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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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: 0-23278
BRAZIL FAST FOOD CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3688737
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Praia do Flamengo
200-22o. Andar
CEP 22210-030
Rio de Janeiro, Brazil N/A
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 55-21-556-0424
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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- -
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Class A Redeemable Common Stock Purchase Warrants,
Class B Redeemable Common Stock Purchase Warrants
(Title of Class)
----------------------
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes........ No.........
The number of shares outstanding of the Registrant's common stock is
10,784,525 (as of April 10, 1997).
The aggregate market value of the voting stock held by non-affiliates of
the Registrant is $16,448,546 (as of April 10, 1997).
DOCUMENTS INCORPORATED BY REFERENCE
None
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Unless otherwise specified, all references in this Report to (i) "REAIS,"
the "REAL" or "R$" are to the Brazilian REAL (singular), or to the Brazilian
REAIS (plural), the legal currency of Brazil, and (ii) "U.S. dollars" or "$" are
to United States dollars. All amounts in Brazilian currencies which existed
prior to the adoption of the REAL as the Brazilian national currency on July 1,
1994 have been restated in REAIS in this Report. Unless otherwise specified,
all financial statements and other financial information presented herein are in
accordance with generally accepted accounting principles in the United States
("U.S. GAAP").
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Brazil Fast Food Corp. (the "Company"), through its wholly-owned
subsidiary, Venbo Comercio de Alimentos Ltda. ("Venbo"), a Brazilian limited
liability company which conducts business under the tradename "Bob's", owns and,
directly and through franchisees, operates the second largest chain of hamburger
fast food restaurants in Brazil.
BUSINESS COMBINATION WITH "BLANK CHECK" COMPANY
The Company, formerly known as Trinity Americas Inc. ("Trinity"), was
formed in September 1992 to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other similar business combination (a
"Business Combination") with an operating business (an "Acquired Business")
located in Latin America, primarily in Argentina, Brazil, Chile or Mexico (the
"Target Countries").
In February 1994, Trinity successfully consummated an initial public
offering of its equity securities (the "IPO") from which it derived net proceeds
of approximately $9,600,000. Of such proceeds, approximately $8,800,000 was
deposited in a trust account (the "Trust Account") pending the consummation of a
Business Combination, which occurred on March 19, 1996 as described below, at
which time such proceeds, including interest earned thereon (approximately
$9,900,000), were released to Trinity. The balance of such net proceeds, which
were not required to be deposited in the Trust Account, were used to pay
Trinity's IPO offering expenses, to pay Trinity's operating expenses subsequent
to the IPO, including expenses attendant to the evaluation of prospective
Acquired Businesses, and to partially defray professional fees and other
expenses incurred by Trinity in connection with the Acquisition (as hereinafter
defined).
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ACQUISITION OF "BOB'S"
On March 19, 1996 (the "Closing"), Trinity acquired all the outstanding
quotas (shares of capital stock) of Venbo from Bob's Industria e Comercio Ltda.
("BIEC") and Arnaldo Bisoni ("Bisoni") for $19,200,000 (the "Purchase Price"),
of which $16,700,000 was paid in cash at the Closing (inclusive of a $100,000
prepayment in October 1995), with the balance of $2,500,000 payable with
interest at the rate of 1-1/8% per annum over LIBOR and due 720 days from the
Closing, with payment to be assured by a guarantee of Banco Bradesco S.A. In
addition, Trinity acquired all of the trademarks relating to Venbo's business
from Vendex International N.V., an affiliate of both BIEC and Bisoni, for
$1,800,000 (the "Trademarks Purchase Price"), payable to BIEC with interest at
the rate of 6-7/8% per annum in monthly installments equal to 4% of Venbo's net
sales for each immediately preceding month. Trinity's acquisition of the quotas
and trademarks is hereinafter referred to, collectively, as the "Acquisition."
At the Closing, Trinity issued 1,046,422 shares of its Common Stock to
Shampi Investments A.E.C. ("Shampi) in exchange for the assignment by Shampi to
Trinity of Shampi's right to acquire the outstanding quotas of Venbo. These
shares have been pledged as collateral security for Trinity's payment of the
Trademarks Purchase Price.
In order to raise sufficient cash to complete the Acquisition and to fund
Trinity's subsequent expansion strategy, Trinity sold 3,115,701 shares of its
Common Stock to new investors in a private transaction (the "Initial Private
Placement") at $3.20 per share, resulting in net proceeds to Trinity of
approximately $10,000,000. The participants in the Initial Private Placement
were domestic, European and Latin American financial institutions and private
investors, all of whom were "accredited" (as such term is defined in the
Securities Act of 1933, as amended (the "Securities Act"), and in the rules
promulgated thereunder).
Funding of the cash portion of the Purchase Price was derived from the
following sources: (i) approximately $9,900,000 from the funds held in the Trust
Account; (ii) $4,000,000 from a Brazilian subsidiary of Coca-Cola, which was
paid to the Company concurrently with the consummation of the Acquisition, in
consideration for Coca-Cola products being designated the exclusive soft drink
products for all of the Company's restaurants for a ten-year term and for the
Company's agreement to participate at its own expense in joint promotions and
marketing programs with Coca-Cola during such term; and (iii) $2,800,000 from
the net proceeds of the Initial Private Placement.
As a result of the Acquisition and the Initial Private Placement: (i) Venbo
became a wholly-owned subsidiary of the Company, (ii) Shampi and the investors
in the Initial Private
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Placement, collectively, acquired an approximately 58.4% equity interest in the
Company, (iii) designees of Shampi constituted three of the five members of the
Company's Board of Directors, and (iv) the Company's name was changed to "Brazil
Fast Food Corp."
The Company was incorporated in the State of Delaware in September 1992.
The executive offices of the Company are located at Praia do Flamengo, 200-22 .
Andar, CEP 22210-030, Rio de Janeiro, Brazil; its telephone number is 55 21
556-0424.
RECENT DEVELOPMENTS
MR. THEO ACQUISITION
On June 10, 1996, the Company acquired all of the outstanding capital
shares (quotas) of, respectively, Bigburger Sao Paulo Lanchonetes Ltda. and
Bigburger Goiania Lanchonetes Ltda., each a Brazilian limited liability company
(collectively, the "Mr. Theo Companies"), from a non-affiliated person, for (i)
$250,000 (paid in Brazilian REAIS) and (ii) 510,000 shares of the Company's
Common Stock.
The Mr. Theo Companies owned and operated 8 "Mr. Theo" hamburger fast
food restaurants in Sao Paulo and Goiania, Brazil. All of these, including
one outlet purchased by a Company francisee, have been rebranded and are now
operating under the Company's "Bob's" tradename.
BIGBURGER ACQUISITION
On July 24, 1996, the Company acquired the hamburger fast food restaurant
assets of each of BigBurger Ltda. and five of its affiliated Brazilian companies
(collectively, "BigBurger") from a non-affiliated person for 1,520,000 shares of
the Company's Common Stock. Of the shares issued to BigBurger Ltda., 228,000
shares have been pledged in favor of the Company as collateral security for the
transfer of operating leases and an additional 228,000 shares have been pledged
in favor of the Company as collateral security for the truth and accuracy of the
several representations and warrants made by the Company.
BigBurger owned and operated 27 "BigBurger" hamburger fast food restaurant
outlets (inclusive of outlets operated by franchisees) in nine Brazilian States.
All of these outlets have been rebranded and all but one are currently operating
under the Company's "Bob's" tradename. This remaining former "BigBurger" outlet
is temporarily closed pending a site relocation.
The Mr. Theo and BigBurger acquisitions, together with the Company's direct
expansion efforts and franchising activities, have increased the number of
"Bob's" hamburger fast food retail outlets (including kiosks and moveable
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trailers) to 126 as of March 31, 1997. Of these 126 outlets, 89 were owned by
the Company and the balance by franchisees. All Company outlets, inclusive of
those operated by franchisees, aggregated 79 as of March 31, 1996.
PRIVATE PLACEMENTS
In order to fund the cost of an accelerated program for modernizing and
upgrading the appearance of its newly acquired and existing hamburger fast food
retail outlets, the Company in August 1996 raised approximately $4,850,000 in
net proceeds from the sale to new investors in a private transaction of 621,250
units at a price of $8.00 per unit, each unit consisting of two shares of common
stock and one common stock purchase warrant (the "Second Private Placement").
The participants in the Second Private Placement were domestic, European and
Latin American financial institutions and private investors, all of whom
were"accredited" (as such term is defined in the Securities Act and in the rules
promulgated thereunder).
During the first quarter of 1997, the Company sold an aggregate of
400,000 shares of its Common Stock in unrelated transactions to
two Brazilian banks and one European institutional investor,
respectively, from which the Company derived net proceeds of
$1,210,000.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
HISTORY OF "BOB'S"
The first Bob's was established in 1952 by Bob Falkenburg, an American
Wimbledon tennis champion. Mr. Falkenburg opened his first restaurant on
Copacabana Beach, selling hamburgers, hot-dogs, french fries and milk shakes.
Following upon the success of the first Bob's, Mr. Falkenburg opened another six
in the metropolitan Rio area. He ran the business for 22 years and sold it to
Libby McNeil E. Libby USA ("Libby") in 1974. After acquiring such business,
Libby opened additional outlets and broadened the menu. In 1982 Nestle Ind'l
Com'l Ltd. ("Nestle") purchased the worldwide businesses of Libby, including
Bob's. Nestle ran the business until 1987, when it was sold to BIEC (or an
affiliate of BIEC). On March 19, 1996 BIEC sold Venbo to the Company.
RESTAURANT OPERATIONS
Bob's, whose slogan is "Tasty is in Bob's," is particularly known for its
milkshakes (which were selected almost unanimously as the milkshake preferred by
leading young artists in a survey conducted for the Sunday magazine of the
JORNAL DO BRASIL, a national newspaper) and the special spicing of its
hamburgers.
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Each Bob's restaurant serves a generally uniform menu featuring hamburgers,
french fries, soft drinks and juices, cold sandwiches, desserts and milkshakes.
Selected Bob's restaurants also serve coffee and/or beer. The food is prepared
to order with the customer's choice of selected condiments.
The made to order feature of Bob's restaurants distinguishes it from other
"fast food" operations. Although Bob's system is somewhat slower than the
single-line system used by its competitors, the quality and flavor of its food
is enhanced. Most Bob's restaurants are designed with two service lines, one to
place the order and pay for the food and another to pick up the food. The
customer's guest check is read by a service representative, who after
instructing the grill team to prepare the order, delivers the order to the
customer. A factor which helps ensure the quality of the products delivered to
customers is the bin holding time which is limited to five minutes during peak
operating hours. During non-peak hours, all products are cooked to order.
Bob's restaurants generally open at 10:00 A.M. for lunch and remain open
for dinner. Closing hours vary according to location. In some locations with
proximity to late night entertainment, the outlets remain open for the "after
hours" crowd. Although Bob's restaurants are not generally open for breakfast,
the Company intends to test market a limited breakfast menu at selected
restaurants within the next several months.*
Bob's prices are consistently positioned at the same level as those for
comparable products offered by its major competitors. Management attempts to
maintain the overall cost of a Bob's meal competitive with lunch prices covered
at the popular street snack bars ("lanchonetes").
Originally, Bob's restaurants were built as counter service facilities to
accommodate its initial primary clientele of teenagers. In keeping with its
current efforts to attract family oriented customers, all of the Bob's
restaurants built since 1980 have included seating facilities. In addition,
approximately one-half of the 26 pre-1980 restaurants have been renovated to
update the decor, expand the seating facilities and provide air conditioning.
Bob's restaurants have an identifiable style highlighted by their distinctive
red and white color theme, which is used on all Bob's signage as well as paper
goods. The Bob's style is carried through in the uniforms worn by Bob's
personnel, which are occasionally modified to feature hats and T-shirts used in
Bob's promotions.
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* Denotes a statement that may be considered forward-looking.
See "--Forward-Looking Statements."
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For the past several years, Bob's has been the exclusive provider of
hamburgers and related items at three of Brazil's largest special events -
Carnivale, the two week festive period which precedes the advent of Lent, the
Formula One Automobile Racing Championships and the Motorcycle Grand Prix. In
addition, Bob's products are sold at other special events throughout Brazil,
including boat fairs, automobile fairs and state rodeos. Using custom
constructed trailers and moveable kiosks, Bob's is able to offer most of its
products at temporary locations for the duration of the special event. In
addition to providing an additional source of revenues, Bob's visibility is
enhanced by signage that can be picked up via television coverage of the special
event and by reaching a consumer market where the Company may not have a
permanent outlet.
The Company's revenues are subject to seasonal fluctuations. Customer
traffic is highest in the summer months and is lowest during the winter months.*
The following table presents information concerning openings and closings
of Company-owned and franchised restaurants for the years ended December 31,
1996, 1995 and 1994:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
COMPANY-OWNED RESTAURANTS:
Opened during period 30 3 1
Closed during period 0 0 2
Open at end of period 80 50 47
FRANCHISED RESTAURANTS:
Opened during period 17 1 2
Closed during period 3 0 3
Open at end of period 34 20 19
The Company has the opportunity from time to time to acquire the interests
of and to sell restaurants to franchisees, and it is anticipated by management
that the Company may engage in such transactions in the future.* The Company
generally retains a right of first refusal in connection with any proposed sale
of a franchisee's interest.
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* Denotes a statement that may be considered forward-looking.
See "--Forward-Looking Statements."
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The following table presents information concerning the average guest check
per customer and the sales distribution by meal period for Company-owned
restaurants for the years ended December 31, 1996 and 1995:
PERCENT OF AVERAGE GUEST
TOTAL DAILY SALES CHECK PER PERSON
----------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
Lunch (10:00 a.m. - 5:00 p.m. ) 70.0% 70.0% R$4.79 R$4.29
Dinner (5:00 p.m. - 10:00 p.m.) 30.0% 30.0% R$5.11 R$4.58
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Total 100.0% 100.0%
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The Company strives to maintain quality and uniformity throughout all
Company-owned restaurants by publishing detailed specifications for food
products, food preparation and service, by continuous in-service training of
employees, and by field visits from Company supervisors. Quality control at
each restaurant is undertaken by the store manager, who visually inspects the
products as they are being prepared for cooking. The manager also keeps a
record of the expiration date of the products in inventory. In the case of
franchisees, field visits are made by Company personnel who review operations
and make recommendations to assist in compliance with Company specifications.
Company quality control inspectors are also sent to each restaurant
periodically to conduct a review of the food stock. These inspectors also
take samples of the water used at each restaurant in the preparation of food
and drinks as well as random samples of one food item which are taken to a
contract laboratory for a microbiological analysis.
GROWTH STRATEGY*
Brazil's population of 160 million is the sixth largest in the world and is
expected to increase to 180 million by the year 2000. Brazil's largest city,
Sao Paulo has 10 million residents and a metropolitan area population of 17
million persons. Rio de Janeiro, the second largest city, has 5.5 million
residents and a metropolitan area population of 11 million persons. Eight other
metropolitan areas have populations in excess of one million. According to
Media Data '95, a non-affiliated consulting concern, the average income for the
population of nine main markets in Brazil including Sao Paulo and Rio de
Janeiro, was as follows: $3,900 for 20% of such population, $7,500 for 31% of
such population, $13,000 for 29% of such population, $39,000 for 18% of
__________________
* Denotes a statement that may be considered forward-looking.
See "--Forward-Looking Statements."
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such population and $78,000 for 2% of such population. The study, which took
into account income and spending habits of the targeted population, concluded
that the fast food market is one of Brazil's fastest growing business segments
and that the potential Brazilian fast food market could exceed 60,000,000
persons. Based upon the foregoing, management believes there is significant
room for expansion in the fast food market.
Management expects to focus its growth in the more densely populated
regions of the country, particularly the developing population corridor from
Rio de Janeiro to Sao Paulo. Management plans to continue to open
Company-owned stores in the Rio de Janeiro/Sao Paulo corridor and to
facilitate its expansion in other areas by focusing more significantly on
franchising its operations, particularly through agreements pursuant to which
a franchisee will be obligated to develop several Bob's restaurants in a
particular region ("Territory Agreements"). Management also anticipates
taking advantage of the continuing construction and development of shopping
malls in Brazil, where food courts can be a significant profit center.
In addition, management expects to capitalize on Venbo's 45 year history
in Brazil. As a locally based company, it believes it has the capacity to
understand and respond to consumer taste preferences in developing additional
local markets and test marketing new products and concepts. Management will
also take advantage of its customized trailers and moveable kiosks, unique to
the Company when compared to its competitors, to continue to maximize its
ability to cater to special events and temporary markets, and also to test
certain markets on a temporary basis.
In conjunction with its growth plans for the Company, management is
evaluating methods of maximizing the efficiency of the Company's operations.
Management plans to install computer systems and cash register systems to
provide for the automatic transmission from each outlet to its headquarters of
sales and inventory information. The Company has also been test marketing the
use of credit card payment at selected locations.
Management is exploring alternate distribution channels for the Company to
maximize consumer exposure in an economically efficient manner. Management
expects to utilize the "store-within-a-store" concept where the Company will
either rent space from a larger non-competitive retail consumer operation or
will rent space in its own outlet to other non-competitive fast food providers,
to maximize consumer traffic while minimizing costs of operation. The Company
currently rents space in two of its Sao Paulo stores to Dunkin' Donuts, which
does not compete directly with Bob's, but offers complementary products.
Management expects to achieve economies of scale by reason of an agreement with
Hardee's Food Systems, Inc. ("Hardee's") pursuant to which the Company has been
afforded the right to purchase restaurant equipment and food from
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Hardee's on the same terms and conditions as Hardee's licensees. Management
expects that the Company will secure significant volume purchasing discounts
pursuant to this agreement. Management also expects to explore opportunistic
acquisitions in the fast food industry in Brazil.
FRANCHISE PROGRAM
Each Company franchise agreement provides for a franchisee of a traditional
Bob's outlet to make an initial payment of $30,000 (or $20,000 for a compact
store) and to pay additional fees equal to 4% of the franchisee's gross sales in
its first two years of operation and 5% of monthly gross sales thereafter. In
addition, franchisees pay 4% of monthly gross sales for cooperative advertising.
The franchise agreement also provides that the franchisee must use Company
approved supplies and suppliers and must build each franchised outlet in
accordance with Company specifications at Company approved locations. The term
of a majority of the franchise agreements is 10 years, with a few agreements
having 5 year terms.
Prior to the Acquisition, approximately 12 months elapsed from the
Company's initial contact with a prospective franchisee to the opening of a
franchised outlet. Since the Acquisition, this time frame has been reduced to
approximately nine months. After the initial meeting, and if the potential
franchisee meets certain basic conditions, such as significant business
experience, financial resources and knowledge of the market in the area where
the franchise will be located, a preliminary agreement is signed. Prospective
franchisees are required to pay the Company a non-refundable fee equal to 50% of
the initial franchising fee to partially compensate the Company for the cost of
a three-month training program to familiarize the prospective franchisee with
the operation. After approximately three months, a final franchising contract
is signed outlining the obligations and responsibilities of each party,
including the franchising fees and promotion commissions to be paid to the
Company. Construction of the restaurant typically begins at this point and,
generally, is completed within three to six months. The franchising fee is
sufficient to cover all training expenses incurred by the Company.
In some cases, the contracts negotiated with existing franchisees have
differed from the standard described above to accommodate specific
requirements and characteristics of the franchisee. Territory Agreements
have been used with franchisees located in areas where the Company has
determined that it is in its best interest to establish two or more stores
within the geographic region. Territory Agreements incorporate the same
terms and conditions of the Company's franchise agreements, but also provide
for the franchisee to commit to opening an agreed upon number and type of
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stores within a specified time-frame.
By law, the Company cannot dictate the price at which franchisees sell
their products, although in general, franchisee prices mirror the prices at
Company-owned stores.
The Company receives 80 to 100 inquiries monthly from potential
franchisees. Up to 300 such inquiries are made in the weeks immediately
following industry trade shows. A steering committee formed by the Company's
top management receives formal franchising proposals and reviews them to
determine which should be accepted.
In addition to the 22 franchisees who, collectively, operated 37 outlets
at March 31, 1997, the Company has signed final franchising contracts with 6
new franchisees, as well as with 3 existing franchisees, to open and operate
18 additional outlets, to be located in the States of Rio de Janeiro, Sao
Paulo, Mato Grosso de Sul, Brasilia, Pernambuco and Maranhao. The majority
of these additional outlets are scheduled to be operational prior to the end
of 1998.* At March 31, 1996, the Company had 16 franchisees who,
collectively, operated 21 outlets.
ADVERTISING AND PROMOTIONS
The Company utilizes television, radio, and a variety of promotional
campaigns to advertise its products. The Company's primary promotional
campaign in 1996 was a four-in-one value meal, where customers receive a
sandwich, french fries, a drink and dessert for one value price. Large
promotional signs for this value meal were displayed at all Company-owned and
participating Bob's outlets.
The Company and its advertising agency annually develop a multi-media
marketing program to advertise the restaurant network in its primary markets.
The Company periodically develops 15 and 30 second television commercials which,
typically, are aired one to six times a day for a 15-day period. Temporary
product discounts are offered in Rio de Janeiro and Sao Paulo through radio and
television several times a year. Other successful promotional programs have
included offering products tied into popular movies with certain value meals,
and selling specially produced hats at a discount with certain value meals.
Bob's outlets
____________________
* Denotes a statement that may be considered forward-looking.
See "--Forward-Looking Statements."
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also offer a "kids meal" which includes three food items and a small packaged
toy. Certain outlets with Playgrounds offer special services for children's
birthday parties and also feature appearances by "Bobi", Bob's mascot, whose
visage was modernized during 1996. All these programs are reinforced by
visual tools, such as banners, posters and place mats.
The Company keeps franchisees informed of current advertising techniques
and effective promotions and makes the Company's advertising materials available
to the franchisees. The franchise agreement provides that franchisees will
spend 4% of their monthly gross receipts for advertising and promotions.
Individual stores also develop promotional programs to attract additional
clientele or to assist in the implementation of expanded business hours. These
promotions are paid for by each outlet. The Company commits a minimum of
approximately 4% of systemwide gross sales to its marketing activities.
SOURCES OF SUPPLY
The Company and its franchisees have not experienced any material shortages
of food, equipment, fixtures, or other products which are necessary to
restaurant operations. Management anticipates no such shortages of products
and, in any event, alternate suppliers are available.
Although the Company, prior to the Acquisition, had purchased food products
and packaging from a then affiliated entity which was also a wholly owned
subsidiary of BIEC, it has increased its sources of supply by now purchasing
from numerous independent suppliers. To take advantage of volume discounts, the
Company has entered into centralized purchasing agreements with these suppliers.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Food products are ordered by, and delivered directly to, each
restaurant. Billing and payment for Company-owned restaurants are handled
through the centralized office, while franchisees handle their own invoices
directly. Packaging and durable goods are delivered to a centralized warehouse
operated by a non-affiliated person, which delivers supplies to each of the
Company's restaurants. This centralized purchasing helps assure availability of
products and provides quantity discounts, quality control and efficient
distribution. In addition, management is exploring the possibility of entering
into joint purchasing arrangements with other users of the same products in an
effort to achieve increased volume purchasing discounts.
TRADEMARKS
Management believes that the Company trademarks and
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servicemarks are important to its business. All of such trademarks and
servicemarks, which were owned by Vendex International, were transferred to the
Company upon consummation of the Acquisition. These include marks relating to
the Bob's name, sign and logo and also include marks relating to specific menu
offerings.
The Company trademarks and servicemarks have been registered in the
Brazilian trademark office. These trademarks and servicemarks expire at various
times from 1997 to 2002. Renewals of these trademarks and servicemarks
generally have been obtained prior to their expiration.
COMPETITION
In terms of revenues, the Company is the second largest food service
organization in Brazil. Each Bob's restaurant is in competition with other food
service operations within the same geographical area. The Company competes with
other organizations primarily through the quality, variety, and value perception
of food products offered. The number and location of units, quality and speed
of service, attractiveness of facilities, and effectiveness of marketing are
also important factors. The price charged for each menu item may vary from
market to market depending on competitive pricing and the local cost structure.
Based on articles which have appeared in independent Brazilian newspapers
and periodicals, the Company believes that it and McDonald's are the market
leaders in the hamburger fast food business in Rio de Janeiro and Sao Paulo.
Statistical data drawn from these articles indicate that the Company's share of
the fast food hamburger chain market approximated 11.5%, 11.7% and 15.0% during
the years ended December 31, 1996, 1995 and 1994, respectively. McDonald's
accounted for substantially all of the balance of this market, which the Company
estimates to have been approximately $780 million in sales during 1996. Such
statistical data also indicated that in the overall fast food market, totalling
approximately $1.5 billion, the Company and McDonald's accounted for
approximately 6.0% and 43.0%, respectively.
Pizza Hut has approximately 132 fast food pizza restaurants in Brazil
pursuant to territorial franchise agreements with several investors in Sao
Paulo and nine other States and a company operated chain in the City of Sao
Paulo. There are 22 Kentucky Fried Chicken outlets in Brazil, all in Sao
Paulo. Domino's Pizza, Subway and Arby's have also entered the Brazilian
market. Habbib's, a Middle Eastern food chain, operates 72 outlets, of which
71 are in Sao Paulo and one in Rio de Janeiro, respectively. Arby's
currently operates 18 restaurants, of which 17 are in Sao Paulo and one in
Brasilia, respectively.
The Company's competitive position is enhanced by its use of fresh ground
beef and special flavorings, its made-to-order
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operations, its comparatively diverse menu, promotional products, its wide
choice of condiments, the atmosphere and decor of its restaurants and its
relatively long history in Brazil. Management believes that the use of
moveable trailers, which are not utilized by competitors, affords the
Company a competitive advantage.* Management also believes that Venbo, as a
Brazilian based company, has the advantage over its American competitors of
being able to readily understand and respond to local consumer preferences.*
PERSONNEL
As of December 31, 1996, the Company, including its franchisees, employed
approximately 3,300 persons, of whom approximately 2,400 were employed in
Company-owned restaurants. The total number of full-time employees at that date
was approximately 2,200. The Company's employee relations historically have
been satisfactory. The Company is not a party to any collective bargaining
agreements. However, it has agreed to be bound by the terms, as they may be
applicable to the Company's employees, of agreements negotiated on a
city-by-city basis by trade associations of hotel, restaurant and fast food
owners and operators, of which the Company is a member.
GOVERNMENT REGULATION
The Company and its franchisees are subject to regulatory provisions
relating to the wholesomeness of food, sanitation, health, safety, fire, land
use and environmental standards and, where applicable, liquor licensing as it
relates to serving beer in selected restaurants. Suspension of certain licenses
or approvals due to failure to comply with applicable regulations or otherwise,
could interrupt the operations of the affected restaurant. The Company and its
franchisees are also subject to Brazilian federal labor codes establishing
minimum wages and regulating overtime and working conditions.
Franchising regulations at the federal level were enacted at the end of
1994 in Brazil. The Company believes it is in material compliance with such
regulations. Should any further laws applicable to franchise relationships
and operations be enacted, the Company is unable to predict their effect on
its operations. The Company believes it is in material compliance with all
other regulatory provisions relating to its operations.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales
Not applicable.
__________________
* Denotes a statement that may be considered forward-looking.
See "--Forward-Looking Statements."
13
<PAGE>
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that such forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from those expressed therein. Such risks and uncertainties include, among
others, the following:
RISKS RELATING TO OPERATIONS
OPERATING LOSSES
----------------
For the year ended December 31, 1996, the Company incurred a net loss of
R$4,984,000. There can be no assurance that the Company's future operations
will be profitable.
COMPETITION
-----------
The restaurant industry, and particularly the fast food segment, is
highly competitive with respect to price, service, food quality (including
taste, freshness, healthfulness and nutritional value) and location. The
Company and its franchisees face competition from a broad range of other
restaurants and food service establishments. These competitors include
international, national and local fast food chains. The Company's most
significant competitor is McDonald's, whose restaurants offer food products
similar to those offered by Bob's restaurants, at comparable prices. Several
other international competitors are present in the Brazilian fast food
market, including Arby's, Subway, Pizza Hut and Kentucky Fried Chicken. A
significant Brazilian fast food competitor is Habbib's, which offers Middle
Eastern food at its 72 stores. McDonald's, in particular, has vastly greater
over-all financial and other resources than the Company.
The fast food industry is characterized by the frequent introduction of new
products, accompanied by substantial promotional campaigns. In recent years,
numerous companies in the fast food industry have introduced products positioned
to capitalize on growing consumer preference for food products that are, or are
perceived to be, healthful, nutritious, low in calories and low in fat content.
It can be expected that the Company will be subject to increasing competition
from companies whose products or marketing strategies address these consumer
preferences. There can be no assurance that consumers will continue to regard
Bob's products as sufficiently distinguishable from competitive products, that
substantially equivalent products will not be introduced by the Company's other
competitors or that the Company will be able to compete successfully.
CERTAIN FACTORS AFFECTING THE
FAST FOOD RESTAURANT INDUSTRY
-----------------------------
In order to remain competitive, the Company is required to respond to
changing consumer preferences, tastes and eating habits, increases in food and
labor costs and national, regional and local economic conditions. Many
companies internationally have adopted "value pricing" strategies. Such
strategies could have the effect of drawing customers away from companies that
do not engage in discount pricing and could also negatively impact the operating
margins of competitors that do attempt to match competitors' price reductions.
Continuing or sustained price discounting in the fast food industry could have
an adverse effect on the Company. In addition, after investing resources in
the training of its employees, the Company faces pressure from competitors who
may try to hire such employees after they have been trained by the Company.
RISKS ATTENDANT TO FRANCHISE EXPANSION
--------------------------------------
The Company's growth strategy is substantially dependent upon its ability
to attract, retain and contract with qualified franchisees and the ability of
these franchisees to open and operate their restaurants successfully. In
addition, the Company's continued growth will depend in part on the ability of
existing and future franchisees to obtain sufficient financing or investment
capital to meet their market development obligations. If the Company
experiences difficulty in contracting with qualified franchisees, if franchisees
are unable to meet their development obligations or if franchisees are unable to
operate their restaurants profitably, then the Company's future operating
results could be adversely affected.
GOVERNMENT REGULATION
---------------------
The Company and its franchisees are subject to regulatory provisions
relating to the wholesomeness of food, sanitation, health, safety, fire, land
use and environmental standards. Suspension of certain licenses or approvals
due to failure to comply with applicable regulations or otherwise, could
interrupt the operations of the affected restaurant. The Company and its
franchisees are also subject to Brazilian federal labor codes establishing
minimum wages and regulating overtime and working conditions. Changes in such
codes could result in increased labor costs that could adversely impact future
operating results. A Brazilian federal franchising law, enacted in December
1994, requires a franchisor to furnish a written offering statement to each
perspective franchisee prior to consummation of the sale of a franchise,
containing (i) the franchisor's background; (ii) the duties and responsibilities
of each of the franchisor and franchisee; (iii) all fees payable by the
franchisee to the franchisor; and (iv) information with respect to the
operations and profitability of prior franchisees of the franchisor. Such
offering statement is not required to be reviewed by, or filed with any
governmental agency. The franchise law also delineates the respective legal
rights, primarily rights of action, of the franchisor and franchisee. Should
any further laws applicable to franchise relationships and operations be
enacted, the Company is unable to predict their effect on its operations.
DEPENDENCE ON KEY PERSONNEL
---------------------------
Management believes that the Company's future success will depend in
significant part upon the continued service of certain key personnel
(principally Peter van Voorst Vader and Rogerio Carlos Lamim Braz, the Chief
Executive Officer and the President, respectively, of both the Company and
Venbo), and upon the Company's ability to attract and retain highly qualified
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that the Company can retain its existing key managerial
personnel or that it can attract and retain such employees in the future. The
loss of key personnel or the inability to hire or retain qualified personnel in
the future could have a material adverse effect upon the Company's results of
operations.
RISKS RELATING TO BRAZIL
CHANGE OF ECONOMIC ENVIRONMENT
------------------------------
In March 1994 the Brazilian government commenced a new economic
stabilization plan, known as the "REAL Plan". Pursuant to the REAL Plan, the
government (a) implemented a tax and public spending reform program designed
to reduce public expenditures and to improve the collection of tax revenues,
(b) announced the continuation of a privatization program and (c) on July 1,
1994, introduced a new currency, known as the REAL, to replace the CRUZEIRO
REAL.
The REAL Plan has resulted in substantial reduction in Brazil's rate of
inflation, which has declined from 2,489.11% per annum in 1993 to 929.32% per
annum in 1994 to 22.5% per annum in 1995 to 9.2% per annum in 1996,
respectively.
Despite the success to date of the REAL Plan in reducing substantially
prevailing inflation levels in Brazil, there can be no assurance that this
economic program will be any more successful than previous programs in reducing
inflation over the long term. Accordingly, periods of substantial inflation may
in the future once again have significant adverse effects on the Brazilian
economy, on the value of the REAL and on the Company's financial condition,
results of operations and business prospects.
CURRENCY FLUCTUATIONS
---------------------
Fluctuations in the exchange rates between the Brazilian currency and the
U.S. Dollar will affect the Company's operations. Brazil has historically
experienced generally unpredictable currency devaluations for many years.
Although the exchange rate between the REAL and the U.S. Dollar has been
relatively stable since July 1994, compared to prior periods, the potential for
future devaluation or volatility continues to persist.
POLITICAL AND CONSTITUTIONAL UNCERTAINTY
----------------------------------------
The Brazilian political scene has been marked by high levels of
uncertainty since the country returned to civilian rule in 1985 after 20
years of military government. The death of a President-elect and the
impeachment of another President, as well as frequent turnovers at and
immediately below the cabinet level, particularly in the economic area, have
contributed to the absence of a coherent and consistent policy to confront
Brazil's economic problems. While the free market and liberalization
measures of recent years have enjoyed broad political and public support,
some important political factions remain opposed to significant elements of
the reform program, including, in particular, the Workers' Party, headed by
Mr. Luiz Inacio Lula da Silva, the runner-up in the 1989 Presidential
elections and a candidate in the Presidential elections held on October 3,
1994. Mr. Fernando Henrique Cardoso, the former Finance Minister, was
elected as the new President and took office on January 1, 1995 for a single
four year term. Legislation to amend Brazil's constitution to permit Mr.
Cardoso to stand for re-election to a second four-year term, recently
introduced and passed in the lower house of Brazil's bicameral legislature,
is currently pending in the upper house where passage, although generally
expected, cannot be assured. Mr. Cardoso is expected to continue to pursue
the adoption of free market and economic liberalization measures similar to
those undertaken in recent years, although there can be no assurance that
such measures will be adopted or, if adopted, that they will be successful.
CONTROLS ON FOREIGN INVESTMENTS
-------------------------------
Brazil generally requires governmental approval for the repatriation of
capital and income by foreign investors. Although such approvals are usually
given, there can be no assurance that such approvals will be forthcoming in the
future. In addition, the government may impose temporary restrictions on
foreign capital remittances abroad, if there is a deterioration in the balance
of payments or for other reasons. The Company could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital from Venbo. There can be no assurance that additional
or different restrictions or adverse policies applicable to Venbo will not be
imposed in the future, or as to the duration or impact of any such restrictions
or policies.
ACCOUNTING REPORTING STANDARDS
------------------------------
Companies in Brazil are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to companies in the United States. In particular, inflation
accounting rules may require for both tax and accounting purposes that certain
assets and liabilities be restated using an index established by the government
in order to express such items in terms of currency of constant purchasing
power. However, the official index for price level restatement varies from year
to year and may more accurately reflect actual inflation rates in one year than
in another year. Consequently, the financial statements of the Company included
in this Report, expressed in REAIS although prepared in accordance with U.S.
GAAP, may not accurately reflect all inflationary distortions in such financial
statements.
ITEM 2. PROPERTIES
Bob's restaurants are built to Company specifications as to exterior style
and interior decor. The 126 Bob's units currently in operation, excluding
kiosks and movable trailers, are either in a strip of stores on a neighborhood
street or in mall food court outlets, with some free-standing, one-story
buildings, all substantially uniform in design and appearance. The restaurants
are constructed on sites ranging from approximately 1,100 to 7,500 square feet,
with parking at the free-standing restaurants for more than 15 cars. Most
restaurants are located in downtown areas or shopping malls, are of a
store-front type and vary according to available locations but generally retain
the standard signage and interior decor.
The Company owns the land and building for 9 restaurants, has leases
covering land and building for 4 restaurants, and has leases for 67 restaurants,
respectively. The Company's land and building leases are generally written for
terms of five years with one or more five-year renewal options. In certain
lease agreements the Company has the option to purchase the underlying real
estate. Certain leases require the payment of additional rent equal to a
percentage (ranging from 1% to 10%) of monthly sales in excess of specified
amounts.
The Company's corporate headquarters are located in leased premises at
Praia do Flamengo, 200-22o. Andar, CEP 22210-030, Rio de Janeiro, Brazil. The
lease covering these premises, which contains approximately 10,700 square feet
of office space, expires on May 31, 1997 with an automatic renewal term of two
years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which may have a
material adverse effect upon either the Company, its assets or its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the year ended December 31, 1996.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock, Class A Redeemable Common Stock Purchase
Warrants ("Class A Warrants") and Class B Redeemable Common Stock Purchase
Warrants ("Class B Warrants") are each currently quoted on the NASDAQ
SmallCap Market under the respective symbols "BOBS," "BOBSA" and "BOBSB". The
following table sets forth the range of the high and low bid quotations for
the periods indicated:
CLASS A CLASS B
THREE MONTHS COMMON STOCK WARRANTS WARRANTS
ENDED HIGH LOW HIGH LOW HIGH LOW
------------ ---- --- ---- --- ---- ---
March 31, 1995 $4-5/8 $4-1/8 $ 3/4 $ 5/8 $ 11/16 $ 1/2
June 30, 1995 $4-47/64 $4-5/16 $ 1/2 $ 1/4 $ 5/16 $ 1/8
September 30, 1995 $4-27/32 $4-5/8 $ 9/16 $ 3/8 $ 3/8 $ 1/8
December 31, 1995 $5-3/32 $4-3/4 $ 9/16 $ 3/8 $ 1/2 $ 1/8
March 31, 1996 $5-7/64 $4-3/4 $1-5/8 $ 3/8 $1-3/8 $ 3/8
June 30, 1996 $4-7/8 $4-3/16 $1-9/16 $1-1/4 $1-3/16 $1-1/16
September 30, 1996 $4-1/8 $3-3/8 $1-9/64 $ 5/8 $1-1/8 $ 11/16
December 31, 1996 $3-1/2 $2-3/8 $ 1/2 $ 1/2 $ 1/2 $ 3/8
March 31, 1997 $2-15/16 $2-7/64 $ 19/32 $ 3/8 $ 1/2 $ 23/64
The above quotations represent prices between dealers and do not include
retail markup, markdown or commission. They do not necessarily represent actual
transactions.
(b) As of April 10, 1997, there were 168, 13 and 13 recordholders of the
Common Stock, Class A Redeemable Warrants and Class B Redeemable Warrants,
respectively.
(c) The Company has not declared any cash dividends on its Common Stock
and has no intention to pay cash dividends in the foreseeable future.
(d) Reference is made to "Item 1. Business - Recent Developments,"
elsewhere herein, for information as to the sale of an aggregate of 7,434,623
shares of the Company's Common Stock during the year ended December 31, 1996.
An additional 10,000 shares of Common Stock were issued during such year to a
restaurant
15
<PAGE>
consultant as payment for his services. All such sales were made absent
registration under the Securities Act by reason of the exemption afforded by the
provision of Section 4(2) of the Securities Act and Regulation D promulgated
thereunder. Stephen Rose & Partners, an English investment banking firm,
assisted the Company in the placement of certain of the shares of the Company's
Common Stock sold in the Initial Public Placement and in the Second Private
Placement, respectively, with English and other European institutional
investors, for which such firm received usual and customary fees. No other
underwriters were employed by the Company during the year ended December 31,
1996.
ITEM 6. SELECTED FINANCIAL DATA
The Company (formerly Trinity) was incorporated on September 16, 1992 to
serve as a vehicle to effect a Business Combination with an Acquired
Business. Trinity was in the developmental stage until March 19, 1996 when it
consummated the Acquisition.
Prior to the Acquisition, Trinity changed its fiscal year to December 31.
The following selected financial data has been derived from the audited
consolidated financial statements of the Company. All amounts are stated in
constant R$ in accordance with U.S. GAAP, unless otherwise noted. The data as
of December 31, 1995 and for the period September 1, 1995 through
December 31, 1995 and the years ended August 31, 1995 and 1994 are derived from
Trinity's audited financial statements.
The following data should be read in conjunction with the Consolidated
Financial Statements and related notes of the Company, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
and the other financial information included elsewhere in this Report.
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY TRINITY
-------------------- -------------------------------------------
SEPTEMBER 1, 1995
YEAR ENDED TO YEARS ENDED AUGUST 31,
DECEMBER 31, 1996 DECEMBER 31, 1995 1995 1994
----------------- ------------------ ---- ----
<S> <C> <C> <C> <C>
Net operating revenues:
Restaurant sales R$53,650 $ -- $ -- $ --
Franchise related income 619 -- -- --
Other income 1,193 -- -- --
------- ------- ------ ------
Total net operating revenues 55,462 -- -- --
------- ------- ------ ------
Cost and expenses:
Cost of restaurant sales 19,487 -- -- --
Restaurant payroll and
other employee benefits 12,762 -- -- --
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Restaurant occupancy and
other expenses 4,420 -- -- --
Depreciation and
amortization 2,522 -- -- --
Other operating expenses 8,214 -- -- --
Selling expenses 3,425 -- -- --
General and administrative
expenses 9,637 64 301 241
------- ------- ------ ------
Total costs and expenses 60,467 64 301 241
------- ------- ------ ------
Loss from operations (5,005) (64) (301) (241)
------- ------- ------ ------
Interest income 106 224 506 190
Interest expense (132) -- -- --
Foreign exchange gain/(loss) 4 -- -- --
------- ------- ------ ------
Income (loss) before
provision for income taxes (5,027) 160 205 (51)
Provision (recovery) for
income taxes (43) 56 66 --
------- ------- ------ ------
Net income (loss) R$(4,984) $ 102 $ 139 $ (51)
------- ------- ------ ------
------- ------- ------ ------
Net income (loss) per
common share R$ (.65) $ .03 $ .05 $ (.02)
------- ------- ------ ------
------- ------- ------ ------
Weighted average common
shares outstanding 7,696 2,965 2,965 2,126
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
BALANCE SHEET DATA:
THE COMPANY TRINITY
----------------- -----------------
AT AT
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Working capital (deficit) R$(5,830) $9,655
Total assets 48,163 9,787
Retained earnings (deficit) (4,794) 88
Total shareholders' equity 31,878 9,655
EXCHANGE RATES
On August 1, 1993, the CRUZEIRO REAL replaced the CRUZEIRO as the unit of
Brazilian currency, with each CRUZEIRO REAL being equal to 1,000 CRUZEIROS.
Beginning in December 1993, the Brazilian
17
<PAGE>
Federal Government (the "Government") began implementation of the REAL Plan,
which was intended to reduce inflation. As part of the REAL Plan, in March 1994
the Government introduced a new unit of account, the URV, linked to the
movements in the exchange rate of the CRUZEIRO REAL to the U.S. dollar and
intended to be transformed into the new unit of currency, the REAL. Certain
contracts and public utility rates were required to be indexed to the URV. The
URV ceased to exist upon the introduction of the REAL. On July 1, 1994, the
REAL replaced the CRUZEIRO REAL as the unit of Brazilian currency, with each
REAL being equal to 2,750 CRUZEIROS REAIS and initially having an exchange rate
of R$1.00 to $1.00.
The issuance of REAIS was initially subject to quantitative limits backed
by a corresponding amount of U.S. dollars in reserves, but the Government
subsequently expanded those quantitative limits and allowed the REAL to float,
with parity between the REAL and the U.S. dollar (R$1.00 to $1.00) as a ceiling.
In March 1995, the Central Bank do Brasil (the "Central Bank") announced that it
would intervene in the market and buy or sell U.S. dollars and established a
band within which the REAL/U.S. dollar exchange rate could fluctuate. The
Central Bank initially set the band with a floor of R$0.86 per $1.00 and a
ceiling of R$0.90 per $1.00 and provided that after May 2, 1995, the band would
be between R$0.88 and R$0.98 per $1.00. The band system is still in effect and,
as of February 19, 1997, the Central Bank reset the band between R$1.05 and
R$1.14 per $1.00. There can be no assurance that this most recent band will not
be altered in the future.
The following table sets forth information on Commercial Market Rates, for
the periods indicated, expressed in REAIS per U.S. dollar. Amounts expressed in
REAIS have been translated from the predecessor currencies in effect during the
relevant period at the rates of exchange at the time the successor currency took
effect. Accordingly, CRUZEIROS REAIS have been translated into REAIS at the
rate of CR$2,750 to R$1.00 and CRUZEIROS have been translated into REAIS at the
rate of C$2,750,000 to R$1.00.
AVERAGE
FOR
PERIOD PERIOD-END PERIOD(1) HIGH LOW
- ------ ---------- --------- -------- --------
1990 0.000062 0.000025 0.000062 0.000004
1991 0.000389 0.000149 0.000389 0.000062
1992 0.004505 0.001655 0.004505 0.000389
1993 0.118584 0.032809 0.118584 0.004505
1994 0.846000 0.645000 1.000000 0.118584
1995 0.973000 0.923000 0.973000 0.842000
1996 1.038600 1.007400 1.038600 0.973000
_________
(1) Weighted average of exchange rates on business days.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is based on and should be read together with the
Consolidated Financial Statements of the Company and notes thereto appearing
elsewhere in this Report. See "Selected Historical Financial Data." All
amounts referred to herein that refer directly to financial statement
balances of the Company or are otherwise drawn directly from the Consolidated
Financial Statements of the Company or notes thereto are stated in constant
R$ in accordance with U.S. GAAP.
BACKGROUND
BRAZILIAN POLITICAL ENVIRONMENT
The Brazilian political environment has been marked by high levels of
uncertainty since the country returned to civilian rule in 1985 after 20 years
of military government. The death of a President in 1985 and the resignation of
another President in the midst of impeachment proceedings in 1992, as well as
rapid turnover at and immediately below the cabinet level, have adversely
affected the implementation of consistent economic and monetary policies,
including consistent policies in the areas of government-owned enterprises and
telecommunications.
Measures by the Government intended to influence the course of Brazil's
economy (e.g. actions to control inflation, interest rates or consumption) have
been frequent and occasionally drastic. Changes in policy, social instability or
other political or economic developments, and the Brazilian government's
responses to such developments, may have a material adverse effect on the
Company's financial condition and results of operations.
Mr. Fernando Henrique Cardoso was elected President of Brazil in October
1994 and took office in January 1995 for a single four-year term. He has
generally sought to continue the economic stabilization and liberalization
policies he developed as Finance Minister from May 1993 through April 1994
under President Itamar Franco. President Cardoso is the leader of a coalition
of political parties that represents a majority of the Federal Congress and his
party controls the state governments of the States of Sao Paulo, Rio de Janeiro
and Minas Gerais. Legislation to amend Brazil's constitution to permit
President Cardoso to stand for re-election to a second four-year term was
recently introduced and passed in the lower house of Brazil's bicameral
legislature and is awaiting a vote in the upper house. President Cardoso's
policies appear to have broad political support. However, there can be no
assurance that such policies will not be revised in whole
19
<PAGE>
or in part at some future date. Furthermore, some important groups remain
opposed to significant elements of his program, and the implementation of any
policies of economic stabilization or liberalization is subject to significant
compromises and accommodations.
ECONOMIC ENVIRONMENT
The financial condition and results of operations of the Company are
dependent on general economic conditions in Brazil, and in particular on (i)
economic growth and its impact on demand for fast food services and (ii)
exchange rates between Brazilian and foreign currencies. Historically, the
Brazilian economy has been extremely volatile, and the Government has
implemented a succession of programs intended to stabilize the economy and
provide a basis for sustainable, non-inflationary growth. The Company has been
affected by such programs in a variety of ways, particularly when such programs
have resulted in contractions in demand or very high real interest rates.
Beginning in December 1993, the Government introduced the REAL Plan, an
economic stabilization program intended to reduce the rate of inflation by
reducing certain public expenditures, collecting liabilities owed to the
Government, increasing tax revenues, continuing to privatize government-owned
entities and introducing a new currency. The REAL was introduced as Brazil's
currency in July 1994, based on a monetary correction index, the URV, introduced
earlier in the year. Since taking office in January 1995, President Cardoso has
continued to implement the REAL Plan. Under the REAL Plan, the rate of
inflation has decreased significantly, and the rate of growth of real gross
domestic product has increased substantially. The long-term effects of the REAL
Plan upon the Brazilian economy in general or upon the Company in particular are
uncertain. Notwithstanding the success of the REAL Plan to date, there can be
no assurance that it will continue in effect or continue to be successful.
EFFECTS OF INFLATION AND DEVALUATION
Brazil has experienced extremely high and generally unpredictable rates of
inflation and of devaluation of Brazilian currency for many years.
Since the introduction of the REAL Plan in July 1994, the rate of inflation
has decreased considerably. As measured through 1995 by the UNIDADE FISCAL DE
REFERENCIA (the "UFIR") and by the Indice Geral de Precos-Mercado (the "IGP-M")
thereafter, the annualized rate of inflation was 6,624% for the first six months
of 1994, 50% for the last six months of 1994 and 22.4% for the year 1995, with
significantly all of 1995's inflation occurring during the first six months of
that year. The annual rate of inflation during 1996 was 9.2%, while for the
first two months of 1997 it was 2.2%.
20
<PAGE>
Despite this reduction, the rate of inflation remains high compared to other
countries, and the potential for distortions or dislocations attributable to
changing prices continues to exist. The exchange rate between the REAL and the
U.S. dollar has also been relatively stable since early July 1994, compared to
prior periods, although the potential for devaluation or volatility persists.
The following table sets forth Brazilian inflation, as measured by the
UFIR/IGP-M, and the devaluation of the Brazilian currency against the U.S.
dollar for the periods shown.
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
---- ----- ----
Inflation (UFIR/IGP-M) 9.2% 22.5% 905.3%
Devaluation (Brazilian 6.9% 14.9% 613.4%
currency vs. $)
_________________
(1) Annualized rates
See "Selected Historical Financial Data - Exchange Rates."
The Company's results of operations in 1996 have been affected by
inflation, and such financial information should be evaluated in light of the
methodology for recognition of the effects of inflation. See "Selected
Financial Data." Significant effects include the following:
- EFFECTS OF PURCHASING POWER GAINS AND LOSSES ON REVENUES. Inflation
produces purchasing power losses on accounts receivable between the date of
service and the date of payment by the customer. These losses are partly
offset by purchasing-power gains on accounts payable and accrued expenses,
value-added taxes and other taxes on operating revenues between the date of
accrual and the date of payment. See Note 2.b to the Consolidated Financial
Statements of the Company.
- EFFECTS OF INFLATION ON FINANCIAL INSTRUMENTS DENOMINATED IN
BRAZILIAN CURRENCY. The Company has both assets and liabilities that are
financial instruments denominated in Brazilian currency. Until July 1, 1994,
the indexation of principal was provided for according to the index specified
in the relevant instrument (subsequent to that time, only interest was
impacted by indexation). In the Consolidated Financial Statements of the
Company, interest income or expense is reported net of the associated
inflationary losses or gains, respectively, and accordingly depends on the
relationship between the rate of interest (and, where applicable, indexation
of principal) and the rate of inflation as measured by the UFIR or the
IGP-M, as applicable, which is used to determine inflationary gains and
losses. For example, indebtedness denominated in REAIS gives rise to interest
expense to the extent that the rates of interest plus indexation exceed the
21
<PAGE>
rate of inflation, and it may give rise to negative interest expense if the
rates of interest plus indexation are less than the rate of inflation.
- EFFECTS OF INFLATION AND DEVALUATION ON INDEBTEDNESS DENOMINATED IN
FOREIGN CURRENCY. At December 31, 1996, the Company had R$2,730,000 of
indebtedness denominated principally in U.S. dollars. See Note 8 to the
Consolidated Financial Statements of the Company. The Company does not
hedge its obligations under its foreign currency-denominated indebtedness. In
the Consolidated Financial Statements of the Company, the interest expense
attributable to foreign-currency denominated indebtedness is reported net of
the associated inflationary gain and foreign exchange loss. When the rate of
inflation and the rate of devaluation differ substantially, the effect on
reported interest expense can be substantial. See "Selected Financial Data -
Exchange Rates" and Note 2.c to the Consolidated Financial Statements of the
Company.
22
<PAGE>
RESULTS OF OPERATIONS
PRE-ACQUISITION
--------------
As discussed elsewhere in this Report, prior to March 19, 1996 the
Company, then known as Trinity, was in a development stage. Having been
formed in September 1992 as a "blank check" company, it had engaged in no
activity other than seeking to locate an Acquired Business with which to
effect a Business Combination.
For the year ended August 31, 1995, Trinity had net income of $139,000,
primarily attributable to interest and dividend income, offset by general and
administrative expenses and income taxes, as contrasted with a loss of $51,000
for the year ended August 31, 1994 when significantly lower interest and
dividend income, which did not begin to accrue until Trinity's receipt of the
net proceeds of the IPO, was offset by general and administrative expenses.
For the four months ended December 31, 1995 Trinity had net income of
$102,453, primarily attributable to interest and dividend income,
offset by general and administrative expenses and income taxes.
On March 19, 1996, Trinity acquired all of the outstanding quotas (shares
of capital stock) of Venbo from BIEC and Bisoni for $19,200,000. In addition,
the Company acquired all of the trademarks relating to Venbo's business for
$1,800,000.
As a result of the Acquisition, (i) Venbo became a wholly-owned
subsidiary of Trinity, (ii) Shampi and the investors in the Initial Private
Placement, collectively, acquired approximately 58.4% of the then outstanding
Common Stock of Trinity, (iii) designees of Shampi become three of the five
members of Trinity's Board of Directors, and (iv) Trinity's name was changed
to "Brazil Fast Food Corp."
POST-ACQUISITION
--------------
As the nature of the Company's post-Acquisition business is completely
different from its prior status as a "blank check" acquisition vehicle, the
following unaudited comparative financial data of the Company for the three,
six and nine months ended December 31, 1996 is included herein in an effort to
facilitate a meaningful presentation of the Company's post-Acquisition
operating results.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ------------------ -----------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net operating revenues:
Restaurant sales R$ 21,713 R$ 38,109 R$ 53,650
Franchise related income 279 468 619
Other income 571 872 1,193
--------- --------- ---------
Total net operating revenues 22,563 39,449 55,462
--------- --------- ---------
Cost and expenses:
Cost of restaurant sales 7,602 13,431 19,487
Restaurant payroll and
other employee benefits 5,442 9,102 12,762
Restaurant occupancy and
other expenses 1,777 3,141 4,420
Depreciation and
amortization 363 1,460 2,522
Other operating expenses 2,912 5,194 8,214
Selling expenses 1,632 2,695 3,425
General and administrative
expenses 3,647 6,993 9,637
--------- --------- ---------
Total costs and expenses 23,375 42,016 60,467
--------- --------- ---------
Loss from operations (812) (2,567) (5,005)
--------- --------- ---------
Interest income 264 10 106
Interest expense (284) (263) (132)
Foreign exchange gain/(loss) 35 35 4
--------- --------- ---------
(Loss) before
provision for income taxes (797) (2,785) (5,027)
Provision (recovery) for
income taxes 8 (56) (43)
--------- --------- ---------
Net (loss) R$ (805) R$ (2,729) R$ (4,984)
--------- --------- ---------
--------- --------- ---------
</TABLE>
23
<PAGE>
RESTAURANT SALES
- ----------------
Restaurant sales for Company-owned stores, kiosks and trailers were
R$15,541,000, R$16,396,000 and R$21,713,000, respectively, for the second,
third and fourth quarter of 1996.
The quarter to quarter increase is primarily attributable to the opening
of 32 new Company owned stores and kiosks between March and December 1996,
offset by (i) store closures for rebranding and refurbishment which ranged
from one to six months following the Company's acquisition of the Mr. Theo
and Big Burger chains in June and July 1996, respectively, and (ii) reduced
store patronage due to an uncommonly high number of cold and rainy weekends
(32) and (iii) the government's relaxation of its previous prohibition upon
installment credit purchases, which accelerated previously deferred consumer
demand for large ticket items such as televisions and household appliances,
resulting in decreased availability of funds for discretionary spending. The
average guest check per person was R$4.45, R$4.52 and R$4.50, respectively,
for the second, third and fourth quarters of 1996 as store personnel
encouraged the sale of french fries and desserts, as well as other higher
margin products, as add-ons to discounted promotions of two and three item
"combo meals".
FRANCHISE INCOME
- ----------------
Franchise income was R$ 104,000, R$ 191,000, and R$ 269,000,
respectively, for the second, third and fourth quarters of 1996. The quarter
to quarter increase is primarily the result of the sale of 8 new franchises,
resulting in the opening of 17 new franchised stores during 1996.
COST OF RESTAURANT SALES
- ------------------------
Cost of restaurant sales expressed as a percentage of operating revenues
were approximately 36.9%, 34.2% and 34.5%, respectively, for the second,
third and fourth quarters of 1996. The decrease in the third quarter results
principally from reduced costs of meat, potatoes and paper goods as a
consequence of the Company's renegotiation of certain of its supplier
relationships. The fourth quarter increase is attributable to an increase in
soft drink costs and higher transportation expenses.
24
<PAGE>
RESTAURANT PAYROLL AND OTHER EMPLOYEES BENEFITS
- -----------------------------------------------
Restaurant payroll and other employee benefits expressed as a percentage
of net operating revenues were approximately 23.4%, 21.6% and 24.3%,
respectively, for the second, third and fourth quarters of 1996. The fourth
quarter increase is primarily the result of (i) the staffing of new stores,
(ii) the absorption of former Mr. Theo and Big Burger employees, (iii)
government mandated increases in medical insurance, (iv) increased salaries
as a result of new union agreements, and (v) increased employee transportation
costs.
RESTAURANT OCCUPANCY COSTS AND OTHER EXPENSES
- ---------------------------------------------
Restaurant occupancy and other expenses expressed as a percentage of net
operating revenues were approximately 7.9%, 8.0% and 8.1%, respectively, for
the second, third and fourth quarters of 1996. The quarter to quarter
increase is primarily due to the opening of new Company owned stores in
leased properties, thereby reducing the percentage of sales volume in Company
owned properties. Although certain locations provide for certain percentage
rental payments based on sales volume, such payments would not, on a
percentage basis, increase at the same rate as sales volume.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expressed as a percentage of net operating
revenues were approximately 3.9%, 4.0% and 4.5%, respectively, for the
second, third and fourth quarters of 1996. The quarter to quarter increase
was principally due to the growth in the number of outlets and the
acquisition of new equipment.
OTHER OPERATING EXPENSES
- ------------------------
Other operating expenses expressed as a percentage of net operating
revenues were approximately 17.8%, 13.7% and 13.1%, respectively for the
second, third and fourth quarters of 1996. The quarter to quarter decrease is
attributable to (i) negotiated reductions in the cost of store maintenance,
(ii) reductions in store insurance (iii) and reductions in the cost of store
cleaning, security and gardening.
25
<PAGE>
SELLING EXPENSES
- ----------------
Selling expenses, expressed as a percentage of total net operating
revenues, were approximately 4.6%, 6.2% and 7.3%, respectively, for the
second, third and fourth quarters of 1996. This quarter to quarter increase
is primarily the result of expanded marketing efforts, particularly in local
media in anticipation of new store openings in new television commercials and
point of sale materials.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses, expressed as a percentage of total
net operating revenues, were approximately, 18.9%, 19.5% and 14.0%,
respectively, for the second, third and fourth quarters of 1996. The fourth
quarter decrease is attributable to (i) greater use of outsourcing for
accounting and other administrative functions previously performed by
headquarters personnel, (ii) a freeze on hiring of additional headquarters
personnel in excess of 1995 staffing levels, (iii) voluntary salary
reductions by the Company's senior management, and (iv) a change to a lower
cost supplier of daily cash receipts collection and transportation services,
offset by store pre-opening costs such as hiring and training of personnel,
pre-opening rental expenses and permitting costs, as well as annual increases
in salaries of administrative employees pursuant to union agreements.
INTEREST INCOME AND EXPENSES
- ----------------------------
Interest income and expenses expressed as a percentage of total net
operating revenues were approximately 0.3%, (0.8%) and --%, respectively, for
the second, third and fourth quarters of 1996. These marginal changes are
attributable to daily cash management and bank charges.
26
<PAGE>
SEASONALITY
The Company's revenues are subject to seasonality as approximately 30% of
its sales are generated during the Brazilian summer months of December and
January as well as July due to higher than normal tourist traffic.
LIQUIDITY AND CAPITAL RESOURCES
Since its Acquisition on March 19, 1996, the Company has funded its
operating losses of R$4,867,000 and made acquisitions of businesses and capital
improvements (including furniture, fixtures and equipment) by using cash
remaining at the closing of the Acquisition, cash flow generated by
operations and by borrowing funds from various sources. As of December 31,
1996, the Company had cash on hand of R$1,481,000 and a working capital
deficiency of R$5,830,000.
During 1996 the Company obtained bank and equipment financing of
approximately R$7.7 million (of which approximately R$1,600,000 was
outstanding as of December 31, 1996). In addition, the Company raised
$4,850,000 from private sales of its securities during the year ended
December 31, 1996. Finally, the Company continued to work with its vendors to
establish more favorable payment terms. Vendor payables approximated
R$5,000,000 as of December 31, 1996.
The Company's capital requirements are primarily for expansion of its
retail operations. Currently, 71 of the Company's store are in leased
facilities and 9 are owned by the Company. During fiscal 1996, the Company's
average cost to open a store approximated R$300,000 to R$400,000, including
leasehold improvements, equipment and beginning inventory, as well as all
expenses for store design, site selection, lease negotiation, construction
supervision and permitting. The Company currently estimates that capital
expenditures through fiscal 1997 will approximate R$3,000,000.
The Company had net cash provided by operating activities of R$1,044,000
for 1996. The Company had net cash used in investing activities of R$
14,961,000 for 1996. The primary use of cash for investing activities was for
acquisitions of businesses and capital expenditures related to the Company's
retail store expansion.
The Company is currently negotiating to obtain a debt facility with a
bank or other financial institution, although there can be no assurance that
any such facility can be obtained in an amount or on such terms as will be
acceptable to the Company.
The Company's continued operations is dependent in part upon its ability
to increase sales volume through enhancements of its stores, including but
not limited to new computerized systems, air conditioning and refurbishment
of interior designs. These activities, as well as sales promotional
activities, require a substantial amount of cash which the Company believes
will be generated from its current operations. The Company's working capital
deficit, as well as its need to improve its facilities, will be supported by
cash flow from operations, the proceeds of equity sales, and its borrowing
facilities.
The Company is also embarking on a plan to substantially reduce its
costs, specifically in the area of food purchases and general administrative
expenses. In the opinion of management, these actions, coupled with cash flow
from operations, vendor financing, available bank and equipment lines of
credit and equity capital raised in the first quarter of 1997 will provide
sufficient working capital for it to continue through the end of 1997.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pps. F-2 through F-25 comprising a portion of
this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and directors are as follows:
TITLE/
NAME AGE POSITION
---- --- --------
Peter van Voorst Vader 43 Chief Executive Officer and
Director
Rogerio Carlos Lamim Braz 38 President and Chief Operating Officer
Marcos Bastos Rocha 32 Vice President - Finance and Chief
Financial Officer
Omar Carneiro da Cunha 50 Chairman of the Board
Ian S. Barnett 42 Director
Lawrence Burstein 54 Director
Jose Ricardo Bosquet Bomeny 55 Director
PETER J.F. VAN VOORST VADER has been Chairman, Chief Executive Officer of
the Company since the Acquisition. Prior thereto and from 1995, he was an
independent business consultant. From 1992 until 1995, Mr. van Voorst Vader was
a Retail Sales manager for Shell Nederland Verkoopmaatschappij B.V., overseeing
the operations of 800 gas stations. From 1985 until 1992, Mr. van Voorst Vader
held several positions with Shell Brasil including Sales Promotion Manager,
Marketing Communications Manager and Retail Development Manager. From 1983 until
1985, he was employed by Shell International Petroleum Company as a Regional
Brand and Communications Assistant for Africa, the Middle East, the Far East and
South America. From 1980 to 1983, Mr. van Voorst Vader was a Commercial
Assistant for Shell Italia. Mr. van Voorst Vader received a B.S. in Hotel
Management from both the Hogere Hotel School in The Hague, Holland and Florida
International University. Mr. van Voorst Vader also has a Masters Degree in
International Business from Florida International University.
ROGERIO CARLOS LAMIM BRAZ has been President and Chief Operating Officer of
the Company since the Acquisition and of Venbo since 1994, respectively. From
1993 to 1994, Mr. Braz was the Latin American Operations Director for Pepsico
Foods International (Kentucky Fried Chicken Division). From 1980 until 1993,
Mr. Braz
29
<PAGE>
held a variety of positions with Bob's, including, in progression, manager
trainee, store manager, area manager, operations general manager, franchising
national manager and human resources director. Mr. Braz has an agronomy
engineering degree from Don Diniz Agricultural University in Portugal.
MARCOS BASTOS ROCHA has been the Chief Financial Officer of the Company
since April 1996. Prior thereto and from 1991, Mr. Rocha held a variety of
positions with Cyanamid Quimica do Brasil, being most recently its Controller.
From 1986 to 1991, Mr. Rocha was with Shell Brasil S/A, where he held a number
of positions, including finance manager for Express, Shell's convenience store
company, and head of finance planning for its Oils business. Mr. Rocha holds a
degree in Electronic Engineering from Instituto Militar de Engenharia and an MBA
from PUC-Rio de Janeiro.
IAN S. BARNETT is a founder of Heptagon Investments Limited ("Heptagon")
and has been director of such concern since February 1992. Between January 1991
and February 1992, Mr. Barnett was a private investor. From September 1986 to
January 1991, Mr. Barnett was employed by UBS (Securities) Ltd. (now UBS Ltd.),
the investment banking entity of Union Bank of Switzerland in London, where he
developed corporate finance activity in the Nordic countries. From June 1979
until August 1985, Mr. Barnett was with the Toronto-Dominion Bank, where he held
a number of positions in the Bank's Latin American Division, including business
development throughout Latin America. Mr. Barnett is a graduate of Queen's
University, Canada, and received an MBA from INSEAD, Fontainebleau, France.
OMAR CARNEIRO DA CUNHA has been President of ATT Brazil since September
1995. From 1967 until 1994, Mr. Carneiro da Cunha held a variety of positions
with Shell Brasil S.A. and its affiliates including serving as President of
Shell Brasil S.A. from 1992 until 1994. Mr. Carneiro da Cunha received a B.A.
in Economics from the University of Political and Economical Sciences of Rio de
Janeiro and a degree in Finance Administration from Fundacao Getulio Vargas.
LAWRENCE BURSTEIN is and since March 1996 has been President, a director
and the principal shareholder of Unity Venture Capital Associates Ltd., a
private investment banking firm. He is also President, a director and principal
shareholder of Unity First Acquisition Corp., a publicly held "blank check"
company presently seeking to effect a Business Combination. Mr. Burstein, who
was also President of Trinity from its inception until the Acquisition, is a
director of four other public companies, being, respectively, CAS Medical
Systems, Inc. engaged in the manufacture and marketing of blood pressure
monitors and other medical products principally for the neonatal market, The MNI
Group Inc., engaged in the marketing of specially formulated medical foods,
T-HQ, Inc., a developer of electronic game cartridges, and USCI, Inc., engaged
30
<PAGE>
in centralized automated computer-based cellular telephone activation services
on a nationwide basis to mass merchandisers and direct response marketing
companies. Mr. Burstein received an LL.B. from Columbia Law School.
JOSE RICARDO BOSQUET BOMENY founded BigBurger Ltda. in 1975 and was its
President until its acquisition by the Company in August 1996. He currently
owns another fast food business, which is non-competitive with the business of
the Company, as well as six gas stations and two parking lots.
Incumbent directors stand for election at the Company's Annual Meeting of
Stockholders and will serve until their successors are duly elected and
qualified. Officers are elected by and serve at the discretion of the Company's
Board.
EMPLOYMENT AGREEMENTS
Mr. van Voorst Vader is party to an employment agreement with the Company,
expiring in June 1999, which calls for him to serve as the Company's Chief
Executive Officer at a current salary of $120,000 per annum, with provision
for annual bonuses based upon future results of operations, in such amounts,
if any, as may be determined from time to time at the discretion of the
Company's Board. At the time Mr. van Voorst Vader entered into this
employment agreement, being the date upon which the Acquisition was
consummated, he also received options to purchase an aggregate of 150,000
shares of the Company's Common Stock, of which 50,000 shares will become
available for purchase on each of the first, second and third annual
anniversary dates, respectively, of the Closing. The exercise price of Mr.
Van Voorst Vader's options, which will expire on the earlier of (i) the fifth
annual anniversary date of the Closing or (ii) the termination of Mr. Van
Voorst Vader's employment with the Company, was $5-5/32 (the market price of
the Company's Common Stock on the date of Closing).
Mr. Braz also entered into an employment agreement with the Company at the
Closing of the Acquisition, which calls for him to serve as the Company's
President and Chief Operating Officer through June 1999 at a current salary of
$198,000 per annum. The agreement also provides that Mr. Braz may receive
annual bonuses based upon future results of operations, the amounts, if any, to
be determined at the discretion of the Company's Board. In addition, Mr. Braz
received options to purchase an aggregate of 120,000 shares of the Company's
Common Stock, of which 30,000 shares could be purchased immediately upon
Closing. Mr. Braz may purchase an additional 30,000 shares on each of the
first, second and third annual anniversary dates, respectively, of the Closing.
The exercise price of all such options, which will expire on the earlier of (i)
the fifth annual anniversary date of the Closing or (ii) the termination of Mr.
Braz' employment with the Company, is
31
<PAGE>
$5-5/32 (the market price of the Company's Common Stock on the date of Closing).
Mr. Rocha is a party to an employment agreement with the Company that
affords him current compensation of $134,500 per annum. This employment
agreement, which expires in June 1999, contains a discretionary bonus provision
substantially identical to those contained in the respective employment
agreements of Messrs. van Voorst Vader and Braz. In addition, Mr. Rocha
received a lump sum payment of $20,000 to compensate him for the loss of a like
amount bonus payment that he would have received had he remained in the employ
of Cyanamid, as well as options to acquire an aggregate of 35,000 shares of the
Company's Common Stock, of which 5,000 shares could be purchased immediately,
with the balance becoming available for purchase on a cumulative basis at the
rate of 10,000 shares on the first, second and third annual anniversary dates,
respectively, of their grant date. The exercise price of these options, which
will expire on the earlier of the fifth annual anniversary date of their grant
or the termination of Mr. Rocha's employment, was $4-13/16 (the market price of
the Company's Common Stock on the grant date.
Reference is made to "Termination of Employment and change of Control
Arrangements," below, for a discussion of the occurrence of events which will
occasion lump sum severance payments and earlier vesting of the respective
options granted to Messrs. van Voorst Vader, Braz and Rocha.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation for services rendered in all
capacities to the Company during the years ended December 31, 1996, 1995 and
1994 by its Chief Executive Officer and each of its two most highly compensated
executive officers whose compensation exceeded $100,000 during the year ended
December 31, 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------- ------------------- ----------------------
OTHER RESTRIC- LONG ALL
NAME AND ANNUAL TED TERM IN- OTHER
PRINCIPAL FISCAL COMPEN- STOCK NUMBER OF CENTIVE COMPEN-
POSITION YEAR SALARY(1) BONUS SATION AWARDS OPTIONS PAYOUTS SATION
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter van 1996 $114,750 $ - - 167,500 - $
Voorst Vader 1995 $ - $ - - - - $
Chief Executive 1994 $ - $ - - - - $
Officer
Rogerio Carlos 1996 $140,466 $ - - 120,000 - $
Lamim Braz 1995 $ - $ - - - - $
President 1994 $ - $ - - - - $
Marcos Bastos 1996 $ 90,553 $ - - 35,000 - $20,000(2)
Rocha 1995 $ - $ - - - - $
Vice President - 1994 $ - $ - - - - $
Finance
</TABLE>
32
<PAGE>
________________
(1) Commencing March 20, 1996 through December 31, 1996.
(2) Represents a lump-sum payment intended to compensate Mr. Rocha for the loss
of a like amount bonus that he would have been entitled to receive from his
prior employer had he not accepted employment by the Company.
Set forth below is information with respect to grants of stock options
during the year ended December 31, 1996:
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
PERCENT
OF TOTAL
NUMBER OF OPTIONS EXERCISE
SHARES GRANTED TO OR GRANT
UNDERLYING EMPLOYEES BASE EXPIRA- DATE
OPTIONS IN FISCAL PRICE TION PRESENT
NAME GRANTED YEAR ($/SH) DATE VALUE (1)
---- ---------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Peter van Voorst Vader 150,000 30.43% $5-5/32 3/19/01 $694,500
17,500 $3-1/4 10/23/01 $ 51,275
Rogerio Carlos Lamim 120,000 52.17% $5-5/32 3/19/01 $548,400
Braz
Marcos Bastos Rocha 35,000 8.70% $4-13/16 4/4/01 $158,550
</TABLE>
________________
(1) The fair value of each option grant is estimated on the date of grant
using the Black Scholes option pricing model with the following weighted
average assumptions used for grants in 1996; risk free interest rate of
6.26%, no expected dividend yield, expected lives of 5 years; and no
expected stock price volatility of 142%.
Set forth below is further information with respect to unexercised options
to purchase the Company's Common Stock under the Company's stock option plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter van
Voorst Vader - - 17,500 150,000 - -
Rogerio Carlos
Lamim Braz - - 30,000 90,000 - -
Marcos Bastos
Rocha - - 5,000 30,000 - -
</TABLE>
33
<PAGE>
DIRECTORS' COMPENSATION
Directors receive no cash compensation for attending Board meetings other
than reimbursement of reasonable expenses incurred in attending such meetings.
In order to compensate members of the Company's Board of Directors for the
first year of service as such, options to purchase 17,500 shares of the
Company's Common Stock were granted to each director other than Omar Carneiro
da Cunha on October 23, 1996. Mr. Carneiro da Cunha, who serves as Chairman of
the Board, was granted options to purchase 25,000 shares of the Company's
Common Stock on that date. All such options are exercisable at $3.25 per share
the market price of the Company's Common Stock on the date of grant, at any
time and from time to time through March 19, 2001.
The Company presently anticipates that it will continue to compensate its
directors on an annual basis for their services through grants of five-year
options, exercisable at the prevailing market price of the Company's Common
Stock on the respective grant dates, with the next such grants scheduled to be
made at the Company's 1997 Annual Meeting of Stockholders scheduled to be
convened in June 1997.
VOTING AGREEMENT
Simultaneously with the consummation of the Acquisition, Lawrence Burstein,
Barry L. Goldin, John Cattier and Barry W. Ridings, each formerly an officer
and/or Director of Trinity (collectively, the "Affiliated Trinity
Shareholders"), entered into a Voting Agreement (the "Voting Agreement") with
Shampi. Jose Ricardo Bosquet Bomeny became a party to the Voting Agreement upon
becoming a beneficial stockholder of the Company in August 1996. The Voting
Agreement provides that each of the parties will use all reasonable efforts to
cause management of the Company to nominate as directors of the Company,
respectively, two designees of the Affiliated Trinity Stockholders, three
designees of Shampi and Mr. Bomeny.
The Voting Agreement, in general, does not restrict the transferability of
shares held by the parties thereto. However, any party to the Voting Agreement
desiring to transfer its shares to an "Affiliate" (as defined in the Voting
Agreement), must first obtain such Affiliate's written consent to be bound by
the terms of the Voting Agreement.
The Voting Agreement will expire on March 18, 2002.
REPORT ON EXECUTIVE COMPENSATION
34
<PAGE>
The Company does not have a compensation committee charged with reviewing
and recommending to the Company's Board of Directors compensation programs for
the Company's executive officers. These functions are performed by the Board as
a whole.
COMPENSATION PHILOSOPHY
The Company believes that executive compensation should:
- provide motivation to achieve goals by tying executive compensation to
Company performance, as well as affording recognition of individual
performance.
- provide compensation reasonably comparable to that offered by other
companies in a similar industry, and
- align the interests of executive offices with the long-term interests
of the Company's stockholders through the award of equity purchase
opportunities.
The Company's compensation plan is designed to encourage and balance the
attainment of short-term operational goals, as well as the implementation and
realization of long-term strategic initiatives. As greater responsibilities are
assumed by an executive officer, a larger portion of compensation is "at risk."
This philosophy is intended to apply to all management, including the
Company's Chief Executive Officer, Peter van Voorst Vader.
COMPENSATION PROGRAM
The Company's executive compensation program has two major components: base
salary and long-term equity incentives.
The Company seeks to position total compensation at or near the median
levels of other companies in a similar industry in Brazil.
Individual performance reviews are generally conducted annually. Increases
in fiscal year 1996 were based on an individual's sustained performance and the
achievement of the Company's revenue, income and earnings per share goals. The
Company does not assign specific weighting factors when measuring performance;
rather, subjective judgment and discretion is exercised in light of the
Company's overall compensation philosophy.
Base salary is determined by evaluating individual responsibility and
performance.
The Company's Board of Directors believes that executive
35
<PAGE>
officers who are in a position to make a substantial contribution to the
long-term success of the Company and to build stockholder value should have a
significant equity stake in the Company's on-gong success. Accordingly, one of
the Company's principal motivation methods has been the award of stock options.
In addition to financial benefits to executive officers, if the price of the
Company's Common Stock during the term of any such option increases beyond such
option's exercise price, the program also creates an incentive for executive
officers to remain with the Company since options generally vest and become
exercisable over a five-year period and the first increment is not exercisable
until one year after the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Peter van Voorst Vader's compensation is determined substantially in
conformity with the compensation philosophy, discussed above, that is applicable
to all of the Company's executive officers. Performance is measured against
predefined financial, operational and strategic objectives.
In establishing Mr. van Voorst Vader's base salary, the Company's Board of
Directors took into account both corporate and individual achievements.
Mr. van Voorst Vader's performance objectives included quantitative goals
related to increasing revenues and earnings per share. His goals also included
significant qualitative objectives such as evaluating acquisition opportunities.
In measuring Mr. van Voorst Vader's performance against these goals, the
Company's Board of Directors took note of the fact that Venbo's system-wide
sales for the nine months ended December 31, 1996, if annualized, would
reflect an approximately 11.5% increase over 1995 levels. Note was also taken
of the quarter to quarter reduction in 1996 operating losses subsequent to
the Acquisition. In addition, under Mr. van Voorst Vader's leadership, the
Company acquired the Mr. Theo and BigBurger chains in June 1996 and July
1996, respectively. These two acquisitions have positioned the Company as
the second largest hamburger fast food restaurant chain in Brazil in terms of
revenues.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") generally limits the deductibility of compensation in excess of $1
million paid to the chief executive officer and the four most highly compensated
officers. Certain performance-based compensation is excluded by Section
162(m)(4)(C) of the Code in determining whether the $1 million cap applies.
Currently the total compensation, including salary, bonuses and excludable stock
options for any of the named executives does not exceed this limit. If in the
future this regulation becomes applicable to the Company, the Company's Board of
Directors will
36
<PAGE>
not necessarily limit executive compensation to that which is deductible, but
will consider alternatives to preserving the deductibility of compensation
payments and benefits to the extent consistent with its overall compensation
objectives and philosophy.
SUMMARY
The Company's Board of Directors will continue to review the Company's
compensation programs to assure such programs are consistent with the objective
of increasing stockholder value.
THE BOARD OF DIRECTORS
Omar Carneiro da Cunha, Chairman
Peter van Voorst Vader
Ian Barnett
Lawrence Burstein
Jose Ricardo Bosquet Bomeny
TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
The employment arrangements between the Company and each of its three
executive officers provide that if the Company terminates the employment of any
of them, other than for cause, following a change of control, or any such person
voluntarily terminates such employment within 180 days subsequent to a change of
control, the Company shall be obligated to pay to such person an amount of money
equal to 2.9 times his base amount (a term defined in the Code, which
essentially is such person's annualized compensation).
Further, all options, warrants and other rights to acquire securities of
the Company theretofore granted by the Company to any of such persons and
outstanding upon a change of control shall fully vest and become immediately
exercisable thereupon.
Change of control is defined under the aforementioned employment
arrangements as either (i) the acquisition by a person or group of persons
acting in concert of 20% or more beneficial ownership of the Company's Common
Stock or (ii) the commencement or announcement of an intention to make a tender
or exchange offer for 30% or more beneficial ownership of the Company's Common
Stock or (iii) the acquisition by a person or group of persons acting in concert
of 10% or more beneficial ownership of the Company's Common Stock, when such
persons' ownership interest is deemed by the Board to have a material adverse
impact on the business or prospects of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the following officers
participated in discussions concerning executive officer
37
<PAGE>
compensation: Peter van Voorst Vader, Rogerio Carlos Lamim Braz and Marcos
Bastos Rocha. Each of the named persons did not participate in discussions
concerning his own compensation.
All options, warrants and other rights to acquire securities of the Company
held by the Company's Directors shall fully vest and become immediately
exercisable following a change of control.
PERFORMANCE GRAPH
The following graph shows the cumlative total return to stockholders from
April 8, 1994 (the date of the IPO) through December 31, 1996 with
the cumulative total return of the Standard and Poor's 500 Stock Index and
the Standard and Poor's Restaurants Index during the same period. This
presentation assumes that $100 was invested on April 8, 1994, and that all
dividends were reinvested.
CUMULATIVE RETURN TO STOCKHOLDERS
200
160
120 [Graph to follow]
80
40
0
4/8/94 12/30/94 6/30/95 12/29/95 6/28/96 12/31/96
Brazil Fast Food Corp. S&P 500 S&P Restaurants
4/8/94 12/30/94 6/30/95 12/29/95 6/28/96 12/31/96
Brazil Fast Food Corp. $100.00 $100.71 $114.12 $118.38 $114.71 $ 82.35
S&P 500 $100.00 $104.93 $124.96 $144.31 $158.87 $177.42
S&P Restaurants $100.00 $ 99.46 $129.96 $149.18 $152.92 $147.40
38
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 10, 1997, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock held by (i) each
person known by the Company to be the owner of more than 5% of its outstanding
shares of Common Stock, (ii) each director and (iii) all executive officers and
directors as a group:
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL APPROXIMATE
BENEFICIAL OWNER OWNERSHIP(1) PERCENTAGE OF CLASS
- ------------------- ----------------- -------------------
Shampi Investments 1,046,422 9.7%
A.E.C.
L.G. Smith Boulevard
Punto Brabo
Oranjestad, Aruba
Peter van Voorst Vader 1,088,922 10.1%
Prudente de Moraes
1033/703
Ipanema 22420-043
Rio de Janeiro, Brazil
Ian S. Barnett 28,611 *
c/o Heptagon Securities Ltd.
Broughton House
6-8 Sackville Street
London W1X 1DD
United Kingdom
Rogerio Carlos
Lamim Braz 35,000 *
Brazil Fast Food Corp.
Praia do Flamengo
200-22o. Andar
CEP 22210-030
Rio de Janeiro, Brazil
Lawrence Burstein 387,500(3)(4)(5) 3.6%
950 Third Avenue
New York, NY 10022
Omar Carneiro da Cunha 37,500 0.3%
c/o Bond Consultoria
Empresarial S/C Ltda.
Praia do Flamengo
200-22o. Andar
CEP 22210-030
Rio de Janeiro, Brazil
39
<PAGE>
BigBurger Ltda. 1,520,000 14.1%
Rua Lauro Muller
116/2005
Rio de Janeiro, Brazil
Jose Ricardo
Bosquet Bomeny 1,537,500(6) *
c/o BigBurger Ltda.
Rua Lauro Muller
116/2005
Rio de Janeiro, Brazil
All executive officers 3,139,033(7) 29.1%
and directors as a
group (7 persons)
_________________
* Less than 1%.
(1) As used herein, beneficial ownership means the sole or shared power to vote
or direct the voting of a security or the sole or shared power to invest or
dispose or direct the investment or disposition of a security. Except as
otherwise indicated, all persons named herein have (i) sole voting power
and investment power with respect to their shares of the Company's Common
Stock, except to the extent that authority is shared by spouses under
applicable law, and (ii) record and beneficial ownership with respect to
their shares of the Company's Common Stock. With respect to each
stockholder, includes any shares issuable upon exercise of all warrants
held by such stockholder that are currently exercisable or will become
exercisable within 60 days of April 10, 1997.
(2) Includes 1,046,422 shares owned by Shampi, of which Mr. van Voorst Vader is
the sole shareholder.
(3) Includes 11,111 shares owned by Trinity Capital, over which shares Mr.
Burstein shares voting and investment power.
(4) Includes 44,444 shares owned by members of Mr. Burstein's family, of which
shares Mr. Burstein disclaims any voting or investment power.
(5) Includes 100,000 shares issuable upon exercise of warrants owned by the
Affiliated Trinity Shareholders.
(6) Includes 1,520,000 shares owned by BigBurger Ltda., of which Mr. Bomeny is
a principal shareholder.
(7) Includes (i) 11,111 shares owned by Trinity Capital, over which shares Mr.
Burstein has shared voting and investment power, (ii) 44,444 shares owned
by members of Mr. Burstein's family, of which shares Mr. Burstein disclaims
any voting or investment power, (iii) 100,000 shares issuable upon exercise
of warrants held by the Affiliated Trinity Shareholders and (iv) 1,046,422
shares owned by Shampi, of which Mr. van Voorst Vader is the sole
shareholder.
40
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, requires the
Company;s officers and directors, and persons who own more than 10% of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange commission ("SEC"). Officers, directors and
greater than 10% stockholders are required by SEC rule to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no such forms
were required for those persons, the Company believes that during the year
ended December 31, 1996, all filing requirements applicable to officers,
directors and greater than 10% beneficial owners were complied with except
that each officer and director (other than Mr. Bomeny) was not timely in
filing his initial report of beneficial ownership and one monthly report of
one transaction, respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
(i) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statement of Operations for the year
ended December 31, 1996
Consolidated Statement of Changes in Shareholders' Equity
for the year ended December 31, 1996
Consolidated Statement of Cash Flows
for the year ended December 31, 1996
Notes to the Consolidated Financial Statements
Report of Independent Public Accountants
Balance Sheet as of August 31, 1995
Statements of Operations for the period
September 1, 1995 through December 31, 1995 and for the
years ended August 31, 1995 and 1994
Statements of Changes in Shareholders' Equity
for the period September 1, 1995 through December 31,
1995 and for the years ended August 31, 1995 and 1994
Statements of Cash Flows for the period
September 1, 1995 through December 31, 1995 and for
the years ended August 31, 1995 and 1994
Notes to the Financial Statements
(ii) Financial Statement Schedules
All financial statement schedules are omitted because the
conditions requiring their filing do not exist or the information required
thereby is included in the financial statements filed, including the notes
thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended(2)
3.2 By-laws of the Registrant(1)
4.1 Form of certificate evidencing shares of Common Stock(1)
4.2 Form of certificate evidencing Series A Redeemable
42
<PAGE>
Common Stock Purchase Warrants(1)
4.3 Form of certificate evidencing Series B Redeemable Common Stock
Purchase Warrants(1)
4.4 Form of Unit Purchase Option between the Registrant and GKN
Securities Corp.(1)
4.5 Form of Redeemable Warrant Agreement between the Registrant and
American Stock Transfer & Trust Company, as warrant agent(1)
10.1 Amended and Restated 1992 Stock Option Plan(1)
10.2 Form of Trust Agreement by and between Registrant and The Chase
Manhattan Bank, N.A.(1)
10.3 Form of Escrow Agreement by and among Registrant, Barry Goldin,
Lawrence Burstein, John Cattier, Barry Ridings, Rio Bravo
Inversiones, Ltd., Trinity Capital Corp. and American Stock
Transfer & Trust Company(1)
10.4 Form of Letter Agreement concerning conflicts of interest(1)
10.5 Form of Letter Agreement concerning finder's fees(1)
10.6 Form of Agreement relating to the vote by Affiliated Initial
Stockholders on a Business Combination and their waiver of the
right to participate in a certain type of liquidation(1)
10.7 Form of Agreement relating to the vote by Non-Affiliated Initial
Stockholders on a Business Combination and their waiver of
certain of their rights to participate in a certain type of
liquidation(1)
10.8 General and Administrative Services Agreement, dated as of
September 1, 1993, by and between Registrant and Trinity Capital
Corp.(1)
10.9 Heads of Agreement dated October 30, 1995 among Bob's Industria e
Comercio Ltda. ("BIEC"), Arnaldo Bisoni ("Bisoni"), Shampi
Investments A.E.C. ("Shampi"), Registrant and Vendex do Brasil
Industria e Comercio Ltda. ("Vendex")(2)
10.10 Supplement to Heads of Agreement dated October 30, 1995 among
BIEC, Bisoni, Shampi, Registrant and Vendex(2)
10.11 Indemnification Agreement dated October 30, 1995 among
Registrant, BIEC, Bisoni and Vendex(2)
10.12 Trademarks Commitment dated October 30, 1995 with respect to the
assignment of trademarks relating to Venbo's business from Vendex
International N.V. to Shampi and Registrant(2)
10.13 First Amendment to the Heads of Agreement dated January 18, 1996
among BIEC, Bisoni, Shampi, Registrant and Vendex(2)
10.14 Assignment and Transfer of Quotas and Other Covenants dated March
19, 1996 by and among BIEC, Bisoni, Registrant, Vendex and
Shampi(2)
43
<PAGE>
10.15 Conditional Assignment and Transfer of Trademark Rights dated
March 19, 1996 between Registrant and Vendex International,
N.V.(2)
10.16 Pledge and Security Agreement dated March 19, 1996 by and among
Shampi, Registrant, BIEC, Vendex and Vendex International,
N.V.(2)
10.17 Agreement dated March 19, 1996 by and among Coca-Cola Industrias
Ltda., Recofarma Industria do Amazonas Ltda. and Venbo(2)
10.18 Agreement dated January 8, 1996 by and between Hardee's Food
Systems, Inc. and Venbo(2)
10.19 Agreement to the Assignment and Transfer of Quotas of Bigburger
Sao Paulo Lanchonetes Ltda. dated June 10, 1996 among Rucker,
Theodoro Henrique da Silva, Registrant and Theodoro Henrique da
Silva Junior(3)
10.20 Agreement to the Assignment and Transfer of Quotas of Bigburger
Goiania Lanchonetes Ltda. dated June 10, 1996 among Rucker,
Theodoro Henrique da Silva, Registrant and Theodoro Henrique da
Silva Junior(3)
10.21 Exchange Agreement dated July 24, 1996 among Registrant,
BigBurger Ltda., BigBurger Niteroi Lanchonetes Ltda., BigBurger
Fortaleza Lanchonetes Ltda., BigBurger Aracaju Lanchonetes Ltda.,
BigBurger Porto Alegre Lanchonetes Ltda., and BigBurger Recife
Lanchonetes Ltda.(4)
21.1 Subsidiaries of Registrant
27 Financial Data Schedule
____________
(1) Denotes document filed as an exhibit to Registrant's Registration Statement
on Form S-1 (File No. 33-71368) and incorporated herein by reference.
(2) Denotes document filed as an exhibit to Registrant's Registration Statement
on Form S-1 (File No. 333-3754) and incorporated herein by reference.
(3) Denotes document filed as an Exhibit to Registrant's Current Report on
Form 8-K dated June 24, 1996.
(4) Denotes document filed as an exhibit to Registrant's Current Report on
Form 8-K/A dated August 7, 1996.
44
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
================================================================================
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheet as of December 31, 1996 F-3
Consolidated Statement of Operations for the year
ended December 31, 1996 F-4
Consolidated Statement of Changes in Shareholders' Equity F-5
for the year ended December 31, 1996
Consolidated Statement of Cash Flows
for the year ended December 31, 1996 F-6
Notes to the Consolidated Financial Statements F-7-F-17
Report of Independent Public Accountants F-18
Balance Sheet as of August 31, 1995 F-19
Statements of Operations for the period
September 1, 1995 through December 31, 1995 and for the
years ended August 31, 1995 and 1994 F-20
Statements of Changes in Shareholders' Equity
for the period September 1, 1995 through December 31,
1995 and for the years ended August 31, 1995 and 1994 F-21
Statements of Cash Flows for the period
September 1, 1995 through December 31, 1995 and for
the years ended August 31, 1995 and 1994 F-22
Notes to Financial Statements F-23-F-25
F-1
<PAGE>
Report of Independent Public Accountants
To the Shareholders of Brazil Fast Food Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Brazil Fast Food
Corp. and subsidiaries (formerly Trinity Americas Inc.) (a Delaware corporation)
as of December 31, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that out audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brazil Fast
Food Corp. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 26, 1997
F-2
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents R$ 1,481,000
Accounts receivable, net of allowance
for doubtful accounts of R$302,000 1,491,000
Inventories 828,000
Prepaid and other assets 1,206,000
------------
TOTAL CURRENT ASSETS 5,006,000
PROPERTY AND EQUIPMENT, NET 23,421,000
DEFERRED CHARGES, NET 13,602,000
GOODWILL, NET OF ACCUMULATED AMORTIZATION
of R$198,000 6,116,000
OTHER 18,000
------------
TOTAL ASSETS R$48,163,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable R$ 1,899,000
Accounts payable 3,081,000
Accrued expenses 1,578,000
Payroll and related accruals 2,341,000
Taxes, other than income taxes 872,000
Deferred income 625,000
Other 440,000
------------
TOTAL CURRENT LIABILITIES 10,836,000
------------
NOTES PAYABLE, less current portion 2,597,000
DEFERRED INCOME, LESS CURRENT PORTION 2,852,000
------------
TOTAL LIABILITIES 16,285,000
------------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000
shares authorized; no shares issued --
Common stock, $.0001 par value, 20,000,000
shares authorized; 10,404,484 shares issued
and outstanding 1,000
Additional paid-in capital 36,664,000
Retained earnings (deficit) (4,794,000)
Cumulative translation adjustment 7,000
------------
TOTAL SHAREHOLDERS' EQUITY 31,878,000
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY R$48,163,000
============
See the accompanying notes to the financial statements.
F-3
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1996
================================================================================
NET OPERATING REVENUES:
Restaurant sales R$53,650,000
Franchise income 619,000
Other income 1,193,000
------------
TOTAL NET OPERATING REVENUES 55,462,000
------------
COSTS AND EXPENSES:
Cost of restaurant sales 19,487,000
Restaurant payroll and other employee benefits 12,762,000
Restaurant occupancy and other expenses 4,420,000
Depreciation and amortization 2,522,000
Other operating expenses 8,214,000
Selling expenses 3,425,000
General and administrative expenses 9,637,000
------------
TOTAL COSTS AND EXPENSES 60,467,000
------------
(LOSS) FROM OPERATIONS (5,005,000)
INTEREST INCOME 106,000
INTEREST EXPENSE (132,000)
FOREIGN EXCHANGE GAIN 4,000
------------
(LOSS) BEFORE BENEFIT FOR INCOME TAXES (5,027,000)
BENEFIT FROM INCOME TAXES (43,000)
------------
NET (LOSS) R$(4,984,000)
============
NET (LOSS) PER COMMON SHARE R$ (.65)
============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,696,106
============
See the accompanying notes to the financial statements.
F-4
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional Retained Cumulative
----------------------- Paid-In Earnings Translation
Shares Par Value Capital (Deficit) Adjustment Totals
---------- --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,1996 2,964,861 R$ -- R$ 9,727,000 R$ 190,000 R$ -- R$ 9,917,000
Issuance of shares for
acquisitions 3,076,422 -- 11,593,000 -- -- 11,593,000
Issuance of shares for
private placements 4,363,201 1,000 15,344,000 -- -- 15,345,000
Net loss for the year -- -- -- (4,984,000) -- (4,984,000)
Cumulative translation
adjustment -- -- -- -- 7,000 7,000
---------- ------- ------------ ------------ ------- ------------
Balance, December 31, 1996 10,404,484 R$1,000 R$36,664,000 R$(4,794,000) R$7,000 R$31,878,000
========== ======= ============ ============ ======= ============
</TABLE>
See the accompanying notes to the financial statements.
F-5
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31, 1996
================================================================================
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) R$(4,984,000)
Adjustments to reconcile net (loss)
cash provided by operating activities:
Depreciation and amortization 3,017,000
Changes in assets and liabilities net of effects
from acquisitions:
(Increase) in accounts receivable, net (649,000)
(Increase) in inventories (238,000)
(Increase) in other current assets (859,000)
Increase in accounts payable 1,805,000
Increase in accrued expenses 672,000
Increase in payroll and related costs 335,000
Increase in taxes other than income taxes 430,000
(Decrease) in other liabilities (1,962,000)
Increase in deferred income 3,477,000
------------
CASH FLOWS OPERATING ACTIVITIES 1,044,000
------------
CASH FLOW FROM INVESTING ACTIVITIES:
Payment for purchase of acquisitions, net of cash acquired (17,418,000)
Additions to property and equipment (7,020,000)
Decrease in restricted cash and investments 9,477,000
------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES (14,961,000)
------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares of common stock 15,335,000
Proceeds from issuance of notes payable 1,660,000
Repayments of notes payable (1,630,000)
------------
CASH FLOWS FINANCING ACTIVITIES 15,365,000
------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,000
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,455,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,000
------------
CASH AND CASH EQUIVALENTS AT END OF YEAR R$ 1,481,000
============
See the accompanying notes to the financial statements
F-6
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1 - BUSINESS AND OPERATIONS
Brazil Fast Food Corp. (formerly Trinity Americas Inc.) (the "Company")
was incorporated in the State of Delaware on September 16, 1992, to serve
as a vehicle to effect a merger, exchange of capital stock, asset
acquisition or other similar business combination with an operating
business. The Company was in the development stage until March 19, 1996.
On March 19, 1996 (the "Closing"), the Company acquired all of the
outstanding quotas (shares of capital stock) of Venbo from Bob's Industria
e Comercio Ltda. ("BIEC") and Arnaldo Bisoni ("Bisoni" and with BIEC,
collectively, the "Sellers") for $19,200,000 (the "Purchase Price"), of
which $16,700,000 was paid in cash at the Closing (inclusive of $100,000
which had been previously paid in October 1995 upon the parties' execution
of the Heads of Agreement), with the balance of $2,500,000 payable with
interest at the rate of 1-1/2% per annum over LIBOR due 720 days from the
Closing. In addition, the Company acquired all of the trademarks relating
to Venbo's business from Vendex International N.V., an affiliate of the
Sellers, for $1,800,000, payable to BIEC with interest at the rate of
6-7/8% per annum in monthly installments equal to 4% of Venbo's net sales
for each immediately preceding month. The Company's acquisition of the
quotes and trademarks is hereinafter referred to as the "Acquisition".
The Acquisition was treated for accounting purposes as a purchase and the
consideration paid in excess of the net assets acquired was allocated to
those net assets based on their fair market value. The unallocated
amount has been classified as goodwill (R$3,580,000) and is being
amortized over a 20 year period.
At the date of Acquisition, Venbo, a Brazilian limited liability company
which conducts business under the trademark "Bob's", owned and, directly
and through franchisees, operated the second largest chain of hamburger
fast food restaurants in Brazil.
In order to raise sufficient cash to complete the Acquisition and to fund
the Company's subsequent expansion strategy, the Company sold 3,115,701
shares of its common stock to new investors in a private transaction (the
"Private Placement") at $3.20 per share, resulting in net proceeds to the
Company of approximately $10,000,000.
Funding of the cash portion of the Purchase Price was derived from the
following sources; (i) approximately $9,900,000 from the Company's own
funds; (ii) $4,000,000 from a Brazilian subsidiary of Coca-Cola, which was
paid to the Company concurrently with the consummation of the Acquisition,
in consideration for Coca-Cola products being designated the exclusive
soft drink products for all of the Company's restaurants for a ten-year
term and for the Company's agreement to participate at its own expense in
joint promotions and marketing programs with Coca-Cola during such term;
and (iii) the balance of $2,800,000 from the proceeds of the Private
Placement.
At the Closing, the Company issued 1,046,422 shares of its common stock
to Shampi Investments A.E.C. ("Shampi") in exchange for the assignment by
Shampi to the Company of Shampi's right to acquire the outstanding quotas
of Venbo.
As a result of the Acquisition and the Private Placement: (i) Venbo became
a wholly-owned subsidiary of the Company, (ii) Shampi and the investors in
the Private Placement, collectively, acquired approximately 58.4% of the
outstanding common stock of the Company, (iii) designees of Shampi, being
respectively, Peter VanVoorst Vader, Omar Carneiro da Cunha and Arnaldo
Bisoni, became three of the five members of the Company's Board of
Directors, and (iv) the Company's name was changed to "Brazil Fast Food
Corp.". Reference is made to the Company's proxy statement dated February
12, 1996, for a discussion of Venbo's business and the background of the
Acquisition.
Subsequent to the Acquisition discussed above, Brazil Fast Food Corp
changed its fiscal year to December 31, and filed a transition report
on Form 10-Q for the period from September 1, 1995 to December 31, 1995.
The Company sustained losses in the amount of R$4,984,000 for the year
ended December 31, 1996. The Company's current assets include
approximately R$1,481,000 in cash with approximately R$2,300,000 in
accounts receivable and inventory. This is offset by approximately
R$11,000,000 in current liabilities, R$3,000,000 of which is due to
vendors, other operating costs and notes payable. The Company's operations
provided net cash flows of approximately R$1,000,000 in 1996, most of
which was used to fund the the acquisitions of two major chains of stores
and capital expenditures.
The Company plans to increase sales which includes introducing new
programs and other products lines (i.e. a breakfast line) as well as its
plans to open new stores primarily through franchising. Management's plans
include reducing costs by negotiating more favorable terms in their food
purchases as well as other general administrative expenses. In the
opinion of management, these plans, coupled with the Company's current
financing capabilities and the private placement of its securities in
the amount of $1,210,000 made in the quarter ended March 31, 1997, will
be sufficient to provide the Company with the ability to continue its
operations for 1997.
F-7
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Generally Accepted Accounting Principles ("GAAP")
The financial statements have been prepared in accordance with GAAP used
in the United States. Such accounting principles differ in certain
respects from Brazilian GAAP, which is applied by the Company for annual
financial statement preparation. In addition, certain reclassifications
and changes in terminology have been made to financial statements
previously issued in order that the present financial statements conform
with reporting practices prevailing in the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
b. Constant Currency Restatement
The 1996 financial statements have been indexed and expressed in currency
of constant purchasing power at December 31, 1996 by using a monthly index
derived from the Indice Geral de Precos-Mercado (IGP-M).
Through 1995, the Company used the Unidade Fiscal de Referencia (UFIR) as
the basis to reflect constant Brazilian Reais. Starting in 1996, the
Company commenced using the IGP-M as the basis for indexation.
Value of 1.0 Inflation for
Restatement Units the period
of One Real %
----------------- -------------
Year
----
1992 0.0026691 1,129.4
1993 0.0673164 2,422.1
1994 0.6767000 905.3
1995 0.8287000 22.5
1996 0.9049000 9.2
The Company believes that the above indicies are appropriate general
price level inflation indications to be used under US GAAP.
Items in the income statement are adjusted to the balance sheet date by:
o Allocating inflationary holding gains or losses on interest bearing
monetary assets and liabilities to their corresponding interest
income and expense captions;
o Allocating inflationary holding gains and losses from other monetary
items to their corresponding income and expense captions.
The allocation of the inflationary gains and losses to their respective
income statement captions is shown in Note 9.
F-8
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd):
c. Foreign Currency
Transactions in foreign currency are recorded at the prevailing exchange
rate at the time of the related transactions. Assets and liabilities
denominated in foreign currencies are translated into Brazilian Reais at
exchange rates reported by the Central Bank of Brazil at the balance
sheet date. The related transaction gains and losses are recognized in the
statement of operations as they occur.
d. Inventories
Inventories, primarily consisting of food, beverages and supplies,
are stated at the lower of indexed cost or replacement value. Cost of
inventories is determined principally on the average cost method.
e. Financial Investments
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". This Statement requires the
classification of debt and equity securities based on whether the
securities that will be held to maturity, are considered trading
securities or are available for sale. Classification within these
categories may require the securities, to be reported at their fair market
value with unrealized gains and losses included either in current earnings
or reported as a separate component of shareholders' equity, depending on
the ultimate classification, The Company adopted the provisions of this
statement on September 1, 1994, which had no material impact on the
Company's financial statements.
f. Property and Equipment
Property and equipment are stated at price-level adjusted cost, less
price-level adjusted accumulated depreciation. Depreciation on property
and equipment is provided using the straight-line method over the
following estimated useful lives of the related assets:
Years
-----
Buildings and building improvements 50
Leasehold improvements 5-10
Machinery and equipment 10-15
Furniture and fixtures 10-15
Vehicles 13
g. Deferred Charges
Deferred charges, which relate to leasehold premiums paid in advance for
rented outlet premises are stated at price-level adjusted cost, less
price-level adjusted accumulated amortization.
The amortization period is the term of management's estimate of the
related rental contract including renewal options which are solely at the
discretion of the Company.
h. Preopening Costs
Labor costs and the costs of hiring and training personnel and certain
other costs relating to the opening of new restaurants are expensed as
incurred.
F-9
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd):
i. Franchise Fee Revenue
Initial franchise fee revenue is recognized when all material services and
conditions relating to the franchise have been substantially performed or
satisfied which normally occurs when the restaurant is opened. Annual
franchise fees based on a percentage of the revenues of the franchisee are
recognized when earned.
j. Income Taxes
Deferred taxes are provided on the liability method on a full provision
basis in accordance with Statement of Financial Accounting Standards No.
109.
k. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
l. Long-lived Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," effective January 1, 1996. SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. There was no
material effect on the financial statements from the adoption of SFAS No.
121.
m. Net Income (Loss) Per Common Share
Net income (loss) per common share is computed based on the weighted
average number of common shares outstanding and common stock equivalents,
if not anti-dilutive.
Subsequent to December 31, 1996, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. This statement establishes standards for computing
and presenting earnings per share (EPS), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS, for
entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the face of the
statement of operations. Under this new standard, Basic EPS is computed
based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to
issue common stock and is similar to the currently required fully
diluted EPS, SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and
earlier application is not permitted. When adopted, the Company will be
required to restate its EPS data for all prior periods presented. The
Company does not expect the impact of the adoption of this statement to
be material to previously reported EPS amounts.
NOTE 3 - RESTRICTED CASH AND INVESTMENTS
The Company, pursuant to the terms of its initial public offering ("the
Offering"), held approximately $9.6 million as of March 19, 1996, which
included interest income, in a trust account which was primarily invested
in a short term U.S. Government Security. These funds were released, in
connection with the terms of the Offering, upon the consummation of the
Acquisition.
F-10
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 4 - OTHER ACQUISITIONS
On June 10, 1996, the Company acquired all of the outstanding quotas
(capital shares) of, respectively, BigBurger Sao Paulo Lanchonetes
Ltda. and BigBurger Goiania Lanchonetes Ltda., each a Brazilian
corporation (collectively, the "Acquired Companies"), from Rucker
Holding Corporation, a non-affiliated British Virgin Islands
corporation ("Rucker"), for (i) R$251,000 and (ii) 510,000 shares of the
Company's common stock valued at R$1,712,000. The Acquired Companies
owned and operated 7 "Mr. Theo" hamburger fast food restaurants in Sao
Paulo and Goiania, Brazil. All of these restaurants have been rebranded
and are now operating under the Company's "Bob's" tradename. This
acquisition has been accounted for using the purchase method of
accounting. In connection with this acquisition, the Company has
recorded approximately R$368,000 of excess purchase price over net
assets acquired which is being amortized over a 20 year period.
On July 24, 1996, the Company acquired all of the operating assets of
each of BigBurger Ltda. ("BigBurger") and five of its affiliates, all
Brazilian corporations (collectively, the "BigBurger Companies"), for
1,520,000 shares of the Company's common stock valued at R$6,423,000.
The BigBurger Companies owned and operated 27 hamburger fast food
restaurants, inclusive of outlets operated by franchisees, in 9
Brazilian states. All of these restaurants have been rebranded with the
exception of one which is being rebranded and are now
operating under the Company's "Bob's" tradename. This acquisition has
been accounted for using the purchase method of accounting. In
connection with this acquisition, the Company has recorded R$2,366,000
of excess purchase price over net assets acquired which is being
amortized over a 20 year period.
The following unaudited proforma information presents a summary of the
consolidated results of operations of the Company as if all
acquisitions had occurred on January 1, 1994.
1996 1995 1994
------------- ------------ --------
Net Operating Revenues R$ 76,206,000 R$77,638,000 R$63,614,000
Net Loss R$($7,657,000) R$(9,213,000) R$(4,273,000)
Loss per Common Share R$ (.74) R$ (.89) R$ (.41)
The unaudited proforma results have been prepared for comparative purposes
only and include certain adjustments, such as the amortization of the
excess of cost over net assets acquired and increased number of shares
outstanding. No adjustment has been made for stores that had been closed
for rebranding during this period. These pro-forma results do not purport
to be indicative of the results of operations which actually would have
resulted had the acquisitions been in effect on January 1, 1994 or of
future results of operations of the consolidated entities.
NOTE 5 - PROPERTY AND EQUIPMENT
December 31,
1996
------------
Land R$ 2,691,000
Buildings and building improvements 4,086,000
Leasehold improvements 5,748,000
Machinery and equipment 9,587,000
Furniture and fixtures 3,257,000
Vehicles 185,000
Other 38,000
------------
25,592,000
Less: Accumulated depreciation and amortization (2,171,000)
------------
R$23,421,000
============
F-11
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 6 - DEFERRED CHARGES, NET
December 31,
1996
-----------
Leasehold premiums R$14,250,000
Less: Accumulated amortization (648,000)
------------
R$13,602,000
============
NOTE 7 - ACCRUED EXPENSES
December 31,
1996
------------
Rent payable R$ 649,000
Accrued utilities 212,000
Accrued freight 97,000
Accrued maintenance 81,000
Accrued advertising 82,000
Other accrued liabilities 457,000
------------
R$ 1,578,000
============
NOTE 8 - NOTES PAYABLE
a) The Company has revolving lines of credit agreements with several
Brazilian financial institutions for maximum borrowings of R$2,750,000. As
of December 31, 1996, the Company had R$1,660,000 outstanding under these
facilities. Interest charged on these loans range from 1.5% to 2.5% per
month and in some cases are guaranteed by certain of the Company's
officers.
b) As part of the Acquisitions, the Company incurred $2,500,000
(R$2,597,000) payable to the sellers with interest at the rate of 1-1/2%
per annum over LIBOR due March 1998. Additionally, the Company incurred
$1,800,000 (R$1,776,960) payable to BEIC for the purchase of certain
trademarks. This payable bears interest at 6-7/8% per annum and is due
in monthly installments equal to 4% of the Company's Net Revenues. At
December 31, 1996, the Company owes R$239,000 on this obligation.
c) Commencing in 1997, a major financial institution agreed to provide a
credit facility of $3,000,000 to be used by the Company for information
technology expenditures and an additional $2,000,000 for other restaurant
equipment.
NOTE 9 - INFLATIONARY EFFECTS ON THE FINANCIAL STATEMENTS
Inflationary effects on the financial statements that are included in the
statements of operations comprise principally net purchasing power gains.
For the purposes of presenting the financial statements in their fully
indexed form, realized inflationary gains and losses on non-interest
bearing assets and liabilities have been allocated to the following
captions of the statements of operations:
December 31,
1996
------------
Net operating revenues R$ 206,000
Cost of restaurant sales 170,000
Restaurant occupancy and other
expenses 55,000
Depreciation and amortization (269,000)
General and administrative expenses 26,000
----------
Total R$ 188,000
==========
F-12
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 9 - INFLATIONARY EFFECTS ON THE FINANCIAL STATEMENTS (cont'd)
The above stated gain and losses were generated from the following balance
sheet accounts:
December 31,
1996
-----------
Cash and cash equivalents R$ 177,000
Accounts receivable 41,000
Other assets 249,000
Accounts payable and accrued
expenses (99,000)
Payroll and related liabilities (133,000)
Taxes other than income taxes (23,000)
Other liabilities (305,000)
-----------
Total R$ (93,000)
===========
Inflationary gains and losses on interest bearing assets and liabilities
were allocated to the following captions in the statement of operations:
December 31,
1996
------------
Gross interest income R$ 282,000
Inflationary loss (298,000)
----------
Net interest income R$ (16,000)
==========
Gross interest expense R$(257,000)
Inflationary gain 125,000
----------
Net interest expense R$(132,000)
==========
Gross exchange (loss) R$ (73,000)
Inflationary gain 78,000
----------
Net exchange gain R$ 5,000
==========
The inflationary gains and losses were generated from bank balances and
bank overdrafts.
NOTE 10 - CASH FLOW INFORMATION
Supplemental Disclosure of Cash Flow information:
December 31,
1996
------------
Interest paid R$ 191,000
Income taxes paid R$ --
Details of Acquisitions:
Fair Value of assets acquired R$ 40,172,000
Liabilities assumed R$(10,931,000)
Stock issued R$(11,593,000)
Cash acquired R$ (230,000)
-------------
Net cash used in acquisitions R$ 17,418,000
-------------
-------------
F-13
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - TAXATION
Tax losses through December 31, 1996 relating to income tax and social
contribution tax amount to R$7,673,000. Social contribution tax is a
Brazilian tax levied on taxable income and is by its nature comparable
to corporate income tax. At the date of Acquisition, Venbo had
R$5,244,000 of loss carryforwards. The utilization of these
pre-acquisition losses recognized subsequent to the Acquisition, first
reduces to zero any goodwill related to the Acquisition, second reduces
other non-current intangible assets to zero and third reduces income
tax expense.
The accumulated tax loss position can be offset against future taxable
income. Recent Brazilian tax legislation restricts the offset of
accumulated tax losses to 30% of taxable profits on an annual basis.
These losses can be used indefinitely and are not impacted by a change in
ownership of the Company.
The following is a reconciliation of the amount of reported income tax
benefit and the amount computed by applying the combined statutory
tax rate of 33% to the loss before income taxes:
December 31,
1996
------------
Tax benefit at the combined statutory rate R$(1,659,000)
Valuation allowances recorded against net
deferred tax assets 1,659,000
Other (43,000)
------------
Income tax benefit as reported in the
accompanying consolidated financial statements R$ (43,000)
------------
The following summarizes the composition of deferred tax assets and
liabilities and the related valuation allowance at December 31, 1996,
based on temporary differences and tax loss carryforwards determined by
applying social contribution tax and income tax rates of respectively,
8% and 25%.
<TABLE>
<CAPTION>
Social
Contribution Income
Tax Tax Total
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Tax loss carry forward R$ 1,557,000 R$ 4,323,000 R$ 5,880,000
Provision for contingencies 2,000 6,000 8,000
------------ ------------ ------------
Total deferred tax assets 1,559,000 4,329,000 5,888,000
------------ ------------ ------------
Deferred tax liabilities:
Deferred income 8,000 26,000 34,000
Present value adjustment 1,000 3,000 4,000
Fixed assets 63,000 198,000 261,000
Deferred charges 570,000 1,781,000 2,351,000
------------ ------------ ------------
Total deferred tax liabilities 642,000 2,008,000 2,650,000
------------ ------------ ------------
Net deferred tax assets 917,000 2,321,000 3,238,000
Valuation allowance (917,000) (2,321,000) (3,238,000)
------------ ------------ ------------
R$ -0- R$ -0- R$ -0-
=========== ============ ============
</TABLE>
The valuation allowance reflects the Company's assessment of the likelihood
of realizing the net deferred tax assets in view of current operations and
the Company's recurring losses.
F-14
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company was charged $100,000 by an entity related to two of the
Company's directors related to their assistance in the Company's financing
activities.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
a. Operating Leases
The future minimum lease payments under operating leases with an initial or
remaining noncancelable lease term in excess of one year at December 31,
1996 are as follows:
December 31,
------------
1997 R$ 3,541,000
1998 3,104,000
1999 2,749,000
2000 2,382,000
2001 2,104,000
Thereafter 4,625,000
------------
Total minimum lease payments R$18,505,000
============
Rent expense was R$2,965,000 for the year ended December 31, 1996.
Certain leases provide for escalations for common charges and real estate
taxes as well as increased rent payments based upon net revenues.
b. Other Commitments
The Company has long term contracts (mainly 5 to 10 years) with all of its
franchisees. Under these contracts the franchisee has the right to use the
Bob's name and formulas in a specific location or area. The Company has no
specific financial obligations in respect of these contracts.
c. Contingencies
In the normal course of business, Venbo is involved in legal procedures and
claims with both private and governmental parties. At December 31, 1996,
contingencies for labor, civil and fiscal claims exist for a total gross
amount of approximately R$140,000. The balance sheet at December 31, 1996
contains a provision for these claims.
NOTE 14 - SHAREHOLDERS' EQUITY
Preferred Stock
The Board of Directors of the Company is empowered, without shareholder
approval, to issue up to 5,000 shares of "blank check" preferred stock (the
"Preferred Stock") with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. As of December 31, 1996, no
preferred stock has been issued.
Common Stock
In March 1996, the Company completed a Private Placement of 3,115,701
shares of its common stock at $3.20 per share, resulting in net proceeds to
the Company of approximately $10,000,000.
F-15
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 14- STOCKHOLDERS' EQUITY (cont'd)
At the Closing of the Acquisition, the Company issued 1,046,422 shares
of its common stock to Shampi valued at $3,348,550, in exchange for the
assignment by Shampi to the Company of Shampi's right to acquire the
outstanding quotas of Venbo.
In September 1996, the Company closed a private placement of 621,250 units
(the "Private Placement Units"). Each Private Placement Unit consisted of
two shares of the Company's common stock and one warrant to purchase one
share of common stock at an exercise price of $5.50 through September 20,
2001. The Company received net proceeds exclusive of related expenses of
approximately $4,854,000.
STOCK OPTION PLAN
On September 18, 1992, the Company's Board of Directors and a majority
interest of the shareholders of the Company approved the Trinity
Americas Inc. 1992 Stock Option Plan (the "Plan"). The Plan was
subsequently amended and restated on October 27, 1995.
The Plan, as amended and restated, authorizes the granting of awards,
the exercise of which would allow up to an aggregate of 500,000 shares
of the Company's common stock to be acquired by the holders of said awards.
The awards can take the form of Incentive Stock Options ("ISOs") or
Non-qualified Stock Options ("NQSOs"). Options may be granted to employees,
directors and consultants. ISOs and NQSOs are granted in terms not to
exceed ten years and become exercisable as set forth when the award is
granted. Options may be exercised in whole or in part. The exercise price
of the ISOs must be at least equal to the fair market price of the
Company's common stock on the date of grant or in the case of a plan
participant who is granted ISOs and possesses more than 10% of the voting
rights of the Company's outstanding common stock must be granted an option
price with at least 110% of the fair market value on the date of grant and
the option must be exercised within five years from the date of grant. The
exercise price of all NQSOs granted under the Plan shall be determined by
the Board of Directors of the Company at the time of grant. No options may
be granted under the Plan after September 17, 2002.
The Company accounts for awards granted to employees and directors under
APB No. 25, under which no compensation cost has been recognized for stock
options granted. Had compensation costs of these stock options been
determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma
amounts:
1996
----------
Net income (loss) as reported (R$4,984,000)
Net income (loss) pro forma (R$5,633,809)
Primary loss per share as
reported (R$.65)
Primary loss per share
pro forma (R$.73)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS does not apply to awards prior to 1995,
as additional awards in future years are anticipated. No amounts are
shown for 1995 as no options were issued during that time.
F-16
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 14- STOCKHOLDERS' EQUITY (cont'd)
All transactions with individuals other than those considered employees,
as set forth within the scope of APB No. 25, must be accounted for under
the provisions of SFAS No. 123 during 1996, no options were granted to
outside consultants.
Vesting terms of the options range from immediately vesting of all
options to a ratable vesting period of 5 1/2 years. Option activity for
the years ended December 31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1996
---------------------------------
Weighted
Average
Shares Exercise Price
------ --------------
<S> <C>
Outstanding at beginning of year
Options granted 465,000 $4.71
Options exercised -- --
Options canceled -- --
-------
Outstanding at end of year 465,000 $4.71
=======
Exercisable at end of year 135,000 $3.80
=======
Weighted Average Weighted Average
Fair Market Value Exercise Price
---------------- -----------------
Options granted at a discount $4.53 $4.81
Options granted at fair market
value $3.56 $3.94
Options granted at a premium $4.60 $5.16
</TABLE>
At December 31, 1996, there were 35,000 shares available for grant
under the Plan.
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option pricing model with the following weighted average
assumptions used for grants in 1996; risk-free interest rate of 6.26%,
no expected divided yield, expected lives of 5 years; and no expected
stock price volatility of 142%.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1996 Life Price 1996 Price
--------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$3.25 - $4.88 160,000 4.64 $3.87 $100,000 $3.33
4.89 - 5.25 305,000 4.22 5.15 35,000 5.15
------------- ------- ---- ----- -------- -----
3.25 - 5.25 465,000 4.37 $4.71 135,000 $3.80
</TABLE>
NOTE 15- SUBSEQUENT EVENT
During the first quarter of 1997, the Company sold an aggregate of 400,000
shares of its Common Stock in unrelated transactions to two Brazilian banks
respectively, and one European institutional investor, from which the Company
derived net proceeds of $1,210,000.
F-17
<PAGE>
Report of Independent Public Accountants
To the Shareholders of Brazil Fast Food Corp.:
We have audited the accompanying balance sheet of Brazil Fast Food Corp.
(formerly Trinity Americas Inc.) (a Delaware corporation) as of August 31, 1995,
and the related statements of operations, shareholders' equity and cash flows
for the period from September 1, 1995 to December 31, 1995 and for the years
ended August 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brazil Fast Food Corp. as of
August 31, 1995, and the results of its operations and its cash flows for the
period from September 1, 1995 to December 31, 1995 and for the years ended
August 31, 1995 and 1994 in conformity with generally accepted accounting
principles.
New York, New York /s/ ARTHUR ANDERSEN LLP
March 26, 1997
F-18
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
BALANCE SHEET
AUGUST 31, 1995
================================================================================
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 240,000
Restricted cash and investments 9,524,000
Prepaid and other assets 23,000
----------
TOTAL CURRENT ASSETS $9,787,000
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 132,000
----------
TOTAL CURRENT LIABILITIES 132,000
----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000
shares authorized; no shares issued --
Common stock, $.0001 par value, 20,000,000
shares authorized;
2,965,000 shares issued and outstanding --
Additional paid-in capital 9,567,000
Retained earnings 88,000
----------
TOTAL SHAREHOLDERS' EQUITY 9,655,000
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,787,000
==========
See the accompanying notes to the financial statements.
F-19
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
September 1, 1995
to Years Ended
December 31, 1995 August 31,
----------------- -------------------------
1995 1994
----------- -----------
<S> <C>
NET OPERATING REVENUES $ $ $
COSTS AND EXPENSES:
General and administrative expenses 64,000 301,000 241,000
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 64,000 301,000 241,000
----------- ----------- -----------
LOSS FROM OPERATIONS (64,000) (301,000) (241,000)
INTEREST INCOME 224,000 506,000 190,000
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 160,000 205,000 (51,000)
PROVISION FOR INCOME
TAXES 58,000 66,000 --
----------- ----------- -----------
NET INCOME (LOSS) $ 102,000 $ 139,000 $ (51,000)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ .03 $ .05 $ (.02)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,965,000 2,965,000 2,126,000
=========== =========== ===========
</TABLE>
See the accompanying notes to the financial statements.
F-20
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FOR SEPTEMBER 1, 1995 TO DECEMBER 31, 1995
AND THE YEARS ENDED AUGUST 31, 1995, AND 1994
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------ Paid-In Earnings
Shares Par Value Capital (Deficit) Totals
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1993 1,111,111 $ 111 $ -- $ $ --
Issuance of units to public 1,850,000 185 9,567,000 -- 9,567,000
Issuance of shares for
legal services 3,750 -- -- -- --
Net loss for the year -- -- -- (51,000) (51,000)
----------- ----------- ----------- ----------- -----------
Balance, August 31, 1994 2,964,861 296 9,567,000 (51,000) 9,516,000
Net income for the year -- -- -- 139,000 139,000
----------- ----------- ----------- ----------- -----------
Balance, August 31, 1995 2,964,861 296 9,567,000 88,000 9,655,000
Net income for the period -- -- -- 82,000 82,000
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 2,964,861 $ 296 $ 9,567,000 $ 170,000 $ 9,737,000
=========== =========== =========== =========== ===========
</TABLE>
See the accompanying notes to the financial statements.
F-21
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
September 1, 1995
to Years Ended
December 31, 1995 August 31,
----------------- ----------------------------
1995 1994
----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 102,000 $ 139,000 $ (51,000)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
(Increase) decrease in other current
assets 10,000 (23,000) --
Increase (decrease) in accounts
payable and accrued expenses 101,000 74,000 (157,000)
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES 213,000 190,000 (208,000)
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in restricted cash and
investments (222,000) (459,000) (9,065,000)
Increase in deferred acquisition costs (205,000) -- --
----------- ----------- -----------
CASH FLOWS USED IN
INVESTING ACTIVITIES (427,000) (459,000) (9,065,000)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from shares of common stock -- -- 9,784,000
(Decrease) in amounts due to
related parties -- -- (2,000)
----------- ----------- -----------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES -- -- 9,782,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (214,000) (269,000) 509,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 240,000 509,000 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 26,000 $ 240,000 $ 509,000
=========== =========== ===========
</TABLE>
See the accompanying notes to the financial statements
F-22
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND OPERATIONS
Brazil Fast Food Corp. (formerly Trinity Americas Inc.) (the "Company") was
incorporated in the State of Delaware on September 16, 1992, to serve as a
vehicle to effect a merger, exchange of capital stock, asset acquisition or
other similar business combination with an operating business. The Company
was in the development stage until March 19, 1996 when it consummated the
Acquisition.
Prior to the Acquisition, Brazil Fast Food Corp. changed its fiscal year to
December 31, and filed a transition report on Form 10-Q for the period from
September 1, 1995 to December 31, 1995.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Financial Investments
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". This Statement requires the classification
of debt and equity securities based on whether the securities that will be
held to maturity, are considered trading securities or are available for
sale. Classification within these categories may require the securities, to
be reported at their fair market value with unrealized gains and losses
included either in current earnings or reported as a separate component of
shareholders' equity, depending on the ultimate classification. The Company
adopted the provisions of this statement on September 1, 1994, which had no
material impact on the Company's financial statement.
b. Income Taxes
Deferred taxes are provided on the liability method on a full provision
basis in accordance with Statement of Financial Accounting Standards No.
109.
c. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
d. Net Income (Loss) Per Common Share
Net income (loss) per common share is computed based on the weighted
average number of common shares outstanding and common stock equivalents,
if not anti-dilutive.
NOTE 3 - RESTRICTED CASH AND INVESTMENTS
The Company, pursuant to the terms of its initial public offering ("the
Offering"), held approximately $9.6 million as of March 19, 1996, which
included interest income, in a trust account which was primarily invested
in a short term U.S. Government Security. These funds were released, in
connection with the terms of the Offering, upon the consummation of the
Acquisition.
F-23
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - SHAREHOLDERS' EQUITY
Preferred Stock
The Board of Directors of the Company is empowered, without shareholder
approval, to issue up to 5,000 shares of "blank check" preferred stock (the
"Preferred Stock") with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. As of August 31, 1995, no preferred
stock has been issued.
Common Stock
In February 1994, the Company's Offering for public sale of up to 1,700,000
Units exclusive of the underwriter's over-allotment (the "Units") at an
offering price of $6.00 per Unit, closed. The Underwriter exercised a
portion of its over-allotment to acquire an additional 150,000 Units for a
total of 1,850,000 units sold in the Offering. The Company received net
proceeds of $9,567,000 (after deduction of underwriting and offering
expenses of approximately $1,533,000).
Each Unit sold in the Offering consists of one share of the Company's
Common Stock, $.0001 par value, one Class A Redeemable Warrant and one
Class B Redeemable Warrant. Each Class A Redeemable Warrant and Class B
Redeemable Warrant entitles the holder to purchase from the Company one
share of Common Stock at an exercise price of $5.50 and $6.00,
respectively, commencing on the later of (i) the consummation of a Business
Combination or (ii) one year from the date of the prospectus for the
sale of such units (February 9, 1995) and ending five years after the
Effective Date of the Offering (February 8, 1999). The Class A Redeemable
Warrants and Class B Redeemable Warrants are redeemable by the Company,
each as a class, in whole and not in part, upon 30 days notice provided
the reported high bid price of the Common Stock is at least $8.50 per
share for 20 consecutive trading days immediately prior to notice of
redemption, at a price of $.05 per Class A Redeemable Warrant or Class B
Redeemable Warrant. The warrants became separable and transferable on
February 28, 1994.
In connection with the Offering, the Company sold to the managing
Underwriter and its designees, for $17, warrants (the "Underwriter's
Warrants") to purchase up to 170,000 Units at an exercise price of $7.92
per Unit. The Underwriter's Warrants are exercisable for a period of four
years commencing February 9, 1995. The Underwriter's Warrants are not
redeemable by the Company.
The Company has granted its executive officers and directors 277,780
warrants (50% Class A Warrants and 50% Class B Warrants, collectively the
"Warrants") to purchase common stock at $5.50 and $6.00 per share in
consideration of future services to be rendered on behalf of the Company.
The Warrants are not redeemable by the Company.
The Company has granted its executive officers and directors 278,000
warrants (50% Class A Warrants and 50% Class B Warrants, collectively the
"Warrants") to purchase Common Stock at $5.50 and $6.00 per share in
consideration of future services to be rendered on behalf of the Company.
The Warrants are not redeemable by the Company.
F-24
<PAGE>
BRAZIL FAST FOOD CORP.
(formerly Trinity Americas Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - SHAREHOLDERS' EQUITY (cont'd)
Stock Option Plan
On September 18, 1992, the Company's Board of Directors and a majority in
interest of the shareholders of the Company approved a stock option plan
(the "Plan"). The Plan provides for issuance of up to 278,000 options (the
"Options") to acquire shares of the Company's Common Stock.
The Options are intended to qualify either as incentive stock options
("Incentive Stock Options"), within the meaning of Section 422 of the
Internal Revenue Code of 1986, or as options which are not intended to meet
the requirements of such section ("Nonstatutory Stock Options"). The
Options may be granted under the Plan to persons who, in the case of
Incentive Stock Options, are key employees (including officers) of the
Company, or, in the case of Nonstatutory Stock Options, are key employees
(including officers) and nonemployee directors of the Company, except that
Nonstatutory Stock Options may not be granted to a holder of more than 10%
of the total voting power of the Company.
The exercise price of all Incentive Stock Options granted under the Plan
must be at least equal to the fair market value of such shares on the date
of grant or, in the case of Incentive Stock Options granted to the holder
of 10% or more of the Company's Common Stock, at least 110% of the fair
market value of such shares on the date of grant. The exercise price of all
Nonstatutory Stock Options granted under the Plan shall be determined by
the Board of Directors of the Company at the time of grant. The maximum
exercise period for which the Options may be granted is ten years from the
date of grant (five years in the case of Incentive Stock Options granted to
an individual owning more than 10% of the Company's Common Stock). The
aggregate fair market value (determined at the date of the option grant) of
such shares with respect to which Incentive Stock Options are exercisable
for the first time by the holder of the option during any calendar year
shall not exceed $100,000. To date, no options have been granted under the
Plan.
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Rio de
Janeiro, Country of Brazil, on the 10th day of April, 1997.
BRAZIL FAST FOOD CORP.
By:/s/Peter van Voorst Vader
-------------------------------
Peter van Voorst Vader
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
Chief Executive
Officer (Principal
Executive Officer)
/s/Peter van Voorst Vader and Director April 10, 1997
Peter van Voorst Vader
Vice President -
Finance (Principal
Financial Officer and
/s/Marcos Bastos Rocha Accounting Officer) April 10, 1997
Marcos Bastos Rocha
President and
Chief Operating
/s/Rogerio Carlos Lamim Braz Officer April 10, 1997
Rogerio Carlos Lamim Braz
Chairman of
/s/Omar Carneiro da Cunha the Board April 10, 1997
Omar Carneiro da Cunha
Director
Ian S. Barnett
/s/Lawrence Burstein Director April 10, 1997
Lawrence Burstein
Director
Jose Ricardo Bosquet Bomeny
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
JURISDICTION OF
INCORPORATION OR PERCENTAGE OF
NAME ORGANIZATION CAPITAL STOCK OWNED
------ ---------------- -------------------
Bigburger Sao Brazil 100%
Paulo Lanchonetes Ltda.
Bigburger Goiania Brazil 100%
Lanchonetes Ltda.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
(ALL AMOUNTS ARE STATED IN BRAZILIAN REAIS)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1481000
<SECURITIES> 0
<RECEIVABLES> 1793000
<ALLOWANCES> 302000
<INVENTORY> 828000
<CURRENT-ASSETS> 5006000
<PP&E> 25592000
<DEPRECIATION> 2171000
<TOTAL-ASSETS> 48163000
<CURRENT-LIABILITIES> 10836000
<BONDS> 2597000
0
0
<COMMON> 1000
<OTHER-SE> 31877000
<TOTAL-LIABILITY-AND-EQUITY> 48163000
<SALES> 53650000
<TOTAL-REVENUES> 55462000
<CGS> 19487000
<TOTAL-COSTS> 19487000
<OTHER-EXPENSES> 40980000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132000
<INCOME-PRETAX> (5027000)
<INCOME-TAX> (43000)
<INCOME-CONTINUING> (4984000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4984000)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
