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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, 2004
Commission file number: 0000-23278 BRAZIL FAST FOOD CORP.  Delaware
    
    13-3688737(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 Rua Voluntários da Pátria 89, 9o andar
Botafogo
CEP 22.270-010
Rio de Janeiro, Brazil
    
    N/A(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: 55 21 2536-7500 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 o 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. o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes o No x 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. The
number of shares outstanding of the Registrants common stock is
7,953,468 (as of April 14, 2005). Documents incorporated by reference portions of the Registrants definitive proxy statement
for its 2005 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, 2004, are hereby
incorporated by reference in Part III of this Annual Report on Form 10-K.




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSFORWARD LOOKING STATEMENTSITEM 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 SECURITIESEQUITY COMPENSATION PLAN INFORMATIONITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSRESULTS OF OPERATIONSSTORE RESULTSFRANCHISE RESULTSMARKETING, GENERAL AND ADMINISTRATIVE (EXPENSES) INCOMEINTEREST INCOME (EXPENSES) AND FOREIGN EXCHANGE GAIN (LOSS)LIQUIDITY AND CAPITAL RESOURCES (Amounts in thousand of Brazilian reais)GOING CONCERN ISSUECRITICAL ACCOUNTING POLICIES AND ESTIMATESNEW ACCOUNTING STANDARDSOFF-BALANCE SHEET ARRANGEMENTSITEM 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 9. A. CONTROLS AND PROCEDURESITEM 10. B. OTHER INFORMATIONPART IIIITEM 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 12. EXECUTIVE COMPENSATIONITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8  KSIGNATURESEXHIBIT INDEXREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSec. 302 Certification of CEO & CFOSec. 906 Certification of CEO & CFO    Table of Contents  Unless otherwise specified, all references in this report to Reais, the Real or R$ are
to the Brazilian Real (singular), or to the Brazilian Reais (plural), the legal currency of Brazil,
and U.S. Dollars or $ 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 (a) GENERAL DEVELOPMENT OF 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, 2004, we had 388 restaurants, or points of sale,
including 98 kiosks and trailers. We were incorporated in Delaware in 1992. Our executive offices are located at Rua
Voluntários da Pátria 89, 9o andar  Botafogo CEP 22.270-010, Rio de Janeiro, Brazil. Our
telephone number is +5521 2536-7500. The audit opinions of our independent registered public accounting firms 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. Recent Developments Different from 2003, when important reforms were approved in Brazil by the Senate and the
Lower House, 2004 has seen many postponements. Discussions over prohibitive taxes and labor costs
have cooled down, with no consistent proposal or major plan for the foreseeable future.
Nevertheless, boosted by fundamentals built up on 2003, in 2004 Brazil has capitalized on
international growth, depreciated Brazilian currency and higher commodities prices to grow 5.2%,
according to the IBGE  Brazilian Institute of Geography and Statistics (a governmental
institution), helping income and employment to recover from its worst figures in years. This
positive environment has helped Brazil Fast Food Corp. achieve a positive result after many years
of successive losses. Although such positive environment has raised fears of overheating in the
Central Banks hard-core, that has been pushing interest rates higher since last September with no
visible dead end, some analysts are optimistic about the economy, expecting Brazil GDP to grow up
to 3.7% in 2005. In 2004, the Company held a Convention where its franchisees and suppliers reaffirmed their
commitment to the companys efforts to grow and succeed. In this Convention, the basic lines for
the development of the Ethics Committee and the Franchisees Committee were drawn. Complementarily, the company has concluded two of its main projects to increase sales and
diversify its customers. The Coffee Shop, that could be included in pre-existing stores or could be
operated as a independent kiosk, and the Beer Station, a project, in association with Ambev, the
biggest brewery company in Brazil, to offer beer in Bobs stores. Also, the company was very
successful in turning over some of its most problematic franchisees, as well as, in discussing and
rescheduling debts long overdue by its franchisees. The Company completed on Dec. 20, 2004 a total buyout of AIG Latin America Equity Partners
375,000 share position in Brazil Fast Food. This buyout nullified a pre-existing shareholders
agreement, which granted AIG certain rights over Brazil Fast Foods administration, and increased
the collective stake of Big Burger and CCC in Brazil Fast Food by about five percent to
approximately 60 percent. -2-




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In addition, it has been approved by the Board of Directors a stock repurchase plan, to be
financed by a small cash position built up in the US, in American dollars, that if sent to Brazil
would have no meaningful impact on the companys cash flow, ongoing marketing initiatives or debt
expenses. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Not applicable. We operate in only one segment of Industry. (c) NARRATIVE DESCRIPTION OF BUSINESS Restaurant Operations As of December 31, 2004, we had 388 points of sale, including 98 kiosks and trailers. Of the
388 points of sale, we own and operate 63 and the remaining 325 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 225, or 58%, 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 one franchised restaurant that opened in Portugal in November
2001. The largest number of franchised operations outside of Rio de Janeiro and São Paulo are in
Santa Catarina, Paraná and Pernambuco. All points of sale serve a uniform menu of hamburgers, chicken burgers, hot dogs, sandwiches,
french fries, soft drinks, juices, desserts, ice creams 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 fast-food service is based in a single line system distinguished from other competitors by
its variety and flexibility, which allow customers to add items to or exclude items from the
several meals they have to choose. Although this is highly valued by our customers, the extended
time to conclude a sale and the lost in operational efficiency have made the company increase its
investments in training personnel at stores and initiate studies on production methods. 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. 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 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 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, almost all of our points of sale have now been renovated to update the
decor, introduce our new logo created in 2001, modernize the menu boards, expand the seating
facilities, include playground for children and provide air conditioning. All new franchisees open
their restaurants with this housestyle, which is also carried through in the uniforms worn by our
personnel (occasionally modified to feature hats and shirts used in promotions). For the past ten years, we have been the exclusive provider of hamburgers and related items at
two of Brazils largest special events  the Rio de Janeiro Carnival, 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
shows, car shows and rodeos. Our kiosks showed expressive revenues in 2004 in Ronald Reagan
Aircraft Carriers visit to Rio de Janeiro and in Coca-Cola Vibezone event. 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 -3-




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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. One store is been operated in Lisbon and we are looking for new candidates to
franchises in Portugal. Even though internationalizing our fast-food chain is not a top priority,
we do not exclude eventual opportunities. In 2005, the first Bobs store will be opened in Angola. 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, 2004, 2003 and 2002: Years Ended December 31,2004
    
    
    2003
    
    
    2002Stores
    
    
    Kiosks
    
    
    Stores
    
    
    Kiosks
    
    
    Stores
    
    
    KiosksOwned and operated restaurants (a):Opened during period
    
    
    5
    
    
    
    6
    
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    0Closed during period
    
    
    3
    
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    1
    
    
    
    2Sold to franchisees
    
    
    4
    
    
    
    2
    
    
    
    4
    
    
    
    0
    
    
    
    5
    
    
    
    2Bought from franchisees
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    3
    
    
    
    0
    
    
    
    0Open at end of period
    
    
    49
    
    
    
    14
    
    
    
    51
    
    
    
    10
    
    
    
    55
    
    
    
    6Franchised restaurants (a):Opened during period
    
    
    32
    (b)
    
    
    31
    (b)
    
    
    33
    (c)
    
    
    30
    
    
    
    46
    (d)
    
    
    2
    (d)Closed during period
    
    
    15
    
    
    
    3
    
    
    
    18
    
    
    
    6
    
    
    
    5
    
    
    
    3Sold to us by our franchisees
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    3
    
    
    
    0
    
    
    
    0Open at end of period
    
    
    241
    
    
    
    84
    
    
    
    224
    
    
    
    56
    
    
    
    210
    
    
    
    35Total stores & kiosks at end of period
    
    
    290
    
    
    
    98
    
    
    
    275
    
    
    
    66
    
    
    
    265
    
    
    
    41
   (a)
    
    Does not include trailers and kiosks used for temporary locations during 2004, 2003 and 2002.(b)
    
    Includes 6 of our owned and operated points of sale (respectively 4 stores and 2 kiosks) that
were sold to a franchisee during the year ended December 31, 2004.(c)
    
    Includes 4 of our owned and operated points of sale that were sold to a franchisee during the
year ended December 31, 2003.(d)
    
    Includes 7 of our owned and operated points of sale (respectively 5 stores and 2 kiosks) that
were sold to a franchisee during the year December 31, 2002. The average guest check per customer for both our owned and operated points of sale and
franchise for the years ended December 31, 2004, 2003 was R$7.57, R$6.70, 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. -4-




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Growth Strategy Bobs is Brazils second largest fast food hamburger restaurant chain in 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 has an estimated population of 181.6 million, a third of Latin America and Caribbean
total population. The city of São Paulo, the largest city in Brazil with 10.8 million residents, is
located within the state of São Paulo, which has a population of 39.8 million. Rio de Janeiro,
Brazils second largest city, has 6.0 million residents. The city of Rio de Janeiro is located
within the state of Rio de Janeiro, which has a population of 15.2 million. Fourteen metropolitan
areas, including those of Rio de Janeiro and Sao Paulo, have populations in excess of one million.
According to the IBGE  Brazilian Institute of Geography and Statistics, in 2002-2003 the average
annual income of the Brazilian population was as follows: Annual Income
    
    % of PopulationR$0 to R$4,800
    
    
    16.38
    %R$4,800 to R$12,000
    
    
    34.88
    %R$12,000 to R$48,000
    
    
    39.05
    %R$48,000 to R$72,000
    
    
    4.61
    %R$72,000 and above
    
    
    5.08
    %
 In 2005, we intend to make capital expenditures of R$4,000,000 to refurbish old points of
sale, install new signage, upgrade our equipment and expand the number of our franchise operated
points of sale in Brazil. Such capital expenditures will be funded both by our operating and
financing activities. Our target is to achieve 500 operating points in 2005, and we are focusing
our growth efforts on the development of new franchises, especially in São Paulo, Bahia and Rio
Grande do Sul, three major Brazilian states, and in Brasília, Brasils Federal District, four
important regions with strong, growing markets. Our growth strategy also includes to increase our
marketing effort on children, implement a motivational program to improve service throughout our
restaurant chain and begin a three-year expansion effort to franchise Bobs kiosks. These kiosks
require less start-up capital and deliver a faster return on investment for franchisees, since they
sell only higher-margin items, such as ice creams and cold beverages  products that do especially
well in Brazils warm climate. We expect to continue to capitalize on our 53-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. At the end of 2004, 18 own operated and 8 franchised operated stores were working with the
new call center and expanding the delivery services. We didnt reach the target fixed for last
year, that is, to extend the centralized call center service to every point of sale, both
franchised and own operated. In fact, communication problems and high operation costs obliged to a
revision of the program and procedures but it is still a target to extend the call center to all
stores of the chain. Franchise Program As of December 31, 2004, 325 of our 388 points of sale were owned and operated by franchises.
In 2004, for the eighth year in a row, Bobs received the Quality Seal of the Brazilian Franchise
Association  ABF. -5-




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Also, for the first time, the Brazilian magazine specialized in small business, Pequenas
Empresas & Grandes Negócios(a non-affiliated company), has developed a research on franchising,
creating the Franchising Guide  Best Franchisers in Brazil 2004, in which Bobs has got the
second place in the highly competitive food segment, explored by 98 of 450 chains operating in
Brazil. The research took into consideration the chains franchising experience, total number of
stores and geographic distribution, brand exposure, average revenue and payback period,
communication with franchisees, support in training, operations and marketing initiatives. According to the Brazilian Franchise Association  ABF, Bobs is the second largest fast food
chain in number of stores in Brazil. Our franchise agreements generally require the franchisee of a
traditional Bobs restaurant to pay us an initial fee of R$90,000 and additional fees equal to 5%
of the franchisees gross sales. Initial fees are lower for kiosks and small stores. Franchisees
pay also 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 trademark and formulas in a
specific location or area, 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. 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 four-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. First fees paid by franchisees usually cover the
costs of keeping a strong and efficient expansion team and internal costs of the training programs,
mainly manuals and the normal lack of efficiency of the School Stores. 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. We encourage mature and profitable franchisees to increase the number of stores they operate.
As a consequence of this strategy, the number of stores per franchisee increased from 1.77 in 1999
to 3.19 in December 2004. At December 31, 2004, we had 102 franchisees who, collectively, operated
325 points of sale, including 84 kiosks and 3 trailers. We are also focusing on developing special agreements with gasoline retailers to house Bobs
points of sale in retail gasoline stations. We contemplate that some 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. We are currently testing several joint sites with gasoline retailers, including Shell, Forza,
Ale, and Petrobras, the largest one in Brazil with approximately 7,000 locations. 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, ten joint sites have been opened in Petrobras gas stations. Shell has four joint sites in
operation and we are negotiating an agreement with them to house a specific number of other joint
sites in certain approved locations. Forza, a gasoline retailer catering to the taxicab industry,
now has nineteen Bobs sites -6-




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in operation, with the objective of housing 20 joint sites in total. Alé, another gasoline
retailer, has two joint sites, and an agreement with them for the creation of multiple joint sites
has been signed. Besides, other five join sites have been operating in Esso, Bandeira Branca,
Ipiranga and Repsol. Currently we are reevaluating the Portugal operation. We will open a new store in Angola in
2005 with a local franchisee. The project is approved, the franchise contract signed and the store
is been built up. 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 2004 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 2002 we introduced a 120 grams 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 grams turkey tasting hamburger. We also extended our
healthy-oriented menu, by introducing salad meals combined with any choice of our
hamburger offers.
    In 2004 we launched a sandwich of chicken breast under the lineage of Bobs Grill,
which includes pork, barbecue and turkey tasting hamburgers. Also, we launched a double
cheeseburger with salad and extended our healthy-oriented menu, by introducing two
choices of salad in two different sizes, one of them with the option to add chicken
slices. We launched the slogan Gostoso como eu gosto (tasty as I want), pointing out the flexibility
of the chain in adding items to or excluding items from the meals it offers. In addition to that,
we started a promotional campaign on our traditional items, as our leading hamburger, Big Bob, and
our milkshakes. Devore os Clássicos (devour the classics) was intended to consolidate our
tradename on the market and boost our total number of customers by promoting our top selling
products. We occasionally launch a combination of sandwiches and soft drinks for a promotional price,
the Combat campaign, designed to attract snack bars traditional customers. Because ice creams and sundaes are highly seasonal, we often introduce, for a limited period
of time, new toppings and new syrups flavors in order to balance the decrease in volume by an
increase in revenue by product. In 2004, we launched a marshmallow top, as well as a caramel and a
pineapple syrup, for our sundaes. We and our advertising agency annually develop a multi-media marketing program to advertise
our restaurant network in its primary markets. During 2004, we sponsored Botafogo de Futebol e
Regatas one of the most traditional soccer teams in the Brazilian soccer league. 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,
Biba, and Bonga, our mascots. 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. -7-




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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 long-term exclusivity agreements with Coca-Cola, for its soft drink
products, Ambev, the biggest Brazilian brewery company, Farm fries, the Argentinean producer of
french fries, and Sadia, one of the biggest meat processors in Brazil, as well as with Novartis
Nutricion for its Ovomaltine chocolate. These agreements are extensive to four to five years. The
Coca-Cola agreement was amended in 2000 to extend the exclusivity period to 2008. In November 2003, TGB Transportadora, a Brazilian limited liability company, that for several
years rendered the transportation services of FBP (food, beverage, packing) goods for the whole
Bobs chain, both own stores and franchise stores, declared that their services would had to be
interrupted at the beginning of 2004 due to operational and financial problems. This emergency obliged us to find an urgent solution. Yet, it was imperative to maintain the
commercial conditions of these services, in particular its costs, delivery dates and frequency.
Considering we handle both dry and refrigerated goods, it was necessary to set up a fleet of
special trucks or to engage a company covering the whole country fully adapted to our needs. Because we didnt find a company able to fulfill all our demands in time, the Board of
Directors approved, after discussion, the Companys decision to buy all the trucks belonging to TGB
and to operate the transportation service. The decision, qualified as a temporary solution that
might be periodically submitted to new evaluation, involved creating a new company that could
operate the vehicles at least for the time necessary to build up a better solution. We understood
that transportation was not in our core business, but it was a very sensible part of it because of
its costs and importance to the performance of the chain. The company was established in Rio de
Janeiro with the name of SUPRILOG Transportadora, a limited liability company, at the beginning 90
% owned by VENBO, BFFC only subsidiary, and 10 % owned by a private individual that was going to
be the CEO of the company. Later on in 2004 the CEO left the society and VENBO became 100 % the
owner of SUPRILOG. The total capital of SUPRILOG is R$150,000 and VENBO paid in 90%, R$135,000, with three of the
30 trucks bought from TGB. The other trucks were under leasing contracts with financial
institutions with different terms and with right to keep the trucks after the last payment. VENBO
transferred to SUPRILOG all these trucks under a trust contract authorizing SUPRILOG to operate the
vehicles and pay regularly the monthly leasing installments. In December 2004, the remaining 10% of capital was paid in. During 2004 SUPRILOG could satisfy Bobs chain transportation requirements. -8-




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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: 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 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. 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. In seven consecutive years, CartaCapital and Interscience (two non-affiliated companies) have
accessed companies development and behavior through the research called The Most Admired
Companies in Brazil, in which 1,054 executives are interviewed about singled out companies in
eleven different key-factors and among their own segment. In 2004, Bobs has conquest the 46th place among all companies and the
2nd place among fast-food chains, followed by Casa do Pão de Queijoand Habibs. There are no official statistics for our specific market in Brazil. We can only give some
ideas about the development of fast food restaurants based on a few publications and on our own
observation of the market. The accumulated result of industry in 2004 was the best in 18 years. Retail sales also grew
but at a very lower rate: 9,25% in volume and 12,97% in R$. This was an excellent result if we
consider that retail sales in 2001, 2002 and 2003 showed a rate of growth of 1.57%, +0.7% and
+3.67% respectively. But food and beverage retail sales grew only 7.22% in 2004, a lower growth
than the average of the retail market. Anyway this improvement was largely boosted by some
government measures that created smoother credit conditions for consumers in December. -9-




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Considering the segment total revenue of R$3.4 billion, informed in the Franchising Guide 
Best Franchisers in Brazil 2004", Bobs has a market share of approximately 7%. Bobs is the third
fast-food chain in total revenue, after Habibs, a local franchiser with Arabian options in its
menu, which focus on lower class consumers. McDonalds, the fast food leader in Brazil, went through a very difficult situation with
franchisees in 2003; however, in 2004, prioritizing its own stores and limiting its number of
points of sale, it seems to have found a new equilibrium and is once again aggressive as it used to
be in the past years. Burger King returned to Brazil in 2004 with three stores in São Paulo. This is a new
investment project in association with a Brazilian partner. Certainly it represents a great threat
for McDonalds but we cannot neglect it as our competitor. Other international brands in the food
market are also arriving or enlarging their small chains as KFC, Dominos, Pizza Hut and Subway.
Dominos, operated in Brazil by a Mexican company, recently initiated a partnership with Spoleto, a
Brazilian chain of Italian food restaurants with 100 point of sales in Brazil. Giraffas, another
Brazilian fast food chain, is slowly but steadily growing although it is still under the mark of
200 stores. We must also mention the existence of a large number of snack bars that have a very strong
appeal to the local market but dont represent brands or constitute chains. Another typical
Brazilian restaurant largely expanded and in constant growth is the weight-food priced restaurant.
In these restaurants the price paid by the client is given by the weight of his (her) consumption.
The menu is very large and cheap. They represent a good alternative for food consumers and we
consider them great competitors. The profitability of these restaurants is a doubtful question and
their owners or operators show a high turnover, but the number of points of sales are in constant
expansion. We can say that the food market in Brazil is an expanding market, both because of a population
growing at an annual rate of 2% and because of the improvement we can expect of its expending
power. See Risk factors  Risks relating to Brazil. Personnel As of December 31, 2004, we, including our franchisees, employed 8,089 persons, of whom 1,569
were employed in our owned and operated restaurants. The total number of full-time employees as of
December 31, 2004 was 1,681 of which 230 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. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Not applicable -10-




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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. Although we have reached a positive result for the first time in 2004, we incurred in net
losses of R$4,118,000 and R$11,210,000 for the years ended December 31, 2003 and 2002,
respectively. Our accumulated deficit at December 31, 2004 was R$63,131,000 and our working
capital deficit at such date was R$5,235,000. The year 2004 presented a positive macroeconomic
scenario that, together with strong measures implemented by the Company in its operation and
administration, has helped it turns itself profitable. Yet, we cannot say that the negative
tendency is wholly reversed. Some of our own stores are still non-profitable and our small
operation margins are constantly been affected by market factors concerning raw material, wages,
location costs with lawsuits in due course and the general condition of many stores in Rio de
Janeiro that need urgent repairing and heavy investments.  
    Our registered public accounting firms report raises uncertainties about our ability to
continue as a going concern; Need for additional financing. The reports of Grant Thornton, the registered public accounting firm of our consolidated
financial statements for the years ended December 31, 2003, 2002 and 2001, recite that our
recurring losses from operations and negative working capital raise substantial doubt about our
ability to continue as a going concern. Grant Thornton had a partnership with Trevisan, a highly
respected Brazilian firm of independent auditors that came to an end in the middle of 2004.
Trevisan made a new partnership with BDO and so, consolidated financial statements for the year
ended December 31, 2004 were audited by the new auditors. Their report confirms the doubts on our
ability to continue as a going concern. Our financial situation, discussed elsewhere in this 10-K report, is largely better than in
the past years but the necessity of new funds to finance obligatory investments is a constant
challenge to our funding strategies. At this time, we cannot state with any degree of certainty whether such funding will be
available to us and, if available, that the terms and conditions of such funding will be acceptable
to us. Any potential sources of additional financing may be subject to business and economic
conditions outside of our control. See Managements Discussion and Analysis of Financial Condition
and Results of Operations  Liquidity and Capital Resources.  
    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. 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. In
2003 McDonalds went through a very difficult period strongly affected by internal disputes in the
franchise chain. But they are overcoming this situation -11-




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and their over-all financial and other resources available to them, vastly greater than ours,
give them all the chances to reverse their position in the market where they still keep the first
place in the fast food activity. Besides that, the arrival of international competitors, like the Burger King to São Paulo, the
biggest city in Brazil, the expansion of Habibs, a local fast food chain, and the permanent growth
of other restaurants, like the typical Brazilian weight food restaurant, are the challenges we
will continue to face in the following years. We are confident on Brazils increasing market for fast food restaurants, but the diversity
and strength of our competitors may oblige us to enhance our managerial and marketing efforts
affecting our margins and/or increasing our funding necessities. As stated in the previous sections
we cannot take for granted our capacity to find new resources with convenient conditions for our
operational margins.  
    A new challenge: light food In order to remain competitive, we are required to respond to changing consumer preferences,
tastes and eating habits, sometimes variable depending on regional or local tendencies. Significant
investments are necessary to maintain a permanent research on new plates, new raw materials, new
methods and training. But there is a new trend in the world which Brazil seems to follow : light
food, light plates, low fat products. This is a great challenge for the fast food industry. In the
past years we developed salads and turkey light sandwiches that are now incorporated to our menu.
But both the public demand and government policies are increasing pressure for lighter products and
a large disclosure of the nutrition data of food exposed in the stores or in packages. All this
means an increase in investments and in direct costs. The dispute for a market place in the
following years may be developed in this extremely harsh field. Once again we cannot assure that we
will be able to finance this new challenge or even to find a solution that will maintain our 2004
profitability.  
    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. In the past years this strategy has been successful in
spite of a slower rate of growth as compared to the basic plan in 2004, mainly due to our greater
requests on the financial and operating capacity of new franchisees. But 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.
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. Brazilian
taxes are a heavy burden for our business and the tendency of the present government during the
past years has been to increase taxes. These increases have had the immediate effect of reducing
margins due to the fact that the market cannot support a transfer of new taxes to sale prices. If all these factors continue to negatively affect our operations, we cannot assure that we
will be able to manage or find the necessary tools to keep a profitable activity. -12-




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Risks Relating to Brazil  
    Our operations are subject to changes in Brazils economy Three fundamentals of our business are the quality of products, the excellence of the service
rendered to the customers and the power for consumption of the urban population. The first two
greatly depend on our capacity to invest in research and training and, naturally, to our managerial
capacity to handle our business. Nevertheless the three fundamentals are strongly affected by the
general economic situation of the Country. Costs of manpower and food, beverage and packing, taxes and location costs are, among other
costs, also subject to government regulations and strategies and to their success or failure. For the last ten years Brazil went through a very long and painful road towards the solution
of traditional problems and difficulties that affected Latin-American Countries and Brazil itself
in specific ways. Two presidents made efforts to conduct this struggle, Fernando Henrique Cardoso
and Luiz I. Lula da Silva. Both of them followed the same line of thought concerning macroeconomic
regulations respecting the international engagements and maintaining relations in agreement with
the IMF. Inflation was controlled within the limits that the Country can support; this means yearly
rates under 10%. This is normally a symptom of simultaneous GDP growth. Yet it was not the case of
Brazil. Annual growth oscillated between 2 and 3%, a very low rate for developing countries, with
negative growth as in 2003. A 5.2% growth in 2004 gave some oxygen to the economy and the
forecasts for 2005 is 3.5%. Countries that we could compare to Brazil in the present phase of
development as the Asian countries had annual growth rates of more than 7%. This doesnt seem
possible for Brazil in the next years. The trade balance was one of the outstanding points in Brazilian economy in 2004, although it
was still very small if compared to the Asian countries. It reached US$35billion in 2004 and it
will probably increase in 2005. This has been for the past two years an excellent source for the
reduction for public debt denominated in dollars. Reserves in foreign exchange have increased. And
the balance didnt drop in spite of the valuation of the local currency, the Real (R$). Our company
is no more very sensible to the exchange rate. We have no more financial debts in dollars and we
only import french fries from Argentina. The only influence of the rate of change is its share in
costs of our raw materials, particularly packing and very few other supplies. It could have an
influence in public services but they constitute a particular problem. Even with a depressed
dollar, national policies and the respect of ancient contracts with the private companies that
explore these services pushed the prices up in the last two years, showing a certain independence
of the exchange rate. Unemployment has been reduced in 2004 reaching 9.6% in last December but the average income in
real terms dropped and this is very important for our business. But may be the most important problem for Brazilian economy is the real annual interest rate
that is now around 12,5% and is regulated by an almost independent Central Bank. This is a very
high level, roughly incompatible with a sustained growth of economy. And even worse, the rates of
interest actually paid by companies and individuals go from 35 to 100% a year turning credit
sources very expensive and depressing any tendency to consume. To control inflation with monetary
techniques is successful but it doesnt push the growth of economy. In fact, three questions are crucial for company CEOs and investors in general in the short
term: (a) how long will the US Dollar exchange rate remain at a dangerous low level in connection
with the necessity of sustaining a positive trade balance?, (b) will there be a squeeze on
liquidity that will significantly compromise the country growth? and (c) how long and how high will
the growth in basic interest rates be? This short explanation on Brazilian economy shows the uncertain future of the different
factors that affect our business. In this scenario it is very difficult to predict government
regulations and other external accidents that influence our costs and the nature and cost of
financial resources that could help us go through long periods of internal or external crises that
can touch Brazilian economy and its fundamentals. That is to say that the behavior of -13-




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our clients and our capacity to face these challenges could be compromised and could result in
lower demand of our products and a decline in revenues.  
    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 country is
experiencing a healthy democracy and the arrival of left ideologies to the government proved that
Brazilian left is not far from a national democracy and deep-rooted in capitalism. The problem that
represents a risk for our business comes from the difficulties this government is showing to create
a strong base to vote important reforms. Financial, political and social welfare reforms are been
postponed or neglected by lack of a unanimous wish of changing the real sources of the public
deficit and the stagnation that restrains Brazilian growth. There can be no assurance that the
necessary measures to change basically this situation will be pursued or adopted. 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.  
    Government regulations may limit our ability to interact with foreign capital and
investors Brazil still practices a very strict control of transactions in foreign currencies. In the
present situation foreign investments are welcome and regularly the remittance of foreign
currencies abroad is authorized when duly justified by the nature of the transaction: capital
return to foreign countries, dividends remittances, licenses, merchandise trades, etc. But in the
past we have seen hard restrictions to international intercourse of currencies, a situation that we
cannot assure to be definitely abandoned. 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. Risks related to our common stock and shareholders agreement  
    Common stock. 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 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.  
    Shareholders agreement. On August 11, 1997 the company entered into a shareholders agreement with AIG Latin America
Equity Partners, Ltd. (referred herein as AIGLAEP) further amended in March 14, 2001 (herein
referred to The 1997/2001 agreement). The 1997/2001 agreement was signed by several shareholders,
among them Shampi InvestmentsA.E.C., Lawrence Burstein and BigBurger Ltda. Pursuant to The
1997/2001 agreement AIGLAEP purchased 375,000 shares of our common stock and warrants to purchase
62,500 shares of our common stock. Pursuant to The 1997/2001 agreement, each of the parties to it agreed, among other things, to
vote their respective shares of our common stock to elect as directors determined representatives
of the signers. It also provided that if the administrators failed to achieve certain targets
concerning EBITDA from January 1, 1997 to December 31, 1999, 2000 or 2001, respectively, AIGLAEP
could appoint such numbers 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 the year ended December 31, 2000 and this gave place
to the mentioned amendment to the agreement signed in March 14, 2001. The 1997/2001 agreement
determined that in case AIGLAEP at any time would own less than 187,500 issued or outstanding
shares of our common stock, AIGLAEPs right to take control of our Board of Directors and certain
of its prior approval rights would terminate. Pursuant to the amendment new options and warrants
were issued to AIGLAEP and AIGLAEP agreed to interrupt -14-




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their right to take control of the Board of Directors. Also pursuant to the amendment new
targets were determined for the year ending December 31, 2002 but it contains a provision that
requires the parties to renegotiate the performance targets in good faith in the event that (a) the
Brazil SELIC Central Bank rate would exceed an average of 18% for a continuous period of 90
business days or (b) there would be a devaluation of the Brazilian Real against the US dollar
exceeding 10% over any three month period. We failed to achieve the performance targets but the
events contemplated in the amendments provision occurred and news targets should have been
negotiated. As of December 29, 2004, AIGLAEP sold their shares of our common stock to CCC Empreendimentos
e Participações Ltda (187,500 shares) and BigBurger Ltda. (187,500 shares) two companies
respectively controlled by Romulo Fonseca and José Ricardo Bomeny. All options and warrants to
purchase shares of our common stock had already expired. As a consequence of this transaction, the
1997/2001 agreement is no longer valid. On May 15, 2002, we entered into an additional stockholders agreement (The 2002 Agreement)
with Gustavo Figueiredo Bomeny and CCC Empreendimentos e Particpações Ltda (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 Vorst 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 2002 agreement,
each of the partiers 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 New Investors. The 2002
agreement, by its terms, was subject to the terms of the 1997/2001 agreement. The effect of the
1997/2001 agreement having expired, as related herein in this chapter, the 2002 agreement is no
longer subject to it. Risks related to juridical and financial contingencies  
    Special financing of fiscal debts. Since the year 2002 we have been beneficiaries of a special financing of fiscal past due
obligations. This program was called REFIS and, pursuant to several regulations, the past due
obligations are now consolidated in a program called PAES. This program consists in paying monthly
to the government a sum corresponding to 1,5% of our revenues together with interest calculated on
the basis of the TJLP, a variable annual rate determined by the government and turning around 10%.
The term for this PAES program is 15 years counted from July 1, 2003 when the PAES became valid and
in full execution. At the present moment our debt is around R$16,000,000. The sum we pay monthly increases as a function of our revenues growth. Interests are paid
monthly calculated on the balance of the debt, the TJLP been applied to the balance from July 1,
2003. This means that if our sales dont grow at the same rate as the TJLP the balance of the debt
in current terms will always grow and the sum we will pay monthly will become greater. All
companies participating of this program know they will be in serious financial difficulties in 4 or
5 years. The only solution for this problem would be an amnesty voted by the government and
confirmed by the parliament that would reduce the debt or the interest paid, but we cannot assure
this solution will be adopted. As a consequence this represents a serious risk to our possibility
of refinancing our fiscal debt in the next years.  
    Past due fiscal obligations of VENDEX. VENDEX was the owner of Venbo Comércio de Alimentos Ltda, our Brazilian subsidiary, before
BFFC purchased it in 1996. At that moment a due diligence was done on Venbos accounts to valuate
their debts and other liabilities and assets. The agreement that was signed between VENDEX and BFFC
covering the transaction determined that VENDEX would be responsible for any hidden liability or
future liability concerning the acts of the company prior to the date of the agreement. Yet, a
clause restricts VENDEX responsibility to 5% of the price paid by BFFC, a sum that is around
R$3,500,000 at the present moment. In the past years we have surveyed the situation of Venbos fiscal debts prior to 1996 through
the communications we received from the fiscal authorities. These communications were immediately
sent to VENDEX lawyers with whom we were in permanent contact and who took care of the several
processes in which VENDEX -15-




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was involved. The sums in discussion seemed to be within the limits of the agreement. Yet, in
the last months of 2004, we found that other debts had appeared and sums begun to exceed the
mentioned limit so becoming a financial risk for our company that could be included in the
governments demands. All government demands are been discussed by VENDEX lawyers, but we have
called Venbos lawyers to defend our interests against VENDEX. Our lawyers have been studying the
purchase agreement VENDEX/BFFC because other clauses of this agreement may be used to protect our
company. Anyway, this is a contingency that we cannot evaluate at the present moment. We dont know
the probability of success the matters contained in lawsuits, the extent of VENDEX and Venbos
responsibilities and we dont know exactly the amount that is involved in each process or that
could be a new liability in our balance sheet.  
    Legal contingencies. One franchisee has recently initiated a lawsuit against our company. He was an unsuccessful
franchisee that became a permanent debtor of royalty and marketing contributions. All the efforts
we have done for long periods to improve his business failed. We finally decided to interrupt the
franchise contract and we obtained the closure of the stores explored by this franchisee. His
demand is based on a principle that is against the basis of the franchise way of operation. He
supposes the franchiser may be considered responsible for having offered the operation of a store
with guaranteed profitability. Even if this argument is completely against the franchise laws and
the usual practices of our business, it is not impossible that this franchisee may succeed in
convincing a jury or a judge that some indemnity or compensation must be paid by our company. This
contingency is not accrued as a liability in our financial statements for we consider the risk of
failure in our defense is remote. However, we must call the attention of our shareholders and
future investors to the existing risk.  
    Tax contingencies. In 2004 a new regulation included franchise royalties and other revenues in the list of
services rendered that pay a 5% tax on these revenues to the Town Hall. We are defending, as all
other franchisers, that the franchise law explicitly determines that franchise revenues dont pay
services but rights to use a brand. Concerning marketing taxes they are not revenues but sums
franchisees transfer to the franchiser for him to administrate marketing events, publicity and
promotions. Our demand failed in the first instance but we have appealed to the Court and our
lawyers think we can win in the Superior Tribunal. Yet, Municipal Inspectors investigated our subsidiary in routine inspection that started last
year and was concluded on March 2005. They stated in their report that ISS must be applied to all
franchise revenues from the year 2000, that means the whole period involving our two lawsuits in
due course. The amount to be paid is R$ 2.5 millions plus interests and fines. They also stated
that we should pay ISS on the sums received for exclusivity contracts with suppliers representing
R$ 91.5 thousands plus interests and fines. We are pleading also in Court that these contracts are
not services. Anyway, this ISS tax is a risk that could oblige us to increase our prices seriously
affecting our revenues in the future and in case we would be losers in law suits it would seriously
affect our bottom line income and our cash flow. 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. Rua Voluntários da Pátria 89, 9o andar
- Botafogo CEP 22.270-010, 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. -16-




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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 8 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 3 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 were located till June 2004 in premises at Avenida Brasil, 6431
Bonsucesso, CEP 21040-360, Rio de Janeiro, brazil, which Venbo acquired in 1995. In January 2004 we adhered to an amnesty program issued by the Rio de Janeiro state concerning
ICMS (a tax on value added) past dues. Payments had been negotiated in monthly installments that we
were paying regularly when the government of Rio de Janeiro became interested in our headquarters
building that included an own operated store and a large parking lot. After long negotiations we
finally sold the building to the government for a price we consider exceptional in face of the
deterioration of the region were our installations were located. The price was R$2,800,000 and we
received R$2,100,000 in cash and R$700,000 as a compensation of the balance of the ICMS debt
consolidated at that moment. The headquarters moved to Rua Voluntários da Pátria, 89 
9th floor  Botafogo in Rio de Janeiro  RJ. These are leased modern offices and we have
been able to reduce expenses due to the fact that we occupy a smaller surface with less expenditure
of electricity and air conditioning machines. 
 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, now called PAES, 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 9.75% per year. In fact, Debts
included in the PAES are divided into debts related to federal taxes and debts related to social
security obligations. We pay separately 0.75% for each institution, the Receita Federal in the
first case and the INSS for the latter. The great problem we have faced is the consolidation of
these debts in order to determine if the provisions registered in our financial statements are
correct. We have found several differences in the figures exposed by the government and our books.
All of them seem to come from government errors and we are pleading for corrections. We also adhered to an amnesty issued by the Government of Rio de Janeiro state concerning past
due ICMS (a tax on aggregated value). We paid a debt of around R$3,500,000 with a 80% reduction on
fines and we compensated R$700,000 in the sale of our headquarters building in Avenida Brasil. Yet
the state government couldnt find a debt of about R$1,039,000 that is accrued in our balance sheet
but they couldnt identify in their records. We believe this situation will soon be cleared up and
we will negotiate a new term for payment. A reserve is been done in our cash flow. Ver página 33. -17-




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Concerning legal proceedings in due course we mentioned in Item 1. Risks related to juridical
and financial contingencies the case of one lawsuit against our company initiated by one
franchisee. He sustains that Venbo offered points of sale with a guarantee of profitability and
success, something completely against the principles and philosophy of the franchise business as
defined in the franchise law. Although we believe that the probability of winning this lawsuit is
great we cannot exclude the decision of judges or juries that would oblige us to pay an indemnity
or compensation to this franchisee. The store belonging to this franchisee is now been operated by
us with a good performance. 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. See Managements Discussion and Analysis of Financial Condition and Results of Operations
for a further discussion of these matters. ISS The ISS is a tax on services rendered. The franchisers activities were not considered
services until 2003; however, in the beginning of 2004, a new ISS legislation determined that all
revenues including franchise activities would pay the ISS. This is in contradiction with the
Franchise Law. Three revenues may be taxed according to this new law: initial fees paid by franchisees,
marketing contributions and royalties. Our lawyers consider that initial fees pay the right to purchase the use of a brand, so they
are not a service rendered. Marketing contributions are sums the franchiser administrates in the
name of the franchisee and so they do not constitute real revenues. Royalties are probably doubtful. In fact they pay the right to use the brand but judges could
say there are services included as training and technical assistance. Yet, this is not what the
franchise law determines. Pursuing to our lawyers opinion we are not paying ISS on initial fees and marketing fund
contributions and we are carrying on a lawsuit against the city of Rio de Janeiro concerning
royalties. In this case a judiciary pledge is being done monthly since the publication of the law.
We lost the administrative stage of the lawsuit but our lawyers say this is normal and our rights
will be admitted by the courts. Years ago the company had been intimated to pay ISS on royalties. We are discussing in court
the intimation with a better chance to win this lawsuit because at the time there was no law
concerning this matter, except the franchise law that clearly says franchise activity is not a
service. 
 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 2004. -18-




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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, 2004
    
    
    .61
    
    
    
    .21June 30, 2004
    
    
    .55
    
    
    
    .30September 30, 2004
    
    
    .51
    
    
    
    .31December 31, 2004.
    
    $
    .51
    
    
    
    .25March 31, 2003
    
    
    .80
    
    
    
    .20June 30, 2003
    
    
    .51
    
    
    
    .25September 30, 2003
    
    
    .43
    
    
    
    .32December 31, 2003.
    
    $
    .40
    
    
    
    .18
 The above quotations represent prices between dealers, without retail markup, markdown or
commission. They do not necessarily represent actual transactions. 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 payment of dividends is restricted under the American law because of the accumulated
losses registered in the balance sheet. 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, 2004. 
 EQUITY COMPENSATION PLAN INFORMATION Number Of
    
    
    
    
    
    
    Number Of SecuritiesSecurities To Be
    
    
    
    
    
    
    Remaining AvailableIssued Upon
    
    
    Weighted-Average
    
    
    For Future IssuanceExercise Of
    
    
    Exercise Price Of
    
    
    Under EquityOutstanding
    
    
    Outstanding
    
    
    Compensation PlansOptions, Warrants
    
    
    Options, Warrants
    
    
    (excluding securitiesAnd Rights
    
    
    And Rights
    
    
    reflected in column(a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by security
holders (1)
    
    
    521,250
    
    
    
    R$1.86
    
    
    
    478,750Equity compensation plans
not approved by security
holders (2)
    
    
    0
    
    
    
    0
    
    
    
    0Total (1) + (2)
    
    
    521,250
    
    
    
    R$1.86
    
    
    
    478,750
 -19-




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ITEM 6. SELECTED CONSOLIDATED HISTORICAL 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 report. 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in thousands of Brazilian Reais, except share data)Statement of Operations Data:NET OPERATING REVENUES:Restaurant sales
    
    
    65,338
    
    
    
    60,466
    
    
    
    63,465
    
    
    
    68,397
    
    
    
    63,775Franchise income
    
    
    8,035
    
    
    
    6,663
    
    
    
    5,116
    
    
    
    4,099
    
    
    
    3,134Other income
    
    
    12,008
    
    
    
    10,960
    
    
    
    7,729
    
    
    
    6,483
    
    
    
    4,884TOTAL NET OPERATING REVENUES
    
    
    85,381
    
    
    
    78,089
    
    
    
    76,310
    
    
    
    78,979
    
    
    
    71,793COSTS AND EXPENSES:Cost of restaurant sales
    
    
    24,728
    
    
    
    23,754
    
    
    
    25,333
    
    
    
    27,541
    
    
    
    24,560Restaurant payroll and other employee benefits
    
    
    14,778
    
    
    
    13,688
    
    
    
    13,061
    
    
    
    13,106
    
    
    
    12,329Restaurant occupancy and other expenses
    
    
    8,348
    
    
    
    7,569
    
    
    
    8,043
    
    
    
    8,174
    
    
    
    6,963Depreciation and amortization
    
    
    3,385
    
    
    
    3,355
    
    
    
    3,774
    
    
    
    3,966
    
    
    
    3,610Other operating expenses
    
    
    13,638
    
    
    
    15,229
    
    
    
    13,761
    
    
    
    14,225
    
    
    
    11,951Selling expenses
    
    
    6,534
    
    
    
    6,359
    
    
    
    4,805
    
    
    
    5,906
    
    
    
    5,759General and administrative expenses
    
    
    8,935
    
    
    
    8,670
    
    
    
    9,428
    
    
    
    6,598
    
    
    
    6,111Impairment of assets and Net Result of assets sold
    
    
    432
    
    
    
    156
    
    
    
    1,661
    
    
    
    122
    
    
    
    20TOTAL COSTS AND EXPENSES
    
    
    80,778
    
    
    
    78,780
    
    
    
    79,866
    
    
    
    79,638
    
    
    
    71,303INCOME (LOSS) FROM OPERATIONS
    
    
    4,603
    
    
    
    (691
    )
    
    
    (3,556
    )
    
    
    (659
    )
    
    
    490INTEREST INCOME
    
    
    534
    
    
    
    257
    
    
    
    15
    
    
    
    
    
    
    
    1INTEREST EXPENSE
    
    
    (3,685
    )
    
    
    (3,274
    )
    
    
    (4,634
    )
    
    
    (5,922
    )
    
    
    (3,418
    )FOREIGN EXCHANGE (LOSS) GAIN
    
    
    (252
    )
    
    
    (410
    )
    
    
    (3,435
    )
    
    
    (1,669
    )
    
    
    (424
    )INCOME TAX
    
    
    (599
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    
    601
    
    
    
    (4,118
    )
    
    
    (11,610
    )
    
    
    (8,250
    )
    
    
    (3,351
    )BASIC AND DILUTED NET LOSS PER
COMMON SHARE
    
    
    0.08
    
    
    
    (0.55
    )
    
    
    (1.96
    )
    
    
    (2.27
    )
    
    
    (1.04
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING BASIC AND DILUTED
    
    
    7,970,473
    
    
    
    7,552,363
    
    
    
    5,707,957
    
    
    
    3,626,626
    
    
    
    3,235,290Balance Sheet Data (End of Period):WORKING CAPITAL DEFICIT
    
    
    5,235
    
    
    
    5,882
    
    
    
    14,238
    
    
    
    18,717
    
    
    
    14,807TOTAL ASSETS
    
    
    37,859
    
    
    
    35,805
    
    
    
    36,984
    
    
    
    39,777
    
    
    
    41,694ACCUMULATED DEFICIT
    
    
    (63,131
    )
    
    
    (63,732
    )
    
    
    (59,614
    )
    
    
    (48,404
    )
    
    
    (40,154
    )TOTAL SHAREHOLDERS EQUITY (DEDICIENCY)
    
    
    (4,192
    )
    
    
    (5,103
    )
    
    
    (1,510
    )
    
    
    1,217
    
    
    
    5,538
 -20-




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with ITEM 6, Selected Consolidation
Historical Financial Data, ITEM 1.(e) Forward Looking Statements and with our consolidated
financial statements and related notes appearing elsewhere in this report. Background Brazilian Political Environment The Brazilian political environment has been marked by high levels of uncertainty since the
country returned to civilian rule in 1985, after 20 years of military government. The death of a
president in 1985, the impeachment of another president, as well as rapid turnover at and
immediately below the cabinet level, have adversely affected the implementation of consistent
economic and monetary policies. Yet, the political tendency of the different presidents or parties
in government till 2002 was always conservative and right-wing oriented. The arrival of President
Ignácio Lula da Silva in 2003, a union representative, a blue collar with only primary instruction
level, made everybody think of a change to the left. In fact, in the economic field nothing
changed. Capitalism is sustained and international relations with occidental institutions as IMF as
well as the private rights to capital and contracts are been respected. The only modification in
the political scenario may be the exacerbation of populist tendencies that characterize the Labor
Party (PT) specially in the strengthening of government institutions and a significant growth in
bureaucracy. The continuous growth of government taxes has not been the privilege of the PT. This
is a phenomenon that initiated some ten years ago with the center-right government of Fernando
Henrique Cardoso. The political conditions of the present government are not different to the
previous ones: the lack of majority of PT in the upper and lower houses of parliament obliges to
expensive and wasting negotiations with the other parties and complicates or delays important
decisions. Nevertheless we must welcome the fact that democracy is alive and little by little
politicians become more representative of classes and groups, especially in the states and urban
communities. Brazilian Economy Some characteristics of Brazilian economy are endemic traditions as inflation, a large
inequality of personnel income, enormous international and domestic debts, high interest rates,
small rates of GDP growth (with some exceptions in the 70s but always inferior to other developing
countries, particularly in Asia) and deficits in government cash balance. In March 1994, the Brazilian government introduced an economic stabilization program known as
the Real Plan (Real referring to the Brazilian currency) that actually reduced, from 1994 to
2000, the rate of inflation and caused the exchange rate between the Real and the US$ to remain
relatively stable. But foreign crisis as terrorist attacks in New York, economic problems in
Russia, Turkey and Argentina, the increased cost of debts, oil prices and internal problems as the
electricity rationing forced by an energy crisis, the expected expansion of economy didnt occur.
And in the past two years, 2003 and 2004, inflation showed a growing tendency. The government of
President Lula followed the monetary prescriptions and raised the interest rate (SELIC). This raise
made the SELIC annual rate go from 16% average in 2004 (January to August) to 18.5 % in last
February 2005. Inflation in 2004 reached 7,6% (measured by the IPCA, Broad Consumer Index, government rate
that considers middle class consumers prices), within the maximum targets but greater than the
5.1% Central Bank target. IGP-M, General Market Price, a broader and wholesale business rate
largely used to adjust contracts in the private market, reached 12.13%. If we consider an average
inflation of 10% the SELIC rate reduces to around 8%, yet a very high rate for a country that needs
great sums to booster its industrial growth. High rates attract capitals but generally these are
speculative capitals and not productive ones. But SELIC rates are only an indicator for special contracts and for government credit that
also uses TJLP, a long range rate, to day 9.75%, that is used to fix a basic level that corrects
fiscal debts and is used for government funded credits (normally a 2 or 3% rate is added and a
commission of the intervening Bank institution make these -21-




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credits reach the SELIC rate). But rates used by Banks to tax credits for corporations or for
individuals go from 40% to 100%, a great barrier for the economy development. One positive factor that is sustaining economy is the foreign sector performance. For the
first time in history of the Brazilian economy, the accelerated pace of growth in productive
activity is in peaceful coexistence with the current account surplus of 2,25% of GDP. The trade
balance ended 2004 with a 33,7 billion dollars surplus. The current account surplus was 11.7
billion dollars or 1.9% of GDP, the best surplus since 1947! The Stock Exchange was the outstanding profitability feature among investments in the last two
years. The Ibovespa, São Paulos Stock Exchange market index, grew from 10,941 to 26,000 points, a
137.6% growth. But we must consider that this index was largely depressed in the past years and SP
Stock Exchange is a small market with a daily rate of R$ 1.2 billion or $ 460 million. It is a
greatly speculative market with limited dividend distribution. Anyway, its growth indicates a
relatively significant recovery of Industry confirmed by a growth of 8.3% in real terms in 2004.
Foreign capital also showed faith in Brazilian economy with new investors assuring a positive
inflow in the Stock Market and an important rising of US$ in the international market by the
central government at reasonable rates of interest. The private market rose $ 8.29 billions in
2004. The Brazilian rate of risk fell down under 400 points (that means that international credit
is 4 points over current taxes for Brazil), a good symptom but not enough if we compare to other
developing countries as Mexico, Turkey, Chorea or Russia itself. Our business. In spite of these positive factors that we consider macroeconomic milestones of Brazilian
economy we must analyze the factors that mainly influence our fast-food market. The retail sales
behavior showed a different pattern. They increased 9.25% in 2004 in value, an outstanding growth
after three years decreasing figures, but it was boosted by the growth of 26.37% of electro
domestic and furniture. In fact, personnel credit was directed to paying past dues and buying home
equipment. Food and beverage increase was only 7.51% in 2004 pursuing official rates and 3.8%
according to the Association of Retail Stores Traders. Geographical factors were not favorable to our own stores sales that are concentrated in Rio
de Janeiro (RJ). Industry growth in RJ was only 2.4% (8.3% average growth in Brazil. The number of
new industrial companies opened in RJ decreased 21.17%. The increase in taxes, especially income taxes, has affected out of home food consumption. In
4 years income taxes and social security taxes increased 70% against an inflation rate of 42%. Our success in making the whole chain grow in 2004 is mainly due to marketing campaigns and
local effort in captivating clients done by our own stores and franchisees leaders. These
compensated a very small inclination to consumption, an inflation that obliged us, as our
competitors, to rise sale prices and adverse weather conditions (a very light summertime with
abnormally low temperatures and rain). Since the Company has no longer dollar denominated debt, the exchange rate influence is
limited to the Brazilian economic scenario as a whole. Brazil is still a vulnerable developing
country which depends upon international inflows. Although the country has also reduced its dollar
denominated debt, both domestically and abroad, exposition to global meltdowns is still extremely
high. An overshooting could trigger inflation and reduce consumer spending, affecting the Company
business. The highly competitive environment has reduced the Companys ability to pass through prices
increases. Because of that, the Company has been investing in hard negotiations with suppliers to
maintain prices. Although some of the raw materials used are based on commodities traded
internationally in dollars, suppliers increased competition and effectiveness has helped prices to
remain stable. The only product the Company imports is french fries from Argentina, but in case the exchange
rate starts to deteriorate the business the company could try to develop a supplier in Brazil or
start to negotiate in local currency, as the Brazilian Central Bank regulates the Settlement House
designed to facilitate commercial trade between Mercosur members. -22-




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Prospects The observers are describing 2005 as a year with a controlled inflation around 6.0%, a smaller
trade balance pursuant to an increase in imports following a GDP growth of around 3.5%. It is very
difficult to make prospects in Brazil but we have prepared the company for a consistent growth of
the franchise chain and a growth of sales, both based on a strong effort to expand the number of
stores, marketing actions and people training. The year of 2005 is very important for the first time elected left-wing Labor Party (PT) in
Brazil because a sustained economic growth will increase their probability to win a second term.
So, incentive for private investments, expansion of credit, controlled inflation and fiscal
responsibility should increase in 2005. Nevertheless, the proximity to an electoral year could
exacerbate discussions over the Brazilian presidential election in 2006 and deteriorate the
economic scenario. The following table sets forth Brazilian inflation, as measured by the IGP-M  Índice Geral de
Preços ao Mercado, and the evolution of exchange rate for the Brazilian currency against the U.S.
Dollar for the periods shown. Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Inflation
    
    
    12.4
    %
    
    
    8.7
    %
    
    
    25.3
    %
    
    
    10.4
    %
    
    
    9.9
    %Exchange rate
devaluation
(evaluation)
    
    
    -8.1
    %
    
    
    -22.2
    %
    
    
    52.3
    %
    
    
    18.7
    %
    
    
    9.3
    %
 -23-




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RESULTS OF OPERATIONS COMPARISON OF YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (Amount in thousand of Brazilian
Reais) For the first quarter of 2003 onward, the Company has reformatted its consolidated statement
of operations in order to improve the quality of analysis. The reformatted statement differs from
the previous one by segregating the earnings provided by our operated stores business from the
earnings provided by 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 connection with such evolution. Because of
such new format, the consolidated statement of operation for the twelve-month period ended December
31, 2002 has been restated to conform with the current presentation. The following table sets forth certain operating data for the periods of twelve months ended
December 31, 2004, 2003 and 2002. Twelve Months
    
    
    
    
    
    
    Twelve Months
    
    
    
    
    
    
    Twelve MonthsEnded
    
    
    
    
    
    
    Ended
    
    
    
    
    
    
    EndedDecember 31, 2004
    
    
    %
    
    
    December 31, 2003
    
    
    %
    
    
    December 31, 2002
    
    
    %STORE RESULTSNet Restaurant Sales
    
    
    
    
    
    R$
    65,338
    
    
    
    100.0
    %
    
    R$
    60,466
    
    
    
    100.0
    %
    
    R$
    63,465
    
    
    
    100.0
    %Store Costs and Expenses
Food, Beverage and Packaging
    
    
    
    
    
    
    (24,728
    )
    
    
    -37.8
    %
    
    
    (23,754
    )
    
    
    -39.3
    %
    
    
    (25,333
    )
    
    
    -39.9
    %Payroll & Related Benefits
    
    
    
    
    
    
    (14,778
    )
    
    
    -22.6
    %
    
    
    (13,688
    )
    
    
    -22.6
    %
    
    
    (13,802
    )
    
    
    -21.7
    %Restaurant Occupancy
    
    
    
    
    
    
    (8,348
    )
    
    
    -12.8
    %
    
    
    (7,569
    )
    
    
    -12.5
    %
    
    
    (8,417
    )
    
    
    -13.3
    %Contracted Services
    
    
    
    
    
    
    (8,324
    )
    
    
    -12.7
    %
    
    
    (7,950
    )
    
    
    -13.1
    %
    
    
    (7,529
    )
    
    
    -11.9
    %Depreciation and Amortization
    
    
    
    
    
    
    (2,225
    )
    
    
    -3.4
    %
    
    
    (2,651
    )
    
    
    -4.4
    %
    
    
    (3,017
    )
    
    
    -4.8
    %Other Store Costs and Expenses
    
    
    
    
    
    
    (2,250
    )
    
    
    -3.4
    %
    
    
    (1,684
    )
    
    
    -2.8
    %
    
    
    (1,828
    )
    
    
    -2.9
    %Total Store Costs and Expenses
    
    
    
    
    
    
    (60,653
    )
    
    
    -92.8
    %
    
    
    (57,296
    )
    
    
    -94.8
    %
    
    
    (59,926
    )
    
    
    -94.4
    %STORE OPERATING INCOME
    
    
    
    
    
    
    4,685
    
    
    
    7.2
    %
    
    
    3,170
    
    
    
    5.2
    %
    
    
    3,539
    
    
    
    5.6
    %FRANCHISE RESULTSNet Franchise Royalty Fees
    
    
    
    
    
    R$
    8,035
    
    
    
    12.3
    %
    
    R$
    6,663
    
    
    
    11.0
    %
    
    R$
    4,904
    
    
    
    7.7
    %Franchise Costs and Expenses
    
    
    
    
    
    
    (1,916
    )
    
    
    -2.9
    %
    
    
    (2,150
    )
    
    
    -3.6
    %
    
    
    (1,166
    )
    
    
    -1.8
    %FRANCHISE OPERATING INCOME
    
    
    
    
    
    
    6,119
    
    
    
    9.4
    %
    
    
    4,513
    
    
    
    7.5
    %
    
    
    3,738
    
    
    
    5.9
    %MARKETING, GENERAL AND
ADMINISTRATIVE (EXPENSES) INCOMEMarketing (Expenses) Income
    
    
    
    
    
    
    342
    
    
    
    0.5
    %
    
    
    (659
    )
    
    
    -1.1
    %
    
    
    (375
    )
    
    
    -0.6
    %Administrative Expenses
    
    
    
    
    
    
    (7,019
    )
    
    
    -10.7
    %
    
    
    (6,520
    )
    
    
    -10.8
    %
    
    
    (7,434
    )
    
    
    -11.7
    %Other Operating Income (Expenses)
    
    
    
    
    
    
    1,204
    
    
    
    1.8
    %
    
    
    (335
    )
    
    
    -0.6
    %
    
    
    (607
    )
    
    
    -1.0
    %Depreciation and Amortization
    
    
    
    
    
    
    (1,160
    )
    
    
    -1.8
    %
    
    
    (704
    )
    
    
    -1.2
    %
    
    
    (756
    )
    
    
    -1.2
    %Net result of assets sold
    
    
    
    
    
    
    432
    
    
    
    0.7
    %
    
    
    48
    
    
    
    0.1
    %
    
    
    (287
    )
    
    
    -0.5
    %Impairment of assets
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    (204
    )
    
    
    -0.3
    %
    
    
    (1,374
    )
    
    
    -2.2
    %Total Marketing, G & A (Expenses) Income
    
    
    
    
    
    
    (6,201
    )
    
    
    -9.5
    %
    
    
    (8,374
    )
    
    
    -13.8
    %
    
    
    (10,833
    )
    
    
    -17.1
    %OPERATING INCOME (LOSS)
    
    
    
    
    
    
    4,603
    
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    (3,556
    )Interest Expense
    
    
    
    
    
    
    (3,151
    )
    
    
    -4.8
    %
    
    
    (3,017
    )
    
    
    -5.0
    %
    
    
    (4,174
    )
    
    
    -6.6
    %Foreign Exchange and Monetary Restatement Loss
    
    
    
    
    
    
    (252
    )
    
    
    -0.4
    %
    
    
    (410
    )
    
    
    -0.7
    %
    
    
    (3,480
    )
    
    
    -5.5
    %NET INCOME (LOSS) BEFORE INCOME TAXES
    
    
    
    
    
    
    1,200
    
    
    
    1.8
    %
    
    
    (4,118
    )
    
    
    -6.8
    %
    
    
    (11,210
    )
    
    
    -17.7
    %Income taxes
    
    
    
    
    
    
    
    
    
    
    -0.9
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %NET INCOME (LOSS)
    
    
    
    
    
    R$
    601
    
    
    
    0.9
    %
    
    R$
    (4,118
    )
    
    
    -6.8
    %
    
    R$
    (11,210
    )
    
    
    -17.7
    %
 -24-




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##### Table of Contents



STORE RESULTS Net Restaurant Sales Restaurant sales for our company-owned and operated points of sales increased R$4,872 or 8.1%
to R$65,338 for the year ended December 31, 2004 as compared to R$60,466 and R$63,465 for the years
ended December 31, 2003 and 2002, respectively. Same store sales increased approximately 6.16% for
the year ended December 31, 2004 as compared to the year ended December 31, 2003. Same store sales
for the year ended December 31, 2003 increased by 0.07% when compared to 2002. Besides the improvement of the macroeconomic scenario in Brazil during 2004, the increase of
restaurant sales from 2003 to 2004 was due to (i) our promotional campaigns; (ii) introduction of
new products, mainly the grill line sandwiches; (iii) an average increase of 10% in the sales
prices of our products since December 31, 2003; (iv) implementation of incentive plans to our store
personnel. These positive effects on restaurant sales were partially offset by the increase of one
of the Brazilian Sales Taxes (COFINS) in January 2004. The decrease from 2003 to 2002 of restaurant sales is mainly due to the reduction of our
company-owned retail restaurant from 55 as of December 31, 2002 to 51 as of December 31, 2003. Such
decrease is also attributable to the adverse period that the retail market faced during 2003 in
Brazil due to macroeconomic factors and to a higher taxation on Company s revenue (PIS), which
resulted on lower net sales. Food, Beverage and Packaging Costs As a percentage of net restaurant sales, food, beverage and packaging costs were (37.8%),
(39.3%) and (39.9%) for the years ended December 31, 2004, 2003 and 2002, respectively. Food, beverage and packaging costs decrease from 2003 to 2004 as a percentage of net
restaurant sales, is due to our ongoing efforts on negotiations of long term agreements with some
suppliers. The permanent growth of our franchise network is enhancing its negotiation power with
the suppliers. In addition, investments on logistics and distribution made by the Company in the
midle of 2004 also derived in the reduction of such costs. The decrease of food, beverage and packaging costs in the year of 2003 as compared to 2002 is
also attributable to successful long-term agreements with some suppliers. In addition, some
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. Payroll & Related Benefits As a percentage of net restaurant sales, store payroll and related benefits were (22.6%) for
both years ended December 31, 2003 and 2004. For the year ended December 31, 2002 the percentage
was (21.7%). Payroll costs increased during 2004 due to costs related to purchase of new uniforms, annual
increases in salaries mandated by union-driven agreements and, as a consequence, social charges
that are computed based on employees salaries. Despite of those increases, the growth of our revenues (mentioned above) did not require
significant increase of number of store employees and accordingly, the payroll costs decreased as a
percentage of restaurant sales, as a result of the optimization of our labor force. The increase from 2002 to 2003 is attributable the increase in the number of store
supervisors, in order to improve the quality of our restaurant operations. -25-




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Restaurant Occupancy Costs and Other Expenses As a percentage of restaurant sales, restaurant occupancy costs and other expenses were
(12.8%), (12.5%) and (13.3%) for the years ended December 31, 2004, 2003 and 2002, respectively. Similar to our labor force, the increase of our sales provoked on optimization of occupancy
costs, especially for those locations which rent costs are fixed. However, there were increases in
such rent obligations, derived from its contractual restatements, according to Brazilian inflation,
currently at 12.4% per annum, that partially offset such decrease. In addition, during 2004 we open
a new premium store with relevant rent cost. The decrease of occupancy costs in 2003 as compared to 2002 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. Contracted Services Expenses related to contracted services expressed as a percentage of net restaurant sales were
approximately (12.7%), (13.1%) and (11.9%) for the twelve months ended December 31, 2004, 2003 and
2002, respectively. This decrease in percentage of net restaurant sales during 2004 is mainly attributable to the
reduction obtained on some contracted services such as delivery, technology, maintenance and
security for special events during 2004. The effect of those decreases was partially offset by
expenses related to our call center, which operations started in December 2003, as well as
increases in the costs of maintenance parts. The increase from 2002 to 2003 is 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 (3.4%), (2.8%) and (2.9%) for the twelve months ended December 30, 2004, 2003 and
2002, respectively. The increase during 2004 is mainly attributable to the increase on the insurance costs,
increase of consumption of material costs and higher traveling expenses due to new stores open
away from the Companys headquarters. Other store cost and expenses remained almost constant from 2002 to 2003. 
 FRANCHISE RESULTS Net Franchise Royalty Fees Franchise income increased R$1,372 or 20.6% to R$8,035 for the year ended December 31, 2004,
as compared to R$6,663 and R$4,904 for the years ended December 31, 2003 and 2002, respectively.
These increases are mainly attributable to the growth of our franchised business from 245 points of
sale as of December 31, 2002 to 280 as of December 31, 2003 to 325 as of December 31, 2004. In addition of royalty fees derived from a percentage on the sales of the stores operated by
franchisees, the Company receives from franchisees:  (a)
    initial fees are due at the signing of a new franchise contract and are
accounted for as Other Income at the Consolidated Statements of Results -26-




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##### Table of Contents



(b)
    market funds which represent franchise contributions to finance corporate marketing
investments and are accounted for as Market Income at the Consolidated Statements of
Results. Franchise Costs and Expenses Franchise cost and expenses expressed as a percentage of net restaurant sales were
approximately (2.9%), (3.6%) and (1.8%) for the twelve months ended December 31, 2004, 2003 and
2002, respectively. The decrease observed during the twelve months ended December 31, 2004 as contrasted to the
same period of 2003 is attributable to the optimization of the franchise expenses related to the
growth of the franchise network, as well as a reduction on the number of employees dedicated to
franchise operation. The increase observed in 2003 in comparison to 2002, is attributable to the growth of
franchise network and to an improvement on our policy of following the operation of our
franchisees: our supervisors responsible for franchised stores had increased the number of visits
all around the Brazilian territory which, in turn, increased traveling expenses. 
 MARKETING, GENERAL AND ADMINISTRATIVE (EXPENSES) INCOME Marketing (expenses) income As a percentage of net restaurant sales, marketing income (expenses) were approximately 0.5%,
(1.1)% and (0.6%) for the twelve months ended December 31, 2004, 2003 and 2002, respectively. Marketing contributions are highly influenced by the performance of the franchisees stores,
not only because it is a percentage of its gross sales but also because franchisees positive cash
flow reduces non payment. Both in 2002 and 2003, the company exceed its marketing income by its marketing expenses, and
so has used other sources of income to maintain the marketing expenses it believed necessary to its
business. In 2004, the company has limited its marketing expenses in order to balance the funds it
used before, but comparatively it has been increasing the total amount invested in marketing every
year. The reversal from net marketing (expense) in 2003 to net marketing income in 2004 is mainly
attributable to a higher level of marketing funds derived from the increase of franchisees from
period to period, as well as an optimization of marketing investments. Advertising and publicity costs increased during the year ended December 31, 2003 as
contrasted to 2002 due to higher expenses derived from more intensive promotional campaigns of new
products on the Companys menu. The year of 2003 had a worse Brazilian economic scenario which
required stronger marketing actions. General and Administrative Expenses As a percentage of restaurant sales, general and administrative expenses were approximately
(10.7%), (10.8%) and (11.7%) for the twelve months ended December 31, 2004, 2003 and 2002,
respectively. There were increases on administrative expenses observed in 2004 mainly attributable to
increase on salaries and labor charges of our administrative personnel as well as increase on
consultant fees regarding tax-planning services. In addition, a reduction of administrative
personnel occurred during June 2004, derived extra expenses related to the legal obligations for
employee dismissals. Those increases were in lower level than the increase on restaurant sales,
result of an optimization of such expenses and, accordingly a percentage reduction from 2003 to
2004. The decrease observed on comparing the twelve month periods of 2003 and 2002 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. -27-




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Other Operating Income (Expenses) Other operating income (expenses) expressed as a percentage of net restaurant sales were 1.8%,
for the twelve months ended December 31, 2004, (0.6%) for the twelve months ended December 31, 2003
and (1.0%) for the same period ended December 31, 2002. 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. The following table sets forth the breakdown of
Other Operating Income (Expense): December 31,2004
    
    
    2003
    
    
    2002Exclusivity and Rebate Agreements
    
    R$
    3,949
    
    
    R$
    2,503
    
    
    R$
    1,156Income from properties leasing
    
    
    226
    
    
    
    156
    
    
    
    162Initial Fees
    
    
    1,379
    
    
    
    2,601
    
    
    
    1,595Uncollectable receivables
    
    
    (2,243
    )
    
    
    (2,025
    )
    
    
    (1,721
    )Reassessed tax and other tax adjustments
    
    
    (632
    )
    
    
    (2,155
    )
    
    
    Accruals for contingencies
    
    
    (117
    )
    
    
    (370
    )
    
    
    (1,366
    )Preopening and other expenses
    
    
    (549
    )
    
    
    (1,045
    )
    
    
    (433
    )R$
    2,013
    
    
    R$
    (335
    )
    
    R$
    (607
    )
 The improvement of other operating income (expense) is due to a greater amount of rebates
negotiated with suppliers during the twelve months of 2004, compared to the same period of 2003.
In addition, 2003 was negatively impacted by non-recurring charges related to adjustments of the
Companys balance of its tax amnesty program. The positive effects of those rebates were partially offset by expenses related to an upgrade
of the corporate computer system and by pre-opening expenses linked to relevant new store. Depreciation and Amortization (Stores and Headquarters) As a percentage of restaurant sales, depreciation and amortization expense, (both store and
headquarters) was approximately (5.2%), (5.5%) and (5.9%) for the years ended December 31, 2004,
2003 and 2002, respectively. The 2004 and 2003 decreases are attributable to the completion of depreciation upon some
assets (mainly computers and leasehold improvements). 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 outlets, which
required us to take a significant write-off during the year ended December 31, 2002. During 2004, our review in accordance with SFAS 144, derived no charge to the income
statement. -28-




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##### Table of Contents



INTEREST INCOME (EXPENSES) AND FOREIGN EXCHANGE GAIN (LOSS) Interest Expenses As a percentage of restaurant sales, net interest expense and foreign exchange gains and/or
losses were approximately (4.8%), (5.0%) and (6.6%) for the years ended December 31, 2004, 2003 and
2002, respectively. Interest expenses increased for the twelve months ended December 31, 2004 as compared to the
same period in 2003 due to the increase of overall interest rates in Brazil during 2004. However,
the perception of such increase was diluted by the growth of restaurant sales. The percentage decrease for the twelve months ended December 31, 2003 as compared to the same
period in 2002 is primarily attributable to reduction of the level of our bank indebtedness. 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 (0.4%), (0.7%) and (5.5%) for the twelve months ended December 31,
2004, 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 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. The valuation of Brazilian Real continued during 2004, resulting in amounts
even lower than those observed in 2003. 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 and 2004 is also attributable to the extinguishment of debts denominated in U.S.
Dollars. 
 LIQUIDITY AND CAPITAL RESOURCES(Amounts in thousand of Brazilian reais) A) Introduction Since March 1996, we have funded our cumulative operating losses of R$63,131 and made
acquisitions of businesses and capital improvements (including remodeling of our retail outlets) 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, 2004, we had cash on hand of
R$1,717 and a working capital deficiency of R$5,235. For the year ended December 31, 2004, we had net cash provided by operating activities of
R$1,703, net cash used in investing activities of R$1,614 and net cash provided by financing
activities of R$590.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. For the year ended December 31, 2003, we had net cash used in operating activities of R$181,
net cash used in investing activities of R$1,081 and net cash provided by financing activities of
R$572. 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. -29-




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##### Table of Contents



Our earnings before interest, taxes, depreciation and amortization (EBITDA) were as follows: Year Ended December 31,2004
    
    
    2003NET INCOME (LOSS)
    
    R$
    601
    
    
    R$
    (4,118
    )Interest expenses, Monetary and Foreign exchange loss
    
    
    3,403
    
    
    
    3,427Income taxes
    
    
    599
    
    
    
    Depreciation and amortization
    
    
    3,385
    
    
    
    3,355EBITDA
    
    R$
    7,988
    
    
    R$
    2,664
 Company disclose EBITDA because it has been used as a target in past Stockholders Agreements.
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. B) Debt Obligation  financial institutions 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, 2004 were as follows: December 31,2004
    
    
    2003Revolving lines of credit (a)
    
    R$
    297
    
    
    R$
    2,933Related party loans (b)
    
    
    999
    
    
    
    938Mortgages payable (c)
    
    
    2,867
    
    
    
    Notes payable linked to fixed assets acquisition (d)
    
    
    1,943
    
    
    
    2,986Leasing facilities (e)
    
    
    1,267
    
    
    
    Other notes payable
    
    
    92
    
    
    
    187,465
    
    
    
    6,875Less: current portion
    
    
    (5,976
    )
    
    
    (5,155
    )R$
    1,489
    
    
    R$
    1,720
 At December 31, 2004, future maturities of notes payable are as follows: December 31,2005
    
    R$
    5,9762006
    
    
    1,2452007
    
    
    2352008
    
    
    9R$
    7,465
   (a)
    
    Due on demand from various Brazilian financial institutions with interest rates
ranging from 34% to 40% per annum, and guaranteed by certain officers and
receivables. Currently, the Company has approximately R$1,500 of unused credit line.(b)
    
    Credit facilities from related parties, including company and private
individuals. Repayment of principal is indexed to IGP-M (currently at 12.4% per
annum) with interest of 12.0% per annum. Those transactions were made at usual
market value. -30-




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##### Table of Contents



(c)
    Comprised of credit facilities from two Brazilian private financial
institutions, guaranteed by certain officers and receivables. Repayment of principal
of one facility and the payment of interests of 36.9% per annum are due in 10
monthly installments (ending October 2005) of approximately R$115. Repayment of
principal of the other facility is due in 12 monthly installments (ending December
2005) of approximately R$155. Interest of 34% per annum is due monthly in addition
to principal repayment.(d)
    This credit facility was used to purchase two stores. Repayment of principal is
due in 19 monthly installments of R$52 in addition of 2 annual installments of
R$467, starting January, 2005, 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.(e)
    This amount is comprised of 10 different lease facilities with Brazilian
private institutions:  
    8 of such facilities provide maximum borrowing of R$2,020 for the funding
of trucks and other vehicle; payable in monthly installments together with
interest with final payments due ranging from January 2005 to February 2008;
secured by equipment under lease;
    the remaining 2 facilities provide maximum borrowing of R$260 for the
funding of truck equipment; one of such facility is payable in monthly
installments together with interest totaling R$4 (final payment due on
December, 2005) and the other facility is payable in monthly installments
together with interest totaling R$3 (final payment due on December, 2007);
both facilities are secured by equipment under lease; C) Debt Obligation  taxes During 1999, 2001 and beginning 2002 certain Brazilian State and Federal taxes levied on the
Company were not paid. In addition during 2002, Brazilian Social Security Authorities applied
penalties against the Company, by charging certain operating transactions not covered by the
Companys previous calculation of Social Security contributions. Those debts were renegotiated in
different moments and with different levels of Brazilian Government. Since June 2002, the Company has paid all its current taxes on a timely basis. The tax debt
evolution and their current status are summarized as follows: State tax Since the second quarter of 2000, the Company has been reaching a sequence of agreements with
the Rio de Janeiro state government to parcel unpaid taxes. The last agreement with the Rio de Janeiro state government was settled during the third
quarter of 2004, through which the Company sold one of its property in exchange of (a) a sum in
cash; (b) the waiver of the balance of the unpaid state tax that were parceled according to
previous agreements; (c) tax credits which compensated tax on revenues accounted for during the
last quarter of 2004. During the last agreement a portion of the Company state tax liability was not recognized by
the fiscal authorities and another portion is being recalculated by them. The consolidation of the
remaining debt is not expected to be computed during 2005. Company estimates that both portions
amounts to R$1,039 and fully accrued such amount as of December 31, 2004. During 2004, the Company paid approximately R$3,620 related to Rio de Janeiro state government
agreements. -31-




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##### Table of Contents



Federal Taxes Concerning the unpaid Federal taxes and the Social Security penalties, the Company applied to
join and was accepted into two subsequent amnesty programs offered by the Brazilian Federal
government (REFIS during 1999 and PAES during 2003). The second amnesty program (PAES) included the balance of the previous Federal tax amnesty
program (REFIS) and unpaid 2001 and 2002 federal tax, as well as the Social Security penalties.
The total debt included in such program is 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 9.75% per year. All installments related to those programs have been paid on a timely basis. During 2004, the Company paid approximately R$1,357 related to such Brazilian Federal tax
amnesty program. D) Debt Obligation  summary Considering all the above mentioned fiscal debts, we are required to pay restructured past-due
Brazilian state taxes of approximately R$1,039 and federal taxes of approximately R$16,215. For the fiscal 2005, we expect to pay approximately R$1,339 pursuant to the federal tax
amnesty program. We do not expect to have any payment regarding the state tax settlements during
2005, since the remaining balance is not expected to be consolidated by the tax authorities through
that period. E) Other Obligations We have long-term contractual obligations in the form of operating lease obligations related
to our owned and operated outlets. The future minimum lease payments under those obligations with an initial or remaining
noncancelable lease terms in excess of one year at December 31, 2004 are as follows: Fiscal Year2005
    
    
    R$
    
    
    
    5,2222006
    
    
    
    
    
    
    4,5802007
    
    
    
    
    
    
    3,5882008
    
    
    
    
    
    
    2,8742009
    
    
    
    
    
    
    1,950Thereafter
    
    
    
    
    
    
    2,046Total
    
    
    R$
    
    
    
    20,260
 Rent expense was R$6,199 for the year ended December 31, 2004. 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 2004 were approximately R$1,600. We require capital
primarily for the improvement of our owned and operated points of sale. Currently, four of our
owned and operated retail outlets are located in facilities that we own and all of our other owned
and operated retail outlets are located in leased facilities. -32-




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Our average cost to open a retail outlet was approximately R$300 to R$500 including leasehold
improvements, equipment and beginning inventory, as well as expenses for store design, site
selection, lease negotiation, construction supervision and obtaining permits. We have estimated that our capital expenditures for fiscal 2005, which will be used to
maintain and upgrade our current restaurant network as well to provide new investments on
restaurant equipments, will be approximately R$4,456. We anticipate that the primary use of our
cash resources during 2005 will be to service our debt obligations. During 2005, we intend to
focus our efforts on expanding both the number of our franchisees and the number of our franchised
retail outlets, 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. ContractualFiscal Year
    
    Leases
    
    
    Fiscal Debt
    
    
    Loans Payable
    
    
    Total2005
    
    
    5,222
    
    
    
    1,339
    
    
    
    5,976
    
    
    
    12,5372006
    
    
    4,580
    
    
    
    2,018
    
    
    
    1,245
    
    
    
    7,8432007
    
    
    3,588
    
    
    
    1,997
    
    
    
    235
    
    
    
    5,8202008
    
    
    2,874
    
    
    
    1,488
    
    
    
    9
    
    
    
    4,3712009
    
    
    1,950
    
    
    
    1,488
    
    
    
    
    
    
    
    - 3,438Thereafter
    
    
    2,046
    
    
    
    8,925
    
    
    
    
    
    
    
    -10,971Total
    
    
    20,260
    
    
    
    17,254
    
    
    
    7,465
    
    
    
    44,979
 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 retail outlets. 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 retail outlets;
    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;
and
    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. -33-




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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 retail outlets. 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 retail outlets and
operations. Our ability to re-market our company-owned retail outlets 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 (See the Notes to
Consolidated Financial Statements or summary of significant accounting policies more fully
described in pages F-10 through F-14 , the following involve a higher degree of judgement and/or
complexity. Constant currency restatement Through 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 currency Assets 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. Accounts receivable The allowance for doubtful accounts is estimated based on aspects such as aging of due receivables
and clients current economic situation. -34-




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##### Table of Contents



Long-Lived Assets 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 Inventory Cost In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory
Costs. This statement requires that certain costs such as idle facility expense, excessive
spoilage, double freight, and re-handling costs be recognized as current-period charges and that
allocation of fixed production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The provisions of the statements shall be effective for inventory
costs incurred during fiscal years beginning after June 15,2005. Adoption of this statement is not
anticipated to have a significant impact on the Companys financial condition, results of
operations, or cash flows. Share-Based Payment In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment. This statement is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. This statement requires that the Company records compensation expense for stock options
issued based on the estimated fair value of the options at the date of grant. This statement is
effective as of the first interim period beginning after June 15, 2005. We currently are not
required to record stock-based compensation charges if the employees stock option exercise price
is equal to or exceeds the fair value of the stock at the date of grant. We have not yet determined
what impact, if any, the proposed pronouncement would have on our financial statements. 
 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 have extinguished all
of our debt denominated in US$ 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. -35-




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages F-1 through F-24 comprising a portion of this report. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Grant Thornton had a partnership with Trevisan, a highly respected Brazilian firm of
independent auditors that came to an end in the middle of 2004. Trevisan made a new partnership
with BDO and so, consolidated financial statements for the year ended December 31, 2004 were
audited by the new auditors. 
 ITEM 9. A. 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, 2004. Based on such evaluation, Mr. Bomeny has concluded that, as
of December 31, 2004, our disclosure controls and procedures were effective in timely alerting 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. 
 ITEM 9. B. OTHER INFORMATION The 1997/2001 stockholders agreement between us and several stockholders was terminated on
December 29th, 2004 and is no longer of any force or effect. 
 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 2005 Annual Meeting of
Shareholders to be filed on or before April 30, 2005. 
 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 2005 Annual Meeting of Shareholders to be filed on or before April 30, 2005. 
 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 2005 Annual Meeting of Shareholders to be filed on or before April 30, 2005. 
 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 2005 Annual Meeting of Shareholders to be filed on or before April 30, 2005. 
 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 2005 Annual Meeting of Shareholders to be filed on or before April 30, 2005. -36-




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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 Brazil Fast Food Corp.
Schedule II  Valuation And Qualifying Accounts
Years Ended December 31, 2004, 2003 and 2002 Balance at
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
Balance atBegininning
    
    
    Charged to
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    end ofDescription
    
    of year
    
    
    Expenses
    
    
    Write-off
    
    
    
    
    
    
    year(Amounts in Thousand of Brazilian Reais)Year ended December 31, 2004Allowance for doubtful accounts
    
    
    R$
    
    
    
    2,094
    
    
    
    
    
    
    
    R$
    
    
    
    2,243
    
    
    
    
    
    
    
    R$
    
    
    
    (2,917
    )
    
    
    
    
    
    
    R$
    
    
    
    1,420Deferred tax asset valuation allowance
    
    
    
    
    
    
    14,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (955
    )
    
    
    
    
    
    
    
    
    
    
    13,575Year ended December 31, 2003Allowance for doubtful accounts
    
    
    R$
    
    
    
    1,893
    
    
    
    
    
    
    
    R$
    
    
    
    2,025
    
    
    
    
    
    
    
    R$
    
    
    
    (1,824
    )
    
    
    
    
    
    
    R$
    
    
    
    2,094Deferred tax asset valuation allowance
    
    
    
    
    
    
    15,295
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (765
    )
    
    
    
    
    
    
    
    
    
    
    14,530Year ended December 31, 2002Allowance for doubtful accounts
    
    
    R$
    
    
    
    1,969
    
    
    
    
    
    
    
    R$
    
    
    
    1,721
    
    
    
    
    
    
    
    R$
    
    
    
    (1,797
    )
    
    
    
    
    
    
    R$
    
    
    
    1,893Deferred tax asset valuation allowance
    
    
    
    
    
    
    9,174
    
    
    
    
    
    
    
    
    
    
    
    6,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,295
 (b) Reports on Form 8-K None. (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
    
    
    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. (3)21.1
    
    
    Subsidiaries of Registrant (4)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 May 15, 2002(4)
    
    Filed as an exhibit to Registrants Annual Report on Form 10-K for the year ended December
31, 1997 (File No. 0-23278). -37-




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##### Table of Contents



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
15th day of April, 2005. 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: -38-




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##### Table of Contents



Date: April 15, 2005
    /s/ Ricardo Figueiredo BomenyRicardo Figueiredo BomenyChief Executive Officer and Acting Chief Financial Officer Date: April 15, 2005
    /s/ Omar Carneiro da CunhaOmar Carneiro da CunhaChairman of the Board Date: April 15, 2005
    /s/ Peter J.F.  van Voorst VaderPeter J.F.  van Voorst VaderDirector Date: April 15, 2005
    /s/ Romulo Borges FonsecaRomulo Borges FonsecaDirector Date: April 15, 2005
    /s/ José Ricardo Bousquet BomenyJosé Ricardo Bousquet BomenyDirector Date: April 15, 2005
    /s/ Stephen J.  RoseStephen J.  RoseDirector Date: April 15, 2005
    /s/ Guillermo Hector PisanoGuillermo Hector PisanoDirector Date: April 15, 2005
    /s/ Gustavo Figueiredo BomenyGustavo Figueiredo BomenyDirector -39-




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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
    
    
    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. (3)21.1
    
    
    Subsidiaries of Registrant (4)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 April 1, 2002.(4)
    
    Filed as an exhibit to Registrants Annual Report on Form 10-K for the year ended December
31, 1997 (File No. 0-23278). -40-




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS PageReports of independent registered public accounting firms
    
    F-2 and F-3Financial statements:Consolidated balance sheets
    
    
    F-4Consolidated statements of operations
    
    
    F-5Consolidated statements of comprehensive income (loss)
    
    
    F-6Consolidated statements of changes in shareholders equity (deficit)
    
    
    F-7Consolidated statements of cash flows
    
    
    F-8Notes to consolidated financial statements
    
    F-9 to F-26




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of
Brazil Fast Food Corp. and subsidiaries We have audited the accompanying consolidated balance sheets of Brazil Fast Food Corp. and
subsidiaries (a Delaware corporation) as of December 31, 2004, and the related consolidated
statements of operations, comprehensive income (loss), changes in shareholders equity (deficit)
and cash flows for the year then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with generally accepted auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financing reporting. Our audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financing reporting. Accordingly, we express
no such opinion. 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 subsidiaries as of
December 31, 2004 and the results of their operations and their cash flows for the year then ended,
in conformity with accounting principles generally accepted in the United States of America. The financial statements as of December 31, 2004 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. Additionally, there are some lawsuits that, although evaluated as remote probability of
loss by the legal advisories, could result in cash losses to the Company which are not quantified
and consequently not accrued. 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 31, 2005 Trevisan Auditores Independentes F-2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 the related consolidated
statements of operations, comprehensive loss, changes in shareholders equity (deficit) and cash
flows for each of the two 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 the standards of the Public Company Accounting Oversight
Board. 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 the results of their operations and their cash flows for each of the two
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 20, 2004 Grant Thornton Auditores Independentes F-3




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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(In thousands of Brazilian Reais, except share amounts)
 December 31,2004
    
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    R$
    1,717
    
    
    R$
    1,063Inventories
    
    
    2,366
    
    
    
    1,596Accounts receivable
Clients
    
    
    1,820
    
    
    
    847Franchisees
    
    
    5,690
    
    
    
    6,442Allowance for doubtful accounts
    
    
    (1,420
    )
    
    
    (2,094
    )Advances and prepaid expenses
    
    
    874
    
    
    
    966Other current assets
    
    
    1,166
    
    
    
    457TOTAL CURRENT ASSETS
    
    
    12,213
    
    
    
    9,277PROPERTY AND EQUIPMENT, NET
    
    
    16,142
    
    
    
    16,505DEFERRED CHARGES, NET
    
    
    6,307
    
    
    
    7,283OTHER RECEIVABLES AND OTHER ASSETS
    
    
    3,197
    
    
    
    2,740TOTAL ASSETS
    
    R$
    37,859
    
    
    R$
    35,805LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Current portion of notes payable
    
    R$
    5,976
    
    
    R$
    5,155Accounts payable and accrued expenses
    
    
    6,104
    
    
    
    5,600Payroll and related accruals
    
    
    1,956
    
    
    
    1,584Income taxes accruals
    
    
    343
    
    
    
    Taxes, other than income taxes
    
    
    768
    
    
    
    702Deferred income
    
    
    784
    
    
    
    511Current portion of reassessed taxes
    
    
    1,339
    
    
    
    1,607Other current liabilities
    
    
    178
    
    
    
    TOTAL CURRENT LIABILITIES
    
    
    17,448
    
    
    
    15,159NOTES PAYABLE, less current portion
    
    
    1,489
    
    
    
    1,720DEFERRED INCOME, less current portion
    
    
    2,628
    
    
    
    1,848CONTINGENCIES AND REASSESSED TAXES, less
current portion (note 12)
    
    
    20,457
    
    
    
    22,030OTHER LIABILITIES
    
    
    29
    
    
    
    151TOTAL LIABILITIES
    
    
    42,051
    
    
    
    40,908SHAREHOLDERS EQUITY (DEFICIENCY):Preferred stock, $.01 par value, 5,000 shares authorized; no
shares issued
    
    
    
    
    
    
    Common stock, $.0001 par value, 12,500,000 shares authorized;
8,102,177 and 7,806,540 shares issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    59,865
    
    
    
    59,530Accumulated Deficit
    
    
    (63,131
    )
    
    
    (63,732
    )Accumulated comprehensive loss
    
    
    (927
    )
    
    
    (902
    )TOTAL SHAREHOLDERS EQUITY (DEFICIT)
    
    
    (4,192
    )
    
    
    (5,103
    )TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
    
    R$
    37,859
    
    
    R$
    35,805
 The accompanying notes are an integral part of the consolidated financial statements. F-4




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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of Brazilian Reais, except share amounts)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002STORE RESULTSNet Restaurant Sales
    
    R$
    65,338
    
    
    R$
    60,466
    
    
    R$
    63,465Store Costs and ExpensesFood, Beverage and Packaging
    
    
    (24,728
    )
    
    
    (23,754
    )
    
    
    (25,333
    )Payroll & Related Benefits
    
    
    (14,778
    )
    
    
    (13,688
    )
    
    
    (13,802
    )Restaurant Occupancy
    
    
    (8,348
    )
    
    
    (7,569
    )
    
    
    (8,417
    )Contracted Services
    
    
    (8,324
    )
    
    
    (7,950
    )
    
    
    (7,529
    )Depreciation and Amortization
    
    
    (2,225
    )
    
    
    (2,651
    )
    
    
    (3,017
    )Other Store Costs and Expenses
    
    
    (2,250
    )
    
    
    (1,684
    )
    
    
    (1,828
    )Total Store Costs and Expenses
    
    
    (60,653
    )
    
    
    (57,296
    )
    
    
    (59,926
    )STORE OPERATING INCOME
    
    
    4,685
    
    
    
    3,170
    
    
    
    3,539FRANCHISE RESULTSNet Franchise Royalty Fees
    
    R$
    8,035
    
    
    R$
    6,663
    
    
    R$
    4,904Franchise Costs and Expenses
    
    
    (1,916
    )
    
    
    (2,150
    )
    
    
    (1,166
    )FRANCHISE OPERATING INCOME
    
    
    6,119
    
    
    
    4,513
    
    
    
    3,738MARKETING, GENERAL AND
ADMINISTRATIVE (EXPENSES) INCOMEMarketing (Expenses) Income
    
    
    342
    
    
    
    (659
    )
    
    
    (375
    )Administrative Expenses
    
    
    (7,828
    )
    
    
    (6,520
    )
    
    
    (7,434
    )Other Operating Income (Expenses)
    
    
    2,013
    
    
    
    (335
    )
    
    
    (607
    )Depreciation and Amortization
    
    
    (1,160
    )
    
    
    (704
    )
    
    
    (756
    )Net result of assets sold
    
    
    432
    
    
    
    48
    
    
    
    (287
    )Impairment of assets
    
    
    
    
    
    
    (204
    )
    
    
    (1,374
    )Total Marketing, G & A (Expenses) Income
    
    
    (6,201
    )
    
    
    (8,374
    )
    
    
    (10,833
    )OPERATING INCOME (LOSS)
    
    
    4,603
    
    
    
    (691
    )
    
    
    (3,556
    )Interest Expenses
    
    
    (3,151
    )
    
    
    (3,017
    )
    
    
    (4,174
    )Foreign Exchange and Monetary Restatement Loss
    
    
    (252
    )
    
    
    (410
    )
    
    
    (3,480
    )NET INCOME (LOSS) BEFORE INCOME TAXES
    
    
    1,200
    
    
    
    (4,118
    )
    
    
    (11,210
    )Income taxes
    
    
    (599
    )
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    R$
    601
    
    
    R$
    (4,118
    )
    
    R$
    (11,210
    )NET INCOME (LOSS) PER COMMON SHAREBASIC AND DILUTED
    
    R$
    0.08
    
    
    R$
    (0.55
    )
    
    R$
    (1.96
    )WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:BASIC AND DILUTED
    
    
    7,970,473
    
    
    
    7,552,363
    
    
    
    5,707,957
 The accompanying notes are an integral part of the consolidated financial statements. F-5




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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of Brazilian Reais)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002Net Income (Loss)
    
    R$
    601
    
    
    R$
    (4,118
    )
    
    R$
    (11,210
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (25
    )
    
    
    292
    
    
    
    (473
    )Comprehensive Income (Loss)
    
    R$
    576
    
    
    R$
    (3,826
    )
    
    R$
    (11,683
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-6




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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
(In thousands of Brazilian Reais)
 Common Stock
    
    
    Additional
    
    
    
    
    
    
    AccumulatedPaid-In
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    TotalBalance, December 31, 2001
    
    
    3,722,790
    
    
    R$
    1
    
    
    R$
    50,341
    
    
    R$
    (48,404
    )
    
    R$
    (721
    )
    
    R$
    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
    )Shares in exchange of services
    
    
    260,000
    
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    
    
    
    
    299Shares granted to Venbo Employees
and share adjustment (see note 13)
    
    
    35,637
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    601
    
    
    
    
    
    
    
    601Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    (25
    )Balance, December 31, 2004
    
    
    8,102,177
    
    
    R$
    1
    
    
    R$
    59,865
    
    
    R$
    (63,131
    )
    
    R$
    (927
    )
    
    R$
    (4,192
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-7




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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Brazilian Reais)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002CASH FLOW FROM OPERATING ACTIVITIES:Net Income (loss)
    
    R$
    601
    
    
    R$
    (4,118
    )
    
    R$
    (11,210
    )Adjustments to reconcile net income (loss) to
cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    3,385
    
    
    
    3,355
    
    
    
    3,773(Gain) Loss on assets sold and impairment of assets
    
    
    (432
    )
    
    
    156
    
    
    
    1,661Accrued reassessed tax
    
    
    
    
    
    
    2,045
    
    
    
    Expense accounted for on grant of shares
    
    
    36
    
    
    
    
    
    
    
    127Expense paid through issuance of equity
    
    
    299
    
    
    
    118
    
    
    
    111Changes in assets and liabilities:(Increase) decrease in:Accounts receivable
    
    
    (895
    )
    
    
    (1,041
    )
    
    
    1,280Inventories
    
    
    (770
    )
    
    
    (60
    )
    
    
    (612
    )Prepaid expenses and other current assets
    
    
    92
    
    
    
    (329
    )
    
    
    (17
    )Other assets
    
    
    (1,166
    )
    
    
    (117
    )
    
    
    (388
    )(Decrease) increase in:Accounts payable and accrued expenses
    
    
    504
    
    
    
    305
    
    
    
    (2,062
    )Payroll and related accruals
    
    
    372
    
    
    
    (1,061
    )
    
    
    959Taxes
    
    
    409
    
    
    
    (453
    )
    
    
    724Other liabilities
    
    
    (1,785
    )
    
    
    1,059
    
    
    
    3,301Deferred income
    
    
    1,053
    
    
    
    (40
    )
    
    
    (636
    )CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
    
    
    1,703
    
    
    
    (181
    )
    
    
    (2,989
    )CASH FLOW FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (3,354
    )
    
    
    (2,503
    )
    
    
    (1,364
    )Leased Assets
    
    
    (2,017
    )
    
    
    
    
    
    
    Proceeds from sale of property, equipment and
deferred charges
    
    
    3,757
    
    
    
    1,422
    
    
    
    631CASH FLOWS (USED IN) INVESTING ACTIVITIES
    
    
    (1,614
    )
    
    
    (1,081
    )
    
    
    (733
    )CASH FLOW FROM FINANCING ACTIVITIES:Net Borrowings (Repayments) under lines of credit
    
    
    (1,427
    )
    
    
    558
    
    
    
    (5,440
    )Proceeds for leased assets
    
    
    2,017
    
    
    
    
    
    
    
    Proceeds from issuance of shares of common stock
    
    
    
    
    
    
    14
    
    
    
    8,829CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
    
    
    590
    
    
    
    572
    
    
    
    3,389EFFECT OF FOREIGN EXCHANGE RATE
    
    
    (25
    )
    
    
    292
    
    
    
    (473
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    654
    
    
    
    (398
    )
    
    
    (806
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    1,063
    
    
    
    1,461
    
    
    
    2,267CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    R$
    1,717
    
    
    R$
    1,063
    
    
    R$
    1,461
 The accompanying notes are an integral part of the consolidated financial statements. F-8




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##### Table of Contents



BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
(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. During 1996, the Company acquired (the Acquisition)100% of the capital
of 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.During the second half of 2004, Venbo established, in an association with a Brazilian
individual (Associate), a new company, Suprilog Transportadora Ltda (Suprilog).
Suprilog renders transportation services at usual market value to Venbo, to Bobs
franchisees and to other Brazilian companies. At the time of its constitution, Venbo paid
in 90% of Suprilogs Capital and the remaining 10% would be paid in by the Associate in no
later than a year. As of December 31, 2004, the Associate had not capitalized his share. In
the beginning of 2005, the associate reach an agreement with Venbo, by which he left the
joint venture and Venbo became wholly-owner of Suprilog.Suprilogs financial statements are being entirely consolidated in the accompanying
financial statements.2.
    MANAGEMENT PLANS REGARDING GOING CONCERNSince March 1996, the Company has sustained net losses totaling R$63,131, and at December
31, 2004, consolidated current liabilities exceed consolidated current assets by R$5,235.To date, the Company has been dependent upon its initial capital, additional equity and debt
financing to fund the expansion of its operations. Currently, the Company has approximately
R$1,500 of unused credit line.During 2002, the Company received net proceeds in the amount of R$8,829 derived from two
private placements (see note 13) 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 12).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, development of
intensive training programs and other human resources investments. 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. F-9




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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 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.The Acquisitions Purchase Agreement stated that Venbos former owner (VENDEX) would be
responsible for off-balance liabilities derived from Venbos transactions prior to the
Acquisition, up to 5% of the purchasing price. Through 1997 to date, the Company has been
receiving some communications from the Brazilian fiscal authorities related to the period
prior to the Acquisition. Those communications are always sent to Vendex and its attorneys.
During the last months of 2004, the Company received several communications of possible tax
debts which amounts may exceed the above mentioned limit. All demands are being defended by
VENDEX attorneys, however the Company can not predict if their outcome will result in
liabilities that will reach the Company  ́s financial position.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 F-10




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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.Principles of consolidationThe consolidated financial statements include the accounts of the Company and its wholly
owned (directly and indirectly) subsidiaries. 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 receivableAccounts receivable consist primarily of receivables from food sales, franchise royalties
and assets sold to franchisees. The Company records a provision for doubtful receivables to
allow for any amounts which may be unrecoverable and is based upon an analysis of the
Companys prior collection experience, customer credit worthiness, and current economic
trends. After all attempts to collect a receivable have failed, the receivable is written
off against the allowance. F-11




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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.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.Preopening 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 12) 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$5,130,
R$4,168 and R$2,958 for the years ended December 31, 2004, 2003 and 2002, respectively. F-12




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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 income (loss) and income (loss) per share would
have been the following pro forma amounts: 2004
    
    
    2003
    
    
    2002Net income (loss) as reported
    
    
    601
    
    
    
    (4,118
    )
    
    
    (11,210
    )Stock compensation
    
    
    (449
    )
    
    
    (484
    )
    
    
    (505
    )Net income (loss) pro forma
    
    
    152
    
    
    
    (4,602
    )
    
    
    (11,715
    )Net income (loss) per share, as reported
    
    
    0.08
    
    
    
    (0.55
    )
    
    
    (1.96
    )Net income (loss) per share, pro forma
    
    
    0.03
    
    
    
    (0.61
    )
    
    
    (2.05
    )
  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
2004, 2003 and 2002, no options were granted to outside consultants.The weighted average fair values of options granted to the Board of Directors during 2003,
and 2002 were $.31, and $.21, respectively. During 2004 there were no options granted to
any member of the Board of Directors.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 and 2002: (1) risk-free interest rate of 5.00%; (2) no expected dividend yield; (3)
expected lives of 5 years; and (4) expected stock price volatility of 334% and 242%,
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.Long-lived and intangibles assetsThe Company adopted 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. F-13




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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.Net income (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, 2004, 2003 and 2002
that would have had a dilutive effect on earnings for those respective years.Recently issued accounting standardsInventory Cost
In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151,
Inventory Costs. This statement requires that certain costs such as idle facility expense,
excessive spoilage, double freight, and re-handling costs be recognized as current-period
charges and that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The provisions of the statements
shall be effective for inventory costs incurred during fiscal years beginning after June
15,2005. Adoption of this statement is not anticipated to have a significant impact on the
Companys financial condition, results of operations, or cash flows.Share-Based PaymentIn December 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revised 2004), Share-Based Payment. This statement is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This statement requires that the Company records
compensation expense for stock options issued based on the estimated fair value of the
options at the date of grant. This statement is effective as of the first interim period
beginning after June 15, 2005. We currently are not required to record stock-based
compensation charges if the employees stock option exercise price is equal to or exceeds
the fair value of the stock at the date of grant. We have not yet determined what impact, if
any, the proposed pronouncement would have on our financial statements.ReclassificationsThe consolidated financial statements for the years ended December 31, 2003 and 2002 have
been reclassified to conform with the current year presentation. F-14




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##### Table of Contents



5.
    OTHER CURRENT ASSETS, OTHER RECEIVABLES AND OTHER ASSETSOther assets consist of the following:Other current assets: December 31,2004
    
    
    2003Witholding taxes
    
    R$
    116
    
    
    R$
    99Receivables from suppliers  exclusivity and rebates (a)
    
    
    810
    
    
    
    349Receivables from franchisees (b)
    
    
    222
    
    
    
    Other current receivables
    
    
    18
    
    
    
    9R$
    1,166
    
    
    R$
    457
  Other receivable and other assets: December 31,2004
    
    
    2003Receivables from franchisees  assets sold (c)
    
    R$
    494
    
    
    
    740Judicial deposits (d)
    
    
    2,703
    
    
    
    2,000R$
    3,197
    
    
    R$
    2,740
  (a)
    Receivables derived from both exclusivity and rebates agreements with the Companys
suppliers;(b)
    Short term receivables from franchisees developed from rights other than royalties and
sale of assets;(c)
    Long term portion of receivables derived from selling of restaurants to franchisees;(d)
    Deposits required by Brazilian court in connection to some of legal disputes, also
discussed at note 12;  6.
    PROPERTY AND EQUIPMENT, NETProperty and equipment consists of the following: December 31,2004
    
    
    2003Land
    
    R$
    2,322
    
    
    R$
    2,828Buildings and building improvements
    
    
    2,835
    
    
    
    4,670Leasehold improvements
    
    
    5,683
    
    
    
    5,530Machinery, equipment and software
    
    
    13,147
    
    
    
    12,981Furniture and fixtures
    
    
    2,378
    
    
    
    2,314Assets under capitalized leases
    
    
    6,142
    
    
    
    3,641Vehicles
    
    
    585
    
    
    
    44133,092
    
    
    
    32,405Less: Accumulated depreciation and amortization
    
    
    (16,950
    )
    
    
    (15,900
    )R$
    16,142
    
    
    R$
    16,505
  During the third quarter of 2004, the Company sold one of its properties to the Rio de
Janeiro state government in exchange of a sum in cash and tax credits (see note 12).Also during the third quarter of 2004, the Company acquired the rights of leasing agreements
related to trucks and truck equipments in order to establish Venbos subsidiary, Suprilog
(see note 1). F-15




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##### Table of Contents



7.
    DEFERRED CHARGES, NETDeferred charges consists of the following: December 31,2004
    
    
    2003Leasehold premiums
    
    R$
    10,330
    
    
    R$
    11,123Less: accumulated amortization
    
    
    (4,023
    )
    
    
    (3,840
    )R$
    6,307
    
    
    R$
    7,283
  During 2004, the Company wrote down leasehold premiums related to stores which were
either closed or sold to franchisees.8.
    NOTES PAYABLENotes payable consists of the following: December 31,2004
    
    
    2003Revolving lines of credit (a)
    
    R$
    297
    
    
    R$
    2,933Related party loans (b)
    
    
    999
    
    
    
    938Mortgages payable (c)
    
    
    2,867
    
    
    
    Notes payable linked to fixed assets acquisition (d)
    
    
    1,943
    
    
    
    2,986Leasing facilities (e)
    
    
    1,267
    
    
    
    Other notes payable
    
    
    92
    
    
    
    187,465
    
    
    
    6,875Less: current portion
    
    
    (5,976
    )
    
    
    (5,155
    )R$
    1,489
    
    
    R$
    1,720
  At December 31, 2004, future maturities of notes payable are as follows: December 31,2005
    
    R$
    5,9762006
    
    
    1,2452007
    
    
    2352008
    
    
    9R$
    7,465
  (a)
    Due on demand from various Brazilian financial institutions with interest
rates ranging from 34% to 40% per annum, and guaranteed by certain officers and
receivables. Currently, the Company has approximately R$1,500 of unused credit line.(b)
    Credit facilities from related parties, including company and private
individuals. Repayment of principal is indexed to IGP-M (currently at 12.4% per
annum) with interest of 12.0% per annum. Those transactions were made at usual market
value. F-16




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##### Table of Contents



(c)
    Comprised of credit facilities from two Brazilian private financial institutions,
guaranteed by certain officers and receivables. Repayment of principal of one
facility and the payment of interests of 36.9% per annum are due in 10 monthly
installments (ending October 2005) of approximately R$115. Repayment of principal of
the other facility is due in 12 monthly installments (ending December 2005) of
approximately R$155. Interest of 34% per annum is due monthly in addition to
principal repayment.(d)
    This credit facility was used to purchase two stores. Repayment of principal is
due in 19 monthly installments of R$52 in addition of 2 annual installments of R$467,
starting January, 2005, 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.(e)
    This amount is comprised of 10 different lease facilities with Brazilian private
institutions:  
    8 of such facilities provide maximum borrowing of R$2,020 for the funding
of trucks and other vehicle; payable in monthly installments together with
interest with final payments due ranging from January 2005 to February 2008;
secured by equipment under lease;
    the remaining 2 facilities provide maximum borrowing of R$260 for the
funding of truck equipment; one of such facility is payable in monthly
installments together with interest totaling R$4 (final payment due on
December, 2005) and the other facility is payable in monthly installments
together with interest totaling R$3 (final payment due on December, 2007);
both facilities are secured by equipment under lease;  The carrying amount of notes payable approximates fair value at December 31, 2004 and
2003 because they are at market interest rates.9.
    ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccounts payable and accrued expenses consist of the following: December 31,2004
    
    
    2003Suppliers
    
    R$
    3,777
    
    
    R$
    3,393Rent payable
    
    
    776
    
    
    
    725Outsourcing fees
    
    
    417
    
    
    
    431Accrued utilities
    
    
    316
    
    
    
    280Accrued maintenance
    
    
    162
    
    
    
    72Accrued advertising
    
    
    231
    
    
    
    364Audit services
    
    
    88
    
    
    
    103Other accrued liabilities
    
    
    337
    
    
    
    232R$
    6,104
    
    
    R$
    5,600
 F-17




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##### Table of Contents



10.
    CASH FLOW INFORMATIONSupplemental Disclosure of Cash Flow Information:(i)  Interest and income tax: Year ended December 31,2004
    
    
    2003
    
    
    2002Interest paid
    
    
    R$
    
    
    
    
    
    
    
    948
    
    
    
    R$
    
    
    
    
    
    
    
    471
    
    
    
    R$
    
    
    
    1,497Income taxes paid
    
    
    R$
    
    
    
    
    
    
    
    224
    
    
    
    R$
    
    
    
    
    
    
    
    
    
    
    
    R$
    
    
    
    
  11.
    TAXATIONTax losses through December 31, 2004 relating to income tax were R$43,278 and to social
contribution tax were R$44,176. 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 carryforwards.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.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 31,2004
    
    
    2003
    
    
    2002Tax (expense) income at the combined statutory rate
    
    R$
    (408
    )
    
    R$
    1,400
    
    
    R$
    3,811Current income tax offset by
accumulated tax loss credits
    
    
    234Combined statutory rate applied to differences between
taxable results Brazil and reported results
    
    
    (425
    )
    
    
    (1,377
    )
    
    
    (1,763
    )Tax (expense) income for the year
    
    
    (599
    )
    
    
    23
    
    
    
    2,048Valuation allowances recorded against net deferred
tax assets
    
    
    
    
    
    
    (23
    )
    
    
    (2,048
    )Income tax (expense) income as reported in the accompanying
consolidated statement of operations
    
    R$
    (599
    )
    
    R$
    
    
    
    R$
    
  Differences between taxable results in Brazil and reported results are primarily due to
differences between Brazilian GAAP and U.S. GAAP. F-18




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##### Table of Contents



The following summarizes the composition of deferred tax assets and liabilities and the
related valuation allowance at December 31, 2004 and 2003, based on temporary differences
and tax loss carryforwards determined by applying rates of 9% for social contribution tax
and 25% for income tax. December 31,2004
    
    
    2003Deferred tax assets:Tax loss carry forward
    
    R$
    14,796
    
    
    R$
    15,031Provision for contingencies
    
    
    436
    
    
    
    274Property and equipment
    
    
    
    
    
    
    907Total deferred tax assets
    
    
    15,232
    
    
    
    16,212Deferred tax liabilities:Property and equipment
    
    
    142
    
    
    
    Deferred charges
    
    
    1,515
    
    
    
    1,682Total deferred tax liabilities
    
    
    1,657
    
    
    
    1,682Net deferred tax asset
    
    
    13,575
    
    
    
    14,530Valuation allowance
    
    
    (13,575
    )
    
    
    (14,530
    )R$
    
    
    
    R$
    
  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.12.
    COMMITMENTS AND LITIGATIONa) Operating leasesThe future minimum lease payments under operating leases with an initial or remaining
noncancelable lease terms in excess of one year at December 31, 2004 are as follows: Fiscal Year
    
    
    
    
    
    Amount2005
    
    
    R$
    
    
    
    5,2222006
    
    
    
    
    
    
    4,5802007
    
    
    
    
    
    
    3,5882008
    
    
    
    
    
    
    2,8742009
    
    
    
    
    
    
    1,950Thereafter
    
    
    
    
    
    
    2,046Total
    
    
    R$
    
    
    
    20,260
  Rent expense was R$6,199, R$5,492, and R$5,609 for the years ended December 31, 2004,
2003, and 2002, respectively. F-19




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##### Table of Contents



b) 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).c) Reassessed taxes and ContingenciesReassessed taxesDuring 1999, 2001 and beginning 2002 certain Brazilian State and Federal taxes levied
on the Company were not paid. In addition during 2002, Brazilian Social Security Authorities
applied penalties against the Company, by charging certain operating transactions not
covered by the Companys previous calculation of Social Security contributions. Those debts
were renegotiated in different moments and with different levels of Brazilian Government.Since June 2002, the Company has paid all its current taxes on a timely basis. The tax debt
evolution and their current status are summarized as follows:  
    State tax  value addedSince the second quarter of 2000, the Company has been reaching a sequence of
agreements with the Rio de Janeiro state government to make installments on those
unpaid taxes.The last agreement with the Rio de Janeiro state government was settled during the
third quarter of 2004, through which the Company sold one of its property in exchange
of (a) a sum in cash; (b) the waiver of the balance of the unpaid state tax that were
parceled according to previous agreements; (c) tax credits which compensated tax on
revenues accounted for during the last quarter of 2004.During the last agreement, a portion of the Company state tax liability was not
recognized by the fiscal authorities and another portion is being recalculated by
them. The consolidation of the remaining debt is not expected to be computed during
2005, and accordingly the Company accrued both portions, according to its estimates,
as a long term liability.During 2004, the Company paid approximately R$3,620 related to Rio de Janeiro state
government agreements. F-20




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##### Table of Contents




    Federal taxes  PAES
Concerning the unpaid Federal taxes and the Social Security penalties, the
Company applied to join and was accepted into two subsequent amnesty programs offered
by the Brazilian Federal government (REFIS during 1999 and PAES during 2003).The second amnesty program (PAES) included the balance of the previous Federal tax
amnesty program (REFIS) and unpaid 2001 and 2002 federal tax, as well as the Social
Security penalties. The total debt included in such program is 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 9.75% per year.All installments related to those programs have been paid on a timely basis.During 2004, the Company paid approximately R$1,357 related to such Brazilian Federal
tax amnesty program (see note 2).Recently, the Company compared its remaining debt regarding PAES (see note 12)
with statements provided by the Brazilian Federal Government. Those statements
report that Companys total debt would be greater than the figures in the Companys
balance sheet in the amount of approximately R$4,853. During March, 2005, the
Company filed a formal request with the Brazilian Federal Authorities, claiming to
have its total debt reviewed. Such request, reconciles the amounts the Company had
accrued as of December 31, 2004 to the amounts reported in the official statement at
the same period. Although the Company and its legal advisors believe that the
amounts accrued by the Company are correct, there is no assurance that the outcome of
this situation will derive further liability to the Company.  Contingencies  
    Leasing litigationDuring 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 December 31, 2004. F-21




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##### Table of Contents




    ISS tax litigationISS is a tax charged by Brazilian cities on services rendered by Brazilian
companies.None of the Companys revenues were subject to such tax until 2003. However, in the
beginning of 2004 a new ISS legislation has been implemented and according to it,
royalty fees should be included on the basis of ISS calculation.The Companys Management is claiming in court that royalty fees should not be
considered as a service rendered and therefore should not be taxed by ISS.While awaiting the courts determination, the Company is depositing monthly with the
court the amount claimed by ISS. In addition, the Company has accrued the claimed
amounts as of December 31, 2004.  Liabilities related to tax amnesty programs and litigation consist of the following: December 31,2004
    
    
    2003Long
    
    
    
    
    
    
    
    
    
    
    LongTotal
    
    
    Current
    
    
    Term
    
    
    Total
    
    
    Current
    
    
    TermLiability
    
    
    Liability
    
    
    Liability
    
    
    Liability
    
    
    Liability
    
    
    LiabilityReassessed taxesState tax (value-added)
    
    
    1,039
    
    
    
    
    
    
    
    1,039
    
    
    
    4,515
    
    
    
    892
    
    
    
    3,623Federal taxes (PAES)
    
    
    16,215
    
    
    
    1,339
    
    
    
    14,876
    
    
    
    15,050
    
    
    
    715
    
    
    
    14,335ContingenciesLeasing litigation
    
    
    3,144
    
    
    
    
    
    
    
    3,144
    
    
    
    3,144
    
    
    
    
    
    
    
    3,144ISS tax litigation
    
    
    446
    
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    
    
    
    
    Other litigations
    
    
    952
    
    
    
    
    
    
    
    952
    
    
    
    928
    
    
    
    
    
    
    
    928TOTAL
    
    R$
    21,796
    
    
    R$
    1,339
    
    
    R$
    20,457
    
    
    R$
    23,637
    
    
    R$
    1,607
    
    
    R$
    22,030
  13.
    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,
2004, no Preferred Stock had been issued. F-22




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##### Table of Contents



Private placementsIn 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.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.On December 20, 2004, Bigburger Ltda. and CCC Empreendimentos e Participações Ltda.completed
a total buyout of AIG Latin America Equity Partners 375,000 share position in Brazil Fast
Food. This buyout nullifies the pre-existing shareholders agreements, which granted AIG
certain rights over Brazil Fast Foods administration, and increases the collective share of
Bigburger and CCC in Brazil Fast Food by about five percent to approximately 60 percent of
the Companys common stock.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 and an additional 260,000 shares at the end of the two-year term conditioned upon
the attainment of specified targets.In May, 2004, Ricardo Bomeny requested CCC Empreendimentos e Participações to receive
250,000 shares of the additional 260,000 shares due to him.During 2004 the Company charged R$283 (R$118 in 2003 and R$111 in 2002) to operating results
related to those services. Such amounts are a result of number of shares owed on accrual
basis until December 31, 2002, multiplied by their average fair value.Also in connection with those services, in 2004 and 2003 260,000 and 240,000 shares of
common stock were incorporated to Additional Paid in Capital, respectively.Severance agreementIn October, 2002, the Company 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 such severance agreement. Such amount is a result of number of shares granted,
multiplied by their fair value. F-23




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##### Table of Contents



Shares granted to Venbo employees and shares adjustmentsDuring 2001, the board of Directors approved a grant of 35,000 shares to Venbo top
management. This grant of share has not been accounted for during that year, and at December
31, 2004 the company adjusted its common stock to reflect such transaction.
Correspondingly, at December 31, 2004 the Company charged R$36 to operating results related
to those grant of shares. Such amount is a result of number of shares granted, multiplied by
their fair value.In addition, during 2004, the Company adjusted its number of shares stated at
Consolidated statements of changes in shareholders equity (deficiency) in a total of
637 shares. Such adjustment corrected a miscalculation for the Companys reversal split
of shares accounted for during 1999.Stock repurchase planDuring 2004, the Companys Board of Directors and a majority of the shareholders of the
Company approved the stock repurchase plan under which the Company may repurchase as many as
200,000 shares of Brazil Fast Food common stock in the future.As of December 31, 2004 there were no repurchase of Companys common stock, under such
plan.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.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, 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 or exercised during the twelve months ended December 31,
2004, under the Companys Stock Option Plan.Under the Companys Stock Option Plan, options to purchase a total of 49,375 shares have
expired during the twelve months ended December 31, 2004. F-24




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##### Table of Contents



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, 2004, 2003 and
2002 is summarized as follows: 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding at beginning of year
    
    
    570,625
    
    
    $
    1.76
    
    
    
    590,000
    
    
    $
    2.35
    
    
    
    564,437
    
    
    $
    2.29Granted
    
    
    
    
    
    
    
    
    
    
    32,500
    
    
    
    0.32
    
    
    
    175,250
    
    
    
    1.25Exercised
    
    
    
    
    
    
    
    
    
    
    (23,750
    )
    
    
    0.19
    
    
    
    
    
    
    
    Expired
    
    
    (49,375
    )
    
    
    2.78
    
    
    
    (28,125
    )
    
    
    2.45
    
    
    
    (25,937
    )
    
    
    2.45Canceled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123,750
    )
    
    
    2.18Options outstanding at December 31,
    
    
    521,250
    
    
    $
    1.86
    
    
    
    570,625
    
    
    $
    1.76
    
    
    
    590,000
    
    
    $
    2.35Options exercisable at December 31,
    
    
    521,250
    
    
    $
    1.86
    
    
    
    558,125
    
    
    $
    1.77
    
    
    
    555,000
    
    
    $
    2.43
  The options outstanding at December 31, 2004, range in price from $.21 per share to $2.45
per share and have a weighted average remaining contractual life of 1.84 year.14.
    OTHER INCOME (EXPENSES)Other income (expenses) consist of the following: December 31,2004
    
    
    2003
    
    
    2002Exclusivity and Rebate Agreements
    
    R$
    3,949
    
    
    R$
    2,503
    
    
    R$
    1,156Income from properties leasing
    
    
    226
    
    
    
    156
    
    
    
    162Initial Fees
    
    
    1,379
    
    
    
    2,601
    
    
    
    1,595Uncollectable receivables
    
    
    (2,243
    )
    
    
    (2,025
    )
    
    
    (1,721
    )Reassessed tax and other tax adjustments
    
    
    (632
    )
    
    
    (2,155
    )
    
    
    Accruals for contingencies
    
    
    (117
    )
    
    
    (370
    )
    
    
    (1,366
    )Preopening and other expenses
    
    
    (549
    )
    
    
    (1,045
    )
    
    
    (433
    )R$
    2,013
    
    
    R$
    (335
    )
    
    R$
    (607
    )
  15.
    TRANSACTIONS WITH RELATED PARTIESAmong all 325 franchised stores, 14 stores are franchised with CCC Empreendimentos Ltda. and
23 stores are franchised with Big Buger Ltda (or affiliate). Both enterprises are Companys
shareholders. All franchise transactions with those related parties are made at usual market value
and at December 31, 2004 the Company account receivables included R$367(R$383 in 2003) related to
them. F-25




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##### Table of Contents



16.
    SELECTED QUARTERLY FINANCIAL DATA 2004First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Amounts in Thousands of Brazilian Reais, except sharesand income (loss) per share)Net Restaurant Sales
    
    
    16,154
    
    
    
    15,697
    
    
    
    15,082
    
    
    
    18,405Net Franchise Royalty Fees
    
    
    1,870
    
    
    
    1,753
    
    
    
    1,917
    
    
    
    2,495Operating income (loss)
    
    
    2,198
    
    
    
    28
    
    
    
    557
    
    
    
    1,820Net income (loss)
    
    
    1,040
    
    
    
    (447
    )
    
    
    110
    
    
    
    (102
    )Basic and diluted income (loss) per share
    
    
    0.13
    
    
    
    (0.06
    )
    
    
    0.01
    
    
    
    (0.02
    )Weighted average common shares outstanding
    
    
    7,806,540
    
    
    
    7,936,540
    
    
    
    8,066,540
    
    
    
    8,066,936
 2003Net 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
    
    
    
    7,569,207
 F-26