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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003
Commission file number: 000-23278 BRAZIL FAST FOOD CORP.  Delaware
    
    13-3688737(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 Av. Brasil
6431 - Bonsucesso
CEP 21040-360
Rio de Janeiro, Brazil N/A(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: 55 (21) 2564-4219 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange onTitle of each class
    
    which registered
    
    
 Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.0001 per share
(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. |  | Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |  | No |X|




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6 SELECTED FINANCIAL DATAITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS F OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 10. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - KSIGNATURESEXHIBIT INDEXREPORT OF INDEPENDENT PUBLIC ACCOUNTANTSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSec. 302 Certification by CEO & Acting CFOSec. 906 Certification by CEO & Acting CFO The aggregate market value of the voting common stock held by
non-affiliates of the Registrant, computed by referenced to the average bid and
asked price of such common stock, as of the last business day of the
Registrants most recently completed second fiscal quarter, was $1,389,434 as
of June 30, 2003. The number of shares outstanding of the Registrants common stock is
7,953,468 (as of April 8, 2004). Documents Incorporated By Reference Portions of the Registrants definitive proxy statement for its 2004
annual meeting of shareholders, which proxy statement will be filed no later
than 120 days after the close of the Registrants fiscal year ended December
31, 2003, are hereby incorporated by reference in Part III of this Annual
Report on Form 10-K.




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Unless
otherwise specified, all references in this report to Reais, the Real or R$ are to the Brazilian Ral (singular), or to the Brazilian Reais
(plural), the legal currency of Brazil, and U.S. Dollars or $ are to
United States Dollars. Unless otherwise specified, all financial statements
and other financial information presented herein are stated in R$ and are in
accordance with generally accepted accounting principles in the United States
(U.S. GAAP). 
 PART I 
 ITEM 1. BUSINESS Brazil Fast Food Corp., through its wholly-owned subsidiary, Venbo
Comercio de Alimentos Ltda., a Brazilian limited liability company that
conducts business under the trade name Bobs, owns and operates, directly and
through franchisees, the second largest fast food hamburger restaurant chain in
Brazil. As of December 31, 2003, we had 345 restaurants, or points of sale,
including 66 kiosks and trailers. The audit opinions of our independent public accountants contained
elsewhere in this report contain qualifications that, due to our recurring
losses from operations and our negative working capital position, there is
substantial doubt as to our ability to continue as a going concern. See Risk
Factors  Risk Relating to Operations and Managements Discussion and
Analysis of Financial Condition and Results of Operations for a further
discussion of these factors. We were incorporated in Delaware in 1992. Our executive offices are
located at Av. Brasil, 6431  Bonsucesso, CEP 21040-360, Rio de Janeiro,
Brazil. Our telephone number is 55 (21) 2564-6452. Recent Developments The year 2002 was marked by a general recession that affected the
Brazilian economy due, in part, to the economic problems in Argentina, as well
uncertainty over the future of the economy after the Brazilian presidential
elections that occurred in October 2002. Brazilian and foreigner investors
doubted whether the measures of the new president would create a more positive
economic environment, accordingly their investments were postponed. As a
consequence, during this period the Brazilian economy faced higher inflation
and higher interest rates, as well as significant devaluation of the Brazilian
Real and the U.S. Dollar. The 2003 begun with a great level of expectation for the new elected
president Luis Inacio Lula da Silva. From the beginning of this presidency,
the new president and his team of advisors focused on two important economic
issues taxes and social security reforms. As a result of the presidents
actions investors gained new confidence with the Federal Government and
inflation rates declined significantly and the Brazilian Real recovered its
exchange rate against the US Dollar. However, the monetary policies implemented
by the new administrations economic team did not differ significantly from
those of the previous one administration, and overnight interest rates, though
slightly reduced, remained high. The high unemployment rates that Brazil
faced in 2002 also remained relatively unchanged in 2003. In addition,
consumer spend was very low during 2003, and according to the Brazilian
Supermarket Association, a non-affiliated organization, retail sales were the
worst since 1991. These factors negatively affected the Brazilian economy and, in turn,
adversely affected our restaurant sales and the results of our operations in
both 2002 and 2003. See Risk FactorsRisks Relating to Brazil and
Managements Discussion and Analysis of Financial Condition and Results of
Operations for a further discussion of these factors. Restaurant Operations As of December 31, 2003, we had 345 points of sale, including 66 kiosks
and trailers. Of the 345 points of sale, we own and operate 60 and the
remaining 285 are franchises, which are each operated under the tradename
Bobs by a franchisee. For a description of our franchise program, see
Franchise Program. Approximately 210 of these points of sale are located in
Rio de Janeiro and São Paulo and the remaining points of sale are widely spread
throughout major cities in other parts of Brazil, except for three franchised
restaurants that opened in 1




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Portugal in November 2001. The largest number of franchised operations
outside of Rio and São Paulo are in Pernambuco, Santa Catarina, Pará, Bahia,
Espirito Santo and Brasilia. All points of sale serve a uniform menu of
hamburgers, chickenburgers, hot dogs, sandwiches, french fries, soft drinks,
juices, desserts and milk shakes. Selected points of sale also serve coffee
and/or beer. We are particularly known for our milkshakes and the special
spicing of our hamburgers. Our target clients are between the ages of 15 and
35 and come from all social groups. Historically, our points of sale have been distinguishable from other
fast food operations due to our unique service design whereby customers would
place and pay for their food on one line and pick up their food on another
line. Cooks would prepare orders as read to them by the counter service
representative who took the order. We have changed this two line system into a
single line system, which has improved both the quality and speed of service,
while retaining our cooked-to-order philosophy. This change has been made
possible by the deployment of software which facilitates communication between
counter personnel and the kitchen staff. Under this new system, as each order
is input by a service representative into a countertop terminal, it also
appears on a computer screen in the kitchen, thereby assuring that each
customer will receive his food rapidly while permitting us to retain
cooked-to-order offerings. Our points of sale are generally open all year round, seven days a week.
Historically, we have experienced increased sales each year during the
Brazilian summer months and during Brazils school holiday periods in the
months of December, January, February and July. We have also experienced
strong sales in December due to the Christmas holidays. Our points of sale 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 points of sale remain open for the
after hours crowd. Our points of sale are not generally open for breakfast,
as results of test-marketing that we conducted at various times during 1999 and
2000, which indicated that offering fast food breakfast is not economically
viable. Our prices are consistently positioned at the same levels as those for
comparable products offered by our major competitors. We attempt to maintain
the overall cost of our meals at levels competitive with lunch prices offered
by popular street snack bars known as lanchonetes. Originally, our points of sale were built as counter service facilities to
accommodate our initial primary clientele of teenagers. In keeping with our
current efforts to attract family-oriented customers, all of our points of sale
built since 1980 have included seating facilities. In addition, all of our
pre-1980 points of sale have now been renovated to update the decor, expand the
seating facilities and provide air conditioning. During 2001, we introduced a
new more modern and cheerful evolution of our logo and visible manifestations.
All new franchisees open their restaurants with this same decor, and most of
all existing restaurants were refitted with this décor during year 2003. This
style is carried through in the uniforms worn by our personnel, which are
occasionally modified to feature hats and shirts used in promotions. For the past several years, we have been the exclusive provider of
hamburgers and related items at two of Brazils largest special events  the
Rio de Janeiro Carnivale, the one week festive period which precedes the advent
of Lent, and the Formula One Automobile Racing Championships. In addition, our
food products are sold at other special events throughout Brazil, including
boat fairs, automobile fairs and State rodeos. Using custom constructed
trailers and moveable kiosks, we are able to offer most of our products at
temporary locations for the duration of each special event. In addition to
providing an additional revenue source, our visibility is enhanced by signage
that can be picked up via television coverage of the special event and by
reaching a consumer market where we may not have a permanent outlet. In
November 2001, our first foreign franchise was opened in Portugal pursuant to a
master franchise agreement, which provides for 30 franchises to be opened in
Portugal over the next ten years. The following table presents the openings and closings of both our owned
and operated restaurants and our franchised restaurants for the years ended
December 31, 2003, 2002 and 2001: 2




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YearsEnded December 31,2003
    
    2002
    
    2001Owned and operated restaurants (a):Opened during period
    
    
    
    
    
    
    1
    
    
    
    1Closed during period
    
    
    1
    
    
    
    1
    
    
    
    2Sold to franchisees
    
    
    4
    
    
    
    5
    
    
    
    3Bought from franchisees
    
    
    1
    
    
    
    
    
    
    
    1Open at end of period
    
    
    51
    
    
    
    55
    
    
    
    60Franchised restaurants (a):Opened during period
    
    
    33
    (b)
    
    
    46
    (c)
    
    
    40
    (d)Closed during period
    
    
    18
    
    
    
    5
    
    
    
    3Sold to us by our franchisees
    
    
    1
    
    
    
    
    
    
    
    1Open at end of period
    
    
    224
    
    
    
    210
    
    
    
    169Total Number of Restaurants of Sale
    
    
    275
    
    
    
    265
    
    
    
    229
    (a)
    
    Does not include trailers and kiosks used for temporary locations during
2003, 2002 and 2001.(b)
    
    Includes 1 of our owned and operated points of sale that was sold to a
franchisee during the year ended December 31, 2003.(c)
    
    Includes 5 of our owned and operated points of sale that were sold to a
franchisee during the year ended December 31, 2002.(d)
    
    Includes 3 of our owned and operated points of sale that were sold to a
franchisee during the year December 31, 2001. The average guest check per customer for our owned and operated points of
sale for the years ended December 31, 2003, 2002 and 2001 was R$6.73, R$6.06
and R$5.87, respectively. We strive to maintain quality and uniformity throughout both our owned and
operated and our franchised points of sale by publishing detailed
specifications for food products, food preparation, and service, by continuous
in-service training of employees and by field visits from our supervisors.
Quality control at each point of sale 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 our franchisees, a marketing manager in each of our
six primary geographic regions periodically reviews their operations and makes
recommendations to assist in the franchisees compliance with our
specifications. Our quality control inspectors are also sent periodically to each
restaurant, whether owned by us or by one of our franchisees, 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 Bobs is Brazils second largest fast food operation. Although many of
our major competitors have been experiencing operational and franchise
difficulties, we continue to add points of sale and improve our revenues. Our
primary goal is to continue to increase our network of points of sale in
Brazil, where we believe fast food is a developing market, and to gain market
share by entering city markets where we are under-represented. Brazils population of 169.8 million is the fifth largest in the world
(behind China, India, the United States and Indonesia). São Paulo, Brazils
largest city, has 10.4 million residents and a metropolitan area population of
17.9 million. The city of São Paulo is located within the state of São Paulo,
which has a population of 37.0 million. 3




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Rio de Janeiro, Brazils second largest city, has 5.9 million residents
and a metropolitan area population of 10.9 million. The city of Rio de Janeiro
is located within the state of Rio de Janeiro, which has a population of 14.4
million. Thirteen metropolitan areas, including those of Rio de Janeiro and
Sao Paulo, have populations in excess of one million. According to IBGE, a
non-affiliated consulting concern, in 2000 the average annual income of the
Brazilian population was as follows: Annual Income
    
    % of PopulationR$0 to R$3,264
    
    
    27.6
    %R$3,265 to R$8,159
    
    
    32.2
    %R$8,160 to R$16,319
    
    
    18.6
    %R$16,320 to R$32,639
    
    
    9.9
    %R$32,640 and above
    
    
    5.9
    %
 According to Media Data 98, another non-affiliated consulting concern,
the fast food market is one of Brazils fastest growing business segments,
which could exceed 60,000,000 customers. Based upon the foregoing, we believe
there is significant opportunity for sales growth in the Brazilian fast food
market. To capitalize on this opportunity, we intend to make capital
expenditures of R$3,000,000 in 2004 to refurbish old points of sale, install
new signage, upgrade our equipment and maintain the number of our company owned
and operated points of sale in Brazil at 60. We are also focusing our growth efforts on the development of new
franchises, especially in northern Brazil, where competition is not as intense
as in other urban areas. We will also seek to increase our number of
franchisees. We intend to enter into territory agreements with franchisees
which will require franchisees to commit to the development of several Bobs
points of sale in a particular region. We also intend to focus on developing
joint ventures with gasoline station retailers. See Franchise Program below
for a description of our franchise program and the terms of these joint
ventures. We expect to continue to capitalize on our 51-year history in Brazil. As
our operations are based almost exclusively in Brazil, we believe we have the
capacity to understand and respond to consumer taste preferences in developing
additional local markets and test marketing new products and concepts. We
intend to utilize our customized trailers and moveable kiosks to maximize our
ability to cater to special events and temporary markets, and also to test
certain markets on a temporary basis. We also anticipate taking advantage of
the continuing construction and development of shopping malls and supermarkets
in Brazil, where fast food can be a significant profit center. In 1999, we initiated a computer-based delivery system for telephonic food
and beverage orders. As of December 31, 2002, our telephonic order delivery
system had been installed in almost all of our 60 owned and operated points of
sale. At the end of 2003 we started to test out new call center in 9 of our
owned and operated stores and in 3 of our franchised stores. We intend to
introduce the call center to all of our stores (both franchised and owned and
operated) during 2004. Our call center will enable our customers to place an
order over the phone, which will order will then be directed to the nearest
restaurant location, irrespective of whether that location is one of our owned
and operated restaurants or a franchisee owned restaurant. Franchise Program As of December 31, 2003, 285 of our 345 points of sale were owned and
operated by franchises. In 2003, for the seven year in a row, Bobs received
the Quality Seal of the Brazilian Franchise Association and, for the second
consecutive year, 100% of our franchisees who were interviewed by the Brazilian
Franchise Association stated that they would purchase the franchise again. Our franchise agreements generally require the franchisee of a traditional
Bobs restaurant to pay us an initial fee of $30,000 and 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 us 4% of
monthly gross sales in cooperative advertising fees. Our typical franchise
agreement also provides that the franchisee has the right to use the Bobs 4




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trademark and formulas in a specific location or area and must use our
approved supplies and suppliers and must build each franchised outlet in
accordance with our specifications at approved locations. The term of the
majority of our franchise agreements is 10 years, with a few agreements having
5 year terms. Our existing franchise agreements have an average remaining
duration of approximately eight years. Historically, upon expiration a
franchise agreement is renewed without the interruption of the franchisees
business. We generally have no financing obligations with respect to these
franchise agreements. At present, approximately 9 months elapse between our initial contact with
a prospective franchisee and the opening of a franchised point of sale. 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 franchise agreement is signed, which, among other matters, requires
the prospective franchisee to pay us a non-refundable sum equal to 50% of the
initial franchising fee to partially compensate us for the cost of a
three-month training program to familiarize the prospective franchisee with our
operations. Following mutual agreement as to the site of a new restaurant, a
definitive franchise agreement is signed, outlining the obligations and
responsibilities of each party, including the franchising fees and promotion
commissions to be paid to us. The franchisee then begins a three-month
training program. Construction of the restaurant typically begins at the
beginning of the training program and is generally completed within three to
six months. The franchising fee is sufficient to cover all training expenses
we incur. In some instances, the franchise agreements that we have negotiated with
existing franchisees accommodate specific requirements and characteristics of
the franchisee. We have entered into territory agreements with franchisees
located in areas where we have determined that it is in our best interest to
establish two or more stores within a geographic region. The territory
agreements incorporate the same terms and conditions of our franchise
agreements, but also provide for the franchisee to commit to opening an
agreed-upon number and type of store within a specified time-frame. In a
limited number of instances, we may grant franchisees exclusive territorial
rights if we believe such grants would further the development of new market
opportunities. Under Brazilian law, we cannot dictate the price at which our franchisees
sell their products, although the prices charged by our franchisees generally
mirror the prices charged by our owned and operated points of sale. Individuals wishing to own and operate a Bobs franchise are required to
submit an application. A steering committee formed by our top management
receives formal franchising proposals and reviews them to determine which
applications should be accepted. In addition to our existing 141 franchisees
who, collectively, operated 285 points of sale, including 58 kiosks and 3
trailers, at December 31, 2003, we had signed final franchising contracts with
approximately 56 new franchisees to open and operate a like number of
additional points of sale, to be located in the states of Ceará, Rio de
Janeiro, Sao Paulo, Parana, Rio Grande do Sul, Pernambuco, Santa Catarina,
Sergipe, Bahia, Paraíba, Alagoas, Goias, and in the Federal District of
Brasilia. The majority of these additional points of sale will begin
operations in the first half of 2004. As part of our growth strategy, we have begun entering into franchise
agreements requiring the franchisee to commit to the development of a fixed
number of Bobs points of sale. We are also focusing on developing joint
ventures with gasoline retailers to house Bobs points of sale in retail
gasoline stations. We contemplate that substantially all of these new
restaurant/gas stations, or joint sites, although housed at gas stations,
will be built, owned and operated by our present and future franchisees and not
the gasoline retailer. We will then share a portion of the royalties received
from the franchisee of a particular joint site with its respective gasoline
retailer. In 2000, based on favorable testing of joint sites in 1999, we
entered into an agreement with Petrobras, one of the largest gasoline retailers
in Brazil, with approximately 7,000 locations, whereby Petrobras has agreed to
house a Bobs restaurant in 30 of its gas stations over the next two years.
Pursuant to this agreement, we and Petrobras will work together to select the
proper locations to open these joint sites. To date, eight joint sites have
been opened in Petrobras gas stations. We are currently testing several joint sites with other gasoline
retailers, including Shell, Forza, Ale, AGIP and Repsol. Our agreements with
each of these gasoline retailers do not establish a set number of joint sites
to be opened. These agreements, like our standard franchise agreements, merely
set forth conditions to establish a joint site and do not limit the number of
joint sites that may be opened under the agreement. To date, Shell has three
joint sites in operation, and we are negotiating an agreement with Shell to
house a specific number of other joint sites in 5




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certain approved locations. Forza, a gasoline retailer catering to the
taxicab industry, now has nineteen Bobs sites in operation, with the objective
of housing 20 joint sites in total. Alé, another gasoline retailer, has two
joint sites, and we have an agreement with Alé to create a number of multiple
joint sites. In our first effort to expand our Bobs brand beyond Brazil, we entered
into a master franchisee agreement in 2000 to open franchised points of sale in
Portugal. This agreement requires the master franchisee to open 30 Bobs
retail points of sale over a 10-year period, of which no less than 5 must be
owned and operated by the master franchisee and the remaining may be owned and
operated by the master franchisees subfranchisees. The master franchisee will
assume financial responsibility for marketing the Bobs brand in Portugal.
Pursuant to this agreement, which contains substantially the same operational
guidelines as our standard Brazilian franchise agreement, the master franchisee
agreed to pay us a master franchisee fee of $200,000 minus the costs related to
registering the trademark Bobs in Portugal. In addition, we will receive
33%, or at least $10,000, of the initial fees charged to the Portuguese
franchisees by the master franchisee. The agreement provides that we will
receive from the master franchisee initial fees in the amount of $16,000 for
each of the five stores to be opened and operated by the master franchisee.
The master franchisee also agreed to pay us 20% of royalty fees charged to the
Portuguese franchisees. The first Portuguese franchise under this agreement
opened in November 2001, and two more were opened in 2002. During 2003, two of
our three stores in Portugal were closed. Currently, we are reevaluating our
operations in Portugal, and depending upon the results of our reevaluation we
may decide to curtail or altogether forego any further expansion in Portugal. We generally retain a right of first refusal in connection with any
proposed sale of a franchisees interest. Advertising and Promotions We utilize television, radio, outdoors and a variety of promotional
campaigns to advertise our products. We also use colorful cardboard boxes
imprinted with the Bobs symbol for our premium sandwich offerings, replacing
paper bags, thereby enhancing our quality image. In 2001, we updated our logo,
and at the end of 2003 most of all of our points of sale were using such logo. We are constantly seeking to expand the breadth and quality of our product
offerings:  
    
    In 1997, we launched a new line of chicken products in an
effort to capitalize upon customers requests for health-oriented
food offerings; one of these products, a chicken steak sandwich, has
become one of our best selling offerings.
    
    In 1998, we launched the Bobs Dog, an extra-large hot dog
with two different sauces.
    
    In 1999, we introduced a chocolate mousse pie dessert; bacon
was also added as an option to all of our sandwich offerings.
    
    In 2000, we introduced a cheese, ham and egg sandwich and a
hot fudge topped ice cream sundae; we also introduced our MEGA
sized sandwiches and combination meals.
    
    In 2001, we introduced chicken nuggets; we also introduced a
new sandwich offering of bacon, egg and cheese.
    
    In 2002 we introduced a 120 gram barbecue tasting hamburger
with barbecue sauce and a prune sundae and milkshake, as well as a
hamburger with cheddar cheese on a whole-wheat bun.
    
    In 2003 we launched a 120 gram turkey tasting hamburger. We
also extended our healthy-oriented menu, by introducing salad meals
combined with any choice of our hamburger offerings. We work together with our advertising agency to annually develop a
multi-media marketing program to advertise our restaurant network in our main
markets. During 2003 we advertised our products mainly through 6




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outdoor advertising and city buses. We also periodically run television
and radio commercials Temporary product discounts are offered in Rio de Janeiro
and Sao Paulo through radio and television advertising several times a year.
During 2003 we sponsored Botafogo de Futebol e Regatas, one of the most
traditional soccer teams in Brazil, in the Brazilian soccer league. 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. We also offer a kids meal, which
includes three food items and a small packaged toy. Certain of our points of
sale offer special services for childrens birthday parties and also feature
appearances by Bobi, our mascot. All these programs are reinforced by visual
tools, such as banners, posters and place mats. We keep franchisees informed of current advertising techniques and
effective promotions and make our advertising materials available to our
franchisees. Our franchisees are generally required to pay us 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. We commit approximately 4% of our system-wide gross sales to
marketing activities. We are a participant in a joint retail marketing effort initiated in 1998
in Rio de Janeiro, together with Shell, Lojas Americanas (one of the biggest
department store chains in Brazil) and Sendas (one of the biggest supermarket
chains in Brazil), of memberships in Smart Club, which offers special
premiums to repeat customers. This program, which has been expanded to
encompass other areas of Brazil, is ongoing. We intend are increase our marketing efforts in Sao Paulo in an effort to
capitalize upon our increasing number of stores in the number one city market
of Brazil. Sources of Supply We and our franchisees have not experienced any material shortages of
food, equipment, fixtures, or other products which are necessary to restaurant
operations. We anticipate no such shortages of products and, in any event,
believe that alternate suppliers are available. We purchase food products and packaging from numerous independent
suppliers. In selecting and periodically adjusting the mix of our suppliers,
we assess and continuously monitor the efficiency of their regional and
national distribution capabilities. To take advantage of volume discounts, we
have entered into centralized purchasing agreements. Food products are ordered
by, and delivered directly to each point of sale. Billing and payment for our
company owned and operated points of sale are handled through the centralized
office, while franchisees handle their own invoices directly. Packaging and
durable goods are delivered to a centralized warehouse operated by a
non-affiliated person, which delivers supplies to each of our points of sale.
This centralized purchasing helps assure availability of products and provides
quantity discounts, quality control and efficient distribution. We participate in joint promotion and marketing programs with Coca-Cola
for its soft drink products and with Novartis Nutricion for its Ovomaltine
chocolate, as well as with Mate Leao for a popular Brazilian brand of iced tea.
Pursuant to a 1996 agreement with a Brazilian subsidiary of Coca-Cola, we
agreed to sell, on an exclusive basis, Coca-Cola soft drink products in our
restaurants until 2006 in exchange for $4,000,000. This agreement was amended
in 2000 to extend the exclusivity period to 2008. Trademarks We believe that our trademarks and service marks, all of which are owned
by us, are important to our business. Our trademarks and service marks have been registered in the Brazilian
trademark office. These trademarks and service marks expire at various times
from 2005 to 2012, when they are routinely renewed. The following table sets
forth our significant trademarks and service marks that are registered in the
Brazilian trademark office: 7




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##### Table of Contents



Trademark or Service Mark
    
    Expiration DateBob's
    
    June 4, 2012Tri kids
    
    May 15, 2008Bob's Burgão
    
    May 1, 2005Bobi
    
    May 1, 2005Bob's Double Cheeseburger
    
    October 24, 2010Franfilé
    
    November 23, 2009Big Bob
    
    January 5, 2012
 Renewals of these trademarks and service marks generally have been
obtained prior to their expiration. We have begun the process of registering
the Bobs trademark in Portugal and we have a temporary license to use the
trademark in our franchised points of sale prior to such registration. Competition In terms of the number of points of sale, we are the second largest
hamburger food service organization in Brazil. Each of our restaurants is in
competition with other food service operations within the same geographical
area. We compete 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 several articles which have appeared in independent Brazilian
newspapers and periodicals, we believe that we and McDonalds are the market
leaders in the hamburger fast food business in Rio de Janeiro and São Paulo.
As of December 31, 2002 and 2001 McDonalds had approximately 1,254 (584
restaurants and 670 kiosks) and 1,174 (568 restaurants and 606 kiosks)
Brazilian points of sale, respectively. As of the date of this Annual Report,
McDonalds did not disclose the number of their points of sale as of December
31, 2003; however McDonalds recently stated in a newspaper article published in
an independent Brazilian newspaper that they had closed 35 restaurants ending
the year 2003 with 549 restaurants. As of December 31, 2003, 2002 and 2001
Pizza Hut had 62 fast food pizza points of sale in Brazil. Dominos Pizza had
31 points of sale in Brazil as of December 31, 2002 and 23 and 20 points of
sale as of December 31, 2002 and 2001, respectively. Arbys closed all points
of sale in Brazil during 1999. Habibs, a Middle Eastern fast food chain, had
approximately 200 points of sale in Brazil as of December 31, 2003 and 2002 and
170 as of December 31, 2001. Our competitive position is enhanced by our use of fresh ground beef and
special flavorings, made-to-order operations, comparatively diverse menu, use
of promotional products, wide choice of condiments, atmosphere and decor of our
restaurants and our relatively long history in Brazil. We believe that the use
of moveable trailers and kiosks, which are not utilized by our competitors,
affords us an advantage over our competitors. We also believe that, as a
Brazilian-based company, we have the advantage over our non-Brazilian
competitors of being able to readily understand and respond to local consumer
preferences. Personnel As of December 31, 2003, we, including our franchisees, employed 8,785
persons (6,544 in 2002), of whom 1,546 (1,596 in 2002) were employed in our
owned and operated restaurants. The total number of full-time employees as of
December 31, 2003 was 1,660 (1,704 in 2002) of which 260 (98 in 2002) were
temporary personnel. Our employee relations historically have been satisfactory. We are not a
party to any collective bargaining agreements. However, we have agreed to be
bound by the terms, as they may be applicable to our employees, of agreements
negotiated on a city-by-city basis by trade associations of hotel, restaurant
and fast food owners and operators, of which we are a member. 8




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FORWARD LOOKING STATEMENTS This Annual Report contains forward-looking statements including
statements regarding, among other items, business strategy, growth strategy and
anticipated trends in our business, which are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
The words believe, expect and anticipate and similar expressions identify
forward-looking statements, which speak only as of the date the statement is
made. These forward-looking statements are based largely on our expectations
and are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond our control. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this report,
including those set forth in Risk Factors, describe factors, among others,
that could contribute to or cause such differences. In light of these risks
and uncertainties, there can be no assurance that the forward-looking
information contained in this Annual Report will in fact transpire or prove to
be accurate. Investors are cautioned that such forward looking statements
involve risks and uncertainties including without limitation the following: Risks Relating to Operations  
    
    We have a history of significant net losses, and we may not be
profitable in the future; we may need to seek the forbearance of
creditors in the future. We incurred net losses of R$4,118,000, R$11,210,000 and R$ 8,250,000 for
the years ended December 31, 2003, 2002 and 2001, respectively. Our
accumulated deficit at December 31, 2003 was R$ 63,732,000 and our working
capital deficit at such date was R$ 5,882,000. There is no assurance that our
future operations will become profitable. We may continue to report net losses
for the foreseeable future, which could adversely affect our ability to service
our debt or finance our business operations in the future. In order to sustain our operations, we have, in the past, been dependent
upon the continued forbearance of our creditors. While we are currently in
full compliance with all covenants under agreements with our creditors, there
can be no assurance that we will not be forced to seek the forbearance of our
creditors in the future.  
    
    Our independent auditors report raises uncertainties about our
ability to continue as a going concern; need for additional financing. The reports of Grant Thornton, the independent auditors of our
consolidated financial statements for the years ended December 31, 2003, 2002
and 2001, recites that our recurring losses from operations and negative
working capital raise substantial doubt about our ability to continue as a
going concern. Our plans to continue as a going concern, discussed elsewhere
in this report, focus on efforts to raise additional capital and increase our
cash flow. We are currently working to evaluate strategic alternatives that
will enable us to obtain the funds necessary to continue our business
operations. At this time, we cannot state with any degree of certainty whether
such funding will be available to us and, if available, that the source of such
funding would be available on terms and conditions acceptable to us. Any
potential sources of additional financing may be subject to business and
economic conditions outside of our control. If we do not obtain the funds we
need to pay our debt obligations or operating expenses, we may need to curtail
our operations or we may be forced to evaluate other alternatives to continuing
our present operations. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources.  
    
    The composition of our board of directors is controlled by the
parties to a stockholders agreements, which restrict our ability to
direct certain aspects of our business and operations On August 11, 1997 we entered into a stockholders agreement (the 1997
Stockholders Agreement) with AIG Latin America Equity Partners, Ltd.,
referred to herein as AIGLAEP, and our then executive officers and directors,
and certain of their affiliates as a condition to the closing of a stock
purchase agreement with AIGLAEP, 9




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pursuant to which AIGLAEP purchased 375,000 shares of our common stock and
warrants to purchase 62,500 shares of our common stock. Pursuant to the terms of the 1997 Stockholders Agreement, each of the
parties to the agreement agreed, among other things, to vote their respective
shares of our common stock to elect as directors one designee of AIGLAEP, two
designees of Shampi Investments A.E.C., two designees of Lawrence Burstein and
certain other of our former executive officers and directors, and one designee
of BigBurger Ltda. The 1997 Stockholders Agreement provides that if we fail to achieve 75%
of our projected cumulative EBITDA (earnings before interest, taxes,
depreciation and amortization), as set forth in the 1997 Agreement, for each of
the periods from January 1, 1997 to December 31, 1999, 2000 or 2001,
respectively, AIGLAEP could appoint such number of its designees which,
together with an expansion of the board and the filling of vacancies created by
the resignation of certain directors serving at such time, would then
constitute a majority of our board of directors, thereby effecting a change in
our control. We failed to achieve the performance targets for year ended December 31,
2000. Following negotiations with AIGLAEP, the 1997 Stockholders Agreement
was amended on March 14, 2001, to provide, among other things, for the
suspension, until the completion of our audited financial statements for the
year ended December 31, 2002, of AIGLAEPs right to appoint a majority of our
board of directors. In partial consideration of AIGLAEPs agreeing to the
suspension and possible termination of its right to take control of our board
and certain of its prior approval rights, we issued to AIGLAEP warrants to
purchase 35,813 shares of our common stock at an exercise price of $5.00 per
share and reduced the exercise price of additional warrants to purchase 64,187
shares of our common stock held by AIGLAEP to $5.00 per share. Further,
certain of our shareholders agreed to grant AIGLAEP an option to purchase an
aggregate of 40,000 shares of our common stock held by such shareholders (and
among them as they shall agree) at an exercise price of $1.50 per share. The amendment to the 1997 Stockholders Agreement provides that if certain
economic performance targets, based on our results of operations for the year
ending December 31, 2002 and set out in the amendment to the 1997 Stockholders
Agreement, are met, or if AIGLAEP at any time owns less than 187,500 issued and
outstanding shares of our common stock, subject to any adjustments for any
stock split or restructuring, AIGLAEPs right to take control of our board of
directors and certain of its prior approval rights will terminate. If,
however, we fail to meet these performance targets, our chief executive officer
must promptly resign and our board of directors will be required, except as
limited by their fiduciary obligations, to adopt recommendations for improving
our financial performance as may be proposed by a committee of the board of
directors composed of representatives of AIGLAEP and certain other investors
who purchased our equity securities in a private offering in March 2001. As reflected in the financial statements contained elsewhere in this
report, we failed to meet the original performance targets for the year ended
December 31, 2002. However, the amendment to the 1997 Stockholders Agreement
contains a provision that requires the parties to renegotiate the performance
targets in good faith in the event that (i) the Brazil SELIC central bank rate
exceeds an average of 18% for a continuous period of ninety business days or
(ii) there is a devaluation of the Brazilian Real against the US dollar
exceeding 10% over any three-month period. Both such events have occurred
since the amendment. However, due to the fact that the AIGLAEP has not
accepted our invitation to renegotiate the performance targets in good faith,
we believe that the performance targets are inapplicable. On May 15, 2002, we entered into an additional stockholders agreement
(the 2002 Stockholders Agreement) with Gustavo Figueredo Bomeny and CCC
Emprendimentos e Participacoes Ltd. (the New Investors) and certain of our
current investors, namely BigBurger Ltda., Jose Ricardo Bousquet Bomeny, Omar
Carneiro da Cunha, Seaview Venture Group, Peter van Voorst Vader and Shampi
Investments A.E.C., as a condition to the closing of a stock purchase agreement
with the New Investors, pursuant to which the New Investors purchased 3,700,000
shares of our common stock. Pursuant to the terms of the 2002 Stockholders Agreement, each of the
parties to the agreement agreed, among other things, to vote their respective
shares of our common stock to elect as directors one designee of Omar Carneiro
da Cunha, one designee of Lawrence Burstein, one designee of BigBurger Ltda.
and two designees of the 10




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New Investors. The 2002 Stockholders Agreement, by its terms, is subject
to the terms of the 1997 Stockholders Agreement.  
    
    Our success depends on our ability to compete with our major
competitors in the fast food industry The success of our business is dependent upon our ability to compete with
other restaurants and fast food chains. To compete, we may be required to
spend significant funds on marketing and promotions and on developing and
offering new products, while maintaining the prices we charge our customers.
Many of our competitors, like McDonalds, have vastly greater over-all
financial and other resources available to them than we do. We may not have
the resources necessary to compete effectively, which may cause consumers to
prefer the products of our competitors. As a result, we could experience a
decrease in revenues which would have an adverse impact on our business and
operations.  
    
    The fast food industry may be adversely affected by current value
pricing trends In order to remain competitive, we are 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. There can
be no assurance that the use of value pricing strategies will stop. If
companies were to continue to implement value pricing, we may be forced to
reduce our sales prices or maintain our prices and perhaps lose customers,
either of which would cause a reduction in our revenues.  
    
    Our future success is dependent upon the success and expansion of
our franchise program A portion of our revenues are attributable to the fees we collect from our
franchisees. To improve our revenues in the future, we have developed a growth
strategy that includes increasing our number of franchised points of sale.
This growth strategy is substantially dependent upon our ability to attract,
retain and contract with qualified franchisees and the ability of these
franchisees to open and operate their Bobs points of sale successfully. In
addition, our continued growth will depend in part on the ability of our
existing and future franchisees to obtain sufficient financing or investment
capital to meet their market development obligations. If we experience
difficulty in contracting with qualified franchisees, if franchisees are unable
to meet their development obligations or if franchisees are unable to operate
their points of sale profitably, the amount of franchise fees paid to us by our
franchisees would decrease and our future operating results could be adversely
affected.  
    
    We are subject to extensive regulatory requirements applicable to
the food service industry Both we and our 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
our or our franchisees failure to comply with applicable regulations could
interrupt the operations of the affected restaurant and inhibit our or their
ability to sell products. Both we and our franchisees are also subject to
Brazilian federal labor codes, which establish minimum wages and regulate
overtime and working conditions. Changes in such codes could result in
increased labor costs that could cause a reduction in our operating income. We
are also subject to Brazilian federal franchising laws applicable to franchise
relationships and operations. Changes in these or any other regulations may
contain requirements that impose increased burdens on our business, which may
adversely affect our results of operations. We cannot assure you that we will
be able to deal successfully with any potential new or amended regulations. Risks Relating to Brazil  
    
    Our operations are subject to changes in Brazils economy In March 1994, the Brazilian government introduced an economic
stabilization program, known as the Real Plan, intended to reduce the rate of
inflation by reducing certain public expenditures, collecting liabilities 11




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owed to the Brazilian 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 that year. The Real Plan
resulted in a substantial reduction in Brazils rate of inflation, which
declined from 2,489.11% per annum in 1993 to 8.7% per annum in 2003. With the
exception of a few months in 1999, the Real Plan also caused the exchange rate
between the Real and the U.S. Dollar to remain relatively stable from 1994 to
2000. Although Brazils economy was expected to expand from 2001 onwards, a
number of factors limited this expansion, including the
September 11th terrorist attacks in New York City and Washington, D.C., economic problems in
Argentina, the increased cost of debt in Brazil, the devaluation of the Real
against the U.S. Dollar and an energy crisis in Brazil that caused the
Brazilian federal government to implement electricity rationing, and resulted
in a rate of inflation of 10.4% and a 18.7% devaluation of the Real against the
U.S. Dollar for the year ended December 31, 2001. To reduce inflation, the
Central Bank of Brazil increased interest rates by over 18% for the year ended
December 31, 2001. The instability in the Brazilian economy continued during
2002, principally due to speculation on the Brazilian presidential crisis and
the ongoing economic weakness in the United States, resulting in a rate of
inflation of 25.3% and a devaluation of 52.3% for the year ended December 31,
2002. Although the inflation rate declined to 8.7% during the year 2003, the
economic stabilization program remains incomplete during the tenth year of the
Real Plan. There can be no assurance that changes or additions to this
economic program will be any more successful than previous programs in reducing
inflation over the long term. Accordingly, periods of substantial inflation
may continue to have significant adverse effects on the Brazilian economy,
interest rates and on the value of the Real. These adverse effects could cause
our costs and expenses to increase. If we are not able to counteract these
increased costs and expenses by increasing our sales prices, we may experience
lower demand for our products and a decline in revenues.  
    
    Currency fluctuations between the Real and the U.S. Dollar will
have a direct impact on our financial condition and our results of
operations Fluctuations in the exchange rates between the Brazilian Real and the U.S.
Dollar have a significant impact on our financial condition and our results of
operations. For example, financing costs on our U.S. Dollar-denominated debt,
which are paid by us with Reais, would increase substantially as the Real
devalues against U.S. Dollars. Similarly, most of the products and raw
materials we purchase are, or contain, commodities that are denominated in U.S.
Dollars, such as plastic cups, bread (which includes wheat grown in the United
States), meat and chicken. Our costs to purchase these products and raw
materials rise significantly when the Reais used to pay for them must be
converted into U.S. Dollars using the current exchange rate. If we cannot
raise our selling prices to accommodate increases in the cost of these products
and raw materials, our profit on these products and raw materials will
decrease.  
    
    Our business may be affected by political and constitutional
uncertainty in Brazil 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-elect in 1985 and the
resignation of another president in 1992 in the midst of impeachment
proceedings, as well as rapid turnover at and immediately below the cabinet
level, have adversely affected the implementation of consistent economic and
monetary policies. 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. 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. Mr. Fernando Henrique Cardoso,
who was re-elected to a second four-year term as president in October 1998,
continued to pursue the adoption of free market and economic liberalization
measures similar to those undertaken prior to his re-election. Mr. Luiz Inácio
Lula da Silva was elected president in October 2002, and his four-year term
began in 2003. There can be no assurance that economic policies initially
adopted by Mr. Lula da Silva will continue to be pursued, or if adopted, that
they will be successful. Failure to adopt economic reform measures could
adversely impact Brazils economy and inhibit our ability to sell products,
which could impair our results of operations. 12




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
    
    Controls on foreign investments may limit our ability to receive
capital from our Brazilian operating subsidiary Brazil generally requires the registration of foreign capital invested in
Brazilian markets or businesses. Thereafter, any repatriation of the foreign
capital, or income earned on the foreign capital investment, must be approved
by the Brazilian government. In the past, the Brazilian government has also
imposed temporary restrictions on foreign capital remittances abroad when
Brazils foreign currency reserves decline significantly. Although approvals
on repatriation are usually granted and we know of no current restrictions on
foreign capital remittances, there can be no assurance that in the future
approvals on repatriation will be granted or restrictions or adverse policies
will not be imposed. If the Brazilian government delays or refuses to grant
approval for the repatriation of funds or imposes restrictions on the
remittance of foreign capital, the ability of our Brazilian operating
subsidiary, Venbo Comercio de Alimentos Ltda., to transfer cash from our
operations out of Brazil may be limited, which would prevent us from paying our
non-Brazilian debts and accounts payable. Any defaults on these obligations
may cause the acceleration of such obligations or require us to pay penalties. Risks Relating to Our Common Stock  
    
    Our common stock has been delisted from The Nasdaq SmallCap Market Our common stock was delisted from The Nasdaq SmallCap Market on March 11,
2002. As a result, our common stock is now quoted on the OTC Bulletin Board,
which may further reduce the already thin trading market of our common stock.
In addition, the delisting from The Nasdaq SmallCap Market may significantly
impair our ability to raise additional funds to operate our business. Availability of Reports and Other Information We make available, free of charge, copies of our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy
Statement on Schedule 14A and amendments to those materials filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934
after we file electronically such material with, or furnish it to, the United
States Securities and Exchange Commission (the Commission). Persons wanting
copies of such reports may send us their requests in writing at Brazil Fast
Food Corp. Av. Brasil, 6431  Bonsuecesso, CEP 21040-360, Rio de Janeiro,
Brazil, Attention Corporate Secretary. In addition, such reports are available
on the Commissions website located at www.sec.gov. The Commission makes
available on this website, free of charge, reports, proxy and information
statements, and other information regarding issuers, such as us, that file
electronically with the Commission. Additionally, our reports, proxy and
information statements may be read and copied at the Commissions public
reference room at 450 Fifth Street, NW, Washington, DC 20549. 
 ITEM 2. PROPERTIES All of our restaurants currently in operation, excluding kiosks and
movable trailers, have been built to our specifications as to exterior style
and interior decor, are either in a strip of stores on a neighborhood street or
in mall food court points of sale, with some free-standing, one-story
buildings, and are substantially uniform in design and appearance. They are
constructed on sites ranging from approximately 1,100 to 7,500 square feet,
free-standing points of sale. Most are located in downtown areas or shopping
malls, are of a store-front type and vary according to available locations but
generally retain standard signage and interior decor. We own the land and buildings for 9 points of sale, 5 of which are
presently leased to franchisees. In addition, we own the land and the
buildings located on the land for 4 points of sale, and we also have leases for
56 points of sale. Our land and building leases are generally written for
terms of five years with one or more five-year renewal options. In certain
instances, we have the option to purchase the underlying real estate. Certain
leases require the payment of additional rent equal to the greater of a
percentage (ranging from 1% to 10%) of monthly sales or specified amounts. Our corporate headquarters are located in premises at Avenida Brasil,
6431-Bonsucesso, CEP 21040-360, Rio de Janeiro, Brazil, which Venbo acquired in
1995. 13




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ITEM 3. LEGAL PROCEEDINGS In 1999, we commenced court actions to defer payment of R$11,444 million
past due taxes to Brazilian state and federal taxing authorities. These
actions, which were filed pursuant to procedures enacted under Brazilian law
specifically to challenge the payments of taxes in arrears and to seek a
deferred payment schedule, were intended to extend payments on past due taxes
and reduce financing interest charges. During 2000 and 2002, we reached
agreements with the state authorities and obtained the right to fulfill our
outstanding state tax obligation by making payments over a ten-year period, as
indexed to Brazils Unidade Fiscal de Referencia, which is currently 12.0% per
annum. Consequently, we withdrew the legal action. During 2000 and 2003, we
also applied and were accepted to join tax amnesty programs offered by the
Brazilian federal government and withdrew our action regarding the federal
taxes. Under those federal tax amnesty programs, we may fulfill our
outstanding federal tax obligation by making monthly installment payments equal
to 1.5% of our gross sales, with interest accruing at rates set by the
Brazilian federal government, which are currently set at 10.5% per year. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations for a further discussion of these matters. In 2001, we initiated a court action to seek a judicial determination that
our equipment lease financing agreements should not have their respective
principal amounts indexed to the US dollar, but instead stated in Brazilian
reais bearing interest at 12% per annum. While awaiting the courts
determination, we have deposited all installment payments due under our lease
financing agreements with the court in reais, inclusive of 12% per annum
interest. In the event that we have an unfavorable outcome in the litigation,
we would be required to pay R$1,897,000, in addition to the R$1,246,000
previously deposited with the court. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth
quarter of 2003. 
 PART II 
  ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Our common stock is quoted on OTC Bulletin Board under the symbol
BOBS.OB. Prior to March 11, 2002, our common stock was quoted on The Nasdaq
SmallCap Market. There is a limited public trading market for our common
stock. The following table sets forth the range of the high and low bid
quotations for our common stock for the periods indicated: Common StockThree Months Ended
    
    High
    
    LowMarch 31, 2003
    
    
    .80
    
    
    
    .20June 30, 2003
    
    
    .51
    
    
    
    .25September 30, 2003
    
    
    .43
    
    
    
    .32December 31, 2003
    
    $
    .39
    
    
    
    .20March 31, 2002
    
    $
    1.60
    
    
    
    .30June 30, 2002
    
    
    .60
    
    
    
    .22September 30, 2002
    
    
    .45
    
    
    
    .17December 31, 2002
    
    
    .35
    
    
    
    .23
 14




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The above quotations represent prices between dealers, without retail
markup, markdown or commission. They do not necessarily represent actual
transactions. As of December 31, 2002, there were 101 recordholders of our
common stock. We have never paid or declared cash dividends on our common stock, and we
currently intend to retain any future earnings for the development of our
business. Therefore, we do not anticipate paying any cash dividends in the
foreseeable future. Brazil generally requires the registration of foreign capital invested in
Brazilian markets or businesses. Thereafter, any repatriation of the foreign
capital, or income earned on the foreign capital investment, must be approved
by the Brazilian government. In addition, the Brazilian government may also
impose temporary restrictions on foreign capital remittances abroad if Brazils
foreign currency reserves decline significantly. Although approvals on
repatriation are usually granted and we know of no current restrictions on
foreign capital remittances, our payment of dividends would be subject to these
limits if the Brazilian government delays, imposes these restrictions on, or
does not approve, the transfer by our Brazilian operating subsidiary, Venbo
Comercio de Alimentos Ltda., of funds out of Brazil for the payment of
dividends to our non-Brazilian shareholders. See Risk Factors  Risks
Relating to Brazil. Our ability to declare dividends is subject to the prior written approval
of AIG Latin America Equity Partners, Ltd., or AIGLAEP, pursuant to the terms
of the 1997 Stockholders Agreement, as amended on March 14, 2001. AIGLAEPs
prior right of approval expires if we meet certain performance criteria for the
two-year period ended December 31, 2002, as set forth in the amendment to the
1997 Stockholders Agreement. Our payment of dividends is also restricted under the terms of the
documents governing our lines of credit and other notes payable. Equity Compensation Plans The following table give information about our common stock that may be
issued upon the exercise of options, warrants, and right under all existing
equity compensation plans as of December 31, 2003. EQUITY COMPENSATION PLAN INFORMATION Number Of SecuritiesRemaining Available ForNumber Of Securities
    
    Weighted-Average
    
    Future Issuance UnderTo Be Issued Upon Exercise
    
    Exercise Price Of
    
    Equity CompensationOf Outstanding Options,
    
    Outstanding Options,
    
    Plans (excluding securitiesWarrants And Rights
    
    Warrants And Rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
(1)
    
    
    1,131,226
    
    
    
    R$3.37
    
    
    
    476,062Equity compensation
plans not approved
by security holders
(2)
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    1,131,226
    
    
    
    R$3.37
    
    
    
    476,062
 
 ITEM 6 SELECTED FINANCIAL DATA The following selected consolidated financial data has been derived from
our audited financial statements and should be read in conjunction with our
consolidated financial statements, including the accompanying notes, and
Managements Discussion and Analysis of Financial Condition and Results of
Operations, appearing elsewhere in this Annual Report. 15




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2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands, except share data)Statement of Operations Data:NET OPERATING REVENUES:Restaurant sales
    
    
    60,466
    
    
    
    63,562
    
    
    
    68,397
    
    
    
    63,775
    
    
    
    56,370Franchise income
    
    
    6,663
    
    
    
    5,116
    
    
    
    4,099
    
    
    
    3,134
    
    
    
    2,343Other income
    
    
    10,960
    
    
    
    7,632
    
    
    
    6,483
    
    
    
    4,884
    
    
    
    3,667TOTAL NET OPERATING REVENUES
    
    
    78,089
    
    
    
    76,310
    
    
    
    78,979
    
    
    
    71,793
    
    
    
    62,380COSTS AND EXPENSES:Cost of restaurant sales
    
    
    23,754
    
    
    
    25,333
    
    
    
    27,541
    
    
    
    24,560
    
    
    
    21,715Restaurant payroll and other employee benefits
    
    
    13,688
    
    
    
    13,061
    
    
    
    13,106
    
    
    
    12,329
    
    
    
    12,660Restaurant occupancy and other expenses
    
    
    7,569
    
    
    
    8,043
    
    
    
    8,174
    
    
    
    6,963
    
    
    
    6,755Depreciation and amortization
    
    
    3,355
    
    
    
    3,774
    
    
    
    3,966
    
    
    
    3,610
    
    
    
    3,489Other operating expenses
    
    
    15,229
    
    
    
    13,161
    
    
    
    14,225
    
    
    
    11,951
    
    
    
    8,534Selling expenses
    
    
    6,359
    
    
    
    4,805
    
    
    
    5,906
    
    
    
    5,759
    
    
    
    5,127General and administrative expenses
    
    
    8,670
    
    
    
    9,428
    
    
    
    6,598
    
    
    
    6,111
    
    
    
    6,518Impairment of assets and Net Result of assets sold
    
    
    156
    
    
    
    1,661
    
    
    
    122
    
    
    
    20
    
    
    
    TOTAL COSTS AND EXPENSES
    
    
    78,780
    
    
    
    79,266
    
    
    
    79,638
    
    
    
    71,303
    
    
    
    64,798INCOME (LOSS) FROM OPERATIONS
    
    
    (691
    )
    
    
    (2,956
    )
    
    
    (659
    )
    
    
    490
    
    
    
    (2,418
    )INTEREST INCOME
    
    
    257
    
    
    
    15
    
    
    
    
    
    
    
    1
    
    
    
    16INTEREST EXPENSE
    
    
    (3,274
    )
    
    
    (4,834
    )
    
    
    (5,922
    )
    
    
    (3,418
    )
    
    
    (5,046
    )FOREIGN EXCHANGE (LOSS) GAIN
    
    
    (410
    )
    
    
    (3,435
    )
    
    
    (1,669
    )
    
    
    (424
    )
    
    
    (3,453
    )NET LOSS
    
    
    (4,118
    )
    
    
    (11,210
    )
    
    
    (8,250
    )
    
    
    (3,351
    )
    
    
    (10,901
    )BASIC AND DILUTED NET LOSS PER
COMMON SHARE
    
    
    (0.55
    )
    
    
    (1.96
    )
    
    
    (2.27
    )
    
    
    (1.04
    )
    
    
    (3.37
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING BASIC AND DILUTED
    
    
    7,552,363
    
    
    
    5,707,957
    
    
    
    3,626,626
    
    
    
    3,235,290
    
    
    
    3,235,290Balance Sheet Data (End of Period):WORKING CAPITAL DEFICIT
    
    
    5,882
    
    
    
    14,238
    
    
    
    18,717
    
    
    
    14,807
    
    
    
    11,560TOTAL ASSETS
    
    
    35,805
    
    
    
    36,984
    
    
    
    39,777
    
    
    
    41,694
    
    
    
    39,410ACCUMULATED DEFICIT
    
    
    (63,732
    )
    
    
    (59,614
    )
    
    
    (48,404
    )
    
    
    (40,154
    )
    
    
    (36,803
    )TOTAL SHAREHOLDERS EQUITY
    
    
    (5,103
    )
    
    
    (1,510
    )
    
    
    1,217
    
    
    
    5,538
    
    
    
    8,963
 
 ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS F OPERATIONS The following discussion should be read in conjunction with Item 6.
Selected Financial Data and our consolidated financial statements and related
notes appearing elsewhere in this Annual Report. Overview Over the last six years, we have endeavored to reduce our operating costs,
to increase our product offerings, to improve our image to our customers, to
continuously develop and implement promotional campaigns and to steadily
increase our restaurant network and franchise base. As a result, we have
experienced improve in our operating results. Due primarily to
macro-economical factors that have caused reductions in consumer spending as 16




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well as sharp devaluations of the Real against the U.S. Dollar and
increases in interest rates charged on our obligations, we have been unable to
be profitable. These factors include the following: 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.
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. 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. Mr. Fernando Henrique Cardoso, who was re-elected to a second
four-year term as president in October 1998, continued to pursue the adoption
of free market and economic liberalization measures similar to those undertaken
prior to his re-election. Mr. Luiz Inácio Lula da Silva, who was elected
president in October 2002, took office with his political team in January 2003
and continue the economic stabilization program, as well as a stimulation
program for economic growth. To date, economic reform measures have failed to
provide Brazil with sustained positive economic results and stability. Brazilian Economy  During 2001 and 2002, certain factors brought a halt to the recovery of
the Brazilian economy experienced in 1999 and 2000, which had a negative
impact on our restaurant sales and the results of our operations. These
factors include the following:  
    
    Worsening of Argentinas economy: After years of economic
recession, the perception of Argentinas lack of alternatives to
bolster or maintain its economy grew stronger during 2001. This
perception was fueled by rumors that Argentina would have to either
devaluate the peso or fully adopt the U.S. Dollar as the national
currency in the near future. These rumors, which became a reality
when Argentina was forced to devalue the peso by nearly 300% against
the U.S. Dollar, together with the concern that Argentina would
possibly default on its debt, caused the financial markets to view
the economies of all Latin America countries as unstable. The
worsening economic outlook in Argentina during 2001, which
culminated in Argentina declaring itself bankrupt, made it more
expensive for Brazilian firms to raise and maintain their funding
due to the increased perception of risk for the entire South
American region.
    
    Increasing cost of debt in Brazil: Due to several factors,
the September 11th terrorist attacks and the increase of uncertainty
in Latin American economies, Brazils rate of inflation steadily
increased throughout 2001. In an attempt to reduce the rate of
inflation, Brazilian banks quickly revised their credit policies and
increased their interest rates on short-term debt. As a result,
funding through Brazilian banks became more difficult to obtain and
much more expensive.
    
    Political uncertainty: The pre-election process for the
October 2002 presidential election caused a lot of speculation on
the outcome of these elections resulting in a speculation against
the Real. The elected president from the Labors Party, Luis Inacio Lula da Silva,
took office beginning in 2003, and although the economic measures he
implemented had a generally positive effect, interest and unemployment rates
remained high, delaying economic growth. Effects of Inflation and Devaluation In March 1994, the Brazilian government introduced an economic
stabilization program, known as the Real Plan, intended to reduce the rate of
inflation by reducing certain public expenditures, collecting liabilities owed
to the Brazilian government, increasing tax revenues, continuing to privatize
government-owned entities and introducing the Real, a new currency based on a
monetary correction index. From 1994 to 2000, the Real Plan 17




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resulted in a substantial reduction in Brazils rate of inflation and,
with the exception of a few months in 1999, caused the exchange rate between
the Real and the U.S. Dollar to remain relatively stable. Although Brazils economy was expected to expand in 2001, a number of
factors, including the September 11th terrorist attacks in New York City and
Washington, D.C., economic problems in Argentina, the increased cost of debt in
Brazil, the devaluation of the Real against the U.S. Dollar and an energy
crisis in Brazil that caused the Brazilian federal government to implement
electricity rationing, limited this expansion and caused inflation rates and
interest rates to increase and the further devaluation of the Real against the
U.S. Dollar. During the second half of fiscal 2002, Brazilian currency devaluated
significantly against the US dollar due to the political uncertainty attendant
to the outcome of the Brazilian presidential election in October 2002 and the
subsequent victory of Labor Party. The new Brazilian President took office in
January 2003 and started to take actions including the discussion of
implementing structural reforms, in order to reverse the previous year-end
scenario. In response to such acts, Brazilian inflation started to decline and
the Brazilian Real increased against the US Dollar during 2003. The following table sets forth Brazilian inflation, as measured by the
Indice Geral de Precos-Mercado, and the devaluation of the Brazilian currency
against the U.S. Dollar for the periods shown. Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Inflation
    
    
    8.7
    %
    
    
    25.3
    %
    
    
    10.4
    %
    
    
    9.9
    %
    
    
    20.1
    %Devaluation
    
    
    -22.2
    %
    
    
    52.3
    %
    
    
    18.7
    %
    
    
    9.3
    %
    
    
    48.0
    %
 Devaluation of the Brazilian Real against the U.S. Dollar, and its effect
on transactions involving the exchange of Reais and U.S. Dollars, have a
significant impact on our financial condition and our results of operations.
For example, financing costs on U.S. Dollar-denominated debt, which are paid by
us with Reais, increase substantially when adjusted to take into account the
current sharp exchange rate. Similarly, most of the products and raw materials
we purchase are, or contain, commodities that are denominated in U.S. Dollars,
such as plastic cups, bread (which includes wheat grown in the United States),
meat and chicken. Our costs to purchase these products and raw materials rise
significantly when the Reais used to pay for them must be converted into U.S.
Dollars using the current exchange rate. If we cannot raise our selling prices
to accommodate increases in the cost of these products and raw materials, our
profit on these products and raw materials are adversely affected. Energy Crisis. In May 2001, as a result of a shortfall of electricity generating and
transmission capacity by Brazilian utilities suppliers, the Brazilian federal
government announced an electricity rationing plan in order to avoid
electricity outages throughout most of Brazil. The rationing plan imposed
significant penalties on residences and companies that failed to reduce
electricity consumption by at least 20% in relation to amounts consumed in the
previous year. These penalties ranged from substantial increases in tariffs on
consumption to the disruption of electricity service for a number of days. We
have effected at least a 20% reduction in our electrical consumption, thereby
avoiding the imposition of penalties under this rationing plan, and,
furthermore, we are selling the excess electricity savings to other companies.
We have achieved this reduction through, among other measures, selective and
temporary curtailed hours of operation in many of our points of sale. We are
aware that many of our franchisees have effected similar cutbacks. We believe reduced hours of operation will continue to impact adversely
both our operating and franchise revenues. We are unable to predict the
quantitative impact that long-term continuation of the governments energy
conservation plan, which is currently facing constitutional challenges in the
Brazilian federal courts, and the penalties imposed by it, will have on our
future results of operations. The energy rationing plan was terminated in February 2002, but some of the
changes in habits that people developed, coupled with an increase in the cost
of energy, may still impact our business. 18




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RESULTS OF OPERATIONS COMPARISON OF YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 For the first quarter of 2003 onward, we reformatted our consolidated
statement of operations in order to improve the quality of analysis. The
reformatted statement differs from previous statements by segregated the
earnings provided by our owned and operated stores from the earnings provided
by our franchise business. However, all the operating figures were stated as a
percentage of the Net Restaurant Sales because we believe that, in general,
either kind of business (restaurant operations or franchise net earns) move
towards Net Restaurant Sales evolution, and, accordingly, cost and expenses
should be analyzed in conjunction with such evolution. The consolidated statement of operation for the twelve-month period ended
December 31, 2003, 2002 and 2001 has been restated to conform with the current
presentation. The following table sets forth certain operating data for the twelve month
periods ended December 31, 2003, 2002 and 2001. (Amounts in Brazilian Reais) Twelve Months
    
    
    
    
    
    Twelve Months
    
    
    
    
    
    Twelve MonthsEnded
    
    
    
    
    
    Ended
    
    
    
    
    
    EndedDecember 31, 2003
    
    %
    
    December 31, 2002
    
    %
    
    December 31, 2001
    
    %STORE RESULTSNet Restaurant Sales
    
    
    R$
    
    
    
    60,466,000
    
    
    
    100.0
    %
    
    
    R$
    
    
    
    63,465,000
    
    
    
    100.0
    %
    
    
    R$
    
    
    
    68,107,000
    
    
    
    100.0
    %Store Costs and ExpensesFood, Beverage and Packaging
    
    
    
    
    
    
    (23,754,000
    )
    
    
    -39.3
    %
    
    
    
    
    
    
    (25,333,000
    )
    
    
    -39.9
    %
    
    
    
    
    
    
    (27,331,000
    )
    
    
    -40.1
    %Payroll & Related Benefits
    
    
    
    
    
    
    (13,688,000
    )
    
    
    -22.6
    %
    
    
    
    
    
    
    (13,802,000
    )
    
    
    -21.7
    %
    
    
    
    
    
    
    (13,983,000
    )
    
    
    -20.5
    %Restaurant Occupancy
    
    
    
    
    
    
    (7,569,000
    )
    
    
    -12.5
    %
    
    
    
    
    
    
    (8,417,000
    )
    
    
    -13.3
    %
    
    
    
    
    
    
    (8,341,000
    )
    
    
    -12.2
    %Contracted Services
    
    
    
    
    
    
    (7,950,000
    )
    
    
    -13.1
    %
    
    
    
    
    
    
    (7,529,000
    )
    
    
    -11.9
    %
    
    
    
    
    
    
    (7,330,000
    )
    
    
    -10.8
    %Other Store Costs and Expenses
    
    
    
    
    
    
    (1,684,000
    )
    
    
    -2.8
    %
    
    
    
    
    
    
    (1,828,000
    )
    
    
    -2.9
    %
    
    
    
    
    
    
    (2,850,000
    )
    
    
    -4.2
    %Total Store Costs and Expenses
    
    
    
    
    
    
    (54,645,000
    )
    
    
    -90.4
    %
    
    
    
    
    
    
    (56,909,000
    )
    
    
    -89.7
    %
    
    
    
    
    
    
    (59,835,000
    )
    
    
    -87.9
    %STORE OPERATING INCOME
    
    
    
    
    
    
    5,821,000
    
    
    
    9.6
    %
    
    
    
    
    
    
    6,556,000
    
    
    
    10.3
    %
    
    
    
    
    
    
    8,272,000
    
    
    
    12.1
    %FRANCHISERESULTSNet Franchise Royalty Fees
    
    
    R$
    
    
    
    6,663,000
    
    
    
    11.0
    %
    
    
    R$
    
    
    
    4,904,000
    
    
    
    7.7
    %
    
    
    R$
    
    
    
    3,981,000
    
    
    
    5.8
    %Franchise Costs and Expenses
    
    
    
    
    
    
    (2,150,000
    )
    
    
    -3.6
    %
    
    
    
    
    
    
    (1,166,000
    )
    
    
    -1.8
    %
    
    
    
    
    
    
    (1,342,000
    )
    
    
    -2.0
    %FRANCHISE OPERATING INCOME
    
    
    
    
    
    
    4,513,000
    
    
    
    7.5
    %
    
    
    
    
    
    
    3,738,000
    
    
    
    5.9
    %
    
    
    
    
    
    
    2,639,000
    
    
    
    3.9
    %MARKETING, GENERAL AND
ADMINISTRATIVE(EXPENSES) INCOMEMarketing (Expenses) Income
    
    
    
    
    
    
    (659,000
    )
    
    
    -1.1
    %
    
    
    
    
    
    
    (375,000
    )
    
    
    -0.6
    %
    
    
    
    
    
    
    (2,362,000
    )
    
    
    3.5
    %Administrative Expenses
    
    
    
    
    
    
    (6,520,000
    )
    
    
    -10.8
    %
    
    
    
    
    
    
    (7,434,000
    )
    
    
    -11.7
    %
    
    
    
    
    
    
    (7,594,000
    )
    
    
    -11.2
    %Other Operating Income (Expenses)
    
    
    
    
    
    
    (335,000
    )
    
    
    -0.6
    %
    
    
    
    
    
    
    (607,000
    )
    
    
    -1.0
    %
    
    
    
    
    
    
    2,054,000
    
    
    
    3.0
    %Depreciation and Amortization
    
    
    
    
    
    
    (3,355,000
    )
    
    
    -5.5
    %
    
    
    
    
    
    
    (3,773,000
    )
    
    
    -5.9
    %
    
    
    
    
    
    
    (3,966,000
    )
    
    
    -5.8
    %Net result of assets sold
    
    
    
    
    
    
    48,000
    
    
    
    0.1
    %
    
    
    
    
    
    
    (287,000
    )
    
    
    -0.5
    %
    
    
    
    
    
    
    (122,000
    )
    
    
    -0.2
    %Impairment of assets
    
    
    
    
    
    
    (204,000
    )
    
    
    -0.3
    %
    
    
    
    
    
    
    (1,374,000
    )
    
    
    -2.2
    %
    
    
    
    
    
    
    
    
    
    
    0.0
    %Total Marketing, G&A (Expenses) Income
    
    
    
    
    
    
    (11,025,000
    )
    
    
    -18.2
    %
    
    
    
    
    
    
    (13,850,000
    )
    
    
    -21.8
    %
    
    
    
    
    
    
    (11,990,000
    )
    
    
    -17.6
    %OPERATING INCOME (LOSS)
    
    
    
    
    
    
    (691,000
    )
    
    
    
    
    
    
    
    
    
    
    (3,556,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,079,000
    )Interest Income (Expense)
    
    
    
    
    
    
    (3,017,000
    )
    
    
    -5.0
    %
    
    
    
    
    
    
    (4,174,000
    )
    
    
    -6.6
    %
    
    
    
    
    
    
    (5,502,000
    )
    
    
    -8.1
    %Foreign Exchange and Monetary
Restatement Gain (Loss)
    
    
    
    
    
    
    (410,000
    )
    
    
    -0.7
    %
    
    
    
    
    
    
    (3,480,000
    )
    
    
    -5.5
    %
    
    
    
    
    
    
    (1,669,000
    )
    
    
    -2.5
    %NET INCOME (LOSS)
    
    
    R$
    
    
    
    (4,118,000
    )
    
    
    -6.8
    %
    
    
    R$
    
    
    
    (11,210,000
    )
    
    
    -17.7
    %
    
    
    R$
    
    
    
    (8,250,000
    )
    
    
    -12.1
    %
 STORE RESULTS Net Restaurant Sales Restaurant sales for our owned and operated points of sale decreased
R$2,999,000 or 4.7% to R$60,466,000 for the year ended December 31, 2003, as
compared to R$63,465,000 and R$68,107,000 for the years ended December 31, 2002
and 2001, respectively. Same store sales remained stable, increasing
approximately 19




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0.07% for the year ended December 31, 2003 as compared to the year ended
December 31, 2002. Same store sales for the year ended December 31, 2002
decreased by 3.2% when compared to 2001. The decrease from 2003 to 2002 of restaurant sales is mainly due to the
reduction of our owned and operated retail restaurant from 55 as of December
31, 2002 to 51 as of December 30, 2003. We closed 1 owned and operated store during the period between December
31, 2002 and December 31, 2003, and we sold 4 stores to franchisees. During
this same period, we also acquired one store and one kiosk from franchisees,
and we opened two new kiosks. As of December 31, 2003, we had 60 points of
sale, which was one less than the 61 we had as of December 31, 2002. The decrease from 2003 to 2002 of restaurant sales is also attributable to
the following: -  the adverse period that the retail market faced during 2003 in Brazil
due to macroeconomic factors described above. The industrial production in
Brazil during 2003 was 1.0% lower than the one observed in the previous year
and trading activities declined 2.6% in the same period. Those statistical
data confirm the significant reduction in consumer spending. -  since December 2002, the Brazilian Federal Government changed the manner
of calculation of PIS (one of the Brazilian taxes on gross revenue) and,
considering our business segment, this reflected in an increase of
approximately of 0.5% of such sale tax. As result of higher taxation, we had
accounted for lower restaurant net sales. -  stronger competition featured by pay per weight restaurants which
present fast meals with competitive prices. Despite of all these adverse facts, we had the following that partially
offset the net decrease on restaurant sales:  
    
    constant sales initiatives and promotional campaigns;
    
    continuous introduction of new products and the expansion of our product offerings; and
    
    an average increase of 12% in the sales prices of our products during the year of 2003. The decrease from 2002 to 2001 of restaurant sales is also attributable to
the macroeconomic factors described above, as well as to the reduction of our
owned and operated points of sale from 70 as of December 31, 2001 to 61 as of
December 31, 2002. We closed 3 owned and operated stores in the year ended
December 31, 2002, sold 7 stores to franchisees and opened 1 new outlet. This
reflects our strategy to limit our direct operations to highly profitable
stores, and to focus on the growth of franchises, which management anticipates
will significantly reduce the level of our future capital expenditures. This decrease was partially offset by:  
    
    an average increase of 12% in the sales prices of our products during the year of 2002; and
    
    a change in the manner of calculating tax upon our sales in
the State of Sao Paulo, which resulted in higher net sales of
approximately R$665,000 in the year ended December 31, 2002. Food, Beverage and Packaging Costs As a percentage of net restaurant sales, food, beverage and packaging
costs were (39.3%), (39.9%), and (40.1%) for the years ended December 31, 2003, 2002
and 2001, respectively. Food, beverage and packaging costs decreased from 2002 to 2003, although
the pressure from suppliers to increase their prices has become stronger. The
effect of increasing our sales prices and successful long-term agreements with
some suppliers and recent rebates negotiations have helped to reduce the cost
of products. In 20




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addition, those products, which prices increased due to devaluation of
Brazilian Real against the US Dollar in mid 2002, returned to their original
cost due to the reversed exchange situation during 2003. The decrease of food, beverage and packaging costs in the year of 2002 as
compared to 2001 is primarily attributable to decreases in our cost of ice
cream, meat and chicken products in July of 2002, resulting from our
negotiations with suppliers. The devaluation of the Brazilian Real against the
US dollar during year 2002 partially offset such decrease. Payroll & Related Benefits As a percentage of net restaurant sales, store payroll and related
benefits increased from (21.7%) to (22.6%) for the year ended December 31, 2002 and
2003, respectively. The percentage in 2001 was (20.5%). These increases are mainly attributable to annual increases in employee
transportation cost, to annual increases in salaries mandated by union-driven
agreements and, as a consequence, social charges that are computed based on
employees salaries. In addition, the increase in the number of store
supervisors, in order to improve the quality of our restaurant operations, also
impacted our 2003 payroll costs. The increase from 2001 to 2002 is also attributable the reduction in the
number of trainees and shifting them to employees, which raised payroll
expenses. Restaurant Occupancy Costs and Other Expenses As a percentage of restaurant sales, restaurant occupancy costs and other
expenses were (12.5%), (13.3%), and (12.2%) for the years ended December 31, 2003,
2002 and 2001, respectively. The decrease in 2003 is mainly attributable to temporary and permanent
reduction of the occupancy cost of some of our stores, as well as to the
closing of one unprofitable store which had extremely high lease costs. On the
other hand, increases in our minimum rent obligations, which are indexed to
Brazilian inflation - 8.7%per annum in the twelve months ended December, 31,
2003- partially offset such decrease. The increase of occupancy costs in 2002 as compared to 2001 is mainly
attributable to the effect of our decreased restaurant sales, noted above, as
well as the increases derived from the inflationary indexation. For the twelve
months ended December 31, 2002 Brazilian inflation measured by the IGP-M has
reached 25.3% per annum. Contracted Services Expenses related to contracted services expressed as a percentage of net
restaurant sales were approximately (13.1%), (11.9%) and (10.8%) for the twelve
months ended December 31, 2003, 2002 and 2001, respectively. These increases are mainly attributable to increases in utility costs,
mainly electricity which rate has increased approximately 19% during 2003, as
well as higher delivery costs. The effect of those increases was partially
offset by reductions obtained on maintenance service contracts. Other Store Cost and Expenses Other store cost and expenses expressed as a percentage of net restaurant
sales were approximately (2.8%), (2.9%) and (4.2%) for the twelve months ended
December 30, 2003, 2002 and 2001, respectively. Other store cost and expenses
remained almost constant from 2002 to 2003. 21




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FRANCHISE RESULTS Net Franchise Royalty Fees Franchise income increased R$1,759,000 or 35.9% to R$6.663,000 for the
year ended December 31, 2003, as compared to R$4,904,000 and R$3,981,000 for
the years ended December 31, 2002 and 2001, respectively. These increases are
mainly attributable to the growth of our franchised business from 195 points of
sale as of December 31, 2001 to 242 as of December 31, 2002 to 285 as of
December 31, 2003. The 2002 and 2003 increases were partially offset by the
effects of the macro-economic factors described above, which had a negative
impact on our franchised restaurants sales. Through the period from January 1, 2002 to December 31, 2003, we sold 11
of our restaurants to franchisees. These stores had either low profitability
or, in some cases, operating losses. Our historical experience has shown that
franchisee administration can enhance the profitability of such stores,
primarily as a result of:  
    
    lower taxation (tax incentives from Federal and state governments to small companies);
    
    better knowledge of specific markets and their local customs; and
    
    lower operating expenses. Franchise Costs and Expenses Franchise cost and expenses expressed as a percentage of net restaurant
sales were approximately (3.6%), (1.8%) and (2.0%) for the twelve months ended
December 31, 2003, 2002 and 2001, respectively. The increase observed in 2003 is attributable to the growth of franchise
network and to improvements in our policy of closely monitoring the operations
of our franchisees: our supervisors responsible for franchised stores
increased the number of their to our franchisees in 2003, which, in turn,
increased traveling expenses. In addition, our franchise department saw its payroll costs increase,
basically for the same reasons described under STORE RESULTS  Payroll &
Related Benefits. MARKETING, GENERAL AND ADMINISTRATIVE (EXPENSES) INCOME Marketing Income (Expenses) As a percentage of net restaurant sales, marketing expenses were
approximately (1.1%), (0.6%) and (3.5%) for the twelve months ended December
31, 2003, 2002 and 2001, respectively. The percentage decrease from the year period of 2001 to the same period of
2002 arose from an optimization of marketing investments and cost reduction
measures, such as fewer TV ads and more advertisement in newspapers, magazines
and outdoors. Advertising and publicity costs increased during the year ended December
31, 2003 as a result of growth of points of sale (owner operated and franchise
operated), and due to higher expenses resulting from more intensive promotional
campaigns of new products on out menu. General and Administrative Expenses As a percentage of restaurant sales, general and administrative expenses
were approximately (10.8%), (11.7%) and (11.2%) for the twelve months ended
December 31, 2003, 2002 and 2001, respectively. The decrease observed on comparing the twelve month periods is mainly
attributable to reductions or non-renewal of a great number of outsourced
administrative services, such as payroll processing, legal, accounting and
auditing services. 22




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Other Operating Income (Expenses) Other operating income (expenses) are mainly comprised of the initial fees
paid by our franchisees, as well as income derived from suppliers pursuant to
terms of certain exclusivity agreements and non recurring income or expenses. Other operating income (expenses) expressed as a percentage of net
restaurant sales were (0.6%), for the twelve months ended December 31, 2003,
(1.0%) for the twelve months ended December 31, 2002 and (3.0%) for the same
period ended December 31, 2001. The reversal from net income to net (expenses) comparing the twelve-month
periods of 2002 and 2001 was mainly attributable to recognition of a greater
allowance for doubtful accounts during 2002, as well as to recognition of fines
applied against us by the Brazilian Social Security Authorities, which charged
certain operating transactions not covered by our previous calculation of
Social Security contributions. During 2003, other operating results remained negative due to a provision
for fines that may be applied against us (in addition to those recognized at
the end of fiscal 2002) by the Brazilian Social Security Authorities, which
charged certain operating transactions not covered by our previous calculation
of Social Security contributions, as well as the provision for the monetary
restatement of such unpaid debt. All those social security debts were included
in the Federal Tax amnesty program discussed below. We also recorded a
non-recurring gain related to a reversal of accrued Delaware Franchise Taxes
derived from a review of such tax computation, and recorded a greater number of
rebate agreements with suppliers during 2003. Depreciation and Amortization As a percentage of restaurant sales, depreciation and amortization expense
was approximately (5.5%), (5.9%) and (5.8%) for the years ended December 31,
2003, 2002 and 2001, respectively. Depreciation and amortization expense has remained stable from 2001 to
2002. The 2003 decrease is attributable to the completion of depreciation upon
some assets (mainly computers and leasehold improvements) and to the reduction
of depreciation derived by the sale of fixed assets located at stores
transferred to franchise operation. Impairment of Assets and Net Result of Assets Sold We usually review our fixed assets in accordance with SFAS 144, which
requires that long-lived assets being disposed of be measured at the lower of
carrying amount or fair value less cost to sell. As a consequence of such
review, we recorded expenses in 2003 and 2002 derived by the adjustments to
reach such appropriate fixed asset value. The higher figures observed in 2002 were due to fixed assets inventories
held in the second and third quarters of 2002, as well as managements decision
to close 2 unprofitable stores, which required us to take a significant
write-off during the year ended December 31, 2002. INTEREST INCOME (EXPENSES) AND FOREIGN EXCHANGE GAIN (LOSS) Interest Income and Expenses As a percentage of restaurant sales, net interest expense and foreign
exchange gains and/or losses were approximately (5.0%), (6.6%) and (8.1%) for
the years ended December 31, 2003, 2002 and 2001, respectively. The percentage decreases for the twelve months ended December 31, 2003 as
compared to the same periods in 2002 and 2001 is primarily attributable to
reduction of the level of our bank indebtedness. 23




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Foreign Exchange and Monetary Restatement Gain (Loss) As a percentage of net restaurant sales, net foreign exchange and monetary
restatement gain and/or losses were approximately (0.7%), (5.5%) and (2.5)% for
the twelve months ended December 31, 2003 and 2002, respectively. The decreases of foreign exchange losses during the period of 2003 is
primarily attributable to the valuation of the Brazilian Real against the US
Dollar during the twelve month period ended December 31, 2003, as contrasted to
a devaluation of the Brazilian Real against the US Dollar in the same period of
2002. Those effects of foreign exchange gain or losses are derived from the
restatements of our obligations denominated in U.S. Dollars. The decrease of
net losses during 2003 is also attributable to the extinguishment of debts
denominated in U.S. Dollars. LIQUIDITY AND CAPITAL RESOURCES Since March 1996, we have funded our cumulative operating losses of
R$63,732,000 and made acquisitions of businesses and capital improvements
(including remodeling of our stores) by using cash remaining at the closing of
our acquisition of Venbo, by borrowing funds from various sources and from
private placements of securities. As of December 31, 2002, we had cash on hand
of R$1,063,000 and a working capital deficiency of R$5,882,000. For the year ended December 31, 2003, we had net cash used in operating
activities of R$180,000, net cash used in investing activities of R$1,081,000
and net cash provided by financing activities of R$572,000. Net cash used in
investing activities was primarily the result of our investment in property and
equipment to improve our retail operations. Net cash provided by financing
activities was a result of our borrowings from financial institutions and from
related parties. For the year ended December 31, 2002, we had net cash used in operating
activities of R$2,989,000, net cash used in investing activities of R$733,000
and net cash provided by financing activities of R$3,389,000. Net cash used in
investing activities was primarily the result of our investment in property and
equipment to improve our retail operations. Net cash provided by financing
activities was a result of our private placement of equity shares in May 2002.
The proceeds from the private placement were used to reduce our debt, including
debt with private individuals, debt with financial institutions in Brazil, and
past due accounts payable with suppliers and others. Our earnings before interest, taxes, depreciation and amortization
(EBITDA) were approximately R$2,664,000 for the year ended December 31, 2003
and approximately R$217,000 for the year ended December 31, 2002. EBITDA is
not intended to be a performance measure that should be regarded as an
alternative to, or more meaningful than, either loss from operations or net
loss as an indicator of operating performance or cash flows as a measure of
liquidity, as determined in accordance with accounting principles generally
accepted in the United States. Our cash resources are currently used primarily to pay for the servicing
costs on our debt obligations, which costs have increased significantly due to
increased interest rates in Brazil charged on short-term debt and the
devaluation of the Real against the U.S. Dollar. Our debt obligations as of
December 31, 2003 were as follows: Revolving lines of credit (a)
    
    
    R$
    
    
    
    2.933Related party loans (b)
    
    
    
    
    
    
    938Mortgages payable
    
    
    
    
    
    
    Notes payable linked to
fixed assets acquisitions (c)
    
    
    
    
    
    
    2.986Other notes payable
    
    
    
    
    
    
    186.875Less: current portion
    
    
    
    
    
    
    (5.155
    )R$
    
    
    
    1.720
 24




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At December 31, 2003, future
maturities of notes payable are as
follows: December 31,2004
    
    
    
    
    

    R$
    5.1552005
    
    
    
    
    
    
    9792006
    
    
    
    
    
    
    741
   (a) Due on demand from various Brazilian financial institutions as well as
private individuals with interest rates raging from 18.7% to 19.7% per annum,
and guaranteed by certain officers and receivables. Currently, we have no
relevant unused credit line. (b) Credit facilities from related parties, including company and private
individuals. Repayment of principal is indexed to IGP-M (currently at 8.0% per
annum) with interest of 12.0% per annum. Those transactions were made at usual
market value. (c) This credit facility was used to purchase three stores. Repayment of
principal with respect to one of these stores is due in 6 monthly installments
of R$29. Repayment of principal with respect to the other two stores is due in
31 monthly installments of R$46 in addition of 3 annual installments of R$415,
starting January, 2004, ending January 2006. There is no interest charged on
these borrowings. Principal is indexed to Brazilian inflation measured by
IGP-M. This facility is secured by the fixed assets purchased. Pursuant to settlements reached with Brazilian state taxing authorities in
2000 and 2002, we are required to make repayments over a ten-year period,
interest free, in amounts indexed to Brazils UNIDADE FISCAL DE REFERENCIA,
which is currently 12.0% per annum. During January 2004, the Rio de Janeiro
state government launched a debt-rescheduling program through which all
previous amnestied debt, parceled in 36, 60 or 120 months, will be
substantially reduced and paid in 6 monthly installments. We, subsequently to
December 31, 2003, applied to be included in such debt-reschedule program.
Adjustments to the State Tax Obligations item on our balance sheet, derived
from such program, will be recognize during 2004, when the Rio de Janeiro state
government will be recalculating the total debt due by us. In addition, in 2000, we applied to, and were accepted by, the Brazilian
federal government to join a tax amnesty program (REFIS), which restructured
our outstanding 1999 federal tax obligations into monthly payments equal to
1.2% of our gross sales, with interest accruing at a rate set from time-to-time
by the Brazilian federal government (TJLP), which was 10.5% a.a. as of
December 30, 2003. We have other past due federal taxes which were not paid in the beginning
of 2002, in the approximate amount of R$839,000,as well as fines applied
against us by the Brazilian Social Securities Authorities, in the approximate
amount of R$9,400,000, which are not covered by any of the above mentioned tax
agreements. However, during June 2003 the Brazilian Government implemented
another tax amnesty (PAES), to which we applied and are waiting for Government
acceptance. Through this program the balance of the previous Federal tax
amnesty program (REFIS) and unpaid 2002 federal tax, as well as the Social
Security penalties, will be paid in monthly installments equivalent to 1.5% of
the our gross sales, with interest accruing at rates set by the Brazilian
Federal government (TJLP), currently 10.5% per year. Considering all the above mentioned fiscal debts, we are required to pay
restructured past-due Brazilian state taxes of approximately R$4,515,000 and
federal taxes of approximately R$15,050,000. For the fiscal 2004, we expect to pay approximately R$892,000 pursuant to
the state tax settlements and approximately R$715,000 pursuant to the federal
tax amnesty program. Since June 2002, we have paid all of our current taxes on a timely basis. 25




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We also have long-term contractual obligations in the form of operating
lease obligations related to our owned and operated stores. The future minimum lease payments under those obligations with an initial
or remaining noncancelable lease terms in excess of one year at December 31,
2003 are as follows: (Amounts in Brazilian Reais) 2004
    
    
    5.918.0002005
    
    
    5.465.0002006
    
    
    4.803.0002007
    
    
    3.927.0002007
    
    
    3.279.000Thereafter
    
    
    539.000
 Rent expense was R$5,609,000 for the years ended December 31, 2003. In the past, we have generated cash and obtained financing sufficient to
meet our debt obligations. We plan to fund our current debt obligations mainly
through cash provided by our operations, borrowings and capital raising. Our capital expenditures for fiscal 2003 were approximately R$1,500,000.

We require capital primarily for the improvement of our owned and operated
points of sale. Currently, four of our owned and operated stores are located
in facilities that we own, and all of our other owned and operated stores are
located in leased facilities. Our average cost to open a retail outlet was approximately R$300,000 to
R$500,000 including leasehold improvements, equipment and beginning inventory,
as well as expenses for store design, site selection, lease negotiation,
construction supervision and obtaining permits. We have estimated that our capital expenditures for fiscal 2004, which
will be used to maintain and upgrade our current restaurant network, will be
approximately R$3,000,000. We anticipate that the primary use of our cash
resources during 2004 will be to service our debt obligations. During 2004, we
intend to focus our efforts on expanding both the number of our franchisees and
the number of our franchised stores, neither of which are expected to require
significant capital expenditures. As
discussed above, we have contractual obligations in different forms.
The following table summarizes our contractual obligations and financial
commitments, as well as their aggregate maturities. (Amounts in Brazilian
Reais) Fiscal Year
    
    Contractual Leases
    Fiscal Debt
    
    Loans Payable
    
    Total2004
    
    
    5.918.000
    
    
    
    1.607.000
    
    
    
    5.155.000
    
    
    
    12.680.0002005
    
    
    5.465.000
    
    
    
    1.520.600
    
    
    
    979.000
    
    
    
    7.964.6002006
    
    
    4.803.000
    
    
    
    1.347.800
    
    
    
    741.000
    
    
    
    6.891.8002007
    
    
    3.927.000
    
    
    
    1.347.800
    
    
    
    
    
    
    
    5.274.8002008
    
    
    3.279.000
    
    
    
    1.316.800
    
    
    
    
    
    
    
    4.595.800Thereafter
    
    
    539.000
    
    
    
    12.425.000
    
    
    
    
    
    
    
    12.964.000
 Cash provided by operations along with our borrowing capacity and other
sources of cash will be used to satisfy the obligations and our estimates for
capital improvements (including remodeling of our stores). We plan to address our immediate and future cash flow needs to include
focusing on a number of areas including:  
    
    the sale of certain of our owned and operated stores; 26




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
    
    the reduction of expenses, including reducing our per-store
headcount expense by continuing to expand our operations while
maintaining our current headcount;
    
    the expansion of our franchisee base, which may be expected
to generate additional cash flows from royalties and franchise fees
without significant capital expenditures;
    
    the introduction of new programs and menu expansions to meet
consumer needs and wishes; and
    
    negotiation with suppliers in order to obtain significant
rebates in long term supply contracts. GOING CONCERN ISSUE In order to sustain our operations, we have, in the past, been dependent
upon the continued forbearance of our creditors. While we are currently in
full compliance with agreements with our creditors, there can be no assurance
that we will not be forced to seek the forbearance of our creditors in the
future. In addition, there can be no assurance that our plans will be
realized, or that additional financing will be available to us when needed, or
on terms that are desirable. Furthermore, there can be no assurance that we
will locate suitable new franchisees, or desirable locations for new and
existing franchisees to open stores. Our ability to further reduce expenses
and optimize our headcount is directly impacted by our need to maintain an
infrastructure to support changing the locations, if required, of both our
current and future stores and operations. Our ability to re-market our owned
and operated stores to franchisees, and to generate cash flows from such
activities, is impacted by our ability to locate suitable buyers with the
interest and capital to complete such transactions, and the time to complete
such sales. Additionally, our ability to achieve our plans is further impacted
by the instability of both the political and economic environment in Brazil,
which has a 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Managements discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the U.S. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses as well as related disclosures. On an
ongoing basis, we evaluate our estimates and judgments based on historical
experience and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We annually review our financial reporting and disclosure practices and
accounting policies to ensure that they provide accurate and transparent
information relative to the current economic and business environment. We
believe that of our significant accounting policies involve a higher degree of
judgment and/or complexity. (See summary of significant accounting policies
more fully described in the Notes to Consolidated Financial Statements on pages
F-9 through F-13.) We follow SFAS No. 144 with regard to impairment of long lived assets and
intangibles. If there is an indicator of impairment (i.e. negative operating
cash flows) an estimate of undisclosed future cash flows produced by each
restaurant within the asset grouping is compared to its carrying value. If any
asset is determined to be impaired, the loss is measured by the excess of the
carrying value. If any asset is determined to be impaired, the loss measured
by the excess of the carrying amount of the asset over its fair value. NEW ACCOUNTING STANDARDS Asset retirement obligations In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations, effective January 1, 2003.
The Statement requires legal obligations associated with the 27




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retirement of long-lived assets to be recognized at their fair value at
the time that the obligations are incurred. Upon initial recognition of a
liability, the cost will be capitalized as part of the related long-lived asset
and allocated to expense over the useful life of the asset. The adoption of
SFAS No. 143 did not have a material effect on the our results of operations or
financial position. Variable interest entities In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest
Entities, which requires an enterprise to consolidate or make certain,
disclosures about variable interest entities that meet certain criteria,
effective January 1, 2003. FIN No. 46 is not applicable to the us. Impairment of long-lived assets and intangible assets We follow SFAS Nos. 144 and 141 with regard to the impairment of long
lived assets and intangibles. If there is an indicator of impairment (i.e.
negative operating cash flows) an estimate of undiscounted future cash flows
produced by each restaurant within the asset grouping is compared to its
carrying value. If any asset is determined to be impaired, the loss is
measured by the excess of the carrying amount of the asset over its fair
value. OFF-BALANCE SHEET ARRANGEMENTS We are not involved in any off-balance sheet arrangements. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK We finance a portion of our operations by issuing debt and entering into
bank credit facilities. These debt obligations expose us to market risks,
including interest rate risk and foreign currency exchange risk. A portion of
our purchase commitments are denominated in U.S. Dollars, while our operating
revenues are denominated in Brazilian Reais. We extinguished all of our debt
denominated in US Dollars during 2003. Fluctuations in exchange rates between
the Real and the U.S. Dollar expose us to significant foreign exchange risk.
We attempt, when possible, to protect our revenues from foreign currency
exchange risks by periodically adjusting our selling prices in Reais. We do not engage in trading market risk-sensitive instruments or
purchasing hedging instruments or other than trading instruments that are
likely to expose us to market risk, whether interest rate, foreign currency
exchange, commodity price or equity price risk. We have not entered into any
forward or futures contracts, purchased options or entered into swaps. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data for the Registrant are on
pages F-1 through F-24. 
 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 10. CONTROLS AND PROCEDURES In order to ensure that the information we must disclose in our filings
with the Securities and Exchange Commission is recorded, processed, summarized
and reported on a timely basis, we have formalized our disclosure controls and
procedures. Ricardo Figueiredo Bomeny, our principal executive and acting as
our principal financial officer has reviewed and evaluated the effectiveness of
our disclosure controls and procedures, as defined in Exchange Act Rules
13a-15(e) and 15d-15(e), as of December 31, 2003. Based on such evaluation, Mr.
Bomeny has concluded that, as of December 31, 2003, our disclosure controls and
procedures were effective in timely alerting 28




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him to material information relating to us (and our consolidated
subsidiaries) required to be included in our periodic SEC filings. There have been no significant changes in our internal controls or other
factors that could significantly affect internal controls subsequent to the
date of their evaluation. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The items required by Part III, Item 10 are incorporated herein by
reference from the Registrants Proxy Statement for its 2004 Annual Meeting of
Shareholders to be filed on or before April 29, 2004. 
 ITEM 11. EXECUTIVE COMPENSATION The items required by Part III, Item 11 are incorporated herein by
reference from the Registrants Proxy Statement for its 2004 Annual Meeting of
Shareholders to be filed on or before April 29, 2004.  
 ITEM 12.
  
  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  The items required by Part III, Item 12 are incorporated herein by
reference from the Registrants Proxy Statement for its 2004 Annual Meeting of
Shareholders to be filed on or before April 29, 2004. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The items required by Part III, Item 13 are incorporated herein by
reference from the Registrants Proxy Statement for its 2004 Annual Meeting of
Shareholders to be filed on or before April 29, 2004. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The items required by Part III, Item 14 are incorporated herein by
reference from the Registrants Proxy Statement for its 2004 Annual Meeting of
Shareholders to be filed on or before April 29, 2004. 
 PART IV 
 ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K  (a)
    
    Financial Statements and Financial Statement Schedules: (i) Financial Statements filed as a part of this Annual Report are listed
on the Index to Financial Statements at page F-1 herein. (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-KNone. 29




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(c)
    
    Exhibits Exhibit Index
    
    Description3.1
    
    Certificate of Incorporation of the Registrant, as amended (1)3.2
    
    By-laws of the Registrant (2)10.1
    
    Amended and Restated 1992 Stock Option Plan (2)10.2
    
    Stockholders Agreement dated as of August
11, 1997, between Registrant, AIG Latin America Equity
Partners, Ltd. and Registrants then-current executive
officers and directors, and certain of their affiliates (3)10.3
    
    Amendment, dated as of March 14, 2001, to
Stockholders Agreement between the Registrant, AIG Latin
America Equity Partners, Ltd. and Registrants
then-current executive officers and directors, and certain
of their affiliates (4)10.4
    
    Capitalization and Administrative
Restructuring Intentions Protocol dated May 15, 2002 by and
among Brazil Fast Food Corp., Gustavo Figueredo Bomeny, CCC
Emprendimentos e Participacoes Ltda., BigBurger Ltda., Jose
Ricardo Bousquet Bomeny, Omar Carneiro da Cunha, Seaview
Venture Group, Peter van Voorst Vader and Shampi
Investments A.E.C. (5)21.1
    
    Subsidiaries of Registrant (6)24.1*
    
    Power of Attorney (comprises a portion of
the signature page of this report)31.1*
    
    Certification by Ricardo Figueiredo
Bomeny, Chief Executive Officer and Acting Chief Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1*
    
    Certification by Ricardo Figueiredo
Bomeny, Chief Executive Officer and Acting Chief Financial
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
    *
    
    Filed herewith.(1)
    
    Filed as an exhibit to Registrants Registration Statement on Form S-1
(File No. 333-3754).(2)
    
    Filed as an exhibit to Registrants Registration Statement on Form S-1
(File No. 33-71368).(3)
    
    Filed as an exhibit to Registrants Current Report on Form 8-K, dated
August 29, 1997 (File No. 0-23278).(4)
    
    Filed as an exhibit to Registrants Current Report on Form 8-K, dated
April 1, 2001.(5)
    
    Filed as an exhibit to Registrants Current Report on Form 8-K, dated May
15, 2002(6)
    
    Filed as an exhibit to Registrants Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 0-23278). 30




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Rio de Janeiro, Federative Republic of Brazil, on the 14th day of April,
2004. BRAZIL FAST FOOD CORP.By:  /s/ Ricardo Figueiredo
BomenyRicardo Figueiredo BomenyPresident and Chief Executive Officer KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints and hereby authorizes Ricardo Figueiredo Bomeny
and Peter J.F. van Voorst Vader, severally, such persons true and lawful
attorneys-in-fact, with full power of substitution or resubstitution, for such
person and in such persons name, place and stead, in any and all capacities,
to sign on such persons behalf, individually and in each capacity stated
below, any and all amendments, to this Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated: Date: April 14, 2004
    
    /s/ Ricardo Figueiredo BomenyRicardo Figueiredo BomenyChief Executive Officer and Acting Chief Financial OfficerDate: April 14, 2004
    
    /s/ Omar Carneiro da CunhaOmar Carneiro da CunhaChairman of the BoardDate: April 14, 2004
    
    /s/ Peter J.F. van Voorst VaderPeter J.F. van Voorst VaderDirectorDate: April 14, 2004
    
    /s/ Romulo Borges FonsecaRomulo Borges FonsecaDirectorDate: April 14, 2004
    
    /s/ José Ricardo Bousquet BomenyJosé Ricardo Bousquet BomenyDirector
 31




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##### Table of Contents



Date: April 14, 2004
    
    /s/ Stephen J. RoseStephen J. Rose

DirectorDate: April 14, 2004
    
    /s/ Guillermo Hector PisanoGuillermo Hector PisanoDirectorDate: April 14, 2004
    
    /s/ Gustavo Figueiredo BomenyGustavo Figueiredo BomenyDirector
 32




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##### Table of Contents



EXHIBIT INDEX Exhibit Index
    
    Description3.1
    
    Certificate of Incorporation of the Registrant, as amended (1)3.2
    
    By-laws of the Registrant (2)10.1
    
    Amended and Restated 1992 Stock Option Plan (2)10.2
    
    Stockholders Agreement dated as of August 11, 1997, between
Registrant, AIG Latin America Equity Partners, Ltd. and Registrants
then-current executive officers and directors, and certain of their
affiliates (3)10.3
    
    Amendment, dated as of March 14, 2001, to Stockholders
Agreement between the Registrant, AIG Latin America Equity Partners,
Ltd. and Registrants then-current executive officers and directors,
and certain of their affiliates (4)10.4
    
    Capitalization and Administrative Restructuring Intentions
Protocol dated May 15, 2002 by and among Brazil Fast Food Corp.,
Gustavo Figueredo Bomeny, CCC Emprendimentos e Participacoes Ltda.,
BigBurger Ltda., Jose Ricardo Bousquet Bomeny, Omar Carneiro da
Cunha, Seaview Venture Group, Peter van Voorst Vader and Shampi
Investments A.E.C. (5)21.1
    
    Subsidiaries of Registrant (6)24.1*
    
    Power of Attorney (comprises a portion of the signature page
of this Annual Report)31.1*
    
    Certification by Ricardo Figueiredo Bomeny, Chief Executive
Officer and Acting Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1*
    
    Certification by Ricardo Figueiredo Bomeny, Chief Executive
Officer and Acting Chief Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
    *
    
    Filed herewith.(1)
    
    Filed as an exhibit to Registrants Registration Statement on Form S-1
(File No. 333-3754).(2)
    
    Filed as an exhibit to Registrants Registration Statement on Form S-1
(File No. 33-71368).(3)
    
    Filed as an exhibit to Registrants Current Report on Form 8-K, dated
August 29, 1997 (File No. 0-23278).(4)
    
    Filed as an exhibit to Registrants Current Report on Form 8-K, dated
April 1, 2001.(5)
    
    Filed as an exhibit to Registrants Current Report on Form 8-K, dated
April 1, 2002.(6)
    
    Filed as an exhibit to Registrants Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 0-23278).




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS PageReport of independent public accountants
    
    
    F-2Financial statements:Consolidated balance sheets
    
    
    F-3Consolidated statements of operations
    
    
    F-4Consolidated statements of comprehensive loss
    
    
    F-5Consolidated statements of changes in shareholders equity
    
    
    F-6Consolidated statements of cash flows
    
    
    F-7Notes to consolidated financial statements
    
    F-8 to F-27
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of
Brazil Fast Food Corp. and subsidiary We have audited the accompanying consolidated balance sheets of Brazil Fast
Food Corp. and subsidiary (a Delaware corporation) as of December 31, 2003 and
2002, and the related consolidated statements of operations, comprehensive
loss, changes in shareholders equity and cash flows for each of the three
years in the period ended December 31, 2003. 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
audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brazil Fast Food
Corp. and subsidiary as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America. The financial statements as of December 31, 2003 and for the year then ended
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2, to the financial statements, the Company has suffered
recurring losses and has a negative working capital and shareholders equity
that raises substantial doubt about its ability to continue as a going concern.
Managements plans in regards to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty. Rio de Janeiro, Brazil
March 22, 2004 Grant Thornton Auditores Independentes F-2




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of Brazilian Reais, except share amounts) December 31,2003
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    R$
    1.063
    
    
    R$
    1.461Inventories
    
    
    1.596
    
    
    
    1.536Accounts receivableClients
    
    
    847
    
    
    
    714Franchisees
    
    
    6.442
    
    
    
    5.333Allowance for doubtful accounts
    
    
    (2.094
    )
    
    
    (1.893
    )Prepaid expenses
    
    
    966
    
    
    
    637Other current assets
    
    
    457
    
    
    
    231TOTAL CURRENT ASSETS
    
    
    9.277
    
    
    
    8.019PROPERTY AND EQUIPMENT, NET
    
    
    16.505
    
    
    
    17.081DEFERRED CHARGES, NET
    
    
    7.283
    
    
    
    9.035OTHER RECEIVABLES AND OTHER ASSETS
    
    
    2.740
    
    
    
    2.849TOTAL ASSETS
    
    R$
    35.805
    
    
    R$
    36.984LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)CURRENT LIABILITIES:Notes payable
    
    R$
    5.155
    
    
    R$
    6.317Accounts payable and accrued expenses
    
    
    5.600
    
    
    
    5.295Payroll and related accruals
    
    
    1.584
    
    
    
    2.645Taxes, other than income taxes
    
    
    702
    
    
    
    1.155Deferred income
    
    
    511
    
    
    
    637Reassessed taxes
    
    
    1.607
    
    
    
    5.901Other current liabilities
    
    
    
    
    
    
    307TOTAL CURRENT LIABILITIES
    
    
    15.159
    
    
    
    22.257NOTES PAYABLE, less current portion
    
    
    1.720
    
    
    
    DEFERRED INCOME, less current portion
    
    
    1.848
    
    
    
    1.761CONTINGENCIES AND REASSESSED TAXES, less
current portion (note 10)
    
    
    22.030
    
    
    
    14.173OTHER LIABILITIES
    
    
    151
    
    
    
    303TOTAL LIABILITIES
    
    
    40.908
    
    
    
    38.494SHAREHOLDERS EQUITY (DEFICIENCY):Preferred stock, $.01 par value, 5,000 shares authorized; no
shares issued
    
    
    
    
    
    
    Common stock, $.0001 par value, 40,000,000 shares authorized;
7,806,540 and 7,542,790 shares issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    59.530
    
    
    
    59.297Deficit
    
    
    (63.732
    )
    
    
    (59.614
    )Accumulated comprehensive loss
    
    
    (902
    )
    
    
    (1.194
    )TOTAL SHAREHOLDERS EQUITY (DEFICIENCY)
    
    
    (5.103
    )
    
    
    (1.510
    )TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)
    
    R$
    35.805
    
    
    R$
    36.984
 The accompanying notes are an integral part of the consolidated financial statements. F-3




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of Brazilian Reais, except share amounts) Year Ended December 31,2003
    
    2002
    
    2001STORE RESULTSNet Restaurant Sales
    
    R$
    60.466
    
    
    R$
    63.465
    
    
    R$
    68.107Store Costs and ExpensesFood, Beverage and Packaging
    
    
    (23.754
    )
    
    
    (25.333
    )
    
    
    (27.331
    )Payroll & Related Benefits
    
    
    (13.688
    )
    
    
    (13.802
    )
    
    
    (13.983
    )Restaurant Occupancy
    
    
    (7.569
    )
    
    
    (8.417
    )
    
    
    (8.341
    )Contracted Services
    
    
    (7.950
    )
    
    
    (7.529
    )
    
    
    (7.330
    )Other Store Costs and Expenses
    
    
    (1.684
    )
    
    
    (1.828
    )
    
    
    (2.850
    )Total Store Costs and Expenses
    
    
    (54.645
    )
    
    
    (56.909
    )
    
    
    (59.835
    )STORE OPERATING INCOME
    
    
    5.821
    
    
    
    6.556
    
    
    
    8.272FRANCHISE RESULTSNet Franchise Royalty Fees
    
    R$
    6.663
    
    
    R$
    4.904
    
    
    R$
    3.981Franchise Costs and Expenses
    
    
    (2.150
    )
    
    
    (1.166
    )
    
    
    (1.342
    )FRANCHISE OPERATING INCOME
    
    
    4.513
    
    
    
    3.738
    
    
    
    2.639MARKETING, GENERAL ANDADMINISTRATIVE (EXPENSES) INCOMEMarketing (Expenses) Income
    
    
    (659
    )
    
    
    (375
    )
    
    
    (2.362
    )Administrative Expenses
    
    
    (6.520
    )
    
    
    (7.434
    )
    
    
    (7.594
    )Other Operating Income (Expenses)
    
    
    (335
    )
    
    
    (607
    )
    
    
    2.054Depreciation and Amortization
    
    
    (3.355
    )
    
    
    (3.773
    )
    
    
    (3.966
    )Net result of assets sold
    
    
    48
    
    
    
    (287
    )
    
    
    (122
    )Impairment of assets
    
    
    (204
    )
    
    
    (1.374
    )
    
    
    Total Marketing, G & A (Expenses) Income
    
    
    (11.025
    )
    
    
    (13.850
    )
    
    
    (11.990
    )OPERATING INCOME (LOSS)
    
    
    (691
    )
    
    
    (3.556
    )
    
    
    (1.079
    )Interest Income (Expense)
    
    
    (3.017
    )
    
    
    (4.174
    )
    
    
    (5.502
    )Foreign Exchange and Monetary
Restatement Gain (Loss)
    
    
    (410
    )
    
    
    (3.480
    )
    
    
    (1.669
    )NET (LOSS)
    
    R$
    (4.118
    )
    
    R$
    (11.210
    )
    
    R$
    (8.250
    )NET (LOSS) PER COMMON SHARE
BASIC AND DILUTED
    
    R$
    (0,55
    )
    
    R$
    (1,96
    )
    
    R$
    (2,27
    )WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:BASIC AND DILUTED
    
    
    7.552.363
    
    
    
    5.707.957
    
    
    
    3.626.626
 The accompanying notes are an integral part of the consolidated financial statements. F-4




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of Brazilian Reais) Year Ended December 31,2003
    
    2002
    
    2001Net Loss
    
    R$
    (4.118
    )
    
    R$
    (11.210
    )
    
    R$
    (8.250
    )Other comprehensive (loss):Foreign currency translation adjustment
    
    
    292
    
    
    
    (473
    )
    
    
    (186
    )Comprehensive Loss
    
    R$
    (3.826
    )
    
    R$
    (11.683
    )
    
    R$
    (8.436
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-5




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands of Brazilian Reais) Common Stock
    
    Additional
Paid-In
    
    
    
    
    
    Accumulated
ComprehensiveShares
    
    Par Value
    
    Capital
    
    (Deficit)
    
    Loss
    
    TotalBalance, December 31, 2000
    
    
    3.235.290
    
    
    
    1
    
    
    
    46.226
    
    
    
    (40.154
    )
    
    
    (535
    )
    
    
    5.538Private placement
    
    
    487.500
    
    
    
    
    
    
    

    4.115
    
    
    
    
    
    
    
    
    
    
    
    4.115Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.250
    )
    
    
    
    
    
    
    (8.250
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (186
    )
    
    
    (186
    )Balance, December 31, 2001
    
    
    3.722.790
    
    
    
    1
    
    
    
    50.341
    
    
    
    (48.404
    )
    
    
    (721
    )
    
    
    1.217Private placement
    
    
    3.700.000
    
    
    
    
    
    
    
    8.829
    
    
    
    
    
    
    
    
    
    
    
    8.829Shares granted
    
    
    120.000
    
    
    
    
    
    
    
    127
    
    
    
    
    

    
    
    

    
    
    
    127Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.210
    )
    
    
    
    
    
    
    (11.210
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (473
    )
    
    
    (473
    )Balance, December 31, 2002
    
    
    7.542.790
    
    
    R$
    1
    
    
    R$
    59.297
    
    
    R$
    (59.614
    )
    
    R$
    (1.194
    )
    
    R$
    (1.510
    )Exercise of options
    
    
    23.750
    
    
    
    

    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Shares in exchange of services
    
    
    240.000
    
    
    
    
    
    
    
    219
    
    
    
    
    

    
    
    

    
    
    
    219Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.118
    )
    
    
    
    
    
    
    (4.118
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292
    
    
    
    292Balance, December 31, 2003
    
    
    7.806.540
    
    
    R$
    1
    
    
    R$
    59.530
    
    
    R$
    (63.732
    )
    
    R$
    (902
    )
    
    R$
    (5.103
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-6




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Brazilian Reais) Year Ended December 31,2003
    
    2002
    
    2001CASH FLOW FROM OPERATING ACTIVITIES:Net (loss)
    
    R$
    (4.118
    )
    
    R$
    (11.210
    )
    
    R$
    (8.250
    )Adjustments to reconcile net (loss) to cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    3.355
    
    
    
    3.774
    
    
    
    3.966Gain on vendor capitalization
    
    
    
    
    
    
    
    
    
    
    915Loss on assets sold and impairment of assets
    
    
    156
    
    
    
    1.661
    
    
    
    453Accrued reassessed tax
    
    
    2.045
    
    
    
    
    
    
    
    Expense accounted for on grant of shares
    
    
    
    
    
    
    127
    
    
    
    Expense paid through issuance of equity
    
    
    118
    
    
    
    111
    
    
    
    158Changes in assets and liabilities:(Increase) decrease in:Accounts receivable
    
    
    (1.041
    )
    
    
    1.280
    
    
    
    (49
    )Inventories
    
    
    (60
    )
    
    
    (612
    )
    
    
    416Prepaid expenses and other current assets
    
    
    (329
    )
    
    
    (17
    )
    
    
    (482
    )Other assets
    
    
    (117
    )
    
    
    (388
    )
    
    
    (Decrease) increase in:Accounts payable and accrued expenses
    
    
    305
    
    
    
    (2.062
    )
    
    
    1.367Payroll and related accruals
    
    
    (1.061
    )
    
    
    959
    
    
    
    (787
    )Taxes other than income taxes
    
    
    (453
    )
    
    
    724
    
    
    
    1.071Other liabilities
    
    
    1.059
    
    
    
    3.301
    
    
    
    (82
    )Deferred income
    
    
    (39
    )
    
    
    (637
    )
    
    
    197CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    (180
    )
    
    
    (2.989
    )
    
    
    (1.107
    )CASH FLOW FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (2.503
    )
    
    
    (1.364
    )
    
    
    (2.308
    )Proceeds from sale of property, equipment and deferred charges
    
    
    1.422
    
    
    
    631
    
    
    
    331CASH FLOWS (USED IN) INVESTING ACTIVITIES
    
    
    (1.081
    )
    
    
    (733
    )
    
    
    (1.977
    )CASH FLOW FROM FINANCING ACTIVITIES:Borrowings under lines of credit
    
    
    0
    
    
    
    
    
    
    
    7.650Repayments under lines of credit
    
    
    558
    
    
    
    (5.440
    )
    
    
    (7.013
    )Proceeds from issuance of shares of common stock
    
    
    14
    
    
    
    8.829
    
    
    
    3.043CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
    
    
    572
    
    
    
    3.389
    
    
    
    3.680EFFECT OF FOREIGN EXCHANGE RATE
    
    
    292
    
    
    
    (473
    )
    
    
    (186
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (398
    )
    
    
    (806
    )
    
    
    410CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    1.461
    
    
    
    2.267
    
    
    
    1.857CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    R$
    1.063
    
    
    R$
    1.461
    
    
    R$
    2.267
 The accompanying notes are an integral part of the consolidated financial statements. F-7




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARY
(In thousands of Brazilian reais) 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1
    
    BUSINESS AND OPERATIONSBrazil Fast Food Corp. (the Company) was incorporated in the State of
Delaware on September 16, 1992. The Company, through its wholly-owned
subsidiary, Venbo Comercio de Alimentos Ltda. (Venbo), a Brazilian
limited liability company which conducts business under the trade name
Bobs, owns and, directly and through franchisees, operates a chain of
hamburger fast food restaurants in Brazil.2
    
    MANAGEMENT PLANS REGARDING GOING CONCERNSince March 1996, the Company has sustained net losses totaling R$63,732,
and at December 31, 2003, consolidated current liabilities exceed
consolidated current assets by R$5,882.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. Currently, the Company has no relevant
unused credit line.During 2002, the Company received net proceeds in amount of R$8,829 which
were used to reduce its debt, including debt with private individuals,
debt with financial institutions in Brazil, and past due accounts payable
with suppliers and others (see note 11).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 from royalties and franchise
fees without significant capital expenditure; the 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. 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 by 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. F-8




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##### Table of Contents



These factors, among others, raise substantial doubt about the Companys
ability to continue as a going concern.3
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESGenerally Accepted Accounting Principles (GAAP)These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (U.S.
GAAP). Such accounting principles differ in certain respects from
accounting principles generally accepted in Brazil (Brazilian GAAP),
which is applied by the Company for its annual consolidated financial
statement preparation. Unless otherwise specified, all references in these
financial statements 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.Use of estimatesThe preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.Geographic area of operationsThe Company primarily operates in Rio de Janeiro and São Paulo, Brazil,
making it susceptible to changes in the economic, political, and social
conditions in Brazil. Brazil has experienced political, economic and
social uncertainty in recent years, including an economic crisis
characterized by exchange rate instability and real devaluation, increased
inflation, high domestic interest rates, negative economic growth, reduced
consumer purchasing power and high unemployment. Under its current
leadership, the Brazilian government has been pursuing economic
stabilization policies, including the encouragement of foreign trade and
investment and an exchange rate policy of free market flotation. Despite
the current improvement of Brazilian economic environment, no assurance
can be given that the Brazilian government will continue to pursue these
policies, that these policies will be successful if pursued or that these
policies will not be significantly altered. A decline in the Brazilian
economy, political or social problems or a reversal of Brazils foreign
investment policy is likely to have an adverse effect on the Companys
results of operations and financial condition. Additionally, inflation in
Brazil may lead to higher wages and salaries for employees and increase
the cost of raw materials, which would adversely affect the Companys
profitability.Risks inherent in foreign operations include nationalization, war,
terrorism and other political risks and risks of increases in foreign
taxes or U.S. tax treatment of foreign taxes paid and the imposition of
foreign government royalties and fees. F-9




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##### Table of Contents



Principles of consolidationThe consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All material intercompany accounts and
transactions have been eliminated in consolidation.Constant currency restatementThrough June 30, 1997 the Brazilian economy was hyperinflationary as
defined in Statement of Financial Accounting Standards (SFAS) No.52.

The financial statements prior to that time were comprehensively restated
for the effects of inflation. After that date, inflation restatement was
not applied, however the non-monetary assets reflect the effects of
inflation through that date.Foreign currencyAssets and liabilities recorded in functional currencies other than
Brazilian Reais are translated into Brazilian Reais at the prevailing
exchange rate as reported by the Central Bank of Brazil as of the balance
sheet date. Revenue and expenses are translated at the weighted-average
exchange rates for the year. The resulting translation adjustments are
charged or credited to other comprehensive income. Gains or losses from
foreign currency transactions, such as those resulting from the settlement
of receivables or payables denominated in foreign currency, are recognized
in the consolidated statement of operations as they occur.Cash and cash equivalentsThe Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.Accounts receivableThe allowance for doubtful accounts is estimated based on aspects such as
aging of due receivables and clients current economic situation.Long term receivables denominated in Brazilian reais not indexed higher
than the Brazilian general price level inflation indicator (IGP-M) are
discounted to their present value.InventoriesInventories, primarily consisting of food, beverages and supplies, are
stated at the lower of cost or replacement value. Cost of inventories is
determined principally on the average cost method. F-10




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##### Table of Contents



Property and equipmentProperty and equipment are stated at price-level adjusted cost, less
price-level adjusted accumulated depreciation through June 30, 1997.
Depreciation on property and equipment is provided using the straight-line
method over the following estimated useful lives of the related assets: YearsBuildings and building improvements
    
    
    50Leasehold improvements
    
    
    4-5Machinery and equipment
    
    
    10-15Furniture and fixtures
    
    
    10-15Vehicles
    
    
    5-13
  Deferred chargesDeferred 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 until June 30, 1997.
Leasehold premiums related to unprofitable stores were written off.The amortization periods, which range from 5 to 20 years, are the terms of
managements estimate of the related rental contracts including renewal
options, which are solely at the discretion of the Company.Pre-opening costsLabor costs and the costs of hiring and training personnel and certain
other costs relating to the opening of new restaurants are expensed as
incurred.Revenue recognitionInitial 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.Amounts received from the Coca-Cola exclusivity agreements (see note 10)
as well as amounts received from other suppliers linked to exclusivity
agreements are recorded as deferred income and are being recognized on a
straight line basis over the term of such agreements or the related supply
agreement. The Company accounts for other supplier exclusivity fees on a
straight-line basis over the related supply agreement.Advertising expenseThe Company expenses advertising costs as incurred. Advertising expense
was R$4,168, R$2,958 and R$5,244 for the years ended December 31, 2003,
2002 and 2001, respectively. F-11




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##### Table of Contents



Stock optionThe Company accounts for awards granted to employees and directors under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, under which no compensation cost has been recognized
for stock options granted. Had compensation costs of these stock options
been determined consistent with SFAS No. 123 Accounting for Stock Based
Compensation, the Companys net loss and loss per share would have been
the following pro forma amounts: 2003
    
    2002
    
    2001Net loss as reported
    
    
    (4,118
    )
    
    
    (11,210
    )
    
    
    (8,250
    )Stock compensation
    
    
    (484
    )
    
    
    (505
    )
    
    
    (836
    )Net loss pro forma
    
    
    (4,602
    )
    
    
    (11,715
    )
    
    
    (9,086
    )Net loss per share, as reported
    
    
    (0.55
    )
    
    
    (1.96
    )
    
    
    (2.27
    )Net loss per share, pro forma
    
    
    (0.61
    )
    
    
    (2.05
    )
    
    
    (2.51
    )
  The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.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 2003, 2002 and 2001, no options
were granted to outside consultants.The weighted average fair values of options granted during 2003, 2002, and
2001 were $.31, $.21, and $1.39, respectively.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 2003, 2002, and 2001: (1) risk-free
interest rate of 5.00%, 5.00% and 5.00% (2) no expected dividend yield,
(3) expected lives of 5 years; and (4) expected stock price volatility of
334%, 242%, and 68%, respectively.Income taxesThe Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under SFAS No. 109, the effect of
a change in tax rates or deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date. F-12




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##### Table of Contents



Long-lived and intangibles assetsIn August 2001, the FASB issued SFAS No. 144, which requires that
long-lived assets being disposed of be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations.If an indicator of impairment (e.g., negative operating cash flows for the
most recent trailing twelve-month period) exists for any grouping of
assets, an estimate of undiscounted future cash flows produced by each
restaurant within the asset grouping is compared to its carrying value. If
any asset is determined to be impaired, the loss is measured by the excess
of the carrying amount of the asset over its fair value as determined by
an estimate of discounted future cash flows.The Company adopted SFAS 144. The adoption of such standard had no
material effect on the Companys consolidated financial position, results
of operations, or cash flows.Net loss per common shareThe Company applies SFAS No. 128, in the calculation of earnings per
share. Under this 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. There were no common share equivalents outstanding as of December
31, 2003, 2002 and 2001 that would have had a dilutive effect on earnings
for those respective years.Recently issued accounting standardsAsset retirement obligationsIn June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations, effective January 1,
2003. The Statement requires legal obligations associated with the
retirement of long-lived assets to be recognized at their fair value at
the time that the obligations are incurred. Upon initial recognition of a
liability, the cost will be capitalized as part of the related long-lived
asset and allocated to expense over the useful life of the asset.The adoption of SFAS No. 143 did not have a material effect on the
Companys results of operations or financial position.Variable interest entitiesIn January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest
Entities, which requires an enterprise to consolidate or make certain,
disclosures about variable interest entities that meet certain criteria,
effective January 1, 2003. FIN No. 46 is not applicable to the Company.ReclassificationsThe consolidated financial statements for the years ended December 31,
2002 and 2001 have been restated to conform with the current year
presentation. F-13




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##### Table of Contents



4
    
    PROPERTY AND EQUIPMENTProperty and equipment consists of the following: December 31,2003
    
    2002Land
    
    R$
    2.828
    
    
    R$
    2.828Buildings and building improvements
    
    
    4.670
    
    
    
    4.639Leasehold improvements
    
    
    5.530
    
    
    
    5.271Machinery and equipment
    
    
    12.981
    
    
    
    11.868Furniture and fixtures
    
    
    2.314
    
    
    
    2.333Assets under capitalized leases
    
    
    3.641
    
    
    
    3.846Vehicles
    
    
    441
    
    
    
    233Other
    
    
    
    
    
    
    5032.405
    
    
    
    31.068Less: Accumulated depreciation and amortization
    
    
    (15.900
    )
    
    
    (13.987
    )R$
    16.505
    
    
    R$
    17.081
 F-14




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##### Table of Contents



5
    
    DEFERRED CHARGESDeferred charges consists of the following: December 31,2003
    
    2002Leasehold premiums
    
    R$
    11,123
    
    
    R$
    12,972Less: accumulated amortization
    
    
    (3,840
    )
    
    
    (3,937
    )R$
    7,283
    
    
    R$
    9,035
  6
    
    NOTES PAYABLENotes payable consists of the following: December 31,2003
    
    2002Revolving lines of credit (a)
    
    R$
    2.933
    
    
    R$
    Related party loans (b)
    
    
    938
    
    
    
    Mortgages payable
    
    
    
    
    
    
    2.671Notes payable linked to
fixed assets acquisitions (c)
    
    
    2.986
    
    
    
    3.646Other notes payable
    
    
    18
    
    
    
    6.875
    
    
    
    6.317Less: current portion
    
    
    (5.155
    )
    
    
    (6.317
    )R$
    1.720
    
    
    R$
    
  At December 31, 2003, future maturities of notes payable are as follows: December 31,2004
    
    R$
    5.1552005
    
    
    9792006
    
    
    741
  (a)Due on demand from various Brazilian financial institutions as well as
private individuals with interest rates raging from 18.7% to 19.7% per
annum, and guaranteed by certain officers and receivables. Currently, the
Company has no relevant unused credit line.  (b)Credit facilities from related parties, including company and
private individuals. Repayment of principal is indexed to IGP-M (currently
at 8.0% per annum) with interest of 12.0% per annum. Those transactions
were made at usual market value.  (c)This credit facility was used to purchase three stores. Repayment of
principal with respect to one of these stores is due in 6 monthly
installments of R$29. Repayment of principal with respect to the other two
stores is due in 31 monthly installments of R$46 in addition of 3 annual
installments of R$415, starting January, 2004, ending January 2006. There
is no interest charged on these borrowings. Principal is indexed to
Brazilian inflation measured by IGP-M. This facility is secured by the
fixed assets purchased.The carrying amount of notes payable approximates fair value at December
31, 2003 and 2002 because they are indexed to the U.S. dollar and are at
market interest rates. F-15




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##### Table of Contents



7
    
    ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccrued expenses consists of the following: December 31,2003
    
    2002Suppliers
    
    R$
    3.393
    
    
    R$
    3.006Rent payable
    
    
    725
    
    
    
    680Outsourcing fees
    
    
    431
    
    
    
    721Accrued utilities
    
    
    280
    
    
    
    229Accrued maintenance
    
    
    72
    
    
    
    71Accrued advertising
    
    
    364
    
    
    
    293Audit services
    
    
    103
    
    
    
    89Other accrued liabilities
    
    
    232
    
    
    
    206R$
    5.600
    
    
    R$
    5.295
  8
    
    CASH FLOW INFORMATIONSupplemental Disclosure of Cash Flow Information:(i)
    
    Interest and income tax: Year ended December 31,2003
    
    2002
    
    2001Interest paid
    
    
    471
    
    
    
    1,497
    
    
    
    2,016Income taxes paid
    
    
    
    
    
    
    
    
    
    
    
  (ii) During fiscal year 2002 the Company purchased three stores (including
fixed assets and deferred charges) using credit facilities of R$3,470. As
of December 31, 2003 the Company had paid R$484 relating to such debt.  9
    
    TAXATIONTax losses through December 31, 2003 relating to income tax were R$43,998
and to social contribution tax were R$44,826. 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$5,512 of
tax loss carry forwards. The utilization of these pre-acquisition losses
recognized subsequent to the acquisition, first reduces to zero any
goodwill related to the acquisition, second reduces other non-current
intangible assets to zero, and third reduces income tax expense.The accumulated tax loss position can be offset against future taxable
income. 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. F-16




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##### Table of Contents



During 2001, the Company reduced its accumulated tax loss position (both
income tax and social contribution) in the amount of R$8,932 in order to
offset interest due on taxes included in the tax amnesty program (see note
10).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 34% to the loss before income taxes: December 31,2003
    
    2002
    
    2001Tax benefit at the combined statutory rate
    
    R$
    (1.400
    )
    
    R$
    (3.811
    )
    
    R$
    (2.805
    )Combined statutory rate applied to differences between
taxable results Brazil and reported results
    
    
    1.423
    
    
    
    1.763
    
    
    
    994Tax benefit for the year
    
    
    23
    
    
    
    (2.048
    )
    
    
    (1.811
    )Valuation allowances recorded against net deferred
tax assets
    
    
    (23
    )
    
    
    2.048
    
    
    
    1.811Income tax benefit as reported in the accompanying
consolidated statement of operations
    
    R$
    
    
    
    R$
    
    
    
    R$
    
  Differences between taxable results in Brazil and reported results are
primarily due to differences between Brazilian GAAP and U.S. GAAP.The following summarizes the composition of deferred tax assets and
liabilities and the related valuation allowance at December 31, 2003 and
2002, based on temporary differences and tax loss carry forwards
determined by applying rates of 9% for social contribution tax and 25% for
income tax. December 31,2003
    
    2002Deferred tax assets:Tax loss carry forward
    
    R$
    15.031
    
    
    R$
    15.880Provision for contingencies
    
    
    274
    
    
    
    171Present value adjustment
    
    
    
    
    
    
    106Property and equipment
    
    
    907
    
    
    
    Total deferred tax assets
    
    
    16.212
    
    
    
    16.157Deferred tax liabilities:Property and equipment
    
    
    
    
    
    
    8Deferred charges
    
    
    1.682
    
    
    
    854Total
deferred tax liabilitie
    
    
    1.682
    
    
    
    862Net deferred tax asset
    
    
    14.530
    
    
    
    15.295Valuation allowance
    
    
    (14.530
    )
    
    
    (15.295
    )R$
    
    
    
    R$
    
 F-17




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##### Table of Contents



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 consolidated net losses.10
    
    COMMITMENTS AND LITIGATIONOperating leasesThe future minimum lease payments under operating leases with an
initial or remaining non-cancelable lease terms in excess of one year
at December 31, 2003 are as follows: Fiscal Year
    
    Amount2004
    
    
    5,9182005
    
    
    5,4652006
    
    
    4,8032007
    
    
    3,9282008
    
    
    3,279Thereafter
    
    
    539
  Rent expense was R$5,492, R$5,609, and R$5,632 for the years ended
December 31, 2003, 2002, and 2001, respectively.Other commitmentsThe Company has long term contracts (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.The Company has a supply agreement with the Brazilian subsidiary of
Coca-Cola, which was amended during 2000, in order to enhance and extend
the original exclusivity term to March, 2008 (an additional two years from
the original agreement). As part of such agreement, the Coca Cola
Brazilian subsidiary agreed to pay the Company an additional R$1,000 in
connection with the extension of exclusivity. F-18




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##### Table of Contents



Litigation and tax amnesty program  During 1999, certain Brazilian taxes levied on the Company were not paid.
In the second quarter of 2000, the Company reached an agreement with the
state government to parcel unpaid taxes in sixty monthly payments,
interest free, in amounts indexed to Brazils UNIDADE FISCAL DE
REFERENCIA, which is currently 12% per year. In the same period, the
Company applied to join a tax amnesty program and was accepted by the
Brazilian Federal government (REFIS). Through this program, 1999 past due
federal taxes must be paid in monthly installments equivalent to 1.2% of
the Companys gross sales, with interest accruing at rates set by the
Brazilian Federal government, currently 10.5% per year.In the end of 2001 and beginning 2002 the Company did not pay some other
state and Federal taxes. In addition, Brazilian Social Securities
Authorities applied penalties against the Company, by charging certain
operating transactions not covered by the Companys previous calculation
of Social Security contributions.During December 2002, the Company applied to join and was accepted into
another tax amnesty program offered by the Rio de Janeiro state
government, through which the Company will parcel unpaid 2001 and 2002
state taxes, in one hundred and twenty monthly payments, interest free, in
amounts indexed to Brazils UNIDADE FISCAL DE REFERENCIA, which is
currently 12% per year.During January 2004, the Rio de Janeiro state government launched a
debt-rescheduling program through which all previous amnestied debt,
parceled in 36, 60 or 120 months, will be substantially reduced and paid
in 6 monthly installments. The Company subsequently to December 31, 2003
applied to such reschedule program. Adjustments to the State Tax
Obligations on our balance sheet, derived from such program, will be
recognize during 2004, when the State Government will be recompiling the
total debt due by the Company.During June 2003 the Brazilian Government had implemented another tax
amnesty (PAES), to which the Company applied and was accepted by the
Government. Through this program the balance of the previous Federal tax
amnesty program (REFIS) and unpaid 2001 and 2002 federal tax, as well as
the Social Security penalties, are being paid in monthly installments
equivalent to 1.5% of the Companys gross sales, with interest accruing at
rates set by the Brazilian Federal government, currently 10.5% per year.All installments related to those agreements have been paid on a timely
basis. During fiscal 2003, the Company paid approximately R$1,107 related
to such Brazilian Federal tax amnesty programs and approximately R$2,002
related to Rio de Janeiro state government agreements.Since June 2002, the Company has paid all its current taxes on a timely
basis.During 2001, the Company claimed in Brazilian court that their lease
financing contracts with IBM Leasing should not have their principal
amounts indexed to the US dollar, but instead stated in Brazilian Reais
bearing interest of 12% per annum. While awaiting the courts
determination, the Company has deposited all installment payments due
under its lease financing agreements with the court in reais, inclusive of
12% per annum interest. The installment payments ceased on November, 2002,
the end of the contract term. Despite the Companys claim that it owes the
lower amounts, the Company has accrued the full contracted amounts as of
September 30, 2003. F-19




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##### Table of Contents



Liabilities related to tax amnesty programs and litigation consist of the
following: 2003
    
    2002Long
    
    
    
    
    
    
    
    
    
    LongTotal
    
    Current
    
    Term
    
    Total
    
    Current
    
    TermLiability
    
    Liability
    
    Liability
    
    Liability
    
    Liability
    
    LiabilitySocial security tax
debts - restated
    
    R$
    
    
    
    
    
    
    
    R$
    
    
    
    R$
    1.365
    
    
    R$
    
    
    
    R$
    1.365Social tax
charged on revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.816
    
    
    
    3.816
    
    
    
    Reassessed value-
added tax
    
    
    4.515
    
    
    
    892
    
    
    
    3.623
    
    
    
    5.987
    
    
    
    1.125
    
    
    
    4.862REFIS/PAES
    
    
    15.050
    
    
    
    715
    
    
    
    14.335
    
    
    
    5.082
    
    
    
    960
    
    
    
    4.122Leasing litigation
    
    
    3.144
    
    
    
    
    
    
    
    3.144
    
    
    
    3.187
    
    
    
    
    
    
    
    3.187Other litigation
    
    
    928
    
    
    
    
    
    
    
    928
    
    
    
    637
    
    
    
    
    
    
    
    637TOTAL
    
    R$
    23.637
    
    
    R$
    1.607
    
    
    R$
    22.030
    
    
    R$
    20.074
    
    
    R$
    5.901
    
    
    R$
    14.173
  11
    
    SHAREHOLDERS EQUITYPreferred stockThe 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, 2003, no
Preferred Stock had been issued.Private placementsIn March 2001, the Company privately sold 487,500 units at price of $4.00
per unit. Each unit consists of one share of common stock and a warrant
to purchase one share of common stock at an exercise price of $5.00 per
share. Included in the sale was 118,750 units issued to Company vendors
in exchange for amounts owed to them and for future services in the amount
of R$915. The Company received net proceeds of approximately R$3,958 from
the sale of the units. F-20




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##### Table of Contents



As a precedent to closing the private placement, the Company and AIG Latin
America Equity Partners, Ltd, (AIGLAEP) amended their Stockholders
Agreement dated August 11, 1997 (the Stockholders Agreement). Among
other things, the Stockholders Agreement accorded AIGLAEP the right to
designate such number of directors as would then constitute a majority of
the Companys Board of Directors, thereby effecting a change in control if
the Company failed to achieve certain performance targets as set forth in
the Stockholders Agreement.On March 14, 2001, after the Company had failed to achieve certain of
these performance targets, the Stockholders Agreement was amended to
provide for the suspension of AIGLAEPs right to appoint a majority of the
Board of Directors, the suspension of AIGLAEPs right of approval over the
Companys annual budget, and the Companys ability to obtain financing of
up to $15 million.In conjunction with the amendment to the Stockholders Agreement, the
Company agreed to pay AIGLAEP $350,000. Of this amount, $100,000 was paid
on March 31, 2001, with the balance to be paid in equal payments of
$35,750 over each of the next seven (7) succeeding fiscal quarters.
Additionally, the Company issued AIGLAEP a warrant to purchase 35,813
 shares of the Companys common stock at an exercise price of $5 per share,
and amended the exercise price to $5 per share on warrants held by the
Shareholder which entitled them to purchase an additional 64,187 shares of
the Companys common stock. Certain of the Companys Directors agreed to
issue an option to AIGLAEP to sell 40,000 shares of common stock
personally owned by the Directors to AIGLAEP at a price of $1.50 per
share.At the date of the transaction, the quoted market price of the Companys
common stock was $2.50 per share. Accordingly, the excess of the quoted
market price of the common stock subject to purchase by AIGLAEP over the
price to be paid by AIGLAEP in the amount of $R86 has been treated as a
contribution of capital during the quarter ended March 31, 2001. The costs
associated with the amendment to the Stockholders Agreement in the amount
of R$959 have been included in general and administrative expenses in the
2001 consolidated statement of operations.In November 2001, the Company amended its previously issued quarterly
consolidated financial statements to reflect the costs associated with the
amendment to the Stockholders Agreement as an expense, rather than a
direct charge to capital. The effect of this change was to decrease the
Companys reported consolidated net income by R$ 959 for the three months
ended March 31, 2001 and to increase the Companys reported consolidated
net loss by R$959 for the six months ended June 30, 2001, respectively.In May, 2002, the Company privately sold 2,500,000 shares of its common
stock for R$5,000 to four accredited private investors (collectively, the
New Investors), as a part of a new shareholders agreement (the
Agreement). As of December 31, 2003 the Company had received the total
amount of such private placement.During the third quarter of 2002, the Company privately sold an additional
1,200,000 shares of its common stock at a price in Brazilian reais,
computed at the times of exercise, equivalent to US$1.00 per share. The
Company has received net proceeds of R$3,829 pursuant to such private
placement. F-21




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##### Table of Contents



On August 15, 2003 options to purchase an aggregate of 23,750 shares of
common stock were exercised, having an aggregate purchase price of
$4,512.50 equivalent to R$14.Services provided in exchange of common sharesIn May, 2002 the Company entered into an agreement requiring the
Company to retain the services of either Ricardo Bomeny, or an entity of
which he is a principal, to manage the Companys subsidiary
day-to-day operations for a term of two years. For such services the
consultant will receive 20,000 shares of the Companys common stock for
each of the first twelve months of such two-year term, a sum in cash
for the second twelve months of such term in a amount to be mutually
agreed upon at a future date, and an additional 260,000 shares at
the end of the two-year term conditioned upon the attainment of specified
targets. During 2003 the Company charged R$118 (R$111 in 2002) to
operating results related to those services. Such amount is a result of
number of shares owed on accrual basis until December 31, 2002, multiplied
by their average fair value.On December 31, 2003 the amount equivalent to 240,000 were incorporated to
Additional Paid in Capital.Severance agreementIn October, 2002 we granted 120,000 shares to Mr. Peter Van Voorst Vader
as a severance payment for leaving the presidency of Venbo. Exemption from
registration under the Securities Act of 1933, as amended, was claimed for
this issuance in reliance upon the exemption afforded by Section 4(2) of
the Securities Act as a transaction by an issuer not involving any public
offering. During 2002 the Company charged R$127 to operating results
related to those severance agreement. Such amount is a result of number of
shares granted, multiplied by their fair value.Stock option planOn September 18, 1992, the Companys Board of Directors and a majority of
the shareholders of the Company approved the 1992 Stock Option Plan (the
Plan).During 1998, the Board of Directors approved an increase in options
available for grant under the Plan from 500,000 to 1,000,000. F-22




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##### Table of Contents



The Plan, as amended and restated, authorizes the granting of awards, the
exercise of which would allow up to an aggregate of 1,000,000 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 an option price of at least 110% of the fair
market value on the date of grant, 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.On August 15, 2003, under the Companys Stock Option Plan, the
Compensation Committee granted options to purchase 32,500 shares with an
average exercise price of $.32, immediate vesting, and valued at average
fair value of $10,075.00 using the Black Scholes option pricing model.Also on August 15, 2003, options to purchase an aggregate of 23,750 shares
of common stock were exercised, having an aggregate purchase price of
$4,512.50 equivalent to R$14.There were no options canceled during the twelve months ended December 31,
2003, under the Companys Stock Option Plan.Under the Companys Stock Option Plan, options to purchase a total of
28,125 shares have expired during the twelve months ended December 31,
2003.Vesting terms of the options range from immediately vesting of all options
to a ratable vesting period of 3 years. Option activity for the years
ended December 31, 2003, 2002 and 2001 is summarized as follows: 2003
    
    2002
    
    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOptions outstanding at beginnig of year
    
    
    590.000
    
    
    $
    2,35
    
    
    
    564.437
    
    
    $
    2,29
    
    
    
    446.412
    
    
    $
    11,04Granted
    
    
    32.500
    
    
    
    0,32
    
    
    
    175.250
    
    
    
    1,25
    
    
    
    188.750
    
    
    
    2,30Exercised
    
    
    (23.750
    )
    
    
    0,19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (28.125
    )
    
    
    2,45
    
    
    
    (25.937
    )
    
    
    2,45
    
    
    
    (67.225
    )
    
    
    13,00Canceled
    
    
    
    
    
    
    
    
    
    
    (123.750
    )
    
    
    2,18
    
    
    
    (3.500
    )
    
    
    2,23Options outstanding at December 31,
    
    
    570.625
    
    
    $
    1,76
    
    
    
    590.000
    
    
    $
    2,35
    
    
    
    564.437
    
    
    $
    2,29Options exercisable at December 31,
    
    
    558.125
    
    
    $
    1,77
    
    
    
    555.000
    
    
    $
    2,43
    
    
    
    544.437
    
    
    $
    2,29
  The options outstanding at December 31, 2003, range in price from $0.32
per share to $2.876 per share and have a weighted average remaining
contractual life of 3.13 years. F-23




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##### Table of Contents



12
    
    SELECTED QUARTERLY FINANCIAL DATA First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2003Net Restaurant Sales
    
    
    15.447
    
    
    
    13.902
    
    
    
    14.393
    
    
    
    16.724Net Franchise Royalty Fees
    
    
    1.617
    
    
    
    1.486
    
    
    
    1.560
    
    
    
    2.000Operating income (loss)
    
    
    (921
    )
    
    
    (192
    )
    
    
    146
    
    
    
    276Net income (loss)
    
    
    (2.090
    )
    
    
    (596
    )
    
    
    (602
    )
    
    
    (830
    )Basic and diluted income (loss)
per share
    
    
    (0,28
    )
    
    
    (0,08
    )
    
    
    (0,08
    )
    
    
    (0,11
    )Weighted average common
shares outstanding
    
    
    7.542.790
    
    
    
    7.542.790
    
    
    
    7.554.665
    
    
    
    7.569.2072002Net Restaurant Sales
    
    
    17.115
    
    
    
    14.716
    
    
    
    14.781
    
    
    
    16.853Net Franchise Royalty Fees
    
    
    1.169
    
    
    
    1.036
    
    
    
    1.162
    
    
    
    1.537Operating income (loss)
    
    
    (388
    )
    
    
    (561
    )
    
    

    (1.134
    )
    
    
    (1.473
    )Net income (loss)
    
    
    (1.520
    )
    
    
    (3.205
    )
    
    
    (3.791
    )
    
    
    (2.694
    )Basic and diluted income (loss)
per share
    
    
    (0,41
    )
    
    
    (0,64
    )
    
    
    (0,57
    )
    
    
    (0,34
    )Weighted average common
shares outstanding
    
    
    3.722.790
    
    
    
    4.972.790
    
    
    
    6.622.790
    
    
    
    7.513.457
 F-24