INTERNATIONAL FAST FOOD CORP, 10QSB, 1999-05-17

INTERNATIONAL FAST FOOD CORP
10QSB, 1999-05-17
EATING PLACES

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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, 1999

- ---
Transition Report Under Section 13 or 15(d) of the Exchange Act
- ---

For the transition period from ____________ to ____________.

COMMISSION FILE NUMBER: 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 Incorporation or (I.R.S. Employer
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 No

The number of shares outstanding of the issuer's common stock, par value $.01
per share as of May 14, 1999 was 45,106,172.

Traditional Small Business Disclosure Format: Yes No X
--- ---

<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998 ....................................... 2

Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998 (unaudited).................... 3

Consolidated Statements of Shareholders' Deficit for the Three
Months Ended March 31, 1999 (unaudited)...................... 4

Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 (unaudited).................... 5

Notes to Consolidated Financial
Statements .................................................. 6 - 11

ITEM 2. Management's Discussion and Analysis or
Plan of Operation ................................12 - 17

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings................................... 18

ITEM 6. Exhibits and Reports on Form 8-K.................... 20

SIGNATURES................................................... 21

-1-

<PAGE>

PART I I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................. $1,440,630 $4,013,371
Restricted cash and certificates of deposit........................... 999,990 999,990
Receivables........................................................... 859,855 1,573,480
Inventories........................................................... 851,321 842,867
Prepaid expenses and other............................................. 429,570 1,150,700
----------- -----------
Total Current Assets.............................................. 4,581,366 8,580,408

Furniture, Equipment, Buildings and Leasehold Improvements, net............ 20,294,853 17,137,181

Deferred Debenture Issuance Costs, net of accumulated amortization of
$198,980 and $190,666, respectively..................................... 233,345 241,659

Deferred Issuance Costs of 11% Convertible Senior Subordinated
Discount Notes, net of accumulated amortization of $122,760 and 2,395,613 2,417,546
$100,827, respectively..................................................

Other Assets, net of accumulated amortization of $324,232 and
$284,532, respectively.................................................. 1,083,076 991,461

Burger King Development Rights, net of accumulated amortization of
$216,216 and $189,189, respectively..................................... 783,784 810,811

Domino's Development Rights, net of accumulated amortization of
$54,397 and $46,626, respectively....................................... 134,706 142,477

Costs in excess of net assets acquired, net of accumulated
amortization of $38,614 and $19,307, respectively....................... 1,505,955 1,525,260
----------- -----------
Total Assets...................................................... $31,012,698 $31,846,803
=========== ===========

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:

Accounts payable...................................................... $ 2,794,028 $ 3,889,528
Accrued interest payable.............................................. 108,625 87,077
Other accrued expenses................................................ 1,268,589 1,176,019
Current portion of bank credit facilities............................. 4,240,034 1,512,260
----------- -----------
Total Current Liabilities......................................... 8,411,276 6,664,884

11% Convertible Senior Subordinated Discount Notes due October 31, 23,254,156 22,645,202
2007....................................................................

Bank Credit Facilities..................................................... 1,766,363 1,892,362

9% Subordinated Convertible Debentures, due December 15, 2007.............. 2,756,000 2,756,000
----------- -----------
Total Liabilities................................................. 36,187,795 33,958,448
---------- ----------
Deferred Credit............................................................ 1,000,000 1,000,000
----------- -----------

COMMITMENTS AND CONTINGENCIES (NOTES 2, 8 AND 9)

SHAREHOLDERS' DEFICIT:

Preferred Stock, $.01 par value, 2,000,000 shares authorized; 32,985 and
32,985 shares issued and outstanding, respectively
(liquidation preference of $3,298,500).............................. 330 330

Common Stock, $.01 par value, 200,000,000 shares authorized;
45,106,172 and 44,901,587 shares issued and outstanding, 451,062 449,016
respectively........................................................

Additional paid-in capital............................................ 18,000,770 17,888,248

Accumulated deficit................................................... (24,627,259) (21,449,239)
------------ ------------
Total Shareholders' Deficit....................................... (6,175,097) (3,111,645)
------------ ------------
Total Liabilities and Shareholders' Deficit....................... $31,012,698 $31,846,803
============ ============

</TABLE>

See Accompanying Notes

-2-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
--------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Sales......................................................................... $ 3,694,573 $ 1,804,801

FOOD AND PACKAGING COSTS...................................................... 1,451,966 696,524
--------- ---------

GROSS PROFIT.................................................................. 2,242,607 1,108,277
--------- ---------

OPERATING EXPENSES:
Payroll and related costs................................................. 728,261 325,366
Occupancy and other operating expenses.................................... 1,122,713 505,897
Preopening expenses (Note 2) ............................................. 447,735 --
Depreciation and amortization............................................. 873,496 206,740
--------- ---------
Total operating expenses............................................. 3,172,205 1,038,003
--------- -----------

(Loss) Income from operations before general and administrative expenses...... (929,598) 70,274

GENERAL AND ADMINISTRATIVE EXPENSES........................................... 1,278,721 534,411
--------- -----------

Loss from operations.......................................................... (2,208,319) (464,137)
--------- -----------

OTHER INCOME (EXPENSES):
Interest and other income, net............................................ 143,163 277,745
Interest expense, including amortization of issuance costs................ (659,128) (705,951)
Foreign currency exchange gain/(loss)..................................... 166,264 (20,063)
---------- -----------
Total other income (expenses)........................................ (349,701) (448,269)
---------- -----------
Loss before minority interest................................................. (2,558,020) (912,406)

Minority interest in losses of consolidated subsidiary........................ -- 25,822

Cumulative effect of change in accounting principal (Note 2).................. (620,000) --
------------ -----------

NET LOSS...................................................................... $(3,178,020) $(886,584)
============ ===========

BASIC AND DILUTED NET LOSS PER COMMON SHARE................................... $ (.07) $ (.02)
============ ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.......................... 44,972,055 44,641,247

</TABLE>

SEE ACCOMPANYING NOTES

-3-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)

COMMON STOCK PREFERRED STOCK ADDITIONAL
------------ --------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----

<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998........... 44,901,587 $449,016 32,985 $330 $17,888,248 $ (21,449,239) $(3,111,645)

Issuance of common stock to
11% Noteholders..................... 204,585 2,046 -- -- 112,522 -- 114,568

Net loss for the period............. -- -- -- -- -- $ (3,178,020) $(3,178,020)
---------- -------- ------ ---- ----------- ------------- -----------

Balances, March 31, 1999 (unaudited).. 45,106,172 $451,062 32,985 $330 $18,000,770 $(24,627,259) $(6,175,097)
========== ======== ====== ==== =========== ============ ===========

</TABLE>

SEE ACCOMPANYING NOTES

-4-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................... $(3,178,020) $ (886,584)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Amortization and depreciation of furniture, equipment, buildings,
leasehold improvements and development rights...................... 696,099 249,852
Amortization of debt discount and issuance costs..................... 639,201 604,278
Value of stock issued in connection with debt waiver................. 114,568 --
Minority interest in losses of subsidiary............................ -- (25,822)
Other operating items................................................ 105,024 (11,942)
Changes in operating assets and liabilities, net of
acquisition of business:
Receivables.......................................................... 713,625 (94,067)
Inventories.......................................................... (8,454) 3,172
Prepaid expenses and other........................................... 782,732 (152,827)
Accounts payable and accrued expenses................................ (981,382) 380,727
----------- ------------
Net cash (used in) provided by operating activities.................... (1,116,607) 66,787
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for furniture, equipment, buildings and leasehold
improvements......................................................... (3,759,968) (752,744)
Payments for franchise fees and other assets........................... (192,917) 2,849
----------- ------------
Net cash used in investing activities.................................. (3,952,885) (749,895)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of bank credit facilities................................... (149,592) (62,995)
Borrowings under bank credit facilities................................ 2,751,367 --
--------- ------------
Net cash provided by (used in) financing activities.................... 2,601,775 (62,995)
--------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........... (105,024) 11,942
--------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS.................................. (2,572,741) (734,161)
BEGINNING CASH AND CASH EQUIVALENTS.................................... 4,013,371 18,642,335
--------- ----------
ENDING CASH AND CASH EQUIVALENTS....................................... $1,440,630 $17,908,174
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................. $ 64,513 $ 34,321
----------- ------------
Interest capitalized ................................................ $ 112,900 $ --
=========== ============

</TABLE>

SEE ACCOMPANYING NOTES

-5-

<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION:

International Fast Food Corporation ("IFFC" or the "Company"), was
incorporated in December 1991 as a Florida corporation. The Company, has,
subject to certain exceptions, the exclusive right to develop franchised Burger
King restaurants and Domino's Pizza stores ("Domino's Stores") in the Republic
of Poland ("Poland").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION -- The accompanying unaudited consolidated
financial statements, which are for interim periods, have been prepared by the
Company in conformity with the instructions to Form 10-QSB and Article 10 of
Regulation S-X and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete 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,
1998 of International Fast Food Corporation and Subsidiaries (the "Company"), as
filed with the Securities and Exchange Commission. The December 31, 1998
consolidated balance sheet contained herein was derived from audited
consolidated financial statements, but does not include all disclosures required
by generally accepted accounting principles.

The accompanying unaudited consolidated financial statements include
the accounts of the Company and its Polish subsidiaries, International Fast Food
Polska, Sp. z.o.o. ("IFFP"), Krolewska Pizza, Sp. z.o.o. ("KP") and Pizza King
Polska, Sp. z.o.o. ("PKP"). IFFP currently operates 24 Burger King restaurants
and 15 Domino's Pizza stores and a Domino's-approved commissary in Poland. All
significant intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, the interim consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the information contained
therein. The interim results of operations are not necessarily indicative of the
results which may be expected for the full year.

IFFC's restaurant and store 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 recent years, the rates of inflation and devaluation improved. For
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 the annual
inflation rate in Poland was 32%, 21.6%, 19.5%, 13.0% and 8.6%, respectively.
Payment of interest and principal on the 9% Convertible Subordinated Debentures,
11% Convertible Senior Subordinated Discount Notes and payment of franchise fees
to Burger King Corporation ("BKC") and Domino's Pizza, Inc. ("Domino's") for
each restaurant and store opened are in United States currency. Additionally,
the Company is dependent on certain sources of supply which require payment in
European or United States currencies. Because IFFC's revenues from operations
are in zlotys, the official currency of Poland, 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.

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. At March 31, 1999 and December 31, 1998, the
exchange rate was 3.9785 and 3.494 zlotys per dollar, respectively. The accounts
of IFFC's Polish subsidiaries are maintained in zlotys and are remeasured into
U.S. dollars, the functional currency, at the end of each reporting period.
Monetary assets and liabilities are remeasured, using current exchange rates.
Non-monetary assets, liabilities, and related expenses, primarily furniture,
equipment, leasehold improvements and related depreciation and amortization, are
remeasured using historical exchange rates. Income and expense accounts,
excluding depreciation and amortization, are remeasured using an annual weighted
average exchange rate. Transaction gains and losses that arise from exchange
rate fluctuations in transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred.

-6-

<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

LIQUIDITY AND PLAN OF OPERATIONS -- As of March 31, 1999, IFFC had
negative working capital of approximately $3,829,910 and cash and cash
equivalents of $1,440,630. IFFC has significant commitments to develop
restaurants in accordance with the BKC Development Agreement and the New Master
Franchise Agreement with Domino's. The Company has sustained losses from
operations since its incorporation in December 1991. For the three months ended
March 31, 1999 and 1998, the Company reported net losses of $3,178,020 and
$886,584, respectively. At March 31, 1999 the Company had an accumulated deficit
of $24,627,259 and a shareholders' deficit of $6,175,097. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

Management believes that cash flows from currently existing stores and
additional stores to be opened in 1999, when combined with existing financial
resources and drawings on the Company's $5,000,000 line of credit secured by BKC
(see Note 8), will be sufficient to fund operations and development costs
through at least January 1, 2000. However, no assurance can be given that
management's plans will be achieved. Management is seeking to obtain additional
equity financing to fund future development. No assurance can be given that such
financing will be obtained or that it can be obtained on favorable terms.

CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with a maturity of three months or less at the time of
acquisition to be cash equivalents. The Company maintains its U.S. cash in bank
deposit accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and cash equivalents.

NET LOSS PER COMMON SHARE -- The net loss per common share in the
accompanying statements of operations has been computed based upon the
provisions of SFAS No. 128, Earnings per Share, which became effective for
reporting periods ending after December 15, 1997. The basic net loss per common
share in the accompanying statements of operations is based upon the net loss
after preferred dividend requirements of $55,875 in 1999 and 1998, respectively,
divided by the weighted average number of shares outstanding during each period.
Diluted per share data for the three months ended March 31, 1999 and March 31,
1998 is the same as basic per share data since the inclusion of all potential
common shares that would be issuable upon the exercise of options and warrants
and the assumed conversion of convertible debt and preferred stock would be
anti-dilutive.

STORE PREOPENING EXPENSES -- Prior to January 1, 1999, the Company
capitalized preopening costs associated with opening new restaurants. Upon
commencement of revenue producing activities at a restaurant location, these
capitalized preopening costs were amortized over one year. In April 1998, the
Accounting Standards Executive Committee of the American Institute of Public
Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities". SOP 98-5 requires costs of start-up activities to be
expensed as incurred. The Company adopted SOP 98-5 on January 1, 1999. Upon
adoption, the Company expensed previously capitalized start-up costs totaling
$620,000 at January 1, 1999. In accordance with SOP 98-5, adoption has been
reported as a cumulative effect of change in accounting principle on the
accompanying statement of operations for the three months ended March 31, 1999.
Preopening costs of $447,735 incurred subsequent to December 31, 1998 have been
charged directly to expense. If SOP 98-5 had been adopted on January 1, 1998,
preopening expenses would have been $152,572 during the three months ended
March 31, 1998 and $881,338 for the year ended December 31, 1998.

ADVERTISING EXPENSE -- The Company accounts for advertising expense in
accordance with SOP 93-7, "Accounting for Advertising Costs" which generally
requires that advertising costs be expensed either as incurred or the first time
the advertising takes place. It is the Company's policy to expense advertising
costs the first time the advertising takes place. However, Accounting Principles
Board Opinion ("APB") No. 28, "Interim Financial Reporting" allows advertising
costs to be deferred within a fiscal year if the benefits of an advertising
expenditure clearly extend beyond the interim period in which the expenditure is
made. Pursuant to APB 28, it is the Company's policy to defer advertising
expenses at the end of interim periods to the extent that such costs will
clearly benefit future interim periods. During the three months ended March 31,
1999, the Company incurred advertising expense of approximately $710,000, of
which approximately $382,000 was deferred at March 31, 1999 and is included in
prepaid expenses on the accompanying balance sheets. Pursuant to SOP 93-7, the
Company is required to expense all advertising incurred at the end of the fiscal
year.

RECLASSIFICATION -- Certain amounts in the 1998 financial statements
have been reclassified to conform with the 1999 presentation.

3. RESTRICTED CASH:

At March 31, 1999, the Company had a $999,990 certificate of deposit
hypothecated to an outstanding line of credit with Totalbank.

-7-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4. BANK CREDIT FACILITIES:

Bank credit facilities at March 31, 1999 and December 31, 1998 consists
of the following:
<TABLE>

March 31, December 31,
1999 1998
----------- -------------
(unaudited)
<S> <C> <C>
Amerbank, S.A, IFFP overdraft credit line, variable rate approximately equal
to prime, expires April 1, 1999 .................................................... $ 0 $ 386

Amerbank, S.A., PKP overdraft credit line, variable rate approximately equal
to prime, expires June 1, 1999...................................................... 2,081 25,288

Amerbank, PKP line of credit of $300,000 payable in ten quarterly
installments of $30,000 commencing on December 26, 1998, interest
payable monthly at 3-1/8% above LIBOR, due at maturity March 26, 2001............... 236,363 266,362

Amerbank, IFFP line of credit of $950,000 payable in twenty nine monthly
installments of $32,000 commencing on March 12, 1998, interest payable
monthly at .50% above LIBOR, due at maturity on August 12, 2000..................... 534,000 630,000

Amerbank, IFFP revolving credit facility of $1,500,000, interest is payable monthly
at 2.50% above LIBOR, payable in thirty five monthly installments
of $91,666 with final payment of $41,690 due at maturity on May 18, 2003............ 1,500,000 1,500,000

Totalbank, IFFC line of credit of $999,000 payable in full on August 19,
1999, interest at 6.5% payable quarterly collateralized by certificates
of deposit in the amount of $999,990................................................ 999,000 982,586

Citibank, IFFP line of credit of $5,000,000 payable at maturity of January
15, 2000, interest at LIBOR plus .8%, interest payable quarterly,
unsecured 2,734,953 --
--------- ----------
Total Debt............................................................................... 6,006,397 3,404,622

Less: Current Maturities................................................................. 4,240,034 1,512,260
--------- ----------
Long Term Debt........................................................................... $1,766,363 $1,892,362
========== ==========
</TABLE>

5. 9% CONVERTIBLE SUBORDINATED DEBENTURES:

The 9% Convertible Subordinated Debentures (the "Debentures") mature on
December 15, 2007 and provide for the payment of cash interest, semi-annually on
June 15 and December 15, until maturity. At March 31, 1999 and December 31,
1998, there were $2,756,000 of Debentures outstanding.

6. 11% CONVERTIBLE SENIOR SUBORDINATED DISCOUNT NOTES:

On November 5, 1997, the Company sold $27,536,000 of 11% Convertible
Senior Subordinated Discount Notes Due October 31, 2007 ( the "Notes") in a
private offering. At March 31, 1999 and December 31, 1998, the notes are
comprised as follows:

<TABLE>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>

Face amount of notes at maturity.............. $27,536,000 $27,536,000
Unamortized discount to be accreted as
interest expense and added to the
original principal balance of the
notes over a period of three years............ (4,281,844) (4,890,798)
----------- -----------
Carrying value................................ $23,254,156 $22,645,202
=========== ===========
</TABLE>

-8-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Notes are convertible, at the option of the holder, into Common
Stock at any time after November 5, 1998. As of March 31, 1999, none of the
Notes had been converted into Common Stock.

7. 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 is shown
below for the three months ended March 31, 1999:

WEIGHTED AVERAGE
1999 SHARE PRICE
---- -----------
<S> <C> <C>
Outstanding at beginning of period...................... 1,020,000 $.42
Granted.................................................
Exercised...............................................
Expired................................................. 100,000 $.40
-------
Outstanding at end of period............................ 920,000 $.42
=======
Exercisable at end of period............................ 330,500 $.40
Price range of options outstanding at end of period..... $.40-- $.81
Available for grant at end of period.................... 1,080,000
</TABLE>

At March 31, 1999, IFFC had reserved the following shares of Common
Stock for issuance:
<TABLE>

<S> <C>
Stock option plans........................................................................ 2,000,000

Warrants issued in connection with 1994 exchange offer, exercisable at $7.00 per
share through August 1, 1999......................................................... 290,800

Convertible Debentures convertible into Common Stock at a conversion price of
$8.50 per share on or before December 15, 2007....................................... 324,235

Preferred Stock convertible into Common Stock at a conversion price of $3.00 per
share ............................................................................... 1,099,500

Warrants to purchase 50,000 shares of Common Stock at an exercise price of
$.2831 per share on or before January 5, 2004........................................ 50,000

Convertible Senior Subordinated Discount Notes convertible into Common Stock,
after November 5, 1998, at a conversion price of $.70 per share......................39,337,143
----------
Total reserved shares.....................................................................43,101,678
==========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

On February 24, 1999, IFFP entered into a credit agreement (the "Credit
Agreement") with Citibank (Poland) S.A. pursuant to which Citibank granted IFFP
a loan in the amount of $5,000,000 (the "Loan"). The purpose of the loan is to
finance the construction of nine Burger King restaurants. The loan is priced at
0.8% above LIBOR and matures on January 15, 2000. As of March 31, 1999,
$2,734,953 was outstanding on this credit facility. In order for IFFP to enter
into the Credit Agreement, holders of the outstanding Notes were required to
waive certain provisions of the Note Indenture. As compensation for such waiver,
the Noteholders were issued an aggregate of 204,585 shares of Common Stock, with
a fair value of $0.56 per share. The fair value of the common stock has been
expensed in the quarter.

-9-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

and all costs and expenses incurred by BKC in connection with the enforcement of
its rights under the Reimbursement Agreement. BKC also required that the
Company, IFFP and Mitchell Rubinson, the Chairman of the Board and Chief
Executive Officer of the Company and a principal shareholder ("Rubinson"),
execute a general release of BKC relating to any matters that occurred prior to
the execution of the Credit Agreement.

Additionally, Rubinson entered into a purchase agreement with BKC which
provides that if IFFP and the Company default on their obligations under the
Reimbursement Agreement and BKC takes possession of the IFFP shares, Rubinson is
required to purchase the IFFP shares from BKC for an amount equal to all amounts
paid out by BKC pursuant to the guaranty and all costs and expenses incurred by
BKC in connection with the enforcement of its rights under the Reimbursement
Agreement. Mr. Rubinson received a fee of $150,000 from the Company in
connection with the Purchase Agreement.

In March 1999, the Company entered into a letter agreement whereby it
granted Host Marriott Service Corporation ("Host Marriott") the non-exclusive
rights to develop and operate Burger King restaurants within enclosed shopping
centers located in Poland where Host Marriott has leased substantially all of
the food and beverage facilities, each location to be subject to the approval of
Burger King. Pursuant to such agreement, Host Marriott will pay IFFC (a) an
initial fee of US $25,000 per location in exchange for IFFC's pre-opening
support and assistance, including furnishing design and construction advice,
hiring and training management staff, and advising on the selection of
information and accounting systems for each Burger King restaurant developed by
Host Marriott, and (b)an on-going annual fee equal to the greater of U.S. $7,000
per location, or 1.5% of Host Marriott's gross receipts from the operation of
each Burger King restaurant, in exchange for IFFC's on-going technical
assistance and services, including maintaining quality standards, procurement
and supply services, and on-going staff training. The annual fee will be payable
monthly, with an annual reconciliation, and will continue for the duration of
Host Marriott's operation of the location as a Burger King restaurant.

Further, IFFC has the option to acquire up to 50% interest in the net
income of any Burger King restaurants developed by Host Marriott pursuant to the
agreement. IFFC may exercise such option by giving Host Marriott written notice,
at any time prior to the opening of each Burger King restaurant, specifying the
percentage interest that IFFC intends to acquire. If IFFC exercises such option,
it will be responsible for a pro rata portion of the total costs incurred by
Host Marriott in building, equipping and opening such restaurant, together with
a pro rata portion of the cost of any common facilities (e.g., seating areas,
tray wash areas, office and storage space, point of sale and telecommunications
systems, etc.) used in connection therewith. The letter agreement terminates
simultaneously with the BKC Agreement. Additionally, Host Marriott will be
responsible for all amounts payable to BKC (e.g., franchise fees, advertising
contributions, and royalty fees) for the franchise rights for each location
developed by it pursuant to the agreement.

9. LITIGATION:

DISPUTE WITH POLISH FISCAL AUTHORITIES. As of July 1995, IFFC may have
become subject to penalties for failure to comply with an 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. As
a penalty for noncompliance, Polish tax authorities may disallow certain value
added tax deductions for July and August 1995. Additionally, penalties and
interest may be imposed on these disallowed deductions. IFFP believes that its
potential exposure is approximately $560,000, which amount has been accrued for
in the accompanying consolidated financial statements as of December 31, 1998.
IFFP has requested a final determination by the Polish Minister of Finance. The
Company is unable to predict the timing and nature of the Minister's ruling.
Although IFFP's NCR Cash Register System was a modern system, it could not be
modified. In 1998, IFFP replaced the system with a new Siemen's system which
complies with Polish regulations.

-10-
<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

JAMES MIRANTI, INTERNATIONAL FAST FOOD CORPORATION, DOMINO'S PIZZA
INTERNATIONAL, INC., REGENESIS HOLDINGS CORPORATION, United States District
Court, Northern District of California (Case No. 99-1107 CRB). On March 10,
1999, certain shareholders of Regenesis Holdings Corporation (f/k/a QPQ
Corporation) ("Regenesis") filed a complaint against IFFC and certain of its
senior management and principal shareholders, including Mitchell Rubinson,
IFFC's Chairman of the Board and Chief Executive Officer, and James Martin,
IFFC's Vice President and Chief Financial Officer. Regenesis formerly held the
right to develop Domino's Pizza stores in Poland. Certain former officers and
principal stockholders of Regenesis are officers and principal shareholders of
IFFC. The complaint alleges, among other things, that the defendants
fraudulently transferred the Domino's development rights to IFFC, thereby
causing Regenesis to lose value. Additionally, the complaint alleges that IFFC
engaged in the misappropriation of corporate opportunities of QPQ Corporation.
The plaintiffs are seeking unspecified monetary damages, including treble and
punitive damages, and reasonable costs and attorney's fees. Because this matter
is in its preliminary stages, management is unable to determine what effect it
will have upon IFFC's financial condition, results of operation or liquidity;
however, management believes that the claims are without merit.

OTHER LITIGATION. The Company is not a party to any litigation or
governmental proceedings that management believes would result in any judgments
or penalties that would have a material adverse effect on the Company.

10. SEGMENT INFORMATION

The Company operates subsidiaries in the fast food industry in the
Republic of Poland. The Company, through its two wholly owned subsidiaries,
International Fast Food Polska, Sp. z o.o. ("IFFP") and Pizza King Polska, Sp. z
o.o. ("PKP"), operates franchised Burger King restaurants and Domino's Pizza
stores, respectively, in the Republic of Poland. The Company's reportable
segments are strategic business units that offer different products. The Company
evaluates the performance of its segments based on revenue and operating income.
The Company's Burger King restaurants offer dine-in and take out hamburgers,
cheeseburgers, chicken sandwiches, fish sandwiches, french fries, soft drinks
including milk shakes and ice cream. The Company's Domino's Pizza stores offer
its customers take out and delivery service for its pizzas, salads, sandwiches,
chicken wings, breadsticks, soft drinks and ice cream. There is no material
intersegment revenue. Interest expense related to working capital and
development activity is included the Company's Consolidated Statements of
Operations.

The following table presents financial information regarding the Company's
different industry segments as of and for the three month periods ended March
31, 1999 and 1998 (in thousands).

<TABLE>
THREE MONTHS ENDED MARCH 31, 1999 (unaudited)
- ---------------------------------------------

IFFP PKP Total Corporate Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restaurant/store sales................. $ 2,651 $ 1,030 $ 3,681 $ -- $ 3,681
Other revenue.......................... 13 -- 13 -- 13
-------- -------- -------- -------- --------
Total revenue....................... 2,664 1,030 3,694 -- 3,694

Food and packaging costs............... 1,099 353 1,452 -- 1,452
Restaurant operating costs............. 1,299 551 1,850 -- 1,850
Preopening expenses ................... 365 83 448 -- 448
Depreciation and amortization.......... 668 206 874 -- 874
General and administrative expenses.... 329 125 454 824 1,278
-------- -------- -------- -------- --------

Loss from operations................... $ (1,096) $ (288) $ (1,384) $ (824) $ (2,208)
======== ======== ======== ======== ========

THREE MONTHS ENDED MARCH 31, 1998 (unaudited)
- ---------------------------------------------

IFFP PKP Total Corporate Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restaurant/store sales................. $ 1,379 $ 407 $ 1,786 $ -- $ 1,786
Other revenue.......................... 19 -- 19 -- 19
-------- -------- -------- -------- --------
Total revenue....................... 1,398 407 1,805 -- 1,805

Food and packaging costs............... 560 137 697 -- 697
Restaurant operating costs............. 614 217 831 -- 831
Depreciation and amortization.......... 166 41 207 -- 207
General and administrative expenses.... 205 52 257 277 534
-------- -------- -------- -------- --------

Loss from operations................... $ (147) $ (40) $ (187) $ (277) $ (464)
======== ======== ======== ======== ========

Total assets:
December 31, 1998................... $ 18,536 $ 3,406 $ 21,942 $ 9,905 $ 31,847
======== ======== ======== ======== ========

March 31, 1999...................... $ 20,401 $ 3,210 $ 23,611 $ 7,402 $ 31,013
======== ======== ======== ======== ========
</TABLE>

11. SUBSEQUENT EVENTS:

In April 1999, the Company opened two Burger King drive-thru
restaurants in Warsaw, Poland. These restaurants are located on gas station
properties owned by British Petroleum and Statoil and represent the Company's
first drive-thru restaurants in the City of Warsaw.

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<PAGE>

18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

GENERAL

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Information contained in this Quarterly Report on Form 10-QSB contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "could," "intends," "estimates," "projected," "contemplated" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology. No assurances can be given that the future results covered by the
forward-looking statements will be achieved. These statements, by their nature,
involve substantial risks and uncertainties, certain of which are beyond IFFC's
control. The following factors and other factors described elsewhere in this
annual report could cause actual experience to vary materially from the future
results covered in such forward-looking statements:

- the future growth of our business and our ability to comply with the
restaurant development agreement with Burger King Corporation (the "BKC
Agreement") and the master franchise agreement with Domino's (the
"Domino's Agreement");

- our ability to improve levels of profitability; the sufficiency of cash
flow provided by our operating, investing and financing activities;

- changes in our financial condition, and the economic, business and
political conditions in Poland;

- the demand for our products and the ability of our third-party
suppliers to meet our quantity and quality requirements;

- the ability to consummate joint ventures or other strategic
associations with third parties or lessors;

- the ability to obtain suitable restaurant sites;

- changes in the level of operating expenses and revenues;

- changes in the present and future level of competition; and

- our future liquidity and capital resource needs.

Other factors, such as the general state of the economy, could also cause actual
experience to vary materially from the matters covered in such forward-looking
statements.

GENERAL

IFFC currently operates 24 Burger King restaurants and 15 Domino's
Pizza stores. IFFC has incurred losses and anticipates that it will continue to
incur losses until, at the earliest, it establishes a number of restaurants and
stores generating sufficient revenues to offset its operating costs and the
costs of its proposed continuing expansion. There can be no assurance that IFFC
will ever achieve profitability or be able to successfully establish a
sufficient number of restaurants to achieve profitability.

THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998

RESULTS OF OPERATIONS

For the three months ended March 31, 1999 and March 31, 1998, IFFC
generated sales of $3,681,221 and $1,786,120, respectively (excluding
miscellaneous revenue of $13,352 and $18,680, respectively), which includes
sales of $2,651,043 and $1,378,957 for the Burger King restaurants and
$1,030,178 and $407,163 for the Domino's Pizza stores, respectively. In U.S.
dollar and Polish zloty terms, IFFC's Burger King restaurant sales increased by
approximately 92.2% and 105.6%, respectively, for the three months ended March
31, 1999 as compared to the three months ended March 31, 1998. In U.S. dollar
and Polish zloty terms IFFC's Burger King same restaurant sales increased by
approximately 3.3% and 10.4%, respectively, for the three months ended March 31,
1999 as

-12-
<PAGE>

compared to the three months ended March 31, 1998. The increase in same
restaurant sales was primarily attributable to the initial start up of
television advertising in March 1999. In U.S. dollar and Polish zloty terms,
IFFC's Domino's store sales increased by approximately 153.0% and 170.6%,
respectively, for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998. In U.S. dollar and Polish zloty terms IFFC's
Domino's same store sales increased by approximately 22.8% and 31.4%,
respectively, for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998. The increase in same store sales was attributed to
increased brand awareness.

During the three months ended March 31, 1999, IFFC incurred food and
packaging costs of $1,451,966, payroll and related costs of $728,261, occupancy
and other operating expenses of $1,570,448 and depreciation and amortization
expense of $873,496.

Food and packaging costs applicable to Burger King restaurants for the
three months ended March 31, 1999 and 1998 were 41.5% and 40.5% of restaurant
sales, respectively. The 1.0% increase as a percentage of restaurant sales was
primarily attributable to higher food costs incurred in the new restaurants
during their initial start up. Food and packaging costs applicable to Domino's
stores for the three months ended March 31, 1999 and 1998 were 34.2% and 33.7%
of store sales, respectively. The 0.5% increase as a percentage of store sales
was primarily attributable to increased food costs incurred in the new stores
during their initial start up.

Payroll and related costs applicable to Burger King restaurants for the
three months ended March 31, 1999 and 1998 were 18.5% and 16.7% of restaurant
sales, respectively. The 1.8% increase as a percentage of restaurant sales was
primarily as a result of increased payroll costs incurred in the new restaurants
during their initial start up. Payroll and related costs applicable to Domino's
stores for the three months ended March 31, 1999 and 1998 were 23.1% and 23.2%
of store sales, respectively. The 0.1% decrease as a percentage of restaurant
sales was primarily as a result of an increase in same store sales.

Occupancy and other operating expenses applicable to Burger King
restaurants for the three months ended March 31, 1999 and 1998 were 30.6% and
27.8% of restaurant sales, respectively. The 2.8% increase as a percentage of
restaurant sales was primarily attributable to higher royalties paid to Burger
King pursuant to the provisions of the BKC Agreement, coupled with higher
advertising costs and utilities. Occupancy and other operating expenses
applicable to Domino's stores for the three months ended March 31, 1999 and 1998
were relatively constant at 30.3% and 30.1% of restaurant sales, respectively.

Depreciation and amortization expense applicable to Burger King
restaurants was $667,503 as compared to $165,865 for the three months ended
March 31, 1999 and 1998, respectively. The increase was primarily attributable
to higher depreciation for the new restaurants. Depreciation and amortization
expense applicable to Domino's stores was $205,993 as compared to $40,875 for
the three months ended March 31, 1999 and 1998, respectively. The increase was
primarily attributable to higher depreciation on new stores.

General and administrative expenses for the three months ended March
31, 1999 and 1998 were 34.6% and 29.6% of sales, respectively. The 5.0% increase
as a percentage of sales was primarily attributable to increased salaries and
benefits and debt issuance costs associated with the $5.0 million loan from
Citibank in February 1999. For the three months ended March 31, 1999, general
and administrative expenses consisted of executive and office staff salaries and
benefits ("Salary Expense") of $368,945; legal and professional fees, office
rent, travel, telephone and other corporate expenses ("Corporate Overhead
Expense") of $846,815, and depreciation and amortization of $62,961. For the
three months ended March 31, 1998, general and administrative expense included
Salary Expenses of $209,388; Corporate Overhead Expenses of $281,911, and
depreciation and amortization of $43,112. The $744,310 increase is primarily
attributable to increased salaries associated with the Polish operations; and
debt issuance costs associated with the $5.0 million Citibank loan.

-13-
<PAGE>

For the three months ended March 31, 1999 and 1998 Interest and Other
Income consisted of the following:

THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Interest income................................................... $ 39,817 $272,257
All other, net.................................................... 103,346 5,488
------- ------
$143,163 $277,745
======== ========

Interest Expense consisted of the following:

THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Interest Expense on 9% Subordinated Convertible Debentures........ $ 62,010 $ 62,010

Amortization of Debt Issuance Costs............................... 30,247 69,278

Accretion of discount on 11% Convertible Senior
Subordinated Discount Notes
608,954 535,000
Interest Expense on Bank Facilities............................... 70,817 39,663
Capitalized interest.............................................. (112,900) --
------- --------
Total............................................................. $659,128 $705,951
======== ========
</TABLE>

Interest expense exceeded interest and other income by $515,965 and
$428,206 for the three months ended March 31, 1999 and 1998, respectively. The
primary reason for the increase for the three month period ended March 31, 1999
was higher interest on the 11% discount notes and bank interest, coupled with
lower interest income.

IFFC's interest expense on bank facilities was $70,817 and $39,663 for
the three months ended March 31, 1999 and 1998, respectively. The $31,154
increase was attributable to IFFC's increase of borrowings under bank credit
facilities.

As a result of the foregoing, the three months ended March 31, 1999,
IFFC generated a net loss of $3,178,020 or $.07 per share of IFFC's Common
Stock compared to net loss of $886,584, or $.02 per share of IFFC's Common
Stock for the three months ended March 31, 1998.

IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Legal
Proceedings - Polish Fiscal Authority Disputes" for a description of such
matters.

LIQUIDITY AND CAPITAL RESOURCES

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 various bank credit
facilities, proceeds from the sale of certain equity securities, the settlement
of certain litigation with BKC, and proceeds from the private sale of the Notes.

Net cash used in operating activities increased by $1,183,394 for the
three months ended March 31, 1999 compared to the three months ended March 31,
1998. The increase was primarily attributable to increased losses from
operations in 1999.

Net cash flows used in investing activities increased from $749,895 to
$3,952,885 for the three months ended March 31, 1998 and 1999, respectively. The
increase was attributable to payments made for new Burger King restaurant
buildings, furniture, equipment, and other assets primarily associated with its
new Burger King restaurants.

-14-
<PAGE>

Net cash provided by financing activities increased by $2,664,770 for
the three months ended March 31, 1999, compared to the three months ended March
31, 1998. The increase was primarily attributable to advances under the new
Citibank Loan.

As of March 31, 1999, IFFC had negative working capital of
approximately $3,829,910 and cash and cash equivalents of $1,440,630. IFFC has
significant commitments to develop restaurants in accordance with the BKC
Agreement and the Domino's Agreement. The Company has sustained losses from
operations since its incorporation in December 1991. For the three months ended
March 31, 1999 and 1998, the Company reported net losses of $3,178,020 and
$886,584, respectively. At March 31, 1999 the Company had an accumulated deficit
of $24,627,239 and a shareholders' deficit of $6,175,097. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

Management believes that cash flows from currently existing stores and
additional stores to be opened in 1999, when combined with existing financial
resources and drawings on the Company's $5,000,000 line of credit secured by
BKC, will be sufficient to fund operations and development costs through at
least January 1, 2000. However, no assurance can be given that management's
plans will be achieved. Management is seeking to obtain additional equity
financing to fund future development. No assurance can be given that such
financing will be obtained or that it can be obtained on favorable terms.

BKC AGREEMENT AND DOMINO'S AGREEMENT - IFFC's material commitments for
capital expenditures in its restaurant and store business relate to the
provisions of the BKC Agreement and the Domino's Agreement.

AGREEMENT WITH MARRIOTT. In March 1999, the Company entered into a
letter agreement whereby it granted Host Marriott Service Corporation ("Host
Marriott") the non-exclusive rights to develop and operate Burger King
restaurants within enclosed shopping centers located in Poland where Host
Marriott has leased substantially all of the food and beverage facilities, each
location to be subject to the approval of Burger King. Pursuant to such
agreement, which was amended in May 1999, Host Marriott will pay IFFC (a) an
initial fee of US $25,000 per location in exchange for IFFC's pre-opening
support and assistance, including furnishing design and construction advice,
hiring and training management staff, and advising on the selection of
information and accounting systems for each Burger King restaurant developed by
Host Marriott, and (b)an on-going annual fee equal to the greater of U.S. $7,000
per location, or 1.5% of Host Marriott's gross receipts from the operation of
each Burger King restaurant, in exchange for IFFC's on-going technical
assistance and services, including maintaining quality standards, procurement
and supply services, and on-going staff training. The annual fee will be payable
monthly, with an annual reconciliation, and will continue for the duration of
Host Marriott's operation of the location as a Burger King restaurant.

CONVERTIBLE NOTES - In November 1997, the Company sold $27,536,000 of
its 11% Convertible Senior Subordinated Discount Notes Due October 31, 2007 (the
"Notes") in a private offering. Interest is payable semi-annually, in cash, on
April 30 and October 31 of each year, commencing April 30, 2001. The Notes are
comprised as follows at March 31, 1999 and December 31, 1998:

-15-
<PAGE>

<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Face amount of notes at maturity................................ $27,536,000 $27,536,000

Unamortized discount to be accreted as interest expense
and added to the original principal balance of the
notes over a period of three years............................ (4,281,844) (4,890,798)
------------ -----------
Carrying value.................................................. $23,254,156 $22,645,202
=========== ===========
</TABLE>

The Notes are convertible, at the option of the holder, into Common
Stock at any time after November 5, 1998. As of March 31, 1999, none of the
Notes had been converted into Common Stock.

DISPUTE WITH POLISH FISCAL AUTHORITIES - IFFC anticipates that it will
continue to incur certain expenses in connection with its disputes with the
Polish Fiscal Authorities. See "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.

POLISH BANK ACCOUNTS - As of March 31, 1999 and December 31, 1998, the
Company had approximately $377,124 and $1,842,966, respectively, in Polish bank
accounts with substantially all of such funds held as U.S. dollar denominated
deposits. Substantially all of the Company's remaining cash is held in U.S.
dollar accounts in U.S. Banks.

CREDIT FACILITIES - IFFC has also financed its operations through the
use of credit facilities.

The Loan is guaranteed by BKC and the Company granted BKC a security
interest in the outstanding shares of IFFP. As a condition to the guarantee, BKC
required that IFFC, IFFP and Mitchell Rubinson enter into a general release in
favor of BKC for any and all matters occurring prior to the date of the
guarantee. Additionally, the Company and IFFP entered into a reimbursement
agreement (the "Reimbursement Agreement") pursuant to which they agreed to
reimburse BKC for any and all amounts paid out by BKC pursuant to the guaranty
and all costs and expenses incurred by BKC in connection with the enforcement of
its rights under the Reimbursement Agreement. BKC also required that the
Company, IFFP and Mitchell Rubinson, the Chairman of the Board and Chief
Executive Officer of the Company and a principal shareholder ("Rubinson"),
execute a general release of BKC relating to any matters that occurred prior to
the execution of the Credit Agreement.

ACCOUNTING POLICIES -- The following is a summary of certain accounting
policies that are new or have become material to the Company's operations during
the first quarter of 1999. For a discussion of all of the Company's material
accounting policies, reference is made to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.

Prior to January 1, 1999, the Company
capitalized preopening costs associated with opening new restaurants. Upon
commencement of revenue producing activities at a restaurant location, these
capitalized preopening costs were amortized over one year. In April
1998, the Accounting Standards Executive Committee of the American Institute of
Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-Up Activities". SOP 98-5 requires costs of start-up activities to
be expensed as incurred. The Company adopted SOP 98-5 on January 1, 1999. Upon
adoption, the Company expensed previously capitalized start-up costs totaling
$620,000 at January 1, 1999. In accordance with SOP 98-5, adoption has been
reported as a cumulative effect of change in accounting principle on the
accompanying statement of operations for the three months ended March 31, 1999.
Preopening costs of $447,735 incurred subsequent to December 31, 1998 have been
charged directly to expense. If SOP 98-5 had been adopted on January 1, 1998,
preopening expenses would have been $152,572 during the three months ended
March 31, 1998 and $881,338 for the year ended December 31, 1998.

The Company accounts for advertising expense in accordance with SOP
93-7, "Accounting for Advertising Costs" which generally requires that
advertising costs be expensed either as incurred or the first time the
advertising takes place. It is the Company's policy to expense advertising costs
the first time the advertising takes place. However, Accounting Principles Board
Opinion ("APB") No. 28, "Interim Financial Reporting" allows advertising costs
to be deferred within a fiscal year if the benefits of an advertising
expenditure clearly extend beyond the interim period in which the expenditure is
made. Pursuant to APB 28, it is the Company's policy to defer advertising
expenses at the end of interim periods to the extent that such costs will
clearly benefit future interim periods. During the three months ended March 31,
1999, the Company incurred advertising expense of approximately $710,000, of
which approximately $382,000 was deferred at March 31, 1999 and is included in
prepaid expenses on the accompanying balance sheets. Pursuant to SOP 93-7, the
Company is required to expense all advertising incurred at the end of the fiscal
year.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

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

-16-
<PAGE>

generally. At March 31, 1999, the exchange rate was 3.9875 zlotys per dollar.
The accounts of IFFC's Polish subsidiaries are maintained using the Polish
zloty.

IFFC's restaurant and store 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 years ended December 31, 1997 and 1998, the rates of inflation
and devaluation improved. For the years ended December 31, 1994, 1995, 1996,
1997 and 1998 the annual inflation rate in Poland was 32%, 21.6%, 19.5%, 13.0%
and 8.6% respectively, and as of December 31, 1994, 1995, 1996, 1997 and 1998
the exchange rate was 2.437, 2.468, 2.872, 3.514 and 3.494 zlotys per dollar,
respectively. Payment of interest and principal on the 9% Convertible
Subordinate Debentures, 11% Convertible Senior Subordinated Discount Notes and
payment of franchise fees to Burger King and Domino's for each restaurant and
store 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.

YEAR 2000 COMPUTER ISSUE

The SEC has issued Staff Legal Bulletin No. 5 stating that public
operating companies should consider whether there will be any anticipated costs,
problems and uncertainties associated with the Year 2000 issue, which affects
many existing computer programs that use only two digits to identify a year in
the date field. The Company has recently upgraded its computer operating systems
and believes that such systems are Year 2000 compliant. Additionally, IFFC
intends that any computer systems that it may purchase or lease in the future
will have already addressed the Year 2000 issue and anticipates that its
business operations will electronically interact with third parties very
minimally, if at all.

However, IFFC has not fully assessed the impact of the Year 2000 issue
on third parties with whom IFFC has material relationships, including its
distributors and suppliers. BKC is assisting the Company by assessing the
compliance of BKC-approved suppliers. Additionally, the Company is undertaking
an assessment of third parties with which it has material relationships and
expects to complete the assessment of this information by September 1999.
Certain of the Company's suppliers are not computerized and will not be affected
by the Year 2000. However, the Company has determined that a material number of
its suppliers have antiquated computer systems which may be materially affected.
As information is received, the Company intends to analyze the compliance issues
and develops a strategy for non-compliant third parties on whom the Company is
materially dependent.

To date, the Company estimates that it has spent approximately $50,000
on Year 2000 efforts across all areas and expects to spend a total of
approximately $150,000 when complete. The Company expects to fund Year 2000
costs through operating cash flows and proceeds from debt and equity financings.
All system modification costs associated with Year 2000 will be expensed as
incurred.

The Company currently believes that the Year 2000 issue will not
present a materially adverse risk to its future consolidated results of
operations, liquidity, and capital resources. However, if the Company's belief
that its computer operating systems are compliant is incorrect or the level of
timely compliance by key suppliers or vendors is not sufficient, the Year 2000
issue could have a material impact on the Company's operations including, but
not limited to, delays in delivery of supplies resulting in loss of revenue,
increased operating costs, loss of customers or suppliers, or other significant
disruptions to the Company's business. The Company is in the process of
formulating contingency and business continuation plans which address the Year
2000 issue.

-17-
<PAGE>

Determining the Year 2000 readiness of third party products
(information technology and other computerized equipment) and business
dependencies (including suppliers and distributors) requires pursuit, collection
and appraisal of voluntary statements made or provided by those parties, if
available, together with independent factual research. Although the Company has
taken, and will continue to take, reasonable efforts to gather information to
determine and verify the readiness of such products and business dependencies,
there can be no assurance that reliable information will be offered or otherwise
available. In addition, verification methods (including testing methods) may not
be reliable or fully implemented. Accordingly, notwithstanding the foregoing
efforts, there are no assurances that the Company is correct in its
determination or belief that a product or a business dependency is Year 2000
ready.

-18-
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

REGENESIS MATTER. The Company is a party to the following legal
proceeding: ELPOINT COMPANY, LLC AND GENNADY YAKOVLEV, VS. MITCHELL RUBINSON,
MARILYN RUBINSON, EDDA RUBINSON, NIGEL NORTON, JAMES F. MARTIN, LEON BLUMENTHAL,
LAWRENCE RUTSTEIN, SHULMAN & ASSOCIATES, INC., MANNY SCHULMAN, FRANKLYN
WEICHSELBAUM, JAMES MIRANTI, INTERNATIONAL FAST FOOD CORPORATION, DOMINO'S PIZZA
INTERNATIONAL, INC., REGENESIS HOLDINGS CORPORATION, United States District
Court, Northern District of California (Case No. 99-1107 CRB). On March 10,
1999, certain shareholders of Regenesis Holdings Corporation (f/k/a QPQ
Corporation) ("Regenesis") filed a complaint against IFFC and certain of its
senior management and principal shareholders, including Mitchell Rubinson,
IFFC's Chairman of the Board and Chief Executive Officer, and James Martin,
IFFC's Vice President and Chief Financial Officer. Regenesis formerly held the
right to develop Domino's Pizza stores in Poland. Certain former officers and
principal stockholders of Regenesis are officers and principal shareholders of
IFFC. The complaint alleges, among other things, that the defendants
fraudulently transferred the Domino's development rights to IFFC, thereby
causing Regenesis to lose value. Additionally, the complaint alleges that IFFC
engaged in the misappropriation of corporate opportunities of QPQ Corporation.
The plaintiffs are seeking unspecified monetary damages, including treble and
punitive damages, and reasonable costs and attorney's fees. Because this matter
is in its preliminary stages, management is unable to determine what effect it
will have upon IFFC's financial condition, results of operation or liquidity;
however, management believes that the claims are without merit.

-19-
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

27.1 - Financial Data Schedule (filed electronically only).

(b) The following reports on Form 8-K were filed during the
quarter ended on March 31, 1999:

None.

-20-
<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 17, 1999 By: /S/ MITCHELL RUBINSON
Mitchell Rubinson, Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)

DATE: May 17, 1999 By: /S/ JAMES MARTIN
James Martin, Chief Financial Officer
(Principal Financial and Accounting Officer)

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