<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, 2000
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.)
Av. Brasil, 6431, CEP 21040-360, Rio De Janeiro, Brazil
(Address of principal executive offices)
011-55-21-564-6452
(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 of 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.
3,235,290 shares of Common Stock at May 15, 2000
<PAGE>
Part 1 - 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.
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of Brazilian Reais, except share amounts)
<TABLE>
<CAPTION>
============================================================================================================
ASSETS
------
March 31, 2000 December 31, 1999
-------------- -----------------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents R$ 2,184 R$ 1,154
Accounts receivable, net of allowance for doubtful accounts 2,192 2,515
Inventories 1,203 728
Prepaid expenses and other current assets 702 639
-------- --------
TOTAL CURRENT ASSETS 6,281 5,036
PROPERTY AND EQUIPMENT, NET 20,656 20,879
DEFERRED CHARGES, NET 10,888 11,083
OTHER RECEIVABLES AND OTHER ASSETS 2,602 2,412
-------- --------
TOTAL ASSETS R$40,427 R$39,410
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable R$ 6,880 R$ 7,376
Accounts payable and accrued expenses 3,814 4,349
Payroll and related accruals 2,290 1,760
Taxes, other than income taxes 3,067 1,829
Deferred income 821 821
Other 803 676
-------- --------
TOTAL CURRENT LIABILITIES 17,675 16,811
NOTES PAYABLE, less current portion 2,595 2,746
DEFERRED INCOME, less current portion 1,619 1,721
OTHER LONG-TERM LIABILITIES 9,384 9,169
-------- --------
TOTAL LIABILITIES 31,273 30,447
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000 shares authorized; no
shares issued - -
Common stock, $.0001 par value, 40,000,000 shares authorized;
and 3,235,290 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 1 1
Additional paid-in capital 46,226 46,226
Deficit (36,612) (36,803)
Accumulated comprehensive loss (461) (461)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 9,154 8,963
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY R$40,427 R$39,410
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of Brazilian Reais, except share amounts)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
NET OPERATING REVENUES:
Restaurant sales R$ 15,783 R$ 14,384
Franchise income 792 621
Other income 917 677
----------- -----------
TOTAL NET OPERATING REVENUES 17,492 15,682
----------- -----------
COSTS AND EXPENSES:
Cost of restaurant sales 5,883 5,513
Restaurant payroll and other employee benefits 3,073 3,365
Restaurant occupancy and other expenses 1,657 1,722
Depreciation and amortization 865 777
Other operating expenses 2,718 2,217
Selling expenses 1,200 1,124
General and administrative expenses 1,609 1,227
----------- -----------
TOTAL COSTS AND EXPENSES 17,005 15,945
----------- -----------
INCOME (LOSS) FROM OPERATIONS 487 (263)
INTEREST (EXPENSE) - NET (560) (1,083)
FOREIGN EXCHANGE GAIN (LOSS) 264 (2,399)
----------- -----------
NET INCOME (LOSS) 191 (3,745)
----------- -----------
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment - (89)
----------- -----------
COMPREHENSIVE INCOME (LOSS) R$ 191 R$ (3,834)
=========== ===========
BASIC NET INCOME (LOSS) PER COMMON SHARE R$ .06 R$ (1.18)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -BASIC 3,235,290 3,235,290
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(in thousands of Brazilian Reais, 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>
Balance, January 1, 2000 3,235,290 R$ 1 R$46,226 R$(36,803) R$(461) R$8,963
Net income - - - 191 - 191
---------- ----------- -------- --------- ------ -------
Balance, March 31, 2000 3,235,290 R$ 1 R$46,226 R$(36,612) R$(461) R$9,154
========== =========== ======== ========= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Brazilian Reais, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
===============================================================================================
For the Three Months
Ended March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) R$ 191 R$(3,745)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 803 778
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable 323 297
Inventories (475) 142
Other current assets (63) (550)
Other assets (190) (25)
Increase (Decrease) in:
Accounts payable and accrued expenses (320) 161
Payroll and related accruals 530 705
Taxes, other than income taxes 1,238 1,039
Deferred income (102) (228)
Other current liabilities 127 186
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,062 (1,240)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital expenditures (385) (228)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under lines of credit (647) 1,255
------- --------
EFFECT OF FOREIGN EXCHANGE RATES - (89)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,030 (302)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,154 817
------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD R$2,184 R$ 515
======= =========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Brazilian Reais, 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, 2000 and for all periods presented have been made. The
results of operations for the period ended March 31, 2000 are not
necessarily indicative of the operating results for a full year. Unless
otherwise specified all reference in these financial statements to (i )
"Reais", or "R$" are to the Brazilian Real (singular), or to Brazilian
Reais (plural), the legal currency of Brazil, and (ii ) "U.S. Dollars" or
"S" 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, 1999.
NOTE 2 - MANAGEMENT PLANS REGARDING GOING CONCERN
Since the acquisition of Venbo in 1996, the Company has sustained net
losses totaling approximately R$36,612. To date, the Company has been
dependent upon its initial capital, additional equity and debt financing to
fund its operating losses and capital needed for expansion. Recently, the
Company commenced court actions to defer payments of its past due taxes
against different branches of the Brazilian Government. These actions are
intended to extend payments on past due taxes and reduce interest charges.
Management plans to address its immediate and future cash flow needs by
focusing on a number of areas including; the continued sale of non-
profitable company-owned stores; reduction of expenses including headcount
optimization; the continued expansion of its franchisee base which will
generate additional cash flows form royalties and franchise fees without
significant capital expenditure; the introduction of new programs, such as
a delivery call center, an internet delivery service and menu expansion to
meet customer demand. In order to act on these plans and sustain current
operations, the Company is dependent upon the continued forbearance of its
creditors, as well as additional financing.
There can be no assurance that management's plans will be realized, or that
additional financing will be available to the Company when needed, or at
terms that are desirable. Furthermore, there can be no assurance that the
Company will continue to receive the forbearance of its creditors, or that
it will locate suitable new franchisees, or desirable locations for new
franchisees to open stores. The Company's ability to further reduce
expenses and head count is directly impacted by its need to maintain an
infrastructure to support its current and future chain of locations.
6
<PAGE>
BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Brazilian Reais, except share amounts)
(Unaudited)
================================================================================
NOTE 2 - MANAGEMENT PLANS REGARDING GOING CONCERN (cont'd)
The Company's ability to remarket Company-owned stores to franchisees, and
to generate cash flows from such activities, is impacted by the ability to
locate suitable buyers with the interest and capital to complete such
transactions, and the time to complete such sales. Additionally, the
Company's ability to achieve its plans is further impacted by the
instability of the economic environment in Brazil, which has a direct
impact on the desire and ability of consumers to visit fast food outlets.
The Company is also dependent upon the continued employment of key
personnel. These factors, among other, raise substantial doubt about the
Company's ability to continue as going concern.
NOTE 3 - RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements
to conform with the current period presentation.
NOTE 4 - OTHER LIABILITIES AND LITIGATION
The Company has not paid certain Brazilian taxes levied upon it during both
the year ended December 31, 1999 and the quarter ended March 31, 2000. The
Company's legal advisors, relying upon relevant provisions of current
Brazilian law, have filed lawsuits asserting that these taxes should
instead be paid on an installment basis (60-240 months). The Company has
also asserted that neither fines nor interest higher than 12% per annum
should be included in the installment payments. However, the interest rates
required by Brazilian Laws, which are higher than those claimed by the
Company, have been recorded in the financial statements. The Company
commenced payment of its current tax obligations in May 2000.
7
<PAGE>
RESULTS OF OPERATIONS
The economic environment in Brazil during the first three months of 2000
has substantially improved when compared with the same three month period in
1999. Governmental economic policies have reduced inflationary pressures and
have given Brazilian products a more competitive price in the world economy.
Further, industrial production levels increased substantially during the first
three months of 2000, resulting in reduced unemployment and a positive trade
balance positive trade balance.
In addition, overnight interest rates, which were 42% at March 31, 1999 and
19% throughout the last quarter of 1999 and the first quarter of 2000, were
recently reduced to 18.5%. The Brazilian reais has also recently strengthened
against the U.S dollar, from R$1.789 on December 31, 1999 to R$1.747 on March
31, 2000.
These factors have positively impacted the Brazilian economy, resulting in
increased levels of consumer spending which, in turn, has positively affected
our operating results for the quarter ended March 31, 2000.
Restaurant Sales
Net restaurant sales for our company-owned stores were R$ 15,783 and
R$14,384 for the three months ended March 31, 2000 and 1999, respectively,
reflecting a Q1 2000 increase of R$1,399 or 9.7%. The increase is attributable
to the improved macroeconomic conditions in Brazil, sales initiatives and the
introduction of a delivery program, as well as an approximately 11% increase in
selling prices. Same store sales increased approximately 16.4% when compared
quarter to quarter. In this same period, we operated 61 retail stores as
compared to 67 in the corresponding 1999 quarter, reflecting our strategy of
focusing our operations on highly profitable retail locations and continuing to
increase our expanding franchise network.
Franchise Income
Franchise income was R$792 and R$621 for the three months ended March 31,
2000 and 1999, respectively. The increase of 27.5% in the first quarter of 2000
was mainly attributable to expansion of our franchised locations, which grew
from 101 units at the end of the first quarter of 1999 to 129 units at March 31,
2000.
During the period April 1, 1999 through March 31, 2000, we sold six of our
stores to franchisees. These locations had either low profitability or, in some
instances, operating losses. Our historical experience has shown that franchisee
administration can enhance the profitability of these kinds of stores, primarily
as a result of (i) lower taxation (tax incentives from Brazilian Federal and
state governments to small companies), (ii) better knowledge of specific markets
and their local customs, and (iii) lower operating expenses.
<PAGE>
Other Income
Other income was R$917 and R$677 for the three months ended March 31, 2000
and 1999, respectively, and is comprised of income derived from suppliers
pursuant to exclusivity agreements, as well as from initial fees paid by
franchisees and such franchisees' contributions to our marketing efforts. The
first quarter 2000 increase of 35% is primarily attributable to the increase in
the number of our franchised outlets.
Cost of Restaurant Sales.
Cost of restaurant sales expressed as a percentage of restaurant sales were
37.2% and 38.3% for the three months ended March 31, 2000 and 1999,
respectively. The decrease is mainly attributable to price reductions on some
food and packaging products as a consequence of our price renegotiation efforts,
as well as from changing certain of our suppliers, offset in part by increases
in our cost of meat and chicken products in December 1999 and January 2000. Also
contributing to this percentage decrease is the increase in our selling prices,
discussed above.
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, 1999
to 19.5% in the quarter ended March 31, 2000. This reduction is primarily
attributable to changes in the status of our retail store personnel who, prior
to the last quarter of 1999, were hired at employee rather than trainee rates.
Since the last quarter of 1999, all new hires of store personnel have been at
trainee rates, resulting in lower employment charges and fringe benefit costs,
while also attracting younger and more motivated personnel. Increases in
salaries mandated by union-driven agreements (3% for Sao Paulo employees since
July 1999 and 3% for Rio de Janeiro employees since October 1999) have partially
offset this percentage decrease.
Restaurant Occupancy Costs and Other Expenses
Restaurant occupancy costs and other expenses expresses as a percentage of
net operating revenues were approximately 10.5% and 12.0% for the three months
ended March 31, 2000 and 1999, respectively. This decrease is primarily
attributable our success in negotiating temporary reductions in lease costs, as
well as our initiation of legal action with respect to a specific lease, which
resulted in a significant and permanent reduction in our costs attributable to
such lease.
Depreciation and Amortization
Depreciation and amortization expressed as a percentage of net operating
revenues were approximately 5.5% and 5.4% for the three months ended March 31,
2000 and 1999, respectively.
<PAGE>
Other Operating Expenses
Other operating expenses expressed as a percentage of restaurant sales were
approximately 17.2% and 15.4% for the three months ended March 31, 2000 and
1999, respectively. The percentage increase from quarter to quarter is primarily
due to (i) professional fees related to lease cost reductions, (ii) an increase
in the cost of utilities, (iii) expenses attributable to our introduction of a
food delivery operation, and (iv) costs related to an incentive program for our
store personnel. Reductions in the cost of certain repair and maintenance
service contracts, the non-renewal of certain other service contracts and both
negotiated and court-ordered rent reductions partially offset this percentage
increase.
Selling Expenses
Selling expenses as a percentage of restaurant sales were 7.6% and 7.8% for
the three months ended March 31, 2000 and 1999, respectively.
General and Administrative Exprenses
General and administrative expenses expressed as a percentage of net
operating revenues were approximately 9.2% and 7.8% for the three months ended
March 31, 2000 and 1999, respectively. The percentage increase is primarily
attributable to (i) costs of office automation improvements, (ii) a provision
for administrative personnel bonuses, and (iii) increases in the cost of certain
contractually outsourced administrative functions. The completion of our middle
management restructuring , which included the outsourcing of some
responsibilities and functions previously performed in-house, partially offset
this percentage increase.
Interest Income and Expenses
Net interest expense and foreign exchange expressed as a percentage of
restaurant sales were approximately (1.9%) and (24.2%) for the three months
ended March 31, 2000 and 1999, respectively. The devaluation of the Brazilian
real in January 1999 caused us to recognize approximately R$2,396 of foreign
currency losses on its US dollar denominated debt. In the first quarter of 2000,
we recorded a foreign currency gain of approximately R$266, reflecting the
strengthening of the Brazilian real against the US dollar and its effect on our
US dollar denominated debt.
Excluding the effect of currency fluctuations, our interest income and
expenses as a percentage of restaurant sales would have been (3.6%) or R$(564)
and approximately (7.6%) or R$(1,086) for the three months ended March 31, 2000
and 1999, respectively. The decrease from quarter to quarter is primarily
attributable to the reduction of the Brazilian overnight interest rate,
discussed above, and to our lower level of short term debt.
LIQUIDITY AND CAPITAL RESOURCES
Since March 19, 1996, we have funded our operating losses of R$36,612 and
made
<PAGE>
acquisitions of businesses and capital improvements (including store remodeling)
by using cash remaining at the closing of our acquisition of BOB's, by borrowing
funds from various sources and from private placements of our securities. As of
March 31, 2000, we had cash on hand of R$2,184 and a working capital deficiency
of R$11,394.
Our capital requirements are primarily for expansion of our retail
operations. Currently, four of our stores are in owned facilities, with all of
the others in leased facilities. For the three months ended March 31, 2000, our
EBITDA was R$1,352. During the same period, our average cost to open a store
approximated R$300 to R$500, including leasehold improvements, equipment and
beginning inventory, as well as expenses for store design, site selection, lease
negotiation, construction supervision and obtaining requisite permits. We
currently estimate that capital expenditures for fiscal 2000 will approximate
R$1,200. We anticipate that our primary use of our cash resources during 2000
will be to service our debt obligations. During 2000, we intend to focus our
efforts on expanding both the number of our franchisees and our franchised
outlets, neither of which are expected to involve significant capital
expenditures on our part.
In the first quarter of 2000, we had net cash provided by operating
activities of R$2,062 and had net cash used in investing activities of R$385.
The primary use of cash for investing activities was for capital expenditures
related to our retail store expansion.
Management plans to address our immediate and future cash flow needs by
focusing on a number of area including: reduction of expenses, including head
count reductions; the expansion of our franchisee base, which would generate
additional cash flows from royalties and franchise fees without significant
capital expenditures; and the introduction of new programs and menu expansion to
meet consumer demand. In order to act on these plans and sustain current
operations, we are dependent upon the continued forbearance of our creditors, as
well as additional financing.
Recently, we commenced court actions to defer payments of our past due
taxes against different branches of Brazilian government. These actions are
intended to extend payments on past due taxes and reduce interest charges.
There can be no assurance that management's plans will be realized, or that
additional financing will be available to us when needed, or at terms that are
desirable. Furthermore, there can be no assurance that we will continue to
receive the forbearance of our creditors, or that we will locate suitable new
franchisees, or desirable locations for new franchisees to open stores. Our
ability to further reduce expenses and head count is directly impacted by our
need to maintain an infrastructure to support our current and future chain of
locations. Additionally, our ability to achieve our plans is further impacted by
the instability of the economic environment in Brazil, which has direct impact
on the desire and ability of consumers to visit fast food outlets. We are also
dependent upon the continued employment of key personnel. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) None
12
<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, 2000
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)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,184
<SECURITIES> 0
<RECEIVABLES> 2,632
<ALLOWANCES> 440
<INVENTORY> 1,203
<CURRENT-ASSETS> 702
<PP&E> 30,032
<DEPRECIATION> 9,376
<TOTAL-ASSETS> 40,427
<CURRENT-LIABILITIES> 17,675
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 9,154
<TOTAL-LIABILITY-AND-EQUITY> 40,427
<SALES> 15,783
<TOTAL-REVENUES> 17,492
<CGS> 5,883
<TOTAL-COSTS> 11,122
<OTHER-EXPENSES> (264)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 560
<INCOME-PRETAX> 191
<INCOME-TAX> 0
<INCOME-CONTINUING> 191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
