<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 March 31, 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.
12,310,638 shares of Common Stock at May 11, 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 SHARE AMOUNTS)
- --------------------------------------------------------------------------------
ASSETS
------
March 31, 1998 December 31, 1997
--------------- -----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents R$ 844 R$ 1,522
Accounts receivable, net 2,661 3,197
Inventories 586 775
Prepaid and other current assets 819 594
----- -----
TOTAL CURRENT ASSETS 4,910 6,088
PROPERTY AND EQUIPMENT, NET 23,069 23,613
DEFERRED CHARGES, NET 13,907 14,073
GOODWILL, NET OF ACCUMULATED AMORTIZATION 5,308 5,386
OTHER ASSETS 200 194
------ ------
TOTAL ASSETS R$47,394 R$49,354
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable R$5,217 R$ 4,295
Accounts payable and accrued expenses 3,155 4,571
Payroll and related accruals 2,061 1,868
Taxes, other than income taxes 505 672
Deferred income 909 910
Other 530 513
----- -----
TOTAL CURRENT LIABILITIES 12,377 12,829
NOTES PAYABLE, less current portion 630 694
DEFERRED INCOME, less current portion 2,710 2,930
------- -------
TOTAL LIABILITIES 15,717 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; 12,310,638 and
12,304,484 shares issued and outstanding
at March 31, 1998 and December 31, 1997, 1 1
respectively
Additional paid-in capital 44,721 44,698
Deficit (12,761) (11,553)
Cumulative translation adjustment (284) (245)
------- -------
TOTAL SHAREHOLDERS' EQUITY 31,677 32,901
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY R$47,394 R$49,534
======== ========
See Selected Notes to Consolidated Financial Statements.
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSAND, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
- --------------------------------------------------------------------------------
For the Three Months
Ended March 31,
-----------------------------
1998 1997
------------- -------------
NET OPERATING REVENUES:
Restaurant sales R$ 18,381 R$ 18,716
Franchise income 433 348
Other income 538 453
--------- ---------
TOTAL NET OPERATING REVENUES 19,352 19,517
--------- ---------
COSTS AND EXPENSES:
Cost of restaurant sales 6,670 6,586
Restaurant payroll and other employee benefits 4,213 4,571
Restaurant occupancy and other expenses 1,979 1,755
Depreciation and amortization 1,060 1,015
Other operating expenses 2,828 2,967
Selling expenses 980 1,050
General and administrative expenses 2,426 2,743
----- -----
TOTAL COSTS AND EXPENSES 20,156 20,687
------ ------
(LOSS) FROM OPERATIONS (804) (1,170)
INTEREST (EXPENSE) - NET (404) (438)
--------- ---------
NET (LOSS) (1,208) (1,608)
--------- ---------
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment (39) -
--------- ---------
COMPREHENSIVE LOSS R$ (1,247) R$ (1,608)
========== ==========
BASIC NET (LOSS) PER COMMON SHARE R$ (.10) R$ (.15)
========== ==========
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 12,310,998 10,604,484
========== ==========
See Selected Notes to Consolidated Financial Statements.
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock
---------------------------------- Additional Cumulative
Paid-In Translation
Shares Par Value Capital Deficit Adjustment Totals
----------- ---------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 12,304,484 R$ 1 R$44,698 R$(11,553) R$(245) R$32,901
Issuance of shares upon
exercise of options 6,154 - 23 - - 23
Net loss for the period - - - (1,208) - (1,208)
Cumulative translation
adjustment - - - - (39) (39)
---------- ---- -------- --------- ------- ------
Balance, March 31, 1998 12,310,638 R$ 1 R$44,721 R$(12,761) R$ (284) R$31,677
========== ==== ======== ========= ======= ========
</TABLE>
See Selected Notes to Consolidated Financial Statements.
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
- --------------------------------------------------------------------------------
For the Three Months
Ended March 31,
------------------------
1998 1997
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) R$(1,208) R$(1,608)
Adjustments to reconcile net
(loss) to net cash provided by
(used in) operating activities: 1,060 1,006
Depreciation and amortization
Changes in operating assets and liabilities
(Increase) Decrease in:
Accounts receivable 536 327
Inventories 189 214
Other current assets (225) 303
Deferred charges (6) (6)
Increase (Decrease) in:
Accounts payable and accrued liabilities (1,416) (1,160)
Payroll and related accruals 193 (47)
Taxes, other than income taxes (167) (177)
Deferred income (221) (279)
Other current liabilities 17 288
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,248) (1,136)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (272) (899)
---------- ---------
NET CASH (USED IN) INVESTING
ACTIVITIES (272) (899)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines
of credit 859 556
Proceeds from private placement - 956
Proceeds from exercise of options 23 -
---------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 882 1,512
---------- ---------
EFFECT OF FOREIGN EXCHANGE RATES (40) (7)
---------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (678) (530)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,522 1,556
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD R$ 844 R$ 1,026
========== =========
See Selected Notes to Consolidated 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 March 31, 1998 and for all periods presented have been made. The results
of operations for the period ended March 31, 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$" are to the Brazilian Real (singular), or to Brazilian Reais
(plural), the legal currency of Brazil, and (ii) "U.S. Dollars" or "$" 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 consolidated
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.
NOTE 2 - SHAREHOLDERS' EQUITY
- -----------------------------
During the first quarter of 1998, the Company issued 6,154 shares of common
stock upon the exercise of options, receiving net proceeds of R$23.
NOTE 3 - COMPREHENSIVE INCOME
- -----------------------------
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires the Company to display comprehensive income and its
components in the financial statements. In the Company's case,
comprehensive includes net loss and the change in the Company's cumulative
translation adjustment.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Since the implementation of the Real Plan in June 1994 the Brazilian economy has
experienced declining levels of inflation rates, with a cumulative inflation
rate for the three-year period from July 1994 to June 1997, as measured by the
IGP-M (a Brazilian General Price Index), of 54%. Considering the above, and the
fact that there is a clear historical trend of decreasing inflation in Brazil,
Management has made the determination that Brazil is no longer a highly
inflationary economy from July 1, 1997 onward, pursuant to FASB 52. No change in
functional currency is being made after June, 30 1997. Brazil Fast Food Corp.
has been reporting its financial statements in Brazilian Reais since its
acquisition of Venbo Comercio de Alimentos LTDA., the operator of the "Bob's"
fast food restaurant chain, on March 19, 1996.
Accordingly, operating results for the periods ended March 31, 1997 presented in
the accompanying financial statements have been indexed and expressed in
currency of constant purchasing power of June 30, 1997 by using a monthly index
derived from IGP-M index. The Company believes that the IGP-M index is an
appropriate general price inflation indicator to be used under US GAAP.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
March 31, 1998 March 31, 1997
------------------------ % --------------------- %
(IN THOUSANDS) (IN THOUSANDS)
NET OPERATING REVENUES:
<S> <C> <C>
- - Restaurant sales R$ 18,381 R$ 18,716
- - Franchise income 433 348
- - Other income 538 453
------ ------
TOTAL NET OPERATING REVENUES 19,352 100.0 19,517 100.0
------ ----- ------ -----
Costs and expenses:
- - Cost of restaurant sales 6,670 34.5 6,586 33.7
- - Restaurant payroll and other employee benefits 4,213 21.8 4,571 23.4
- - Restaurant occupancy costs and other expenses 1,979 10.2 1,755 9.0
- - Depreciation and amortization 1,060 5.5 1,015 5.2
- - Other operating expenses 2,828 14.6 2,967 15.2
- - Selling expenses 980 5.1 1,050 5.4
- - General and administrative expenses 2,426 12.5 2,743 14.1
------ ----- ------ -----
Total costs and expenses 20,156 104.2 20,687 106.0
------ ----- ------ -----
LOSS FROM OPERATIONS (804) (4.2) (1,170) (6.0)
- - Interest expense- net (404) (2.1) (438) (2.2)
------ ----- ------ -----
NET LOSS R$(1,208) (6.3) R$(1,608) (8.2)
======= ===== ====== =====
</TABLE>
<PAGE>
Restaurant sales
Net restaurant sales for Company-owned stores were R$ 18,381 and
R$ 18,716 for the three months ended March 31, 1998 and 1997, respectively,
a decrease of approximately 1.8%
During the period from March 31 1997 to March 31, 1998 the Company opened 9
stores, closed 1 unprofitable store and sold 9 stores to franchisees, ending up
with 89 Company-owned point of sales. Same stores sales declined 3.02% when
compared quarter to quarter. Such decline was primarily attributable to (i) the
Brazilian government's relaxation of its previous prohibition upon installment
credit purchases, which accelerated previously deferred purchases of large
ticket items such as automobiles and household appliances (mostly on credit
facilities), resulting in decreased availability of funds for discretionary
spending, and (ii) increases in Brazilian interest rates at the end of 1997 as a
consequence of the Asian financial crisis. Interest rates in the first quarter
of 1998, which were 20% higher when compared the same period in 1997, have
driven a slowdown of the Brazilian economy, increased unemployment and
significantly decreased consumer spending. The decrease in same store sales was
partially offset due to the fact that the stores which were closed during the
first quarter of 1997 accounted for lower sale levels than the stores opened
during the same period in 1998.
FRANCHISE INCOME
Franchise income was R$ 433 and R$ 348 for the three months ended March
31, 1998 and 1997, respectively. The increase of 24% was mainly driven by the
expansion of franchised locations, which grew from 36 units for the quarter
ended March 31, 1997 to 64 units at March 31,1998.
The increase in the number of franchisees resulted in new initial fees charged
to new franchisees and increased royalty fees.
OTHER INCOME
Other income was R$ 538 and R$ 453 for the three months ended March 31,
1998 and 1997, respectively. Other income is derived from suppliers pursuant to
exclusivity agreements and from marketing fees charged to franchisees. The
increase of 19% from quarter to quarter can be attributed to the expansion of
the franchised units described above, which provided for the growth of the
marketing fees charged to franchisees.
COST OF RESTAURANT SALES
Cost of restaurant sales expressed as a percentage of net operating revenues
were 34.5% and 33.7% for the three months ended March 31, 1998 and 1997,
respectively. The increase is due to a 2% increase in costs of certain items
such as bread and soft drinks caused, mainly, by the change of taxation on those
products by the Government.
RESTAURANT PAYROLL AND OTHER EMPLOYEE BENEFITS
Restaurant payroll and other employee benefits expressed as a percentage of net
operating revenues decreased from 23.4% in the quarter ended March 31, 1997 to
21.8% in the quarter ended March 31, 1998.
<PAGE>
This is mainly due to a thorough store headcount revision, resulting in a
reduction in the number of assistant store managers and in the average number of
store employees . This reduction was partially offset by increases in salaries
mandated by union-driven agreements (4% for Rio de Janeiro employees since
October 1997, as well as 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 10.2% and 9.0% for the three months ended
March 31, 1998 and 1997, respectively. The increase is mainly due to that
portion of minimum rent, which has to be restated every year to reflect the
effect of Brazilian inflation (currently at around 5% p.a.), the sale of 9
Company owned stores to franchisees (see RESTAURANT SALES), and including 2
stores and were formally located in which Company owned properties.
DEPRECIATION AND AMORTIZATION
Depreciation and Amortization expressed as a percentage of net operating
revenues was approximately 5.2% and 5.5% for the three months ended March 31,
1998 and 1997, respectively.
OTHER OPERATING EXPENSES
Other operating expenses expressed as a percentage of net operating revenues
were approximately 14.6% and 15.2% for the three months ended March 31, 1998 and
1997, respectively. The reduction is due to renegotiation and non-renewal of
professional service contracts (legal, accounting and consulting).
SELLING EXPENSES
Selling expenses remained constant at 5.1% and 5.4% for the three months ended
March 31, 1998 and 1997, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses expressed as a percentage of net operating
revenues were approximately 12.5% and 14.1% for the three months ended March 31,
1998 and 1997, respectively. General and administrative expenses for the first
quarter of 1997 include approximately R$200 of one-time net gains arising
primarily from: (i) a gain resulting from the buyout of lease by a landlord of
one of the Company's locations, and (ii) an insurance recovery received for a
store which remained closed for 8 months due to an explosion in a shopping mall.
Additionally, during the first quarter of 1997 the Company had closed a private
placement which, together with some past accrual adjustments, increased
professional fees by R$100. On the other hand, general and administrative
expenses for the first quarter of March 31, 1998 include non-recurring income of
approximately R$204 which resulted from the final settlement of amounts owed to
BIEC (VENBO's previous owner).
Excluding the above mentioned effects, general and administrative expenses as a
percentage of total net operating revenues would have been approximately 13.93%
or R$2,695 and approximately 14.57% or R$2,843 for March 31, 1998 and 1997,
respectively. The reduction of the general and administrative expense level is
due to: (i) restructuring of the Company's middle management level of the
Company, elimination of certain positions, (ii) a freeze on the hiring of
additional headquarters' personnel, despite the growth of number of stores, and
(iii) a number of smaller cost reductions.
<PAGE>
INTEREST INCOME AND EXPENSES
Net interest expense expressed as a percentage of net operating revenues were
approximately (2.1%) and (2.2%) for the three months ended March 31, 1998 and
1997, respectively. Net interest expense remained fairly consistent as the
Company's indebtedness remained almost at the same level in the comparative
periods.
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 March 19, 1996, the Company has funded its operating losses of R$12,761
and made acquisitions of businesses and made capital improvements, including
store remodeling, by using cash remaining after the closing of the Venbo
acquisition, by borrowings, and the proceeds from private placements of its
securities. At March 31, 1998, the Company had R$844 in cash on hand and a
deficiency in working capital of R$7,467.
The Company's capital requirements are primarily for the expansion of its retail
operations. For the first quarter ended March 31, 1998, the Company's EBITDA was
R$256. The Company believes it is able to fund its operations through
existing credit facilities, should the need arise. During 1998, the Company
intends 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 firm commitments from two Brazilian banking
institutions for long term credit facilities aggregating approximately
$5,000 which bears interest (in US dollars) at the rate of 17% per annum.
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 refurbishments of interior designs, and
expansion of its franchise network. These activities will require additional
cash expenditures. The Company believes that cash flow from operations, when
combined with bank borrowings, discussed above, as well as continued growth
in franchising and equity sales, will enable the Company to continue in business
through the end of 1998.
<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: May 15, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 844
<SECURITIES> 0
<RECEIVABLES> 2848
<ALLOWANCES> 187
<INVENTORY> 586
<CURRENT-ASSETS> 4910
<PP&E> 28533
<DEPRECIATION> 5464
<TOTAL-ASSETS> 47394
<CURRENT-LIABILITIES> 12377
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 31676
<TOTAL-LIABILITY-AND-EQUITY> 47394
<SALES> 18381
<TOTAL-REVENUES> 19352
<CGS> 6670
<TOTAL-COSTS> 13486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (404)
<INCOME-PRETAX> (1208)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1208)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1208)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
