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SECURITIES AND EXCHANGE COMMISSION

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, 2002
Commission file number: 0-23278

BRAZIL FAST FOOD CORP.

Registrant’s telephone number, including area code: 55 21 2564-4219

Securities registered pursuant to Section 12(b) of the Act:

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 $842,081.

     The number of shares outstanding of the Registrant’s common stock is 7,569,718 (as of April 2, 2003).

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     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, 2002, we had 303 restaurants, or “points of sale,” including 34 kiosks and trailers.

     We were incorporated in Delaware in 1992. Our executive offices are located at Av. Brasil, 6431 — Bonsucesso, CEP 21040-360, Rio de Janeiro, Brazil. Our telephone number is 55 (21) 2564-6452.

     The audit opinions of our independent public accountants contained elsewhere in this report contain qualifications that, due to our recurring losses from operations and our negative working capital position, there is substantial doubt as to our ability to continue as a going concern. See “Risk Factors – Risk Relating to Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a further discussion of these factors.

Recent Developments

     Brazilian Economy: Beginning in mid-1999 and continuing to the end of 2000, the Brazilian economy experienced a recovery from its economic recession, which began in late 1998, and showed substantial increases in agricultural and industrial production, reduced unemployment, increased retail sales levels and a positive trade balance. During this period, we experienced revenue growth. This recovery ceased at the end of the third quarter of 2001 due to a number of factors, including the September 11th terrorist attacks in New York City and Washington, D.C., economic problems in Argentina, the increased cost of commercial borrowing in Brazil and the devaluation of the Real against the U.S. Dollar, as well as an energy crisis in Brazil that caused the Brazilian federal government to implement electricity rationing and the financial speculation in relation with the Brazilian Presidential Elections of October 2002. These factors negatively affected the Brazilian economy and, in turn, adversely affected our restaurant sales and the results of our operations. See “Risk Factors—Risks Relating to Brazil” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a further discussion of these factors.

(b)

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Not applicable, due to the fact that we operate in one segment.

(c)

NARRATIVE DESCRIPTION OF BUSINESS

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Restaurant Operations

     As of December 31, 2002, Bob’s had 303 points of sale, including 34 kiosks and trailers. Of the 303 points of sale, we own and operate 61 and the remaining 242 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 200 of these points of sale are located in Rio de Janeiro and São Paulo and the remaining points of sale are widely spread throughout major cities in other parts of Brazil, except for three franchised restaurants that opened in Portugal in November 2001. The largest number of franchised operations outside of Rio and São Paulo are in Pernambuco, Santa Catarina, Pará, Bahia, Espirito Santo and Brasilia. All points of sale serve a uniform menu of hamburgers, chickenburgers, hot dogs, sandwiches, french fries, soft drinks, juices, desserts and milk shakes. Selected points of sale also serve coffee and/or beer. We are particularly known for our milkshakes and the special spicing of our hamburgers. Our target clients are between the ages of 15 and 35 and come from all social groups.

     Historically, our points of sale have been distinguishable from other “fast food” operations due to our unique service design whereby customers would place and pay for their food on one line and pick up their food on another line. Cooks would prepare orders as read to them by the counter service representative who took the order. We have changed this two line system into a single line system, which has improved both the quality and speed of service, while retaining our cooked-to-order philosophy. This change has been made possible by the deployment of software which facilitates communication between counter personnel and the kitchen staff. Under this new system, as each order is input by a service representative into a countertop terminal, it also appears on a computer screen in the kitchen, thereby assuring that each customer will receive his food rapidly while permitting us to retain cooked-to-order offerings.

     Our points of sale are generally open all year round, seven days a week. Historically, we have experienced increased sales each year during the Brazilian summer months and during Brazil’s school holiday periods in the months of December, January, February and July. We have also experienced strong sales in December due to the Christmas holidays.

     Our points of sale generally open at 10:00 A.M. for lunch and remain open for dinner. Closing hours vary according to location. In some locations with proximity to late night entertainment, the points of sale remain open for the “after hours” crowd. Our points of sale are not generally open for breakfast, as results from test-marketing that we conducted at various times during 1999 and 2000 indicated that offering fast food breakfast is not economically viable.

     Our prices are consistently positioned at the same levels as those for comparable products offered by our major competitors. We attempt to maintain the overall cost of our meals at levels competitive with lunch prices offered by popular street snack bars known as “lanchonetes.”

     Originally, our points of sale were built as counter service facilities to accommodate our initial primary clientele of teenagers. In keeping with our current efforts to attract family-oriented customers, all of our points of sale built since 1980 have included seating facilities. In addition, all of our pre-1980 points of sale have now been renovated to update the decor, expand the seating facilities and provide air conditioning. During 2001, we introduced a new more modern and cheerful evolution of our logo and visible manifestations. All new franchisees open their restaurants with this housestyle and all existing restaurants are planned to be refitted by year ended 2003. This style is carried through in the uniforms worn by our personnel, which are occasionally modified to feature hats and shirts used in promotions.

     For the past several years, we have been the exclusive provider of hamburgers and related items at two of Brazil’s largest special events – the Rio de Janeiro Carnivale, the one week festive period which precedes the advent of Lent, and the Formula One Automobile Racing Championships. In addition, our

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food products are sold at other special events throughout Brazil, including boat fairs, automobile fairs and State rodeos. Using custom constructed trailers and moveable kiosks, we are able to offer most of our products at temporary locations for the duration of each special event. In addition to providing an additional revenue source, our visibility is enhanced by signage that can be picked up via television coverage of the special event and by reaching a consumer market where we may not have a permanent outlet. In November 2001, our first foreign franchise was opened in Portugal pursuant to a master franchise agreement, which provides that 30 franchises be opened in Portugal over the next ten years.

     The following table presents the openings and closings of both our owned and operated restaurants and our franchised restaurants for the years ended December 31, 2002, 2001 and 2000:

     The average guest check per customer for our owned and operated points of sale for the years ended December 31, 2002, 2001 and 2000 was R$6.06, R$5.87 and R$5.22, 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

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the water used at each restaurant in the preparation of food and drinks as well as random samples of one food item, which are taken to a contract laboratory for a microbiological analysis.

Growth Strategy

     Bob’s is Brazil’s second largest hamburger fast food operation. Although many of our major competitors have been experiencing operational and franchise difficulties, we continue to add points of sale and improve our revenues. Our primary goal is to continue to increase our network of points of sale in Brazil, where we believe fast food is a developing market, and to gain market share by entering city markets where we are under-represented.

     Brazil’s population of 169.8 million is the fifth largest in the world (behind China, India, the United States and Indonesia). São Paulo, Brazil’s largest city, has 10.4 million residents and a metropolitan area population of 17.9 million. The city of São Paulo is located within the state of São Paulo, which has a population of 37.0 million. Rio de Janeiro, Brazil’s second largest city, has 5.9 million residents and a metropolitan area population of 10.9 million. The city of Rio de Janeiro is located within the state of Rio de Janeiro, which has a population of 14.4 million. Thirteen metropolitan areas, including those of Rio de Janeiro and Sao Paulo, have populations in excess of one million. According to IBGE, a non-affiliated consulting concern, in 2000 the average annual income of the Brazilian population was as follows:

     According to Media Data ‘98, another non-affiliated consulting concern, the fast food market is one of Brazil’s fastest growing business segments, which could exceed 60,000,000 customers. Based upon the foregoing, we believe there is significant opportunity for sales growth in the Brazilian fast food market. To capitalize on this opportunity, we intend to make capital expenditures of R$2,100,000 in 2003 to refurbish old points of sale, install new signage, upgrade our equipment and to maintain the number of our company owned and operated points of sale in Brazil of 61.

     We are also focusing our growth efforts upon the development of new franchises, especially in northern Brazil, where competition is not as intense as in other urban areas. We will also seek to increase our number of franchisees. We intend to enter into territory agreements with franchisees which will require franchisees to commit to the development of several Bob’s points of sale in a particular region. We also intend to focus on developing joint ventures with gasoline station retailers. See “Franchise Program” below for a description of our franchise program and the terms of these joint ventures.

     We expect to continue to capitalize on our 50-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.

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     In 1999, we initiated a computer-based delivery system for telephonic food and beverage orders. As of December 31, 2002, our telephonic order delivery system had been installed in almost all of our 61 owned and operated points of sale.

Franchise Program

     As of December 31, 2002, 242 of our 303 points of sale were owned and operated by franchises. In 2002, for the six year in a row, Bob’s received the Quality Seal of the Brazilian Franchise Association.

     Our franchise agreements generally require the franchisee of a traditional Bob’s restaurant to pay us an initial fee of $30,000 and additional fees equal to 4% of the franchisee’s gross sales in its first two years of operation and 5% of monthly gross sales thereafter. In addition, franchisees pay us 4% of monthly gross sales in cooperative advertising fees. Our typical franchise agreement also provides that the franchisee has the right to use the Bob’s trademark and formulas in a specific location or area and must use our approved supplies and suppliers and must build each franchised outlet in accordance with our specifications at approved locations. The term of the majority of our franchise agreements is 10 years, with a few agreements having 5 year terms. Our existing franchise agreements have an average remaining duration of approximately eight years. Historically, upon expiration a franchise agreement is renewed without the interruption of the franchisee’s business. We generally have no financing obligations with respect to these franchise agreements.

     At present, approximately 9 months elapse between our initial contact with a prospective franchisee and the opening of a franchised point of sale. After the initial meeting, and if the potential franchisee meets certain basic conditions, such as significant business experience, financial resources and knowledge of the market in the area where the franchise will be located, a preliminary franchise agreement is signed, which, among other matters, requires the prospective franchisee to pay us a non-refundable sum equal to 50% of the initial franchising fee to partially compensate us for the cost of a three-month training program to familiarize the prospective franchisee with our operations. Following mutual agreement as to the site of a new restaurant, a definitive franchise agreement is signed, outlining the obligations and responsibilities of each party, including the franchising fees and promotion commissions to be paid to us. The franchisee then begins a three-month training program. Construction of the restaurant typically begins at the beginning of the training program and is generally completed within three to six months. The franchising fee is sufficient to cover all training expenses we incur.

     In some instances, the franchise agreements that we have negotiated with existing franchisees accommodate specific requirements and characteristics of the franchisee. We have entered into territory agreements with franchisees located in areas where we have determined that it is in our best interest to establish two or more stores within a geographic region. The territory agreements incorporate the same terms and conditions of our franchise agreements, but also provide for the franchisee to commit to opening an agreed-upon number and type of store within a specified time-frame. In a limited number of instances, we may grant franchisees exclusive territorial rights if we believe such grants would further the development of new market opportunities.

     Under Brazilian law, we cannot dictate the price at which our franchisees sell their products, although the prices charged by our franchisees generally mirror the prices charged by our owned and operated points of sale.

     Individuals wishing to own and operate a Bob’s franchise are required to submit an application. A steering committee formed by our top management receives formal franchising proposals and reviews them to determine which applications should be accepted. In addition to our existing 110 franchisees

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who, collectively, operated 242 points of sale, including 29 kiosks and 3 trailers, at December 31, 2002, we had signed final franchising contracts with approximately 20 new franchisees to open and operate a like number of additional points of sale, to be located in the states of Rio de Janeiro, Sao Paulo, Mato Grosso do Sul, Brasilia, Parana, Pernambuco, Santa Catarina, Maranhao and in the Federal District of Brasilia. The majority of these additional points of sale will begin operations in the first semester of 2003.

     As part of our growth strategy, we have begun entering into franchise agreements requiring the franchisee to commit to the development of a fixed number of Bob’s points of sale. We are also focusing on developing joint ventures with gasoline retailers to house Bob’s points of sale in retail gasoline stations. We contemplate that substantially all of these new restaurant/gas stations, or “joint sites,” although housed at the gas stations, will be built, owned and operated by our present and future franchisees and not the gasoline retailer. We will then share a portion of the royalties received from the franchisee of a particular joint site with its respective gasoline retailer. In 2000, based on favorable testing of joint sites in 1999, we entered into an agreement with Petrobras, one of the largest gasoline retailers in Brazil, with approximately 7,000 locations, whereby Petrobras has agreed to house a Bob’s restaurant in 30 of its gas stations over the next two years. Pursuant to this agreement, we and Petrobras will work together to select the proper locations to open these joint sites. To date, six joint sites have been opened in Petrobras gas stations.

     We are currently testing several joint sites with other gasoline retailers, including Shell, Forza, Ale, AGIP and Repsol. Our agreements with each of these gasoline retailers do not establish a set number of joint sites to be established. These agreements, like our standard franchise agreements, merely set forth conditions to establish a joint site and do not limit the number of joint sites that may be opened under the agreement. To date, Shell has three joint sites in operation and we are negotiating an agreement with them to house a specific number of joint sites in certain approved locations. Forza, a gasoline retailer catering to the taxicab industry, has now thirteen Bob’s sites in operation, with the objective of housing 20 joint sites in total. Alé, another gasoline retailer, has three joint sites and an agreement with them for the creation of multiple joint sites has been signed.

     In our first effort to expand our “Bob’s” brand beyond Brazil, we entered into a master franchisee agreement in 2000 to open franchised points of sale in Portugal. This agreement requires the master franchisee to open 30 “Bob’s” retail points of sale over a 10-year period, of which no less than 5 must be owned and operated by the master franchisee and the remaining may be owned and operated by the master franchisee’s subfranchisees. The master franchisee will assume financial responsibility for marketing the “Bob’s” brand in Portugal. Pursuant to this agreement, which contains substantially the same operational guidelines as our standard Brazilian franchise agreement, the master franchisee agreed to pay us a master franchisee fee of $200,000 minus the costs related to registering the trademark “Bob’s” in Portugal. In addition, we will receive 33%, or at least $10,000, of the initial fees charged to the Portuguese franchisees by the master franchisee. The agreement provides that we will receive from the master franchisee initial fees in the amount of $16,000 for each of the five stores to be opened and operated by the master franchisee. The master franchisee also agreed to pay us 20% of royalty fees charged to the Portuguese franchisees. The first Portuguese franchise under this agreement opened in November 2001 and two more have opened in 2002.

     We generally retain a right of first refusal in connection with any proposed sale of a franchisee’s interest.

Advertising and Promotions

     We utilize television, radio, outdoors and a variety of promotional campaigns to advertise our products. We also use colorful cardboard boxes imprinted with the “Bob’s” symbol for our premium

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sandwich offerings, replacing paper bags, thereby enhancing our quality image. In 2001, we updated our logo and expect all of our points of sale to be using the logo by end-2003.

     We are constantly seeking to expand the breadth and quality of our product offerings:

	•		In 1997, we launched a new line of chicken products in an effort to capitalize upon customers’ requests for “health-oriented” food offerings; one of these products, a chicken steak sandwich, has become one of our best selling offerings.
	•		In 1998, we launched the “Bob’s Dog,” an extra-large hot dog with two different sauces.
	•		In 1999, we introduced a chocolate mousse pie dessert; bacon was also added as an option to all of our sandwich offerings.
	•		In 2000, we introduced a cheese, ham and egg sandwich and a hot fudge topped ice cream sundae; we also introduced our “MEGA” sized sandwiches and combination meals.
	•		In 2001, we introduced chicken nuggets; we also introduced a new sandwich offering of bacon, egg and cheese.
	•		In 2002 we introduced a 120 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.

     We and our advertising agency annually develop a multi-media marketing program to advertise our restaurant network in its primary markets. We periodically develop 15 and 30 second television commercials which, typically, are aired one to six times a day for a 15-day period. Temporary product discounts are offered in Rio de Janeiro and Sao Paulo through radio and television advertising several times a year. Other successful promotional programs have included offering products tied into popular movies with certain value meals, and selling specially produced hats at a discount with certain value meals. We also offer a “kids meal,” which includes three food items and a small packaged toy. Certain of our points of sale offer special services for children’s birthday parties and also feature appearances by “Bobi”, our mascot. All these programs are reinforced by visual tools, such as banners, posters and place mats.

     We keep franchisees informed of current advertising techniques and effective promotions and make our advertising materials available to our franchisees. Our franchisees are required, generally, to pay us 4% of their monthly gross receipts for advertising and promotions. Individual stores also develop promotional programs to attract additional clientele or to assist in the implementation of expanded business hours. These promotions are paid for by each outlet. We commit approximately 4% of our system-wide gross sales to marketing activities.

     We are a participant in a joint retail marketing effort initiated in 1998 in Rio de Janeiro, together with Shell, Lojas Americanas (one of the biggest department store chains in Brazil) and Sendas (one of the biggest supermarket chains in Brazil), of memberships in “Smart Club,” which offers special premiums to repeat customers. This program, which has been expanded to encompass other areas of Brazil, is ongoing.

     We intend to increase our marketing efforts in Sao Paulo in an effort to capitalize upon our increasing number of stores in the number one city market of Brazil.

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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 joint promotion and marketing programs with Coca-Cola for its soft drink products and with Novartis Nutricion for its Ovomaltine chocolate, as well as with Mate Leao for a popular Brazilian brand of iced tea. Pursuant to a 1996 agreement with a Brazilian subsidiary of Coca-Cola, we agreed to sell, on an exclusive basis, Coca-Cola soft drink products in our restaurants until 2006 in exchange for $4,000,000. This agreement was amended in 2000 to extend the exclusivity period to 2008.

Trademarks

     We believe that our trademarks and service marks, all of which are owned by us, are important to our business.

     Our trademarks and service marks have been registered in the Brazilian trademark office. These trademarks and service marks expire at various times from 2005 to 2012, when they are routinely renewed. The following table sets forth our significant trademarks and service marks that are registered in the Brazilian trademark office:

     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.

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Competition

     In terms of the number of points of sale, we are the second largest hamburger food service organization in Brazil. Each of our restaurants is in competition with other food service operations within the same geographical area. We compete with other organizations primarily through the quality, variety, and value perception of food products offered. The number and location of units, quality and speed of service, attractiveness of facilities, and effectiveness of marketing are also important factors. The price charged for each menu item may vary from market to market depending on competitive pricing and the local cost structure.

     Based on several articles which have appeared in independent Brazilian newspapers and periodicals, we believe that we and McDonald’s are the market leaders in the hamburger fast food business in Rio de Janeiro and São Paulo. McDonald’s Brazilian point’s of sale accounted for substantially all of the balance of this market.

     As of December 31, 2002, McDonald’s had approximately 1,251 Brazilian points of sale, including 670 kiosks. As of December 31, 2001 and 2000, McDonald’s had approximately 1,174 and 1,095 Brazilian points of sale, respectively. As of December 31, 2002, 2001 and 2000 Pizza Hut had 62 fast food pizza points of sale in Brazil. Domino’s Pizza had 23 points of sale in Brazil as of December 31, 2002 and 20 and 13 points of sale as of December 31, 2001 and 2000, respectively. Arby’s closed all points of sale in Brazil during 1999. Habib’s, a Middle Eastern fast food chain, had approximately 200 points of sale in Brazil as of December 31, 2002, as compared with approximately 170 and 157 as of December 31, 2001 and 2000, respectively.

     Our competitive position is enhanced by our use of fresh ground beef and special flavorings, made-to-order operations, comparatively diverse menu, use of promotional products, wide choice of condiments, atmosphere and decor of our restaurants and our relatively long history in Brazil. We believe that the use of moveable trailers and kiosks, which are not utilized by our competitors, affords us an advantage over our competitors. We also believe that, as a Brazilian-based company, we have the advantage over our non-Brazilian competitors of being able to readily understand and respond to local consumer preferences.

Personnel

     As of December 31, 2002, we, including our franchisees, employed 6,544 persons, of whom 1,596 were employed in our owned and operated restaurants. The total number of full-time employees at that date was 1,704 of which 98 were temporary personnel. Since 1999, we have reduced the number of hours in each worker’s shift, from 8 hours to 6 hours, in order to increase productivity.

     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

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FORWARD LOOKING STATEMENTS

     This 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 prospectus will in fact transpire or prove to be accurate. Investors are cautioned that such forward looking statements involve risks and uncertainties including without limitation the following:

Risks Relating to Operations

•

We have a history of significant net losses and we may not be profitable in the future; We may need to seek the forbearance of creditors in the future.

     We incurred net losses of R$11,210,000, R$ 8,250,000 and R$ 3,351,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Our accumulated deficit at December 31, 2002 was R$ 59,614,000 and our working capital deficit at such date was R$ 14,238,000. There is no assurance that our future operations will become profitable. We may continue to report net losses for the foreseeable future, which could adversely affect our ability to service our debt or finance our business operations in the future.

     In order to sustain our operations, we have, in the past, been dependent upon the continued forbearance of our creditors. While we believe that we are currently in compliance with our agreements with creditors, there can be no assurance that we will not be forced to seek the forbearance of our creditors in the future.

•

Our independent auditors’ report raises uncertainties about our ability to continue as a going concern; Need for additional financing.

     The reports of Arthur Andersen S/C, the independent auditors of our consolidated financial statements for the years ended December 31, 2000 and 1999, and of Grant Thornton, the independent auditors of our consolidated financial statements for the years ended December 31, 2002 and 2001, recites that our recurring losses from operations and negative working capital raise substantial doubt about our ability to continue as a going concern. Our plans to continue as a going concern, discussed elsewhere in this report, focus on efforts to raise additional capital and increase our cash flow. We are currently working to evaluate strategic alternatives that will enable us to obtain the funds necessary to continue our business operations. At this time, we cannot state with any degree of certainty whether such funding will be available to us and, if available, that the source of such funding would be available on terms and conditions acceptable to us. Any potential sources of additional financing may be subject to business and economic conditions outside of our control. If we do not obtain the funds we need to pay our debt obligations or operating expenses, we may need to curtail our operations or we may be forced to evaluate other alternatives to continuing our present operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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•

The composition of our board of directors is controlled by the parties to a stockholders’ agreements which restrict our ability to direct certain aspects of our business and operations

     On August 11, 1997 we entered into a stockholders’ agreement (the “1997 Stockholders’ Agreement”) with AIG Latin America Equity Partners, Ltd., referred to herein as “AIGLAEP,” and our then executive officers and directors, and certain of their affiliates, as a condition to the closing of a stock purchase agreement with AIGLAEP, pursuant to which AIGLAEP purchased 375,000 shares of our common stock and warrants to purchase 62,500 shares of our common stock.

     Pursuant to the terms of the 1997 Stockholders’ Agreement, each of the parties to the agreement agreed, among other things, to vote its respective shares of our common stock to elect as directors one designee of AIGLAEP, two designees of Shampi Investments A.E.C., two designees of Lawrence Burstein and certain other of our former executive officers and directors, and one designee of BigBurger Ltda.

     The 1997 Stockholders’ Agreement provides that if we fail to achieve 75% of our projected cumulative EBITDA (earnings before interest, taxes, depreciation and amortization), as set forth in the 1997 Agreement, for each of the periods from January 1, 1997 to December 31, 1999, 2000 or 2001, respectively, AIGLAEP could appoint such number of its designees which, together with an expansion of the board and the filling of vacancies created by the resignation of certain directors serving at such time, would then constitute a majority of our board of directors, thereby effecting a change in our control.

     We failed to achieve the performance targets for the year ended December 31, 2000. Following negotiations with AIGLAEP, the 1997 Stockholders’ Agreement was amended on March 14, 2001, to provide, among other things, for the suspension, until the completion of our audited financial statements for the year ended December 31, 2002, of AIGLAEP’s right to appoint a majority of our board of directors. In partial consideration of AIGLAEP’s agreeing to the suspension and possible termination of its right to take control of our board and certain of its prior approval rights, we issued to AIGLAEP warrants to purchase 35,813 shares of our common stock at an exercise price of $5.00 per share and reduced the exercise price of additional warrants to purchase 64,187 shares of our common stock held by AIGLAEP to $5.00 per share. Further, certain of our shareholders agreed to grant AIGLAEP an option to purchase an aggregate of 40,000 shares of our common stock held by such shareholders (and among them as they shall agree) at an exercise price of $1.50 per share.

     The amendment to the 1997 Stockholders’ Agreement provides that if certain economic performance targets, based on our results of operations for the year ending December 31, 2002 and set out in the amendment to the 1997 Stockholders’ Agreement, are met, or if AIGLAEP at any time owns less than 187,500 issued and outstanding shares of our common stock, subject to any adjustments for any stock split or restructuring, AIGLAEP’s right to take control of our board of directors and certain of its prior approval rights will terminate. If, however, we fail to meet these performance targets, our chief executive officer must promptly resign and our board of directors will be required, except as limited by their fiduciary obligations, to adopt recommendations for improving our financial performance as may be proposed by a committee of the board of directors composed of representatives of AIGLAEP and certain other investors who purchased our equity securities in a private offering in March 2001.

     As reflected in the financial statements contained elsewhere in this report, we failed to meet the original performance targets for the year ended December 31, 2002. However, the amendment to the 1997 Stockholders’ Agreement contains a provision that requires the parties to renegotiate the performance targets in good faith in the event that (i) the Brazil SELIC central bank rate exceeds an average of 18% for a continuous period of ninety business days or (ii) there is a devaluation of the Brazilian Real against the US dollar exceeding 10% over any three-month period. Both such events have occurred since the amendment. However, due to the fact that our request to renegotiate the performance

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targets in good faith did not receive a response, we believe that the performance targets are no longer applicable.

     On May 15, 2002, we entered into an additional stockholders’ agreement (the “2002 Stockholders’ Agreement”) with Gustavo Figueredo Bomeny and CCC Emprendimentos e Participacoes Ltd. (the “New Investors”) and certain of our current investors, namely BigBurger Ltda., Jose Ricardo Bousquet Bomeny, Omar Carneiro da Cunha, Seaview Venture Group, Peter van Voorst Vader and Shampi Investments A.E.C., as a condition to the closing of a stock purchase agreement with the New Investors, pursuant to which the New Investors purchased 3,700,000 shares of our common stock.

     Pursuant to the terms of the 2002 Stockholders’ Agreement, each of the parties to the agreement agreed, among other things, to vote its 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 parties to the 2002 Stockholders’ Agreement also agreed that, with regard to certain matters that may arise at our Annual Stockholders Meetings, all of their shares of common stock will be voted in accordance with the instructions of a majority of the total shares of common stock held by such parties. The 2002 Stockholders’ Agreement, by its terms, is subject to the terms of the 1997 Stockholders’ Agreement.

•

Our success depends on our ability to compete with our major competitors in the fast food industry

     The success of our business is dependent upon our ability to compete with other restaurants and fast food chains. To compete, we may be required to spend significant funds on marketing and promotions and on developing and offering new products, while maintaining the prices we charge our customers. Many of our competitors, like McDonald’s, have vastly greater over-all financial and other resources available to them than we do. We may not have the resources necessary to compete effectively, which may cause consumers to prefer the products of our competitors. As a result, we could experience a decrease in revenues which would have an adverse impact on our business and operations.

•

The fast food industry may be adversely affected by current “value pricing” trends

     In order to remain competitive, we are required to respond to changing consumer preferences, tastes and eating habits, increases in food and labor costs and national, regional and local economic conditions. Many companies internationally have adopted “value pricing” strategies. Such strategies could have the effect of drawing customers away from companies that do not engage in discount pricing and could also negatively impact the operating margins of competitors that do attempt to match competitors’ price reductions. There can be no assurance that the use of “value pricing” strategies will stop. If companies were to continue to implement value pricing, we may be forced to reduce our sales prices or maintain our prices and perhaps lose customers, either of which would cause a reduction in our revenues.

•

Our future success is dependent upon the success and expansion of our franchise program

     A portion of our revenues are attributable to the fees we collect from our franchisees. To improve our revenues in the future, we have developed a growth strategy that includes increasing our number of franchised points of sale. This growth strategy is substantially dependent upon our ability to attract, retain and contract with qualified franchisees and the ability of these franchisees to open and operate their Bob’s points of sale successfully. In addition, our continued growth will depend in part on the ability of our existing and future franchisees to obtain sufficient financing or investment capital to meet their market development obligations. If we experience difficulty in contracting with qualified franchisees, if franchisees are unable to meet their development obligations or if franchisees are unable to operate their

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points of sale profitably, the amount of franchise fees paid to us by our franchisees would decrease and our future operating results could be adversely affected.

•

We are subject to extensive regulatory requirements applicable to the food service industry

     Both we and our franchisees are subject to regulatory provisions relating to the wholesomeness of food, sanitation, health, safety, fire, land use and environmental standards. Suspension of certain licenses or approvals due to our or our franchisees failure to comply with applicable regulations could interrupt the operations of the affected restaurant and inhibit our or their ability to sell products. Both we and our franchisees are also subject to Brazilian federal labor codes, which establish minimum wages and regulate overtime and working conditions. Changes in such codes could result in increased labor costs that could cause a reduction in our operating income. We are also subject to Brazilian federal franchising laws applicable to franchise relationships and operations. Changes in these or any other regulations may contain requirements that impose increased burdens on our business, which may adversely affect our results of operations. We cannot assure you that we will be able to deal successfully with any potential new or amended regulations.

Risks Relating to Brazil

•

Our operations are subject to changes in Brazil’s economy

     In March 1994, the Brazilian government introduced an economic stabilization program, known as the “Real Plan,” intended to reduce the rate of inflation by reducing certain public expenditures, collecting liabilities owed to the Brazilian government, increasing tax revenues, continuing to privatize government-owned entities and introducing a new currency. The Real was introduced as Brazil’s currency in July 1994, based on a monetary correction index, the URV, introduced earlier in that year. The Real Plan resulted in a substantial reduction in Brazil’s rate of inflation, which declined from 2,489.11% per annum in 1993 to 10.4% per annum in 2002. With the exception of a few months in 1999, the Real Plan also caused the exchange rate between the Real and the U.S. Dollar to remain relatively stable from 1994 to 2000.

     Although Brazil’s economy was expected to expand from 2001 onwards, a number of factors limited this expansion, including the September 11th terrorist attacks in New York City and Washington, D.C., economic problems in Argentina, the increased cost of debt in Brazil, the devaluation of the Real against the U.S. Dollar and an energy crisis in Brazil that caused the Brazilian federal government to implement electricity rationing, and resulted in a rate of inflation of 10.4% and a 18.7% devaluation of the Real against the U.S. Dollar for the year ended December 31, 2001. To reduce inflation, the Central Bank of Brazil increased interest rates by over 18% for the year ended December 31, 2001. The instability in the Brazilian economy continued during 2002, principally due to speculation on the Brazilian presidential crisis and the ongoing economic weakness in the United States, resulting in a rate of inflation of 25.3% and a devaluation of 52.3% for the year ended December 31, 2002.

     The economic stabilization program remains incomplete during the tenth year of the Real Plan. There can be no assurance that changes or additions to this economic program will be any more successful than previous programs in reducing inflation over the long term. Accordingly, periods of substantial inflation may continue to have significant adverse effects on the Brazilian economy, interest rates and on the value of the Real. These adverse effects could cause our costs and expenses to increase. If we are not able to counteract these increased costs and expenses by increasing our sales prices, we may experience lower demand for our products and a decline in revenues.

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•

Currency fluctuations between the Real and the U.S. Dollar will have a direct impact on our financial condition and our results of operations

     Fluctuations in the exchange rates between the Brazilian Real and the U.S. Dollar have a significant impact on our financial condition and our results of operations. For example, financing costs on our U.S. Dollar-denominated debt, which are paid by us with Reais, would increase substantially as the Real devalues against U.S. Dollars. Similarly, most of the products and raw materials we purchase are, or contain, commodities that are denominated in U.S. Dollars, such as plastic cups, bread (which includes wheat grown in the United States), meat and chicken. Our costs to purchase these products and raw materials rise significantly when the Reais used to pay for them must be converted into U.S. Dollars using the current exchange rate. If we cannot raise our selling prices to accommodate increases in the cost of these products and raw materials, our profit on these products and raw materials will decrease.

•

Our business may be affected by political and constitutional uncertainty in Brazil

     The Brazilian political environment has been marked by high levels of uncertainty since the country returned to civilian rule in 1985 after 20 years of military government. The death of a president-elect in 1985 and the resignation of another president in 1992 in the midst of impeachment proceedings, as well as rapid turnover at and immediately below the cabinet level, have adversely affected the implementation of consistent economic and monetary policies. Measures by the government intended to influence the course of Brazil’s economy (e.g. actions to control inflation, interest rates or consumption) have been frequent and occasionally drastic. While the free market and liberalization measures of recent years have enjoyed broad political and public support, some important political factions remain opposed to significant elements of the reform program. Mr. Fernando Henrique Cardoso, who was re-elected to a second four-year term as president in October 1998, continued to pursue the adoption of free market and economic liberalization measures similar to those undertaken prior to his re-election. However, after the October elections of 2002, in which Mr. Luiz Inácio Lula da Silva was elected president, there can be no assurance that the necessary measures will continue to be pursued and will be adopted or, if adopted, that they will be successful. Failure to adopt economic reform measures could adversely impact Brazil’s economy and inhibit our ability to sell products, which could impair our results of operations.

•

Controls on foreign investments may limit our ability to receive capital from our Brazilian operating subsidiary

     Brazil generally requires the registration of foreign capital invested in Brazilian markets or businesses. Thereafter, any repatriation of the foreign capital, or income earned on the foreign capital investment, must be approved by the Brazilian government. In the past, the Brazilian government has also imposed temporary restrictions on foreign capital remittances abroad when Brazil’s foreign currency reserves decline significantly. Although approvals on repatriation are usually granted and we know of no current restrictions on foreign capital remittances, there can be no assurance that in the future approvals on repatriation will be granted or restrictions or adverse policies will not be imposed. If the Brazilian government delays or refuses to grant approval for the repatriation of funds or imposes restrictions on the remittance of foreign capital, the ability of our Brazilian operating subsidiary, Venbo Comercio de Alimentos Ltda., to transfer cash from our operations out of Brazil may be limited, which would prevent us from paying our non-Brazilian debts and accounts payable. Any defaults on these obligations may cause the acceleration of such obligations or require us to pay penalties.

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Risks Relating to Our Common Stock

•

Our common stock has been delisted from The Nasdaq SmallCap Market

     Our common stock was delisted from The Nasdaq SmallCap Market on March 11, 2002. As a result, our common stock is now quoted on the OTC Bulletin Board, which may further reduce the already thin trading market of our common stock. In addition, the delisting from The Nasdaq SmallCap Market may significantly impair our ability to raise additional funds to operate our business.

Risk Relating to Arthur Andersen

•

Our Use of Arthur Andersen LLP as our Independent Auditor May Pose Risks to Us and Limit Your Ability to Seek Potential Recoveries from Them Related to Their Work.

     Our consolidated financial statements as of, and for, each of the three years in the period ended December 31, 2000 were audited by Arthur Andersen LLP. On June 15, 2002, Arthur Andersen was convicted on a federal obstruction of justice charge arising from the government’s investigation of Enron Corporation. Arthur Andersen has stated publicly that it intends to appeal that conviction, but also ceased providing auditing services to public companies as of August 31, 2002.

     SEC rules require us to present our audited financial statements in various SEC filings, along with Arthur Andersen’s consent to our inclusion of its audit report in those filings. Due to the cessation of Arthur Andersen’s auditing practice (and other businesses), it is likely that Arthur Andersen will be unable to provide us with consents for the use of its audit report in connection with any future Securities Act filings we make, or with assurance services with respect to those financial statements, such as advice customarily given to underwriters of our securities offerings and other similar market participants. The SEC recently has provided regulatory relief designed to allow companies that file reports with the SEC to dispense with the requirement to file a consent of Arthur Andersen in certain circumstances, including with respect to this report. Notwithstanding this relief, the inability of Arthur Andersen to provide its consent or to provide assurance services to us in the future could negatively affect our ability to, among other things, access the public capital markets. Any delay or inability to access the public markets as a result of this situation could have a material adverse impact on us. Also, the ability of purchasers of securities sold under certain of our registration statements to seek potential recoveries from Arthur Andersen related to any claims that they may assert as a result of audits performed by Arthur Andersen will be limited significantly both as a result of the absence of a consent and the diminished amount of assets of Arthur Andersen that are, or may in the future, be available to satisfy claims. The registration statements in question are those that include or incorporate by reference financial statements of ours audited by Arthur Andersen, but as to which Arthur Andersen has not consented to such inclusion or incorporation by reference.

ITEM 2. PROPERTIES

     All of our restaurants currently in operation, excluding kiosks and movable trailers, have been built to our specifications as to exterior style and interior decor, are either in a strip of stores on a neighborhood street or in mall food court points of sale, with some free-standing, one-story buildings, and are substantially uniform in design and appearance. They are constructed on sites ranging from approximately 1,100 to 7,500 square feet, free-standing points of sale. Most are located in downtown areas or shopping malls, are of a store-front type and vary according to available locations but generally retain standard signage and interior decor.

     We own the land and buildings for 9 points of sale, 5 of which are presently leased to franchisees. In addition, we own the land and the buildings located on the land for 4 points of sale, and we also have

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leases for 56 points of sale. Our land and building leases are generally written for terms of five years with one or more five-year renewal options. In certain instances, we have the option to purchase the underlying real estate. Certain leases require the payment of additional rent equal to the greater of a percentage (ranging from 1% to 10%) of monthly sales or specified amounts.

     Our corporate headquarters are located in premises at Avenida Brasil, 6431-Bonsucesso, CEP 21040-360, Rio de Janeiro, Brazil, which Venbo acquired in 1995.

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 the second quarter of 2000, we also applied and were accepted to join a tax amnesty program offered by the Brazilian federal government and withdrew our action regarding the federal taxes. Under the federal tax amnesty program, we may fulfill our outstanding federal tax obligation by making monthly installment payments equal to 1.2% of our gross sales, with interest accruing at rates set by the Brazilian federal government, which are currently set at 10.0% per year.

     In 2001, we initiated a court action to seek a judicial determination that our equipment lease financing agreements should not have their respective principal amounts indexed to the US dollar, but instead stated in Brazilian reais bearing interest at 12% per annum. While awaiting the court’s determination, we have deposited all installment payments due under our lease financing agreements with the court in reais, inclusive of 12% per annum interest. In the event that we have an unfavorable outcome in the litigation, we would be required to pay R$1,897,000, in addition to the R$1,246,000 previously deposited with the court.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On December 30, 2002, we held our annual meeting of stockholders to elect seven directors to our board of directors to serve for a term of one year.

     The following individuals were elected to serve as directors for a term of one year and until their successors are elected and qualify:

     The individuals, other than Guillermo Hector Pisano, Gustavo Figueiredo Bomeny and Romulo Borges Fonseca, served as directors immediately prior to this annual meeting.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     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:

     The above quotations represent prices between dealers, without retail markup, markdown or commission. They do not necessarily represent actual transactions. As of December 31, 2002, there were 101 recordholders of our common stock.

     We have never paid or declared cash dividends on our common stock and we currently intend to retain any future earnings for the development of our business. Therefore, we do not anticipate paying any cash dividends in the foreseeable future.

     Brazil generally requires the registration of foreign capital invested in Brazilian markets or businesses. Thereafter, any repatriation of the foreign capital, or income earned on the foreign capital investment, must be approved by the Brazilian government. In addition, the Brazilian government may also impose temporary restrictions on foreign capital remittances abroad if Brazil’s foreign currency reserves decline significantly. Although approvals on repatriation are usually granted and we know of no current restrictions on foreign capital remittances, our payment of dividends would be subject to these limits if the Brazilian government delays, imposes these restrictions on, or does not approve, the transfer by our Brazilian operating subsidiary, Venbo Comercio de Alimentos Ltda., of funds out of Brazil for the payment of dividends to our non-Brazilian shareholders. See “Risk Factors – Risks Relating to Brazil.”

     Our ability to declare dividends is subject to the prior written approval of AIG Latin America Equity Partners, Ltd., or “AIGLAEP,” pursuant to the terms of the 1997 Stockholders’ Agreement, as amended on March 14, 2001. AIGLAEP’s prior right of approval expires if we meet certain performance criteria for the two-year period ended December 31, 2002, as set forth in the amendment to the 1997 Stockholders’ Agreement. See “Item 13. Certain Relationships and Related Transactions” for a description of the 1997 Stockholders’ Agreement and the amendment thereto.

     Our payment of dividends is also restricted under the terms of the documents governing our lines of credit and other notes payable.

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     See “Item 12. Security Ownership of Certain Beneficial Owners and Management,” for a disclosure regarding securities authorized for issuance under our Amended and Restated 1992 Stock Option Plan.

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.

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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 “Selected Consolidated Historical Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this report.

Background

     Over the last five years, we have endeavored to reduce our operating costs, to increase our product offerings, to improve our image to our customers, to continuously develop and implement promotional campaigns and to steadily increase our restaurant network and franchise base. As a result, we have experienced increases in operating revenues. Due primarily to factors that have caused a sharp devaluation of the Real against the U.S. Dollar and increases in interest rates charged on our short-term debt, we have been unable to be profitable. These factors include the following:

     Brazilian Political Environment

     The Brazilian political environment has been marked by high levels of uncertainty since the country returned to civilian rule in 1985 after 20 years of military government. The death of a president in 1985 and the resignation of another president in the midst of impeachment proceedings in 1992, as well as rapid turnover at and immediately below the cabinet level, have adversely affected the implementation of consistent economic and monetary policies. Measures by the government intended to influence the course of Brazil’s economy (e.g. actions to control inflation, interest rates or consumption) have been frequent and occasionally drastic. While the free market and liberalization measures of recent years have enjoyed broad political and public support, some important political factions remain opposed to significant elements of the reform program. Mr. Fernando Henrique Cardoso, who was re-elected to a second four-year term as president in October 1998, continued to pursue the adoption of free market and economic liberalization measures similar to those undertaken prior to his re-election. To date, economic reform measures have failed to provide Brazil with sustained positive economic results and stability. Mr. Luiz Inácio Lula da Silva, who was elected president in October 2002, is expected to continue the economic stabilization program as well as a stimulation program for economic growth.

     Brazilian Economy

•

Beginning in mid-1999 and continuing to the end of 2000, the Brazilian economy experienced a recovery from its economic recession that began in late 1998 and showed substantial increases in agricultural and industrial production, reduced unemployment, increased retail sales levels and a positive trade balance. During this period, we experienced revenues growth.

	During 2001 and 2002, certain factors brought a halt to the recovery of the Brazilian economy, which had a negative impact on our restaurant sales and the results of our operations. These factors include the following:

	•		The September 11th terrorist attacks in New York City and Washington, D.C.: As in the rest of the world, the Brazilian population was shocked and saddened by the September 11th attacks in New York City and Washington, D.C. and, as a result, reduced expenditures on entertainment and dining out.
	•		Worsening of Argentina’s economy: After years of economic recession, the perception of Argentina’s lack of alternatives to bolster or maintain its economy grew stronger during

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			2001. This perception was fueled by rumors that Argentina would have to either devaluate the peso or fully adopt the U.S. Dollar as the national currency in the near future. These rumors, which recently became a reality when Argentina was forced to devalue the peso by nearly 300% against the U.S. Dollar, together with the concern that Argentina would possibly default on its debt, caused the financial markets to view the economies of all Latin America countries as unstable. The worsening economic outlook in Argentina during 2001, which recently culminated in Argentina declaring itself bankrupt, made it more expensive for Brazilian firms to raise and maintain their funding due to the increased perception of risk for the entire South American region.
	•		Increasing cost of debt in Brazil: Due to several factors, the September 11th terrorist attacks and the increase of uncertainty in Latin American economies, Brazil’s rate of inflation steadily increased throughout 2001. In an attempt to reduce the rate of inflation, Brazilian banks quickly revised their credit policies and increased their interest rates on short-term debt. As a result, funding through Brazilian banks became more difficult to obtain and much more expensive.
	•		Political uncertainty: The pre-election process for the October 2002 presidential election caused a lot of speculation on the outcome of these elections resulting in a speculation against the Real.

     Effects of Inflation and Devaluation

     In March 1994, the Brazilian government introduced an economic stabilization program, known as the “Real Plan,” intended to reduce the rate of inflation by reducing certain public expenditures, collecting liabilities owed to the Brazilian government, increasing tax revenues, continuing to privatize government-owned entities and introducing the “Real,” a new currency based on a monetary correction index. From 1994 to 2000, the Real Plan resulted in a substantial reduction in Brazil’s rate of inflation and, with the exception of a few months in 1999, caused the exchange rate between the Real and the U.S. Dollar to remain relatively stable.

     Although Brazil’s economy was expected to expand in 2001, a number of factors, including the September 11th terrorist attacks in New York City and Washington, D.C., economic problems in Argentina, the increased cost of debt in Brazil, the devaluation of the Real against the U.S. Dollar and an energy crisis in Brazil that caused the Brazilian federal government to implement electricity rationing, limited this expansion and caused inflation rates and interest rates to increase and the further devaluation of the Real against the U.S. Dollar. The following table sets forth Brazilian inflation, as measured by the Indice Geral de Precos-Mercado, and the devaluation of the Brazilian currency against the U.S. Dollar for the periods shown.

     Devaluation of the Brazilian Real against the U.S. Dollar, and its effect on transactions involving the exchange of Reais and U.S. Dollars, have a significant impact on our financial condition and our results of operations. For example, financing costs on our U.S. Dollar-denominated debt, which are paid by us with Reais, increase substantially when adjusted to take into account the current sharp exchange rate. Similarly, most of the products and raw materials we purchase are, or contain, commodities that are denominated in U.S. Dollars, such as plastic cups, bread (which includes wheat grown in the United States), meat and chicken. Our costs to purchase these products and raw materials rise significantly when

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the Reais used to pay for them must be converted into U.S. Dollars using the current exchange rate. If we cannot raise our selling prices to accommodate increases in the cost of these products and raw materials, our profit on these products and raw materials are adversely affected.

     Energy Crisis.

     In May 2001, as a result of a shortfall of electricity generating and transmission capacity by Brazilian utilities suppliers, the Brazilian federal government announced an electricity rationing plan in order to avoid electricity outages throughout most of Brazil. The rationing plan imposed significant penalties on residences and companies that failed to reduce electricity consumption by at least 20% in relation to amounts consumed in the previous year. These penalties ranged from substantial increases in tariffs on consumption to the disruption of electricity service for a number of days. We have effected at least a 20% reduction in our electrical consumption, thereby avoiding the imposition of penalties under this rationing plan, and, furthermore, we are selling the excess electricity savings to other companies. We have achieved this reduction through, among other measures, selective and temporary curtailed hours of operation in many of our points of sale. We are aware that many of our franchisees have effected similar cutbacks.

     We believe reduced hours of operation will continue to impact adversely both our operating and franchise revenues. We are unable to predict the quantitative impact that long-term continuation of the government’s energy conservation plan, which is currently facing constitutional challenges in the Brazilian federal courts, and the penalties imposed by it, will have on our future results of operations.

     The energy rationing plan was terminated in February 2002, but some of the changes in habits of the population, coupled with an increase in the cost of energy, can continuously impact our business.

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RESULTS OF OPERATIONS

     COMPARISON OF YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

     The following table sets forth certain operating data for the years ended December 31, 2002, 2001 and 2000:

Introduction

     During the year of 2002, several events negatively impacted the Brazilian economy as well as our restaurant sales and results of our operations.

     In the first half of 2002, the Brazilian economy was still suffering the effects derived from the terrorist attacks in the United States of America and the Brazilian energy crisis. This period was also affected by the worsening of the crisis of the Argentina economy.

     During the second half of 2002 the political uncertainty attendant to the outcome of the Brazilian presidential election in October 2002 also has reduced and/or postponed most business projects and money supply.

     Brazilian currency has devaluated approximately 52.3% against the US dollar during the year of 2002 and, as a consequence, Brazilian inflation rates reached the highest level since the

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inception of Brazil’s stabilization plan in mid 1994. In response to these events, the Brazilian Central Bank in October 2002 and subsequently in December increased overnight interest rates from 18% to 25% per year.

     All these factors together increased unemployment rates in major metropolitan areas (Rio de Janeiro and São Paulo), and decreases in average take-home income.

Restaurant Sales

     Restaurant sales for our company-owned and operated points of sale decreased R$4,835,000 or 7.1% to R$63,562,000 for the year ended December 31, 2002 as compared to R$68,397,000 and R$63,775,000 for the years ended December 31, 2001 and 2000, respectively. Same store sales decreased approximately 3.2% for the year ended December 31, 2002 as compared to the year ended December 31, 2001. Same store sales for the year ended December 31, 2001 decreased by 0.2% when compared to 2000.

     The decrease from 2002 to 2001 of restaurant sales is attributable to the macroeconomic factors described above as well as to the reduction of our company-owned retail outlets from 70 as of December 31, 2001 to 61 as of December 31, 2002. The company closed 3 owned-operated outlets in the year ended December 31, 2002, sold 7 outlets to franchisees and opened 1 new outlet. This reflects the company’s strategy to limit company direct operations to highly profitable outlets, and to focus on the growth of franchises, which management anticipates will significantly reduce the level of the Company’s future capital expenditures.

     This decrease was partially offset by:

•		our constant sales initiatives and promotional campaigns;
•		our continuous introduction of new products and the expansion of our product offerings;
•		an average increase of 10% in the sales prices of our products during the year of 2002; and
•		a change in the manner of calculating tax upon our sales in the State of Sao Paulo, which resulted in higher net sales of approximately R$665,000 in the year ended December 31, 2002.

     The increase in our net restaurant sales for the year ended December 31, 2001, compared to the same period of 2000, was partially offset by factors that have negatively affected the Brazilian economy, during 2001 including the September 11th terrorist attacks in New York City and Washington, D.C., economic problems in Argentina, the increased cost of debt in Brazil, the devaluation of the Real against the U.S. Dollar and an energy crisis in Brazil that caused the Brazilian federal government to implement electricity rationing. Additionally, there was a negative impact on Company’s sales due to the reduction of our company-owned and operated points of sale from 72 as of December 31, 2000 to 70 as of December 31, 2001.

     The operating factors that positively impacted our sales during the year ended December 31, 2001 include:

•		a 8.9% increase in the average sales prices of our products during the year ended December 31, 2001; and
•		a reduction in the tax rate imposed upon our sales in the State of Rio de Janeiro, which resulted in higher net restaurant sales of approximately R$1,835,000 for the year ended December 31, 2001.

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Franchise Income

     Franchise income increased R$1,017,00 or 24.8% to R$5,116,000 for the year ended December 31, 2002 as compared to R$4,099,000 and R$3,134,000 for the years ended December 31, 2001 and 2000, respectively. These increases are mainly attributable to the growth of our franchised business from 153 points of sale as of December 31, 2000 to 195 as of December 31, 2001 to 242 as of December 31, 2002. The 2002 increase was partially offset by the effects of the macro-economic factors described above, which had a negative impact on our franchised restaurant’s sales.

     Through the period from January 1, 2002 to December 31, 2002, the Company sold 7 of its restaurants to franchisees. These stores had either low profitability or, in some cases, operating losses. The Company’s historical experience has shown that franchisee administration can enhance the profitability of such stores, primarily as a result of:

	•		lower taxation (tax incentives from Federal and state governments to small companies)
	•		better knowledge of specific markets and their local customs
	•		lower operating expenses.

     Other Income

     Other income is comprised of the initial fees paid by all of our new franchisees and such franchisees’ contributions to our marketing efforts, as well as income derived from suppliers pursuant to the terms of certain exclusivity agreements.

     Other income increased R$1,149,000 or 17.7% to R$7,632,000 for the year ended December 31, 2002 as compared to R$6,483,000 and R$4,884,000 for the years ended December 31, 2001 and 2000, respectively. This increase is mainly attributable to the growth of our franchised business noted above.

Cost of Restaurant Sales

     As a percentage of restaurant sales, cost of restaurant sales were 39.9%, 40.3% and 38.5% for the years ended December 31, 2002, 2001 and 2000, respectively.

     The decrease of cost of restaurant sales in the year of 2002 is primarily attributable to decreases in our cost of ice cream, meat and chicken products in July of 2002, resulting from our negotiations with suppliers. The devaluation of the Brazilian Real against the US dollar partially offset such decrease and may reverse this trend during 2003.

     This percentage increase from the fiscal 2000 to fiscal 2001 was mainly attributable to:

•		increases in the cost of meat and chicken products beginning in the third quarter of 2000 and continuing into 2001, as well as increases in the cost of soft drinks and ice cream during 2001; and
•		taxation reductions in the State of Rio de Janeiro, as noted above, which have had the effect of limiting tax credits on certain purchases, such as food.

Restaurant Payroll and Other Employee Benefits

     As a percentage of restaurant sales, restaurant payroll and other employee benefits increased from 19.2% to 20.5% for the year ended December 31, 2001 and 2002, respectively. The 2000 percentage was 19.3%.

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     The decrease from the year ended December 31, 2000 to the same period ended December 2001 were due to new personnel contracted as trainees (lower benefits and less labor charges), which were partially offset by increase in salaries mandated by union driven agreements.

     The increase from 2001 to 2002 is mainly attributable to an increase on transportation costs, increases in salaries mandated by union-driven agreements and in employee charges (FGTS). The reduction in the number of trainees and shifting them to employees during 2002 also increased payroll expenses.

Restaurant Occupancy Costs and Other Expenses

     As a percentage of restaurant sales, restaurant occupancy costs and other expenses were 12.7%, 12.0% and 10.9% for the years ended December 31, 2002, 2001 and 2000, respectively.

     This increase is mainly attributable to increases in our minimum rent obligations, which are indexed to Brazilian inflation, currently at 25.3% per annum, as well as to the effect of our decreased restaurant sales, noted above. During the second semester of 2002 these increases were partially offset by temporary and permanent reductions of the occupancy cost of some of our stores.

     The 2001 percentage increase was also attributable to annual contract restatements indexed to Brazilian inflation, which was 10.4% for the year 2001.

Depreciation and Amortization

     As a percentage of restaurant sales, depreciation and amortization expense was approximately 5.9%, 5.8% and 5.7% for the years ended December 31, 2002, 2001 and 2000, respectively. Depreciation and amortization expense has remained stable from year to year.

Other Operating Expenses

     As a percentage of restaurant sales, other operating expenses were approximately 20.7%, 20.8%, and 18.7% for the years ended December 31, 2002, 2001 and 2000, respectively.

     The percentage increase from 2000 and 2001 is mainly attributable to the costs associated with outsourcing of managerial personnel, increased costs for utilities, primarily those for electricity, and increases in maintenance and money collection costs.

     During 2002, the increase observed from fiscal 2000 to 2001 was reversed by reductions in delivery costs and by not renewing certain outsourced services.

Selling Expenses

     As a percentage of restaurant sales, selling expenses were approximately 7.6%, 8.6% and 9.0% for the years ended December 31, 2002, 2001 and 2000, respectively.

     The percentage decrease from the year period of 2001 to the same period of 2002 arose from an optimization of marketing investments and cost reduction measures, such as fewer TV media and more advertisement in newspapers, magazines and outdoors.

     Advertising and publicity costs increased during the year ended December 31, 2001 as a result of our increased number of points of sale.

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General and Administrative Expenses

     As a percentage of restaurant sales, general and administrative expenses were approximately 14.8%, 9.6% and 9.6% for the years ended December 31, 2002, 2001 and 2000, respectively.

     The percentage increase from the year period of 2001 to the same period of 2002 was due to recognition of a greater allowance for doubtful accounts during 2002 as well as severance cost of some professional contracts of Venbo management. The year of 2002 was also impacted by fines applied against the Company by the Brazilian Social Security Authorities, which charged certain operating transactions not covered by the Company’s previous calculation of Social Security contributions.

Impairment of Assets and Net Result of Assets Sold

     A fixed assets inventory in the second and third quarters of 2002 and a review regarding the impairment of assets in accordance to FAS 121, as well as management’s decision to close 2 unprofitable outlets and fixed assets inventories required us to take write-offs during the year ended December 31, 2002. Those changes were partially offset by net income of assets sold during the same period. Additionally, we recognized losses on assets sold during the same period, mainly due to those stores that were sold to franchisees.

Interest Income and Expenses

     As a percentage of restaurant sales, net interest expense and foreign exchange gains and/or losses were approximately 13.0%, 11.1% and 6% for the year ended December 31, 2002, 2001 and 2000, respectively. The percentages increases year by year are primarily attributable to increases in the interest rates charged by Brazilian banks and increases in the exchange rate between the Brazilian Real and the U.S. Dollar. Increases in the exchange rate have had an immediate and direct impact on our debt that is denominated in U.S. Dollars and the interest on such debt.

LIQUIDITY AND CAPITAL RESOURCES

     Since March 1996, we have funded our cumulative operating losses of R$59,614,000 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, 2002, we had cash on hand of R$1,461,000 and a working capital deficiency of R$14,238,000.

     For the year ended December 31, 2002, we had net cash used in operating activities of R$2,989,000, net cash used in investing activities of R$733,000 and net cash provided by financing activities of R$3,389,000. Net cash used in investing activities was primarily the result of our investment in property and equipment to improve our retail operations. Net cash provided by financing activities was a result of our private placement of equity shares in May 2002. The proceeds from the private placement were used to reduce our debt, including debt with private individuals, debt with financial institutions in Brazil, and past due accounts payable with suppliers and others.

     In the year ended December 31, 2001, our net cash used in operating activities was approximately R$1,107,000, our net cash used in investing activities was approximately R$1,977,000 and our net cash provided by financing activities was approximately R$3,680,000. Net cash provided by operating activities in this period was primarily the result of an increase in our liabilities. 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 debt obligations we incurred.

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     Our earnings before interest, taxes, depreciation and amortization (EBITDA) were approximately R$3,307,000 for the year ended December 31, 2001 and approximately R$818,000 for the year ended December 31, 2002. EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either loss from operations or net loss as an indicator of operating performance or cash flows as a measure of liquidity, as determined in accordance with accounting principles generally accepted in the United States.

     Our cash resources are currently used primarily to pay for the servicing costs on our debt obligations, which costs have increased significantly due to increased interest rates in Brazil charged on short-term debt and the devaluation of the Real against the U.S. Dollar. Our debt obligations as of December 31, 2002 were as follows:

	(a)   Amount due in quarterly installments, starting December, 2002, ending September, 2003. Interest on this amount accrues at a rate of 25% per annum and is payable quarterly, starting December, 2002. Payment is secured by certain property with a carrying value of R$5,049,000 at December 31, 2002. Principal and interest are indexed to the U.S. Dollar, and are therefore susceptible to exchange rate variations between the U.S. Dollar and the Brazilian Real.
	(b)   This credit facility was used to purchase three stores. Repayment of principal with respect to one of these stores is due in 18 monthly installments of R$19,000, plus an intermediate payment due January, 2003 in the amount of R$157,000. Repayment of principal with respect to the other two stores is due November 2003, in the amount of R$3,138,000. 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.

     In addition to the foregoing debt obligations, we are required to make certain payments on restructured past-due Brazilian state taxes of approximately R$5,987,000 and federal taxes of approximately R$5,082,000. Pursuant to a settlement reached with Brazilian state taxing authorities in 2000 and 2002, we are required to make repayments over a ten-year period, interest free, in amounts indexed to Brazil’s UNIDADE FISCAL DE REFERENCIA, which is currently 12.0% per annum. In addition, in 2000, we applied to, and were accepted by, the Brazilian federal government to join a tax amnesty program, which restructured our outstanding 1999 federal tax obligations into monthly payments equal to 1.2% of our gross sales, with interest accruing at a rate set from time-to-time by the Brazilian federal government (TJLP), which was 10.5% a.a. as of December 31, 2002. During 2003, we expect to pay approximately R$1,125,000 pursuant to the state tax settlement and approximately R$960,000 pursuant to the federal tax amnesty program.

     The Company has other past due Federal Taxes which were not paid in the beginning of 2002, as well as fines applied against the Company by the Brazilian Social Securities Authorities, in the amount of R$5,181,000, which are not covered by any of the above mentioned tax agreements. However, the Brazilian Government is implementing another tax amnesty program during 2003, through which the Company intends to include those tax debts.

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     Since June 2002, the Company has paid all its current taxes on a timely basis.

     The Company has also long-term contractual obligations in the form of operating lease obligations related to Company-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, 2002 are as follows:

     Rent expense was R$5,609,000 for the years ended December 31, 2002.

     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 2002 were approximately R$1,600,000. We require capital primarily for the improvement of our company-owned and operated points of sale. Currently, four of our company-owned retail outlets are located in facilities that we own and all of our other company-owned retail outlets are located in leased facilities.

     Our average cost to open a retail outlet was approximately R$300,000 to R$500,000 including leasehold improvements, equipment and beginning inventory, as well as expenses for store design, site selection, lease negotiation, construction supervision and obtaining permits.

     We have estimated that our capital expenditures for fiscal 2003, which will be used to maintain and upgrade our current restaurant network, will be approximately R$2,100,000. We anticipate that the primary use of our cash resources during 2003 will be to service our debt obligations. During 2003, 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, the Company has contractual obligations in different forms. The following table summarizes the Company’s contractual obligations and financial commitments, as well as their aggregate maturities.

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     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 company-owned 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;
	•		the extinguishments of our obligations denominated in US dollar which will reduce our exposure to the effects of the Brazilian Real devaluation; and
	•		negotiation with suppliers in order to obtain significant rebates in long term supply contracts.

     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

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consumers to visit fast food outlets. We are also dependent upon the continued employment of key personnel. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

     We annually review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the current economic and business environment. We believe that of our significant accounting policies involve a higher degree of judgment and/or complexity. (See summary of significant accounting policies more fully described on pages F-10 through F-15).

     We follow SFAS No. 144 with regard to impairment of long lived assets and intangibles. If there is an indicator of impairment (i.e. negative operating cash flows) an estimate of undisclosed future cash flows produced by each restaurant within the asset grouping is compared to its carrying value. If any asset is determined to be impaired, the loss is measured by the excess of the carrying value. If any asset is determined to be impaired, the loss measured by the excess of the carrying amount of the asset over its fair value.

NEW ACCOUNTING STANDARDS

Asset retirement obligations

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003. The Statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, the cost will be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset.

     The adoption of the new rules is not expected to have a material effect on the Company’s ongoing results of operations or financial position.

Variable interest entities

     In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest Entities, which requires an enterprise to consolidate or make certain, disclosures about variable interest entities that meet certain criteria, effective July 1, 2003. The Company is currently performing an analysis to determine the applicability of FIN No. 46 to it.

Impairment of long-lived assets and intangible assets

     The company follows the SFAS No. 144 and 141 with regard to the impairment of long lived assets and intangibles. If there is an indicator of impairment (i.e. negative operating cash flows) an estimate of undiscounted future cash flows produced by each restaurant within the asset grouping is

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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.”

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. Our debt obligations and purchase commitments are primarily denominated in U.S. Dollars, while our operating revenues are denominated in Brazilian Reais. Fluctuations in exchange rates between the Real and the U.S. Dollar expose us to significant foreign exchange risk. We attempt, when possible, to protect our revenues from foreign currency exchange risks by periodically adjusting our selling prices in Reais.

     We do not engage in trading market risk-sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not entered into any forward or futures contracts, purchased options or entered into swaps.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Reference is made to pp. F-1 through F-27 comprising a portion of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     As discussed in our Current Report on Form 8-K dated September 4, 2001, and filed with the SEC on October 31, 2001, we dismissed Arthur Andersen S/C as our independent accountant on September 4, 2001 and appointed Grant Thornton Auditors Indepentents as our new independent public accountant.

     Andersen’s reports on our financial statements for each of the two fiscal years ended December 31, 2000 and 1999 were qualified in their reference to the uncertainty of our ability to continue as going concern. Except as set forth in the preceding sentence, such reports did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles.

     There were no disagreements between ourselves and Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during either (i) the two fiscal years ended December 31, 2000 or (ii) the period from January 1, 2001 through September 4, 2001, which disagreements, if not resolved to the satisfaction of Andersen, would have caused Andersen to make reference to the subject matter of the disagreements in connection with its reports for the two fiscal years ended December 31, 2000.

     Andersen has expressed no disagreements or differences of opinion regarding any of the kinds of events defined as “reportable events” in Item 304(a)(1)(v) of the SEC’s Regulation S-K.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Our executive officers and directors are as follows:

     Omar Carneiro da Cunha has been our Chairman of the Board since 1996. Mr. Carneiro da Cunha is a founding principal of Bond Consultoria Empresarial S/C Ltda., a Brazilian business consultancy. From September 1995 to December 1997, he served as chief executive officer of AT&T Brazil. From 1967 to 1994, Mr. Carneiro da Cunha held a variety of positions with Shell Brasil S.A. and its affiliates, including serving as president of Shell Brasil S.A. from 1992 to 1994. Mr. Carneiro da Cunha received a B.A. in Economics from the University of Political and Economical Sciences of Rio de Janeiro and a degree in Finance Administration from Fundacao Getulio Vargas.

     Ricardo Figueiredo Bomeny has been our chief executive officer since January 2003. Prior to that date and from 1991, Mr. Bomeny held several positions, including chief operating officer, with different companies in the fast food business in Brazil (Bigbuger, Pastello and Bob’s) Mr. Bomeny holds a degree in Business Administration from Candido Mendes University, Rio de Janeiro, an MBA in Corporate Finance from IBMEC, Rio de Janeiro, an MBA in Retail Trade, Rio de Janeiro, and a Post Graduate certificate in Marketing from PUC, Rio de Janeiro. Ricardo Figueiredo Bomeny is the son of Jose Ricardo Bousquet Bomeny.

     Peter J. F. van Voorst Vader has served as one of our directors since 1996 and was our chief executive officer from March 1996 to December 2002. Prior to that date and from 1995, he was an independent business consultant. From 1992 to 1995, Mr. van Voorst Vader was a retail sales manager for Shell Nederland Verkoopmaatschappij B.V., overseeing the operations of 800 gas stations. From 1985 to 1992, Mr. van Voorst Vader held several positions with Shell Brasil S.A., including sales promotion manager, marketing communications manager and retail development manager. From 1983 to 1985, he was employed by Shell International Petroleum Company as regional brand and communications assistant for Africa, the Middle East, the Far East and South America. From 1980 to 1983, Mr. van Voorst Vader was a commercial assistant for Shell Italia. Mr. van Voorst Vader received a B.S. in Hotel Management from both the Hogere Hotel School in The Hague, Holland and Florida International University. Mr. van Voorst Vader also has a Masters Degree in International Business from Florida International University.

     Romulo Borges Fonseca was an engineer in the Maintenance and Transportation division of PETROBRAS, the Brazilian Petrol Company, from 1975 to 1982. He afterwards founded MCA, a company specialized in mechanical assemblages for fuel trucks serving airports and companies as Shell,

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Petrobras and others in the fuel business. In 1998 he started SBCQ, a laboratory of metallic analysis, and in the same year he founded the FORZA group consisting of gas stations specialized in natural gas distribution. Mr. Fonseca is also a shareholder of CCC, which is a principal stockholder of our company. Mr. Fonseca is a Mechanical Engineer graduated in PUC University, Rio de Janeiro and has a degree in economy from Fundacao Getulio Vargas, Brazil.

     Jose Ricardo Bousquet Bomeny has served as one of our directors since 1996. Mr. Bomeny founded BigBurger Ltda. in 1975 and served as its president until we acquired this company in July 1996. He currently owns another fast food business, which is not competitive with our business, as well as six gas stations and two parking lots.

     Stephen J. Rose has served as one of our directors since 2001. Since May 2000, Mr. Rose has been a founding director and shareholder of Latinco, a London-based investment bank specializing in capital raising and other services to medium-sized Latin American companies. Prior to that date and from 1996, he was managing director of UBS Capital Markets in London. From 1980 to 1996, Mr. Rose was chairman and managing director of Stephen Rose & Partners, a private investment bank which was acquired by UBS in 1996. Mr. Rose was educated in Marlborough College and subsequently at Worcester College, Oxford, where he obtained First Class Honours in Law and was called to the Bar in 1954.

     Guillermo Hector Pisano has served as one of our directors since 2002. Mr. Pisano is a Consultant, presently engaged by CCC Empreendimentos Ltda, a civil construction and participation company. He was Vice President of UAP do Brasil, the French Insurance Company’s Brazilian Agency, from 1988 to 1996, chief financial officer of RACIMEC, a Brazilian Industrial Computer society, from 1983 to 1988, and chief executive officer of CGA do Brasil, an Automatism French Manufacturer, from 1978 to 1982. He also held a variety of positions, from 1965 to 1978, with Thomson CSF (the French Communications and Radar manufacturer) in Argentina and in Brazil where he was the chief financial officer. Mr. Pisano is an Electronic Engineer from de National University of Buenos Aires and holds a degree of Administration and Financial Management from Thomson CSF School of Business with further specialization in Industrial and Institutional Organization.

     Gustavo Figueiredo Bomeny has served as one or our directors since 2002. Mr. Bomeny is currently an independent project engineer for several companies. He also has been working as Project Manager in the BigBurger Group since 1995, this group having been incorporated by VENBO/Bob’s. He has extensive experience in studies, projects, budgets, supervision and execution of buildings for restaurants, fast-food stores and other commercial facilities. He holds a B.A. in Architecture and Urbanism from de Santa Ursula University, Rio de Janeiro. Gustavo Figueiredo Bomeny is the son of Jose Ricardo Bousquet Bomeny.

Compliance with Section 16(a) of the Securities and Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, as well as those persons who own more than 10% of our common stock, to file reports of ownership and changes in ownership with the SEC. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms, or written representations from certain reporting persons that no such forms were required, we believe that during the fiscal year ended December 31, 2002, all filing requirements applicable to our officers, directors and greater than 10% owners of our common stock were met, except that Stephen Rose failed to file 7 Section 16 reports.

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ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation

     The following table sets forth information with respect to compensation earned during the years ended December 31, 2002, 2001 and 2000 by Peter J. F. van Voorst Vader, our former president and chief executive officer, who resigned effective December 31, 2002.

Summary Compensation Table

     The following table sets forth information with respect to option grants issued by us to Peter J. F. van Voorst Vader, our former president and chief executive officer, during the fiscal year ended December 31, 2002.

Option Grants in Last Fiscal Year

     The following table sets forth information with respect to exercises of stock options held by Peter J. F. van Voorst Vader, our former president and chief executive officer, during the fiscal year ended December 31, 2002 and the value of unexercised options held by Mr. Vader as of December 31, 2002.

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Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values

Directors’ Compensation

     Our directors receive no cash compensation for attending board meetings other than reimbursement of reasonable expenses incurred in attending such meetings. Rather, we compensate our directors on an annual basis for their services through grants of options to acquire shares of our common stock, exercisable at the prevailing market price of our common stock on the respective grant dates, with the next such grants scheduled to be made on the date of the annual meeting. There is no pre-determined number of options annually granted to our directors. The quantity of options to be granted is defined every year by our compensation committee, which is composed of some board members.

     During fiscal 2001, our compensation committee awarded Omar Carneiro da Cunha options to purchase 21,250 shares of our common stock, Lawrence Burnstein options to purchase 15,625 shares of our common stock and Stephen J. Rose options to purchase 4,375 shares of our common stock. The foregoing options were issued on June 7, 2001 and expire on June 7, 2006. The options are exercisable at $2.30 per share of common stock.

     During fiscal 2002, our compensation committee awarded Omar Carneiro da Cunha options to purchase 6,250 shares of our common stock, and awarded each of Jose Ricardo Bousquet Bomeny and Stephen J. Rose options to purchase 4,375 shares of our common stock. The foregoing options were issued on July 16, 2002 and expire on July 16, 2007. The options are exercisable at $0.19 per share of common stock.

Employment Agreements

     Mr. van Voorst Vader was party to an employment agreement with us that was scheduled to expire in February 2002. The agreement called for him to serve as our chief executive officer at a current salary of R$148,600 per annum, or $63,504, with provision for annual bonuses based upon future results of operations, in such amounts, if any, as may be determined from time to time at the discretion of our board.

     Our employment arrangement with Mr. van Voorst Vader provided that if we terminate his employment, other than for cause, following a change of control, or he voluntarily terminates such employment within 180 days subsequent to a change of control, we shall have to pay to such person an amount of money equal to 2.9 times his base amount (a term defined in the Internal Revenue Code, which essentially is such person’s annualized compensation).

     Further, all options, warrants, and other rights to acquire our securities we previously granted and outstanding to Mr. van Voorst Vader upon a change of control shall fully vest and become immediately exercisable.

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     Change of control is defined as either:

	•		the acquisition by a person or group of persons acting in concert of 20% or more beneficial ownership of our common stock; or
	•		the commencement or announcement of an intention to make a tender or exchange offer for 30% or more beneficial ownership of our common stock; or
	•		the acquisition by a person or group of persons acting in concert of 10% or more beneficial ownership of our common stock, when such person’s ownership interest is deemed by our board to have a material adverse impact on our business or prospects; or
	•		the election or appointment of one or more individuals to our board, which election or appointment results in a change in the majority compensation of the board from that which existed on the date we entered into our employment agreement with Mr. van Voorst Vader.

     A change of control may occur pursuant to the stockholders’ agreement with AIGLAEP. For a detailed description of the stockholders’ agreement, as amended, see “Item 13. Certain Relationships and Related Transactions.”

     Mr. van Voorst Vader has resigned from all operational tasks as president of Venbo on October 1, 2002 and as chief executive officer of our company on December 31, 2002. He and the board agreed that after the resignation there was an effective change of control. It was agreed that Mr. van Voorst Vader should receive 120,000 shares of common stock, the company car and R$160,000, instead of 2.9 times his base salary. All of his options vested immediately on October 31, 2002 and will remain exercisable for 36 months from that date.

     We have retained the services of Ricardo Figueredo Bomeny, as our Chief Executive Officer, to manage out day-to-day operations for a term of two years, for which Mr. Bomeny will receive 20,000 shares of our common stock for each of the first twelve months of such two-year term, a sum in cash for the second twelve months of such term in an amount to be mutually agreed upon at a future date, and an additional 260,000 shares at the end of the two-year term conditioned upon the attainment of specified operational cost-savings.

Limitation on Liability

     As permitted by Delaware law, our certificate of incorporation and bylaws provide that our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:

	•		for any breach of the director’s duty of loyalty to us or our stockholders;
	•		for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
	•		under Section 174 of the Delaware General Corporation Law, relating to unlawful payment of dividends or unlawful stock purchases or redemption; or
	•		for any transaction from which the director derives an improper personal benefit.

     As a result of this provision, we and our stockholders may be unable to obtain monetary damages from a director for breach of his or her duty of care.

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