<PAGE>
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number: 0-23278
Brazil Fast Food Corp.
(Exact name of registrant as specified in its charter)
Delaware 13-3688737
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Praia do Flamengo, 200-220. Andar, CEP 22210-030, Rio de Janeiro, Brazil
(Address of principal executive offices)
011-55-21-285-2424
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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. /X/ Yes / / No
Applicable Only to Issuers 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 1934 subsequent to the distribution of securities under a plan
confirmed by a court. / / Yes / / No
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
12,933,638 shares of Common Stock at August 10, 1998
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The condensed financial statements included herein have been prepared by
Brazil Fast Food Corp. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. While certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, the Company believes that the
disclosures made herein are adequate to make the information presented not
misleading.
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
================================================================================
ASSETS
------
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents R$ 962 R$ 1,522
Accounts receivable, net 3,852 3,197
Inventories 512 775
Prepaid and other current assets 827 594
-------- --------
TOTAL CURRENT ASSETS 6,153 6,088
PROPERTY AND EQUIPMENT, NET 22,308 23,613
DEFERRED CHARGES, NET 13,156 14,073
GOODWILL, NET 5,230 5,386
OTHER ASSETS 158 194
-------- --------
TOTAL ASSETS R$47,005 R$49,354
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion notes payable R$ 3,958 R$ 4,295
Accounts payable and accrued expenses 2,739 4,571
Payroll and related accruals 2,073 1,868
Taxes, other than income taxes 384 672
Deferred income 910 910
Other 227 513
-------- --------
TOTAL CURRENT LIABILITIES 10,291 12,829
NOTES PAYABLE, less current portion 3,974 694
DEFERRED INCOME, less current portion 2,491 2,930
-------- --------
TOTAL LIABILITIES 16,756 16,453
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000
shares authorized; no shares issued - -
Common stock, $.0001 par value,
20,000,000 shares authorized;
12,933,638 and 12,304,484 shares
issued and outstanding at June 30,
1998 and December 31, 1997,
respectively 1 1
Additional paid-in capital 46,226 44,698
Deficit (15,683) (11,553)
Cumulative translation adjustment (295) (245)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 30,249 32,901
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY R$47,005 R$49,354
======== ========
</TABLE>
See Selected Notes to Financial Statements
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
NET OPERATING REVENUES:
Restaurant sales R$ 33,690 R$ 35,636
Franchise income 906 713
Other income 1,086 828
------------ ------------
TOTAL NET OPERATING REVENUES 35,682 37,177
------------ ------------
COSTS AND EXPENSES:
Cost of restaurant sales 12,268 12,571
Restaurant payroll and other
employee benefits 8,295 8,832
Restaurant occupancy and other expenses 3,855 3,537
Depreciation and amortization 2,136 2,038
Other operating expenses 5,429 5,653
Selling expenses 2,012 2,185
General and administrative expenses 4,658 5,793
------------ ------------
TOTAL COSTS AND EXPENSES 38,653 40,609
------------ ------------
(LOSS) FROM OPERATIONS (2,971) (3,432)
INTEREST (EXPENSE) (1,159) (908)
------------ ------------
NET (LOSS) (4,130) (4,340)
OTHER COMPREHENSIVE INCOME (LOSS):
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (50) (117)
------------ ------------
COMPREHENSIVE LOSS R$ (4,180) R$ (4,457)
============ ============
BASIC NET (LOSS) PER COMMON SHARE R$ (.33) R$ (.41)
============ ============
WEIGHTED AVERAGE BASIC COMMON SHARES
OUTSTANDING 12,349,505 10,687,817
============ ============
</TABLE>
See Selected Notes to Financial Statements
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
NET OPERATING REVENUES:
Restaurant sales R$ 15,309 R$ 16,921
Franchise income 473 365
Other income 548 375
------------ ------------
TOTAL NET OPERATING REVENUES 16,330 17,661
------------ ------------
COSTS AND EXPENSES:
Cost of restaurant sales 5,598 5,985
Restaurant payroll and other employee
benefits 4,082 4,261
Restaurant occupancy and other expenses 1,876 1,782
Depreciation and amortization 1,076 1,023
Other operating expenses 2,601 2,686
Selling expenses 1,032 1,135
General and administrative expenses 2,232 3,160
------------ ------------
TOTAL COSTS AND EXPENSES 18,497 20,032
------------ ------------
(LOSS) FROM OPERATIONS (2,167) (2,371)
INTEREST (EXPENSE) (755) (460)
------------ ------------
NET (LOSS) (2,922) (2,831)
OTHER COMPREHENSIVE INCOME (LOSS):
FOREIGN CURRENCY TRANSACTION ADJUSTMENT (11) (117)
------------ ------------
COMPREHENSIVE LOSS R$ (2,933) R$ (2,948)
============ ============
BASIC NET (LOSS) PER COMMON SHARE R$ (.23) R$ (.27)
============ ============
WEIGHTED AVERAGE BASIC COMMON SHARES
OUTSTANDING 12,532,149 10,771,151
============ ============
</TABLE>
See Selected Notes to Financial Statements
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
===========================================================================================================
Additional Cumulative
Common Stock Paid-In Translation
Shares Par Value Capital Deficit Adjustment Total
--------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 12,304,484 R$ 1 R$44,698 R$(11,553) R$(245) R$32,901
Insurance of shares upon
exercise of options 6,154 - 23 - - 23
Issuance of shares in
private placements 623,000 - 1,505 - - 1,505
Net loss for the period - - - (4,130) - (4,130)
Cumulative translation
adjustment - - - - (50) (50)
--------- --------- --------- --------- ----------- -------------
Balance, June 30, 1998 12,933,638 R$ 1 R$46,226 R$(15,683) R$(295) R$30,249
========== ========= ======== ========= ====== ========
</TABLE>
See Selected Notes to Financial Statements
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) R$ (4,130) R$ (4,340)
Adjustments to reconcile net (loss) to net cash provided by
(used in) operating activities:
Net gain on sale of assets (1) -
Depreciation and amortization 2,136 2,038
Changes in operating assets and expenses:
(Increase) decrease in:
Accounts receivable 592 170
Inventories 263 342
Other current assets (233) 665
Other assets 36 (16)
Increase (decrease) in:
Accounts payable and accrued expenses (1,828) (1,639)
Payroll and related accruals 205 104
Taxes, other than income taxes (288) (219)
Deferred income (439) (301)
Other current liabilities (290) 509
--------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES (3,977) (2,687)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES :
Capital expenditures (1,080) (869)
Proceeds from sale of assets 77 -
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (1,003) (869)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 2,944 1,785
Proceeds from private placement 1,505 1,272
Proceeds from exercise of options 23 -
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,472 3,057
--------- ---------
EFFECT OF FOREIGN EXCHANGE RATES (52) (117)
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (560) (616)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,522 1,556
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD R$ 962 R$ 940
========= =========
</TABLE>
Non - Cash Investing Activities
- -------------------------------
In 1998, the Company disposed of certain assets and received receivables from
the purchasers in the amount of R$1,247.
See Selected Notes to Financial Statements
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
================================================================================
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
- -----------------------------------------
The accompanying financial statements have been prepared by Brazil Fast Food
Corp. (the "Company"), without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows
at June 30, 1998 and for all periods presented have been made. The results
of operations for the period ended June 30, 1998 are not necessarily
indicative of the operating results for a full year. Unless otherwise
specified all reference in these financial statements to (i) "Reais", the
"Real" or "R$" are to the Brazilian Real (singular), or to Brazilian Reais
(plural), the legal currency of Brazil, and the (ii) "U.S. Dollars" or "$"
are to United States Dollars.
Certain information and footnote disclosures prepared in accordance with
general accepted accounting principles and normally included in the
financial statements have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
Through June 30, 1997 the consolidated financial statements have been
indexed and expressed in currency of constant purchasing power by using a
monthly index derived from the Indice Geral de Precos-Mercado ("IGP-M").
Since the implementation of the Real Plan in June 1994, the Brazilian
economy has experienced a declining rate of inflation with a cumulative
inflation rate for the three-year period from July 1994 to June 1997, as
measured by the IGP-M of 54%. Based on the foregoing, management determined
that Brazil ceased to be considered a hyperinflationary economy, as defined
in Statement of Financial Accounting Standards ("SFAS") No. 52, and from
July 1, 1997 no longer indexed its financial statements for constant
currency purchasing power.
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
================================================================================
NOTE 2 - SHAREHOLDERS' EQUITY
- -----------------------------
In the first quarter of 1998, the Company issued 6,154 shares of common
stock upon the exercise of options, receiving net proceeds of R$23.
In the second quarter of 1998, the Company issued 623,000 shares of common
stock in a private placement, receiving net proceeds of R$1,505.
NOTE 3 - COMPREHENSIVE INCOME
- -----------------------------
In 1998, the Company adopted SFAS No.130, "Reporting Comprehensive Income",
which requires the Company to display comprehensive income and its
components in the financial statements. In the Company's case,
comprehensive income includes net loss and the change in the Company's
cumulative translation adjustment
NOTE 4 - RECONCILIATION TO BRAZILIAN GAAP
- -----------------------------------------
The following reconciliation is provided to facilitate an understanding of
the differences in financial reporting between generally accepted
accounting principles ("GAAP") used in the United States as compared with
those used in Brazil.
<TABLE>
<CAPTION>
INCOME STOCKHOLDERS'
STATEMENT EQUITY
------------------------------------
<S> <C> <C>
Balances, June 30, 1998 using U.S. GAAP R$ (4,131) R$ 30,249
Adjustments for constant currency purchasing power and foreign translation adjustments 39 (4,912)
Adjustments under purchase accounting from Acquisitions (525) (4,267)
Accounting for pre-operating expenses 41 1,089
Accounting for deferred income 385 626
Present value adjustments (19) (100)
Accounting for capitalized leases (2) 12
------------------------------------
Balances, June 30, 1998 using Brazilian GAAP R$ (4,212) R$ 22,697
====================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND LIQUIDITY
AND CAPITAL RESOURCES
RESULTS OF OPERATIONS
The following comparative financial data of the Company for the six months
ended June 30, 1997 and June 30, 1998, respectively, are herein included and
commented upon an effort to facilitate a meaningful presentation of the
evolution of the Company's operating results.
Since the implementation of the Real Plan in June 1994 the Brazilian
economy has experienced declining levels of inflation rates, with a cumulative
inflation rate for the three-year period from July 1994 to June 1997, as
measured by the IGP-M (a Brazilian General Price Index), of 54%. Considering the
above, Management has made the determination that Brazil should no longer be
considered a highly inflationary economy from July 1, 1997 onward, pursuant to
FASB 52.
Accordingly, operating results for the periods ended June 30, 1997
presented in the accompanying financial statements have been indexed and
expressed in currency of constant purchasing power of June 30, 1997 by using a
monthly index derived from the IGP-M index. The Company believes that the IGP-M
index is an appropriate general price inflation indicator to be used under US
GAAP.
Six Months % Six Months %
Ended Ended
June 30, 1997 June 30, 1998
-------------- --------------
(In thousands) (In thousands)
Net operating revenues:
- - Restaurant sales R$ 35,636 R$ 33,690
- - Franchise income 713 906
- - Other income 828 1,086
------ ------
Total net operating revenues 37,177 100.0 35,682 100. 0
------ ------ ------ ------
Costs and expenses:
- - Cost of restaurant sales 12,571 33.8 12,268 34.4
- - Restaurant payroll and other 8,832 23.8 8,295 23.2
employee benefits
- - Restaurant occupancy costs 3,537 9.5 3,855 10.8
and other expenses
- - Depreciation and 2,038 5.5 2,136 6.0
amortization
- - Other operating expenses 5,653 15.2 5,429 15.2
- - Selling expenses 2,185 5.9 2.012 5.6
- - General and
administrative expenses 5,793 15.6 4,658 13.1
------ ------ ------ ------
Total costs and expenses 40,609 109.2 38,653 108.3
------ ------ ------ ------
Loss from operations (3,432) (9.2) (2,971) (8.3)
- - Interest expense (908) (2.4) (1,159) (3.2)
------ ------ ------ ------
Net Loss R$ (4,340) (11.7) R$ (4,130) (11.6)
====== ====== ====== ======
<PAGE>
Restaurant Sales
Systemwide gross sales increased from R$ 50,757,000 for the six months
ended June 30, 1997 to R$58,002,000 for the same period of 1998, primarily due
to an increased number of retail fast food outlets.
Net restaurant sales from Company-owned stores were R$ 35,636,000 and R$
33,690,000 for the six months ended June 30, 1997 and 1998, respectively, a
decrease from period to period of approximately 5.5%. During the period from
June 30, 1997 to June 30, 1998, the Company opened 10 new outlets, closed 3
unprofitable outlets and sold 14 outlets to franchisees, resulting in 80
Company-owned retail fast food outlets at June 30, 1998 as compared to 87 such
outlets at June 30, 1997.
Same stores sales declined by 7.8% for the six months ended June 30, 1998
when compared to the six months ended June 30, 1997. This decline is
attributable to (i) the slowdown of the Brazilian economy as a consequence of
the Asian financial crisis, which has resulted in increased unemployment and
significantly decreased consumer spending; (ii) market share competition,
resulting in an approximate 5% reduction in the selling prices of certain of the
Company's products effective May 1998; and (iii) World Cup soccer viewing, which
resulted in a pervasive slowdown of all Brazilian business activity during the
National team games played during June and July 1998.
The same store sales decrease was partially offset by stores which were
closed or sold to franchisees after June 30, 1997, which accounted for lower
sales levels than the stores opened during the same period.
Franchise Income
Franchise income was R$ 713,000 and R$ 906,000 for the six months ended
June 30, 1997 and 1998, respectively. The increase of 27.1% is primarily
attributable to a growth in franchised locations, from an average of 35 units
for the six months ended June 30, 1997 to an average of 64 units in 1998, an
increase of approximately 83%. The increased number of franchisees also resulted
in increased royalty fees. Franchise income was partially reduced by of the
opening of new stores with lower sales levels than those previously in
operation. Most of these stores are located in smaller cities or were opened as
kiosks in locations having close proximity to other BOB's restaurants.
Through the period from June 30, 1997 to June 30, 1998 the Company sold 14
of its restaurants to franchisees. These stores, which either had low
profitability or, in some cases, operating losses, were located at a distance
from both Rio de Janeiro and Sao Paulo, the primary focus of the Company's
operations. The Company's historical experience has shown that franchisee
administration is enhancing the profitability of those stores, primarily as a
result of : (i) lower taxation (tax incentives from Federal and State government
to small
<PAGE>
companies); (ii) better knowledge of a specific market and its local customs;
and (iii) lower operating expenses. In certain situations, the Company has
provided incentives in the form of reduced royalties to franchisees for a period
of time.
Other Income
Other income was R$ 828,000 and R$ 1,086,000 for the six months ended June
30, 1997 and June 30, 1998, respectively, and is comprised of income derived
from suppliers pursuant to exclusivity agreements, from marketing fees charged
to franchisees, and from initial fees paid by new franchisees. The increase of
31.1% from period to period is attributable to (i) the increase in the number of
franchised units during the period (see Franchise Income); and (ii) increased
initial franchise fees resulting from 8 franchised stores opened in 1998 as
compared with 2 such stores in the same period of 1997.
Cost of Restaurant Sales
Cost of restaurant sales expressed as a percentage of net operating
revenues were 33.8% and 34.4% for the six months ended June 30,1997 and June 30,
1998, respectively. The increase is due to a 2% increase in the cost of certain
items such as bread and soft drinks, caused mainly by increased taxation. Price
concessions negotiated with some suppliers during 1998 were able to partially
offset selling price reductions initiated during the six months ended June 30,
1998 (see Restaurant Sales).
Restaurant Payroll and Other Employee Benefits
Restaurant payroll and other employee benefits expressed as a percentage of
net operating revenues decreased from 23.8% for the six months ended June 30,
1997 to 23.2% for the six months ended June 30, 1998, mainly due to an ongoing
personnel reduction program first initiated in 1997, which resulted in a
reduction in the total number of assistant store managers, as well as in the
average number of store employees from 27 in June 1997 to 23 by June 1998. This
decrease was partially negated by salary increases mandated by union-driven
agreements (4% Rio de Janeiro employees since October 1997; 6% for Sao Paulo
employees since July 1997).
Restaurant Occupancy Costs and Other Expenses
Restaurant occupancy costs and other expenses expressed as a percentage of
net operating revenues were approximately 9.5% and 10.8% for the six months
ended June 30, 1997 and 1998, respectively. The increase is mainly due to
minimum rents, which have to be restated every year to reflect the effect of
Brazilian inflation (currently at around 4.6% per annum). In addition, the sale
of 11 Company-owned stores to franchisees (see Restaurant Sales) included two
stores which prior to their sale were located in Company-owned properties, which
changed the correlation between restaurant operating costs and net operating
revenues since the newly opened stores were relocated to leased properties.
Depreciation and Amortization
Depreciation and amortization expressed as a percentage of net operating
revenues was approximately 5.5% and 6.0% for the six months ended June 30, 1997
and 1998, respectively. The increase is the consequence of
<PAGE>
capital expenditures related to new stores and remodeling costs.
Other Operating Expenses
Other operating expenses expressed as a percentage of net operating
revenues were approximately 15.2% for the six months ended June 30, 1997 and
June 30, 1998, respectively. Although this percentage remained constant, other
operating expenses reflected reductions derived from renegotiation and non-
renewal of service contracts (mainly accounting and maintenance), partially
offset by the annual restatement of certain service contracts to reflect the
effect of Brazilian inflation.
Selling Expenses
Selling expenses remained relatively constant from 1997 to 1998, at 5.9%
and 5.6%, respectively.
General and Administrative Expenses
General and administrative expenses expressed as a percentage of net
operating revenues were approximately 15.6% and 13.1% for the six months ended
June 30, 1997 and 1998, respectively. General and administrative expenses for
the six months ended June 30, 1997 included approximately R$ 500,000 of non-
recurrent charges arising primarily from: (i) higher professional fees
attributable to regulatory filings; (ii) a write-off of equipment; and (ii) a
partial write-off of deferred charges. By way of contrast, general and
administrative expenses for the six months ended June 30, 1998 include non-
recurring credits of approximately R$ 330,000 attributable to a reversal of
excess labor contingencies that had been previously established by the Company
based upon its historical experience and gains derived from the final settlement
of amounts owed to the Company's prior owner. Without giving effect to such non-
recurring charges and credits, as applicable, general and administrative
expenses as a percentage of total net operating revenues for the six months
ended June 30, 1997 and June 30, 1998 were approximately 14.2% or R$ 5,293,000
and 14.0% or R$ 4,988,000, respectively. The reduction is mainly due to : (i)
reductions in the number of administrative personnel implemented during the
second half of 1997 and first half of 1998; (ii) increased office automation;
and (iii) a number of other smaller cost reductions.
Interest Expense
Interest expense expressed as a percentage of net operating revenues was
approximately 2.4% and 3.2% for the six months ended June 30, 1997 and 1998,
respectively.
Interest expense reflects an increase in the Company's total indebtedness
stemming from borrowings to satisfy the final payment to the Company's prior
owner in March 1998 of approximately R$ 3,000,000, which was funded on a short
term basis by existing credit facilities. Subsequent to June 30, 1998, such
indebtedness was converted into long term indebtedness owed to a Brazilian
financial institution at a lower interest rate.
Seasonality
The Company's revenues are subject to seasonality as over 20% of its sales
are generated during the Brazilian summer months of December and January as well
as July due to local customs and traditions such as Christmas shopping and
school vacation.
<PAGE>
Liquidity and Capital Resources
Since March 19, 1996, the Company has funded its operating losses of R$
15,683,000 and made acquisitions of business and capital improvements, including
store remodeling, by using cash remaining after the closing of the Venbo
acquisition, by borrowings, and proceeds from private placements of its
securities. At June 30, 1998, the Company had R$ 962,000 in cash on hand and a
deficiency in working capital of R$ 4,138,000.
The Company's capital requirements are primarily for the expansion of its
retail operations. For the six months ended June 30, 1998, the Company's EBITDA
was negative R$ 835. The Company believes it is able to fund its continuing
operations through reliance, if required, upon its existing credit facilities.
During 1998, the Company intends to continue to focus its efforts on expanding
both the number of its franchisees and its franchised outlets, neither of which
are expected to involve significant capital expenditures by the Company.
The Company has obtained long term credit facilities from a Brazilian
banking institution amounting to approximately R$ 3,000,000 (equivalent to
$2,650,000) which bears interest in US dollars at the rate of 13% per annum. In
addition, the Company has obtained short term credit facilities from several
banks in Brazil, which the Company believes are sufficient to sustain its
working capital needs through the low seasons of the year.
The Company's continued operation is dependent in part, upon its ability to
increase sales volume through enhancements of its stores, including but not
limited to new computerized systems and refurbishment of interior designs, and
expansion of its franchise network. These activities will require additional
cash expenditures. The Company believes that cash flow from operations, combined
with bank borrowings, discussed above, as well as continued growth in
franchising and equity sales, will enable the Company to continue in business.
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) None
<PAGE>
Signatures
Pursuant to the requirements 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.
Brazil Fast Food Corp.
(registrant)
Dated: August 10, 1998
By: /s/ Peter van Voorst Vader
---------------------------------
Peter van Voorst Vader
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Carlos Henrique da Silva Rego
---------------------------------
Carlos Henrique da Silva Rego
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 962
<SECURITIES> 0
<RECEIVABLES> 4,039
<ALLOWANCES> 187
<INVENTORY> 512
<CURRENT-ASSETS> 6,153
<PP&E> 28,283
<DEPRECIATION> 5,975
<TOTAL-ASSETS> 47,005
<CURRENT-LIABILITIES> 10,291
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 30,248
<TOTAL-LIABILITY-AND-EQUITY> 47,005
<SALES> 33,690
<TOTAL-REVENUES> 35,682
<CGS> 12,268
<TOTAL-COSTS> 26,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,159
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