rights and termination must be made with the written authorization and approval of the Bank. FIFTEENTH.- DIVISIBILITY. If any agreement of the credit or of this contract or the application of the same to any person by any circumstance is considered invalid, null or inefficient, or by any other motive prevents to become effective the legal effects, such invalidity, nullity, inefficiency or impediment will not affect that any other covenant that can become effective without the detailed covenant. For such end, the agreements, covenants, rights and obligations contained in this contract of credit are divisible. SIXTEENTH.- ACCEPTANCE.- the grantors on the capacity they act, declare their acceptance to the clauses and stipulations of this instrument. I the Notary ATTEST. a) of all the expressed; b) that I have had at sight the related documentation, and the certification issued by the General Mercantile Registry from the Republic in which it is evident that the pledged personal property pertain to their respective owners; and c)

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that I have read to the appearing what has been written, who after reading it personally, acknowledged its contents, objective, validity, legal effects and registration, they ratified, accept and sign jointly with the undersigned Notary

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REGISTRY NO 364549

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THIS IS TESTIMONY of the public deed number EIGHTEEN (18) authorized by me, in this city on February twenty eight two thousand three, which contains CREDIT CONTRACT WITH CONSTITUTION OF COLLATERAL OVER MERCANTILE AND FIDUCIARY ENTERPRISES, granted by CITIBANK, N.A. SUCURSAL GUATEMALA, on favor of the entity PRICESMART (GUATEMALA) SOCIEDAD ANONONIMA, and to the given to the entity CITIBANK, N.A. SUCURSAL GUATEMALA, I issue, seal and sign and number in sixteen (16 pages, the first fifteen (15) in photocopy which agree faithfully with its original and which are printed from the first to the fourteenth in both sides and the fifteenth only in the front side and the present in bond paper legal size printed only at the front side. To the present testimony are not adhered fiscal stamps in virtue of being exempt of the payment of the same according to establishment in subparagraph six (6) from article twelve (12) of the Law of Taxes of Fiscal Stamps and Stamped Legal Paper Especial for protocols or commissions, Decree number thirty seven dash ninety two (37-92) from the Congress of the Republic of Guatemala, March fourth two thousand three.

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EX-31.1

Exhibit 31.1

Certification

I, Robert E. Price, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PriceSmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 14, 2004	/s/    ROBERT E. PRICE
	Robert E. Price Interim Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, John M. Heffner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PriceSmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 14, 2004	/s/    JOHN M. HEFFNER
	John M. Heffner Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of PriceSmart, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended November 30, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: January 14, 2004	/s/    ROBERT E. PRICE
	Robert E. Price Interim Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of PriceSmart, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended November 30, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: January 14, 2004	/s/    JOHN M. HEFFNER
	John M. Heffner Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.