SEC Number File Number

A2000-03008

PANCAKE HOUSE, INC.

_________________________________________________ (Companys Full Name)

Pancake House Center 2259 Pasong Tamo Extension Makati City

______________________________________ (Companys Address)

(632) 893-4822
______________________________________ (Telephone Number)

December 31
______________________________________ (Calendar Year Ending) (month and day)

Form 17-Q Quarterly Report

______________________________________ Form Type

17-Q
______________________________________ Amendment Designation (If applicable)

March 31, 2011

______________________________________ Period Ended Date

______________________________________ (Secondary License Type and File Number)

SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(B) THEREUNDER 1. For the quarterly period ended March 31, 2011 2. SEC Identification No: A2000-03008 3. BIR Tax Identification No. 205-357-210-000 4. Exact name of issuer as specified in its charter PANCAKE HOUSE, INC. 5. Manila, Philippines Province, Country or other jurisdiction of incorporation or organization 6. (SEC Use Only) Industry Classification Code: 1231 Postal Code

7. Pancake House Center, 2259 Pasong Tamo Ext, Makati City Address of issuers principal office 8. 9. (632) 893-4822 Issuer's telephone number including area code

Not applicable Former name, former address, and former fiscal year, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA Title of Each Class Pancake House Inc. Common Stock Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding 237,795,455 shares

11. Are any or all of these securities listed on the Philippine Stock Exchange. Yes [ / ] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange 12. Indicate by check mark whether the issuer: (a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11 (a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the issuer was required to file such reports); Yes [ / ] No [ ] Pancake House Common shares

(b) has been subject to such filing requirements for the past 90 days. Yes [ / ] No [ ]

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

The consolidated financial statements of Pancake House, Inc. (PHI) and its subsidiaries as of March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011, 2010, and 2009 include the consolidated accounts of the Company and the following subsidiaries: Table 1 Ownership Structure
% Ownership
PANCAKE HOUSE, INC. (PHI) Pancake House: Happy Partners, Inc. PCK-MTB, Inc. PCK Bel-Air, Inc. Always Happy Greenhills, Inc. PCK MS, Inc. PCK Boracay, Inc.

Remarks

51% 60% 51% 60% 50% 60%

Always Happy BGC, Inc. PCK-LFI, Inc. PCK-N3, Inc.

Pancake House Intl, Inc. PH Ventures, Inc. Pancake House Products, Inc. Dencios: DFSI-One Nakpil, Inc. DFSI Subic, Inc.

51% 70% 51%

100% 100% 100% 60% 100%

Established in January 2011; started commercial operations in March 2011 Established in January 2011; started commercial operations in April 2011 Established in January 2011; not yet started commercial operations
Established in February 2007

Established in 2004; started commercial operations in September 2004 Established in January 2005; started commercial operations in May 2005 Established in February 2005; started commercial operations in May 2005 Established in February 2006; started commercial operations in March 2006 Established in November 2007; started commercial operations in November 2007 Established in June 2009; started commercial operations in October 5, 2009

Established in January 2005; started commercial operations immediately thereafter Established in March 2005 by DFSI; started commercial operations in November 2005

Teriyaki Boy: TERIYAKI BOY GROUP, INC. (TBGI) TBGI Tagaytay, Inc. TBGI Marilao, Inc. TBGI Trinoma, Inc. Tboy MS, Inc. Singkit: 88 JUST ASIAN, INC. Le Coeur de France: BOULANGERIE FRANCAISE, INC.

70% 60% 51% 60% 50% 80% 70%

Acquired by PHI on October 28, 2005 Established in May 2005; started commercial operations on November 10, 2006 Established in November 2006; started commercial operations on January 1, 2007 Established in March 2007; started commercial operations in May 16, 2007 Established in November 2007; started commercial operations in Dec. 2007 Established in March 2006; started commercial operations on May 21, 2006 Acquired by PHI on February 8, 2008

% Ownership
School (Vocational Technology): PHI CULINARY ARTS AND FOOD SERVICES INSTITUTE, INC. 100%

Remarks
Established in Jan 12, 2009, started commercial operations on Sep. 12, 2009

Previously, the financial statements and other reports were presented to show the performance of each trade name. However, management has concluded that all trade names can be aggregated into a single operating segment as allowed under PFRS 8 due to their similar characteristics. Management has established that all trade names are primarily used within the Group's operations in the Philippines and have the following characteristics: Item 2. Similar nature of products/services offered and methods to distribute products and provide services, that is, food service through casual dining experience; Item 3. Similar nature of production processes through establishment of central commissary for the Group that caters all brands for all store outlets; and, Item 4. Similar class of target customers which are middle-class consumers. There are no significant elements of income or loss that did not arise from the Group's continuing operations during the year. Except as discussed in the Notes to Financial Statements, there have been no changes in estimates of amounts previously reported with respect to these financial statements. There are also no material events subsequent to March 31, 2011 that have not been reflected in the financial statements. RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR 2011 EXECUTIVE SUMMARY Pancake House, Inc. remains strong with a 28% increase in Net Income to P13 million for the 1Q of 2011 compared to the same period last year. The final month of the first quarter mitigated the slow beginning during the year. Consolidated revenues increased by 2% to P443 million this year from P433 million last year. The Commissary Sales contributed 30% to the increase in revenues due to the increase in continuing license fees and issuance of new franchises. Meanwhile, Restaurant Sales slightly dipped by 3% to P334 million from last years P345 million brought about by the slower consumer spending immediately after the Christmas Holidays, but recovered during the month of March 2011. Income from Operations increased by 30% to P22 million from P17 million as result of effective cost management and increased synergies in operations and production. Despite the increase in Cost of Sales by 10%, all other operating cost such as labor, occupancy and administrative costs were controlled efficiently. The EBITDA relating to Casual Dining Operations, however, is down by 2% to P62 million from P63 million for the same period last year. This is due to a significant decrease in depreciation expense add back but after a lower financing interest expense as a result of decreased financing leverage position of the Company. However, Consolidated EBITDA is down by P10% due to the losses incurred in the investment in the Culinary

Education, which is part of the Companys strategy of backward integration and to address incessant increases in Cost of Labor. Table 2 shows the consolidated operating results for the three months ended March 31, 2011, 2010 and 2009:
Table 2 Comparative Income Statement For the Three Months Ended March 31, 2011, 2010 and 2009 2011 REVENUES Restaurant Sales Commissary Sales Franchise Income Total Revenues COSTS AND EXPENSES Cost of Sales* Cost of Labor* Operating Exp.* Sales & Marketing Exp.** Administrative Exp.** Total Costs and Expenses INCOME (LOSS) FROM OPERATIONS OTHER INCOME (CHARGES) INCOME BEF. INCOME TAX BENEFIT FROM (PROV. FOR) INCOME TAX NET INCOME(LOSS) ATTRIBUTABLE TO: Equity Holders of Parent Minority Interest Total EBITDA: ATTRIBUTABLE TO: Equity Holders of Parent Minority Interest TOTAL EBITDA % CONSOLIDATED (Php Million) 2010 % 2009 344.96 79.7% 67.41 15.6% 20.34 4.7% 432.71 100.0% 149.09 64.51 144.22 9.35 48.71 415.87 16.83 (5.22) 11.61 (1.47) 10.14 8.29 1.85 10.14 36.2% 15.6% 35.0% 2.2% 11.3% 96.1% 3.9% -1.2% 2.7% -0.3% 2.3% 1.9% 0.4% 2.3% Inc (Dec) % Php (11.10) 20.32 1.26 10.47 14.25 (0.76) (12.46) 3.16 1.30 5.48 4.99 (0.97) 4.02 (1.23) 2.79 2.55 0.24 2.79 % -3.22% 30.14% 6.19% 2.42% 9.56% -1.19% -8.64% 33.76% 2.67% 1.32% 29.63% 18.50% 34.64% 83.40% 27.55% 30.77% 13.11% 27.55%

333.85 75.3% 87.72 19.8% 21.60 4.9% 443.18 100.0% 163.34 63.74 131.76 12.51 50.01 421.36 21.82 (6.19) 15.63 (2.70) 12.93 10.84 2.09 12.93 38.7% 15.1% 31.3% 2.8% 11.3% 95.1% 4.9% -1.4% 3.5% -0.6% 2.9% 2.4% 0.5% 2.9%

350.90 80.4% 66.15 15.2% 19.57 4.5% 436.63 100.0% 148.70 63.60 138.32 9.89 49.84 410.35 26.28 (10.35) 15.93 (2.33) 13.59 10.46 3.13 13.59 35.7% 15.2% 33.2% 2.3% 11.4% 94.0% 6.0% -2.4% 3.6% -0.5% 3.1% 2.4% 0.7% 3.1%

48.09 9.11 57.20

10.9% 2.1% 12.9%

53.27 9.92 63.18

12.3% 2.3% 14.6%

62.18 11.60 73.78

14.2% 2.7% 16.9%

(5.18) (0.81) (5.98)

-9.72% -8.13% -9.47%

* Cost of sales, Cost of labor and Operating expenses are computed as a percentage
of combined restaurant and commissary sales

** Sales & marketing expenses and Administrative expenses are computed as a

percentage of Total revenues

Results of Operations The Group posted consolidated revenues of P443 million during the 1st quarter ended March 31, 2011, slightly higher than last year's P433 million attributable to increased Commissary Sales by P20 million or 30.14%. Meanwhile, Restaurant sales decreased by 3.2%, from P345 million last year to P334 million in the current year due to rationalization of some outlets awaiting relocation. Franchise revenues (continuing royalty and franchise fees) slightly increased by 6%. Combined restaurant and commissary costs of sales increased from last years of 36.2% to this years 38.7% due to increase in material costs. The Groups Labor Cost for the three months ended March 31, 2011 was at 15.1% or P64 million, slightly lower than last years 15.6% or P65 million.

Consolidated operating expenses for the current period significantly improved to 31% from 35% of the same period last year, or P13.19 million decrease as a result of a more focused and cost effective alternative programs in the production and operations. Consolidated sales and marketing expenses amounted to P12.5 million, higher than last year's P9.4 million due to billboard rental escalation and production of new menu. Consolidated administrative expenses remained the same at 11.3% with P50 million this year and P49 million for the same period last year. Consolidated other charges exceeded other income for the current period, resulting in a net other charges of P6.2 million, as compared with other charges of 5.2 million reported in the same period of previous year. The increase was due to amortization of pre-operating expenses in the culinary school. The group posted a net income of P13 million (P11 million attributable to equity holders of the Parent), up by 27.5% from last year's P10 million (P8 million attributable to equity holders of the Parent). Consolidated EBITDA amounted to P57.2 million (P48 attributable to equity holders of the Parent) for the three months ended March 31, 2011 with a sustainable margin of 13%. This is due to the Companys efforts in mitigating the continuous increase in costs and intensifying its targeted marketing and promotional campaigns. The comparative analysis of profitability ratios for the three months ended March 31, 2011, 2010 and 2009 are stated below:
Table 3 - Consolidated Profitability Ratios (x : 1.00) 2011 Net Income Ratio Return on Assets Return on Equity 2.92% 0.89% 1.48% 2010 2.34% 0.71% 1.23% 2009 3.11% 1.01% 1.97%

Financial Condition, Liquidity and Capital Resources Financial Condition The following table shows the consolidated assets, liabilities and stockholders equity as of March 31, 2011 and December 31, 2010.

Table 4 - Consolidated Balance Sheet As of March 31, As of December 2011 31, 2010 Current Assets Total Assets Current Liabilities Total Liabilities Total Equity 578.31 1,455.83 544.35 584.38 871.45 597.22 1,496.88 600.92 639.01 857.87

As of March 31, 2011, consolidated assets amounted to P1.46 billion. Consolidated liabilities decreased from P639 million in 2010 to P584 million in 2011. Total Stockholder's Equity went up by P21.7 million, from P857.87 million in 2010 to P871.45 million during the period. Liquidity Position
Table 5 - Liquidity and Solvency Ratios (x : 1.00) As of March 31, As of December 2011 31, 2010 Liquidity Current Ratio Solvency Debt-to-asset ratio Debt-to-equity ratio

1.06:1.00

0.99:1.00

0.40:1.00 0.67:1.00

0.43:1.00 0.74:1.00

The Groups current ratio significantly improved from 0.99:1 as of December 31, 2010 to 1.06:1 as of March 31, 2011. Total debt to asset ratio and total debt to equity ratio went down from 0.43:1 and 0.74:1, respectively as of December 31, 2010 to 0.40:1 and 0.67:1, respectively, as of March 31, 2011. RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR 2010 Results of Operations Consolidated revenues for the 1st quarter ended March 31, 2010 amounted to P432.7 million, slightly down by 1% down from same period of last year, mainly due to lower restaurant sales amounting to P345 million posted during the current period compared to last years P351 million. The decrease in restaurant sales can be attributed to some outlets which have temporarily closed for renovation as well as closure of nonperforming outlets. Commissary sales slightly increased by 2% while franchise revenues also increased by 0.4%.

The Company continues to implement its programs such as expanded synergies among the seven brands, resource optimization and strategic purchasing. However, combined restaurant and commissary cost of sales increased from last years 35.65% to this years 36.15% due to lower restaurant sales in the current period. Labor cost for the three months ended March 31, 2010 was at 15.6% of sales, slightly higher than last years 15.25%. Consolidated operating expenses for the current period went up to P144 million compared to P138 million in 2009 mainly due to opening of additional outlets. Consolidated sales and marketing expenses slightly decreased from last years P9.9 million to this years P9.4 million. Consolidated general and administrative expenses also decreased by P1 million. Consolidated other charges net of other income significantly decreased during the current period by 50% mainly due to lower interest expense incurred in the current period. The Group posted a net income of P10.14 million for the three months ended March 31, 2010 compared to P13.59 million in 2009. The decrease can be attributed to lower restaurant sales and higher operating expenses incurred during the three months ended March 31, 2010. Financial Condition, Liquidity and Capital Resources Financial Condition As of March 31, 2010, consolidated balance sheet amounted to P1.42 billion compared to P1.44 billion as of December 31, 2010. Consolidated liabilities were at P595 million and P623 million, as of March 31, 2010 and December 31, 2009, respectively. Total Stockholders Equity stood at P824 million, up from P817 million as of December 31, 2009, mainly due to issuance of convertible notes in the 4th quarter of 2009. Liquidity Position The Groups current ratio significantly improved from 0.72:1 as of December 31, 2009 to 0.71:1 as of March 31, 2010. Total debt to asset ratio and total debt to equity ratio went down from 0.43:1 and 0.76:1, respectively as of December 31, 2009 to 0.42:1 and 0.72:1, respectively, as of March 31, 2010. The groups liquidity position significantly improved due the issuance of new 5-year convertible note in the 4th quarter of 2009, the proceeds of which were used to retire long term debt. ACCOUNTS WITH MORE THAN 5% CHANGE IN BALANCES (Against December 31, 2010 Balances) Cash and cash equivalents Cash and Cash Equivalents decreased from P206 million as of December 31, 2010 to P155 million as of March 31, 2011 due to settlement of trade payables.

Trade and Other Receivables net Trade and other receivables amounted to P275 million, P25 million higher than P250 million as of December 31, 2010, as a result of the receivables recognized from new franchisees. Inventories Inventories decreased by P25 million from P73 million as of December 31, 2010 to P47 million as of March 31, 2011 due to sale of some company-owned outlets to franchisees. Prepaid expenses and Other Current Assets The increase in prepaid expenses and other current assets was attributed to the increase in advances made to suppliers. Property and Equipment The decrease in property and equipment was due to the periodic depreciation. Deferred Income Tax Assets Deferred income tax assets increased was mainly due to additional operating loss carry over, excess minimum corporate income tax over regular income tax, and deferred income tax on additional provisions for retirement benefits. Other Non-Current Assets Other non-current assets decreased by P9.5 million due to amortization of franchise fees and deferred input tax. Trade and other Payables Trade and other payables decreased to P239 million as of March 31, 2011 from P298 million as of December 31, 2010 due to settlement of trade and statutory obligations. Income Tax Payable The increase in Income Tax Payable was attributed to the recognition of additional liabilities for the income earned for the first quarter. Accrued Retirement Liability The increase was due to provisions for the three-month period. Cash Dividends The following dividends were declared out of PHIs retained earnings in 2010, 2009 and 2008:

Date Date Declared 6/30/2008 1/30/2009 6/2/2009 9/22/2009 5/25/2010 11/12/2010 Record Date 7/15/2008 2/15/2009 6/30/2009 10/6/2009 6/10/2010 12/1/2010 Payment Date 7/31/2008 2/27/2009 7/15/2009 10/30/2009 6/30/2010 12/15/2010

Retained Amount Earnings as of per Share 12/31/2007 6/30/2008 12/31/2008 6/30/2009 12/31/2009 6/30/2010 P0.0802 P0.0723 P0.0364 P0.0661 P0.0465 P0.0537 P P P P P P

Total Dividends 15,458,996.46 13,927,609.12 7,011,963.65 12,733,263.66 8,957,590.93 12,769,615.93

Equity Securities There were no issuances, repurchases and repayments of debt and equity securities during the period. DISCUSSION OF THE COMPANYS TOP FIVE (5) KEY PERFORMANCE INDICATORS The following are the major performance indicators that the company uses. Analyses are employed by comparisons and measurements based on the financial data for the three months ended March 31, 2011 and 2010. Number of Outlets Consistent with its thrust to grow the business, the Group opened new stores to make way for a broader market reach. The Company focused on a disciplined expansion strategy to assure sustainable growth.
Number of Outlets by Brand, as of March 31, 2011 and 2010
Brand 2011 Pancake House Dencios Teriyaki Boy Sizzlin' Pepper Steak Le Coeur de France Total 2010 Pancake House Dencios Teriyaki Boy Sizzlin' Pepper Steak Le Coeur de France Total 32 9 23 16 15 95 16 7 3 5 1 68 41 14 11 2 80 26 39 19 15 179 20 17 15 82 21 30 9 3 8 1 74 44 19 10 1 83 22 38 19 15 177 Co-owned Joint Venture Franchised Total

System Sales System Wide Sales pertains to the total sales to customers both from company-owned and franchised stores. Total system-wide sales of the Group for the three months ended March 31, 2011 and 2010 amounted to P565.34 million and P549.51 million, respectively. Revenues The company and its operating subsidiaries generate revenues from three sources: (i) Restaurant sales from company-owned stores; (ii) Commissary sales to franchised stores; and (iii) Fees from franchisees consisting of one-time franchise fees and continuing license fees. The Group posted consolidated revenues of P443.2 million for the three months ended March 31, 2011, 2.42% higher than last year's P432.7 million. Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) EBITDA measures the companys ability to generate cash from operations. It is computed by adding back depreciation and amortization (non-cash expenses) to earnings before interest and income taxes are deducted. Consolidated EBITDA for the first quarter amounted to P57.2 million, or 13% of consolidated revenues. Net Income Ratio Net Income Ratio provides a measure of return for every peso of revenue earned, after all other operating expenses and non-operating expenses, including provision for income taxes, are deducted. It is the percentage of the companys income after tax to net sales in a given period. Net Income Ratio for the three months ended March 31, 2011 is at 2.92%, slightly higher than 2.34% of the same period last year. Off Balance Sheet Transactions, Arrangement, Obligation and Other Relationships There are no off-balance sheet transactions, arrangements, obligation (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons created during the reporting period.

PART II OTHER INFORMATION

-Not applicable-

PANCAKE HOUSE, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended March 31, 2011

PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

As of Mar. 31, 2011 (Interim) ASSETS Current Assets Cash Trade and other receivables (Note 4) Inventories - at cost (Note 5) Prepayments and other current assets (Note 6) Total Current Assets Noncurrent Assets Property & equipment-net (Note 7) Trademarks and goodwill - net (Notes 8 and 9) Deferred income tax assets (Note 19) Other noncurrent assets (Note 10) Total Noncurrent Assets TOTAL ASSETS 155,102,604 274,998,176 47,210,529 100,994,235 578,305,543 225,565,998 472,508,686 48,903,994 130,549,878 877,528,557 1,455,834,100 205,879,308 250,069,846 72,708,700 68,557,187 597,215,041 240,707,129 479,684,187 39,199,740 140,071,287 899,662,343 1,496,877,384 As of Dec. 31, 2010 (Audited)

LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade and other payables (Note 11) Loans payable (Note 12) Mortgage payable Income tax payable Total Current Liabilities Noncurrent Liabilities Debt component of convertible notes (Note 13) Accrued retirement liability (Note 18) Accrued rent payable Total Noncurrent Liabilities Equity Attributable to Equity Holders of the Parent Capital stock - P1 par value per share (Note 13) Authorized - 400,000,000 shares Issued - 237,795,455 shares Additional paid-in capital (Note 13) Notes for conversion to equity (Note 13) Accumulated translation adjustment Retained earnings (Note 14) Minority interests Total Equity TOTAL LIABILITIES AND EQUITY 238,742,834 301,900,000 3,711,223 544,354,057 14,161,859 8,593,263 17,270,617 40,025,739 298,202,846 299,910,252 820,489 1,987,556 600,921,143 14,161,859 7,186,600 16,738,425 38,086,884

237,795,455 176,806,287 120,386,027 (641,973) 197,539,204 731,884,999 139,569,305 871,454,304 1,455,834,100

237,795,455 176,806,287 120,386,027 (6,209,775) 186,695,129 715,473,123 142,396,234 857,869,357 1,496,877,384

See accompanying Notes to Consolidated Financial Statements.

PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31 2011 REVENUES Restaurant sales Commissary sales Franchise and royalty fees (Note 21) COSTS OF SALES (Note 16) GROSS PROFIT OPERATING EXPENSES General & administrative expenses (Note 17) Sales & marketing expenses Total INCOME (LOSS) FROM OPERATIONS OTHER INCOME (CHARGES) Interest income Interest expense on loans (Notes 12 and 13) Interest expense on the debt component of convertible notes (Notes 13) Other Income(Expense) Miscellaneous income Total INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX ( Note 19) NET INCOME ATTRIBUTABLE TO: Equity holders of the parent Minority interest 2010 2009

333,854,903 87,724,986 21,598,568 443,178,457 358,837,513 84,340,944

344,956,774 67,408,946 20,340,504 432,706,223 357,812,279 74,893,945

350,904,981 66,151,555 19,568,669 436,625,205 350,621,531 86,003,674

50,008,510 12,509,994 62,518,504 21,822,440 349,526 (5,252,504) (557,293) (1,639,594) 912,204 (6,187,661) 15,634,779 (2,701,236) 12,933,543

48,707,274 9,352,451 58,059,725 16,834,219 78,402 (5,644,102) (934,442) 1,278,455 (5,221,687) 11,612,533 (1,472,869) 10,139,664

49,839,770 9,887,069 59,726,839 26,276,835 78,908 (9,964,400) (1,426,097) 961,989 (10,349,600) 15,927,235 (2,334,436) 13,592,799

10,844,075 2,089,468 12,933,543

8,292,371 1,847,293 10,139,664

10,461,422 3,131,378 13,592,799

Earnings Per Share - For income for the period ended attributale to the ordinary equity holders of the parent (Note 20) Basic Dilluted

0.0456 0.0440

0.0430 0.0356

0.0543 0.0500

See accompanying Notes to Consolidated Financial Statements.

PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31 2011 2010 2009 NET INCOME OTHER COMPREHENSIVE INCOME FROM EXCHANGE DIFFERENCES ON TRANSLATION OF FOREIGN OPERATIONS TOTAL COMPREHENSIVE INCOME Total Comprehensive Income Attributable to: Equity holders of the parent Noncontrolling interests = P12,933,543 P =10,139,664 P =13,592,799

(641,973) P =12,291,570 =10,202,102 P 2,089,468 = P12,291,570

(1,349,730) P =8,789,934 P =10,637,227 1,847,293 P =8,789,934

(2,940,045) P =10,652,754 P =12,652,222 2,089,468 P =10,562,754

See accompanying Notes to Consolidated Financial Statements.

PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2011, 2010 AND 2009
Attributable to equity holder of the parent Capital Stock Balance at March 31, 2009 Net income for the nine months ended December 31, 2009 Additional notes for conversion to equity Investments of minority interests Cash dividends declared Change in translation adjustment Balance at December 31, 2009 Net income for the three months ended March 31, 2010 Investments of minority interests Cash Dividends declared Change in translation adjustment Balance at March 31, 2010 Net income for the nine months ended December 31, 2010 Conversion of notes to equity Investments of minority interests Cash dividends declared Change in translation adjustment Balance at December 31, 2010 Net income for the three months ended March 31, 2011 Investments of minority interests Cash Dividends declared Change in translation adjustment Balance at March 31, 2011 237,795,455 176,806,287 120,386,027 5,567,802 (641,973) 197,539,203 237,795,455 176,806,287 120,386,027 (4,860,045) (6,209,775) 186,695,129 10,844,075 (21,727,207) 45,159,091 140,178,337 (185,337,428) 192,636,364 36,627,950 305,723,455 244,670 (1,349,730) 143,031,136 65,391,199 192,636,364 36,627,950 305,723,455 1,345,645 (1,594,400) 134,738,764 8,292,371 (19,745,227) 120,386,027 192,636,364 Additional Paid-in Capital 36,627,950 Notes for Conversion to Equity 185,337,428 Accumulated Translation Adjustment (2,940,045) Retained Earnings 129,387,737 25,096,255 Minority Interests 148,028,968 6,571,686 (5,666,707) Total Equity 689,078,401 31,667,941 120,386,027 (5,666,707) (19,745,227) 1,345,645 148,933,947 1,847,293 (3,456,889) 817,066,081 10,139,664 (3,456,889) 244,670 147,324,351 1,219,258 (6,147,375) 823,993,527 66,610,457 (6,147,375) (21,727,207) (4,860,045) 142,396,234 2,089,468 (4,916,398) 857,869,357 12,933,543 (4,916,398) 5,567,802 139,569,305 871,454,304

Total 541,049,434 25,096,255 120,386,027 (19,745,227) 1,345,645 668,132,134 8,292,371 244,670 676,669,175 65,391,199 (21,727,207) (4,860,045) 715,473,123 10,844,075 5,567,802 731,884,999

See accompanying Notes to Consolidated Financial Statements.

PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31 2011 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization (Note 7) Amortization of trademarks (Note 8) Provision for retirement cost Operating income before working capital changes Decrease (Increase) in: Trade and other receivables Inventories Prepaid expenses and other current asets Deferred tax asset Increase (decrease) in Trade and Other Payables Net cash generated from operations Income taxes paid Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment (Note 7) Increase in: Trademarks and goodwill Other non-current assets Non-current liabilities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Net Proceeds (Payments) : Loans payable Increase (decrease) in: Mortgage payable Accumulated translation adjustment Cash dividends paid (Note 14) Additional investments from minority shareholders Net cash from financing activities NET INCREASE (DECREASE) IN CASH CASH AT BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT END OF PERIOD 15,634,779 28,959,323 7,175,501 1,406,663 53,176,266 (24,928,330) 25,498,171 (32,437,048) (9,704,254) (59,460,012) (47,855,206) (977,569) (48,832,775) (13,513,759) (0) 9,216,975 532,192 (3,764,592) 11,612,533 37,899,266 7,171,754 638,779 57,322,332 5,037,873 10,859,060 (38,684,222) (10,150,813) (30,414,523) (6,030,293) 808,496 (5,221,797) (24,457,529) (164,367) (664,904) (3,923,858) (29,210,658) 15,927,235 38,974,404 7,117,659 480,045 62,499,344 8,516,479 7,660,572 (20,267,644) (2,571,227) (43,594,004) 12,243,521 506,590 12,750,110 (6,333,984) (13,839,131) (7,634,817) (2,584,996) (30,392,928)

1,989,748 (820,489) 5,567,802 (4,916,398) 1,820,663 (50,776,704) 205,879,308 155,102,604

4,500,000 (695,348) 244,670 (3,456,889) 592,433 (33,840,023) 147,329,179 113,489,157

(35,014,751) (519,981) 1,777,256 (13,927,609) (1,071,902) (48,756,988) (66,399,806) 147,223,452 80,823,646

See accompanying Notes to Consolidated Financial Statements.

PANCAKE HOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information Pancake House, Inc. (the Company) was incorporated on March 1, 2000 and is domiciled in the Republic of the Philippines and its shares are publicly traded in the Philippine Stock Exchange. The Company and its subsidiaries (collectively referred to as the Group) are primarily engaged in the business of catering foods and establishing, operating and maintaining restaurants, coffee shops, refreshments parlors and cocktail lounges. The Group operates under the trade names Pancake House, Dencios, Teriyaki Boy, Singkit, Sizzlin Pepper Steak and Le Coeur de France. The ultimate parent company of the Group is Pancake House Holdings, Inc. (PHHI). The registered office address of the Company is Pancake House Center, 2259 Pasong Tamo Extension, Makati City. 2. Summary of Significant Accounting Policies Basis of Preparation The consolidated financial statements of the Group have been prepared under the historical cost basis. The consolidated financial statements are presented in Philippine peso (P =), which is the Companys functional currency. Statement of Compliance The consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Basis of Consolidation The consolidated financial statements of the Group include the Company and the subsidiaries that it controls. This control is normally evidenced when the Company owns, either directly or indirectly, more than 50% of the voting rights of a companys share capital and is able to govern the financial and operating policies of a company so as to benefit from its activities. The equity, net income and comprehensive income attributable to noncontrolling interests are shown separately in the consolidated balance sheet, consolidated statement of income and consolidated statement of comprehensive income, respectively. The subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting year during which the Company has control. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany profits and losses, are eliminated. The consolidated financial statements include the accounts of the Company and the following subsidiaries: Percentage of Effective Ownership 2011 2010 100 100 100 100

Company Name Boulangerie Francaise, Inc. (BFI) DFSI-Subic, Inc.

Nature of Business Restaurant Restaurant

-2Golden B.E.R.R.D. Grill, Inc.* Restaurant 100 100 Pancake House International, Inc. (PHII) Holding Company 100 100 Pancake House, International Malaysia Sdn Bhd (PHIM) Restaurant 100 100 Manufacturing 100 100 Pancake House Products, Inc. (PHPI)* Pancake House Ventures, Inc. (PHVI)* Holding Company 100 100 Culinary School PHI Culinary Arts and Food Services 100 100 Institute, Inc. (PHI CAFSI) 88 Just Asian, Inc. (88JAI) Restaurant 80 80 Teriyaki Boy Group, Inc. (TBGI) Restaurant 70 70 TBGI-Trinoma, Inc. Restaurant 60 60 TBGI-Marilao, Inc. Restaurant 51 51 TBOY-MS, Inc.** Restaurant 50 50 TBGI-Tagaytay, Inc. (TBGI Tagaytay)** Restaurant 40 40 60 60 Always Happy Greenhills, Inc. Restaurant PCK-AMC, Inc.* Restaurant 60 60 PCK-Boracay, Inc. Restaurant 60 60 PCK-MTB, Inc. Restaurant 60 60 DFSI One-Nakpil, Inc. Restaurant 60 60 Happy Partners, Inc. Restaurant 51 51 PCK Bel-Air, Inc. Restaurant 51 51 PCK-MSC, Inc.** Restaurant 50 50 *Dormant companies as of March 31, 2011 ** Although the Group owns not more than 50% of the voting power of these companies, it is able to govern the financial and operating policies of the companies by virtue of an agreement with the other investors of such entities. Consequently, the Group consolidates its investment in these companies. On December 28, 2010, the Group entered into a deed of sale of investment in shares of stock wherein the Group shall sell, transfer and convey all rights, title and interest of 60% and 51% of the entire outstanding shares of DFSI-MTB and DFSI-BBI, respectively, to a third party. Effectively on the same date, the said entities were ceased to be consolidated as subsidiaries [see Note 25(b)]. Noncontrolling interests represent the portion of net results and net assets not held by the Group. They are presented in the consolidated balance sheet within equity, apart from equity attributable to equity holders of the parent and are separately disclosed in the consolidated statement of income and consolidated statement of comprehensive income. Noncontrolling interests consist of the amount of those interests at the date of original business combination and the minority interests share on changes in equity since the date of the business combination. Starting January 1, 2010, losses within a subsidiary are attributed to the noncontrolling interest even if it results in a deficit balance. Prior to January 1, 2010, losses applicable to the minority in excess of the minoritys equity interest are allocated against the interests of the Group, except to the extent that the noncontrolling interests have a binding obligation and able to make an additional investment to cover its share of those losses. Acquisitions of noncontrolling interests are accounted for using the parent-entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired is recognized as goodwill. Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial period, except for the adoption of the following revised and amended PFRS and Philippine

-3Interpretations from International Financial Reporting Interpretations Committee (IFRIC) and improvements to PFRS, which the Group has adopted starting January 1, 2010: Amendments to PFRS 2, Share-based Payment - Group Cash-settled Share-based Payment Transactions Revised PFRS 3, Business Combinations, and Amendments to Philippine Accounting Standard (PAS) 27, Consolidated and Separate Financial Statements Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners

Improvements to PFRS PFRS 2, Share-based Payment PFRS 5, Non-current Assets Held for Sale and Discontinued Operations PFRS 8, Operating Segments PAS 1, Presentation of Financial Statements PAS 7, Statement of Cash Flows PAS 17, Leases PAS 36, Impairment of Assets PAS 38, Intangible Assets PAS 39, Financial Instruments: Recognition and Measurement Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation Adoption of the foregoing revised and amended PFRS, Philippine Interpretations from IFRIC and improvements to PFRS did not have any significant impact on the consolidated financial statements. Financial Instruments Financial instruments are recognized in the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group determines the category of its financial instruments on initial recognition and, where allowed and appropriate, re-evaluates this designation at each balance sheet date. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Financial instruments are recognized initially at fair value of the consideration given (in the case of an asset) or received (in the case of a liability). Except for financial instruments at fair value through profit or loss (FVPL), the initial measurement of all financial instruments includes transaction costs. Financial assets under PAS 39 are categorized as either financial assets at FVPL, loans and receivables, held to maturity (HTM) investments or available-for-sale (AFS) financial assets. Also under PAS 39, financial liabilities are categorized as FVPL or other financial liabilities. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interests, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. Fair Value The fair value of financial instruments that are actively traded in organized financial markets are determined by reference to quoted market bid prices at the close of the business at the

-4balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arms length market transactions, reference to the current market value of another instrument which is substantially the same, discounted cash flows analysis and option pricing models. Fair Value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data

As of December 31, 2010 and 2009, the Company does not have financial instruments measured at fair value. Day 1 Profit or Loss Where the transaction price in a nonactive market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 difference) in the consolidated statement of income unless it qualifies for recognition as some other types of assets. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 difference amount. Financial Assets The Groups financial assets consist of loans and receivables. Loans and Receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets held for trading, designated as AFS financial assets or designated at FVPL. This accounting policy mainly relates to the consolidated balance sheet captions Cash, Trade and other receivables and noncurrent receivables included under Other noncurrent assets which arise primarily from restaurant and commissary sales, franchise fees, royalty fees and other types of receivables. Loans and receivables are classified as current assets when they are expected to be realized within twelve months after the balance sheet date or within the normal operating cycle whichever is longer. Otherwise, these are classified as noncurrent assets. Loans and receivables are recognized initially at fair value, which normally pertains to the billable amount. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization, if any, is included in Interest income account in the consolidated statement of income. The losses arising from impairment of loans and receivables are recognized in the consolidated statement of income. The level of allowance for probable losses is evaluated by management

-5on the basis of factors that affect the collectibility of accounts (see accounting policy on Impairment of Financial Assets Carried at Amortized Cost). Financial Liabilities The Groups financial liabilities consist of other financial liabilities. Other Financial Liabilities Issued financial liabilities or their components, which are not designated at FVPL are categorized as other financial liabilities, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in the consolidated statement of income. This accounting policy applies primarily to the Groups Trade and other payables, Loans payable, Mortgage payable, Debt component of convertible notes and other obligations that meet the above definition (other than liabilities covered by other accounting standards, such as income tax payable). Other financial liabilities are classified as current liabilities when these are expected to be settled within twelve months from the balance sheet date or the Group has an unconditional right to defer settlement for at least twelve months from the balance sheet date. Otherwise, these are classified as noncurrent liabilities. Impairment of Financial Assets Carried at Amortized Cost The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has or have occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables carried at amortized cost, the Group first assesses whether an objective evidence of impairment (such as the probability of insolvency or significant financial difficulties of the debtor) exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the assets carrying value and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). If the Group determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant

-6to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. The carrying value of the asset is reduced through the use of an allowance account and the amount of loss is charged to the consolidated statement of income. If in case the receivable has proven to have no realistic prospect of future recovery, any allowance provided for such receivable is written off against the carrying value of the impaired receivable. Interest income continues to be recognized based on the original effective interest rate of the asset. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income to the extent that the carrying value of the asset does not exceed its amortized cost at reversal date. Derecognition of Financial Instruments Financial Asset A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: 1. the rights to receive cash flows from the asset have expired; 2. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or 3. the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained all the risks and rewards of the asset but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Groups continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial Liability A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts of a financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed is recognized in the consolidated statement of income. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

-7Inventories Inventories are stated at the lower of cost and net realizable value (NRV). Cost is determined using the weighted average method. NRV of food and beverage is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. NRV of store and kitchen supplies and operating equipment for sale is the current replacement cost. In determining NRV, the Group considers any adjustment necessary for spoilage, breakage and obsolescence. Prepaid Expenses Prepaid expenses are carried at cost and are amortized on a straight-line basis over the period of expected usage, which is equal to or less than twelve months or within the normal operating cycle. Advances to Suppliers Advances to suppliers represent advance payments on goods to be purchased or services to be incurred in connection with the Groups operations. These are charged as an expense in the consolidated statement of income upon actual receipt of goods or services, which is normally within twelve months or within the normal operating cycle. Creditable Withholding Taxes (CWTs) CWTs represent the amount withheld by the Groups customers in relation to its restaurant and commissary sales. These are recognized upon collection of the related sales and are utilized as tax credits against income tax due as allowed by the Philippine taxation laws and regulations. CWTs are stated at their estimated NRV. Interest in a Joint Venture The Group has an interest in ICF-CCE, Inc. - A Joint Venture with Far Eastern University, which is a jointly-controlled entity. The Groups interest in a joint venture is accounted for using the equity method based on the percentage share of capitalization of the Group in accordance with the joint venture agreement. Under the equity method, the interest in joint ventures are carried in the consolidated balance sheet at cost plus the Groups share in post-acquisition changes in the net assets of the joint venture, less any impairment in value. The consolidated statement of income include the Groups share in the results of operations of the joint venture. When the Groups share of losses in joint venture equals or exceeds its interest in the joint venture, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Where there has been a change recognized directly in the equity of the joint venture, the Group recognizes its share in any changes and discloses this, when applicable, in the consolidated statement of changes in equity. The reporting dates of the joint venture and the Group are identical and the joint ventures accounting policies conform to those used by the Group for like transactions and events in similar circumstances. Unrealized gains arising from transactions with the joint venture are eliminated to the extent of the Groups interest in the joint venture against the related investments. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment in the asset transferred. The Group ceases to use the equity method of accounting on the date from which it no longer has joint control over, or significant influence in, the joint venture or when the interest becomes held for sale. Property and Equipment Property and equipment is stated at cost less accumulated depreciation and amortization and allowance for impairment in value. The initial cost of property and equipment comprises of its purchase price, including import duties and nonrefundable purchase taxes and any directly attributable costs of bringing the

-8property and equipment to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged to expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or term of the lease, whichever is shorter. The estimated useful lives of the assets are as follows: Category Leasehold improvements Store equipment Transportation equipment Office furniture, fixtures and equipment Kitchen equipment Number of Years 5-8 3-8 3-5 3-5 3-5

The estimated useful lives and depreciation and amortization methods are reviewed periodically to ensure that the periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. When assets are retired or otherwise disposed of, both the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is recognized in the consolidated statement of income. Fully depreciated items are retained as property and equipment until these are no longer in use. Construction in-progress, included in property and equipment, is stated at cost. This includes cost of construction and other direct costs. Construction in-progress is not depreciated until such time as the relevant assets are completed and put into operational use. Trademarks Trademarks are measured on initial recognition at cost. The cost of trademarks acquired in business combinations is the fair value as of the date of acquisition. Following initial recognition, trademarks are carried at cost less any accumulated amortization and any accumulated impairment losses. The Groups trademarks have a finite useful life of 20 years and are amortized over such period using the straight-line method. The amortization period and the amortization method for trademarks are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on trademarks is recognized in the consolidated statement of income in the general and administrative expense category consistent with its function. Business Combinations and Goodwill Starting January 1, 2010, business combinations are accounted for using the acquisition method. Prior to January 1, 2010, business combinations are accounted for using the purchase method.

-9Goodwill is initially measured at cost being the excess of the cost of the business combination over the Groups share in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Impairment losses on goodwill are not reversed. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Groups cash-generating units (CGUs) that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Rental Deposits Rental deposits represent payments for security, utilities and other deposits made in relation to the lease agreements entered into by the Group. These are carried at cost and will generally be applied as lease payments toward the end of the lease terms. Input Value-added Tax (VAT) Input VAT represents VAT imposed on the Group by its suppliers and contractors for the acquisition of goods and services required under Philippine taxation laws and regulations. The portion of input VAT that will be used to offset the Groups current VAT liabilities is presented as current asset in the consolidated balance sheet. The portion of input VAT which represents VAT imposed on the Group for the acquisition of depreciable assets with an estimated useful life of at least one year, is required to be amortized over the life of the related asset or a maximum period of 60 months. This is presented as a noncurrent asset in the consolidated balance sheet. Input VAT is stated at estimated NRV. Impairment of Nonfinancial Assets Property and Equipment, Trademarks and Other Noncurrent Assets (Excluding Noncurrent Receivables and Interest in a Joint Venture) The Group assesses at each balance sheet date whether there is an indication that property and equipment, trademarks and other noncurrent assets (excluding noncurrent receivables and interest in a joint venture) may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or CGUs fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses from continuing operations are recognized in the consolidated statement of income. For assets excluding goodwill and interest in joint venture, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income.

- 10 Goodwill The Group assesses whether there are any indicators that goodwill is impaired at each reporting date. Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the CGUs, to which the goodwill relates. Where the recoverable amount of the CGUs is less than their carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs impairment test of goodwill annually or when an impairment indicator exists. Interest in a Joint Venture After application of the equity method, the Group determines whether it is necessary to recognize an additional impairment loss on the Groups investment in its joint venture. The Group determines at each reporting date whether there is any objective evidence that the interest in a joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognizes the amount in the Share in losses of a joint venture in the consolidated statement of income. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are made by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. Convertible Notes Compound financial instruments issued by the Group comprise of convertible notes that can be converted to capital stock at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. When there are changes in the estimates of future cash flows on the liability component, the carrying amount is adjusted to reflect the revised estimated cash flows. The revised carrying amount is calculated by computing the present value of estimated future cash flows using the original effective interest rate. Such adjustment to the carrying amount is recognized in the consolidated statement of income. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Upon conversion, capital stock and any additional paid-in capital are recognized while the equity component relating to the converted notes are derecognized.

- 11 Capital Stock and Additional Paid-in Capital The Company has issued capital stock that is classified as equity. Incremental costs directly attributable to the issue of new capital stock are shown in equity as a deduction, net of tax, from the proceeds. Additional paid-in capital represents the excess of the investors total contribution over the stated par value of shares. Retained Earnings Retained earnings include profits attributable to the Companys stockholders and reduced by dividends. Dividends are recognized as a liability and deducted from equity when they are declared. Dividends for the year that are approved after the balance sheet date are dealt with as an event after the balance sheet date. Retained earnings may also include effect of changes in accounting policy as may be required by the transitional provisions of new and amended standards. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Restaurant Sales Revenue is recognized when the related orders are served. Commissary Sales Revenue is recognized upon delivery of goods. Franchise and Royalty Fees Revenue is recognized under the accrual basis in accordance with the terms of the franchise agreements. Fees charged for the use of continuing rights granted in accordance with the agreement, or other services provided during the period of the agreement, are recognized as revenue as the services are provided or as the rights are used. Interest Income Revenue is recognized as the interest accrues using the effective interest rate method. Other Income Other income is recognized when earned. Costs and Expenses Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Costs of Sales Costs of sales, which mainly pertain to purchases of food and beverages, direct labor and overhead directly attributable in the generation of sales, are generally recognized when incurred. General and Administrative Expenses General and administrative expenses are generally recognized when the services are used or the expenses arise. Sales and Marketing Expenses Sales and marketing expenses, which represent advertising and other selling costs, are generally expensed as incurred.

- 12 Retirement Benefit Costs Retirement benefit costs are actuarially determined using the projected unit credit method. This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees projected salaries. Retirement costs include current service cost plus amortization of past service cost, experience adjustments and changes in actuarial assumptions. Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan. The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Operating Leases Operating leases represent those leases under which substantially all risks and rewards of ownership of the leased assets remain with the lessors. Noncancellable operating lease payments are recognized as expense in the consolidated statement of income on a straight-line basis. The difference between the straight-line recognition basis and the actual payments made in relation to the operating lease agreements are recognized under Trade and other payables (if current) and Accrued rent payable (if noncurrent) accounts in the consolidated balance sheet. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Foreign Currency Translation The functional currency of the entities of the Group is the Philippine Peso except for PHII, on which the functional currency is the United States dollar ($). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of comprehensive income. The assets and liabilities of PHII are translated into Philippine Peso at the rate of exchange ruling at the balance sheet date and income and expenses are translated to Philippine Peso at monthly average exchange rates. The exchange differences arising on the translation are taken directly to other comprehensive income and presented as a separate component of equity under the Accumulated translation adjustment account. Income Taxes Current Income Tax Current income tax liabilities for the current and prior periods are measured at the amount expected to be paid to the taxation authorities. The income tax rates and income tax laws used

- 13 to compute the amount are those that are enacted or substantively enacted as of the balance sheet date. Deferred Income Tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except: where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from excess minimum corporate income tax (MCIT) and unused net operating loss carryover (NOLCO) to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits from excess MCIT and unused NOLCO can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax assets to be recovered. Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Operating Segments The Group operates using its different trade names on which operating results are regularly monitored by the chief operating decision maker (CODM) for the purpose of making decisions about resource allocation and performance assessment. The CODM has been identified as the Chief Executive Officer of the Group. However, as permitted by PFRS 8, the Group has aggregated these segments into a single operating segment to which it derives its revenues and incurs expenses as these segments have the same economic characteristics and are similar in the following respects: a) the nature of products and services; b) the nature of production processes; c) the type or class of customer for the products and services; and d) the methods used to distribute their products and services. Earnings Per Share (EPS) Attributable to the Equity Holders of the Parent Basic EPS is computed by dividing net income for the year attributable to common shareholders by the weighted average number of common shares outstanding during the year, with retroactive adjustments for any stock dividends declared and stock split.

- 14 Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Companys convertible notes are dilutive potential ordinary shares. In computing for the diluted EPS, the convertible note is assumed to have been converted into ordinary shares, and the net income is adjusted to eliminate the interest expense less the tax effect, if any. Where the EPS effect of potential dilutive ordinary shares would be anti-dilutive, basic and diluted EPS are stated at the same amount. Contingencies Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events After the Balance Sheet Date Post year-end events that provide additional information about the Groups position at the balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material. New Accounting Standards, Interpretations and Amendments to Existing Standards Effective Subsequent to December 31, 2010 The Group will adopt the standards and interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations from IFRIC to have significant impact on its consolidated financial statements. Effective in 2011 Amendment to PAS 24, Related Party Disclosures The amended standard is effective for annual periods beginning on or after January 1, 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The Group expects that the amendment will have no material impact on the consolidated financial statements. Amendment to PAS 32, Financial Instruments: Presentation - Classification of Rights Issues The amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro-rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Group after initial application as the Group has not entered into rights issues. Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on or after January 1, 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The Group expects that the amendment will have no material impact on the consolidated financial statements. Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments

- 15 Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or after July 1, 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in the statement of income. The Group expects that the amendment will have no material impact on the consolidated financial statements. Improvements to PFRS Effective 2011 The omnibus amendments to PFRSs issued in 2010 were issued primarily with a view to removing inconsistencies and clarifying wording. The amendments are effective for annual periods beginning on or after January 1, 2011 except otherwise stated. The Group has not yet adopted the following amendments and anticipates that these changes will have no material effect on its consolidated financial statements. PFRS 3, Business Combinations PFRS 7, Financial Instruments: Disclosures PAS 1, Presentation of Financial Statements PAS 27, Consolidated and Separate Financial Statements Philippine Interpretation IFRIC 13, Customer Loyalty Programmes

Effective in 2012 Amendment to PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012. It provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will normally be through sale. The Group will assess the impact of the amendment on its current manner of recognizing deferred income taxes. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This Interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. Effective in 2013 PFRS 9, Financial Instruments PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, hedge accounting and derecognition will be addressed. The completion

- 16 of this project is expected in early 2011. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Groups financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. 3. Significant Accounting Judgments and Estimates The consolidated financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the consolidated financial statements and related notes. The judgments and estimates used in the consolidated financial statements are based upon managements evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Judgments and estimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Judgments Operating Lease Commitments - The Group as Lessee The Group has entered into commercial property leases on its outlets and administrative office location. The Group has determined that all the significant risks and rewards of ownership of these properties remain with the lessors. Accordingly, these leases are accounted for as operating leases (see Notes 15 and 21). Operating Segments Although each trade name represents a separate operating segment, management has concluded that there is basis for aggregation into a single operating segment as allowed under PFRS 8 due to their similar characteristics. This is evidenced by a consistent range of gross margin across all brand outlets as well as uniformity in sales increase and trending for all outlets, regardless of the brand name. Moreover, all trade names have the following business characteristics: (a) Similar nature of products/services offered and methods to distribute products and provide services, that is, food service through casual dining experience; (b) Similar nature of production processes through establishment of central commissary for the Group that caters all brands for all store outlets; (c) Similar class of target customers which are middle-class consumers; and (d) Primary place of operations is in the Philippines. Useful Life of Trademarks Trademarks represent the value of the Groups externally acquired trade names, which were recorded at estimated fair market value at the time of acquisition. Trademarks are assessed to have a finite useful life of 20 years from the date of acquisition. Estimates Estimating Impairment of Trade and Other Receivables and Noncurrent Receivables Management reviews the age and status of these receivables and identifies accounts that are to be provided with allowances on a continuous basis. The Group maintains allowances for impairment losses at a level considered adequate to provide for potential uncollectible receivables. Allowance for impairment losses amounted to P =22.2 million as of March 31, 2011 and December 31, 2010. The aggregate carrying amounts of trade and other receivables and noncurrent receivables (included under Other noncurrent assets account), net of allowance for

- 17 impairment losses, amounted to P =277.3 million and P =255.9 million as of March 31, 2011 and December 31, 2010, respectively (see Notes 4 and 10). Estimating NRV of Inventories The Group estimates the allowance for inventory losses related to store and kitchen supplies and operating equipment for sale whenever the utility of these inventories becomes lower than cost due to damage, physical deterioration or obsolescence. Due to the nature of the food and beverage inventories, the Group conducts monthly inventory count and any resulting difference from quantities that are currently recognized is charged to expense. Inventories at cost amounted to P =47.2 million and P =72.7 million as of March 31, 2011 and December 31, 2010, respectively (see Note 5). Estimating Useful Lives and Impairment of Property and Equipment The Group reviews annually the estimated useful lives of property and equipment based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of these assets. In addition, estimation of the useful lives is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. The Group also assesses impairment on these assets whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: Significant underperformance relative to expected historical or projected future operating results; Significant changes in the manner of use of the acquired assets or the strategy for overall business; and Significant negative industry or economic trends.

In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, the Group is required to make judgments and estimates that can materially affect the consolidated financial statements. There were no impairment indicators noted for property and equipment in 2011 and 2010. The net book values of property and equipment amounted to P =225.6 million and P =240.7 million as of March 31, 2011 and December 31, 2010, respectively (see Note 7). Estimating Useful Life and Impairment of Trademarks The Group estimates the useful lives of trademarks based on the period over which assets are expected to benefit the financial performance of the Group. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to technical or commercial obsolescence and legal or other limits on the use of the trademarks. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Due to the stiff competition in the industry where the Group operates and the uncertainty in the business environment, the Group subjects the trademarks to annual impairment testing, together with goodwill, to assess reasonableness of its assigned useful life. Assessment for impairment requires an estimation of the value in use of the CGUs to which the trademarks are

- 18 allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the CGUs and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Based on projections made by management on cash flows arising from the investees where the trademarks relate, the recoverable amounts of the CGUs calculated based on value in use are greater than the corresponding carrying values of the CGUs as of December 31, 2010 and 2009. The carrying values of trademarks amounted to P =380.6 million and P =387.8 million as of March 31, 2011 and December 31, 2010, respectively (see Note 8). Estimating Impairment of Goodwill The Group tests annually whether any impairment in goodwill is to be recognized, in accordance with the accounting policy stated in Note 2. The recoverable amounts of CGUs have been determined based on value in use calculations which require the use of estimates. Based on the impairment testing conducted, the recoverable amounts of the CGUs as of March 31, 2011 and December 31, 2010 calculated based on value in use are greater than the corresponding carrying values (including goodwill) of the CGUs as of the same dates. The carrying amount of goodwill as of March 31, 2011 and December 31, 2010 amounted to P =91.9 million (see Note 9). Estimating Debt Component of Convertible Notes The determination of the debt component of the convertible notes is based on the discounted amount of future cash flows of the interest payments since the notes are mandatorily convertible into a fixed number of common shares after the lapse of the term. Interest payments represent the higher of consolidated net income or the dividends that the noteholders would have been entitled to as discussed in Note 13. Effectively, the dividends on common shares would serve as the minimum interest on the note. However, it is difficult to estimate these future dividends since there are no committed dividends on the Companys common shares and a pattern or trend could not also be determined based on prior years dividend payments. Consequently, the liability component was calculated based on the consolidated forecasted net income. The liability component is adjusted at each balance sheet date when there are significant changes in the consolidated forecasted net income using the original effective interest rate at the date of inception of the convertible notes. Such adjustment is recognized in the consolidated statement of income. The accrued interest and current portion of debt component of convertible notes, presented as part of Trade and other payables account, amounted to P =2.7 million and P =2.1 million as of March 31, 2011 and December 31, 2010, respectively. The noncurrent portion of debt component of convertible notes amounted to P =14.2 million as of March 31, 2011 and December 31, 2010, respectively (see Note 13). Estimating Retirement Benefit Costs The determination of the Groups obligation and pension cost is dependent on the selection of certain assumptions used by the actuaries in calculating such amounts, which are described in Note 18. Retirement benefit costs (income) amounted to P =1.4 million, P =0.6 million) and P =0.5 million for the three months ended March 31, 2011, 2010, 2009, respectively. Accrued retirement liability amounted to P =8.6 million and P =7.2 million as of March 31, 2011 and December 31, 2010, respectively (see Note 18). Estimating Realizability of Deferred Income Tax Assets The Group reviews the carrying amounts of deferred income tax assets at each balance sheet date and reduces the amounts to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized in the future. The amount of deferred income tax assets that are recognized is based upon the likely

- 19 timing and level of future taxable profits together with future planning strategies to which the deferred income tax assets can be utilized. The carrying values of deferred income tax assets amounted to P =48.9 million and P =39.2 million as of March 31, 2011 and December 31, 2010, respectively (see Note 19). Estimating Contingent Liabilities The Company and PHVI are currently involved in a legal proceeding. The estimate of the probable costs for the resolution of this claim has been developed in consultation with outside counsel handling the Companies defense in this matter and is based upon an analysis of potential results. The Company and PHVI currently do not believe that this proceeding will have a material adverse effect on the consolidated financial position, thus, no accrual were made in the books. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to this proceeding [see Note 25(a)]. 4. Trade and Other Receivables
As of March 31, 2011 Receivable from sale of asset group Trade Due from ICF-CCE, Inc. Royalties Officers and employees Credit Card Receivable Others Less: Allowance for impairment losses 83,510,000 69,834,060 40,084,831 24,825,330 16,229,287 3,665,969 59,038,198 297,187,675 22,189,500 274,998,176 As of December 31, 2010 88,510,000 65,236,224 35,242,424 17,790,258 11,430,287 2,698,040 51,352,113 272,259,346 22,189,500 250,069,846

Trade receivables pertain to commissary sales billed to franchisees which are secured, noninterest-bearing and are normally settled on 15-30 days terms. The franchisees provide deposits, which is equivalent to an estimate of 15-day purchases, as guarantee on their payables to the Group. As of March 31, 2011 and December 31, 2010, the value of deposits which is recorded under Trade and other payables account amounts to P =14 million and P =19 million, respectively (see Note 11). The deposits are applied against the overdue purchases of the franchisees. Other receivables primarily pertain to noninterest-bearing reimbursable costs incidental to the operations of the franchise stores and are normally settled on 30-60 days terms. 5. Inventories
As of March 31, 2011 Food and beverage Store and Kitchen Supplies Operating equipment for sale 32,778,981 9,686,542 4,745,005 47,210,529 As of December 31, 2010 56,163,637 15,619,017 926,046 72,708,700

- 20 -

All categories of inventories are carried at cost. The aggregate amount of inventories recognized under cost of sales (under Food and beverage and Supplies and equipment sold) in the consolidated statements of income amounted to P =149.2 million, P =145.2 million and P =145.1 million for the three months ended March 31, 2011, 2010, and 2009, respectively (see Note 16). 6. Prepaid Expenses and Other Current Assets
As of March 31, 2011 Advances to suppliers Prepaid expenses CWT's Others 40,062,973 29,850,092 16,467,345 14,613,824 100,994,235 As of December 31, 2010 32,792,179 17,887,558 14,479,916 3,397,534 68,557,187

Other current assets mainly include prepaid input VAT, unused supplies and advanced freight costs.

- 21 -

7. Property and Equipment

As of March 31, 2011 Leasehold Improvement Cost Beginning balances Acquisitions Ending balances Accumulated amortization Beginning balances Depreciation and amortization Ending balances Allowance for impairment losses Net book values 145,870,088 317,067,893 14,812,226 331,880,119 #REF! 273,398,724 10,247,790 283,646,514 283,646,513 1,385,344 56,747,465 9,204,279 8,139,967 3,094,196 2,510,004 25,280,692 1,759,025 27,039,717 26,129,119 48,068,983 1,169,670 49,238,653 49,238,653 45,510,371 666,179 46,176,550 46,176,550 1,385,344 225,565,998 709,326,663 28,654,889 737,981,552 472,624,890 5,125,317 477,750,207 471,534,365 337,212,000 4,567,322 341,779,322 341,779,323 36,243,996 33,617,580 36,243,996 56,289,385 1,089,235 57,378,620 57,378,620 48,515,514 755,232 49,270,746 49,270,745 533,351 1,976,653 2,510,004 698,728 951,419,136 13,513,759 964,932,895 Store Equipment Transpo Equipment Office Fur, Fixt & Equipment Kitchen Equipment Construction in Progress

Total

- 22 As of December 31, 2010 Office Furniture, Fixtures and Equipment P =75,480,887 13,813,079 (33,004,581) 56,289,385 59,711,343 16,238,480 (27,880,840) 48,068,983 P =8,220,402

Leasehold Improvements Cost: Balances at beginning of year Additions Disposals [see Note 25(b)] Reclassifications Balances at end of year Accumulated depreciation and amortization: Balances at beginning of year Depreciation and amortization (see Notes 16 and 17) Disposals [see Note 25(b)] Balances at end of year Allowance for impairment losses Net book values

Store Transportation Equipment Equipment P =28,553,071 7,690,925 36,243,996 22,266,455 3,014,237 25,280,692 P =10,963,304

Kitchen Equipment P =45,653,062 2,862,452 48,515,514 38,588,247 6,922,124 45,510,371 P =3,005,143

Construction In-Progress

Total

P =525,735,194 P =321,264,019 25,194,950 23,966,815 (82,611,717) (8,018,834) 4,306,463 472,624,890 337,212,000 302,742,667 77,905,074 (63,579,848) 317,067,893 P =155,556,997 239,109,571 42,084,524 (7,795,371) 273,398,724 1,385,344 P =62,427,932

P =4,839,814 P =1,001,526,047 73,528,221 (123,635,132) (4,306,463) 533,351 951,419,136 662,418,283 146,164,439 (99,256,059) 709,326,663 1,385,344

P =533,351 P =240,707,129

- 23 -

8. Trademarks
As of March 31, 2011 Cost: Balances at beginning of year Additions Balances at end of year Accumulated amortization: Balances at beginning of year Amortization Translation adjustment Balances at end of year 562,476,229 562,476,229 As of December 31, 2010 562,176,529 299,700 562,476,229

174,677,446 7,175,501 181,852,947 380,623,282

146,171,530 28,249,588 256,328 174,677,446 387,798,783

9. Goodwill Goodwill acquired through business combination has been attributed to the following brands which are considered to be separate CGUs of the Group:
Pancake House Dencio's Le Coeur de France 1,681,142 58,973,598 31,230,664 91,885,404

As of March 31, 2011 and December 31, 2010, the recoverable amount of each CGU calculated through value in use, exceeded the carrying amount of the CGU including goodwill. Value in use was derived using cash flow projections based on financial budgets approved by senior management covering a five-year period. Cash flows beyond the five-year period are extrapolated using a zero percent growth rate. Discount rate applied to the cash flow projections in determining recoverable amount is 7%. The calculations of value in use of goodwill are most sensitive to the following assumptions: a) Discount rates - Discount rates were derived from the Groups weighted average cost of capital and reflect managements estimate of risks within the CGUs. This is the benchmark used by the management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates, regard has been given to various market information, including, but not limited to, ten-year government bond yield, bank lending rates and market risk premium and country risk premium. b) Growth rate estimates - The long-term rate used to extrapolate the budget for the investee companies excludes expansions and possible acquisitions in the future. Management also recognizes the possibility of new entrants, which may have significant impact on existing growth rate assumptions. Management however, believes that new entrants will not have a significant adverse impact on the forecast included in the budget.

- 24 10. Other Noncurrent Assets

As of March 31, 2011 Security deposits on lease contracts Utilities and other deposits Input VAT Noncurrent receivables Interest in a joint venture Others 81,665,404 24,268,368 9,923,983 6,131,168 2,469,541 6,091,414 130,549,878 As of December 31, 2010 78,898,898 26,476,851 14,282,019 5,836,723 3,003,736 11,573,060 140,071,287

Others mainly represent long-term portion of prepaid rent. Interest in a joint venture represents 50% interest in ICF-CCE, Inc. which has been incorporated in May 2010. ICF-CCE, Inc. is engaged in the business of operating a culinary skills training center and a restaurant for the practicum of its students. 11. Trade and Other Payables
As of March 31, 2011 Trade Nontrade Accrued expenses Deposits Output VAT Contract Retention Service Charges Accrued interest and current portion of debt component of convertiblenotes Others 57,325,737 42,317,570 79,923,852 19,119,615 5,060,424 4,508,126 8,501,917 2,659,453 19,326,140 238,742,834 As of December 31, 2010 74,990,469 70,624,924 71,834,471 19,387,268 13,448,240 5,601,965 8,284,566 2,102,161 31,928,782 298,202,846

Deposits include deposits on ingredients representing the amount received by the Group from its franchisees as stipulated in the franchise agreement equivalent to 40% of the projected 15-day food and beverage sales to cover for all the ingredients initially advanced by the Group for the commencement of the franchise outlets commercial operations. These are carried at cost and subject to a semi-annual review and is correspondingly adjusted based on the revised projected monthly sales of the franchise outlet. Other payables include withholding taxes payable, current portion of accrued rent payable and SSS and Pag-IBIG premiums payable. 12. Loans Payable The Group obtained peso denominated short-term loans from several banks and from stockholders of the Company to finance working capital requirements. The short-term loans from the banks bear interest rates ranging from 4.75% to 6.25% in 2011, 2010, and 2009 and will

- 25 mature during the succeeding year. The short-term loans from stockholders bear an interest rate ranging from 6.25% to 6.5% per annum in 2011, 2010 and 2009 and are payable on demand (see Note 15). Interest expense on loans payable amounted to P =5.3 million, P =5.6 million and P =10.0 million for the three months ended March 31, 2011, 2010, and 2009 respectively. 13. Convertible Notes The convertible notes consist of the following: As of March As of December 31, 2010 31, 2011 Supplemental Investment Agreement ASEAF and Aureos Malaysia Fund, LLC (AMF), $3.0 million five-year convertible notes commencing on October 7, 2009 and maturing on October 7, 2014 Less current portion Noncurrent portion

15,778,783 15,778,783 1,616,924 =14,161,859 P

15,778,783 15,778,783 1,616,924 P =14,161,859

The current portion of convertible notes is included under accrued interest on debt component of convertible notes, which is part of Trade and other payables account in the consolidated balance sheets (see Note 11). The original investment agreement was entered into for the acquisition of TBGI, as contemplated under the Memorandum of Agreement dated September 20, 2006 between the Company and TBI/TTI. The supplemental investment agreement was entered into for the purpose of financing the Groups planned expansion of outlet stores and improvement of existing stores and facilities. Under the original and supplemental investment agreement, the Company shall issue five-year convertible notes (the Notes) to ASEAF, PVCC and AMF (collectively referred to as the Investors), denominated in peso at the prevailing exchange rate at the time of issue or its Peso equivalent. The Notes shall be entitled to interest commencing from the year of funding equivalent to (a) fifty percent (50%) of the audited consolidated net income of the Group for the current fiscal year multiplied by the equity interest of the Investors, or (b) the dividend which would have been due to the Investors if they already held conversion shares instead of the Notes as of the dividend record date, whichever is higher. Interest shall be payable in arrears semi-annually, on or before June 30 and December 31 of each year. The Investors, at their option, will have the right to convert their Notes, at any time after the issue date, into the number of fully paid, non-assessable common shares determined by dividing the conversion price or adjusted conversion price from its issue price. The conversion shares shall account for no less than the equity interest of the Investors. In view of the five-year term of the Notes, unless the Notes are converted before the lapse of the term, the Notes shall be mandatorily converted into common shares as of the last day of the term. The equity interest of the Investors and the conversion price per common share of each of the Notes are as follows:

- 26 -

Original Investment Agreement - ASEAF and PVCC Supplemental Investment Agreement - ASEAF and AMF

Equity Interest Conversion Price 20.6728% P =4.56 8.2618% 6.50

On their respective issue dates, the Company bifurcated the debt component of the Notes and the excess was treated as notes for conversion to equity, a separate component within the equity section of the consolidated balance sheets. The debt component was initially recognized based on the present value of the future cash flows of the interest payments as determined in reference to the consolidated forecasted net income (see Note 3). Subsequent to initial recognition, the debt component is accreted to its maturity value using the effective interest rate method. The effective interest used for the note was 13.13% and 6.15% for the original and supplemental investment agreement, respectively. In 2010, the Company adjusted the carrying amount of the debt component of convertible notes relating to the supplemental investment agreement based on updated consolidated forecasted net income in future years. As a result, the Company recognized an income amounting to P =3.0 million in 2010 (included under Other income in the 2010 consolidated statement of income) representing the difference between the original amount and the revised amount of the debt component of convertible notes. On November 26, 2010, the remaining balance of notes for conversion to equity relating to the original investment agreement amounting to P =185.3 million was mandatorily converted to 45,159,091 common shares with P =45.1 million par values. The difference amounting to P =140.2 million was recognized as additional paid-in capital. Accretion charge amounted to P =0.60 million, P =0.93 million and P =1.4 million for the three months ended March 31, 2011, 2010, and 2009, respectively, and was presented as Interest expense on the debt component of convertible notes in the consolidated statements of income. 14. Retained Earnings The following are the dividends declared and paid by the Company: Cash Dividend per Share P =0.05 0.05 0.07 0.04 0.07 0.08

Date of Declaration November 12, 2010 May 24, 2010 September 22, 2009 June 2, 2009 January 30, 2009 June 30, 2008

Date of Record December 1, 2010 June 10, 2010 October 6, 2009 June 30, 2009 February 15, 2009 July 15, 2008

Date Paid December 15, 2010 June 30, 2010 October 30, 2009 July 15, 2009 February 27, 2009 July 30, 2008

Amount P =12,769,616 8,957,591 12,733,264 7,011,964 13,927,609 15,450,511

15. Related Party Disclosures The Group has the following significant transactions with related parties: a) Operating lease agreement with Surfield Development Corporation (SDC) for the lease of the Companys commissary warehouse located at 2263 Pasong Tamo Extension, Makati City, for a period of ten (10) years, renewable upon the written agreement of contracting parties involved. The latest amendment to the contract of lease provides for a monthly rental of

- 27 P =162,941, plus VAT, applicable from 2007 up to 2011, subject to an annual increase of not more than 15% of the preceding years monthly rental. Security deposits on the said lease contracts totaling P =1.1 million were included under the Other noncurrent assets account in the consolidated balance sheets. The Company and SDC have certain common stockholders and members of the BOD. b) Operating lease agreement with First Lucky Property Corporation (FLPC) for the lease of the Groups principal office building and warehouse located at 2259 Pasong Tamo Extension, Makati City, for a period of five (5) years, renewable at the option of the lessee for an additional period of five (5) years at mutually acceptable rates, terms and conditions. The lease agreement provides for a monthly rental of P =1.2 million, plus applicable VAT, subject to an escalation rate of seven (7%) percent per annum, commencing on the second year of the lease term. Rental and security deposits on the said lease contract amounted to P =7.2 million were included under the Other noncurrent assets account in the consolidated balance sheets. Rental deposit of P =3.6 million is to be applied as rental payments for the last three (3) months of the lease contract; while the security deposit of P =3.6 million is to be refunded after the expiration of the lease contract. Rental payments on this lease agreement amounted to P =18.1 million,P =15.8 million and P =14.7 million in 2010, 2009 and 2008, respectively. The Group and FLPC have certain common stockholders and members of the BOD. c) In 2011, 2010 and 2009, the Company has a short-term, noninterest-bearing loan payable to stockholders amounting to P =89.0 million, P =16.5 million, and P =16.5 million, respectively. d) Purchases from Macondray & Co. amounting to P =.6 million as of March 31, 2011, and P =1.2 million and P =2.8 million, in 2010 and 2009, respectively. The Company and Macondray & Co. have certain common stockholders and members of the BOD. e) Advances to ICF-CCE, Inc. amounting to P =40.1 million which was used for various capital expenditures in relation to its culinary skills training center and restaurant operations. Such advances are due and demandable. f) Compensation of key management personnel are as follows: Salaries and other employee benefits Post-employment benefits (see Note 18) 2010 =2,636,407 P 184,548 =2,820,956 P 2009 P =2,922,763 204,593 P =3,127,356 2008 P =3,075,066 314,931 P =3,389,997

- 28 -

16. Cost of Sales

For the Three Months Ended March 31 2011 2010 2009 149,247,076 145,152,217 145,096,301 47,186,425 47,299,351 48,441,256 43,845,756 45,320,669 44,448,784 24,239,070 31,722,648 33,551,499 23,040,990 23,632,488 21,003,454 16,555,089 17,206,709 15,155,249 14,091,154 3,932,879 3,604,090 4,077,474 8,542,188 6,378,300 9,969,771 9,517,613 7,424,988 6,101,760 5,518,169 5,441,205 3,742,237 4,138,117 3,656,347 4,842,484 4,493,223 4,052,811 1,772,897 3,627,228 1,353,406 30,000 116,479 4,998,218 358,837,513 1,695,771 2,781,547 1,350,999 30,000 241,380 5,236,311 357,812,279 1,726,048 2,802,931 1,275,983 42,505 537,009 5,982,773 350,621,531

Food and Beverage Salaries and Wages Rentals Depreciation and amortization Light and Water Employee's Benefits Supplies and equipment sold Supplies used Fuel and Oil Taxes and Licenses Dues and Subscriptions Repairs and Maintenance Security Services Transportation and Travel Communications Professional Fees Insurance Others

17. General and Administrative Expenses

For the Three Months Ended March 31 2011 2010 2009 13,756,257 12,633,774 13,651,238 7,175,501 7,171,754 7,117,659 6,180,563 4,610,198 5,134,947 4,415,819 6,176,619 5,422,905 2,112,755 2,404,550 2,545,533 703,426 1,563,657 1,916,832 4,244,157 4,131,098 3,002,234 1,540,435 2,710,493 2,167,607 1,069,543 897,147 864,088 818,132 876,858 876,062 1,322,391 250,832 366,675 481,492 932,166 483,610 467,460 225,488 5,495,092 50,008,510 492,087 174,521 3,681,520 48,707,274 732,067 182,166 5,376,146 49,839,770

Salaries and Wages Amortization of trademarks Employee's Benefits Depreciation and amortization Credit Card Charges Professional Fees Rentals Transportation and Travel Communications Supplies Taxes and Licenses Light and Water Entertainment Insurance Others

- 29 -

18. Retirement Benefit Costs The Group has a funded defined benefit pension plan covering substantially all of its employees, which require contributions to be made to separately administered fund. 19. Income Taxes The current provision for income tax represents the Companys and certain subsidiaries regular income tax and MCIT. Final tax represents the Companys and certain subsidiaries final tax on interest income and franchise and royalty fees. No deferred income tax assets were recognized for the following temporary differences, unused tax credits from excess MCIT and unused NOLCO of certain subsidiaries as it is not probable that sufficient taxable profit will be available to allow the benefit of the deferred income tax assets to be utilized. 20. Earnings Per Share The following reflects the income and share data used in the calculation of basic and diluted EPS: Basic EPS 2011 Net income attributable to common equity holders of the parent Divide by weighted average number of common shares Basic EPS Diluted EPS Net income attributable to common equity holders of the parent adjusted for the effect of convertible notes: Net income attributable to common equity holders of the parent Interest on convertible notes Divide by weighted average number of common shares adjusted for the effect of dilution: Weighted average number of common shares Effect of conversion of convertible notes Diluted EPS =10,844,075 P 237,795,455 =0.05 P 2010 P =8,292,371 192,636,364 P =0.04 2009 P =10,461,422 192,636,364 P =0.05

2011

2010

2009

=10,844,075 P 557,293 11,401,368

P =8,292,371 934,442 9,226,812

P =10,461,422 1,426,097 11,887,518

237,795,455 21,415,385 259,210,840 =0.04 P

192,636,364 66,574,476 259,210,840 P =0.04

192,636,364 66,574,476 259,210,840 P =0.05

There have been no transactions involving common shares or potential common shares that occurred subsequent to the reporting dates.

- 30 21. Significant Contracts and Agreements Franchise Agreements The Group has granted its franchisees the right to adopt and use the restaurant system of several brands in restaurant operations for a period and under the terms and conditions specified in the franchise agreements. The agreements provide for an initial franchise fee payable upon execution of the agreement and monthly royalty fees. The following table presents the royalty fee rates and the aggregate amounts of franchise and royalty fees recognized in each brand: Royalty Fee 2010 2010 Rates* Pancake House 9% =12.1 million P P =10.5 million Dencios 8%-9% 4.8 million 3.7 million Teriyaki Boy 10% 4.7 million 4.6 million *as a percentage of Net Sales of franchised store outlets 2009 P =10.9 million 4.4 million 4.2 million

Operating Lease Agreements The Group leases its restaurant and commissary premises and offices it occupies with various lessors for periods ranging from 1 to 12 years, renewable upon mutual agreement between the Group and its lessors. The lease agreements provide for a fixed rental and/or a monthly rental based on a certain percentage of actual sales or minimum monthly gross sales. Security deposits on lease contracts amounting to P =81.7 million and P =78.9 million as of March 31, 2011 and December 31, 2010,respectively, which is equivalent to one to three months rental are included in the Other noncurrent assets account in the consolidated balance sheets (see Note 10). Rental expense charged to cost of sales and general and administrative expenses amounted to P =48.1 million, P =47.5 million and P =40.2 million in 2011, 2010 and 2009, respectively (see Notes 16 and 17). 22. Financial Instruments Financial Risk Management Objectives and Policies The Groups financial instruments consist of cash, trade and other receivables, noncurrent receivables (included under Other noncurrent assets), trade and other payables, loans payable, mortgage payable and debt component of convertible notes. The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and principles of the Group. It also has the overall responsibility for the development of risk strategies, principles, frameworks, policies and limits. It establishes a forum for discussion of the Groups approach to risk issues in order to make relevant decisions. The main risks arising from the use of financial instruments are liquidity risk, credit risk and foreign currency risk. The BOD reviews and approves the policies for managing each of these risks which are summarized below. Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Groups objectives to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking adverse effect to the Groups credit standing. The Group seeks to manage its liquid funds through cash planning on a weekly basis. The Group uses historical figures and experiences and forecasts from its collections and disbursements. As part of its liquidity risk management, the Group regularly evaluates its projected and actual

- 31 cash flows. It also continuously assesses conditions in the financial markets for opportunities to pursue fund raising activities. The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, loans from related parties, convertible notes and other long-term debts. The Group considers its available funds and its liquidity in managing its long-term financial requirements. It matches its projected cash flows to the projected amortization of convertible notes. For its short-term funding, the Groups policy is to ensure that there are sufficient operating inflows to match repayments of loans payable. The table below summarizes the maturity profile of the Groups financial liabilities as of March 31, 2011 and December 31, 2010 based on contractual undiscounted payments.
March 31, 2011 Less than 3 months 3 to 12 months

On Demand March 31, 2011 Trade and other payables Loans payable Mortgage payable Debt component of convertible notes
December 31, 2010 Trade and other payables Loans payable Mortgage payable Debt component of convertible notes 145,428,720 299,910,252 -

1 to 5 years

Total

107,356,713 301,900,000 -

89,700,662 -

11,366,738 -

12,613,593 14,161,859

221,037,707 301,900,000 14,161,859

115,455,657 -

10,217,800 820,489 -

13,652,429 14,161,859

284,754,606 299,910,252 820,489 14,161,859

Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Groups performance to developments affecting a particular industry. The Group has no significant concentrations of credit risk with any single counterparty or group of counterparties having similar characteristics. Since the Group trades only on a cash or credit card basis and with recognized third parties, there is no requirement for collateral. It is the Groups policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that Groups exposure to bad debts is not significant. The Groups exposure to credit risk on trade and other receivables arise from default of the counterparty, with a maximum exposure equal to the carrying amounts of these receivables. Credit risk from cash is mitigated by transacting only with reputable banks duly approved by management.

- 32 -

The tables below summarize the aging analysis of the Groups financial assets:
March 31, 2011 Total Cash with banks Receivable from sale of asset group Trade receivable Due from ICF-CCE, Inc. Royalties Officers and employees Credit Card Receivable Other receivables Noncurrent receivables 155,102,604 83,510,000 69,834,060 40,084,831 24,825,330 16,229,287 3,665,969 59,038,198 6,131,168 458,421,448 Neither Past Due nor Impaired 155,102,604 83,510,000 32,083,315 40,084,831 12,523,998 13,070,802 3,665,969 11,590,233 6,131,168 357,762,920 22,387,046 18,109,937 11,183,151 26,788,894 6,524,547 2,744,958 4,182,465 13,213,100 20,782,895 22,189,500 3,645,660 382,638 4,060,391 155,769 3,186,760 211,227 1,110,423 2,180,749 298,097 228,102 11,834,201 11,148,818 3,602,698 10,284,622 880,406 30 days Past due but not impaired 30-60 days 60-90 days Over 90 days Impaired Financial Assets

December 31, 2010 Total Cash with banks Receivable from sale of asset group Trade receivable Due from ICF-CCE, Inc. Royalties Officers and employees Credit Card Receivable Other receivables Noncurrent receivables 205,879,308 88,510,000 65,236,224 35,242,424 17,790,258 11,430,287 2,698,040 51,352,113 5,836,723 483,975,377 Neither Past Due nor Impaired 205,879,308 88,510,000 27,941,025 35,242,424 8,426,848 4,154,978 2,698,040 335,781 5,836,723 379,025,127 35,995,551 11,739,529 3,202,846 1,173,823 19,879,353 30 days

Past due but not impaired 30-60 days 60-90 days Over 90 days Impaired Financial Assets

4,788,761

1,305,043

10,441,636

880,406

1,712,011 2,379,368

245,500 750,512

3,904,956 2,743,504

298,097 228,102

2,912,577

2,632,083

12,949,248

20,782,895 -

11,792,717

4,933,138

30,039,344

22,189,500

The Group has assessed the credit quality of its financial assets as follows: Cash is deposited in reputable banks, which have a low probability of insolvency; Trade and royalty receivables are generally settled on due dates based on historical experience; Advances to officers and employees are either collected through salary deduction or secured by cash bonds; Other receivables are generally settled several days after due date; and Noncurrent receivables are settled based on the contractual payments received on a monthly basis.

Foreign Currency Risk The Groups policy is to maintain foreign currency exposure within acceptable limits and within existing regulatory guidelines. The Group believes that its profile of foreign currency exposure on its assets and liabilities is within conservative limits based on the type of business and industry in which the Group is engaged. The Groups exposure to foreign currency exchange risk as of December 31, 2010 and 2009 pertains to the financial position and performance of PHII and PHIM which were presented in $ and Malaysian Ringgit (MYR), respectively. The Groups $-denominated and MYR-denominated financial assets and liabilities as of December 31, 2010 and 2009 are considered immaterial in relation to the consolidated financial statements. Thus, management believes that the Groups exposure to foreign currency risk is insignificant.

- 33 -

23. Capital Management The Company considers the equity presented in the balance sheets as its core capital. The primary objective of the Groups capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the three months ended March 31, 2011 and year ended December 31, 2010. The Group monitors capital using the debt-to-equity ratio, which is total liabilities divided by the total equity. The Companys policy is to maintain debt-to-equity ratio at a level not greater than 2:1. The Group determines total debt as the sum of its liabilities. Debt-to-equity ratios of the Company as of March 31, 2011 and December 31, 2010 are as follows: As of March As of December 31, 2010 31, 2011 238,742,834 298,202,846 301,900,000 299,910,252 820,489 14,161,859 14,161,859 3,711,223 1,987,556 8,593,263 7,186,600 17,270,617 16,738,425 584,379,796 639,008,027 871,454,304 857,869,357 0.67:1 0.74:1

Trade and other payables Loans payable Mortgage payable Debt component of convertible notes Income tax payable Accrued retirement liability Accrued rent payable Total liabilities Divide by total equity Debt-to-equity ratio

24. Operating Segment Information For management purposes, the Group is organized into operating segments based on trade names. However, due to the similarity in the economic characteristics, such segments have been aggregated into a single operating segment for external reporting purposes (see Note 3). Restaurant sales, commissary sales and franchise and royalty fees reflected in the consolidated statements of income are all from external customers and franchisees within the Philippines, which is the Groups domicile and primary place of operations. Additionally, the Groups noncurrent assets are also primarily acquired, located and used within the Philippines. Restaurant sales are attributable to revenues from the general public, which are generated through the Groups store outlets. Commissary sales and franchise and royalty fees are derived from various franchisees of the Groups trade names. Consequently, the Group has no concentrations of revenues from a single customer or franchisee for the years ended December 31, 2010, 2009 and 2008. The Groups international operations of the Pancake House brand (through PHII) and operations pertaining to the culinary school (through PHI CAFSI) are considered to be immaterial in relation to the consolidated financial statements. Total assets and revenues are 7.14% and 0.81% in

- 34 2010 4.61% and 0.79% in 2009, respectively, of the consolidated assets and revenues of the Group. 25. Other Matters a. Contingencies The Company and PHVI were named defendants in a civil case filed in October 2002 by Kenmor for the collection of a sum of money and damages. As of April 14, 2011, management and its legal counsel believe that no provision needs to be made in the accounts since the case is only at the early stage of the proceedings, thus, the outcome is not yet determinable and it is impracticable to make a reliable estimate. b. Sale of asset group On December 28, 2010, the Group entered into an agreement with a third party for the sale, assignment, and transfer of the net assets attributable to DFSI-BBI, DFSI-MTB and a portion of its property and equipment relating to the company-owned outlets, all operating under the Dencios trade name. The Dencios trade name is included within the single operating segment of the Group. The sale was part of managements plan to reorganize the business model of Dencios operations to focus primarily on its franchising operations. Consequently, the Group entered into a franchise agreement with the third party buyer for the subsequent right to adopt and use the Dencios Restaurant System. As a result, the assets and liabilities identifiable to DFSI-BBI, DFSI-MTB and the companyowned outlets operating under the Dencios brand name were derecognized as of the same date. The gain from the sale of the asset group amounted to P74.8 million. The outstanding receivable from the sale of asset group representing the total consideration is presented under Trade and other receivables account in the 2010 consolidated balance sheet.