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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A-1
(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)
<TABLE>
<CAPTION>
DELAWARE 13-3688737
<S> <C>
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
PRAIA DO FLAMENGO
200-22O. ANDAR
CEP 22210-030
RIO DE JANEIRO, BRAZIL N/A
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 55-21-556-0424
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
-- --
</TABLE>
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. / /
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").
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 what the Company believes to be 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).
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
1
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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 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, 200-22o.
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 warranties 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
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.
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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 and the special spicing of its hamburgers. Each Bob's restaurant
offers 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.*
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* Denotes a statement that may be considered forward-looking. See
"--Forward-Looking Statements."
3
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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.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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<S> <C> <C> <C>
1996 1995 1994
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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
</TABLE>
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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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:
<TABLE>
<CAPTION>
PERCENT OF AVERAGE GUEST
TOTAL DAILY SALES CHECK PER PERSON
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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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</TABLE>
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. It is
the Company's belief that such population 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. Based upon such demographics and a published report of a
non-affiliated consulting concern, which concluded that the fast food market is
one of Brazil's fastest growing business segment, 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
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* Denotes a statement that may be considered forward-looking. See
"--Forward-Looking Statements."
5
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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 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 stores within a specified time-frame.
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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 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 aids, 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.
- ------------------------
* Denotes a statement that may be considered forward-looking. See
"--Forward-Looking Statements."
7
<PAGE>
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's trademarks and 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 age and
logo and also include marks relating to specific menu offerings.
The Company's 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 believes itself to be 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 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.*
- ------------------------
* Denotes a statement that may be considered forward-looking. See
"--Forward-Looking Statements."
8
<PAGE>
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.
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.
9
<PAGE>
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
10
<PAGE>
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.
11
<PAGE>
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.
12
<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:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK WARRANTS WARRANTS
------------------ ------------------ ------------------
THREE MONTHS ENDED HIGH LOW HIGH LOW HIGH LOW
- -------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 consultant as payment for his services. In addition, 5,000 shares of
the Company's Common Stock were redeemed in accordance with the terms of the
Company's Articles of Incorporation. 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 following selected financial data has been derived from the audited
consolidated financial statements of Brazil Fast Food Corp. ("BFFC") subsequent
to the acquisition of Venbo and from the audited financial statements of Venbo,
the predecessor, prior to the acquisition. All amounts are stated in constant R$
in accordance with U.S. GAAP, unless otherwise noted.
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.
13
<PAGE>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS)
<TABLE>
<CAPTION>
BFFC VENBO
------------------- ---------------------------------------------------
MARCH 19, 1996 YEARS ENDED DECEMBER 31,
TO DECEMBER 31, JANUARY 1, 1996 --------------------------------
1996 TO MARCH 18, 1996 1995 1994 1993
------------------- ----------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net operating revenues:
Restaurant sales..................... R$ 55,469 $ 14,759 $ 69,056 $ 54,589 $ 44,461
Franchise related income............. 640 158 716 499 721
Other income......................... 1,233 111 458 399 641
---------- ----------------- --------- ---------- ---------
Total net operating revenues........... 57,342 15,028 70,230 55,487 45,823
---------- ----------------- --------- ---------- ---------
Cost and expenses:
Cost of restaurant sales............. 20,148 6,326 26,169 19,449 18,362
Restaurant payroll and other employee
benefits........................... 13,195 3,179 13,506 11,965 13,473
Restaurant occupancy and other
expenses........................... 4,570 1,067 6,124 5,178 3,860
Depreciation and amortization........ 2,607 664 3,067 3,488 3,931
Other operating expenses............. 8,492 3,061 12,987 7,975 5,309
Selling expenses..................... 3,541 866 3,573 4,474 3,167
General and administrative
expenses........................... 9,964 3,551 12,009 11,040 6,954
Restructuring expenses............... -- -- 275 3,161 --
---------- ----------------- --------- ---------- ---------
Total costs and expenses............... 62,517 18,714 77,710 66,730 55,056
---------- ----------------- --------- ---------- ---------
Loss from operations................... (5,175) (3,686) (7,480) (11,243) (9,233)
---------- ----------------- --------- ---------- ---------
Interest income........................ 110 2,161 1,710 2,564 1,889
Interest expense....................... (136) (973) (5,280) (5,551) (5,310)
Foreign exchange gain/(loss)........... 4 269 1,402 9,690 (1,774)
---------- ----------------- --------- ---------- ---------
Income (loss) before provision for
income taxes......................... (5,197) (2,229) (9,648) (4,540) (14,428)
Provision (recovery) for income
taxes................................ (44) -- -- -- --
---------- ----------------- --------- ---------- ---------
Net income (loss)...................... R$ (5,153) R$ (2,229) $ (9,648) $ (4,540) $ (14,428)
---------- ----------------- --------- ---------- ---------
---------- ----------------- --------- ---------- ---------
Net income (loss) per common share..... R$ (.67)
----------
----------
Weighted average common shares
outstanding.......................... 7,696
----------
----------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
BFFC VENBO
----------------- -----------------
AT AT
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Working capital (deficit).................................................. R$ (6,027) $ (16,048)
Total assets............................................................... 49,797 37,930
Retained earnings (deficit)................................................ (4,956) (30,276)
Total shareholders' equity................................................. 32,960 (25,581)
</TABLE>
14
<PAGE>
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 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$1.00.
<TABLE>
<CAPTION>
AVERAGE
FOR
PERIOD PERIOD-END PERIOD(1) HIGH LOW
- ----------------------------------------------------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1990............................................................. 0.000062 0.000025 0.000062 0.000004
1991............................................................. 0.000389 0.000149 0.000389 0.000062
1992............................................................. 0.004505 0.001655 0.004505 0.000389
1993............................................................. 0.118584 0.032809 0.118584 0.004505
1994............................................................. 0.846000 0.645000 1.000000 0.118584
1995............................................................. 0.973000 0.923000 0.973000 0.842000
1996............................................................. 1.038600 1.007400 1.038600 0.973000
</TABLE>
- ------------------------
(1) Weighted average of exchange rates on business days.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based on and should be read together with the
Consolidated Financial Statements of the Company and notes thereto appearing
elsewhere in this Report. See "Selected Historical Financial Data." All amounts
referred to herein that refer directly to financial statement balances of the
Company or are otherwise drawn directly from the Consolidated Financial
Statements of the Company or notes thereto are stated in constant R$ in
accordance with U.S. GAAP.
15
<PAGE>
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 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.
16
<PAGE>
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%. 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
----- --------- ---------
Inflation (UFIR/IGP-M)................................................................. 9.2% 22.5% 905.3%
Devaluation (Brazilian currency vs. $)................................................. 6.9% 14.9% 613.4%
</TABLE>
- ------------------------
(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 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$2,730,000 of
indebtedness denominated principally in U.S. dollars. See Note 8 to the
Consolidated Financial Statements of the Company. The Company does not
hedge its obligations under its foreign currency-denominated indebtedness.
In the Consolidated Financial Statements of the Company, the interest
expense attributable to foreign-currency denominated indebtedness is
reported net of the associated inflationary gain and foreign exchange
loss. When the rate of inflation and the rate of devaluation differ
substantially, the effect on reported interest expense can be substantial.
See "Selected Financial Data--Exchange Rates" and Note 2.c to the
Consolidated Financial Statements of the Company.
17
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
As the nature of the Company's post-Acquisition operations are significantly
different from its operations prior to the Acquisition, the following unaudited
comparative financial data of the Company for the three, six and nine months
ended December 31, 1996 is included herein in an effort to facilitate a
meaningful presentation of the Company's post-Acquisition operating results.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Net operating revenues:
Restaurant sales.......................................... R$ 22,451 R$ 39,405 R$ 55,474
Franchise related income.................................. 288 484 640
Other income.............................................. 590 902 1,234
----------------- ----------------- -----------------
Total net operating revenues................................ 23,329 40,791 57,348
----------------- ----------------- -----------------
Cost and expenses:
Cost of restaurant sales.................................. 7,860 13,888 20,150
Restaurant payroll and other employee benefits............ 5,627 9,411 13,196
Restaurant occupancy and other expenses................... 1,837 3,248 4,570
Depreciation and amortization............................. 375 1,510 2,608
Other operating expenses.................................. 3,011 5,371 8,493
Selling expenses.......................................... 1,687 2,787 3,541
General and administrative expenses....................... 3,771 7,231 9,965
----------------- ----------------- -----------------
Total costs and expenses.................................... 24,168 43,446 62,523
----------------- ----------------- -----------------
Loss from operations........................................ (839) (2,655) (5,175)
----------------- ----------------- -----------------
Interest income............................................. 273 10 110
Interest expense............................................ (294) (272) (136)
Foreign exchange gain/(loss)................................ 36 36 4
----------------- ----------------- -----------------
(Loss) before provision for income taxes.................... (824) (2,881) (5,197)
Provision (recovery) for income taxes....................... 8 (58) (44)
----------------- ----------------- -----------------
Net (loss).................................................. R$ (832) R$ (2,823) R$ (5,153)
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
RESTAURANT SALES
Restaurant sales for Company-owned stores, kiosks and trailers were
R$16,069,000, R$16,954,000 and R$22,451,000, 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 BigBurger
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$4.50, respectively, for the second,
third and fourth quarters of 1996 as store personnel encouraged the sale of
french fries and desserts, as well as other higher margin products, as add-ons
to discounted promotions of two and three item "combo meals".
FRANCHISE INCOME
Franchise income was R$ 156,000, R$ 196,000, and R$ 288,000, 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.
18
<PAGE>
COST OF RESTAURANT SALES
Cost of restaurant sales expressed as a percentage of operating revenues
were approximately 37.8%, 34.5% and 33.6%, respectively, for the second, third
and fourth quarters of 1996. The decrease from the second to 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.
RESTAURANT PAYROLL AND OTHER EMPLOYEES BENEFITS
Restaurant payroll and other employee benefits expressed as a percentage of
net operating revenues were approximately 22.9%, 21.7% and 24.1%, 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 BigBurger 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 8.0%, 8.1% and 7.9%, respectively, for the
second, third and fourth quarters of 1996.
OTHER OPERATING EXPENSES
Other operating expenses expressed as a percentage of net operating revenues
were approximately 18.9%, 13.5% and 12.9%, 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 and (iii) reductions in the cost of store cleaning, security and
gardening.
SELLING EXPENSES
Selling expenses, expressed as a percentage of total net operating revenues,
were approximately 4.6%, 6.3% and 7.2%, 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, 16.5%, 19.8% and 16.2%, 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 1.4%, (1.3%) and --%, respectively, for
the second, third and fourth quarters of 1996. These marginal changes are
attributable to daily cash management and bank charges.
19
<PAGE>
YEAR ENDED DECEMBER 31, 1995
COMPARED TO YEAR ENDED DECEMBER 31, 1994
RESTAURANT SALES
Restaurant sales for Venbo-owned stores increased 26.5% to R$69,056,000 for
the year ended December 31, 1995, from R$54,589,000 for the year ended December
31, 1994. This increase is primarily attributable to an increase in comparable
store sales to R$62,476,000 for the year ended December 31, 1995 as compared to
R$42,134,000 for the year ended December 31, 1994, as well as an increase in the
average price per guest check from approximately R$4.40 to R$5.42 for the years
ended December 31, 1994 and 1995, respectively. The increase in comparable
stores sales is the result of the continuation of the REAL Plan instituted by
the Government in 1994. This plan was designed to and was successful in
increasing consumer purchasing power and discretionary spending. In addition to
the dynamics of the economic climate, during the latter part of the year Venbo
instituted certain marketing programs including "COMBO MEALS" and "KID'S MEALS"
which had the effect of increasing the average price per guest check and
encouraged the purchase of higher margin products. Venbo also introduced the
"CHICKEN BURGER" (a sandwich made of white meat chicken and light bread),
designed to address growing consumer demands for lighter and healthier meals.
Additionally, during the year ended December 31, 1995, Venbo introduced the
"DOUBLE CHEESEBURGER." Venbo estimates that the DOUBLE CHEESEBURGER represented
approximately 25% of all the items sold upon its introduction. In addition,
Venbo renovated five existing stores and opened three new stores during the year
ended December 31, 1995. Venbo also increased its use of alternative
distribution channels through mobile units and kiosks at major events.
FRANCHISE INCOME
Franchise income increased 43.4% to R$716,000 for the year ended December
31, 1995 from R$499,000 for the year ended December 31, 1994. This increase is
primarily the result of increased sales volume at franchise locations for the
same reasons restaurant sales increased as discussed above, generating greater
royalties and marketing fees from franchisees.
COST OF RESTAURANT SALES
Cost of restaurant sales increased to 37.9% of restaurant sales for the year
ended December 31, 1995, from 35.6% of restaurant sales for the year ended
December 31, 1994. The increase as a percentage of restaurant sales results
principally from increases in the costs of packaging, meat, chicken, potatoes,
bread and soft drinks due to inflation.
RESTAURANT PAYROLL AND OTHER EMPLOYEE BENEFITS
Restaurant payroll and other employee benefits decreased to 19.6% of
restaurant sales for the year ended December 31, 1995, from 21.9% of restaurant
sales for the year ended December 31, 1994. This decrease is primarily the
result of Venbo embarking on a new outsourcing program pursuant to which Venbo
hired unrelated third party contractors to perform all of its store security
functions (thereby reducing the cost associated therewith) as well as manpower
efficiencies achieved in the remodeling of Venbo-owned stores during 1995. This
decrease was offset in part by increases in medical insurance and increases in
severance payments due to higher than normal employee turnover caused by
increased competitive pressures in the work force.
RESTAURANT OCCUPANCY COSTS AND OTHER EXPENSES
Restaurant occupancy and other expenses decreased to 8.9% of restaurant
sales for the year ended December 31, 1995 from 9.5% of restaurant sales for the
year ended December 31, 1994. The decrease is primarily due to the increase in
sales volume discussed above, which is primarily in units open for both
20
<PAGE>
periods, without the equivalent percentage increase in restaurant occupancy
costs incurred. 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 the sales volume.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totalled R$3,067,000 for the year ended
December 31, 1995, as compared to R$3,488,000 for the year ended December 31,
1994. The decrease of R$421,000 was principally due to the reduction in the size
of Venbo's automobile fleet and store closings during 1994.
OTHER OPERATING EXPENSES
Other operating expenses, totalled R$12,987,000, or 18.5% of total net
operating revenues, for the year ended December 31, 1995, as compared to
R$7,975,000, or 14.4% of total net operating revenues, for the year ended
December 31, 1994. This increase is primarily the result of royalty payments of
R$2,935,000 paid to BIEC during 1995 which were not charged to Venbo in 1994, a
write down of an intercompany receivable of R$2,371,000 during 1995, and an
increase in costs for contracted services during 1995.
SELLING EXPENSES
Selling expenses totalled R$3,573,000, or 5.1% of total net operating
revenues, for the year ended December 31, 1995, as compared to R$4,474,000 or
8.1% of total net operating revenues, for the year ended December 31. 1994. This
percentage decrease is primarily the result of a one time payment from Coca-Cola
of approximately R$427,000 offsetting marketing costs during 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totalled R$12,009,000, or 17.1% of total
net operating revenue, for the year ended December 31, 1995, as compared to
R$11,040,000, or 19.9% of total net operating revenue, for the year ended
December 31, 1994. This overall increase is primarily the result of increased
costs of transporting funds from stores of approximately R$359,000, increased
store security costs of approximately R$290,000 and increased cleaning costs of
approximately R$163,000 offset in part by decreased banking charges. The
decrease as a percentage of total revenue is due to the stabilization of total
general and administrative expenses compared to the increase in comparable store
sales noted above.
INTEREST INCOME AND EXPENSE
These amounts result from Vendex's investing activities and are not a
relevant element of Venbo's results of operations in so much as the related
activities are not caused by store or franchising activities. In addition, the
financial instruments and related debt that give rise to these amounts were
transferred to and assumed by Vendex and/or a direct or indirect subsidiary of
Vendex in connection with the Acquisition described elsewhere in this
Prospectus.
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$5,031,000 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
21
<PAGE>
borrowing funds from various sources. As of December 31, 1996, the Company had
cash on hand of R$1,531,000 and a working capital deficiency of R$6,027,000.
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$1,068,000
since March 19, 1996. The Company had net cash used in investing activities of
R$15,468,000 since March 19, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pps. F-2 through F-40 comprising a portion of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE/POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
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
</TABLE>
23
<PAGE>
PETER J.F. VAN VOORST VADER has been 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 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
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.
24
<PAGE>
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 $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
25
<PAGE>
two most highly compensated executive officers whose compensation exceeded
$100,000 during the year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ -------------------------- -------------
OTHER RESTRICTED LONG TERM
NAME AND FISCAL ANNUAL STOCK NUMBER OF INCENTIVE
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION AWARDS OPTIONS PAYOUTS
- -------------------------------- ----------- ---------- ----------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter van Voorst Vader.......... 1996 $ 114,750 $ -- -- 167,500 --
Chief Executive Officer 1995 $ -- $ -- -- -- --
1994 $ -- $ -- -- -- --
Rogerio Carlos Lamim Braz....... 1996 $ 140,466 $ -- -- 120,000 --
President 1995 $ -- $ -- -- -- --
1994 $ -- $ -- -- -- --
Marcos Bastos Rocha............. 1996 $ 90,553 $ -- -- 35,000 --
Vice President--Finance 1995 $ -- $ -- -- -- --
1994 $ -- $ -- -- -- --
<CAPTION>
ALL
NAME AND OTHER
PRINCIPAL POSITION COMPENSATION
- -------------------------------- -------------
<S> <C>
Peter van Voorst Vader.......... $
Chief Executive Officer $
$
Rogerio Carlos Lamim Braz....... $
President $
$
Marcos Bastos Rocha............. $ 20,000(2)
Vice President--Finance $
$
</TABLE>
- ------------------------
(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 DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED YEAR ($/SH) DATE VALUE(1)
- ----------------------------------------------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <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 Braz............................ 120,000 52.17% $ 5 5/32 3/19/01 $ 548,400
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:
26
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
NUMBER OF SECURITIES UNDERLYING OPTIONS
SHARES OPTIONS AT DECEMBER 31, AT DECEMBER 31,
ACQUIRED 1996 1996
ON VALUE -------------------------- ---------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------------------------------- --------------- ------------- ----------- ------------- ---------------
<S> <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 --
<CAPTION>
NAME UNEXERCISABLE
- --------------------------------------------- -----------------
<S> <C>
Peter van Voorst Vader....................... --
Rogerio Carlos Lamim Braz.................... --
Marcos Bastos Rocha.......................... --
</TABLE>
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
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.
27
<PAGE>
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 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-going 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.
28
<PAGE>
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 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.
29
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the following officers participated
in discussions concerning executive officer 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 TOTAL RETURN TO STOCKHOLDERS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BRAZIL FAST FOOD CORP. S&P 500 S&P RESTAURANTS
<S> <C> <C> <C>
4-8-94 100.00 100.00 100.00
12-30-94 100.71 104.93 99.46
6-30-95 114.12 124.96 129.96
12-29-95 118.38 144.31 149.18
6-28-96 114.71 158.87 152.92
12-31-96 82.35 177.42 147.40
</TABLE>
30
<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:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL APPROXIMATE
BENEFICIAL OWNER OWNERSHIP(1) PERCENTAGE OF CLASS
- ---------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Shampi Investments A.E.C........................................ 1,046,422 9.7%
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) (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
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 and directors
as a group (7 persons)........................................ 3,139,033(7) 29.1%
</TABLE>
31
<PAGE>
- ------------------------
* 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 (iv) 1,046,422 shares
owned by Shampi, of which Mr. van Voorst Vader is the sole shareholder, and
(v) 1,520,000 shares owned by BigBurger Ltda., of which Mr. Bomeny is a
principal shareholder.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
(i) Financial Statements
32
<PAGE>
Reports of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statements of Operations for the period from March 19,
1996 through December 31, 1996 and the period from January 1, 1996
through March 18, 1996
Consolidated Statements of Changes in Shareholders' Equity for the
period from March 19, 1996 through December 31, 1996 and the period
from January 1, 1996 through March 18, 1996
Consolidated Statements of Cash Flows for the period from March 19,
1996 through December 31, 1996 and the period from January 1, 1996
through March 18, 1996
Notes to the Consolidated Financial Statements
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994
and 1993
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993
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
<TABLE>
<C> <S>
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 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)
</TABLE>
33
<PAGE>
<TABLE>
<C> <S>
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)
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
</TABLE>
34
<PAGE>
<TABLE>
<C> <S>
27 Financial Data Schedule
</TABLE>
- ------------------------
(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.
35
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES AND PREDECESSOR
(FORMERLY TRINITY AMERICAS INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Reports of Independent Public Accountants........................................................... F-2-F-3
Consolidated Balance Sheet as of December 31, 1996.................................................. F-4
Consolidated Statements of Operations for the period from March 19, 1996 through December 31, 1996
and the period from January 1, 1996 through March 18, 1996........................................ F-5
Consolidated Statements of Changes in Shareholders' Equity for the period from March 19, 1996
through December 31, 1996 and the period from January 1, 1996 through March 18, 1996.............. F-6
Consolidated Statements of Cash Flows for the period from March 19, 1996 through December 31, 1996
and the period from January 1, 1996 through March 18, 1996........................................ F-7
Notes to the Consolidated Financial Statements...................................................... F-8-F-21
Report of Independent Public Accountants............................................................ F-22
Balance Sheets as of December 31, 1995 and 1994..................................................... F-23
Statements of Operations for the years ended December 31, 1995, 1994 and 1993....................... F-24
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993....................... F-25
Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and
1993.............................................................................................. F-26
Notes to Financial Statements....................................................................... F-27-F-40
</TABLE>
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 period from March 19,
1996 through December 31, 1996. 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 period from March 19, 1996 through December 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 26, 1997 (except with respect
to matters discussed in
Note 2.c as to which
the date is May 23, 1997)
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Brazil Fast Food Corp. and Subsidiaries:
We have audited the accompanying statements of operations and cash flows of
Venbo Comercio de Alimentos Ltda. for the period from January 1, 1996 through
March 18, 1996. 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 results of operations and cash flows of Venbo
Comercio de Alimentos Ltda. for the period from January 1, 1996 through March
18, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
August 1, 1997
F-3
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................... R$ 1,531,000
Accounts receivable, net of allowance for doubtful accounts of R$312,000.... 1,542,000
Inventories................................................................. 856,000
Prepaid and other assets.................................................... 1,247,000
------------
TOTAL CURRENT ASSETS...................................................... 5,176,000
PROPERTY AND EQUIPMENT, NET................................................... 24,215,000
DEFERRED CHARGES, NET......................................................... 14,063,000
GOODWILL, NET OF ACCUMULATED AMORTIZATION
of R$205,000................................................................ 6,323,000
OTHER......................................................................... 20,000
------------
TOTAL ASSETS.............................................................. R$49,797,000
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................................... R$ 1,963,000
Accounts payable............................................................ 3,186,000
Accrued expenses............................................................ 1,631,000
Payroll and related accruals................................................ 2,420,000
Taxes, other than income taxes.............................................. 902,000
Deferred income............................................................. 646,000
Other....................................................................... 455,000
------------
TOTAL CURRENT LIABILITIES................................................. 11,203,000
------------
NOTES PAYABLE, less current portion........................................... 2,685,000
DEFERRED INCOME, LESS CURRENT PORTION......................................... 2,949,000
------------
TOTAL LIABILITIES......................................................... 16,837,000
------------
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.................................................. 37,908,000
Retained earnings (deficit)................................................. (4,956,000)
Cumulative translation adjustment........................................... 7,000
------------
TOTAL SHAREHOLDERS' EQUITY................................................ 32,960,000
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ R$49,797,000
------------
------------
</TABLE>
See the accompanying notes to the financial statements.
F-4
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES AND PREDECESSOR
(FORMERLY TRINITY AMERICAS INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM MARCH 19, 1996 THROUGH DECEMBER 31, 1996
AND THE PERIOD FROM JANUARY 1, 1996 THROUGH MARCH 1, 1996
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
<TABLE>
<CAPTION>
BFFC
---------------
MARCH 19, 1996
THROUGH
DECEMBER 31,
1996
---------------
VENBO
---------------
JANUARY 1
1996
THROUGH
MARCH 18, 1996
---------------
<S> <C> <C>
NET OPERATING REVENUES:
Restaurant sales.............................................................. R$ 55,469,000 R$ 14,759,000
Franchise income.............................................................. 640,000 158,000
Other income.................................................................. 1,233,000 111,000
--------------- ---------------
TOTAL NET OPERATING REVENUES................................................ 57,342,000 15,028,000
--------------- ---------------
COSTS AND EXPENSES:
Cost of restaurant sales...................................................... 20,148,000 6,326,000
Restaurant payroll and other employee benefits................................ 13,195,000 3,179,000
Restaurant occupancy and other expenses....................................... 4,570,000 1,067,000
Depreciation and amortization................................................. 2,607,000 664,000
Other operating expenses...................................................... 8,492,000 3,061,000
Selling expenses.............................................................. 3,541,000 866,000
General and administrative expenses........................................... 9,964,000 3,551,000
--------------- ---------------
TOTAL COSTS AND EXPENSES.................................................... 62,517,000 18,714,000
--------------- ---------------
(LOSS) FROM OPERATIONS.......................................................... (5,175,000) (3,686,000)
INTEREST INCOME................................................................. 110,000 2,161,000
INTEREST EXPENSE................................................................ (136,000) (973,000)
FOREIGN EXCHANGE GAIN........................................................... 4,000 269,000
--------------- ---------------
(LOSS) BEFORE BENEFIT FOR INCOME TAXES.......................................... (5,197,000) (2,229,000)
BENEFIT FROM INCOME TAXES....................................................... (44,000) --
--------------- ---------------
NET (LOSS)...................................................................... R$ (5,153,000) R$ (2,229,000)
--------------- ---------------
--------------- ---------------
NET (LOSS) PER COMMON SHARE..................................................... R$ .67
---------------
---------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...................................... 7,696,106
---------------
---------------
</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 CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 19, 1996 THROUGH DECEMBER 31, 1996
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
<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, March 19, 1996.......... 2,964,861 R$ -- R$ 10,057,000 R$ 197,000 R$ -- R$ 10,254,000
Issuance of shares for
acquisitions................... 3,076,422 -- 11,986,000 -- -- 11,986,000
Issuance of shares for private
placements..................... 4,363,201 1,000 15,865,000 -- -- 15,866,000
Net loss for the year............ -- -- -- (5,153,000) -- (5,153,000)
Cumulative translation
adjustment..................... -- -- -- -- 7,000 7,000
------------ --------- --------------- --------------- ----------- ---------------
Balance, December 31, 1996....... 10,404,484 R$ 1,000 R$ 37,908,000 R$ (4,956,000) R$ 7,000 R$ 32,960,000
------------ --------- --------------- --------------- ----------- ---------------
------------ --------- --------------- --------------- ----------- ---------------
</TABLE>
See the accompanying notes to the financial statements.
F-6
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM MARCH 19, 1996 THROUGH DECEMBER 31, 1996 AND THE PERIOD FROM
JANUARY 1, 1996 THROUGH MARCH 18, 1996
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
<TABLE>
<CAPTION>
BFFC VENBO
-------------------- ---------------
MARCH 19, 1996 JANUARY 1, 1996
THROUGH DECEMBER 31, THROUGH
1996 MARCH 18, 1996
-------------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss).............................................................. R$ (5,153,000) R$ (2,229,000)
Adjustments to reconcile net (loss) cash provided by operating
activities:
Depreciation and amortization......................................... 3,119,000 489,000
Changes in assets and liabilities net of effects from acquisitions:
(Increase) decrease in accounts receivable, net..................... (671,000) 544,000
(Increase) decrease in inventories.................................. (246,000) 1,040,000
(Increase) decrease in other current assets......................... (888,000) 110,000
Increase (decrease) in accounts payable and accrued expenses........ 2,581,000 (2,135,000)
Increase in payroll and related costs............................... 346,000 186,000
Increase (decrease) in taxes other than income taxes................ 445,000 (70,000)
(Decrease) in other liabilities..................................... (2,029,000) (1,027,000)
Increase in deferred income......................................... 3,595,000 --
Other............................................................... (11,000) --
-------------------- ---------------
CASH FLOWS PROVIDED (USED IN) BY OPERATING ACTIVITIES............. 1,068,000 (3,092,000)
-------------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES:
Payment for purchase of acquisitions, net of cash acquired................ (18,008,000) --
Additions to property and equipment....................................... (7,258,000) --
Decrease in restricted cash and investments............................... 9,798,000 --
-------------------- ---------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES......................... (15,468,000) --
-------------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares of common stock.......................... 15,866,000 --
Proceeds from issuance of notes payable................................... 1,716,000 --
Repayments of notes payable............................................... (1,685,000) --
Increase in due to related parties........................................ -- 1,942,000
-------------------- ---------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES....................... 15,897,000 1,942,000
-------------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................... 7,000 --
-------------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... 1,504,000 (1,150,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 27,000 1,150,000
-------------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ R$ 1,531,000 --
-------------------- ---------------
-------------------- ---------------
</TABLE>
See the accompanying notes to the financial statements
F-7
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
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"), plus
related acquisition costs, 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$3,700,000) 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 3,125,701 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 (R$10,630,000).
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
F-8
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 1--BUSINESS AND OPERATIONS (CONTINUED)
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$5,153,000 for the year ended
December 31, 1996. The Company's current assets include approximately
R$1,531,000 in cash with approximately R$2,400,000 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 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.
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.
B. 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.
C. CONSTANT CURRENCY RESTATEMENT
The 1996 financial statements have been indexed and expressed in currency of
constant purchasing power at March 31, 1997 by using a monthly index derived
from the Indice Geral de Precos-Mercado (IGP-M).
F-9
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
<TABLE>
<CAPTION>
INFLATION
VALUE OF 1.0 FOR
RESTATEMENT UNITS THE PERIOD
YEAR OF ONE REAL %
- -------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
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
March 31, 1997................................................ 0.9356000 3.4
</TABLE>
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:
- Allocating inflationary holding gains or losses on interest bearing
monetary assets and liabilities to their corresponding interest income and
expense captions;
- 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.
D. 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.
E. CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F. 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.
F-10
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
G. 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. There were no investments under SFAS No
115 as of December 31, 1996.
H. 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:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and building improvements................................................... 50
Leasehold improvements................................................................ 5-10
Machinery and equipment............................................................... 10-15
Furniture and fixtures................................................................ 10-15
Vehicles.............................................................................. 13
</TABLE>
I. 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.
J. 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.
K. REVENUE RECOGNITION
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.
F-11
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
L. ADVERTISING EXPENSES
The Company expenses advertising costs as incurred.
M. 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.
N. 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.
O. 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.
P. 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.
F-12
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
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.
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$1,770,000. 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$380,000 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$6,641,000. 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$2,446,000 of excess purchase price over
net assets acquired which is being amortized over a 20 year period.
The following unaudited proforma information presents a summary of the
consolidated results of operations of the Company as if all acquisitions had
occurred on January 1, 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Net Operating Revenues....................................... R$ 78,791,000 R$ 80,272,000 R$ 65,772,000
Net Loss..................................................... R$ (7,917,000) R$ (9,526,000) R$ (4,418,000)
Loss per Common Share........................................ R$ (.76) R$ (.92) R$ (.42)
</TABLE>
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.
F-13
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 5--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------
<S> <C>
Land......................................................................... R$ 2,782,000
Buildings and building improvements.......................................... 4,225,000
Leasehold improvements....................................................... 5,943,000
Machinery and equipment...................................................... 9,912,000
Furniture and fixtures....................................................... 3,367,000
Vehicles..................................................................... 191,000
Other........................................................................ 39,000
---------------
26,459,000
Less: Accumulated depreciation and amortization.............................. (2,244,000)
---------------
R$ 24,215,000
---------------
---------------
</TABLE>
NOTE 6--DEFERRED CHARGES, NET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------
<S> <C>
Leasehold premiums........................................................... R$ 14,733,000
Less: Accumulated amortization............................................... (670,000)
---------------
R$ 14,063,000
---------------
---------------
</TABLE>
NOTE 7--ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
<S> <C>
Rent payable.................................................................. R$ 671,000
Accrued utilities............................................................. 219,000
Accrued freight............................................................... 100,000
Accrued maintenance........................................................... 84,000
Accrued advertising........................................................... 85,000
Other accrued liabilities..................................................... 472,000
--------------
R$ 1,631,000
--------------
--------------
</TABLE>
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$1,715,000 outstanding under these
facilities which is due on demand and included in the current portion of notes
payable on the accompanying consolidated balance sheet. 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.
F-14
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 8--NOTES PAYABLE (CONTINUED)
b) As part of the Acquisitions, the Company incurred $1,800,000
(R$1,837,000) 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$248,000 on this obligation, which is included in the current portion of
notes payable on the accompanying consolidated balance sheet.
c) As part of the Acquisitions, the Company incurred $2,500,000
(R$2,685,000) payable to the sellers with interest at the rate of 1 1/2% per
annum over LIBOR due March 1998, which is included in long-term notes payable on
the accompanying consolidated balance sheet.
d) 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 $2,000,000 for other restaurant
equipment.
NOTE 9--INFLATIONARY EFFECTS ON THE FINANCIAL STATEMENTS
Inflationary effects on the financial statements that are included in the
statements of operations comprise principally net purchasing power gains. For
the purposes of presenting the financial statements in their fully indexed form,
realized inflationary gains and losses on non-interest bearing assets and
liabilities have been allocated to the following captions of the statements of
operations:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
Net operating revenues......................................................... R$ 212,000
Cost of restaurant sales....................................................... 176,000
Restaurant occupancy and other expenses........................................ 57,000
Depreciation and amortization.................................................. (278,000)
General and administrative expenses............................................ 27,000
-------------
Total...................................................................... R$ 194,000
-------------
-------------
</TABLE>
The above stated gain and losses were generated from the following balance
sheet accounts:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
Cash and cash equivalents...................................................... R$ 183,000
Accounts receivable............................................................ 42,000
Other assets................................................................... 257,000
Accounts payable and accrued expenses.......................................... (102,000)
Payroll and related liabilities................................................ (137,000)
Taxes other than income taxes.................................................. (24,000)
Other liabilities.............................................................. (315,000)
-------------
Total...................................................................... R$ (96,000)
-------------
-------------
</TABLE>
F-15
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 9--INFLATIONARY EFFECTS ON THE FINANCIAL STATEMENTS (CONTINUED)
Inflationary gains and losses on interest bearing assets and liabilities
were allocated to the following captions in the statement of operations:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
Gross interest income.......................................................... R$ 292,000
Inflationary loss.............................................................. (308,000)
-------------
Net interest income............................................................ R$ (16,000)
-------------
-------------
Gross interest expense......................................................... R$ (266,000)
Inflationary gain.............................................................. 129,000
-------------
Net interest expense........................................................... R$ (137,000)
-------------
-------------
Gross exchange (loss).......................................................... R$ (75,000)
Inflationary gain.............................................................. 81,000
-------------
Net exchange gain.............................................................. R$ 6,000
-------------
-------------
</TABLE>
The inflationary gains and losses were generated from bank balances and bank
overdrafts.
NOTE 10--CASH FLOW INFORMATION
Supplemental Disclosure of Cash Flow information:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----------------
<S> <C>
Interest paid............................................................... R$ 197,000
Income taxes paid........................................................... R$ --
Details of Acquisitions:
Fair Value of assets acquired............................................. R$ 41,534,000
Liabilities assumed....................................................... R$ (11,302,000)
Stock issued.............................................................. R$ (11,986,000)
Cash acquired............................................................. R$ (238,000)
----------------
Net cash used in acquisitions............................................... R$ 18,008,000
----------------
----------------
</TABLE>
NOTE 11--TAXATION
Tax losses through December 31, 1996 relating to income tax and social
contribution tax amount to R$7,933,000. 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$5,422,000 of loss carryforwards.
The utilization of these pre-acquisition losses recognized subsequent to the
Acquisition, first reduces to zero any goodwill related to the Acquisition,
second reduces other non-current intangible assets to zero and third reduces
income tax expense.
F-16
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 11--TAXATION (CONTINUED)
The accumulated tax loss position can be offset against future taxable
income. Recent Brazilian tax legislation restricts the offset of accumulated tax
losses to 30% of taxable profits on an annual basis. These losses can be used
indefinitely and are not impacted by a change in ownership of the Company.
The following is a reconciliation of the amount of reported income tax
benefit and the amount computed by applying the combined statutory tax rate of
33% to the loss before income taxes:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Tax benefit at the combined statutory rate................................. R$ (1,715,000)
Valuation allowances recorded against net deferred tax assets.............. 1,715,000
Other...................................................................... (44,000)
-----------------
Income tax benefit as reported in the accompanying consolidated financial
statements............................................................... R$ (44,000)
-----------------
</TABLE>
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$ 1,610,000 R$ 4,470,000 R$ 6,080,000
Provision for contingencies................................... 2,000 6,000 8,000
-------------- --------------- ---------------
Total deferred tax assets................................... 1,612,000 4,476,000 6,088,000
-------------- --------------- ---------------
Deferred tax liabilities:
Deferred income............................................... 8,000 27,000 35,000
Present value adjustment...................................... 1,000 3,000 4,000
Fixed assets.................................................. 65,000 205,000 270,000
Deferred charges.............................................. 590,000 1,841,000 2,431,000
-------------- --------------- ---------------
Total deferred tax liabilities.............................. 664,000 2,076,000 2,740,000
-------------- --------------- ---------------
Net deferred tax assets......................................... 948,000 2,400,000 3,348,000
Valuation allowance............................................. (948,000) (2,400,000) (3,348,000)
-------------- --------------- ---------------
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.
NOTE 12--RELATED PARTY TRANSACTIONS
The Company was charged $100,000 by an entity related to two of the
Company's directors related to their assistance in the Company's financing
activities.
F-17
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 13--COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASES
The future minimum lease payments under operating leases with an initial or
remaining noncancelable lease term in excess of one year at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- -----------------------------------------------------------------------------
<S> <C>
1997....................................................................... R$ 3,661,000
1998....................................................................... 3,209,000
1999....................................................................... 2,842,000
2000....................................................................... 2,463,000
2001....................................................................... 2,175,000
Thereafter................................................................. 4,782,000
---------------
Total minimum lease payments............................................... R$ 19,132,000
---------------
---------------
</TABLE>
Rent expense was R$3,066,000 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. Minimum rents totalled
approximately R$2,210,000 and additional percentage rents totalled R$856,000 for
the year ended December 31, 1996.
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$145,000. 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 3,125,701 shares
of its common stock at $3.20 per share, resulting in net proceeds to the Company
of approximately $10,000,000 (R$10,630,000).
F-18
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 14--SHAREHOLDERS' EQUITY (CONTINUED)
In addition, 5,000 shares of the Company's common stock were redeemed in
accordance with the terms of the Company's Articles of Incorporation.
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 June 1996, the Company issued 510,000 shares of its common stock to the
Acquired Companies (as defined in Note 4) valued at R$1,770,000 for the
acquisition of all of its outstanding quotas (capital shares).
In July 1996, the Company issued 1,520,000 shares of its common stock to the
BigBurger Companies (as defined in Note 4) valued at R$6,641,000 for the
acquisition of the operating assets of the BigBurger Companies.
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 (R$5,236,000).
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
F-19
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 14--SHAREHOLDERS' EQUITY (CONTINUED)
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:
<TABLE>
<CAPTION>
1996
---------------
<S> <C>
Net income (loss) as reported................................................ (R$ 5,153,000)
Net income (loss) pro forma.................................................. (R$ 5,824,942)
Primary loss per share as reported........................................... (R$.67)
Primary loss per share pro forma............................................. (R$.75)
</TABLE>
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.
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> <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
---------
---------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
FAIR MARKET VALUE EXERCISE PRICE
------------------- -----------------
<S> <C> <C>
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 expected stock price
volatility of 142%.
F-20
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(FORMERLY TRINITY AMERICAS INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CURRENCY OF CONSTANT PURCHASING POWER AT MARCH 31, 1997)
NOTE 14--SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, 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 four months 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-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Shareholders of
Venbo Comercio de Alimentos Ltda.
We have audited the accompanying balance sheets of Venbo Comercio de
Alimentos Ltda. as of December 31, 1995 and December 31, 1994, and the related
statements of operations, cash flows and changes in shareholders' equity of
Venbo Comercio de Alimentos Ltda. for each of the years in the three year period
ended December 31, 1995. 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 in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 10, the Company is dependent upon additional financial
support from its shareholder. The Company has obtained assurance that it will
continue to receive financial support, if necessary, from its shareholder.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Venbo Comercio de Alimentos
Ltda. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three year period ended December 31,
1995 in conformity with generally accepted accounting principles in the United
States of America.
As described in Note 3, the accompanying financial statements expressed in
Brazilian reais have been fully indexed using appropriate indices to recognize
the effects of changes in purchasing power of the Brazilian currency which
conforms with generally accepted accounting principles in the United States of
America.
Sao Paulo, Brazil /s/ KPMG Peat Marwick
March 12, 1996, except for
note 20 which is as of March 26, 1996 and the
second paragraph of note 3a, the first and fourth paragraph
of note 3b and note 3d which are as of May 8, 1997
F-22
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997 AND THOUSANDS
OF US DOLLARS--US$)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
<S> <C> <C> <C> <C>
1995 1995 1994
ASSETS NOTE US$ R$ R$
- -------------------------------------------------------------------- ----------- ----------- --------- ---------
<CAPTION>
(NOTE 3D)
<S> <C> <C> <C> <C>
Current:
Cash and cash equivalents......................................... 4 1,048 1,150 934
Customer accounts receivable, net................................. 5 1,338 1,469 1,262
Inventories....................................................... 1,476 1,621 598
Due from parent................................................... 16 -- -- 418
Other assets...................................................... 275 302 169
----------- --------- ---------
Total current assets................................................ 4,137 4,542 3,381
----------- --------- ---------
Property and equipment, net......................................... 6 8,356 9,173 10,110
----------- --------- ---------
Other assets:
Deferred charges, net............................................. 7 1,054 1,157 1,093
Financial investments............................................. 8 21,002 23,058 22,988
----------- --------- ---------
22,056 24,215 24,081
----------- --------- ---------
34,549 37,930 37,572
----------- --------- ---------
----------- --------- ---------
<CAPTION>
LIABILITIES
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Accounts payable and accrued liabilities.......................... 3,195 3,507 708
Due to parent..................................................... 16 8,539 9,374 --
Due to other related parties...................................... 16 1,987 2,181 2,644
Payroll and related accruals...................................... 1,605 1,763 1,254
Taxes other than income taxes..................................... 372 409 614
Other liabilities................................................. 9 3,057 3,356 2,561
----------- --------- ---------
Total current liabilities........................................... 18,755 20,590 7,781
----------- --------- ---------
Loans and financing................................................. 10 39,095 42,921 45,724
----------- --------- ---------
Shareholders' equity:............................................... 11
Monetarily corrected share capital................................ 4,277 4,695 4,695
Accumulated deficit............................................... (27,578) (30,276) (20,628)
----------- --------- ---------
Total shareholders' equity (deficit)................................ (23,301) (25,581) (15,933)
----------- --------- ---------
34,549 37,930 37,572
----------- --------- ---------
----------- --------- ---------
Commitments and contingencies..................................... 17, 18, 19
</TABLE>
See the accompanying notes to the financial statements.
F-23
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997
AND THOUSANDS OF U.S. DOLLARS--US$)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------
1995 1995 1994 1993
NOTE US$ R$ R$ R$
----- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(NOTE 3D)
Net operating revenues:
Restaurant sales............................................. 62,901 69,056 54,589 44,461
Franchise income............................................. 652 716 499 721
Other income................................................. 417 458 399 641
----------- --------- --------- ---------
Total net operating revenues..................................... 63,970 70,230 55,487 45,823
----------- --------- --------- ---------
Costs and expenses:
Cost of restaurant sales..................................... 23,837 26,169 19,449 18,362
Restaurant payroll and other employee benefits............... 12,302 13,506 11,965 13,473
Restaurant occupancy and other expenses...................... 5,578 6,124 5,178 3,860
Depreciation and amortization................................ 2,794 3,067 3,488 3,931
Other operating expenses..................................... 11,829 12,987 7,975 5,309
Selling expenses............................................. 3,254 3,573 4,474 3,167
General and administrative expenses.......................... 10,939 12,009 11,040 6,954
Restructuring expenses....................................... 14 251 275 3,161 --
----------- --------- --------- ---------
Total costs and expenses......................................... 70,784 77,710 66,730 55,056
----------- --------- --------- ---------
Loss from operations............................................. (6,814) (7,480) (11,243) (9,233)
Interest income.............................................. 1,558 1,710 2,564 1,889
Interest expense............................................. (4,809) (5,280) (5,551) (5,310)
Exchange gain/(loss)......................................... 1,277 1,402 9,690 (1,774)
----------- --------- --------- ---------
Net loss......................................................... (8,788) (9,648) (4,540) (14,428)
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
See the accompanying notes to the financial statements.
F-24
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, MARCH 31, 1997
AND THOUSANDS OF U.S. DOLLARS--US$)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
----------------------------------------------
<S> <C> <C> <C> <C>
1995 1995 1994 1993
US$ R$ R$ R$
------------- --------- --------- ---------
<CAPTION>
(Note 3d)
<S> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net loss............................................................ (8,788) (9,648) (4,540) (14,428)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation and amortization................................... 2,794 3,067 3,488 3,933
(Increase)/decrease in customer accounts receivable, net........ (188) (207) (1,098) 431
(Increase)/decrease in inventories.............................. (932) (1,023) (435) 236
(Increase)/decrease in other current assets..................... (120) (133) 147 (58)
Increase in deferred charges.................................... (276) (303) (56) (727)
Increase/(decrease) in accounts payable and accrued expenses.... 2,550 2,800 374 42
Increase/(decrease) in payroll and related accruals............. 463 509 (445) (505)
Increase/(decrease) in taxes other than income taxes............ (187) (205) 225 (238)
Increase/(decrease) in other liabilities........................ 724 795 (3,055) 1,126
------ --------- --------- ---------
Cash flows provided by (used in) operating activities................. (3,960) (4,348) (5,395) (10,188)
------ --------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment................................. (2,080) (2,284) (2,481) (1,206)
Asset disposals..................................................... 357 392 1,080 1,904
Decrease in other investments....................................... -- -- 54 --
(Increase)/decrease in financial investments........................ (64) (70) 7,327 (30,315)
------ --------- --------- ---------
Cash flows provided by (used in) investing activities................. (1,787) (1,962) 5,980 (29,617)
------ --------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Distribution of net assets.......................................... -- -- (4,861) --
Increase/(decrease) in bank loans................................... -- -- (6,120) 2,795
Increase/(decrease) in amounts due to group companies, net.......... 8,498 9,329 29,708 (27,482)
Increase/(decrease) in other non-current liabilities................ (2,553) (2,803) (18,703) 64,428
------ --------- --------- ---------
Cash flows provided by (used in) financing activities................. 5,945 6,526 24 39,741
------ --------- --------- ---------
Increase/(decrease) in cash and cash equivalents...................... 198 216 609 (64)
Cash and cash equivalents at beginning of year........................ 850 934 325 389
------ --------- --------- ---------
Cash and cash equivalents at end of year.............................. 1,048 1,150 934 325
------ --------- --------- ---------
------ --------- --------- ---------
</TABLE>
See the accompanying notes to the financial statements.
F-25
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
<TABLE>
<CAPTION>
MONETARILY
CORRECTED
SHARE ACCUMULATED
CAPITAL DEFICIT TOTAL
------------ ------------ ---------
<S> <C> <C> <C>
Balances at December 31, 1992.............................................. 45,565 (37,668) 7,897
Net loss for the year...................................................... -- (14,428) (14,428)
------------ ------------ ---------
Balances at December 31, 1993.............................................. 45,565 (52,096) (6,531)
Other movements (Note 11).................................................. (40,870) 36,008 (4,862)
Net loss for the year...................................................... -- (4,540) (4,540)
------------ ------------ ---------
Balances at December 31, 1994.............................................. 4,695 (20,628) (15,933)
Net loss for the year...................................................... -- (9,648) (9,648)
------------ ------------ ---------
Balances at December 31, 1995.............................................. 4,695 (30,276) (25,581)
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
See the accompanying notes to the financial statements.
F-26
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
1--OPERATIONS
Venbo Comercio de Alimentos Ltda. ("Venbo" or "the Company"), a subsidiary
of Bob's Industria e Comercio Ltda. ("Bob's") with headquarters in Rio de
Janeiro, Brazil, was incorporated on April 30, 1993 to operate fast food outlets
in conjunction with its holding company Bob's.
There are a total of 70 Bob's restaurants in Brazil, 50 of which are
operated by Venbo and 20 by Venbo's franchisees. In addition, Venbo has 4
permanent kiosks and 4 trailers which are used at different locations for
special events. Of the 78 units currently in operation (including the kiosks and
trailers), 46 are located in the State of Rio de Janeiro, 22 are in the State of
Sao Paulo and the balance in the capital cities of the other States of Brazil.
Nine of the Venbo operated outlets occupy Venbo owned real estate.
2--FINANCIAL STATEMENT PRESENTATION
The Company's predecessor was established in 1952 by Bob Falkenburg when he
opened his first ("Bob's") store on Copacabana Beach selling hamburgers,
hot-dogs, milkshakes and french fries. Mr. Falkenburg sold his interest in 1974
to Libby McNeil E. Libby USA ("Libby"). Under Libby ownership, a manufacturing
operation was established for the purpose of supplying food products to Bob's as
well as other users in the Rio de Janeiro and Sao Paulo areas. In 1982, Libby
sold its interest in Bob's to Nestle who operated the business until 1987, when
it sold its interest in Bob's operations to Bob's, the current shareholder of
Venbo. In April 1993, Bob's formed two wholly-owned subsidiaries, Venbo and
Venbis Comercio e Industria de Alimentos Ltda. ("Venbis") and simultaneously
transferred all of the fixed assets relating to the store operations to Venbo
and all of the fixed assets relating to the manufacturing operation to Venbis,
respectively. In May 1994, Bob's transferred all of the store operations to
Venbo and all of the factory operations to Venbis.
Finally, in October 1995, Bob's entered into a Heads of Agreement to sell
all of the Quotas (capital shares) of Venbo to Trinity Americas Inc. for total
consideration of approximately US$ 21,000,000 subject to the timely resolution
of certain outstanding matters and the outcome of certain investigations by the
potential buyer.
As part of this agreement, on or before the closing date, Venbo's rights and
obligations to the floating rate notes and zero coupon bonds, as described in
Notes 8 and 10, will be vested in the current shareholder or a company
affiliated to the current shareholder. In addition, the intercompany
indebtedness of Venbo will be converted into quotas (shares) of Venbo to be
issued to the current shareholder and to be transferred to the potential buyer.
F-27
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
2--FINANCIAL STATEMENT PRESENTATION (CONTINUED)
In order that a meaningful presentation of predecessor financial information
is made for the purposes hereof, the following financial statements are included
herein:
<TABLE>
<S> <C>
Statement of operations for the year ended Statements of operations of Bob's (store
December 31, 1993 operations only) and Venbo on a consolidated
basis
Statement of operations for the period from Statements of operations of Bob's (store
January 1, 1994 to May 31, 1994 operations only) and Venbo on a consolidated
basis
Balance sheet at December 31, 1994 and Balance sheet and Statement of operations of
Statement of operations for the period from Venbo
June 1, 1994 to December 31, 1994
Balance sheet at December 31, 1995 and Balance sheet and Statement of operations of
Statement of operations for the year ended Venbo
December 31, 1995
</TABLE>
In order that a meaningful analysis of 1994 financial position and results
of operations can be made, the results of operations for the period from January
1, 1994 to May 31, 1994 and June 1, 1994 to December 31, 1994 have been combined
and all intercompany transactions have been eliminated.
3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") These financial
statements have been prepared in accordance with GAAP 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.
All amounts in Brazilian currency, that existed prior to the adoption of the
real, have been restated in constant Brazilian reais of March 31, 1997
purchasing power.
B. CONSTANT CURRENCY RESTATEMENT The accompanying financial statements have
been indexed and expressed in currency of constant purchasing power of March 31,
1997 by using the monthly average values of the fiscal reference unit Unidade
Fiscal de Referencia ("UFIR") through December 31, 1995 and the IGP-M index for
the period January 1, 1996 through March 31, 1997, depending on the nature of
the account.
F-28
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The value of the UFIR in Brazilian reais at December 31 of each of the years
1992, 1993, 1994 and 1995, and the periodic inflation as measured by the UFIR
were as follows:
<TABLE>
<CAPTION>
VALUE OF INFLATION
1.0 FOR
UFIR UNITS THE PERIOD
YEAR OF ONE REAL %
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1992................................................................... 0.0026691 1,129.4
1993................................................................... 0.0673164 2,422.1
1994................................................................... 0.6767000 905.3
1995................................................................... 0.8287000 22.5
</TABLE>
For the periods through 1995, the UFIR has been the officially prescribed
index required to be used under Brazilian GAAP, and Venbo believes it is an
appropriate index of general price level inflation to be used under US GAAP.
From the year 1996 onward the IGP-M index has been adopted as the proper
index to measure inflation. The inflation as measured by the IGP-M for 1996 is
9.2% and for the three months ended March 31, 1997 3.4% (not annualized).
Items in the income statement are adjusted to the balance sheet date by:
- Allocating inflationary holding gains or losses on interest bearing
monetary assets and liabilities to their corresponding interest income and
expense captions;
- 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 12.
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 each balance
sheet date. The related transaction gains and losses are recognized in the
statement of operations as they occur.
D. TRANSLATION OF CONSTANT BRAZILIAN REAL AMOUNTS INTO U.S. DOLLAR
AMOUNTS The translation of Brazilian real amounts into U.S. dollar amounts is
unaudited and included solely for the convenience of readers outside of Brazil
and has been performed at the closing selling exchange rate published by the
Central Bank of Brazil of R$ 0.9725 to U.S. dollar 1.00 for December 31, 1995,
based on non-restated Brazilian real amounts. This translation should not be
construed as a representation that the Brazilian real amounts could be converted
to U.S. dollars at this or any other rate.
E. INVENTORIES Inventories, consisting mainly 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 basis.
F-29
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. 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 effective January 1, 1994, which had no
impact on the Company's financial statements.
G. PROPERTY AND EQUIPMENT Property and equipment is stated at price-level
adjusted cost, less price-level adjusted accumulated depreciation. Depreciation
on property and equipment is provided using the straight-line method on the
estimated useful lives of the related assets.
Annual depreciation rates are as follows:
<TABLE>
<S> <C>
Buildings and building improvements.......... 4%
Leasehold improvements....................... Term of the related rent contract or 10% for
owned buildings
Machinery and equipment...................... 10%
Furniture and fixtures....................... 10%
Vehicles..................................... 20%
</TABLE>
Contract terms for the rented buildings, in general, range between 5 to 10
years.
Repairs and maintenance are charged to operations as incurred. When assets
are sold, retired, or otherwise disposed of, the applicable costs and
accumulated depreciation are removed from the accounts and the resulting gain or
loss is recognized.
H. 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 the related rental contract, which,
in general, ranges between 5 and 10 years.
I. 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.
J. REVENUE RECOGNITION Revenues, whether these consist of sales to final
consumers or other income, are recognized when earned.
K. 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 sales of the
franchisee are recognized when earned.
F-30
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. INTEREST INCOME AND EXPENSE Interest income represents interest earned
after adjusting for the effects of inflation as measured by the variation in the
UFIR index.
Interest expense represents interest incurred after adjusting for the
effects of inflation as measured by the variation in the UFIR index.
M. INCOME TAX Deferred taxes are provided on the liability method on a full
provision basis in accordance with Statement of Financial Accounting Standards
No. 109.
N. SEGMENT INFORMATION Venbo operates primarily in the sale of fast food to
final consumers. All of Venbo's sales are made within Brazil.
O. 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.
4--CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------------- -----------------
<S> <C> <C>
Cash............................................................. 313 217
Bank accounts.................................................... 837 717
----- ---
1,150 934
----- ---
----- ---
</TABLE>
5--CUSTOMER ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Gross receivables................................................ 1,680 1,281
Provision for doubtful accounts.................................. (211) (19)
----- -----
1,469 1,262
----- -----
----- -----
</TABLE>
F-31
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
6--PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Land............................................................. 330 330
Buildings and building improvements.............................. 2,928 2,910
Leasehold improvements........................................... 14,452 13,380
Machinery and equipment.......................................... 13,914 14,446
Furniture and fixtures........................................... 4,485 4,758
Vehicles......................................................... 681 627
------------ ------------
36,790 36,451
Less accumulated depreciation and amortization................... (27,617) (26,341)
------------ ------------
9,173 10,110
------------ ------------
------------ ------------
</TABLE>
7--DEFERRED CHARGES, NET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Leasehold premiums............................................... 2,787 2,485
Less accumulated amortization.................................... (1,630) (1,392)
------ ------
1,157 1,093
------ ------
------ ------
</TABLE>
8--FINANCIAL INVESTMENTS
Financial investments consist of zero coupon bonds, denominated in U.S.
dollars. The zero coupon bonds are subject to exchange variation and mature in
May 2005 at the value of the floating rate notes, US$(000) 39,095 (see Note 10).
The zero coupon bonds are discounted to present value at each period end using
an implicit interest rate of 6.9%.
F-32
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
9--OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Rent payable..................................................... 421 386
Accrued sales promotion.......................................... 183 243
Accrued maintenance.............................................. 45 71
Accrued interest payable......................................... 1,410 1,050
Other accrued liabilities........................................ 1,297 811
----- -----
3,356 2,561
----- -----
----- -----
</TABLE>
10--LOANS AND FINANCING
Loans and financing consists of floating rate notes of US$(000) 39,095. The
notes are subject to exchange variation and interest at LIBOR plus 1.125% per
year, and mature in July 2005. The loan is guaranteed by Venbo's ultimate parent
company, Vendex International, and will be liquidated in May 2005 against the
zero coupon bonds (see Note 8).
During the course of its existence the Company has relied upon financial
support from Vendex group companies to finance its operations.
The Company's shareholder has expressed its intention to provide the Company
with additional financial support, if and when required, for the Company to
continue its operations, up to the final closing date of the possible sale to
Trinity Americas Inc., or, in the event such sale does not close, up to and
including the year 1996.
11--SHAREHOLDERS' EQUITY
Venbo's share capital at December 31, 1995 consists of 128,632 thousand
shares of nominal value of R$ 0.01 each, issued and fully paid-in.
Other movements in 1994 relate to the distribution of Bob's store operations
to Venbo. The net movement consists of the elimination of non-factory related
assets and liabilities that were not transferred to Venbo in May 1994 as part of
the transfer of operations from Venbo's predecessor, Bob's, to Venbo.
F-33
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
12--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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1994 1993
--------- --------- ---------
Net operating revenues.................................................................. (113) (193) (606)
Cost of restaurant sales................................................................ 76 176 47
Restaurant payroll and other employee benefits.......................................... 85 1,057 3,706
Restaurant occupancy and other expenses................................................. 49 456 1,062
Other operating expenses................................................................ 71 1,036 1,928
Selling expenses........................................................................ 19 395 871
General and administrative expenses..................................................... 78 1,148 2,527
--- --------- ---------
Total................................................................................. 265 4,075 9,535
--- --------- ---------
--- --------- ---------
</TABLE>
The above stated gains and losses were generated from the following balance
sheet accounts:
<TABLE>
<S> <C> <C> <C>
Cash and cash equivalents.............................................. (6) (7) (23)
Customer accounts receivable........................................... (107) (187) (586)
Other assets........................................................... (23) (231) (430)
Accounts payable and accrued liabilities............................... 76 230 50
Payroll and related accruals........................................... 53 487 866
Taxes other than income taxes.......................................... 40 775 762
Other liabilities...................................................... 232 3,008 8,896
--- --------- ---------
Total................................................................ 265 4,075 9,535
--- --------- ---------
--- --------- ---------
</TABLE>
F-34
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
12--INFLATIONARY EFFECTS ON THE FINANCIAL STATEMENTS (CONTINUED)
Inflationary gains and losses on interest bearing assets and liabilities
were allocated to the following captions in the statement of operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1994 1993
--------- --------- ---------
Gross interest income.............................................................. 1,710 2,564 2,101
Inflationary loss.................................................................. -- -- (212)
--------- --------- ---------
Net interest income................................................................ 1,710 2,564 1,889
--------- --------- ---------
--------- --------- ---------
Gross interest expense............................................................. (5,280) (25,422) (25,980)
Inflationary gain.................................................................. -- 19,871 20,670
--------- --------- ---------
Net interest expense............................................................... (5,280) (5,551) (5,310)
--------- --------- ---------
--------- --------- ---------
Gross exchange loss................................................................ (3,130) (57,181) (69,720)
Inflationary gain.................................................................. 4,532 66,871 67,946
--------- --------- ---------
Net exchange gain/(loss)........................................................... 1,402 9,690 (1,774)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The inflationary gains and losses were generated from bank balances, bank
overdrafts, floating rate notes and zero coupon bonds.
13--CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1994 1993
--------- --------- ---------
Interest paid.......................................................................... 4,062 5,918 1,954
</TABLE>
No income taxes were paid in 1993, 1994 and 1995.
14--RESTRUCTURING EXPENSES
Restructuring expenses in 1994 consist of legal expenses in respect of the
restructuring of the group and severance indemnities paid to former employees
following the outsourcing of certain administrative activities. Restructuring
expenses in 1994, amounting to R$ 3,161 included R$ 872 for severance payments
and R$ 2,289 for legal expenses related to the group restructuring. The
restructuring activities for which the costs were accrued in 1994 were completed
in 1994 in accordance with plans.
In 1995, the Company accrued and paid R$ 275 for restructuring expenses of a
similar nature to those incurred in 1994.
F-35
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
15--TAXATION
Venbo is in a tax loss position. Tax losses through December 31, 1995
relating to income tax and social contribution tax amount to R$ 8,338 and R$
11,038 respectively.
Social contribution tax is a Brazilian tax levied on taxable income and is
by its nature comparable to corporate income tax.
The accumulated tax loss position can be offset against future taxable
income. Recent tax legislation restricts the offset of accumulated tax losses to
30% of taxable profits on an annual basis. These losses can be offset
indefinitely.
Tax losses and the related deferred tax assets and liabilities and valuation
allowance relate exclusively to the legal entity Venbo. No recognition has been
given to the potential tax benefits of the losses attributable to the outlet
operations which, prior to May 1994, were carried within the Bob's legal entity.
Following is a reconciliation of the amount of reported income tax expense /
benefit and the amount computed by applying the combined statutory tax rate of
48.1% to the loss before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Loss before taxes as reported in the accompanying financial statements......................... 9,648
Tax benefit at the combined statutory rate..................................................... (4,640)
Net losses for which no tax benefit was recorded............................................... 4,415
Other.......................................................................................... 225
------
Income tax charge / benefit as reported in the accompanying financial statements............... --
------
------
</TABLE>
F-36
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
15--TAXATION (CONTINUED)
The following is the composition of deferred tax assets and liabilities and
the related valuation allowance at December 31, 1995, based on temporary
differences and tax loss carry forwards determined by applying social
contribution and the 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..................................................... 819 2,084 2,903
Provision for contingencies................................................ 25 84 109
Tax deductible only when paid.............................................. -- 910 910
Fixed assets............................................................... 835 2,610 3,445
Deferred charges........................................................... 511 1,597 2,108
Zero coupon bond........................................................... 161 506 667
Other...................................................................... 41 127 168
------ --------- ---------
Total deferred tax assets.............................................. 2,392 7,918 10,310
------ --------- ---------
DEFERRED TAX LIABILITIES:
Additional indexation income................................................. -- 957 957
Floating rate note........................................................... 90 281 371
------ --------- ---------
Total deferred tax liabilities......................................... 90 1,238 1,328
------ --------- ---------
Net deferred tax................................................................. 2,302 6,680 8,982
------ --------- ---------
Valuation allowance.............................................................. (2,302) (6,680) (8,982)
------ --------- ---------
-- -- --
------ --------- ---------
------ --------- ---------
</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.
16--RELATED PARTY TRANSACTIONS
Venbo had significant business relationships with its affiliated company
Venbis as Venbis was Venbo's main supplier of products.
The following transactions were conducted with Venbis/the factory, excluding
taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1994 1993
--------- --------- ---------
Purchase of raw materials............................................................. 7,596 16,685 13,862
</TABLE>
For purposes of these financial statements for the period from January 1,
1993 up to May 1994, the transactions between the factory and the outlets are
included in the related party transactions disclosed in this note, although both
operations were at this time legally part of Venbo's predecessor, Bob's.
Similarly,
F-37
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
16--RELATED PARTY TRANSACTIONS (CONTINUED)
the rents charged in the period April 30, 1993 to May 31, 1994 by Venbo to Bob's
and by Venbis to Bob's have been excluded from the financial statements and from
this Note (see also Note 2).
As of April 30, 1993, and upon incorporation of Venbo, certain assets and
liabilities were transferred by affiliated companies and capitalized within
Venbo. The assets consisted of property and equipment and deferred charges
which, in principle, all related to the outlet operations. For local statutory
and tax purposes these assets were transferred at a value determined by
independent appraisers. The accompanying financial statements reflect these
assets at the original cost, price level adjusted, paid by Venbo's predecessor,
less accumulated depreciation.
On April 30, 1993, zero coupon bonds and floating rate notes were
transferred to Venbo upon incorporation through Venbo's predecessor, Bob's, by
an affiliated company. The floating rate notes were transferred at their nominal
value. The zero coupon bonds were transferred at their market value at the time
of the transaction (see also Notes 8 and 10).
In 1995, Venbo paid a royalty of R$ 2,935 to Bob's for the use of the trade
name, the use of the formulas and the operational processes. In 1993 and 1994 no
royalties were paid.
In March 1995 the parent company of Venbo, Bob's, assigned an intercompany
receivable of R$ 2,371 to Venbo. Venbo capitalized this receivable, recording an
investment in a group company which has been subsequently sold. At the same time
a loss was recorded by Venbo for the same amount as the group company had a
negative net equity. This loss is included in general and administrative
expenses.
17--LEASES
A. GENERAL
As at December 31, 1995 Venbo's operations comprise 50 fast food outlets of
which 9 are owned and 41 are leased under operating leases.
B. OPERATING LEASES
In addition to fixed lease obligations, Venbo pays a percentage of sales for
various fast food outlets. In the year ended December 31, 1995 total rent costs
were incurred of R$ 3,756 (year ended December 31, 1994 and 1993, R$ 3,903 and
R$ 3,497, respectively).
F-38
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
17--LEASES (CONTINUED)
C. COMMITMENTS
The future minimum lease payments under operating leases with an initial or
remaining noncancelable lease term in excess of one year at December 31, 1995
are as follows:
<TABLE>
<S> <C>
Financial year:
1996................................................................. 2,021
1997................................................................. 1,897
1998................................................................. 1,547
1999................................................................. 1,287
2000................................................................. 903
Later years.......................................................... 1,173
---------
Total minimum lease payments................................. 8,828
---------
---------
</TABLE>
18--OTHER COMMITMENTS
The Company has long term contracts (mainly 5 to 10 years) with all of its
franchisees. Under these contracts the franchisee has the right to use the Bob's
name and formulas in a specific location or area.
The Company has no specific financial obligations in respect of these
contracts.
19--CONTINGENCIES
In the normal course of business, Venbo is involved in legal procedures and
claims with both private and governmental parties. As at December 31, 1995
contingencies for labor, civil and fiscal claims exist for a total gross amount
of approximately R$ 508. In the balance sheet as at December 31, 1995 a
provision of R$ 301 is made for these claims.
Venbo may be held liable for contingencies resulting from claims against its
parent company Bob's, in case Bob's and Vendex do Brasil, the parent company of
Bob's will be unable to meet their financial obligations resulting from these
claims. These claims in nature refer to labor, civil and fiscal disputes with
both private and governmental parties. The total value of these claims as at
December 31, 1995 amounts to approximately R$ 4,516. While the Company is unable
to estimate a range of possible loss for these claims, in the opinion of
management the ultimate liability resulting from all pending claims will not
have a material adverse effect on the financial position or results of
operations of the Company.
Venbo is contesting the assessment of certain value-added taxes (ICMS).
Pending the resolution of judicial proceedings, Venbo has deposited ICMS tax
(sales tax) in court, for the total amount of approximately R$ 5,532 as of
December 31, 1995, which equals the gross claim amount. Considering the status
of the court cases a provision was made for the same amount. The deposit and the
provision were netted in the financial statements. Consequently, the final
outcome of the judicial proceedings in this respect could lead to a potential
gain, ranging up to a maximum of R$ 5,532. However the potential gain, if ever
realized, would be to the benefit of Venbo's current shareholders.
F-39
<PAGE>
VENBO COMERCIO DE ALIMENTOS LTDA.
(PREDECESSOR OF BRAZIL FAST FOOD CORP.)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$, OF MARCH 31, 1997)
20--SUBSEQUENT EVENTS
As at March 19, 1996, Bob's has sold its 100% interest in Venbo to Trinity
Americas Inc. As part of the agreement, in March 1996 Venbo's rights and
obligations to the floating rate notes and the zero coupon bonds, as described
in Notes 8 and 10, have been vested in Bob's. In addition, the intercompany
indebtedness of Venbo has been converted into quotas (shares) of Venbo (see also
Note 2).
* * *
F-40
<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, as amended, to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rio de Janeiro, Country of Brazil, on the 1st day of August, 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
Report, as amended, has been signed by the following persons in the capacities
and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ PETER VAN VOORST VADER Chief Executive Officer
- ------------------------------ (Principal Executive August 1, 1997
Peter van Voorst Vader Officer) and Director
Vice President--Finance
/s/ MARCOS BASTOS ROCHA (Principal Financial
- ------------------------------ Officer and Accounting August 1, 1997
Marcos Bastos Rocha Officer)
/s/ ROGERIO CARLOS LAMIM President and Chief
BRAZ Operating Officer
- ------------------------------ August 1, 1997
Rogerio Carlos Lamim Braz
/s/ OMAR CARNEIRO DA CUNHA Chairman of the Board
- ------------------------------ August 1, 1997
Omar Carneiro da Cunha
Director
- ------------------------------
Ian S. Barnett
/s/ LAWRENCE BURSTEIN Director
- ------------------------------ August 1, 1997
Lawrence Burstein
Director
- ------------------------------
Jose Ricardo Bosquet Bomeny
