U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of
the Exchange Act
For the transition period from ____________ to ____________.
Commission file number 0-20203 and 1-11386
INTERNATIONAL FAST FOOD CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0302338
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Lincoln Road, Suite 200
Miami Beach, Florida 33139
------------------------------------------------
(Address of Principal Executive Office)
(305) 531-5800
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share as of May 8, 1997 was 12,355,517.
Traditional Small Business Disclosure Format: Yes [x] No [ ]
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM. 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and December 31,
1996 2 - 3
Consolidated Statements of Operations
for the Three Months Ended March 31,
1997 and 1996 4
Consolidated Statements of
Shareholders' Equity for the Three
Months Ended March 31, 1997 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1997 and 1996 6 - 7
Notes to Consolidated Financial
Statements 8 - 19
ITEM. 2 Management's Discussion and Analysis
or Plan of Operation 20 - 36
PART II. OTHER INFORMATION
- ---------------------------
SIGNATURES 37
1
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
March 31, December 31,
1997 1996
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 4,825,614 $ 194,269
Restricted cash 473,578 500,000
Receivables 53,385 42,348
Inventories 258,949 300,217
Advances to affiliate 254,680 228,984
Prepaid expenses 59,412 53,794
------------ -----------
Total Current Assets 5,925,618 1,319,612
------------ -----------
FURNITURE, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, NET 5,433,805 5,586,844
DEFERRED DEBENTURE ISSUANCE COSTS,
NET OF ACCUMULATED AMORTIZATION
OF $132,469 AND $124,155,
RESPECTIVELY 299,856 308,170
OTHER ASSETS, NET 562,375 618,978
BURGER KING DEVELOPMENT
RIGHTS 1,000,000 -
------------ -----------
Total Assets $ 13,221,654 $ 7,833,604
============ ===========
See Accompanying Notes
2
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1997 1996
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 452,698 $ 454,697
Accrued interest payable 79,634 10,335
Other accrued expenses 855,119 1,009,606
Bank credit facilities payable 1,078,995 1,220,495
Other notes payable 69,307 69,307
Payable to affiliate 149,382 149,382
Payable to Litigation Funding 1,028,521 -
Non-interest bearing obligation
payable to minority shareholder
of IFF Polska 500,000 500,000
------------ ------------
Total Current Liabilities 4,213,656 3,413,822
LONG TERM BANK CREDIT FACILITIES 200,000 300,000
PROMISSORY NOTE PAYABLE
TO LITIGATION FUNDING 2,198,494 -
9% SUBORDINATED CONVERTIBLE
DEBENTURES, DUE DECEMBER 15, 2007 2,756,000 2,756,000
8% CONVERTIBLE PROMISSORY NOTES,
DUE JANUARY 13, 1999 500,000 -
------------ ------------
Total Liabilities 9,868,150 6,469,822
------------ ------------
DEFERRED CREDIT 1,000,000 -
------------ ------------
MINORITY INTEREST IN NET ASSETS OF
CONSOLIDATED SUBSIDIARY 389,109 460,361
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
(liquidation preference of
$3,725,000 , 1,000,000 shares
authorized; 37,250 and 38,240
shares issued and outstanding,
respectively 372 382
Common Stock, $.01 par value,
100,000,000 shares authorized;
12,355,517 and 10,322,521 shares
issued and outstanding, respectively 123,555 103,225
Additional paid-in capital 14,703,041 14,523,361
Accumulated deficit (12,876,435) (13,706,261)
Accumulated translation adjustment 13,862 ( 17,286)
------------ ------------
Total Shareholders' Equity 1,964,395 903,421
------------ ------------
Total Liabilities and
Shareholders' Equity $ 13,221,654 $ 7,833,604
============ ============
See Accompanying Notes
3
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
------------ ------------
REVENUES:
Restaurant sales $ 1,358,610 $ 1,268,674
Other operating, net 28,864 38,077
------------ ------------
Total Revenue 1,387,474 1,306,751
FOOD AND PACKAGING COSTS 568,943 572,281
------------ ------------
GROSS PROFIT 818,531 734,470
RESTAURANT OPERATING EXPENSES:
Payroll and related costs 216,852 185,489
Occupancy and other operating expenses 365,068 379,330
Depreciation and amortization 223,487 246,496
------------ ------------
Total Restaurant Operating
Expenses 805,407 811,315
------------ ------------
13,124 ( 76,845)
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES 492,510 499,313
OTHER INCOME (EXPENSES):
Interest and other income 16,437 51,909
Interest expense, including
amortization of debenture
issuance costs ( 105,547) ( 110,677)
Gain on settlement of litigation,
net of applicable costs 1,327,070 -
------------ ------------
Total other income (expenses) 1,237,960 ( 58,768)
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST 758,574 ( 634,926)
MINORITY INTEREST IN LOSSES OF
CONSOLIDATED SUBSIDIARY 71,252 72,326
------------ ------------
NET INCOME (LOSS) $ 829,826 $( 562,600)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ .07 $( .14)
============ ============
Fully diluted $ .06 $( .14)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary 11,631,201 3,903,065
============ ============
Fully diluted 15,855,436 3,903,065
============ ============
See Accompanying Notes
4
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997
(Unaudited)
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Accumulated
-------------------- -------------------- Paid In Translation Accumulated
Shares Amount Shares Amount Capital Adjustment Deficit Total
-------- -------- -------- -------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1996 10,322,521 $103,225 38,240 $ 382 $ 14,523,361 $( 17,286) $(13,706,261) $ 903,421
Conversion of
preferred stock 32,996 330 ( 990) ( 10) ( 320) - -
Common Stock issued in
exchange for professional
services 2,000,000 20,000 - - 180,000 - - 200,000
Translation adjustments - - - - - 31,148 - 31,148
Net income for the period - - - - - 829,826 829,826
---------- -------- -------- ------- ------------ ---------- ------------ -----------
Balances,
March 31, 1997 12,355,517 $123,555 37,250 $ 372 $ 14,703,041 $ 13,862 $(12,876,435) $ 1,964,395
========== ======== ======== ======= ============ ========== ============ ===========
</TABLE>
See Accompanying Notes
5
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 829,826 $( 562,600)
Adjustment to reconcile net income
(loss) to net cash provided by
(used in)operating activities:
Amortization and depreciation 231,801 279,567
Minority interest in losses of
subsidiary ( 71,252) ( 72,326)
Changes in operating assets and
liabilities:
Receivables ( 11,037) 11,525
Inventories 41,268 45,103
Prepaid expenses ( 5,618) ( 16,410)
Accounts payable and
accrued expenses 112,813 178,466
------------ ------------
Net cash provided by (used in)
operating activities 1,127,801 ( 136,675)
------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Decrease in restricted cash 26,422 -
Payments for furniture, equipment
and leasehold improvements, net ( 45,039) -
Refund of franchise fees 30,000 -
Changes in other assets, net 1,194 ( 30,212)
------------ ------------
Net cash provided by (used in)
investing activities 12,577 ( 30,212)
------------ ------------
See Accompanying Notes
6
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from (to) Affiliate, net ( 25,696) 122,063
Repayments of bank credit
facilities ( 241,500) ( 133,485)
Increase in Payable to Litigation
Funding 3,227,015 -
Borrowings under bank credit
facilities - 165,743
Net Proceeds from issuance of
Convertible promissory notes 500,000 -
------------ ------------
Net cash provided by financing
activities 3,459,819 154,321
------------ ------------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 31,148 ( 28,314)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,631,345 ( 40,880)
BEGINNING CASH AND CASH EQUIVALENTS 194,269 253,510
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 4,825,614 $ 212,630
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 36,248 $ 38,272
============ ============
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Quarter Ended March 31, 1997:
Issuance of 32,996 shares of Common Stock upon the exchange of 990 shares
of Preferred Stock.
Issuance of 2,000,000 shares of Common Stock in payment of $200,000 of
legal fees.
Quarter Ended March 31, 1996:
Issuance of 215,645 shares of Common Stock upon the exchange of 6,470
shares of Preferred Stock.
See Accompanying Notes
7
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION:
International Fast Food Corporation (the "Company" or "IFFC") was
organized for the purpose of developing and operating franchised Burger King
restaurants in the Republic of Poland ("Poland"). IFFC operates under an
exclusive Development Agreement (the "New BKC Development Agreement"). The
agreement expires on September 30, 2007.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of the Company and its majority-owned (85%) Polish
subsidiary, International Fast Food Polska ("IFF Polska" or "IFFP"), a limited
liability corporation, and IFFP's three wholly-owned Polish limited liability
corporations. All significant intercompany transactions and balances have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the year ended December 31, 1996 of International Fast Food
Corporation and Subsidiaries (the "Company"), as filed with the Securities and
Exchange Commission. The December 31, 1996 consolidated balance sheet was
derived from audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
The official currency that may be used in Poland is the zloty. The value
of the zloty is pegged pursuant to a system based on a basket of currencies, as
well as all other economic and political factors that effect the value of
currencies generally. On January 1, 1995, the National Bank of Poland introduced
a new currency unit a zloty (a "new zloty"). New zlotys are equivalent to 10,000
old zlotys ("old zlotys"). Old zlotys remained legal tender until December 31,
1996, after which date they are only exchangeable at certain banks. All
references in this document to zlotys are to new zlotys. At March 31, 1997 and
1996, the exchange rate was
8
<PAGE>
3.0760 and 2.5875 new zlotys per dollar, respectively. Monetary assets and
liabilities are translated from the local currency, the "zloty", to U.S. dollars
at the period end exchange rate. Non-monetary assets, liabilities, and related
expenses, primarily furniture, equipment, leasehold improvements and related
depreciation and amortization, are translated using historical exchange rates.
Income and expense accounts, excluding depreciation and amortization, are
translated at an annual weighted average exchange rate.
The accounts of IFFP are measured using the zloty. Due to Poland's highly
inflationary environment through December 31, 1995, generally accepted
accounting principles
required IFFC to calculate and recognize on its statement of operations its
currency translation gains or losses associated with IFFP. Due to the reduction
in Polands inflation rate, effective for the year ended December 31, 1996, IFFC
was no longer required pursuant to generally accepted accounting principles to
recognize currency translation gains or losses in its statement of operations.
As a result of this change the net loss and net loss per common share for the
three months ended March 31, 1996, were decreased by $28,314 and $.01,
respectively.
Liquidity and plan of operations - As Of March 31, 1997, IFFC had working
capital of approximately $1,771,962 and Cash and Cash Equivalents of $4,825,614.
IFFC's working capital and cash position were significantly improved by the
settlement of the BKC Litigation in March 1997 (See Note 8). Although IFFC
believes that it has sufficient funds to finance its present plan of operations
through December 31, 1997. IFFC cannot reasonably estimate how long it will he
able to satisfy its cash requirements. The capital requirements relating to
implementation of the New BKC Development Agreement are significant. Based upon
current assumptions, IFFC will seek to implement its business plan utilizing its
Cash and Cash Equivalents and cash generated from restaurant operations. In
order to satisfy the capital requirements of the New BKC Development Agreement
IFFC will require resources substantially greater than the amounts it presently
has or amounts that can be generated from restaurant operations. Other than its
existing Bank Credit Facilities (See Note 4), IFFC has no current arrangements
with respect to, or sources of additional financing and there can be no
assurance that IFFC will be able to obtain additional financing or that
additional financing will be available on acceptable terms to fund future
commitments for capital expenditures.
Net income (loss) per common share - Primary net income per share for the
three months ended March 31, 1997 is based on net income for the period divided
by the weighted average number of common shares outstanding after giving effect
to dilutive warrants and the shares that would be issuable on the assumed
conversion of preferred stock. Fully diluted net income per share for the three
months ended March 31, 1997 is based on net income for the period adjusted for
the interest expense on the 9% Subordinated Convertible Debentures and the 8%
Convertible Promissory Notes divided by the weighted average number of Common
shares outstanding after giving effect to dilutive warrants, the shares that
would be issuable on the assumed conversion of preferred stock as well as the
shares that would be issuable on the assumed conversion of the 9% Subordinated
Convertible Debentures and the 8% Convertible Promissory Notes.
For the three months ended March 31, 1996, primary and fully diluted net
loss per share are the same and are based on the net loss for the period divided
by the weighted average number of common shares outstanding. Both computations
do not include the assumed exercise of any options or warrants or the assumed
conversion of any outstanding convertible securities since their inclusion would
be anti-dilutive.
9
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Reclassification - Certain amounts in the 1996 financial statements have
been reclassified to conform with the 1997 presentation.
3. RESTRICTED CASH:
At March 31, 1997 and 1996, the Company had $473,578 and $500,000,
respectively of restricted cash, which represents collateral for an outstanding
letter of credit.
4. BANK CREDIT FACILITIES:
Bank credit facilities at March 31, 1997 consists of the following:
1997
------------
Amerbank in Poland, S.A. overdraft
credit line, variable rate
approximately equal to prime, expires
March 31, 1998 $ 18,995
Amerbank, IFFP line of credit of
$300,000 payable in three quarterly
installments of $100,000 commencing on
March 31, 1998, interest payable
monthly at Amerbank prime, guaranteed
by IFFC. 300,000
Amerbank revolving credit facility, 12%
interest, $100,000 plus interest
payable on June 30, 1997, with the
remaining principal and all accrued
interest payable in full on September
30, 1997 210,000
Bank Handlowy Warszawie, S.A., IFFP
credit facility in the original
principal amount of $1,000,000
payable, $100,000 quarterly on June
30, 1997 and September 30, 1997, with
the remaining balance payable in full
on or before December 16, 1997,
interest at LIBOR plus 3.875%,
collateralized by amounts on deposit
with Bank Handlowy, unconditional
guarantee of IFFC, fixed assets of
IFFP of $1,250,000 and a letter of
credit in the amount of $500,000 750,000
------------
1,278,995
Less: Current Maturities 1,078,995
------------
Total Long Term Debt $ 200,000
============
5. CONVERTIBLE PROMISSORY NOTES:
In January and March 1997, IFFC sold to the Company's Chairman of the
Board, Chief Executive Officer and President along with his wife and other
members of his family an aggregate of $500,000 8% convertible promissory notes
due January 1999. The notes are collateralized by the Company's equity interest
in IFFP and are convertible into shares of the company's Common Stock at $.10
per share.
10
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. SHAREHOLDERS' EQUITY:
The Company's stock option plan provides for the granting of options to
qualified employees and directors of the Company. Stock option activity for the
three months ended March 31, 1997 follows:
1997
-------
Outstanding at beginning of period 200,000
Granted -
Exercised -
Expired -
-------
Outstanding at end of period 200,000
=======
Exercisable at end of period 190,000
=======
Price range of options outstanding
at end of period $ 1.375
=======
Available for grant at end of period 450,000
=======
During the three months ended March 31, 1997 and 1996, 32,996 and 215,645
shares of Common Stock were issued upon exchange of 990 and 6,470 shares of
Preferred Stock.
At March 31, 1997, IFFC had reserved the following shares of Common Stock
for issuance:
Stock option plan 650,000
Underwriter warrants, exercisable
at $6.50 per share through
May 31, 1997 130,000
Warrants issued in connection with
1994 exchange offer, exercisable at
$7.00 per share through August 1,
1999 290,800
Warrants to purchase $1,000,000
principal amount of debentures
convertible into Common Stock at a
conversion price of $8.50 per share
through December 16, 1997 117,647
Convertible Debentures convertible
into Common Stock at a conversion
price of $8.50 per share 324,235
Preferred Stock convertible into
Common Stock at a conversion price
of $3.00 per share 1,241,547
Warrants to purchase 50,000 shares
of Common Stock at an exercise price
of $.2831 per share 50,000
Convertible Promissory Notes con-
vertible into Common Stock at a
conversion price of $.10 per share 5,000,000
---------
Total reserved shares 7,804,229
=========
11
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES:
From September 1991 to May 1996, the relationship between IFFC and Burger
King Corporation ("BKC") was governed principally by the BKC Development
Agreement and by a franchise agreement relating to each restaurant, as described
below. A former majority shareholder entered into the BKC Development Agreement
in September 1991 and, in December 1991, assigned its rights and obligations
under the BKC Development Agreement to IFFC. Pursuant to the BKC Development
Agreement, IFFC was granted the exclusive right until September 24, 1996 to
develop and to be franchised to operate Burger King restaurants in Poland, with
certain exceptions. IFFC was obligated to open and did open one traditional
restaurant on December 24, 1992, three additional traditional restaurants by
September 25, 1993 and three additional traditional restaurants by September 24,
1994, which IFFC did in a timely manner. Pursuant to the BKC Development
Agreement, IFFC was required to open three additional traditional restaurants
during each of the two following twelve-month periods, for a total of 13
traditional restaurants open and operating by the end of the Initial Term.
Through the period ended September 24, 1994, IFFC was ahead of the required
development schedule. However, during the term of this Development Agreement
certain disputes arose between IFFC and BKC and, on March 17, 1995, IFFC and its
majority owned (85%) subsidiary, International Fast Food Polska ("IFFP"), filed
suit (the "BKC Litigation") against BKC in the Eleventh Circuit Court of the
State of Florida. IFFC alleged that BKC did not provide all of the support,
supervision and assistance required of it under the BKC Development Agreement
and the eight Franchise Agreements (the "Franchise Agreements") between BKC and
IFFC. By letter dated June 30, 1995, BKC notified IFFC that, at that time, BKC
would not elect to declare IFFC to be in default under the BKC Development
Agreement. BKC further stated that such notice was not a waiver of its legal
rights under the BKC Development Agreement to, in the future, declare IFFC's
failure to develop the requisite number of BKC restaurants an act of default. By
letter dated May 2, 1996, BKC notified IFFC that BKC believed that the BKC
Development Agreement had terminated pursuant to its terms.
The BKC Litigation was settled between the parties on March 11, 1997. In
connection with the settlement of the BKC Litigation, (see Note 8) a new
Development Agreement (the "New BKC Development Agreement") was entered into
between BKC and IFFC, which was then assigned by IFFC to IFFP on March 14, 1997;
IFFC continues to remain liable for the obligations contained in the New BKC
Development Agreement. Pursuant to the New BKC Development Agreement, IFFP has
been granted the exclusive right until September 30, 2007 to develop and be
franchised to operate Burger King restaurants in Poland with certain exceptions
discussed below. Pursuant to the New BKC Development Agreement, IFFC is required
to open 45 restaurants during the term of the Agreement. Each traditional Burger
King restaurant, in-line Burger King restaurant, or drive-thru Burger King
restaurant shall constitute one unit. A Burger King kiosk restaurant shall, for
purposes of the New BKC Development Agreement, be considered one quarter unit.
Pursuant to the New BKC Development Agreement, IFFC is to open three Development
12
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Units through September 30, 1998, four units in each year beginning October 1,
1998 and ending September 30, 2001 and five units in each year beginning October
1, 2001 and ending September 30, 2007.
Pursuant to the New BKC Development Agreement, IFFC shall pay BKC
$1,000,000 as a development fee. IFFC shall not be obligated to pay the
development fee if IFFC is in compliance with the development schedule by
September 30, 1999, and has achieved gross sales of $11,000,000 for 12 months
preceding the September 30, 1999 target date. If the development schedule has
been achieved but gross sales were less than $11,000,000, but greater than
$9,000,000, the development fee shall be reduced to $250,000. If the development
fee is payable due to failure to achieve the performance targets set forth
above, IFFC, at its option, may either pay the development fee or provide BKC
with the written and binding undertaking of Mr. Mitchell Rubinson, IFFC's
Chairman, that the Rubinson Group will completely divest themselves of any
interest in IFFC and the Burger King restaurants opened or operated by IFFC in
Poland within six (6) months of the date the development fee payment is due. The
Rubinson Group shall be defined to include any entity that Mr. Rubinson directly
or indirectly owns an aggregate interest of ten percent (10%) or more of the
legal or beneficial equity interest and any parent, subsidiary or affiliate of a
Rubinson entity. Mr. Rubinson has personally guaranteed payment of the
development fee.
For each restaurant opened, IFFC is obligated to pay BKC an initial fee of
up to $40,000 for franchise agreements with a term of 20 years and $25,000 for
franchise agreements with a term of ten years payable not later than twenty days
prior to the restaurant's opening. Each franchised restaurant must also pay a
percentage of the restaurant's gross sales, irrespective of profitability, as a
royalty for the use of the Burger King System and the Burger King Marks. The
annual royalty fee is five percent (5%) of gross sales. The franchises must also
contribute a monthly advertising and promotion fee of 6% of the restaurant's
gross sales, to be used for advertising, sales promotion, and public relations.
Payment of all amounts due to BKC is guaranteed by IFFC. The New BKC Development
Agreement calls for certain cash contributions from BKC to IFFC over the term of
the Development Agreement and additional sums based on an incentive arrangement
when earned to be retained by IFFC out of BKC's future royalties.
BKC may terminate rights granted to IFFC under the BKC Development
Agreement, including franchise approvals for restaurants not yet opened, for a
variety of possible defaults by IFFC, including, among others, failure to open
restaurants in accordance with the schedule set forth in the BKC Development
Agreement; failure to obtain BKC site approval prior to the commencement of each
restaurant's construction; failure to meet various operational, financial, and
legal requirements set forth in the BKC Development Agreement, including
maintaining of IFFP's net worth of $7,500,000 beginning on June 1, 1999. Upon
termination of the BKC Development Agreement, whether resulting from default or
expiration of its terms, BKC has the right to license others to develop and
operate Burger King restaurants in Poland, or to do so itself.
The BKC Development Agreement requires IFFC to designate a full-time
Managing Director to be responsible for the restaurants to be developed pursuant
13
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
to the New BKC Development. Such General Manager must be acceptable to BKC. Leon
Blumenthal, who has served as IFFC's Senior Vice President, Chief Operating
Officer, and Managing Director has been approved by BKC.
Specifically excluded from the scope of the BKC Development Agreement are
restaurants on United States military establishments. BKC has also reserved the
right to open restaurants in hotel chains with which BKC has, or may in the
future have, a multi-territory agreement encompassing Poland. With respect to
restaurants in airports, train stations, hospitals and other hotels, IFFC has
the right of first refusal with the owners of such sites. If IFFC is unable or
unwilling to reach a mutually acceptable agreement, BKC or its affiliates or
designated third parties may do so. IFFC is restricted from engaging in the fast
food hamburger restaurant business without the prior written consent of BKC,
which consent may not be withheld so long as IFFC and the franchisees operating
Burger King restaurants by designation of IFFC are adequately funded.
Subject to certain exceptions, as long as IFFC is a principal of IFFP, BKC
has the right to review and consent to certain types of new stock issuances of
IFFC for which the consent will not be unreasonably withheld, provided that IFFC
has complied with all reasonable conditions then established by BKC in
connection with the proposed sale or issuance of applicable equity securities by
IFFC.
8. LITIGATION:
BKC LITIGATION - On March 17, 1995, IFFC and IFFP (collectively, the "IFFC
Affiliates"), filed suit against BKC in the Eleventh Judicial Circuit Court of
the State of Florida. In their amended complaint, the IFFC Affiliates alleged,
among other things, that BKC breached certain of its express and implied
obligations under the BKC Development Agreement and the eight existing franchise
agreements (the "Franchise Agreements") pertaining to IFFP's eight Burger King
restaurants. The IFFC Affiliates further alleged that in connection with BKC's
sale of certain of its rights pursuant to the BKC Development Agreement and the
Franchise Agreements, BKC failed to timely deliver to the IFFC Affiliates a
complete and accurate franchise offering circular in accordance with rules
promulgated by the Federal Trade Commission (the "FTC Count"). The IFFC
affiliates also alleged that BKC committed certain acts which constitute fraud
and/or deceptive and unfair business practices. The IFFC Affiliates asked the
court to, among other things, award them compensatory damages of not less that
$15,000,000 punitive damages and certain costs and expenses.
On March 11, 1997, BKC, IFFC, IFFP and Rubinson, individually and on
behalf of Litigation Funding, Inc. entered into a Settlement Agreement. In
connection with the execution of the Settlement Agreement, IFFC and BKC entered
into the New BKC Development Agreement and eight (8) new Franchise Agreement.
BKC paid to IFFC the sum of $5,000,000 (less $21,865 of royalties owned by IFFP
to BKC for February 1997) for a net amount of $4,978,135. In addition, BKC
14
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
forgave $499,768 representing all monies owed BKC by IFFP and IFFC through
January 31, 1997. Under the terms of the Settlement Agreement, a portion of such
proceeds, not to exceed $2,000,000 cash may be used to immediately satisfy the
actual legal fees and costs of IFFC and IFFP incurred in connection with the BKC
litigation, including IFFC's and IFFP's obligation under the agreement between
IFFC, IFFP and Litigation Funding, Inc. The remaining $3,000,000 is to be used
by IFFC and IFFP for the development of additional BKC restaurants in Poland or
working capital for IFFP pursuant to the New BKC Development Agreement. The New
BKC Development Agreement calls for certain cash contributions from BKC to IFFC
over the term of such Agreement and additional sums based upon an incentive
arrangement when earned to be retained by IFFC out of BKC's future royalties.
IFFC contributes these funds into a marketing fund administered by IFFC. All
parties to the litigation stipulated to dismissal of the litigation and executed
mutual releases.
Litigation Financing Agreements. IFFC has entered into two agreements
specifically designed to assist it in financing the BKC Litigation. First, as of
January 25, 1996, the IFFC Affiliates entered into an Agreement to Assign
Litigation Proceeds (the "Funding Agreement") with Litigation Funding, Inc., a
Florida corporation ("Funding"). This agreement was later amended in July 1996.
Mitchell Rubinson, the chairman of the board, chief executive officer and
president of IFFC is also the chairman of the board, chief executive officer and
president and the principal shareholder of Funding.
Pursuant to the amended Funding Agreement, Funding agreed to pay on behalf
of IFFC and/or IFFP up to $750,001 (the "Amount") for all expenses (including
attorneys' fees, court costs and other related expenses, but not judgments or
amounts paid in settlement) actually incurred by or on behalf of IFFC and/or
IFFP in connection with investigating, defending, prosecuting, settling or
appealing the BKC Litigation and any and all claims or counterclaims of BKC
against IFFC and/or IFFP (collectively, the "BKC Matter"). Funding has paid all
amounts it has been requested to pay pursuant to the Funding Agreement.
In consideration of the Amount, IFFC and IFFP each assigned to Funding a
portion of any and all benefits and gross sums, amounts and proceeds that each
of them may receive, collect, realize, otherwise obtain or benefit from in
connection with, resulting from or arising in connection with the BKC Matter or
any related claim, demand, appeal, right and/or cause of action of the IFFC
Affiliates, including, but not limited to, amounts received or entitled to be
received by the IFFC Affiliates in respect to (i) the gross proceeds of any
court ordered decision or judgement (a "Judgement") entered in favor of IFFC
and/or IFFP, (ii) the Sale Proceeds (as such term is defined in the agreement,
the "Sales Proceeds") of any sale of the assets of IFFC and/or IFFP to BKC, any
of BKC's affiliates and/or any entity which is introduced to the IFFC Affiliates
by BKC (collectively, the "BKC Entities") in connection with a settlement of the
BKC Matter, (iii) any amounts paid in compromise or settlement (a "Settlement")
of the BKC Matter in whole or in part, (iv) any liabilities or indebtedness of
IFFC or IFFP assumed or satisfied by the BKC Entities (the "Debt Relief
Proceeds") and (v) the monetary value to the IFFC Affiliates of any concessions
made by BKC with respect to its rights under (a) the Development Agreement
15
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
and/or (b) the Franchise Agreements and any future franchise agreements between
BKC and IFFP and/or IFFC (the "Contract Modification Proceeds"). All of the IFFC
Affiliates' rights, titles and interests, legal and equitable, in and to such
aforementioned benefits and gross sums, amounts and proceeds are collectively
referred to herein as the "Proceeds".
Specifically, IFFC and IFFP each individually assigned, set over,
transferred and conveyed to Funding all of its right, title and interest in and
to the sum of the following (the "Assigned Proceeds"); (i) seventy five percent
(75%) of the Proceeds to the extent that such amount does not exceed Funding's
Expenses (Funding's Expenses") which are defined as the sum of the aggregate
amount of money paid by Funding as the Amount and the amount of money expended
by Funding if it assumes the prosecution of the BKC Matter; (ii) seventy five
percent (75%) of any Proceeds, excluding any Sales Proceeds, in excess of the
sum of Funding's Expenses and the IFFC Affiliates' Expenses; and (iii) seventy
five percent (75%) of any Sales Proceeds in excess of the sum of Funding's
Expenses and the IFFC Affiliates' Expenses.
Subject to Funding's recovery of Funding's Expenses, IFFC and IFFP have
retained the right in and shall be entitled to recover from the Proceeds the sum
of (i) $303,731, and (ii) all of the amounts they may expend in the future in
connection with the BKC Matter, before Funding shall be entitled to receive any
other Proceeds.
In connection with the execution and delivery of the Funding Agreement,
IFFC, IFFP, Funding and a law firm (the "Escrow Agent") entered into an Escrow
Agreement. Pursuant to the Funding Agreement and the Escrow Agreement, except
for Proceeds which the Escrow Agent cannot reduce to physical possession, all
Proceeds, if any, resulting from the BKC Matter are to be delivered to the
Escrow Agent before they are delivered to the IFFC Affiliates and/or Funding.
The Escrow Agent is required to dispose of Proceeds only in accordance with (1)
the joint written instructions of the Company, IFFP and Funding, or (2) the
instructions of a court of competent jurisdiction. The Funding Agreement
provides that the Escrow Agent shall first apply all Readily Available Cash
Proceeds {as such term is defined below, the "Readily Available Cash Proceeds")
to satisfy Funding's rights to Proceeds (assigned to Funding by IFFC or IFFP)
before any non-Readily Available Cash Proceeds are delivered to Funding by the
Escrow Agent on behalf of such company. Readily Available Cash Proceeds are
defined to be all cash proceeds payable to IFFC, IFFP or Funding within one (1}
year of a Judgement or Settlement. In the event that the Readily Available Cash
Proceeds are not sufficient to satisfy Funding's rights in Proceeds (assigned to
Funding by such company), then IFFC and IFFP have each agreed to pay out of its
individually available "cash and cash equivalents" (the "Cash Resources") an
amount of Cash Resources to satisfy the deficiency. In the event that the
Readily Available Cash Resources of a company are insufficient to Cover the
deficiency, such company, subject to Funding's agreement, will have the right to
elect which assets it will deliver to Funding in satisfaction of Funding's
rights to receive Proceeds. In the event that Funding is unable to agree with a
company with respect to which assets such company will deliver to Funding, then
the matter shall be submitted to a court of competent jurisdiction.
16
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In consideration of the Amount, IFFC also assigned to Funding a security
interest (the "Security Interest") in its entire equity interest in IFFP (the
"IFFP Stock"). The Security Interest secures the delivery to Funding of all the
Assigned Proceeds. In order to perfect the Security Interest, IFFC has agreed to
take all such actions as are necessary under the laws of the Republic of Poland
("Poland") and the State of Florida to transfer title to the IFFP Stock to the
Escrow Agent; provided, however, that IFFC has retained beneficial ownership of
the IFFP Stock, including the right to vote the IFFP Stock, unless Funding does
not receive the Assigned Proceeds in accordance with the terms of the Funding
Agreement and such nonreceipt is not rectified within 45 days (an "Event of
Default"). IFFC has further agreed to deliver to the Escrow Agent such documents
as are necessary to file with the appropriate authorities in Poland to, if an
Event of Default occurs, officially transfer legal and beneficial title to the
IFFP Stock to Funding. IFFC and Funding have agreed that record title to the
IFFP Stock is being transferred to the Escrow Agent to provide Funding a
perfected security interest in the IFFP Stock without being forced to rely on
Poland's apparently deficient system of recording and perfecting security
interest. If (1) Funding receives the Assigned Proceeds in accordance with the
terms of the Funding Agreement or (2) it becomes apparent that Funding shall not
ever be entitled to receive any Proceeds, then Funding is required to
immediately issue a notice to the Escrow Agent with respect to the IFFP Stock
and the Security Interest is to be satisfied and extinguished.
The IFFC Affiliates have also entered a second agreement to assist in the
financing of the BKC Litigation. On April 7, 1996, the IFFC Affiliates entered
into a letter agreement (the "Fee Agreement") with the law firm (the "Litigation
Counsel") representing the IFFC Affiliates in the BKC Litigation. Pursuant to
the Fee Agreement, IFFC and IFFP have agreed to pay Litigation Counsel the
greater of (a) Litigation Counsel's accrued hourly fees for legal services
provided in connection with the BKC Litigation; and (b) a certain percentage of
any final monetary recovery obtained by the IFFC Affiliates in the BKC
Litigation, in exchange for Litigation Counsel's services. The Company's legal
fees and related costs in connection with the BKC litigation, exclusive of the
$750,001 paid by Funding, were approximately $1,447,082, of which $200,000 was
paid by issuance of 2,000,000 shares of Common Stock to Litigation Counsel, in
April 1997. The 2,000,000 shares of Common Stock have been reflected as
outstanding in the accompanying Consolidated Financial Statements as of March
31, 1997.
The gain on settlement of the BKC Litigation is comprised as follows:
Settlement Proceeds:
Cash received from BKC $ 5,000,000
Forgiveness of liabilities due
to BKC499,768
Value attributable to Development
Agreement 1,000,000
-----------
Total proceeds 6,499,768
Less Settlement Costs and Deferred Credits:
Legal fees and costs paid by
17
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
IFFC (1,447,082)
Legal fees and costs paid by
Funding ( 750,001)
Deferred Credit (1,000,000)
-----------
Net settlement proceeds 3,302,685
Portion of net settlement proceeds
due to Funding (2,477,014)
Legal fees and costs paid by IFFC
in prior periods and charged
against operations 501,399
-----------
IFFC gain on settlement $ 1,327,070
===========
IFFC has valued the New Development Agreement at $1,000,000 which is its
best estimate of the cost that it would incur in obtaining such agreement from
BKC exclusive of all other matters associated with the BKC settlement. Due to
the uncertainty relating to IFFC's ability to meet the performance requirements
specified in the New Development Agreement, which must be achieved by September
30, 1999, coupled with the $1,000,000 amount that will be payable to BKC if the
minimum performance requirements are not met, IFFC has recorded a Deferred
Credit of $1,000,000 in connection with recognition of gain on settlement of the
BKC Litigation. If the minimum performance objectives required by the New
Development Agreement are achieved by September 30, 1999, $562,500 of the
Deferred Credit will become payable to Funding, and $187,500 will be recognized
by IFFC as additional gain on the BKC Litigation settlement and $250,000 will
become payable to BKC. If the maximum performance objectives required by the New
Development Agreement are achieved by September 30, 1999, $750,000 of the
Deferred Credit will become payable to Funding and $250,000 will be recognized
by IFFC as additional gain on the BKC Litigation settlement. If the minimum
performance objectives are not met the $1,000,000 Deferred Credit will become
payable to BKC.
At March 31, 1997, the payable to Funding is comprised as follows:
Portion of net settlement proceeds
due to Funding $ 2,477,014
Reimbursement of legal fees and
costs paid by Funding 750,001
-----------
Balance due to Funding 3,227,015
Portion classified as current 1,028,521
-----------
Promissory note payable $ 2,198,494
==========
The promissory note bears interest at prime plus 1%, and matures on
December 31, 1998. Interest is payable quarterly beginning on July 1, 1997. The
note may be prepaid in whole or part at any time without penalty. The note is
collateralized by the Company's equity interest in IFFP. The remaining balance
due to Litigation Funding in the amount of $1,028,521 was paid in May 1997.
18
<PAGE>
INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
POLISH FISCAL AUTHORITY DISPUTES - As of July 1995, IFFC may have become
subject to penalties for failure to comply with a recently amended tax law
requiring the use of cash registers with certain calculating and recording
capabilities and which are approved for use by the Polish Fiscal Authorities.
Although IFFP's NCR Cash Register System (the "Cash Register System") is a
modern system, the System cannot be modified and will ultimately need to be
replaced in order to comply with the new tax law. IFFP is now in compliance with
the tax law using a parallel cash register system but was unable to modify
and/or replace its Cash Register System before July 1995. As a penalty for
noncompliance, Polish tax authorities may disallow certain VAT deductions for
July and August, which were previously deducted by IFFP. Additionally, penalties
and interest may be imposed on these disallowed deductions. IFFP believes that
its potential exposure is approximately $150,000, which amount has been provided
for in the accompanying financial statements. IFFP has requested a final
determination by the Polish Minister of Finance. The Company is unable to
predict the timing and nature of the Ministers ruling. IFFP has not yet made a
decision whether or not to replace its Cash Register System. IFFP believes a new
cash register system would cost approximately $250,000.
ROMANSKA - NINKOWIC - In April 1997, Ms. Romanska - Ninkowic filed suit in
Voivodship Court in Krakow, Poland against IFFP. Ms. Romanska - Ninkowic alleges
that IFFP owes her approximately 266,831 PLN (approximately $89,000) in final
settlement for the construction of IFFP's Katowice restaurant. IFFP is in the
process of filing a countersuit against Ms. Romanska - Ninkowic citing, among
other things, failure to comply with the terms of the contractor's agreement. No
court date has been set. IFFP believes the charges are without merit.
19
<PAGE>
ITEM I. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
IFFC currently operates its business in Poland through its majority owned
(85%) subsidiary, International Fast Food Polska, and three wholly-owned Polish
limited liability corporations, IFF Polska-Kolmer, IFF-DX Management and IFF
Polska i Spolka. Unless the context indicates otherwise, references herin to
IFFC include all of its operating subsidiaries.
IFFC currently operates eight Traditional Burger King Restaurants. IFFC
has incurred losses and anticipates that it will continue to incur losses until,
at the earliest, it establishes a number of restaurants generating sufficient
revenues to offset its operating costs and the costs of its proposed continuing
expansion. There can be no assurance that IFFC will be able to successfully
establish a sufficient number of restaurants to achieve profitable operations.
The BKC Development Agreement required IFFC to open at least 13
full-service traditional restaurants prior to September 1996, including seven
traditional restaurants by September 24, 1994 and three additional traditional
restaurants during each of the two following twelve-month periods. IFFC
currently operates eight restaurants. Through the period ended September 24,
1994, IFFC was ahead of the required development schedule. However, during the
term of this Development Agreement certain disputes arose between IFFC and BKC
and, on March 17, 1995, IFFC and its majority owned (85%) subsidiary,
International Fast Food Polska ("IFFP"), filed suit (the "BKC Litigation")
against BKC in the Eleventh Circuit Court of the State of Florida. IFFC alleged
that BKC did not provide all of the support, supervision and assistance required
of it under the BKC Development Agreement and the eight Franchise Agreements
(the "Franchise Agreements") between BKC and IFFC. By letter dated June 30,
1995, BKC notified IFFC that, at that time, BKC would not elect to declare IFFC
to be in default under the BKC Development Agreement to, in the future, declare
IFFC's failure to develop the requisite number of BKC restaurants an act of
default. By letter dated May 2, 1996, BKC notified IFFC that BKC believed that
the Development Agreement had terminated pursuant to its terms. Throughout the
term of this Development Agreement certain disputes arose between IFFC and BKC
and, on March 17, 1995, IFFC and its majority owned (85%) subsidiary,
International Fast Food Polska ("IFFP"), filed suit (the "BKC Litigation")
against BKC in the Eleventh Circuit Court of the State of Florida. IFFC alleged
that BKC did not provide all of the support, supervision and assistance required
of it under the BKC Development Agreement and the eight Franchise Agreements
(the "Franchise Agreements") between BKC and IFFC. On March 11, 1997, IFFC, BKC,
IFFP, Mitchell Rubinson, IFFC's chairman and Litigation Funding, Inc. entered
into a settlement agreement regarding the BKC litigation. See Part II. Item 2.
Legal Proceedings - BKC Litigation.
On March 11, 1997, BKC, IFFC, IFFP, and Rubinson, individually and on
behalf of Litigation Funding, Inc. entered into a Settlement Agreement. In
connection with the execution of the Settlement Agreement, IFFC and BKC entered
into the New BKC Development Agreement and new Franchise Agreements. BKC paid to
IFFC for the benefit of IFFC and IFFP the sum of $5,000,000 (less $21,865 of
royalties owed by IFFP to BKC for February 1997) for a net amount of $4,978,135.
BKC forgave $499,768 representing all monies owed BKC by IFFP and IFFC to BKC
through and including January 31, 1997. Under the terms of the Settlement
Agreement, a portion of such proceeds, not to exceed $2,000,000 cash may be used
to immediately satisfy the actual legal fees and costs of IFFC and IFFP incurred
20
<PAGE>
in connection with the BKC litigation, including IFFC's and IFFP's obligation
under the agreement between IFFC, IFFP and Litigation Funding, Inc. The
remaining 3,000,000 may be used by IFFC and IFFP for the development of
additional BKC restaurants in Poland or working capital for IFFP pursuant to the
New BKC development Agreement. All parties to the litigation stipulated to
dismissal of the litigation and executed mutual releases.
In order to secure additional funds to finance the BKC Litigation, IFFC
entered into two agreements specifically designed to assist it in financing the
BKC Litigation. First, as of January 25, 1996, the IFFC Affiliates entered into
an Agreement to Assign Litigation Proceeds (the "Funding Agreement") with
Litigation Funding, Inc., a Florida corporation ("Funding"). This agreement was
later amended in July 1996. Mitchell Rubinson, the chairman of the board, chief
executive officer and president of IFFC is also the chairman of the board, chief
executive officer and president and the principal shareholder of Funding.
Pursuant to the amended Funding Agreement, Funding agreed to pay on behalf
of IFFC and/or IFFP up to $750,001 (the "Amount") for all expenses (including
attorneys' fees, court costs and other related expenses, but not judgments or
amounts paid in settlement) actually incurred by or on behalf of IFFC and/or
IFFP in connection with investigating, defending, prosecuting, settling or
appealing the BKC Litigation and any and all claims or counterclaims of BKC
against IFFC and/or IFFP (collectively, the "BKC Matter"). Funding has paid all
amounts it has been requested to pay pursuant to the Funding Agreement.
In consideration of the Amount, IFFC and IFFP each assigned to Funding a
portion of any and all benefits and gross sums, amounts and proceeds that each
of them may receive, collect, realize, otherwise obtain or benefit from in
connection with, resulting from or arising in connection with the BKC Matter or
any related claim, demand, appeal, right and/or cause of action of the IFFC
Affiliates, including, but not limited to, amounts received or entitled to be
received by the IFFC Affiliates in respect to (i) the gross proceeds of any
court ordered decision or judgement (a "Judgement") entered in favor of IFFC
and/or IFFP, (ii) the Sale Proceeds (as such term is defined in the agreement,
the "Sales Proceeds") of any sale of the assets of IFFC and/or IFFP to BKC, any
of BKC's affiliates and/or any entity which is introduced to the IFFC Affiliates
by BKC (collectively, the "BKC Entities") in connection with a settlement of the
BKC Matter, (iii) any amounts paid in compromise or settlement (a "Settlement")
of the BKC Matter in whole or in part, (iv) any liabilities or indebtedness of
IFFC or IFFP assumed or satisfied by the BKC Entities (the "Debt Relief
Proceeds") and (v) the monetary value to the IFFC Affiliates of any concessions
made by BKC with respect to its rights under (a) the Development Agreement
and/or (b) the Franchise Agreements and any future franchise agreements between
BKC and IFFP and/or IFFC (the "Contract Modification Proceeds"). All of the IFFC
Affiliates' rights, titles and interests, legal and equitable, in and to such
aforementioned benefits and gross sums, amounts and proceeds are collectively
referred to herein as the "Proceeds".
Specifically, IFFC and IFFP each individually assigned, set over,
transferred and conveyed to Funding all of its right, title and interest in and
to the sum of the following (the "Assigned Proceeds"); (i) seventy five percent
(75%) of the Proceeds to the extent that such amount does not exceed Funding's
Expenses (Funding's Expenses") which are defined as the sum of the aggregate
amount of money paid by Funding as the Amount and the amount of money expended
by Funding if it assumes the prosecution of the BKC Matter; (ii) seventy five
percent (75%) of any Proceeds, excluding any Sales Proceeds, in excess of the
21
<PAGE>
sum of Funding's Expenses and the IFFC Affiliates' Expenses (as such term is
defined below, the "IFFC Affiliates' Expenses"); and (iii) seventy five percent
(75%) of any Sales Proceeds in excess of the sum of Funding's Expenses and the
IFFC Affiliates' Expenses.
Subject to Funding's recovery of Funding's Expenses, IFFC and IFFP have
retained the right in and shall be entitled to recover from the Proceeds the sum
of (i) $303,731, and (ii) all of the amounts they may expend in the future in
connection with the BKC Matter, before Funding shall be entitled to receive any
other Proceeds.
The IFFC Affiliates also entered a second agreement to assist in the
financing of the BKC Litigation. On April 7, 1996, the IFFC Affiliates entered
into a letter agreement (the "Fee Agreement") with the law firm (the "Litigation
Counsel") representing the IFFC Affiliates in the BKC Litigation. Pursuant to
the Fee Agreement, IFFC and IFFP have agreed to pay Litigation Counsel the
greater of (a) Litigation Counsel's accrued hourly fees for legal services
provided in connection with the BKC Litigation; and (b) a certain percentage of
any final monetary recovery obtained by the IFFC Affiliates in the BKC
Litigation, in exchange for Litigation Counsel's services. The percentage of any
monetary recovery payable to Litigation Counsel would vary depending upon
whether or not: (1) the BKC Litigation is settled at or before mediation; (2)
the BKC Litigation is settled after mediation but before a verdict; (3) the BKC
Litigation is resolved by a jury or court verdict; and (4) the IFFC Affiliates
successfully appeal a verdict in the BKC Litigation or if they successfully
defend against an appeal by BKC of the verdict in the BKC Litigation.
In connection with the settlement of the BKC Litigation and pursuant to
the provisions of the Funding Agreement as of March 31, 1997, IFFC is indebted
to Funding for an aggregate amount of $3,227,015. See Note 8 of Notes To
Consolidated Financial Statements for a description of the amounts due to
Funding.
As of March 31, 1997, IFFC had working capital of approximately $1,990,482
and Cash and Cash Equivalents of $4,825,614. IFFC's working capital and cash
position were significantly improved by the settlement of the BKC Litigation in
March 1997. Although IFFC believes that it has sufficient funds to finance its
present plan of operations through December 31, 1997, IFFC cannot reasonably
estimate how long it will be able to satisfy its cash requirements. The capital
requirements relating to implementation of the New BKC Development Agreement are
significant. Based upon current assumptions, IFFC will seek to implement its
business plan utilizing its Cash and Cash Equivalents and cash generated from
restaurant operations. In order to satisfy the capital requirements of the New
BKC Development Agreement IFFC will require resources substantially greater than
the amounts it presently has or amounts that can be generated from restaurant
operations. Except as discussed below, IFFC has no current arrangements with
respect to, or sources of additional financing and there can be no assurance
that IFFC will be able to obtain additional financing or that additional
financing will be available on acceptable terms to fund future commitments for
capital expenditures.
22
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 VS THREE MONTHS ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
For the three months ended March 31, 1997 and March 31, 1996, IFFC
generated Restaurant Sales of $1,358,610 and $1,268,674, respectively. In U.S.
dollar and Polish zloty terms IFFC's Restaurant Sales increased by approximately
7% and 27% for the three months ended March 31, 1997 and March 31, 1996,
respectively. The increase is primarily attributable to improved local store
marketing and the general improvements in the Polish economy.
During the three months ended March 31, 1997 and 1996, IFFC generated
other operating Revenue of $28,864 and $38,077, net of direct costs and expenses
relating to a video game arcades located in its restaurants.
During the three months ended March 31, 1997, IFFC incurred Food and
Packaging Expense of $568,943, Payroll and Related Costs of $216,852 , Occupancy
and Other Operating Expenses of $365,068, and Depreciation and Amortization
Expense of $223,487.
Food and Packaging Costs for the three months ended March 31, 1997 and
1996 were 41.9% and 45.1% of Restaurant Sales, respectively. The 3.2% decrease
as a percentage of Restaurant Sales is primarily attributable to improved
product sourcing, the implementation of tighter cost controls, a decrease in
custom duties and import tax on paper goods coupled with an increase in
Restaurant Sales.
Payroll and Related Costs for the three months ended March 31, 1997 and
1996 were 16% and 14.6% of Restaurant Sales, respectively. The 1.4% as a
percentage of Restaurant Sales increased primarily as a result of an increase in
the minimum wage rate in Poland effective January 1, 1997, coupled with an
increase in personnel.
Occupancy and Other Operating Expenses for the three months ended March
31, 1997 and 1996 were 26.9% and 29.9% of Restaurant Sales, respectively. The 3%
decrease as a percentage of Restaurant Sales is primarily attributable to a
decrease in advertising expense coupled with an increase in Restaurant Sales.
Depreciation and Amortization Expense as a percentage of Restaurant Sales
was 16.4% and 19.4% in the three months ended March 31, 1997 and 1996,
respectively. The 3% decrease as a percentage of restaurant sales is primarily
attributable to an increase in Restaurant Sales coupled with the fully
depreciated status of certain assets still in use.
General and Administrative Expenses for the three months ended March 31,
1997 and 1996 were 36.3% and 39.4% of Restaurant Sales, respectively. The 3.1%
decrease as a percentage of Restaurant Sales is primarily attributable to
reduced legal and professional fees and an increase in restaurant sales. IFFC
does not anticipate its General and Administrative Expenses will increase
significantly over the next twelve months. For the three months ended March 31,
1997, General and Administrative Expenses was comprised of executive and office
staff salaries and benefits ("Salary Expense") $125,669; legal and professional
fees, office rent, travel, telephone and other corporate expenses ("Corporate
Overhead Expense") $358,167, and depreciation and amortization $8,314. For the
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three months ended March 31, 1996, General and Administrative Expense was
comprised of executive and office staff salaries $183,066; legal and
professional fees, office rent, travel, telephone and other general corporate
expenses $291,490, and depreciation and amortization $24,757.
For the three months ended March 31, 1997, IFFC generated net income of
$829,826 or $.07 per share of IFFC's Common Stock compared to a net loss of
$(562,600), or $(.14) per share of IFFC's Common Stock for the three months
ended March 31, 1996. During the three months ended March 31, 1997, IFFC
recognized a non-recurring gain of $1,327,070 or $.11 per share of IFFC's Common
Stock in connection with the settlement of the BKC Litigation.
IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Item 2.
Legal Proceedings - Polish Fiscal Authority Disputes" for a description of such
matters.
For the three months ended March 31, 1997 and 1996 Interest and Other Income was
comprised as follows:
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
Interest income $ 35,923 $ 41,348
Foreign exchange (losses)
gains, net ( 23,234) 2,967
Management fee 3,902 1,336
All other, net ( 154) 6,258
---------- ----------
$ 16,437 $ 51,909
========== ==========
Interest Expense is comprised as follows:
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
Interest Expense on Subordinated
Convertible Debentures $ 62,010 $ 62,010
Interest Expense on Convertible
Promissory Notes 7,290 -
Amortization of Debenture
Issuance Costs 8,314 8,314
Interest Expense on Bank
Facilities 27,933 40,353
---------- ----------
Total $ 105,547 $ 110,677
========== ==========
Interest Expense exceeded Interest and Other Income by $386,050 and
$404,666 for the years ended December 31, 1996 and 1995, respectively. As a
result of IFFC's consummation of the Second Exchange Offer (defined below) as of
January 13, 1995, IFFC's Interest Expense on Debentures should not exceed
$248,000 in the year ended December 31, 1997. The level of Interest Expense on
Debentures will be partially offset by IFFC's payment of dividends with respect
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to the shares of Preferred Stock (defined below) issued in the Second Exchange
Offer. Each share of Preferred Stock receives dividends, payable semi-annually
on each June 15 and December 15, at a rate of $6.00 per annum, which dividends
may, at the option of IFFC, be paid in cash, or through the issuance of IFFC
Common Stock or a combination thereof. The June 15, 1996 and December 15, 1996
dividend payments were not made and as of March 31, 1997 dividends in arrears
aggregated $229,440.
IFFC's interest expense on bank facilities was $27,933 and $40,353 for the
three months ended March 31, 1997 and 1996, respectively. The $12,420 decrease
is attributable to IFFC's reduction of borrowings under bank credit facilities.
During the three months ended March 31, 1997, IFFC recorded a
non-recurring gain of $1,327,070, or $.13 per share of IFFC's Common Stock in
connection with the settlement of the BKC Litigation. See Note 8 of Notes To
Consolidated Financial Statements for the components included in the calculation
of the gain.
LIQUIDITY AND CAPITAL RESOURCES
IFFC's material commitments for capital expenditures in its restaurant
business relate to the restaurants that it is required to open in order to
comply with the provisions of the BKC Development Agreement.
From September 1991 to May 1996, the relationship between IFFC and Burger
King Corporation ("BKC") was governed principally by the BKC Development
Agreement and by a franchise agreement relating to each restaurant, as described
below. A former majority shareholder entered into the BKC Development Agreement
in September 1991 and, in December 1991, assigned its rights and obligations
under the BKC Development Agreement to IFFC. Pursuant to the BKC Development
Agreement, IFFC was granted the exclusive right until September 24, 1996 to
develop and to be franchised to operate Burger King restaurants in Poland, with
certain exceptions. IFFC was obligated to open and did open one traditional
restaurant by December 24, 1992, three additional traditional restaurants by
September 25, 1993 and three additional traditional restaurants by September 24,
1994, which IFFC did in a timely manner. Pursuant to the BKC Development
Agreement, IFFC was required to open three additional traditional restaurants
during each of the two following twelve-month periods, for a total of 13
traditional restaurants open and operating by the end of the Initial Term.
Through the period ended September 24, 1994, IFFC was ahead of the required
development schedule. However, during the term of this Development Agreement
certain disputes arose between IFFC and BKC and, on March 17, 1995, IFFC and its
majority owned (85%) subsidiary, International Fast Food Polska ("IFFP"), filed
suit (the "BKC Litigation") against BKC in the Eleventh Circuit Court of the
State of Florida. IFFC alleged that BKC did not provide all of the support,
supervision and assistance required of it under the BKC Development Agreement
and the eight Franchise Agreements (the "Franchise Agreements") between BKC and
IFFC. By letter dated June 30, 1995, BKC notified IFFC that, at that time, BKC
would not elect to declare IFFC to be in default under the BKC Development
Agreement. BKC further stated that such notice was not a waiver of its legal
rights under the BKC Development Agreement to, in the future, declare IFFC's
failure to develop the requisite number of BKC restaurants an act of default. By
letter dated May 2, 1996, BKC notified IFFC that BKC believed that the BKC
Development Agreement had terminated pursuant to its terms.
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The BKC Litigation was settled between the parties on March 11, 1997. In
connection with the settlement of the BKC Litigation, a new Development
Agreement (the "New BKC Development Agreement") was entered into between BKC and
IFFC, which was then assigned by IFFC to IFFP on March 14, 1997; IFFC continues
to remain liable for the obligations contained in the New BKC Development
Agreement. Pursuant to the New BKC Development Agreement, IFFC has been granted
the exclusive right until September 30, 2007 to develop and be franchised to
operate Burger King restaurants in Poland with certain exceptions discussed
below. Pursuant to the New BKC Development Agreement, IFFC is required to open
45 Development Units during the term of the Agreement. Each traditional Burger
King restaurant, in-line Burger King restaurant, or drive-thru Burger King
restaurant shall constitute one unit. A Burger King kiosk restaurant shall, for
purposes of the New BKC Development Agreement, be considered one quarter unit.
Pursuant to the New BKC Development Agreement, IFFC is to open three Development
Units through September 30, 1998, four units in each year beginning October 1,
1998 and ending September 30, 2001 and five units in each year beginning October
1, 2001 and ending September 30, 2007.
Pursuant to the New BKC Development Agreement, IFFC shall pay BKC
$1,000,000 as a development fee. IFFC shall not be obligated to pay the
development fee if IFFC is in compliance with the development schedule by
September 30, 1999, and has achieved gross sales of $11,000,000 for the 12
months preceding the September 30, 1999, target date. If the development
schedule has been achieved but gross sales were less than $11,000,000, but
greater than $9,000,000, the development fee shall be reduced to $250,000. If
the development fee is payable due to the failure of IFFC to achieve the
performance targets set forth above, IFFC, at its option, may either pay the
development fee or provide BKC with the written and binding undertaken of Mr.
Mitchell Rubinson, IFFC's Chairman, that the Rubinson Group will completely
divest themselves of any interest in IFFC and the Burger King restaurants opened
or operated by IFFC in Poland within six (6) months of the date the development
fee payment is due. The Rubinson Group shall be defined to include any entity
that Mr. Rubinson directly or indirectly owns an aggregate interest of ten
percent (10%) or more of the legal or beneficial equity interest and any parent,
subsidiary or affiliate of a Rubinson entity. Mr. Rubinson has personally
guaranteed payment of the development fee.
BKC may terminate rights granted to IFFC under the BKC Development
Agreement, including franchise approvals for restaurants not yet opened, for a
variety of possible defaults by IFFC, including, among others, failure to open
restaurants in accordance with the schedule set forth in the BKC Development
Agreement; failure to obtain BKC site approval prior to the commencement of each
restaurant's construction; failure to meet various operational, financial, and
legal requirements set forth in the BKC Development Agreement, including
maintaining of IFFP's net worth of $7,500,000 beginning on June 1, 1999. Upon
termination of the BKC Development Agreement, whether resulting from default or
expiration of its terms, BKC has the right to license others to develop and
operate Burger King restaurants in Poland, or to do so itself.
IFFC currently estimates the cost of opening a traditional restaurant to
be approximately $450,000 to $1,000,000, including leasehold improvements,
furniture, fixtures, equipment, and opening inventories. Such estimates vary
depending primarily on the size of a proposed restaurant and the extent of the
improvements required. The development of additional restaurants is contingent
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upon, among other things, IFFC's ability to generate cash from operations and/or
securing additional debt or equity financing. If cash is unavailable from those
sources, IFFC will have to curtail any additional development until additional
cash resources are secured.
IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Part II.
Item 2. Legal Proceedings - Polish Fiscal Authority Disputes" for a description
of such matters and IFFC's best estimates of the expenses IFFC anticipates
incurring and the timing of such expenses.
On May 17, 1996, IFFC's Common Stock was deleted from the NASDAQ Stock
Market and has traded on the over the counter market since that date and
accordingly, IFFC believes that its ability to raise additional equity capital
has been negatively impacted.
To date, IFFC's business operations have been principally financed by
proceeds from public offerings of IFFC's equity and debt securities, private
offerings of equity and debt securities, proceeds from a number of bank credit
facilities and proceeds from the sale of certain equity securities of IFFC's
formerly wholly-owned subsidiary.
In June 1992, IFFC consummated an underwritten initial public offering of
1,495,000 shares of its common stock for an aggregate of $7,475,000, yielding
IFFC proceeds of approximately $6,134,000. In December 1992 and January 1993,
IFFC consummated an underwritten public offering of an aggregate of $11,400,000
in principal amount of 9% Convertible Subordinated Debentures due 2007 (the
"Debentures") for aggregate net proceeds of approximately $9,701,000.
On January 14, 1994, IFFC proposed to exchange (the "First Exchange
Offer") each $1,000 in principal amount of its Debentures validly tendered for
one Unit consisting of 160 newly issued shares of its Common Stock and Warrants
to purchase 100 shares of its Common Stock at an exercise price of $7.00 per
share. Upon completion of the First Exchange Offer on February 11, 1994,
$2,908,000 in principal amount of Debentures were tendered and accepted by IFFC
for exchange.
On November 7, 1994, IFFC proposed to exchange (the "Second Exchange
Offer") for each $1,000 in principal amount of Debentures validly tendered ten
shares of IFFC's Series A 6% Convertible Preferred Stock (the "Preferred
Stock"). The Preferred Stock (i) has a liquidation preference value of $100 per
share, (ii) is convertible into shares of IFFC's Common Stock at a conversion
price of $3.00 per share, and (iii) receives dividends, payable semi-annually on
each June 15 and December 15, at the rate of $6.00 per annum, which dividends
may, at the option of IFFC, be paid in cash, through the issuance of Common
Stock or a combination of cash and Common Stock, and (iv) are redeemable under
certain circumstances. Upon completion of IFFC's Second Exchange Offer on
January 13, 1995 $5,636,000 in principal amount of Debentures were tendered and
accepted by IFFC in exchange for 56,360 shares of Preferred Stock. IFFC
recognized an extraordinary gain of $1,106,642, the difference between (a) the
estimated fair value of the 56,360 shares of Preferred Stock issued ($3,757,590)
and (b) the sum of the carrying value of the Debentures and accrued interest,
net of unamortized Debenture issuance costs. Since the consummation of the
second exchange offer in January 1995, $2,756,000 principal amount of the 9%
Subordinated Convertible Debentures due December 15, 2007 remain outstanding.
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On June 15, 1995 and December 15, 1995, rather than expend its cash
resources, IFFC paid dividends with respect to its outstanding shares of
Preferred Stock by issuing 107,630 and 168,912 additional shares of Common
Stock, respectively. These stock dividends had no effect on total stockholders
equity as common stock and additional paid in capital were increased and
retained earnings were decreased by $142,778 in connection with the first
dividend payment and $150,078 in connection with the second dividend payment.
IFFC did not pay the preferred dividends that were due on June 15, 1996 and
December 15, 1996, and as of March 31, 1997, $229,440 of preferred dividends
remain in arrears. At March 31, 1997 there were 37,250 shares of Preferred Stock
outstanding.
In June 1996, after considering various alternatives and including the
market price for the Company's Common Stock, its trading volume and various time
constraints the Board of Directors authorized the issuance of 2,200,000 shares
of the Company's Common Stock for a total purchase price of $110,000 to Mitchell
Rubinson and his wife Edda. The Company used the proceeds from the sale of the
shares for payment of interest on the Company's Convertible Subordinated
Debentures.
In September 1996, the Company had working capital needs, and had incurred
additional expenses in connection with the BKC Litigation. The Board of
Directors of IFFC authorized the sale of 2,500,000 shares of common stock at
$.10 per share. Marilyn Rubinson, Jaime Rubinson and Kim Rubinson, the mother
and daughters of Mitchell Rubinson, the Company's President purchased 250,000
shares each or a total of 750,000 shares..
In November 1996, the Company had additional working capital needs. The
Board of Directors of IFFC authorized the sale of 500,000 shares of common stock
$.10 per share Jaime Rubinson and Kim Rubinson, the daughters of Mitchell
Rubinson, the Company's President purchased 250,000 shares each.
In December 1996, IFFC had outstanding an interest payment of
approximately $125,000 in connection with its Convertible Subordinated
Debentures and additional working capital needs. After considering various
alternatives and factors, the Board of Directors of IFFC authorized the sale of
1,500,000 shares of common stock of IFFC to Marilyn Rubinson, the Mother of
Mitchell Rubinson, the Company's President at $.10 per share.
In January 1997, Marilyn Rubinson, the mother of Mitchell Rubinson, Jaime
Rubinson and Kim Rubinson, Mr. Rubinson's daughters, purchased $300,000, $50,000
and $50,000 aggregate principal amount of convertible promissory notes,
respectively. The notes bear interest at 8% per annum and mature on January 13,
1999. The notes are convertible into shares of the Company's Common Stock at
$.10 per share. The proceeds from the sale of the notes were used to fund the
cost and expenses in connection with the Company's litigation against BKC and
general working capital. In January 1997, Mr. Rubinson and his wife, Edda
purchased from the Company a convertible promissory note in the aggregate
principal amount of $100,000. The note bear interest at 8% percent per annum and
matures on January 13, 1999. The note converts into shares of the Company's
Common Stock at $.10 per share. The Convertible promissory notes are
collateralized by the Companys equity interest in IFFP.
On March 14, 1997, IFFC issued a promissory note in the original principal
amount of $2,198,494 to Litigation Funding as partial payment of amounts due to
Litigation Funding in connection with the settlement of the BKC Litigation. The
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note bears interest at prime plus 1%, is payable in full on December 31, 1998,
and may be prepaid in whole or in part at anytime, without penalty. The note is
collateralized by the Company's equity interest in IFFP. The remaining balance
due to Litigation Funding in the amount of $1,028,521 was paid in May 1997.
As of March 31, 1997 and May 8, 1997, IFFC had $492,470 and $531,094,
respectively, in accounts with AmerBank and substantially all of such funds were
held as European Currency Unit denominated deposits. As of March 31, 1997 and
May 8, 1997, $473,578 and $500,000, respectively of the cash on deposit with
Amerbank was restricted and secured outstanding balances of IFFP's Credit
Facility with Bank Handlowy. As of March 31, 1997 and May 8, 1997, IFFC had
$13,637 and $20,721, respectively, in an operating account with Bank Handlowy.
IFFC has also financed its operations through the use of credit
facilities, which credit facilities are described below.
As of January 28, 1993, IFFP entered into a revolving credit facility with
American Bank of Poland S.A. ("AmerBank") totalling 3,000,000,000 zloty, or
approximately $123,000 at- year end exchange rates. Borrowings under the January
28,1993 AmerBank credit facility are secured by a guarantee of IFFC and bear
interest at a monthly adjusted variable rate approximately equal to AmerBank's
prime rate. Borrowings under the January 28, 1993 AmerBank credit facility were
repayable as of January 28, 1996. However, on October 30, 1995 and April 12,
1996, the credit facility was amended as follows: (i) the immediately available
credit available was decreased to 2,000,000,000 in zlotys (approximately $81,000
at year end exchange rates), and (ii) repayment of borrowings was deferred until
October 30, 1996. The credit facility matures on March 31, 1998. As of March 31,
1997 and May 8, 1997, the outstanding balance on the credit facility was $18,995
and $5,938 , respectively.
As of February 23, 1994, IFFC terminated a credit facility created on
February 12, 1993 and entered into a new $1,000,000 credit facility with
AmerBank. The new credit facility was structured as a revolving credit facility
through May 31, 1994. During this initial period, draws could be made in minimum
increments of $40,000 to purchase, and are secured by, furniture, equipment and
related items for restaurants. During the initial period, interest accrued on
the outstanding balance at a rate of 12% per annum and was due and payable
quarterly. As of July 31, 1994, the outstanding balance under the credit
facility became due and payable at a rate of $90,000 plus interest every three
months with any principal outstanding as of April 30, 1996 immediately due and
payable. On November 7, 1996 AmerBank agreed to amend the credit facility so
that the outstanding principal balance becomes due and payable at a rate of
$100,000 on March 31, 1997, $100,000 on June 30, 1997 and $110,000 on September
30, 1997 plus interest every three months. As of March 31, 1997 and May 8, 1997,
approximately $210,000 was outstanding under the AmerBank credit facility.
On February 16, 1996, IFFP entered into a $300,000 line of credit with
AmerBank, the proceeds of which may be used to finance IFFP's business
operations. Pursuant to the line of credit, IFFC could make draws on the line of
credit until June 30, 1996. IFFP is required to make interest payments on the
outstanding principal amount of the credit facility at AmerBank's prime rate.
IFFP is also obligated to pay AmerBank a 1% per annum commission on the daily
average unutilized principal balance of the credit facility. Interest and
commission expenses are payable monthly. The outstanding principal balance of
the loan is payable in three quarterly installments of $100,000 commencing on
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March 31, 1998. The credit facility is secured by: (i) a promissory note of IFFP
and (ii) a guarantee of IFFC. As of March 31, 1997 and May 8, 1997, $300,000 of
the credit facility was outstanding.
On May 30, 1994, IFFC's subsidiary, IFFP, entered into a credit facility
with Bank Handlowy Warszawie, S.A. ("Bank Handlowy") in the principal amount of
$10,000,000. Borrowings under the Bank Handlowy credit facility could be made
until May 31, 1997 and were secured by: (i) amounts on deposit with Bank
Handlowy; (ii) an unconditional guarantee of IFFC; (iii) the fixed assets of
IFFP; and (iv) a letter of credit (described below). Borrowings under the Bank
Handlowy credit facility were required be repaid in fourteen equal semi-annual
installments with the first installment due on November 30, 1997. Interest
accrued on the amount outstanding under the credit facility at the London
Interbank Offered Rate (LIBOR) for nine month deposits plus 3.875% per annum.
The proceeds could be used to finance up to forty percent (40%) of the costs of
furnishing and commencing operation of fast food restaurants operated by IFFP.
On December 13, 1995, the credit facility with Bank Handlowy was amended. The
principal amount of the credit facility was reduced to $1,000,000 and borrowings
under the credit facility were required to be repaid on December 16, 1996. The
maturity date and payment terms of the facility were further amended and
principal payments of $100,000 and $50,000 were made in December 1996 and
January 1997, respectively. The remaining principal balance is payable in
quarterly installments of $100,000 commencing on March 31, 1997 through
September 30, 1997, with the remaining principal balance payable in full on
December 16, 1997. Borrowings under the amended credit facility are secured by:
(i) amounts on deposit with Bank Handlowy; (ii) an unconditional guarantee of
IFFC; (iii) fixed assets of IFFP having a value of $1,250,000; and (iv) a letter
of credit in the amount of $500,000. The Letter of Credit is valid until
December 30, 1997. As of March 31, 1997 and May 8, 1997, $750,000 was
outstanding under the Bank Handlowy credit facility, respectively.
IFFC has financed its operations in part through the use of proceeds
acquired in connection with a private offering of IFFP's equity capital. As of
December 14, 1994, Agros Holding S.A., a joint stock corporation which produces
agricultural products ("Agros"), acquired a 20% voting and property interest in
IFFP pursuant to a subscription agreement (the "Subscription Agreement"), dated
November 30, 1994, between IFFC and Agros. Agros purchased the 20% interest from
IFFP for the zloty equivalent of $2,000,000. On December 28, 1995, IFFC
increased its equity interest in IFFP from 80% to 85% by purchasing from Agros
5% (25% or the Agros holdings) of the outstanding capital stock of IFFP in
exchange for a $500,000 non-interest bearing obligation due in full on December
28, 1996. In December 1996, IFFC requested an extension on the repayment of the
obligation which was refused by Agros and Agros demanded payment. As of May 8,
1997, the obligation was still outstanding.
As of January 1, 1995, IFFC and IFFP entered into a five year consulting
agreement (the "IFFP Consulting Agreement") pursuant to which IFFC is to provide
IFFP consultation and advice with respect to the selection, design and equipping
of IFFC's offices and facilities, the maintenance of IFFP's financial records,
reporting to IFFP's Board of Directors, the procurement of financing, the
performance of cash management functions, the hiring of employees and officers,
the strategic planning of IFFP's business and the management of IFFP's business.
The IFFP Consulting Agreement automatically renews for an additional year unless
terminated by either party. In exchange for its services, IFFC receives from
IFFP, on a monthly basis, the greater of (a) 5% of IFFP's Sales for the month,
or (b) $50,000 (the "Management Fee"). IFFC receives reimbursement for all
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out-of-pocket expenses it incurs in connection with the fulfillment of its
obligations under the IFFP Consulting Agreement and any tax, duty or fee imposed
on the Management Fee.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
IFFC's restaurant operations are conducted in Poland. The Polish economy
has historically been characterized by high rates of inflation and devaluation
of the Polish zloty against the dollar and European currencies. However, in the
year ended December 31, 1996, the rates of inflation and devaluation improved.
For the years ended December 31, 1993, 1994, 1995 and 1996, the annual inflation
rate in Poland was 35%, 32%, 21.6% and 19.5%, respectively, and as of December
31, 1993, 1994, 1995 and 1996 the exchange rate was 21,344, 24,372, 24,680 and
28,725 old zlotys per dollar, respectively. Payment of interest and principal on
the Debentures and payment of franchise fees to BKC for each IFFC restaurant
opened are in United States currency. Additionally, IFFC is dependent on certain
sources of supply which require payment in European or United States currencies.
Since IFFC's revenues from operations will be in zlotys, IFFC is subject to the
risk of currency fluctuations. IFFC has and intends to maintain substantially
all of its unutilized funds in United States or Western European currency
denominated securities and/or European Currency Units. There can be no assurance
that IFFC will successfully manage its exposure to currency fluctuations or that
such fluctuations will not have a material adverse effect on IFFC.
Thus far, IFFC's revenues have been used to fund restaurant operations and
IFFC's expansion. As a result, such revenues have been relatively insulated from
inflationary conditions in Poland. There can be no assurance that inflationary
conditions in Poland will not have an adverse effect on IFFC in the future.
The accounts of IFFP are measured using the Polish zloty. Due to Poland's
highly inflationary environment through December 31, 1995, generally accepted
accounting principles required IFFC to calculate and recognize on its statement
of operations its currency translation gains or losses associated with IFFP. Due
to the reduction in Polands inflation rate, effective for the year ended
December 31, 1996, IFFC was no longer required pursuant to generally accepted
accounting principles to recognize currency translation gains or losses in its
statement of operations.
The official currency in Poland is the zloty. The value of the zloty is
pegged pursuant to a system based on a basket of currencies, as well as all
other economic and political factors that effect the value of currencies
generally. As of January 1, 1995, the National Bank of Poland introduced a new
zloty (a "new zloty"). New zlotys are equivalent to 10,000 old zlotys ('old
zlotys"). Old zlotys remained legal tender until December 31, 1996, after which
date they are only exchangeable at certain banks. At March 31, 1997, the
exchange rate was 3.0760 new zlotys per dollar.
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PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
BKC Litigation - On March 17, 1995, IFFC and IFFP (collectively, the "IFFC
Affiliates"), filed suit against BKC in the Eleventh Judicial Circuit Court of
the State of Florida. In their amended complaint, the IFFC Affiliates alleged,
among other things, that BKC breached certain of its express and implied
obligations under the BKC Development Agreement and the eight existing franchise
agreements (the "Franchise Agreements") pertaining to IFFP's eight Burger King
restaurants. The IFFC Affiliates further alleged that in connection with BKC's
sale of certain of its rights pursuant to the BKC Development Agreement and the
Franchise Agreements, BKC failed to timely deliver to the IFFC Affiliates a
complete and accurate franchise offering circular in accordance with rules
promulgated by the Federal Trade Commission (the "FTC Count"). The IFFC
affiliates also alleged that BKC committed certain acts which constitute fraud
and/or deceptive and unfair business practices. The IFFC Affiliates asked the
court to, among other things, award them compensatory damages of not less that
$15,000,000 punitive damages and certain costs and expenses.
On March 11, 1997, BKC, IFFC, IFFP and Rubinson, individually and on
behalf of Litigation Funding, Inc. entered into a Settlement Agreement. In
connection with the execution of the Settlement Agreement, IFFC and BKC entered
into the New BKC Development Agreement and eight (8) new Franchise Agreement.
BKC paid to IFFC the sum of $5,000,000 (less $21,865 of royalties owned by IFFP
to BKC for February 1997) for a net amount of $4,978,135. In addition, BKC
forgave $499,768 representing all monies owed BKC by IFFP and IFFC through
January 31, 1997. Under the terms of the Settlement Agreement, a portion of such
proceeds, not to exceed $2,000,000 cash may be used to immediately satisfy the
actual legal fees and costs of IFFC and IFFP incurred in connection with the BKC
litigation, including IFFC's and IFFP's obligation under the agreement between
IFFC, IFFP and Litigation Funding, Inc. The remaining $3,000,000 is to be used
by IFFC and IFFP for the development of additional BKC restaurants in Poland or
working capital for IFFP pursuant to the New BKC Development Agreement. The New
BKC Development Agreement calls for certain cash contributions from BKC to IFFC
over the term of such Agreement and additional sums based upon an incentive
arrangement when earned to be retained by IFFC out of BKC's future royalties.
IFFC contributes these funds into a marketing fund administered by IFFC. All
parties to the litigation stipulated to dismissal of the litigation and executed
mutual releases.
LITIGATION FINANCING AGREEMENTS. IFFC has entered into two agreements
specifically designed to assist it in financing the BKC Litigation. First, as of
January 25, 1996, the IFFC Affiliates entered into an Agreement to Assign
Litigation Proceeds (the "Funding Agreement") with Litigation Funding, Inc., a
Florida corporation ("Funding"). This agreement was later amended in July 1996.
Mitchell Rubinson, the chairman of the board, chief executive officer and
president of IFFC is also the chairman of the board, chief executive officer and
president and the principal shareholder of Funding.
Pursuant to the amended Funding Agreement, Funding agreed to pay on behalf
of IFFC and/or IFFP up to $750,001 (the "Amount") for all expenses (including
attorneys' fees, court costs and other related expenses, but not judgments or
32
<PAGE>
amounts paid in settlement) actually incurred by or on behalf of IFFC and/or
IFFP in connection with investigating, defending, prosecuting, settling or
appealing the BKC Litigation and any and all claims or counterclaims of BKC
against IFFC and/or IFFP (collectively, the "BKC Matter"). Funding has paid all
amounts it has been requested to pay pursuant to the Funding Agreement.
In consideration of the Amount, IFFC and IFFP each assigned to Funding a
portion of any and all benefits and gross sums, amounts and proceeds that each
of them may receive, collect, realize, otherwise obtain or benefit from in
connection with, resulting from or arising in connection with the BKC Matter or
any related claim, demand, appeal, right and/or cause of action of the IFFC
Affiliates, including, but not limited to, amounts received or entitled to be
received by the IFFC Affiliates in respect to (i) the gross proceeds of any
court ordered decision or judgement (a "Judgement") entered in favor of IFFC
and/or IFFP, (ii) the Sale Proceeds (as such term is defined in the agreement,
the "Sales Proceeds") of any sale of the assets of IFFC and/or IFFP to BKC, any
of BKC's affiliates and/or any entity which is introduced to the IFFC Affiliates
by BKC (collectively, the "BKC Entities") in connection with a settlement of the
BKC Matter, (iii) any amounts paid in compromise or settlement (a "Settlement")
of the BKC Matter in whole or in part, (iv) any liabilities or indebtedness of
IFFC or IFFP assumed or satisfied by the BKC Entities (the "Debt Relief
Proceeds") and (v) the monetary value to the IFFC Affiliates of any concessions
made by BKC with respect to its rights under (a) the Development Agreement
and/or (b) the Franchise Agreements and any future franchise agreements between
BKC and IFFP and/or IFFC (the "Contract Modification Proceeds"). All of the IFFC
Affiliates' rights, titles and interests, legal and equitable, in and to such
aforementioned benefits and gross sums, amounts and proceeds are collectively
referred to herein as the "Proceeds".
Specifically, IFFC and IFFP each individually assigned, set over,
transferred and conveyed to Funding all of its right, title and interest in and
to the sum of the following (the "Assigned Proceeds"); (i) seventy five percent
(75%) of the Proceeds to the extent that such amount does not exceed Funding's
Expenses (Funding's Expenses") which are defined as the sum of the aggregate
amount of money paid by Funding as the Amount and the amount of money expended
by Funding if it assumes the prosecution of the BKC Matter; (ii) seventy five
percent (75%) of any Proceeds, excluding any Sales Proceeds, in excess of the
sum of Funding's Expenses and the IFFC Affiliates' Expenses; and (iii) seventy
five percent (75%) of any Sales Proceeds in excess of the sum of Funding's
Expenses and the IFFC Affiliates' Expenses.
Subject to Funding's recovery of Funding's Expenses, IFFC and IFFP have
retained the right in and shall be entitled to recover from the Proceeds the sum
of (i) $303,731, and (ii) all of the amounts they may expend in the future in
connection with the BKC Matter, before Funding shall be entitled to receive any
other Proceeds.
In connection with the execution and delivery of the Funding Agreement,
IFFC, IFFP, Funding and a law firm (the "Escrow Agent") entered into an Escrow
Agreement. Pursuant to the Funding Agreement and the Escrow Agreement, except
for Proceeds which the Escrow Agent cannot reduce to physical possession, all
Proceeds, if any, resulting from the BKC Matter are to be delivered to the
Escrow Agent before they are delivered to the IFFC Affiliates and/or Funding.
The Escrow Agent is required to dispose of Proceeds only in accordance with (1)
the joint written instructions of the Company, IFFP and Funding, or (2) the
instructions of a court of competent jurisdiction. The Funding Agreement
33
<PAGE>
provides that the Escrow Agent shall first apply all Readily Available Cash
Proceeds {as such term is defined below, the "Readily Available Cash Proceeds")
to satisfy Funding's rights to Proceeds (assigned to Funding by IFFC or IFFP)
before any non-Readily Available Cash Proceeds are delivered to Funding by the
Escrow Agent on behalf of such company. Readily Available Cash Proceeds are
defined to be all cash proceeds payable to IFFC, IFFP or Funding within one (1}
year of a Judgement or Settlement. In the event that the Readily Available Cash
Proceeds are not sufficient to satisfy Funding's rights in Proceeds (assigned to
Funding by such company), then IFFC and IFFP have each agreed to pay out of its
individually available "cash and cash equivalents" (the "Cash Resources") an
amount of Cash Resources to satisfy the deficiency. In the event that the
Readily Available Cash Resources of a company are insufficient to Cover the
deficiency, such company, subject to Funding's agreement, will have the right to
elect which assets it will deliver to Funding in satisfaction of Funding's
rights to receive Proceeds. In the event that Funding is unable to agree with a
company with respect to which assets such company will deliver to Funding, then
the matter shall be submitted to a court of competent jurisdiction.
In consideration of the Amount, IFFC also assigned to Funding a security
interest (the "Security Interest") in its entire equity interest in IFFP (the
"IFFP Stock"). The Security Interest secures the delivery to Funding of all the
Assigned Proceeds. In order to perfect the Security Interest, IFFC has agreed to
take all such actions as are necessary under the laws of the Republic of Poland
("Poland") and the State of Florida to transfer title to the IFFP Stock to the
Escrow Agent; provided, however, that IFFC has retained beneficial ownership of
the IFFP Stock, including the right to vote the IFFP Stock, unless Funding does
not receive the Assigned Proceeds in accordance with the terms of the Funding
Agreement and such nonreceipt is not rectified within 45 days (an "Event of
Default"). IFFC has further agreed to deliver to the Escrow Agent such documents
as are necessary to file with the appropriate authorities in Poland to, if an
Event of Default occurs, officially transfer legal and beneficial title to the
IFFP Stock to Funding. IFFC and Funding have agreed that record title to the
IFFP Stock is being transferred to the Escrow Agent to provide Funding a
perfected security interest in the IFFP Stock without being forced to rely on
Poland's apparently deficient system of recording and perfecting security
interest. If (1) Funding receives the Assigned Proceeds in accordance with the
terms of the Funding Agreement or (2) it becomes apparent that Funding shall not
ever be entitled to receive any Proceeds, then Funding is required to
immediately issue a notice to the Escrow Agent with respect to the IFFP Stock
and the Security Interest is to be satisfied and extinguished.
The IFFC Affiliates have also entered a second agreement to assist in the
financing of the BKC Litigation. On April 7, 1996, the IFFC Affiliates entered
into a letter agreement (the "Fee Agreement") with the law firm (the "Litigation
Counsel") representing the IFFC Affiliates in the BKC Litigation. Pursuant to
the Fee Agreement, IFFC and IFFP have agreed to pay Litigation Counsel the
greater of (a) Litigation Counsel's accrued hourly fees for legal services
provided in connection with the BKC Litigation; and (b) a certain percentage of
any final monetary recovery obtained by the IFFC Affiliates in the BKC
Litigation, in exchange for Litigation Counsel's services. The Company's legal
fees and related costs in connection with the BKC litigation, exclusive of the
$750,001 paid by Funding, were approximately $1,447,082, of which $200,000 was
paid by issuance of 2,000,000 shares of Common Stock to Litigation Counsel, in
April 1997. The 2,000,000 shares of Common Stock have been reflected as
outstanding in the accompanying Consolidated Financial Statements as of March
31, 1997.
34
<PAGE>
The gain on settlement of the BKC Litigation is comprised as follows:
Settlement Proceeds:
Cash received from BKC $ 5,000,000
Forgiveness of liabilities due
to BKC499,768
Value attributable to Development
Agreement 1,000,000
----------
Total proceeds 6,499,768
Less Settlement Costs and Deferred Credits:
Legal fees and costs paid by
IFFC (1,447,082)
Legal fees and costs paid by
Funding ( 750,001)
Deferred Credit (1,000,000)
----------
Net settlement proceeds 3,302,685
Portion of net settlement proceeds
due to Funding (2,477,014)
Legal fees and costs paid by IFFC
in prior periods and charged
against operations 501,399
----------
IFFC gain on settlement $ 1,327,070
==========
IFFC has valued the New Development Agreement at $1,000,000 which is its
best estimate of the cost that it would incur in obtaining such agreement from
BKC exclusive of all other matters associated with the BKC settlement. Due to
the uncertainty relating to IFFC's ability to meet the performance requirements
specified in the New Development Agreement, which must be achieved by September
30, 1999, coupled with the $1,000,000 amount that will be payable to BKC if the
minimum performance requirements are not met, IFFC has recorded a Deferred
Credit of $1,000,000 in connection with recognition of gain on settlement of the
BKC Litigation. If the minimum performance objectives required by the New
Development Agreement are achieved by September 30, 1999, $562,500 of the
Deferred Credit will become payable to Funding, and $187,500 will be recognized
by IFFC as additional gain on the BKC Litigation settlement and $250,000 will
become payable to BKC. If the maximum performance objectives required by the New
Development Agreement are achieved by September 30, 1999, $750,000 of the
Deferred Credit will become payable to Funding and $250,000 will be recognized
by IFFC as additional gain on the BKC Litigation settlement. If the minimum
performance objectives are not met the $1,000,000 Deferred Credit will become
payable to BKC.
At March 31, 1997, the payable to Funding is comprised as follows:
Portion of net settlement proceeds
due to Funding $ 2,477,014
Reimbursement of legal fees and
costs paid by Funding 750,001
----------
Balance due to Funding 3,227,015
Portion classified as current 1,028,521
----------
Promissory note payable $ 2,198,494
==========
35
<PAGE>
The promissory note bears interest at prime plus 1%, and matures on
December 31, 1998. Interest is payable quarterly beginning on July 1, 1997. The
note may be prepaid in whole or part at any time without penalty. The note is
collateralized by the Company's equity interest in IFFP. The remaining balance
due to Litigation Funding in the amount of $1,028,521 was paid in May 1997.
POLISH FISCAL AUTHORITY DISPUTES - As of July 1995, IFFC may have become
subject to penalties for failure to comply with a recently amended tax law
requiring the use of cash registers with certain calculating and recording
capabilities and which are approved for use by the Polish Fiscal Authorities.
Although IFFP's NCR Cash Register System (the "Cash Register System") is a
modern system, the System cannot be modified and will ultimately need to be
replaced in order to comply with the new tax law. IFFP is now in compliance with
the tax law using a parallel cash register system but was unable to modify
and/or replace its Cash Register System before July 1995. As a penalty for
noncompliance, Polish tax authorities may disallow certain VAT deductions for
July and August of 1995, which were previously deducted by IFFP. Additionally,
penalties and interest may be imposed on these disallowed deductions. IFFP
believes that its potential exposure is approximately $150,000, which amount has
been provided for in the accompanying financial statements. IFFP has requested a
final determination by the Polish Minister of Finance. The Company is unable to
predict the timing and nature of the Ministers ruling. IFFP has not yet made a
decision whether or not to replace its Cash Register System. IFFP believes a new
cash register system would cost approximately $250,000.
ROMANSKA - NINKOWIC - In April 1997, Ms. Romanska - Ninkowic filed suit in
Voivodship Court in Krakow, Poland against IFFP. Ms. Romanska - Ninkowic alleges
that IFFP owes her approximately 266,831 PLN (approximately $89,000) in final
settlement for the construction of IFFP's Katowice restaurant. IFFP is in the
process of filing a countersuit against Ms. Romanska - Ninkowic citing, among
other things, failure to comply with the terms of the contractor's agreement. No
court date has been set. IFFP believes the charges are without merit.
Statements contained in this report that are not based on historical fact
are "forward-looking statements" within the meaning of the private securities
litigation reform act of 1995. Forward-looking statements may be identified by
the use of forward looking terminology such as "may," "will," "expect,"
"believe," "estimate," "anticipate," "continue," or similar terms or variations
of those terms or the negative of those terms. There are many factors that
affect the Company's business and the results of its operations and may cause
the actual results of operations in future periods to differ materially from
those currently expected or desired. These factors include, but are not limited
to: receipt and fulfillment of expected orders, changes in general business and
economic conditions, the growth of segments in which the Company operates,
market volatility; the effectiveness of price and other competition faced by the
Company; the market acceptance of the Company's products and the timing of such
acceptance; the change in customers' buying patterns; changes in the Company's
sales practice; the raising of capital and other important factors.
36
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
------- -----------
10.1 Promissory Note dated March 11, 1997 by International Fast Food
Corporation to Litigation Funding Inc.
10.2 Second Amendment to Agreement to Asssign Litigation Proceeds
dated March 13, 1997 between International Fast Food
Corporation, International Fast Food Polska Sp. Zo.o and
Litigation Funding, Inc.
10.3 Agreement dated May 9, 1997, between Litigation Funding, Inc.,
International Fast Food Corporation and International Fast Food
Polska Sp. Zo.o.
(b) The following reports on Form 8-K were filed during the quarter
ended on March 31, 1997:
(i) On January 22, 1997, the Company filed a Form 8-K in
connection with the issuance of three 8% Convertible Promissory Notes for an
aggregate total of $400,000.
(ii) On February 7, 1997, the Company filed a Form 8-K, in
connection with the change of accountants to Moore Stephens-Lovelace, Roby, P.L.
(iii) On March 19, 1997, the Company filed a Form 8-K/A in
connection with the change of accountants to Moore Stephens-Lovelace, Roby, P.L.
(iv) On March 19, 1997, the Company filed a Form 8-K, in
connection with the issuance of one 8% Convertible Promissory Note in the amount
of $100,000.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, International Fast Food has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERNATIONAL FAST FOOD CORPORATION
DATE: May 14 , 1997 By: /s/ Mitchell Rubinson
-----------------------------------------
Mitchell Rubinson, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
DATE: May 14 , 1997 By: /s/ James Martin
-----------------------------------------
James Martin, Chief Financial Officer
(Principal Financial and Accounting Officer)
PROMISSORY NOTE
---------------
$2,198,494.23 Date: As of March 11, 1997
FOR VALUE RECEIVED, INTERNATIONAL FAST FOOD CORPORATION, a Florida
Corporation ("Borrower") promises to pay to the order of LITIGATION FUNDING,
INC., a Florida Corporation ("Lender"), the principal sum of two million one
hundred ninety-eight thousand four hundred ninety four and 23/100 United States
Dollars (US $2,198,494.23), with interest on the unpaid principal balance, as
provided below. Borrower further agrees as follows:
1. INTEREST. Borrower shall pay interest on the outstanding principal balance
of this Note from the date of this Note until maturity at a per annum rate equal
to one percent (1%) above the Prime Rate (as hereafter defined). The "Prime
Rate" for purposes hereof shall be that floating rate of interest designated as
the prime rate and quoted daily in the Wall Street Journal (Eastern Edition),
provided that if more than one such rate is quoted, then the highest such rate
shall be applicable. In the event the Wall Street Journal discontinues
publishing the Prime Rate, then the Prime Rate shall mean the interest rate
announced from time to time by Citibank, N.A., New York, New York as its prime
rate. Except as may be otherwise provided herein, any change in the interest
rate hereunder resulting from a change in the Prime Rate shall be effective on
and as of the day the Prime Rate changes.
2. PRINCIPAL AND INTEREST PAYMENTS. Beginning on July 1, 1997, and on the
first day of each succeeding calendar quarter, Borrower shall pay all interest
accrued through each such payment date to the Lender. On December 31, 1998,
Borrower shall pay Lender the entire unpaid principal balance and all accrued
and unpaid interest.
3. PREPAYMENT. This Note may be prepaid in full or in part at any time
without penalty. Any such partial prepayment shall be applied first against
accrued interest and then against the outstanding principal balance.
4. LATE CHARGES. Borrower shall pay to Lender on demand a late charge equal
to 5 percent of the amount of any payment hereunder that is not received by
Lender within 15 days after it is due.
5. PLACE AND MANNER OF PAYMENT. Payments of interest and of principal shall
be payable in lawful money of the United States of America and immediately
available funds at 40 Star Island, Miami Beach, Florida 33139 (or such other
place as Lender may designate), without setoff, counterclaim or deduction of any
kind. If a payment to be made hereunder is stated to be due on a day other than
a Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
interest. As used herein, "Business Day" means a calendar day other than a
Saturday, a Sunday, or a legal holiday on which most banks are closed for
business in the State of Florida.
6. USURY NEGATION. Nothing herein shall be construed or operate so as to
require Borrower to pay interest hereunder in an amount or at a rate greater
than the maximum allowed by applicable law. Should any interest or other charges
paid hereunder result in the computation or earning of interest in excess of the
maximum rate or amount of interest which is permitted under applicable law, then
any and all such excess interest shall be (and the same hereby is) waived by
<PAGE>
Lender, and the amount of such excess shall be automatically credited against,
and be deemed to have been payments in reduction of, the principal then due
hereunder, and any portion of such excess which exceeds the principal then due
hereunder shall be paid by Lender to Borrower.
7. EVENTS OF DEFAULT. Any of the following shall constitute an Event of
Default hereunder: (a) failure by Borrower to pay any interest hereon or
principal hereof when due or within five days thereafter; (b) failure of
Borrower to perform or observe any agreement contained herein (other than a
failure referred to in clause (a) of this paragraph) or in the Security
Agreement (as defined herein) securing this Note and the continuance of such
failure for 15 days after notice thereof to Borrower from Lender or any breach
of warranty contained herein or therein; (c) the dissolution, termination of
existence, insolvency, or business failure of Borrower, the appointment of a
receiver of any part of the property of Borrower, an assignment for the benefit
of creditors by or commencement of any proceedings in bankruptcy or insolvency
by or against Borrower; (d) the entry of a judgment against Borrower in excess
of $50,000 which remains unsatisfied for 30 days; (e) the issuing of any
attachment or garnishment, or the filing of any lien against any property of
Borrower, which is not removed within 30 days after the date thereof; (f)
Lender's determination or belief that it is insecure or that the prospect of
payment hereunder is impaired; or (g) the issuance of any additional capital
stock or other securities by the Borrower.
8. REMEDIES. Upon and at any time after the occurrence of an Event of
Default, this Note shall, at Lender's option, become immediately due and
payable, without notice or demand. No failure by Lender to exercise such option
upon the occurrence of any Event of Default shall affect its right to exercise
it upon the subsequent occurrence of an Event of Default. Borrower shall pay
Lender, on demand, all costs and expenses (including reasonable counsel fees and
expenses, including those at the appellate level and in bankruptcy proceedings)
in connection with the enforcement of this Note, whether suit be brought or not.
9. DEFAULT INTEREST RATE. After the maturity date or after an Event of
Default, the principal amount outstanding, and all accrued interest thereon,
shall thereafter bear interest at the Default Rate. "Default Rate" shall meet an
interest rate equal to the lesser of (a) 18%, or (b) the highest rate permitted
under applicable law.
10. WAIVERS. Presentment, notice of dishonor, and protest are hereby waived by
Borrower and all sureties, guarantors and endorsers hereof. Each such party
hereby agrees to all modifications, renewals, and any number of extensions of
time for payment of, this Note, release of other persons or entities obligated
under this Note and release of any security for this Note, all without notice,
and that any such activities shall not release any of such parties not expressly
released in writing.
11. SECURITY. Payment of this note is secured by a security interest granted
by Borrower to Lender pursuant to that certain agreement by and between
Borrower, Lender, and International Fast Food Polska Sp. Zo.o dated as of May 9,
1997.
12. GOVERNING LAW. This Note shall be governed by and construed in accordance
with the law of the State of Florida.
13. JURISDICTION. Borrower irrevocably agrees that any action or proceeding
arising hereunder or relating hereto that is brought by Borrower shall be tried
2
<PAGE>
by the Courts of the State of Florida sitting in Dade County, Florida or the
United States District Courts sitting there. Borrower irrevocably submits, in
any such action or proceeding that is brought by Lender, to the non-exclusive
jurisdiction of each such court and irrevocably waives the defense of an
inconvenient forum with respect to any such action or proceeding.
14. NOTICES. Whenever any party hereto shall desire to, or be required to,
give or serve any notice, demand, request, further communication with respect to
this Note, each such notice, demand, request or communication shall be in
writing and should be effective only if the same is delivered by personal
service (including, without limitation, courier or express service), or mailed
certified or registered mail, postage prepaid, Return Receipt Requested, or sent
by telegram to the parties at the following addresses: if to Borrower, 1000
Lincoln Road, Suite 200, Miami Beach, FL 33139; and if to Lender, 40 Star
Island, Miami Beach, Florida 33139. Notices delivered personally will be
effective upon delivery to an authorized representative of the party at the
designated address; notices sent by mail in accordance with the above paragraph,
will be effective upon execution by the addressee of the Return Receipt
Requested.
15. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY VOLUNTARILY AND
INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION (INCLUDING BUT NOT LIMITED TO ANY CLAIMS, CROSS CLAIMS
OR THIRD PARTY CLAIMS) ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS NOTE,
THE SECURITY AGREEMENT, OR THE LOAN EVIDENCED HEREBY. BORROWER HEREBY CERTIFIES
THAT NO REPRESENTATIVE OR AGENT OF LENDER OR LENDER'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION,
SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. THIS PROVISION IS
A MATERIAL INDUCEMENT TO LENDER TO MAKE THE LOAN EVIDENCED HEREBY. INTERNATIONAL
FAST FOOD CORPORATION
By: ________________________________
-3-
SECOND AMENDMENT TO AGREEMENT TO ASSIGN LITIGATION PROCEEDS
-----------------------------------------------------------
THIS SECOND AMENDMENT TO AGREEMENT ("Second Amendment to Agreement") is
made and entered into as of March 13, 1997 between International Fast Food
Corporation, a Florida corporation (the "Company"), International Fast Food
Polska a Polish limited liability corporation ("IFFP") and Litigation Funding
Inc., a Florida corporation (the "Buyer"). (IFFP and the Company are
collectively referred to herein as "The Companies").
A. The Company, IFFP and the Buyer, as of January 25, 1996, entered
into that certain Agreement to Assign Litigation Proceeds (the "Original
Agreement"), pursuant to which Buyer agreed to pay up to $500,001 in exchange
for the "Assigned Proceeds" (as such term is defined in the Original Agreement).
B. The Company, IFFP and the Buyer, as of July'3, 1996, entered into
that certain Amendment to Agreement to Assign Litigation Proceeds (the "First
Amendment"). pursuant to which Buyer agreed to pay additional sums in exchange
for a greater amount of the "Assigned Proceeds." (The First Amendment and the
Original Agreement are herein collectively referred to as the "Litigation
Funding Agreement"). C. On or about September 11, 1996, IFFP assigned ALL of its
right, title and interest to the proceeds from the BKC Litigation to the
Company.
D. Concurrently herewith, the BKC Litigation is being settled pursuant
to a Settlement Agreement by and amongst the Company, IFFP and Burger King
Corporation ("BKC") dated on or about March 11, 1997 (the "Settlement
Agreement"). The Settlement Agreement requires the Company to invest in, or loan
to, IFFP $3,000,000 of the cash payment made by BKC to IFFC concurrently with
the execution thereof (the "Additional Investment").
E. The Company cannot make the commitment to the Additional without
modifying its obligation under the Litigation Funding
F. The parties hereto believe it is their respective best interests for
the Company and IFFP to execute and deliver the Settlement Agreement and to
comply with its provisions.
G. It is the intent of the Companies and Buyer that this Second
AMENDMENT to Agreement not be considered a novation of the Litigation Funding
<PAGE>
Agreement, which rename m full force and effect The provisions of the Original
Agreement and First Amendment shall remain unaffected except as provided in THIS
Second Amendment to Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, for and in consideration of the premises and of the mutual
agreement hereinafter set forth, the parties hereto agree as follows:
1. TERMINATION OF ESCROW. The parties hereto agree that the Company
shall not be obligated to deliver Proceeds to the Escrow Agent, as contemplated
by Section 2(h) of the Original Agreement.
2. CONSENT BY BUYER. Without waiving its rights to the Assigned
Proceeds, as defined in the Litigation Funding Agreement, Buyer hereby agrees to
the Additional investment, as contemplated by the Settlement Agreement. Buyer
and the Companies agree that, if upon a determination of the value of the
Proceeds: as contemplated by Section 2(f) of the Original Agreement, the Company
shall have insufficient funds (other than the funds for the Additional
Investment) to pay the Assigned Proceeds in cash, then to the extent the
Company's funds are insufficient to pay the Assigned Proceeds in full, Buyer and
the Company agrees to negotiate in good faith for the payment of other mutually
satisfactory consideration, including but not limited to shares of capital stock
in the Company, stock warrants or other stock rights. If within 90 days after
the completion of the appraisal contemplated by Section 2(f) of the Original
Agreement, the parties are unable to agree to mutually acceptable substitute
consideration for the unpaid amount of the. Assigned Proceeds, the Company shall
execute and deliver to Buyer a secured promissory note in form and substance
reasonably acceptable to Buyer; (a) in the principal sum of the unpaid amount of
the Assigned Proceeds; (b) secured by the Security Interest granted under the
Original Agreement; (c) with interest accruing at an annual rate equal to
Citibank's prime rate, plus 2%, as of the date of the promissory note; (d) all
accrued and unpaid interest and the entire principal balance clue no later than
June 30, 1997; and (e) acceleration of the entire note upon default or the
consummation of the issuance of any additional capital stock or other securities
by the Company.
3. MISCELLANEOUS
(a) This Second Amendment to Agreement, together with the First
Amendment and the Original Agreement, constitutes the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof, and may not be modified or amended except in writing signed by all the
parties hereto.
2
<PAGE>
(b) This Second Amendment to Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement. Facsimile copies of
manually executed signature pages shall be deemed originals until the parties
hereto have received manually executed signature pages.
(c) Except as provided otherwise herein capitalized terms shall
have the same meaning as in the Original Agreement.
(d) This Second Amendment to Agreement has been negotiated, and,
with the exception of IFFP, signed in Florida and shall be governed by and
interpreted in accordance with the laws of The State of Florida. Each of the
parties to this Amendment to Agreement hereby irrevocably submits to the
jurisdiction of the state or federal courts located m Dado County, Florida in
connection with any suit, action or other proceeding arising out of or relating
to this Amendment to Agreement and the transactions contemplated hereby, and
hereby agree not to assert, by way of motion as a defense, or otherwise in any
such suit, action or proceeding that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Amendment to Agreement or the subject matter hereof may
not be enforced by such courts. IFFP expressly waives any rights it may have
which conflict with the foregoing agreements of IFFP in this paragraph.
THE COMPANIES AND THE BUYER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY AND ALL RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION (INCLUDING BUT NOT LIMITED TO ANY CLAIMS, CROSS-CLAIMS AND THIRD
PARTY CLAIMS) ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT TO
AGREEMENT OR THE SECURITY INTEREST. EACH OF THEM HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE OTHER NOR THE OTHER'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE OTHER WOULD NOT; IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS JURY WAIVER PROVISION, EACH OF THEM
ACKNOWLEDGES THAT THIS JURY WAIVER HAS BEEN A MATERIAL INDUCEMENT TO THE BUYER
TO ENTER INTO THIS AGREEMENT.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement as of the day and year first above written.
BUYER
LITIGATION FUNDING, INC.
Witness /s/ indistinguishable BY: /s/ Mitchell Rubinson
----------------------- ---------------------------------------
Witness /s/ indistinguishable Mitchell Rubinson, President
-----------------------
INTERNATIONAL FAST FOOD
CORPORATION
Witness /s/ indistinguishable BY: /s/ Mitchell Rubinson
----------------------- ---------------------------------------
Witness /s/ indistinguishable Mitchell Rubinson, President
-----------------------
INTERNATIONAL FAST FOOD POLSKA
SP.ZO.O.
Witness /s/ indistinguishable BY: /s/ Mitchell Rubinson
----------------------- ---------------------------------------
Witness /s/ indistinguishable Mitchell Rubinson, President
-----------------------
4
<PAGE>
STATE OF FLORIDA )
------------
)
COUNTY OF DADE )
-----------
SS:
The foregoing instrument was acknowledged before me this 13th day of March
1997, by Mitchell Rubinson, as President of Litigation Funding Inc., a Florida
corporation, on behalf of the corporation. He personally appeared before me, is
PERSONALLY KNOWN to me or produced___________ as identification, and [did] [did
not] take an oath.
Notary: /s/ Jill Friedman
[NOTARIZED] Notary Public, State of Florida
My Commission Expires: 9-16-97
Commission Number: CC314651
STATE OF FLORIDA )
------------
)
COUNTY OF DADE )
-----------
SS:
The foregoing instrument was acknowledged before me this 13th day of March
1997, by Mitchell Rubinson, as President of International Fast Food Corporation,
a Florida corporation, on behalf of the corporation. He personally appeared
before me, is PERSONALLY KNOWN to me or produced___________ as identification,
and [did] [did not] take an oath.
Notary: /s/ Jill Friedman
[NOTARIZED] Notary Public, State of Florida
My Commission Expires: 9-16-97
Commission Number: CC314651
5
<PAGE>
STATE OF FLORIDA )
------------
)
COUNTY OF DADE )
-----------
SS:
The foregoing instrument was acknowledged before me this 13th day of March
1997, by Mitchell Rubinson, as President of International Fast Food Polska, Sp.
Zo.o., a Polish corporation, on behalf of the corporation. He personally
appeared before me, is PERSONALLY KNOWN to me or produced___________ as
identification, and [did] [did not] take an oath.
Notary: /s/ Jill Friedman
[NOTARIZED] Notary Public, State of Florida
My Commission Expires: 9-16-97
Commission Number: CC314651
6
AGREEMENT
---------
This Agreement ("Agreement") is entered into this 9th day of May, 1997 by
and between Litigation Funding, Inc., a Florida corporation ("Litigation
Funding"), International Fast Food Corporation, a Florida corporation ("IFFC")
and International Fast Food Polska Sp. Zo.o, a Polish limited liability
corporation ("IFFP").
RECITALS
WHEREAS, Litigation Funding, IFFP and IFFC entered into that certain
Agreement to Assign Litigation Proceeds dated January 25, 1996, which agreement
was amended on July 3, 1996 and March 13, 1997 (such agreement, as amended,
referred to as the "Funding Agreement");
WHEREAS, IFFP has, on September 11, 1996, assigned all of its rights to
receive proceeds in the above-referenced litigation to IFFC;
WHEREAS, in early March 1997, settlement negotiations commenced between
Burger King Corporation ("Burger King"), IFFP and IFFC pertaining to that
certain litigation known as INTERNATIONAL FAST FOOD CORPORATION AND
INTERNATIONAL FAST FOOD POLSKA SP. ZO.O V. BURGER KING CORPORATION (Case No.
95-05130 CA 02) in the Circuit Court of the 11th Judicial Circuit in and for
Dade County, Florida;
WHEREAS, Litigation Funding was a party to such settlement negotiations,
by virtue of Burger King being aware of the interest of Litigation Funding in
the settlement proceeds, as evidenced by reference to the March 13, 1997
amendment to the Funding Agreement;
WHEREAS, in order to facilitate the settlement of the above-referenced
litigation, a settlement agreement by and among Burger King, IFFP, IFFC,
Mitchell Rubinson and Litigation Funding (the "Settlement Agreement") was
entered into effective March 11, 1997 and executed on March 14, 1997, in which
agreement Litigation Funding ultimately gave up rights to which it was otherwise
entitled to in the proceeds of the settlement, as set forth in Section 4.a. of
the Settlement Agreement; and
WHEREAS, Litigation Funding, IFFP and IFFC wish to implement and modify
the provisions of the March 13, 1997 amendment to the Funding Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises of
the parties hereto and of other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereby agree as
follows:
1. DETERMINATION OF AMOUNTS OWED UNDER FUNDING AGREEMENT. With respect
to amounts owed to Litigation Funding under the Funding Agreement, the parties
hereto agree as follows.
1
<PAGE>
(a) CASH AND DEBT CANCELLATION. The parties acknowledge that the
cash settlement proceeds received from Burger King in the Settlement Agreement
totaled $5,000,000 and the proceeds deemed received by virtue of cancellation by
Burger King of indebtedness owed to it is $499,768.
The parties agree that, applying the terms and provisions of the
Funding Agreement to the above figures, Litigation Funding is entitled to
receive the sum of $3,227,014, of which $750,001 represents reimbursement of
litigation costs previously advanced by Litigation Funding on behalf of IFFC,
which reimbursement is contemplated under the Funding Agreement. The remaining
$2,477,014 represents the amount to which Litigation Funding would be entitled
over and above the reimbursement of the amounts advanced by it under the Funding
Agreement.
The parties agree and acknowledge that, due to (a) restrictions
placed on the utilization of the settlement proceeds by Burger King in the
Settlement Agreement, (b) the inability of IFFC and IFFP (due to their
illiquidity and their inability to use the Burger King settlement proceeds as
described above) to currently satisfy their obligations under the Funding
Agreement, (c) the refusal by Litigation Funding (as permitted under the Funding
Agreement) to accept any other assets of IFFC or IFFP other than cash or a
promissory note from IFFC as payment under the Funding Agreement, and (d) the
inability of either IFFC or IFFP to obtain alternate financing in order to
provide the funds necessary to satisfy their respective obligations to
Litigation Funding under the Funding Agreement to pay the aforementioned
$3,227,013.60, that Litigation Funding shall accept, as partial payment under
the Funding Agreement, the following:
(i) On or before the execution hereof, the sum of $759,001,
representing the sum of $750,001 (the amount for which Litigation Funding was
entitled to be reimbursed under the Funding Agreement) together with interest
thereon at the rate of 8% per annum accruing from March 14, 1997 to May 7, 1997,
the date of payment of such amount, the receipt of which Litigation Funding
hereby acknowledges.
(ii) On or before the execution hereof, the sum of
$281,861.75, representing the sum of $278,519.52 (representing a partial payment
of the amounts owed in excess of the above $750,000 reimbursement amount)
together with interest thereon at the rate of 8% per annum accruing from March
14, 1997 to May 7, 1997, the date of payment of such amount, the receipt of
which Litigation Funding hereby acknowledges.
(iii) A promissory note (the "Promissory Note") from IFFC to
Litigation Funding in the amount of $2,198,494.23, providing for interest at
prime plus 1% per annum, with such interest to be paid quarterly commencing July
1, 1997, and for the entire principal balance thereof (and all accrued interest
thereon) to be paid on December 31, 1998. IFFC shall execute the Promissory Note
in the form attached hereto as Exhibit "A".
The parties acknowledge and agree that the obligations of IFFC and
IFFP under the Funding Agreement were secured by certain security agreements,
2
<PAGE>
UCC-1 financing statements and stock pledges held in escrow, all as set forth as
exhibits to the Funding Agreement. The parties hereto agree and acknowledge that
such security shall continue in full force and effect in order to secure the
repayment obligations hereunder of IFFC with respect to the Promissory Note, and
that this Agreement shall constitute a security agreement creating a security
interest in the aforementioned collateral to secure payment of the Promissory
Note. The parties hereto agree, after the date of this Agreement, to execute any
and all documents reasonably necessary to accomplish the foregoing.
(b) REMAINING AMOUNTS OWED UNDER FUNDING AGREEMENT. The parties
acknowledge that Litigation Funding is also owed certain amounts with respect to
the "contract modification proceeds", as such term is defined in the Funding
Agreement. The parties are currently attempting to reach agreement as to the
value and amount of such "contract modification proceeds" (including, but not
limited to, the value of (i) the "marketing spendback" and "incentive marketing
spendback" provisions of that certain Development Agreement entered into by and
between Burger King and IFFC dated as of March 14, 1997, and (ii) the value of
the Development Agreement (independent of the value of the above-referenced
"marketing spendback" and "incentive marketing spendback" provisions; in
particular, the value of the exclusive rights granted under that Development
Agreement to IFFC and IFFP).
The parties acknowledge that, upon the determination of the value
and amount of such "contract modification proceeds", as set forth under the
Funding Agreement, IFFC and IFFP shall be liable for payment of a portion of
such amount to Litigation Funding, in the amount and manner set forth under the
Funding Agreement.
2. FUNDING AGREEMENT. The parties agree and acknowledge that, with
respect to the payments referenced herein and the amounts to be subsequently
determined as owed by IFFC and IFFP to Litigation Funding, the provisions of the
Funding Agreement shall continue in full force and effect. It is the intent of
the parties hereto that the agreement of the parties as to payment of the
amounts owed to Litigation Funding (under the Funding Agreement) as to the cash
settlement proceeds and debt cancellation proceeds owed under the Funding
Agreement shall be final and determinative as between the parties as to the
amounts owed under such provisions of the Funding Agreement, but that the
provisions of the Funding Agreement shall otherwise continue in full force and
effect until such time as (a) the value and amount of the "contract modification
proceeds" (as such term is defined in the Funding Agreement) is agreed to and
provisions are made for the payment thereof, and (b) all amounts payable by IFFC
and IFFP under the Funding Agreement and hereunder (including all amounts owed
under the Promissory Note) are paid in full to Litigation Funding.
To the extent the foregoing provisions are inconsistent with the
provisions of the Funding Agreement, the parties agree that the provisions of
this Agreement shall be controlling.
3. MISCELLANEOUS.
(a) ASSIGNMENT OF SECURITY INTEREST IN IFFP COMMON STOCK. IFFP
hereby reconfirms its assignment to Litigation Funding of the security interest
3
<PAGE>
as set forth in Section 3 of the Funding Agreement, and agrees that the security
interest fully secures the payment to Litigation Funding of all amounts owed
under the Promissory Note. IFFP agrees to, as soon as possible, and at its own
expense, take all such actions as are necessary, to insure that the original
security interests in the IFFP stock shall be modified to fully secure delivery
of all amounts still owing under the Funding Agreement and all amounts payable
under the Promissory Note.
All rights of Litigation Funding with respect to the security
interest created pursuant to the Funding Agreement shall remain absolute,
unconditional and unaffected by the provisions of this Agreement, it being the
sole intent and purpose of this Section 3 of this Agreement to provide that the
security interest granted pursuant to the Funding Agreement shall be construed
also to secure fully all obligations of IFFC hereunder (in particular, under the
Promissory Note).
(b) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement. Facsimile copies of
manually executed signature pages shall be deemed originals until the parties
hereto have received manually executed signature pages.
(c) GOVERNING LAW. Each of the parties to this Agreement hereby
irrevocably submits to the jurisdiction of the State or Federal courts located
in Dade County, Florida in connection with any suit, action or other proceeding
arising out of or relating to this Agreement and the transactions contemplated
hereby, and hereby agree not to assert, by way of motion, as a defense, or
otherwise in any such suit, action or proceeding that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced by such courts. IFFP expressly waives any rights it
may have which conflict with the foregoing agreements in this paragraph.
IFFP, IFFC AND LITIGATION FUNDING HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY AND ALL RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION (INCLUDING BUT NOT LIMITED TO ANY CLAIMS, CROSS-CLAIMS
AND THIRD PARTY CLAIMS) ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR THE SECURITY INTEREST. EACH OF THEM HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE OTHER NOR THE OTHER'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE OTHER WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS JURY WAIVER PROVISION. EACH OF THEM
ACKNOWLEDGES THAT THIS JURY WAIVER HAS BEEN A MATERIAL INDUCEMENT TO LITIGATION
FUNDING TO ENTER INTO THIS AGREEMENT.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LITIGATION FUNDING, INC.
By:_______________________________________
INTERNATIONAL FAST FOOD CORPORATION
By:_______________________________________
INTERNATIONAL FAST FOOD POLSKA SP. ZO.O.
By:_______________________________________
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERNATIONAL FAST FOOD CORPORATION, INC. FOR THE THREE
MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,299,192
<SECURITIES> 0
<RECEIVABLES> 308,065
<ALLOWANCES> 0
<INVENTORY> 258,949
<CURRENT-ASSETS> 5,925,618
<PP&E> 8,320,599
<DEPRECIATION> 2,886,794
<TOTAL-ASSETS> 13,221,654
<CURRENT-LIABILITIES> 4,213,656
<BONDS> 2,756,000
0
372
<COMMON> 123,555
<OTHER-SE> 1,840,468
<TOTAL-LIABILITY-AND-EQUITY> 13,221,654
<SALES> 1,358,610
<TOTAL-REVENUES> 1,387,474
<CGS> 568,943
<TOTAL-COSTS> 1,374,350
<OTHER-EXPENSES> 492,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,547
<INCOME-PRETAX> 829,826
<INCOME-TAX> 0
<INCOME-CONTINUING> 829,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 829,826
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
