SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-23278

Brazil Fast Food Corp.

(Exact name of Registrant as specified in its charter)

Delaware		13-3688737
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Rua Voluntários da Pátria, 89-9° andar
Rio de Janeiro RJ, Brazil, CEP 22270-010
(Address of principal executive offices)

Registrant’s telephone number: 011 55 21 2536-7500

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 þ No o

As of April 29, 2011 there were 8,129,437 shares outstanding of the Registrant’s Common Stock, par value $0.0001.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

 

 

ITEM 1. FINANCIAL STATEMENTS.

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)
(in thousands of Brazilian Reais, except share amounts)

		March 31,				December 31,
		2011				2010
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		R$	21,939			R$	16,742
Inventories			3,325				3,454
Accounts receivable
Clients			7,883				8,285
Franchisees			7,856				9,483
Allowance for doubtful accounts			(1,514	)			(1,838	)
Prepaid expenses			3,919				3,776
Receivables from properties sale (notes 3 and 4)			3,633				3,633
Other current assets			4,210				4,249
TOTAL CURRENT ASSETS			51,251				47,784
Other receivables and other assets (note 3)			15,828				16,258
Deferred tax asset, net			11,983				11,992
Goodwill			799				799
Property and equipment, net			29,627				29,862
Deferred charges, net			5,686				5,866
TOTAL ASSETS		R$	115,174			R$	112,561
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable		R$	8,977			R$	12,972
Accounts payable and accrued expenses			23,081				25,848
Payroll and related accruals			7,178				6,571
Taxes			3,835				4,936
Current portion of deferred income tax			1,205				1,190
Current portion of deferred income (note 6)			4,555				993
Current portion of contingencies and reassessed taxes			1,470				1,580
Other current liabilities			80				79
TOTAL CURRENT LIABILITIES			50,381				54,169
Deferred income, less current portion (note 6)			4,424				2,702
Deferred income tax			960				1,262
NOTES PAYABLE, less current portion			1,056				1,107
CONTINGENCIES AND REASSESSED TAXES, less current portion (note 3)			19,326				19,251
TOTAL LIABILITIES			76,147				78,491
SHAREHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued			—				—
Common stock, $.0001 par value, 12,500,000 shares authorized; 8,472,927 and 8,472,927 shares issued; 8,129,437 and 8,137,762 shares outstanding			1				1
Additional paid-in capital			61,148				61,148
Treasury Stock (343,490 and 335,165 shares)			(2,065	)			(1,946	)
Accumulated Deficit			(20,716	)			(24,946	)
Accumulated comprehensive loss			(1,123	)			(1,091	)
TOTAL SHAREHOLDERS’ EQUITY			37,245				33,166
Non-Controlling Interest			1,782				904
TOTAL EQUITY			39,027				34,070
TOTAL LIABILITIES AND EQUITY		R$	115,174			R$	112,561

See Notes to Consolidated Financial Statements

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)
(in thousands of Brazilian Reais, except share amounts)

		Three Months Ended March 31,
		2011				2010
REVENUES
Net revenues from own-operated restaurants		R$	40,146			R$	38,277
Net revenues from franchisees			7,610				6,594
Revenues from supply agreements			6,792				3,413
Other income			397				1,806
TOTAL REVENUES			54,945				50,090
Store Costs and Expenses			(38,010	)			(37,125	)
Franchise Costs and Expenses			(2,568	)			(2,378	)
Marketing Expenses			(1,015	)			(1,100	)
Administrative Expenses			(6,904	)			(6,156	)
Other Operating Expenses			(1,573	)			(1,017	)
Net result of assets sold and impairment of assets			(2	)			(27	)
TOTAL OPERATING COST AND EXPENSES			(50,072	)			(47,803	)
OPERATING INCOME			4,873				2,287
Interest Income (Expense)			(44	)			(340	)
NET INCOME BEFORE INCOME TAX			4,829				1,947
Income taxes			(592	)			(212	)
NET INCOME BEFORE NON-CONTROLLING INTEREST			4,237				1,735
Net loss attributable to non-controlling interest			(7	)			145
NET INCOMEATTRIBUTABLE TO BRAZIL FAST FOOD CORP.		R$	4,230			R$	1,880
NET INCOME PER COMMON SHARE BASIC AND DILUTED		R$	0.52			R$	0.23
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC AND DILUTED			8,134,586				8,137,762

See Notes to Consolidated Financial Statements

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands of Brazilian Reais)

		Three Months Ended March 31,
		2011				2010
NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.		R$	4,230			R$	1,880
Other comprehensive income (loss):
Foreign currency translation adjustment			(32	)			13
COMPREHENSIVE INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.		R$	4,198			R$	1,893

See Notes to Consolidated Financial Statements

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity (Unaudited)
(in thousands of Brazilian Reais)

										Additional												Accumulated				Total				Non-
		Common Stock								Paid-In				Treasury				Accumulated				Comprehensive				Shareholders’				Controlling				Total
		Shares				Par Value				Capital				Stock				(Deficit)				Loss				Equity				Interest				Equity
Balance, December 31, 2010			8,137,762			R$	1			R$	61,148			R$	(1,946	)		R$	(24,946	)		R$	(1,091	)		R$	33,166			R$	904			R$	34,070
Non-Controling Paid in Capital																											—				871				871
Net Income			—				—				—				—				4,230				—				4,230				7				4,237
Acquisition of Company•s own shares			(8,325	)			—				—				(119	)			—				—				(119	)			0				(119	)
Cummulative translation adjustment			—				—				—				—				—				(32	)			(32	)			—				(32	)
Balance, March 31, 2011			8,129,437			R$	1			R$	61,148			R$	(2,065	)		R$	(20,716	)		R$	(1,123	)		R$	37,245			R$	1,782			R$	39,027

See Notes to Consolidated Financial Statements

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
(in thousands of Brazilian Reais)

		Three Months Ended March, 31
		2011				2010
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST		R$	4.237			R$	1.735
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization			1.779				1.615
(Gain) Loss on assets sold, net			2				27
Deferred income tax			(278	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable			1.705				(20	)
Inventories			129				413
Prepaid expenses and other current assets			(104	)			(454	)
Other assets			(710	)			(1.017	)
(Decrease) increase in:
Accounts payable and accrued expenses			(2.767	)			3.649
Payroll and related accruals			607				1.397
Taxes other than income taxes			(1.101	)			(1.191	)
Deferred income			5.284				(601	)
Contingencies and reassessed taxes			(35	)			520
Other liabilities			1				27
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES			8.749				6.100
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment			(1.397	)			(2.237	)
Proceeds from sale of property, equipment and deferred charges			1.164				—
CASH FLOWS USED IN INVESTING ACTIVITIES			(233	)			(2.237	)
CASH FLOW FROM FINANCING ACTIVITIES:
Acquisition of Company’s own shares			(119	)			—
Non-Controling Paid in Capital			878				—
Net Borrowings (Repayments) under lines of credit			(4.046	)			(3.323	)
CASH FLOWS USED IN FINANCING ACTIVITIES			(3.287	)			(3.323	)
EFFECT OF FOREIGN EXCHANGE RATE			(32	)			13
NET INCREASE IN CASH AND CASH EQUIVALENTS			5.197				553
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			16.742				13.250
CASH AND CASH EQUIVALENTS AT END OF PERIOD		R$	21.939			R$	13.803

See Notes to Consolidated Financial Statements

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(in Brazilian Reais, unless otherwise stated)

NOTE 1 — FINANCIAL STATEMENT PRESENTATION

     The accompanying financial statements have been prepared by Brazil Fast Food Corp. (the “Company”) without having been audited. In the opinion of the management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included, and consistent with the finance statements prepared at December 31, 2010 in accordance with USGAAP. The results for the quarter ended March 31, 2011 do not necessarily indicate the results that may be expected for the full year. Unless otherwise specified, all references in these financial statements to (i ) “Reais” or “R$” are to the Brazilian Real (singular), or to Brazilian Reais (plural), the legal currency of Brazil, and (ii ) “U.S. Dollars” or “$” are to United States dollars.

     Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles and normally included in the financial statements have been condensed consolidated or omitted. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE 2 — BUSINESS AND OPERATIONS

     Brazil Fast Food Corp. (the “Company”) was incorporated in the state of Delaware on September 16, 1992.

     On December 2006, the Company established a holding company in Brazil called BFFC do Brasil Participações Ltda. (“BFFC do Brasil”, formerly 22N Participações Ltda.), to consolidate all its business in the country and allow the Company to pursue its multi-brand program, as discussed below:

BOB’S TRADEMARK

     During 1996, the Company acquired 100.0% of the capital of Venbo Comercio de Alimentos Ltda. (“Venbo”), a Brazilian limited liability company which conducts business under the trade name “Bob’s”, and owns and operates, both directly and through franchisees, a chain of hamburger fast food restaurants in Brazil.

KFC TRADEMARK

     During the first quarter of 2007, the Company reached an agreement with Yum! Brands, owner of the KFC brand. By this agreement, BFFC do Brasil, through its subsidiary CFK Comércio de Alimentos Ltda. (“CFK”, formerly Clematis Indústria e Comércio de Alimentos e Participações Ltda.), started to conduct the operations of four directly owned and operated KFC restaurants in the city of Rio de Janeiro as a Yum! Brands franchisee, and took over the management, development and expansion of the KFC chain in Brazil. CFK started its activities on April 1, 2007, and accordingly, the results of its operations are included in this report since that date.

PIZZA HUT TRADEMARK

     During 2008, the Company reached an agreement with Restaurants Connection International Inc (“RCI”) to acquire, through its wholly-owned holding subsidiary, BFFC do Brasil, 60% of Internacional Restaurantes do Brasil (“IRB”), which operates Pizza Hut restaurants in the city of São Paulo as a Yum! Brands franchisee. The remaining 40% of IRB is held by another Brazilian company of which IRB’s current CEO is the main stockholder.

     IRB also operates a coffee concept brand called “In Bocca al Lupo Café”, which has four stores in the city of São Paulo.

     The results of IRB’s operations have being included in the consolidated financial statements since December, 2008.

DOGGIS TRADEMARK

     During October 2008, the Company reached an agreement with G.E.D. Sociedad Anonima (“GED”), one of the fast food leaders in Chile, where it has 150 stores.

     By this agreement, BFFC do Brasil would establish a Master Franchise to manage, develop and expand the Doggis hot-dog chain in Brazil through own-operated restaurants and franchisees and GED would establish a Master Franchise to manage, develop and expand the Bob’s hamburger chain in Chile through own-operated restaurants and franchisees.

     The Master Franchise established in Brazil was named DGS Comercio de Alimento S.A. (“DGS”) and the Master Franchise established in Chile was named BBS S.A. (“BBS”). BFFC do Brasil has 20% of BBS and GED has 20% of DGS.

SUPRILOG

     In the second half of 2008, the Company began the operation of Suprilog Logística Ltda., which warehouses equipment and spare parts and provides maintenance services for the Company’s own-operated restaurants. It may also be used for some particular re-sale activities of special products or raw materials used in the stores’ operations. Suprilog’s financial figures are fully consolidated in the accompanying financial statements.

NOTE 3 — OTHER RECEIVABLES AND OTHER ASSETS

Other receivables and other assets consist of the following:

R$’000
Other receivables and other assets:

		March 31,				December 31,
		2011 (unaudited)				2010
Receivables from franchisees — assets sold (a)		R$	581			R$	660
Judicial deposits (b)			9,836				9,515
Properties for sale (c)			1,150				1,361
Receivable from properties sale, less current portion (c)			3,310				4,450
Investiment in BBS (Bobs — Chile) (d)			805				124
Other receivables			146				148
		R$	15,828			R$	16,258

NOTE 4 — SALE OF ASSETS

     During the third quarter of 2010 the Company sold all its eight properties to Bigburger Ltda. and CCC Empreendimentos e Participações Ltda., entities controlled by José Ricardo Bomeny and Rômulo B. Fonseca, respectively, two of the Company’s major shareholders. Three own-operated stores and five stores operated by franchisees, all under the Bob’s brand, had their business premises sold. The sale transaction only included the buildings and improvements made to them and did not include either the operating assets or the operation of the stores. Therefore, after the sale of the properties, the Company kept on operating its stores as usual, as did the franchisees.

     This transaction was conducted at the estimated fair value and will result in sale proceeds of R$13.5 million from assets with a book value of R$6.4 million. Management prepared the fair value estimates for these asset sales and in doing so considered valuations provided by real estate consultants.

     By December 31, 2010, much of the transaction had already been concluded (seven of the eight properties sold), for which reason the company accounted for a net gain of R$5.4 million (R$3.6 million, net of income tax) in the operating results for the twelve-month period ended on that date. Some minor legal issues have held up the sale of the one remaining property, though this is expected to be concluded in the second quarter of 2011, bringing expected additional gains to be accounted for of approximately R$1.6 million (R$1.1 million, net of income tax). The portion of assets which had not been sold by March 31, 2011 were reclassified to the Properties for sale account (part of “Other receivables and other assets” — see note 3) at their net cost value (R$1.2 million).

     The terms of sale included a downpayment of approximately 20% of the total amount, with the balance to be paid in 24 monthly installments. The buyers also accepted certain conditions to protect the Company’s long-term interests, including the maintenance of existing rental agreements and loan guarantees. All payments due until March 31, 2011 (total amount received was R$4.3 million wich includes R$1.1 received during the first quarter of 2011) were received by the Company. The short-term portion of these receivables is stated as “Receivables from properties sale” in the balance sheet and the long- term portion is stated as part of “Other receivables and other assets”. The Company has evaluated the status of these receivables and concluded that there are no issues with their collectability.

     This transaction will enable the Company to reduce its debt and permit the management to focus its attention on the core restaurant operations.

NOTE 5 — CONTINGENCIES AND REASSESSED TAXES

     Liabilities related to tax amnesty programs and litigation consist of the following:

R$ 000’		March 31, 2011 (unaudited)												December 31, 2010
										Long												Long
		Total				Current				Term				Total				Current				Term
		Liability				Liability				Liability				Liability				Liability				Liability
Reassessed taxes
Federal taxes (PAES)			11,244				1,470				9,774				11,639				1,580				10,059
Contingencies
ISS tax litigation			7,002				—				7,002				6,616				—				6,616
Labor litigation			1,902				—				1,902				1,885				—				1,885
Property leasing and other litigation			648				—				648				691								691
TOTAL			20,796				1,470				19,326				20,831				1,580				19,251

     Reassessed taxes

          The Company successfully applied to join two subsequent amnesty programs offered by the Brazilian federal government (REFIS in 1999 and PAES in 2003) to renegotiate Brazilian federal taxes not paid by Venbo in 1999, 2001 and at the beginning of 2002 in arrears. The second amnesty program (PAES) included the balance of the previous one (REFIS) and unpaid 2001 and 2002 federal taxes, as well as Social Security penalties.

          In February 2005, the Company compared its remaining debt regarding PAES with statements provided by the Brazilian Federal Government. Those statements reported that Company’s total debt would be greater than the figures in the Company’s balance sheet, in the amount of approximately R$3.2 million.

          During March, 2005, the Company filed a formal request with the Brazilian Federal Authorities, claiming to have its total debt reviewed. Such request, reconciled the amounts the Company had accrued in its accounting books to the amounts reported in the official statement at the same period. The Company believes that the amounts accrued at the balance sheet as of March 31, 2011, total of R$11.2 million (R$11.6 million in December 31, 2010) are sufficient, however, there is no assurance that the outcome of this situation will derive further liability to the Company. As of March 31, 2011, the difference between such debt at the statements provided by the Brazilian Federal Government and the statements reported by the Company’s was R$4.7 million (R$4.7 million in December 31, 2010).

          In 2008, the Brazilian federal government detected miscalculation of the interest accrued by most companies that had joined both amnesty programs. The Company’s total debt increased R$2.8 million accordingly.

          In accordance to the amnesty programs the Company has been paying monthly installments equivalent to 1.5% of Venbo•s gross sales, with interest accruing at rates set by the Brazilian federal government, which are currently 6.0% per year (6.0% per year also in December 31, 2010).

          During the three-month period ended March 31, 2011, the Company paid approximately R$0.4 million as part of the PAES program and no interest was charged on these payments. During the same period of 2010 the Company paid approximately R$0.5 million, including R$0.1 in interest.

          During the third quarter of 2009, the Brazilian federal government launched a third amnesty program to consolidate balances from previous programs and other fiscal debts. The Company applied to join this program, but its rules, on debt consolidation and reduction in consequence to number of monthly installments chosen, have not yet been fully formalized by the Brazilian fiscal authorities. At the present moment, the Company cannot estimate if any material adjustment to its debt will be necessary when consolidated by the Brazilian federal government. The final consolidation of such amnesty program is expected to take place by the end of the first semester of 2011.

     Contingencies

          • ISS tax litigation

          None of the Company’s revenues were subject to municipal tax on services rendered (ISS) until 2003. Notwithstanding, at the beginning of 2004, a new legislation stated that royalties were to be considered liable for ISS tax payment. Although the Company is claiming in court that royalties should not be understood as payment for services rendered and therefore should not be taxed under ISS legislation, the Company is monthly depositing in court the amount claimed.

          As of March 31, 2011, the Company has totaled R$7.0 million (R$6.6 million in December 31, 2010) in deposits, which is considered by the Company’s management, based on the opinion of its legal advisors, sufficient to cover the Company’s current ISS tax contingencies.

          During the third quarter of 2009, the Company’s claim was partially settled in court. The decision was for Rio de Janeiro municipality to reimburse the Company approximately R$0.5 million taxed before the ISS new legislation was enacted. The Company is studying how probable tax credits to be received from the municipality could be offset against tax to be paid to the municipality, since the Company is currently depositing the amount due in court. Because of the uncertainty of realizing this tax credit, the Company did not recognize the related amount as a gain in its Consolidated Income Statements.

          The referred change in ISS tax legislation triggered much debate on whether marketing fund contribution and initial fees paid by franchisees should be considered services rendered and be liable for ISS tax payment. In response, the Company is working with its tax advisors to adopt all necessary measures to avoid ISS taxation on marketing fund contribution and initial fees.

          • Labor litigation

          During 2005, the Company was ordered to pay to a former employee R$480,000. Although unusually high, the Company cannot guarantee it will not receive other labor complaint of similar magnitude.

          As of March 31, 2011 the Company accounted for labor related liabilities the amount of R$1.9 million (R$1.9 million in December 31, 2010), which is considered by the Company’s management, based on the opinion of its legal advisors, sufficient to cover the Company’s current labor contingencies.

          Other contingencies

          The other contingencies that in accordance with our legal advisors require no provision in the Company•s balance sheet are the following:

          - The Company purchased Venbo Comércio de Alimentos Ltda. (“Venbo”) from VENDEX in 1996. The Acquisition Purchase Agreement states that Venbo’s former owner (“VENDEX”) would be responsible for off-balance liabilities derived from Venbo’s transactions prior to the acquisition, limited to certain conditions. From 1997 to date, the Company has received several communications from the Brazilian fiscal authorities related to the period prior to the acquisition and has accordingly forwarded these to VENDEX and its attorneys.

          In 2005, Venbo was summoned by the fiscal authority of the State of Rio de Janeiro to pay a debt of approximately R$97,000 from the period prior to 1996. In order to have the right to appeal it was obliged to pledge one of its properties as collateral. VENDEX took over the defense of the case but did not offer another asset as collateral because of its weak current financial condition.

          The VENDEX attorneys are taking on the defense of all claims against Venbo. During the third quarter of 2007, the single relevant claim was judged favorable to VENDEX. All the other claims are immaterial; however, we cannot predict whether any other claim will be made that might be material.

          - A franchisee of the Company’s became a permanent debtor of royalties and marketing contributions, and the Company, after failing in its attempts to improve his business, finally decided to terminate his franchise contract and close down his stores. After going to court, the Company managed to receive the past due amounts from the franchisee and to terminate the original franchise agreement.

          This same franchisee alleged in court that the Company had offered him a store to operate at a guaranteed profit, but that instead he had recorded operating losses. He put in a claim for indemnity of R$5.5 million. The court judged the claim in favor of the franchisee, but reduced the indemnity to R$1.2 million. The Company’s legal advisors understood his argument as contradicting franchise laws and the Company’s usual business practices and appealed against the ruling. In the appeal, the court again came down in favor of the franchisee, but again reduced the compensation, this time to R$450,000. The Company has again appealed against the ruling, but cannot predict the outcome.

          - The owner of a property where the Company held a lease contract for operating one of its stores (closed in 2002) claimed unpaid monetary restatement on rent for a period of two and a half years, totaling R$1.0 million. The Company has reached an agreement to reduce the claim and paid R$700 thousand during 2010. The Company is not safeguarded against receiving other lease claims of similarly high amounts.

          - Concerning inquires from the Brazilian Government General Attorney’s Office, the Company has the following issues:

          a) obligation to hire handicapped personnel until they make up a minimum of 5% of the total workforce. Although the Company has managed to hire and train some handicapped staff, it is hard to attain the 5% level given the conditions in the stores and the limited labor supply. The Company is trying to reach an agreement with the General Attorney’s Office, but there is no guarantee that it will be successful and avoid paying fines.

          b) questions related to the total taxes paid by Venbo during the Pan American and Para Pan American Games. Although the Company has proved that the taxes were collected according to a special tax regime offered by Rio de Janeiro state, we cannot predict the final outcome.

     - In February 2010, the Brazilian Federal Tax Authorities questioned the procedures that the Company has used in recent years to recover the IPI (a tax on manufactured goods) included in the cost of packaging products bought from different suppliers. The authorities agree that the Company has the right to this tax credit but understand that it should claim it back from the suppliers and not from the government. The Company has already filed its defense but there is no guarantee that it will be successful in avoiding paying around R$1.2 million to the government and charging the suppliers for a reimbursement.

     Based on an analysis of possible losses, taking into account the applicable litigation and settlement strategies of its legal advisors, the Company has sufficient resources to cover its current contingencies.

NOTE 6 — DEFERRED INCOME

          The Company settles agreements with beverage and food suppliers and for each product, the Company negotiates a monthly performance bonus which will depend on the product sales volume to its chains (including both own-operated and franchise operated). The performance bonus, or vendor bonuses, can be paid monthly or in advance (estimated), depending on the agreement terms negotiated with each supplier.

          When a vendor bonus is received in advance in cash, it is recorded as an entry in the “cCash and cash equivalentes” with a corresponding credit in deferred income and is recognized on a straight line basis over the term of the related supply agreement on a monthly basis.

          Performance bonuses may also include Exclusivity agreements, which are normally paid in advance by suppliers.

          The increase from 2010 to 2011 is also attributable to two performance bonus contracted during 2011, both of them with pre-existing suppliers and relate to two major products supplied to the Bobs chain.

NOTE 7 — STOCK OPTION PLAN ACTIVITY

     The Company’s Stock Option Plan terminated on September 17, 2002, ten years from the date of its adoption by the Board of Directors.

     During 2005, the Company’s Board of Directors and a majority of its shareholders decided that the Board would pay out compensation in cash and that no more stock options would be granted.

     During 2009, the last options of such plan were exercised and after this activity the Company has no further exercisable options, under the Company’s Stock Option Plan. Accordingly, during 2010 and 2011 there was no option activity.

NOTE 8 — TREASURY STOCK

     In the last quarter of 2004, the Company’s Board of Directors approved a stock repurchase plan involving the repurchase of as many as 200,000 shares of its own common stock. The plan’s goal is to optimize the cash generated in the United States, and the repurchase limit was increased by 200,000 shares on October 18, 2006.

     During the first quarter of 2010, the Company did not repurchase any share under the referred stock repurchase plan. During the first quarter of 2011, the Company repurchased 8,325 shares related to such plan.

     Up to March 31, 2011, the Company repurchased a total amount of 343,490 shares and the accumulated stock purchases totaled R$2.1 million. Those transactions are accounted for as a reduction of Paid in Capital, in the Shareholders’ Equity section of the accompanying balance sheets.

NOTE 9 — SEGMENT INFORMATION

     Through the Company’s wholly-owned subsidiary, Venbo, which conducts business under the trade name “Bob’s”, the Company owns and operates, both directly and through franchisees, Brazil’s second largest fast food hamburger restaurant chain. Currently, the Company operates 40 points of sale under the Bob’s brand.

     Since April 2007, the Company has operated the KFC brand in Brazil through its wholly-owned subsidiary, CFK. Presently, the Company operates 10 stores in Rio de Janeiro under the trade name KFC.

     Since December 1, 2008, the Company has operated the Pizza Hut brand in São Paulo, Brazil, through its subsidiary IRB. It currently operates 17 stores under the Pizza Hut brand.

     Since September, 2008, the Company has operated the Doggis brand in Rio de Janeiro through its subsidiary, DGS. At present, the Company operates 5 stores under the Doggis trade name.

     Currently, most of the Company’s operations are concentrated in southeastern Brazil. As of March 31, 2011, all point sales operated by the Company listed above were located at that region which provided 100.0% of total Net Revenues from Own-operated Restaurants for the year. In addition, from the total of 709 franchise-operated point of sales, 374 were located at the same region, providing 56% of Net Revenues from Franchisees.

Outside Brazil, the Bob’s brand is also present through franchise operations in Angola, Africa (three stores) and, since the last quarter of 2009, in Chile, South America (four stores). These operations are not material to our overall results.

     The Company manages and internally reports its operations in two segments: (1) own-stores operations (2) franchise operations. The following tables present the Company’s revenues, costs/expenses and operating income per segment:

R$ 000’		Results from own-stores operations
		Three months ended March 31,
		2011				2010
Net Restaurant Sales			40,146				38,277
Store Costs and Expenses
Food, Beverage and Packaging			(13,524	)			(13,217	)
Payroll & Related Benefits			(8,632	)			(9,234	)
Restaurant Occupancy			(4,755	)			(4,359	)
Contracted Services			(4,905	)			(5,049	)
Depreciation and Amortization			(1,625	)			(1,466	)
Royalties charged			(1,384	)			(1,046	)
Other Store Costs and Expenses			(3,185	)			(2,754	)
Total Store Costs and Expenses			(38,010	)			(37,125	)
Operating margin			2,136				1,152

R$ 000’		Results from franchise operations
		Three months ended March 31,
		2011				2010
Net Franchise Revenues			7,610				6,594
Payroll & Related Benefits			(1,705	)			(1,621	)
Occupancy expenses			(243	)			(228	)
Travel expenses			(192	)			(187	)
Contracted Services			(196	)			(61	)
Other franchise cost and expenses			(232	)			(281	)
Total Franchise Costs and Expenses			(2,568	)			(2,378	)
Operating margin			5,042				4,216

     Cost and expenses that are exclusively related to own-operated stores — even the ones incurred at the headquarters — are considered in the item “Results from own-store operations”.

     Cost and expenses that are exclusively related to franchisee operated stores — even the ones incurred at the headquarters — are considered in the item “Results from franchise operations”.

     There are items that support both activities, such as (i) administrative expenses (finance department collects the receivables from franchise but also reviews daily own store sales); (ii) selling expenses (our marketing campaigns enhance the sales of our stores as well as the sales of our franchisees); (iii) interest expense (income); (iv) income tax (benefits); (v) exclusivity and other agreements with suppliers; and (vi) extraordinary items. Such items were not included in none of the segment results disclosed in the table above because (a) their segregation would require a high level of complexity and (b) the chief operating decision maker relies primarily on operating margins to assess the segment performance.

     Currently, besides the accounts receivables from franchisees (derived from franchise fees, royalties, and marketing fund), the Company does not have assets exclusively used at the franchise business. Accordingly, except for those receivables, assets presented in the Consolidated Balance Sheets are used at the restaurant operating business.

Own-stores operation conducted by the Company provided the following figures per brand:

		Results from Bob’s								Results from KFC’s								Results from Pizza Hut’s								Results from Doggis’
		brand operations								brand operations								brand operations								brand operations
R$ 000’
		Three months ended March 31,								Three months ended March 31,								Three months ended March 31,								Three months ended March 31,
		2011				2010				2011				2010				2011				2010				2011				2010
Revenues		R$	18,285			R$	19,490			R$	6,214			R$	5,103			R$	14,936			R$	13,135			R$	711			R$	549
Food, Beverage and Packaging			(6,816	)			(7,170	)			(2,338	)			(1,838	)			(3,992	)			(3,875	)			(378	)			(334	)
Payroll & Related Benefits			(4,033	)			(4,910	)			(1,497	)			(1,326	)			(2,828	)			(2,789	)			(273	)			(209	)
Occupancy expenses			(1,950	)			(2,110	)			(814	)			(716	)			(1,812	)			(1,450	)			(180	)			(83	)
Contracted Services			(2,035	)			(2,546	)			(907	)			(767	)			(1,829	)			(1,653	)			(134	)			(83	)
Depreciation and Amortization			(592	)			(648	)			(296	)			(272	)			(681	)			(489	)			(56	)			(57	)
Royalties charged			—				—				(402	)			(167	)			(982	)			(879	)			—				—
Other Store Costs and Expenses			(1,719	)			(1,844	)			(561	)			(165	)			(850	)			(709	)			(55	)			(36	)
Total Own-stores cost and expenses			(17,145	)			(19,228	)			(6,815	)			(5,251	)			(12,974	)			(11,844	)			(1,076	)			(802	)
Operating margin		R$	1,140			R$	262			R$	(601	)		R$	(148	)		R$	1,962			R$	1,291			R$	(365	)		R$	(253	)

Below we provide the segment information and its reconciliation to the Company’s income statement:

R$ 000’		Three months ended March 31,
		2011				2010
Bob’s Operating Income		R$	1,140			R$	262
KFC’s Operating Loss			(601	)			(148	)
Pizza Hut’s Operating Income			1,962				1,291
Doggi’s Operating Loss			(365	)			(253	)
Total Operating Income			2,136				1,152
Income from franchise operations			5,042				4,216
Unallocated Marketing Expenses			(1,015	)			(1,100	)
Unallocated Administrative Expenses			(6,904	)			(6,156	)
Unallocated Other Operating Expenses			(1,419	)			(868	)
Unallocated Net Revenues from Trade Partners			6,792				3,413
Unallocated Other income			397				1,806
Unallocated Depreciation and Amortization			(154	)			(149	)
Unallocated Net result of assets sold and impairment of assets			(2	)			(27	)
Unallocated Interest Expenses			(44	)			(340	)
Total Unallocated Expenses			(2,349	)			(3,421	)
NET INCOME BEFORE INCOME TAX			4,829				1,947

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following MD&A is intended to help readers understand the results of the Company’s operations, its financial condition and cash flows. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements.

Special Note about Forward-Looking Statements

     Certain statements in the Management’s Discussion and Analysis (“MD&A”) other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the company’s Annual Report on Form 10-K for the year ended December 31, 2010. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

OUR BUSINESS

     References to “we”, “us” or the “Company” are to Brazil Fast Food Corp.

     During 1996, we acquired 100.0% of the capital of Venbo Comercio de Alimentos Ltda. (“Venbo”), a Brazilian limited liability company which conducts business under the trade name “Bob’s”, and owns and operates, both directly and through franchisees, a chain of hamburger fast food restaurants in Brazil.

     In December 2006, we established a holding company in Brazil called BFFC do Brasil Participações Ltda. (“BFFC do Brasil”, formerly 22N Participações Ltda.), to consolidate all our business in the country and allow us to pursue its multi-brand program. Following the restructuring strategy, we implemented segregate managements for our different divisions: fast food restaurants, franchises and real estate. During the first quarter of 2007, we reached an agreement with Yum! Brands, owner of the KFC brand. By this agreement, BFFC do Brasil, through its subsidiary CFK Comércio de Alimentos Ltda. (“CFK”, formerly Clematis Indústria e Comércio de Alimentos e Participações Ltda.), started to conduct the operations of four directly owned and operated KFC restaurants in the city of Rio de Janeiro as a Yum! Brands franchisee, and took over the management, development and expansion of the KFC chain in Brazil.

     During 2008, we reached an agreement with Restaurants Connection International Inc (“RCI”) to acquire, through its wholly-owned holding subsidiary, BFFC do Brasil, 60% of Internacional Restaurantes do Brasil (“IRB”), which operates Pizza Hut restaurants in the city of São Paulo as a Yum! Brands franchisee. The remaining 40% of IRB is held by another Brazilian company of which IRB’s current CEO is the main stockholder. IRB also operates a coffee concept brand called “In Bocca al Lupo Café”, which is present as a “corner” operation, inside of four of Pizza Hut stores.

     During October 2008, we reached an agreement with G.E.D. Sociedad Anonima (“GED”), one of the fast food leaders in Chile, where it has 150 stores. By this agreement, BFFC do Brasil would

establish a Master Franchise to manage, develop and expand the Doggis hot-dog chain in Brazil through own-operated restaurants and franchisees and GED would establish a Master Franchise to manage, develop and expand the Bob’s hamburger chain in Chile through own-operated restaurants and franchisees. The Master Franchise established in Brazil was named DGS Comercio de Alimento S.A. (“DGS”) and the Master Franchise established in Chile was named BBS S.A. (“BBS”). BFFC do Brasil has 20% of BBS and GED has 20% of DGS. BBS is qualified as noncontrolling subsidiary since we have no ability to influence business decision in such investee. Accordingly, investment in BBS is accounted for at cost of acquisition.

     We also own Suprilog Logística Ltda., which warehouses equipment and spare parts and provides maintenance services for our own-operated restaurants. It may also be used for some particular re-sale activities of special products or raw materials used in the stores’ operations. These operations are not material to our overall results.

     Besides the Brazilian operations, the Company is also present, through Bob’s franchisees, in Angola, Africa, and Chile, South America. These operations are not material to our overall results.

     For the most part, revenues consist of sales by Company’s own-operated restaurants, income from agreements with trade partners and fees from restaurants operated by franchisees. These fees consist primarily of initial franchise fees and royalties that are based on a percentage of sales.

     We, through BFFC do Brasil, manage the second largest fast food chain in Brazil based on number of system units.

     RESULTS OF OPERATIONS — COMPARISON OF QUARTERS ENDED MARCH 31, 2011 AND 2010

(Amount in thousand of Brazilian Reais)

     The following table sets forth the statement of operations for quarters ended March 31, 2011 and 2010. All the operating figures are stated as a percentage of total net revenues. However, the details of store costs and expenses and franchise expenses also include these figures as a percentage of net revenues from own-operated restaurants and net franchise revenues, respectively.

R$ 000’		3 Months								3 Months
		Ended								Ended
		31-Mar-11				%				31-Mar-10				%
REVENUES
Net Revenues from Own-operated Restaurants		R$	40,146				73.1	%		R$	38,277				76.4	%
Net Revenues from Franchisees			7,610				13.9	%			6,594				13.2	%
Revenues from Special Agreements			6,792				12.4	%			3,413				6.8	%
Other Income			397				0.7	%			1,806				3.6	%
TOTAL REVENUES			54,945				100.0	%			50,090				100.0	%
OPERATING COST AND EXPENSES
Store Costs and Expenses			(38,010	)			-69.2	%			(37,125	)			-74.1	%
Franchise Costs and Expenses			(2,568	)			-4.7	%			(2,378	)			-4.7	%
Marketing Expenses			(1,015	)			-1.8	%			(1,100	)			-2.2	%
Administrative Expenses			(6,904	)			-12.6	%			(6,156	)			-12.3	%
Other Operating Expenses			(1,573	)			-2.9	%			(1,017	)			-2.0	%
Net result of assets sold and impairment of assets			(2	)			0.0	%			(27	)			-0.1	%
TOTAL OPERATING COST AND EXPENSES			(50,072	)			-91.1	%			(47,803	)			-95.4	%
OPERATING INCOME			4,873				8.9	%			2,287				4.6	%
Interest Income (Expense)			(44	)			-0.1	%			(340	)			-0.7	%
NET INCOME BEFORE INCOME TAX			4,829				8.8	%			1,947				3.9	%
Income taxes			(592	)			-1.5	%			(212	)			-0.6	%
NET INCOME BEFORE NON-CONTROLLING INTEREST			4,237				10.6	%			1,735				4.5	%
Net loss attributable to non-controlling interest			(7	)			0.0	%			145				0.4	%
NET INCOMEATTRIBUTABLE TO BRAZIL FAST FOOD CORP.			4,230				10.5	%			1,880				4.9	%

Net Revenues from Own-Operated Restaurants

     Net restaurant sales for the company-owned retail outlets increased by R$1.9 million, or 4.9%, to R$40.1 million for the quarter ended March 31, 2011, as compared to R$38.3 million for the quarter ended March 31, 2010.

     The breakdown of net revenues from the Company’s own restaurants is as follows:

		Net revenues from own-operated restaurants
		3 Months				Increase				3 Months
		March 31,				(Decrease)				March 31,
Brand		2011				%				2010
Bob’s		R$	18,285				-6.2	%		R$	19,490
KFC			6,214				21.8	%			5,103
IRB — Pizza Hut			14,936				13.7	%			13,135
DOGGIS			711				29.5	%			549
Consolidated Net Revenues		R$	40,146				4.9	%		R$	38,277

     Based on the criterion of same store sales, which only includes stores that have been open for more than one year, Bob’s net restaurant sales in the three months ended March 31, 2011 were 6.6% higher than in the same three-month period in 2010. However, Bob’s overall sales decreased due to the reduction in the number of points of sale (from 59 in March 31, 2010 to 40 at March 31, 2011).

     The decrease in the number of Bob’s point of sales reflects the company’s strategy to limit its direct operations to its most profitable outlets and to focus on growing its franchise network.

     Under the criterion of same store sales, net restaurant sales saw an approximately 10.9% increase for the KFC brand between the three months ended March 31, 2011 and the equivalent period in 2010. KFC’s overall sales increased due to (i) inclusion of lower price products, bringing in new business during off-peak hours; (ii) increase in delivery business; and (iii) focus on speeding up operations, especially at peak hours.

     Under the criterion of same store sales, Pizza Hut’s net restaurant sales increased by approximately 8.8% between the three—month period ended March 31, 2011 and the equivalent period of 2010. Pizza Hut’s sale increase is attributable to the inclusion of higher value items in its menu board as well as an increase in the selling price of some products, representing an overall price hike of around 3%. Pizza Hut’s revenues were also positively impacted by the increased number of point of sales from 16 at March 31, 2010 to 17 at March 31, 2011).

     The overall increase in Doggis’ sales is mainly attributable to the growth in the number of points of sales from four on March 31, 2010 to five on March 31, 2011.

Net Franchise Revenues

     Net franchise revenues are comprised of initial fees (due upon the signing of a new franchise contract) and royalty fees (a percentage on sales paid by stores operated by franchisees), as set forth below:

R$’000		3 months ended March, 31
		2011				2010
Net Franchise Royalty Fees			6,696				6,211
Initial Fee			914				383
Net Franchise Revenues			7,610				6,594

     Net franchise revenues increased R$1.0 million, or 15.4%, to 7.6 million for the three months ended March 31, 2011 as compared to R$6.5 million for the three months ended March 31, 2010.

          This increase is attributable to the growth of the Company’s franchise business from 646 retail outlets as of March 31, 2010 to 709 as of March 31, 2011.

     Currently, the Bob’s brand accounts for most of the franchise activity.

Alongside the royalty fees and initial fees, the Company receives marketing contributions from its franchisees, which are designed to finance corporate marketing investments and are accounted for as discussed in Marketing Expenses.

Revenue from Trade partners and Other Income

     The Company has agreements with beverage and food suppliers, and for each product it negotiates a monthly performance bonus which depends on the volume of sales of that product to its chains (including both own-operated and franchise operated stores). The performance bonus, or vendor bonus, can be paid monthly or in advance (estimated), depending on the agreement terms negotiated with each supplier. Income from the performance bonus is only possible because the number of restaurants that operate throughout Brazil under the prestigious brands franchised by the Company, especially Bob’s, represent an excellent channel for suppliers to increase their sales. Each month, the Company assesses the volume of each product purchased by its chains and calculates the performance bonus receivable from each contract. The performance bonus is normally received in cash and rarely in products. Since 2008 the Company has not received any performance bonus in products.

     The income related to performance bonuses when received in cash recognized directly as a credit in the Company’s income statement under “revenues from trade partners”. Such revenue is recorded when the cash is actually received from the vendors, since it is very hard to estimate how much will be receivable and there are significant doubts about its collectibility until the vendor agrees on the exact value of the bonus.

     When a vendor’s bonus is received in advance in cash, it is recorded as an entry in the “Cash and cash equivalents” with a corresponding credit in deferred income, and is recognized on a straight line basis over the term of the related supply agreement on a monthly basis.

     Performance bonuses may also include exclusivity agreements, which are normally paid in advance by suppliers.

     The rise in the number of Bob’s brand franchisees, from 646 on March 31, 2010 to 709 on March 31, 2011, together with the expansion of the multi-brand concept, has given the Company’s administrators greater bargaining power with its suppliers.

     In addition, the growth of the franchisee chain has boosted the volume of purchases made from suppliers. According to the terms of its supply agreements, this means the Company has benefited from volume-related performance bonuses from its suppliers.

Other income is mainly comprised of nonrecurring gains.

Store Costs and Expenses

     Store costs and expenses represented (69.2%) and (74.1%) of total revenues for the quarters ended March 31, 2011 and 2010, respectively.

Analyzed as a segment (own-store operations), the respective store costs and expenses for own-operated restaurants as compared to net revenues can be seen below:

R$ 000’		3 Months								3 Months
		Ended								Ended
		31-Mar-11				%				31-Mar-10				%
STORE RESULTS
Net Revenues from Own-operated Restaurants			40,146				100.0	%			38,277				100.0	%
Store Costs and Expenses
Food, Beverage and Packaging			(13,524	)			-33.7	%			(13,217	)			-34.5	%
Payroll & Related Benefits			(8,632	)			-21.5	%			(9,234	)			-24.1	%
Restaurant Occupancy			(4,755	)			-11.8	%			(4,359	)			-11.4	%
Contracted Services			(4,905	)			-12.2	%			(5,049	)			-13.2	%
Depreciation and Amortization			(1,625	)			-4.0	%			(1,466	)			-3.8	%
Royalties charged			(1,384	)			-3.4	%			(1,046	)			-2.7	%
Other Store Costs and Expenses			(3,185	)			-7.9	%			(2,754	)			-7.2	%
Total Store Costs and Expenses			(38,010	)			-94.7	%			(37,125	)			-97.0	%
STORE OPERATING INCOME			2,136				5.3	%			1,152				3.0	%

Food, Beverage and Packaging Costs

     The table below sets forth the cost of food per brand:

		3 Months ended												3 Months ended
R$’000		March 31, 2011												March 31, 2010
Brand		Revenues				Cost of Food				%				Revenues				Cost of Food				%
Bob’s		R$	18,285			R$	(6,816	)			-37.3	%		R$	19,490			R$	(7,170	)			-36.8	%
KFC			6,214				(2,338	)			-37.6	%			5,103				(1,838	)			-36.0	%
IRB — Pizza Hut			14,936				(3,992	)			-26.7	%			13,135				(3,875	)			-29.5	%
DOGGIS			711				(378	)			-53.2	%			549				(334	)			-60.8	%
Consolidated		R$	40,146			R$	(13,524	)			-33.7	%		R$	38,277			R$	(13,217	)			-34.5	%

     The overall decrease in the cost of food, beverages and packaging as a percentage of Net Revenues from Own-Operated Restaurants from 2010 to 2011 was mainly due a reduction in the VAT charged in Rio de Janeiro, as well as a significant drop in the purchase price of some Doggis products (sausages and mayonnaise) and Doggis’s freight costs. The cost of food also decreased due to a

reduction in the purchase price of other important products, like rice (KFC), ice-cream (Bobs, KFC and Doggis), cheese, vegetables and soft drinks (Pizza Hut). This reduction was partially offset by a higher purchase price of some raw materials used at Bob’s and KFC: hamburgers, soft drinks, chicken, French fries and packaging products.

Payroll & Related Benefits

     The table below sets forth the payroll costs per brand:

Payroll & Related Benefits (Payroll) as a percentage of
Net revenues from own-operated restaurants (Revenues) per brand

		3 Months ended												3 Months ended
R$’000		March 31, 2011												March 31, 2010
Brand		Revenues				Payroll				%				Revenues				Payroll				%
Bob’s		R$	18,285			R$	(4,033	)			-22.1	%		R$	19,490			R$	(4,910	)			-25.2	%
KFC			6,214				(1,497	)			-24.1	%			5,103				(1,326	)			-26.0	%
IRB — Pizza Hut			14,936				(2,828	)			-18.9	%			13,135				(2,789	)			-21.2	%
DOGGIS			711				(274	)			-38.5	%			549				(209	)			-38.1	%
Consolidated		R$	40,146			R$	(8,632	)			-21.5	%		R$	38,277			R$	(9,234	)			-24.1	%

The reduction in Payroll & Related Benefits as a percentage of Net Revenues from Own-Operated Restaurants is mainly due to the optimization of the workforce at all the brands (increased revenues with no significant rise in employee ). In addition, the Bob’s restaurants reduced their overall headcount and hired more temporary staff, resulting in lower labor charges and benefits payable.

Restaurant Occupancy Costs and Other Expenses

     The table below sets forth the occupancy costs per brand:

Restaurant Occupancy (Occupancy) as a percentage of
Net revenues from own-operated restaurants (Revenues) per brand

		3 Months ended												3 Months ended
		March 31, 2011												March 31, 2010
R$’000
Brand		Revenues				Occupancy				%				Revenues				Occupancy				%
Bob’s		R$	18,285			R$	(1,950	)			-10.7	%		R$	19,490			R$	(2,110	)			-10.8	%
KFC			6,214				(814	)			-13.1	%			5,103				(716	)			-14.0	%
IRB - Pizza Hut			14,936				(1,812	)			-12.1	%			13,135				(1,450	)			-11.0	%
DOGGIS			711				(179	)			-25.2	%			549				(83	)			-15.1	%
Consolidated		R$	40,146			R$	(4,755	)			-11.8	%		R$	38,277			R$	(4,359	)			-11.4	%

     The increase in restaurant occupancy costs and other expenses as a percentage of Net Revenues from Own-Operated Restaurants is mainly due to higher store rents, as the rent agreements were adjusted, as per their terms, by the IGP-M inflation index, which was 10.9%p.y. The percentage increase in Doggis’s occupancy costs was due to non-recurring rent discounts granted in the first quarter of 2010.

Contracted Services

The table below sets forth the contracted service costs per brand:

Contracted Services (Services) as a percentage of
Net revenues from own-operated restaurants (Revenues) per brand

		3 Months ended												3 Months ended
		March 31, 2011												March 31, 2010
R$’000
Brand		Revenues				Services				%				Revenues				Services				%
Bob’s		R$	18,285			R$	(2,035	)			-11.1	%		R$	19,490			R$	(2,546	)			-13.1	%
KFC			6,214				(907	)			-14.6	%			5,103				(767	)			-15.0	%
IRB - Pizza Hut			14,936				(1,829	)			-12.2	%			13,135				(1,653	)			-12.6	%
DOGGIS			711				(134	)			-18.8	%			549				(83	)			-15.1	%
Consolidated		R$	40,146			R$	(4,905	)			-12.2	%		R$	38,277			R$	(5,049	)			-13.2	%

The main reason for the reduction in expenses related to contracted services as a percentage of net revenues from own-operated restaurants was a reduction in maintenance and utilities costs.

Depreciation and Amortization (Stores and Headquarters)

     The increase in Depreciation and amortization is attributable to store equipment modernization and stores remodeling.

Other Store Cost and Expenses

     Other store cost and expenses expressed as a percentage of Net revenues from own-operated restaurants increased from the quarter ended March 31, 2010 to the same period ended March 31, 2011 mainly due to increase of selling expenses attributable to own-operated restaurants.

Franchise Costs and Expenses

     As a percentage of Total Revenues, Franchise costs and expenses were (4.7%) and (4.7%) for the quarters ended March 31, 2011 and 2010, respectively.

     Analyzed as a segment (franchise operations), franchise costs and expenses had the following behavior against net franchise revenues:

     Franchise costs and expenses expressed as a percentage of net franchise revenues were approximately (33.7%) and (36.1%) for the three months ended March 31, 2011 and 2010, respectively. The Company managed to increase its Franchise Revenues in 2011 keeping its franchise department almost at the same size. Accordingly, despite the slight nominal increase in franchise expenses during 2011, there was an optimization of them since franchise revenues had a greater growth in the same period.

Marketing, General and Administrative Expenses

Marketing Expenses

     Bob’s Brand

According to our franchise agreements, the Bob’s marketing fund dedicated to advertising and promotion is comprised of financial contributions paid by the franchisees and contributions by us. The fund is administrated by us and must be used in the common interest of the Bob’s chain, through the best efforts of the marketing department, to increase its restaurant sales.

The marketing contributions from franchisees are recorded on an accrual basis as assets in accounts receivables and in a cross entry as liabilities in the marketing fund. The contributions due by Venbo are recorded on an accrual basis as marketing expenses and in a cross entry as liabilities in the marketing fund.

In general, Bob’s franchisees monthly contribute with 4.0% of their monthly gross sales to the Bob’s marketing fund. Since 2006, we have also committed 4.0% of its gross sales from its own-operated restaurant monthly gross sales (sales derived from special events are not subject to such contribution). These contributions can be deducted from our marketing department expenses if previously agreed with the our franchisees. However, the total marketing investments may be greater than 4.0% of combined sales if a supplier makes an extra contribution (joint marketing programs) or if we use more of our own cash on marketing, advertising and promotions.

We primarily invest the Bob’s marketing fund resources in nationwide advertising programs (commercials or sponsorship on TV, radio and outdoors). Our franchisees may also invest directly in advertising and promotions for their own stores, upon previous consent from us, which freely decides whether the cost of such single advertisement or promotion should be deducted from the marketing contribution owed.

The Bob’s marketing fund resources are not required to be invested during the same month or year that they were received, but must be used in subsequent periods.

Periodically, we meet with the Bob’s Franchisee Council to divulge the marketing fund accounts in a report that is similar to a cash flow statement. This statement discloses the marketing contributions received and the marketing expenses, both on a cash basis.

The balance of any resources from the marketing fund that are not spent is recorded as accrued accounts payable in the balance sheet; this item totaled R$8.7 million as of March 31, 2011 (R$7.8 million as of December 31, 2010).

This balance represents contributions made by Venbo and franchisees that have not yet been used in campaigns. These balances are, as agreed with the franchisees chain, a Venbo obligation as of that date.

The marketing fund’s advertising and promotions expenses are recognized as incurred. Total marketing investments financed by the marketing fund amounted to R$7.8 million and R$3.8 million for the quarters ended March 31, 2011 and 2010, respectively.

          KFC and Pizza Hut Brands

We contribute 0.5% of KFC’s and Pizza Hut’s monthly net sales monthly into a marketing fund managed by YUM! Brands — Brazil. In addition, the Company is also committed to investing 5.0% of KFC’s and Pizza Hut’s monthly net sales in local marketing and advertising.

The advertising and promotions expenses for KFC and Pizza Hut are recognized as incurred and amounted to R$2.1 million and R$1.0 million for the three months ended March 31, 2011 and 2010, respectively.

          Doggis Brand

We are committed to invest at least 4% of the Doggis restaurant sales in local marketing expenses. There is no contribution to a marketing fund.

Local marketing expenses on advertising and promotions for Doggis are recognized as incurred and amounted R$0.2 million in 2011 and R$0.1 million for the three months ended March 31, 2011 and 2010, respectively.

As a percentage of total revenues, marketing expenses were approximately (1.8%) and (2.2%) for the three months ended March 31, 2011 and 2010, respectively

General and Administrative Expenses

     As a percentage of total revenues, general and administrative expenses were approximately (14.3%) and (12.3%) for the three months ended March 31, 2011 and 2010, respectively.

     This increase is attributable to non-recurring consulting expenses related to:

	•		improvement of the Company’s information technology environment — IT consultants were hired to analyze and map out the existing structure in order to enhance network security and business process automation;
	•		human resource and headhunter fees for low management positions;
	•		optimize its telecommunications infrastructure and reduce its related costs.

Other Operating Expenses

     Other operating expenses are mainly comprised of uncollectible receivables, depreciation, preopening and non recurring expenses. Other operating expenses expressed as a percentage of Total revenues were (2.9%), for the three months ended March 31, 2011 and (2.0%) for the three months ended March 31, 2010.

     The following table sets forth the breakdown of Other Operating Expenses:

		Three months ended
		March 31,
R$ 000’		2011				2010
Uncollectable receivables		R$	272			R$	(54)
Depreciation of Headquarters’ fixed assets			(154	)			(149	)
Non-recurring logistics expenses			(1,150	)			—
Accruals for contingencies			(301	)			(306	)
Preopening and other expenses			(240	)			(508	)
		R$	(1,573	)		R$	(1,017	)

     During the first quarter of 2011 the Company paid out one-time expenses to cover momentary shortfalls in the distribution of raw materials to point of sales located at distant areas in the north and mid-west of Brazil, which are complicated to organize and have high logistics costs. In order to improve its logistics system, the Company changed its logistics operator from Luft-FBD to Martin Brauwer, which will begin operations in the second quarter of 2011.

     Also during the first quarter of 2011, the Company received approximately R$300,000 of receivables which were previously written-off and expensed as uncollectible. Therefore, as of March 31, 2011 this amount was computed as a gain, reversing the doubtful receivable expenses incurred in the period, reducing the percentage discussed above.

Impairment of Assets and Net Result of Assets Sold

     The Company reviews its fixed assets in accordance with guidance on the impairment or disposal of long-lived assets in the Property Plant and Equipment Topic of the FASB ASC 360.

     During the quarters ended March 31, 2011 and 2010, Company’s review in accordance with FASB ASC 360, derived no charge to the income statement.

Interest Expense, net

     Interest expense decrease as a percentage of Total Revenues is mainly due to lower interest rates in 2011 and due to decrease of Company’s indebtedness

Income Taxes

     As a percentage of net restaurant sales, income taxes were approximately (1.5)% and (0.6)% for the three months ended March 31, 2011 and 2010, respectively.

LIQUIDITY AND CAPITAL RESOURCES (Amounts in thousand of Brazilian reais)

     A) Introduction

     Since March 1996, we have funded our cumulative operating losses worth approximately R$22.2 million and made acquisitions of businesses and capital improvements (including the refurbishment of some of the Company’s stores), for which we used cash remaining at the closure of our acquisition of Venbo, borrowed funds from various sources, and made private placements of our securities. As of March 31, 2011, we had cash on hand of approximately R$21.9 million — which included a R$16.8 million investment in cash equivalent — and a working capital of approximately R$0.8.

     In the past, debts denominated in any other currency than Brazilian Reais increased with the major devaluation of the Brazilian Real at the beginning of 1999. A sequence of years with reduced sales, mainly due to the weak economic environment in Brazil, worsened the situation and we were not able to pay some of its obligations, including taxes. In the following years the payment of taxes in arrears was renegotiated with levels of Brazilian government so they could be paid off in monthly installments.

     With the improvement of the Brazilian economy since 2002, our total revenues have increased and, joined to a capital injection of R$9.0 million, we have started to reduce its debt position. In 2003 we rescheduled much of its debt to the long term. The continued improvement of its sales led us to (i) drastically reduce our debts with financial institutions in 2005; and (ii) extinguish those debts and reverse its financial position to present time deposits with financial institutions at the end of 2006. The improved collection rate from our franchisees, commencing in 2005, also strengthened our current assets. In 2007 and the first three quarters of 2008, we maintained this positive scenario and was able to record positive working capital.

     Since the last quarter of 2008, when we increased our bank debt position in order to fund the acquisition of IRB, the expansion of the KFC stores and the startup of the Doggis brand, these transactions brought the Company’s working capital back into negative territory. After a sequence of positive results (operating income in the years of 2009 and 2010, as well as in the first quarter of 2011) the Company returned to achieve positive working capital. .

     For the quarter ended March 31, 2011, we had net cash provided by operating activities of R$9.0 million (R$6.1 million in 2009), net cash provided in investing activities of R$0.3 million (R$2.2 million used in 2009) and net cash used in financing activities of R$4.0 million ( R$3.3 million in 2009). Net cash used in investing activities was primarily the result of Company’s investment in property and equipment to improve Company’s retail operations, mainly setting up new own-operated KFC and Pizza Hut stores. Net cash used in financing activities was mainly the result of repayments of borrowings from financial institutions to fund to IRB acquisition.

     Since the beginning of the repurchase program, we have also invested approximately R$2.1 million in the financial market, re-purchasing 343,490 shares that had gained considerable value in the over-the-counter market where they are negotiated. (During the quarter ended march 31, 2011, we invested approximately R$0.1 million in the financial market, re-purchasing 8,325 shares).

     In 2008, we paid dividends to its shareholders by virtue of its successful reorganization. In 2009 there were no dividends paid to shareholders. In 2010, due to its increased operational margins, we distributed extraordinary cash dividends based on accumulated profits since our last distribution.

B) Debt Obligation — financial institutions

     As of March 31 2011, we had the following debt obligations with financial institutions:

     R$ 000’

		March 31,				December 31,
		2011 (unaudited)				2010
Revolving lines of credit (a)		R$	9,091			R$	12,386
Leasing facilities (b)			831				364
Other loan (c)			111				1,329
							—
			10,033				14,079
Less: current portion			(8,977	)			(12,972	)
		R$	1,056			R$	1,107

     At March 31, 2011, future maturities of notes payable are as follows:

     R$000’

Remaining 2011		R$	8,722
2012			1,020
2013			—
		R$	9,742

(a)  Part of this debt (R$5.3 million) is due on demand from two Brazilian financial institutions at interest of approximately 13.5%p.y. Another part (R$3.8 million) is comprised of two loans: one is payable in 9 installments of R$217,000 (ending on December, 2011), plus interest of 16.0%p.y and the other is payable in 22 installments of R$84,000 (ending on January, 2013), plus interest of 15.0%p.y . All the debts of this category are collateralized against certain officers and receivables.

(b)  The debt is comprised of various lease facilities with private Brazilian institutions for the funding of store equipment; payable in a range from 2 to 7 monthly payments at interest ranging from 17.8% p.y. to 23.4% p.y (ending on October, 2011). All the debts of this category are collateralized against the assets leased.

(c)  Loan taken out with UBS Pactual relate to the acquisition of the Pizza Hut business in Brazil. The repayment of this loan is due in 5 monthly installments (ending on August, 2011), of R$166,000, plus interest of 13.2%p.y. The loan is guaranteed by some of the Company’s properties.

The carrying amount of notes payable approximates fair value at March 31, 2011 because they are at market interest rates.

C) Debt Obligation — taxes

     The Company successfully applied to join two subsequent amnesty programs offered by the Brazilian federal government (REFIS in 1999 and PAES in 2003) to renegotiate Brazilian federal taxes not paid by Venbo in 1999, 2001 and at the beginning of 2002 in arrears. The second amnesty program (PAES) included the balance of the previous one (REFIS) and unpaid 2001 and 2002 federal taxes, as well as Social Security penalties.

     In February 2005, the Company compared its remaining debt regarding PAES with statements provided by the Brazilian Federal Government. Those statements reported that Company’s total debt would be greater than the figures in the Company’s balance sheet, in the amount of approximately R$3.2 million.

     During March, 2005, the Company filed a formal request with the Brazilian Federal Authorities, claiming to have its total debt reviewed. Such request, reconciled the amounts the Company had accrued at its accounting books to the amounts reported in the official statement at the same period. The Company believes that the amounts accrued at the balance sheet as of March 31, 2011, total of R$11.2 million (R$11.6 million in December 31, 2010) are sufficient, however, there is no assurance that the outcome of this situation will derive further liability to the Company. As of March 31, 2011, the difference between such debt at the statements provided by the Brazilian Federal Government and the statements reported by the Company’s was R$4.7 million (R$4.7 million in December 31, 2010).

     In 2008, the Brazilian federal government detected miscalculation of the interest accrued by most companies that had joined both amnesty programs. The Company’s total debt increased R$2.8 million accordingly.

     In accordance to the amnesty programs the Company has been paying monthly installments equivalent to 1.5% of Venbo•s gross sales, with interest accruing at rates set by the Brazilian federal government, which are currently 6.0% per year (6.0% per year also in December 31, 2010).

     During the three-month period ended March 31, 2011, the Company paid approximately R$0.4 million as part of the PAES program and no interest was charged on these payments. During the same period of 2010 the Company paid approximately R$0.5 million, including R$0.1 in interest.

     During the third quarter of 2009, the Brazilian federal government launched a third amnesty program to consolidate balances from previous programs and other fiscal debts. The Company applied to join this program, but its rules, on debt consolidation and reduction in consequence to number of monthly installments chosen, have not yet been fully formalized by the Brazilian fiscal authorities. At the present moment, the Company cannot estimate if any material adjustment to its debt will be necessary when consolidated by the Brazilian federal government. The final consolidation of such amnesty program is expected to take place by the end of the first semester of 2011.

D) Other Obligations

     We also have long-term contractual obligations in the form of operating lease obligations related to the Company’s own-operated stores.

     The future minimum lease payments under those obligations with initial or remaining noncancelable lease terms in excess of one year at March 31, 2011 are as follows:

R$ 000’

		Contratual
Fiscal Year		Leases
Remaining 2011		R$	12.245
2012			11.934
2013			10.551
2014			9.099
2015			5.452
Thereafter			1.388
		R$	50.669