AmRest Holdings N.V.

Condensed Consolidated Financial Statements 
as at and for the quarter ended 31 December 2005 

Table of contents:
		Page	
Consolidated income statement		3	
Consolidated balance sheet		4	
Consolidated statement of cash flows		5	
Consolidated statement of changes in equity		6	
Selected notes to the consolidated financial statements 		7	

Consolidated income statement
For the quarter ended 31 December 

in thousands of Polish złoty	twelve  months ended 
Dec-31 2005	three months ended 
Dec-31 2005	twelve  months ended 
Dec-31 2004	three months ended 
Dec 31 2004	
					
Restaurant sales	499,810	141,310	463,198	120,362	
					
Restaurant expenses:					
Cost of food	(167,283)	(47,773)	(159,133)	(40,998)	
Direct marketing expenses	(23,956)	(5,741)	(22,905)	(3,521)	
Direct depreciation and amortization expenses	(30,209)	(8,088)	(30,196)	(8,864)	
Payroll and employee benefits	(91,969)	(25,062)	(82,879)	(21,726)	
Continuing franchise fees 	(29,700)	(8,369)	(27,609)	(7,181)	
Occupancy and other operating expenses	(88,608)	(26,602)	(81,929)	(21,734)	
Total restaurant expenses	(431,725)	(121,635)	(404,651)	(104,024)	
					
Gross profit on sales	68,085	19,675	58,547	16,338	
					
General and administrative (G&A) expenses	(38,971)	(10,460)	(40,717)	(8,518)	
Depreciation and amortization expense (G&A)	(1,477)	(476)	(1,688)	(397)	
Other operating income/(expense), net	5,213	1,135	5,367	159	
Gain/(loss) on the disposal of fixed assets	(3,385)	(981)	319	(110)	
Impairment gain/losses	(5,228)	(3,785)	(2,411)	(1,776)	
Goodwill and negative goodwill amortization			799	134	
IPO expenses	(1,937)	-	(500)	(500)	
Profit from operations	22,300	5,108	19,716	5,330	
					
Finance income	(7,777)	(69)	(6,461),,	701	
Financing costs	1,403	(912)	283		
Share of profit of associates	696	414			
Net profit before tax	16,622	4,541	13,538	6,031	
					
Income tax expense	5,097	1,962	(1,768)	933	
					
Net profit/(loss)	21,719	6,503	11,770	6,964	
Attributable to:					
Minority interests	50	-	36	(138)	
Shareholders of the parent	21,669	6,503	11,734	7,102	
					
Net profit for the quarter	21,719	6,503	11,770	6,964	
					
Basic profit per share in Polish złoty	1.75	0.48	1.17	0.71	

Consolidated balance sheet
As of 31 December 
in thousands of Polish złoty	2005		2004		
 Assets 					
 Property, plant and equipment, net 	173,722		168,796		
 Negative goodwill			(4,549)		
 Intangible assets	20,622		6,854		
 Investments 	895		688		
 Other non-current assets	20,092		6,721		
 Deferred tax assets 	10,030		3,943		
 Total non-current assets 	225,361		182,453		
					
 Investments 	-		42		
 Inventories	5,973		5,819		
 Trade and other receivables 	14,350		8,940		
 Income tax receivable	4,087				
 Other current assets 	2,380		5,626		
 Cash and cash equivalents	31,491		11,486		
 Total current assets 	58,281		31,913		
 Total assets 	283,642		214,366		
					
 Equity 					
 Issued capital 	519		373		
 Share premium 	217,382		138,773		
 Retained deficit 	(117,198)		(133,481)		
 Current year net profit 	21,669		11,734		
 Cumulative translation adjustment 	20		141		
 Equity attributable to shareholders of the parent 	122,392		17,540		
 Minority interests	86		36		
 Total equity 	122,478		17,576		
					
 Liabilities 					
 Interest-bearing loans and borrowings 	79,423		20,682		
 Employee benefits	1,486		3,204		
 Provisions	2,270		1,482		
 Other non-current liabilities 	683		16		
 Total non-current liabilities 	83,862		25,384		
					
 Interest-bearing loans and borrowings 	18,321		119,094		
 Trade and other accounts payable 	58,981		52,306		
 Income tax payable	-		6		
 Total current liabilities 	77,302		171,406		
 Total liabilities 	161,164		196,790		
 Total equity, minority interests and liabilities 	283,642		214,366		

Consolidated statement of cash flows
For the twelve months ended 31 December  
in thousands of Polish złoty 	2005	 	2004
(restated)		
					
Cash flows from operating activities					
Profit before tax 	16,622		13,538		
Adjustments for:					
Share of profit of affiliates	(696)				
Negative goodwill amortization			(799)		
Amortization	2,813		2,443		
Depreciation 	28,873		29,441		
Interest expense, net	4,150		7,998		
Unrealized foreign exchange (gain)/loss	(1,242)		(5,675)		
(Gain)/loss on disposal of fixed assets	3,385		(319)		
Impairment losses	5,228		2,411		
Equity–settled share based payments expenses	203				
					
Working capital changes:					
(Increase)/decrease in receivables	(6,211)		2,003		
(Increase)/decrease in inventories	(153)		588		
(Increase)/decrease in other assets	(16,219)		(920)		
Increase/(decrease) in payables and other liabilities 	3,793		(5,301)		
Increase/(decrease) in other provisions and employee benefits	788		(1,589)		
					
Income taxes paid	2,360		(7,319)		
Interest paid	(5,235)		(7,522)		
Other 	402		162		
Net cash provided by operating activities 	38,861		29,140		
					
Cash flows from investing activities					
Acquisition of subsidiaries, net of cash acquired	(17,752)		(1,427)		
Proceeds from the sale of property, plant and equipment 	1,211		3,736		
Proceeds from the sale of intangible assets	121				
Acquisition of property, plant and equipment	(34,374)		(25,271)		
Acquisition of intangible assets	(4,766)		(1,883)		
Proceeds from sale of shares in subsidiaries	(35)		(765)		
Loans granted  	12		(435)		
Net cash used in investing activities	(55,583)		(26,045)		
					
Cash flows from financing activities					
Cash contribution from shareholder	-		2,180		
Proceeds from borrowings	177,815		125,057		
Proceeds from issuance of shares	77,866				
Repayment of borrowings	(219,007)		(127,091)		
Net cash provided by/(used in) financing activities	36,674		146		
Net change in cash and cash equivalents	19,952		3,241		
Cash and cash equivalents, beginning of period	11,486		8,558		
Effect of foreign exchange rate movements	53		(313)		
Cash and cash equivalents, end of period	31,491		11,486		

Consolidated statement of changes in equity 

in thousands of Polish złoty
	Attributable to shareholders
of the parent	

Minority interest	

Total	
	
Share capital	
Share premium	
Accumulated deficit 	
Translation reserve	
Total			
								
As at 1 January 2004, as previously reported	373	136,593	(132,371)	3,362	7,957	-	7,957	
								
Retrospective application of IFRS 2 (note b)	-	-	(1,110)	-	(1,110)	-	(1,110)	
								
As at 1 January 2004 (restated)	373	136,593	(133,481)	3,362	6,847	-	6,847	
								
Translation reserve	-	-	-	(3,221)	(3,221)	-	(3,221)	
								
Profit for the period (restated)	-	-	11,734	-	11,734	36	11,770	
								
Additional payment to equity		2,180	-	-	2,180	-	2,180	
								
As At  31 December 2004 (restated)	373	138,773	(121,747)	141	17,540	36	17,576	

As At 1 January 2005	373	138,773	(121,747)	141	17,540	36	17,576,	
								
Change in accounting policies (note b)	-	-	4,549	-	4,549	-	4,549	
								
As at 1 January 2005 (after changes in accounting policies)	373	138,773	(117,198)	141	22,089	36	22,125	
								
Share-based payments liabilities assumed by shareholder 	-	686	-	-	686	-	686	
								
Equity-settled share based payments
	-	203	-	-	203	-	203	
								
Translation reserve	-	-	-	(121)	(121)	-	(121)	
								
Profit for the period	-	-	21,669	-	21,669	50	21,719	
								
Issuance of shares	146	77,720	-	-	77,866	-	77,866	
								
As At 31 December 2005	519	217,382	(95,529)	20	122,392	86	122,478	

Selected Notes to the Financial Statements

(a)	Information on the Activities of the AmRest Group
Amrest Holding N.V. (the “Company”) was established in October 2000 in the Netherlands, where it has its registered office. 
On April 27th 2005, shares of AmRest Holding N.V. were floated on the Warsaw Stock Exchange (“WSE”).
As at December 31st, the largest shareholder in the Company is International Restaurants Investments, LLC (IRI) of USA, holding 39.87% of shares in the Company. IRI is a wholly-owned subsidiary of American Retail Concepts, Inc. of USA (ARC).
The principal activity of the Company, conducted through its subsidiaries, is to operate Kentucky Fried Chicken (KFC) and Pizza Hut franchised restaurants in Poland and the Czech Republic and “Ice*Land” ice cream outlets in Poland. The existing restaurants, which were contributed to the joint venture at its inception, are operated under a Master Franchise Agreement (the “Master Franchise Agreement”), dated October 6th 2000, with YUM! Restaurants International Switzerland, Sarl (YRIS), a subsidiary of YUM!.
New restaurants opened subsequent to the Master Franchise Agreement, are operated under separate franchise agreements with YRIS on substantially the same terms as the Master Franchise Agreement (all such franchise agreements together with the Master Franchise Agreement are referred to as the “Franchise Agreements”). Each Franchise Agreement has a term of ten years, with an option for renewal by the Company for a further ten years, subject to certain conditions being met as described in the agreements.
In accordance with earlier arrangements, December 31st 2005 was the date of expiry of the Development Agreement concluded on September 25th 2003 with the franchisor, KFC International Holdings (KFCIH), and Pizza Hut International, LLC (PHILLC), subsidiaries of YUM!. Under the agreement, the Company had the right and obligation to develop new KFC and Pizza Hut outlets in Poland and the Czech Republic. Provided that the Company was in compliance with its obligations under the Development Agreement, the Company had a right of first refusal in relation to any new KFC or Pizza Hut restaurant in Poland and the Czech Republic proposed to be developed by the franchisor or in respect of which the franchisor proposes to grant franchise rights.

The parties agreed that in line with the current strategy of YUM!, which does not provide for similar agreements with franchisees on stable markets such as Poland and the Czech Republic, it is not necessary to sign a new agreement. At the same time, YUM! undertook to notify the Company of its entering into a similar agreement with another franchisee at least six months before its first KFC or Pizza Hut restaurant is opened in Poland or in the Czech Republic. During this period, the Company has the right to present its opinion on the issue. YUM! has stated that at present it has no plans to conclude agreements with other prospective franchisees in Poland or the Czech Republic or to open new restaurants by itself

In December 2005, the Company signed a Development Agreement with PHILLC, a subsidiary undertaking of YUM!, concerning the development and construction of a Pizza Hut restaurant in Ukraine. The term of the agreement is three years.

These consolidated financial statements of the Company for the twelve months ended December 31st 2005 include data on the Company and its subsidiaries (hereinafter referred to jointly as the “Group”) and on the Group’s equity interests in affiliates.
As at December 31st 2005, the Group included the following subsidiaries: 

Name of company 	City and country of incorporation	

Principal activity	

Parent company 	Ownership interest and voting rights	Date of effective control	
American Restaurants  Sp. z o.o.	Wrocław, Poland	Operating Pizza Hut and KFC restaurants in Poland 	AmRest Holdings N.V.	100.00 %	December 2000	
American Restaurants s.r.o. 	Prague, Czech Republic 	Operating KFC restaurants in the Czech Republic	AmRest Holdings N.V.	100.00 %	December 2000	
International Fast Food Polska Sp. z o.o. 	Wrocław, Poland	Rental of utility space and restaurant equipment 	American Restaurants Sp. z o.o.	100.00 %
	January
2001	
Pizza Hut s.r.o. 	Prague, Czech Republic	No current activities	American Restaurants s.r.o
American Restaurants Sp. z o.o.	99.973%
0.027%	December 2000	
Fried Chicken s.r.o. (formerly miklik’s food s.r.o.)	Prague, Czech Republic	Currently the company does not conduct any activities	Pizza Hut s.r.o.	100.00%	May 2005	
Grifex I Sp. z o.o.	Wrocław, Poland	Operates a children’s activity centre in Warsaw which includes a KFC restaurant	American Restaurants Sp. z o.o.	48.00 %	September 2003	
Galeria Arka Sp. Z o.o.	Warszawa, Poland	Lessee of a location where a restaurant is planned to be opened	American Restaurants Sp. z o.o.	100.00 %
	March 2005	
Amrest Ukraina t.o.w.	Kijów, Ukraina	Operating Pizza Hut  restaurants in Ukraina	American Restaurants Sp. z o.o.	100.00 %	December 2005	

The Company had the following associated companies at 31 December 2005 which are accounted for under the equity method:

Name of company 	City and country of incorporation	

Principal activity	

Parent company 	Ownership interest and voting rights	
Date of initial investment	
Worldwide Communication Services LLC 	Nevada, USA	Marketing activity for the Group	American Restaurants Sp. z o.o.	33.33 %
	October
2003	
Global Communication Services Sp. z o.o. in liquidation	Warsaw, Poland	A dormant company	Worldwide Communication Services LLC	33.33 %	May
2002	
Synergy Marketing Partners Sp. z o.o.	Warsaw, Poland	Marketing activity for the Group	Worldwide Communication Services LLC.	26.66%	May
2002	
Red 8 Communications Group Sp. z o.o.	Warsaw, Poland	Marketing activity for the Group	Worldwide Communication Services LLC	17.33%	May
2002	
Synergy Marketing Partners s.r.o.	Prague, Czech Republic	Marketing activity for the Group	Synergy Marketing Partners Sp. z o.o.	24.00%	Established February 2005 	
SCM Sp. z o.o.	Chotomów, Poland	Restaurant supply services provided to the Group 	American Restaurants Sp. z o.o.	35.00%	April 2005	

Worldwide Communication Services LLC (WCS) and its subsidiaries, Global Communication Services Sp. z o.o., Synergy Marketing Partners Sp. z o.o. and Red 8 Communications Sp. z o.o. were consolidated by the Company from January 2004 to 30 December 2004 as the Company had a controlling interest in WCS during that period.  On 30 December 2004, American Restaurants Sp. z o.o. sold 33.33% of its shares in WCS to a third party, thus reducing its ownership interest in WCS to 33%.

The Group’s corporate offices are located in Wroclaw, Poland. The restaurants operated by the Group are located throughout Poland and the Czech Republic.

(b)	Statement on the Accounts’ Compliance with the International Financial Reporting Standards
These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (the “IFRS”) and their interpretations adopted by the International Accounting Standards Board (the “IASB”) in the form approved for application on the territory of the European Union by virtue of the IFRS Regulation (the European Commission 1606/2002).

Changes in the Company’s Accounting Policies Following Application of the IFRS Effective since January 1st 2005
  
The data contained in these financial statements were restated in accordance with the requirements of individual standards.
The application of IFRS2 changed the accounting policy with respect to share-based payments. Prior to the application of IFRS 2, a liability was recognised at an estimated value of those participation units granted to employees on the basis the profit-sharing plan which have vested by the balance-sheet date. The value of the liability was estimated based on the terms and conditions of the plan. Starting from January 1st 2005,  in accordance with the requirements of IFRS 2, the fair value of the participation units or options granted as share-based payment is determined as at the grant date and disclosed under costs throughout the vesting period in line with the accounting policy. Due to the fact that the profit-sharing plan comprises cash-settled employee benefits, the fair value of the liability under the plan is subject to valuation as at each balance-sheet date and as at each settlement date.

The application of IFRS 3, IFRS 36 (updated in 2004) and IFRS 38 (updated in 2004) resulted in a change of the Company’s accounting policy with respect to goodwill and negative goodwill. Prior to these standards’ effective date, goodwill and negative goodwill were amortised on a straight-line basis over their estimated useful economic lives.

As at each balance-sheet date, goodwill was tested for impairment. In accordance with IFRS 3:

-	starting from January 1st 2005, the Group discontinued amortisation of goodwill and negative goodwill;
-	the value of cumulative goodwill amortisation as at December 31st 2004 was derecognised, and the value of goodwill was decreased by the same amount; 
-	the balance-sheet value of negative goodwill as at January 1st 2005 was derecognised, and a relevant adjustment was made to the value of retained deficit as at beginning of the period; and
-	starting from the year ended December  31st 2005, each year and upon the occurrence of the evidence of impairment, goodwill will be tested for impairment.

As at December 31st 2004, the Group disclosed negative goodwill of PLN 4,549 thousand following from previous years’ acquisitions. The application of IFRS 3 caused derecognition of negative goodwill as at January 1st 2005, and an increase in the value of non-current assets and retained earnings of PLN 4,549 thousand. The application of IFRS 3 did not affect the opening balance of retained deficit as at January  1st 2004.

(c)	Seasonality of Production and Markets

In the case of the AmRest Group, the seasonality of sales and inventories is not significant, which is typical for restaurant business.

The restaurants record the lowest sales in the first quarter, which is attributable primarily to fewer operating days (February) and fewer people dining out. The next quarter in terms of sales is the second quarter, in which the restaurants achieve better results thanks to improving weather and a positive effect of the beginning of the holiday season in June. The highest sales are achieved at the end of the third and at the beginning of the fourth quarter. Very good performance in the third quarter is attributable to the increased tourist traffic. Autumn is traditionally a season when people tend to dine out more frequently, which translates into higher sales. An important time in the last three months of the year is the pre-Christmas period, when particularly high sales are reported by the restaurants situated in shopping centres. 

(d)	Non-Recurring Events with a Bearing on the Financial Performance
In accordance with the adopted accounting policies, PLN 1,937 thousand of IPO expenses were expensed in the first two quarters of 2005, rather than deducted from the IPO proceeds, while in Q4 and Q3, the net profit was not reduced by the IPO expenses anymore. The amount of PLN 1,255 thousand was included in Q1 2005 expenses, while PLN 682 thousand was expensed in Q2 2005. The IPO expenses of PLN 6,134 thousand were offset against the proceeds from the issue.
On September 30th 2005, Spolpep Sp. z o.o. and Delta Creator Sp. z o.o. merged with subsidiary American Restaurants Sp. z o.o. as the acquiring company (for details, see Section (j)). Prior to the merger, Spolpep Sp. z o.o. was consolidated by the Company from July 2005, i.e. since the assumption of control by American Restaurants Sp. z o.o.
No other material non-recurring events took place during the period covered by these financial statements.

(e)	Form of Presentation of these Consolidated Financial Statements and Type and Value of Changes in the Applied Estimates

Amounts in these consolidated financial statements are presented in the Polish złoty (PLN), rounded off to full thousands. These financial statements were prepared based on the historical cost convention, except financial assets and liabilities (including derivative instruments) which are subject to measurement at fair value through profit or loss.

The preparation of financial statements in compliance with the International Financial Reporting Standards requires the Management Board to make certain assumptions, judgments and estimates, which are reflected in the applied accounting policies and affect the value of assets and liabilities, revenues and expenses disclosed in these financial statements. The estimates and the related assumptions, which are made on the basis of experience and various factors deemed relevant in given circumstances, are the basis for valuation of the assets and liabilities which do not directly result from other sources. Actual results may differ from the estimates.
Estimates and their underlying assumptions are reviewed on an on-going basis. Any adjustments of the accounting estimates are recognised in the period in which the adjustments were made, on condition that they concern this period only, or in the period in which they were made and in the future periods, if they concern both the current and future periods.
The most significant estimates and assumptions concern the valuation of property, plant and equipment, intangible assets, including goodwill, revaluation allowances for accounts receivable and inventories, and adjustment to the valuation of deferred tax assets. During the period covered by these financial statements, there were no material changes in the value of estimates disclosed in the previous reporting periods.
Except for those presented above in Section (b), the accounting policies have been applied consistently in all periods presented in these consolidated financial statements. The accounting policies were applied consistently by all members of the Group.

(f)	Issue, Redemption and Repayment of Debt and Equity Securities
During the period covered by these financial statements, no debt or equity securities were issued, redeemed or repaid.

(g)	Dividend Payment
No dividends were paid during the period covered by these financial statements.

(h)	Segment Reporting
Geographical Segments

The operations of the Group’s restaurants are managed centrally. However, the restaurants operate in two principal geographical areas: Poland and the Czech Republic. 
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the Group’s assets.
Inter-segment pricing is determined on an arm's length basis.

Geographical segment data as at 31 December 2005 and 2004 and for the quarters ended on these dates is as follows:

	Poland	Czech	Unallocated	Total	
					
twelve months ended 31 December 2005					
					
Revenue from external customers	360,002	139,808	-	499,810	
Net profit 	21,063	2,612	(1,956)	21,719	
Segment assets	201,347	82,069	226	283,642	
Segment liabilities	71,177	86,292	3,695	161,164	
Depreciation/amortization	22,758	8,928	-	31,686	
Fixed assets acquired	26,216	12,924	-	39,140	
Impairment losses	4,052	1,176	-	5,228	
					
three months ended 31 December 2005					
					
Revenue from external customers	100,649	40,661	-	141,310	
Net profit 	4,872	1,172	459	6,503	
Segment assets	201,347	82,069	226	283,642	
Segment liabilities	71,177	86,292	3,695	161,164	
Depreciation/amortization	6,146	2,418	-	8,564	
Fixed assets acquired	10,053	1,200	-	11,253	
Impairment losses	3,189	596	-	3,785	
					
	Poland	Czech	Unallocated	Total	
twelve months ended 31 December 2004					
					
Revenue from external customers	324,433	138,765	-	463,198	
Net profit/(loss)	6,041	4,894	835	11,770	
Segment assets	145,020	64,187	5,159	214,366	
Segment liabilities	99,588	99,364	(2,162)	196,790	
Depreciation/amortization	23,694	8,190	-	31,884	
Fixed assets acquired	14,043	13,111	-	27,154	
Impairment losses	1,839	572	-	2,411	
					
three months ended 31 December 2004					
					
Revenue from external customers	83,492	36,870	-	120,362	
Net profit/(loss) 	5,522	891	551	6,964	
Segment assets	145,020	64,187	5,159	214,366	
Segment liabilities	99,588	99,364	(2,162)	196,790	
Depreciation/amortization	7,139	2,122	-	9,261	
Fixed assets acquired	(1,150)	6,601	-	5,451	
Impairment losses	1,204	572	-	1,776	

The unallocated column relates to balances and transactions of AmRest Holdings N.V. as well as transactions between the segments and AmRest Holdings N.V.

(i)	Events Subsequent to the Balance-Sheet Date

No material events subsequent to the balance-sheet date occurred which are not disclosed in these financial statements.

(j)	Effects of Changes in the Group’s Structure

Establishing Amrest Ukraina t.o.w. by American Restaurants Sp. z o.o., a Subsidiary 

In December 2005, American Restaurants Sp. z o.o., a subsidiary, established Amrest Ukraina TOB and acquired 100% of shares in the company. The registered office of Amrest Ukraina t.o.w. is in Kiev, Ukraine. The company was incorporated in order to supervise investment projects and operate restaurants in Ukraine.

Merger of Spolpep Sp. z o.o. and Delta Creator Sp. z o.o. with American Restaurants Sp. z o.o.
On September 30th 2005, by virtue of a decision of the District Court for Wrocław-Fabryczna, VI Commercial Division of the National Court Register, File No. WR.VI NS-Rej.KRS/11811/5/623, a merger was effected by way of procedure provided for in Art.  492.1.1) of the Polish Companies Act. The merger consisted in the transfer to American Restaurants Sp. z o.o., the acquiring company, of all the assets of Spolpep Sp. z o.o., registered office at ul. M. Curie-Skłodowskiej 1, Wrocław, entered in the National Court Register under No. KRS 0000204260, NIP (Tax Identification Number) 526-030-25-68, and of Delta Creator Sp. z o.o., registered office at ul. Piłsudskiego 105, Wrocław, entered in the National Court Register under entry No. KRS 0000206251, NIP (Tax Identification Number) 897-001-05-75.
Following the merger, American Restaurants Sp. z. o. o. assumed all the rights and obligations of the acquired companies. The merger is to simplify the holding’s structure and to reduce the costs of its operations.

Liquidation of Global Communication Services Sp. z o.o.
On March  16th 2005, the Company commenced liquidation of Global Communication Services Sp. z o.o. As at December  31st 2005, the liquidation proceedings are pending and are to be completed in 2006.
Larger Shareholding in SCM Sp. z o.o.
On February 3rd 2006, American Restaurants Sp. z o.o., a subsidiary, acquired 10% of shares in SCM Sp. z o.o. with a par value of PLN 10,000, thus increasing its shareholding in SCM Sp. z o.o. to 45% (up from 35% as at December 31st 2005).

(k)	Changes in Future and Contingent Liabilities
As in the previous reporting period, the Company’s future liabilities follow from the Franchise Agreements and Development Agreement discussed in Section (a).
The Franchise Agreements, discussed in Section (a), have a term of ten years each, the earliest of which commenced in 2000, and are renewable at the Company’s option for a further ten years in accordance with their terms. The initial fees paid are approximately USD 39,600 per restaurant and renewal fees are 50% of the initial fees, adjusted to reflect changes in the US Consumer Price Index during the term of the relevant franchise.
Under the Franchise Agreements, the Company, through its subsidiaries, must from time to time upgrade, modify, renovate or replace all or part of its restaurants or any of their fittings, fixtures or signage or any of the equipment, systems or inventory used in the restaurant in order to maintain compliance with the relevant franchisor’s then current standards. During each of the initial term and the renewal term, if any, the franchisor may not require more than two comprehesive refurbishments of all fittings, fixtures, signage, equipment, systems and inventory in the “front-of-house” area of each AmRest restaurant to then current standards and more than one comprehensive refurbishment of all fittings, fixtures, signage, equipment, systems and inventory in the “back-of-house” area of each restaurant. Individual franchise agreements signed after the Master Franchise Agreement do not contain this provision. The Company estimates the cost of upgrades at 1.5 percent of annual restaurant sales in future periods.

l)	Earnings per  Share
The basic and diluted earnings per share are calculated as follows:
	Twelve months ended Dec 31 2005	Three months ended Dec 31 2005	Twelve months ended Dec 31 2004	Three months ended Dec 31 2004	
					
Net profit attributable to ordinary shareholders (PLN ‘000)	21,669	6,503	11,734	7,102	
					
Ordinary shares as at January 1st/September 1st	10,000,000	13,500,000	10,000,000	10,000,000	
Impact of share issue	2,387,671	-	-	-	
Impact of options granted	-	-	-	-,	
					
Weighted average number of ordinary shares at December 31st	12,387,671	13,500,000	10,000,000	10,000,000	
					
Basic and diluted earnings per ordinary share (PLN)	1.75	0.48	1.17	0.71	
					
The impact of potential new shares to be created under the options granted is antidilutive. Therefore, computation of the diluted earnings per ordinary share did not factor in the options granted to the Company employees.