INTERNATIONAL FAST FOOD CORP, 10QSB, 1999-08-16

INTERNATIONAL FAST FOOD CORP
10QSB, 1999-08-16
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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 June 30, 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 (I.R.S. Employer Identification No.)
Incorporation or Organization)

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 August 12, 1999 was 45,324,131.

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 June 30, 1999
(unaudited) and December 31, 1998 ................................ 2

Consolidated Statements of Operations
for the Three Months and Six Months
Ended June 30, 1999 and 1998 (unaudited) ......................... 3

Consolidated Statements of Shareholders'
Deficit for the Six Months Ended June 30, 1999
(unaudited) ...................................................... 4

Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999
and 1998 (unaudited) ............................................. 5

Notes to Consolidated Financial Statements .................. 6 - 12

ITEM 2. Management's Discussion and
Analysis or Plan of Operation ...............................13 - 19

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings .......................................20

ITEM 6. Exhibits and Reports on Form 8-K ........................21

SIGNATURES .......................................................22

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
JUNE 30, DECEMBER 31,
1999 1998
---- ----
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ....................................... $ 784,203 $ 4,013,371
Restricted cash and certificates of deposit ..................... 999,990 999,990
Receivables ..................................................... 423,373 1,573,480
Inventories ..................................................... 836,304 842,867
Prepaid expenses and other ...................................... 800,672 1,150,700
------------- -------------
Total Current Assets ....................................... 3,844,542 8,580,408
Furniture, Equipment, Buildings and
Leasehold Improvements, net ................................ 20,389,251 17,137,181
Deferred Debenture Issuance Costs, net of accumulated
amortization of $207,294 and $190,666,
respectively ............................................... 225,031 241,659
Deferred Issuance Costs of 11% Convertible Senior...............
Subordinated Discount Notes, net of accumulated
amortization of $149,255 and $100,827, respectively ....... 2,369,118 2,417,546
Other Assets, net of accumulated amortization ...................
of $364,053 and $284,532, respectively...................... 1,541,666 991,461
Burger King Development Rights, net of accumulated
amortization of $243,243 and $189,189, respectively ........ 756,757 810,811
Domino's Development Rights, net of accumulated
amortization of $62,168 and $46,626, respectively ......... 126,935 142,477
Costs in excess of net assets acquired,
net of accumulated amortization of $57,921 and
$19,307, respectively ...................................... 1,486,648 1,525,260
------------- -------------
Total Assets .................................................... $ 30,739,948 $ 31,846,803
============= =============

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ................................................ $ 3,181,686 $ 3,889,528
Accrued interest payable ........................................ 61,398 87,077
Other accrued expenses .......................................... 1,401,417 1,176,019
Current portion of bank credit facilities ....................... 5,544,433 1,512,260
------------- -------------
Total Current Liabilities ................................... 10,188,934 6,664,884
11% Convertible Senior Subordinated
Discount Notes due October 31, 2007 ........................ 23,896,444 22,645,202

Bank Credit Facilities ............................................... 1,640,363 1,892,362
9% Subordinated Convertible Debentures,
due December 15, 2007 ........................................... 2,756,000 2,756,000
------------- -------------
Total Liabilities ........................................... 38,481,741 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; 45,324,131 and 44,901,587
shares issued and outstanding,respectively ............. 453,241 449,016
Additional paid-in capital ...................................... 18,095,366 17,888,248
Accumulated deficit ............................................. (27,290,730) (21,449,239)
------------- -------------
Total Shareholders' Deficit ................................. (8,741,793) (3,111,645)
------------- -------------
Total Liabilities and Shareholders' Deficit ................. $ 30,739,948 $ 31,846,803
============= =============

</TABLE>

SEE ACCOMPANYING NOTES

<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------------------------- ----------------------------

<S> <C> <C> <C> <C>
REVENUES: ......................................... $ 4,147,345 $ 1,902,902 $ 7,841,918 $ 3,689,022

FOOD AND PACKAGING COSTS .......................... 1,576,554 754,842 3,028,520 1,451,366
------------ ------------ ------------ ------------

Gross Profit ...................................... 2,570,791 1,148,060 4,813,398 2,237,656

OPERATING EXPENSES:
Payroll and related costs ......................... 789,590 345,981 1,517,851 671,347
Occupancy and other operating expenses ............ 1,610,140 559,188 2,732,853 1,065,085
Preopening expenses (Note 2) ...................... 290,857 -- 738,592 --
Depreciation and amortization ..................... 411,471 313,639 1,284,967 520,379
------------ ------------ ------------ ------------
Total operating expenses ..................... 3,102,058 1,218,808 6,274,263 2,256,811
------------ ------------ ------------ ------------
Loss from operations before general and
administrative expenses ........................ (531,267) (70,748) (1,460,865) (19,155)
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES ............... 979,993 607,995 2,258,714 1,142,406
------------ ------------ ------------ ------------
Loss from operations .............................. (1,511,260) (678,743) (3,719,579) (1,161,561)

OTHER INCOME (EXPENSES):
Interest and other income, net .................... 108,266 255,314 251,429 551,740
Interest expense, including amortization of ....... (852,524) (708,591) (1,511,652) (1,414,542)
issuance costs
Foreign currency exchange gain/(loss) ............. (311,178) 15,462 (144,914) (4,601)
------------ ------------ ------------ ------------
Total other income (expenses) ................ (1,055,436) (437,815) (1,405,137) (867,403)
------------ ------------ ------------ ------------
Loss before minority interest ..................... (2,566,696) (1,116,558) (5,124,716) (2,028,964)
Minority interest in losses of consolidated ....... -- 41,656 -- 67,478
subsidiary
Cumulative effect of change in accounting principal -- -- 620,000 --
(Note 2)
NET LOSS .......................................... $ (2,566,696) $ (1,074,902) $ (5,744,716) $ (1,961,486)
------------ ------------ ------------ ------------

BASIC AND DILUTED NET LOSS PER COMMON SHARE ....... $ (.06) $ (.03) $ (.13) $ (.05)
============ ============ ============ ============

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ...................... 45,142,103 44,664,989 45,056,418 44,653,118
============ ============ ============ ============

</TABLE>

SEE ACCOMPANYING NOTES

<PAGE>

INTERNATIONAL FAST FOOD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 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

Issuance of common stock for
6% preferred stock .... 217,959 2,179 -- -- 94,596 (96,775) --
dividends
Net loss for the period .... -- -- -- -- -- $ (5,744,716) $ (5,744,716)
---------- -------- ------ --------- ----------- ------------ ------------

Balances, June 30, 1999 ......... 45,324,131 $453,241 32,985 $ 330 $18,095,366 $(27,290,730) $ (8,741,793)
========== ======== ====== ========= =========== ============ ============
(unaudited)

</TABLE>

SEE ACCOMPANYING NOTES

<PAGE>

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

SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss .................................................................. $ (5,744,716) $ (1,961,486)
Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of change in accounting principle ....................... (620,000) --
Amortization and depreciation of furniture, equipment,
buildings, leasehold improvements and development rights ................ 2,769,481 589,975
Amortization of debt discount and issuance costs .......................... 1,316,298 1,241,414
Value of stock issued in connection with debt waiver ...................... 114,568 --
Minority interest in losses of subsidiary ................................. -- (67,478)
Other operating items ..................................................... 74,723 (819)
Changes in operating assets and liabilities, net of acquisition of business:
Receivables ............................................................... 1,150,107 (274,159)
Inventories ............................................................... 6,563 (84,441)
Prepaid expenses and other ................................................ (388,566) (335,923)
Accounts payable and accrued expenses ..................................... (482,444) 523,106
------------ ------------
Net cash used in operating activities .......................................... (1,803,986) (369,811)
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for furniture, equipment, buildings and leasehold ................ (4,773,799) (2,214,640)
improvements

Payments for franchise fees and other assets .............................. (331,155) (153,014)

Payments for marketable securities ........................................ -- (5,000,000)
------------ ------------
Net cash used in investing activities ..................................... (5,104,954) (7,367,654)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of bank credit facilities ...................................... (277,673) (156,882)
Borrowings under bank credit facilities ................................... 4,057,847 269,867
------------ ------------
Net cash provided by financing activities ................................. 3,780,174 112,985
------------ ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .............. (100,402) 819
------------ ------------

DECREASE IN CASH AND CASH EQUIVALENTS ..................................... (3,229,168) (7,623,661)
BEGINNING CASH AND CASH EQUIVALENTS ....................................... 4,013,371 18,642,335
------------ ------------

ENDING CASH AND CASH EQUIVALENTS .......................................... $ 784,203 $ 11,018,674
============ ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................. $ 325,592 $ 208,209
============ ============
Interest capitalized ................................................. $ 155,100 --
============ ============

</TABLE>

SEE ACCOMPANYING NOTES

<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. zo.o. ("IFFP"), Krolewska Pizza, Sp. zo.o. ("KP") and Pizza King
Polska, Sp. zo.o. ("PKP"). IFFP currently operates 25 Burger King restaurants
and 16 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, the new Citibank line of
credit 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 June 30, 1999 and December 31, 1998, the
exchange rate was 3.929 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.

LIQUIDITY AND PLAN OF OPERATIONS -- As of June 30, 1999, IFFC had
negative working capital of approximately $6,344,392 and cash and cash

<PAGE>

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

equivalents of $784,203. 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 six months ended June 30, 1999 and
1998, the Company reported net losses of $5,744,316 and $1,961,486,
respectively. At June 30, 1999 the Company had an accumulated deficit of
$27,290,730 and a shareholders' deficit of $8,741,793. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated 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
(approximately $950,000 available as of June 30, 1999) (see Note 8), will be
sufficient to fund operations and development costs through at least August 31,
1999. The Company is well in advance of the required development schedule.
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 basic net loss per common share in the
accompanying consolidated statements of operations is based upon the net loss
after preferred dividend requirements of $96,775 and $100,350 for the six months
ended June 30, 1999 and 1998, respectively, divided by the weighted average
number of shares outstanding during each period. Diluted per share data for the
six months ended June 30, 1999 and June 30, 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 in the
accompanying consolidated statement of operations for the six months ended June
30, 1999. Preopening costs of $738,592 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 six months
ended June 30, 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 six months ended June 30,
1999, the Company incurred advertising expense of approximately $1,490,056, of
which approximately $576,651 was deferred at June 30, 1999 and is included in
prepaid expenses in the accompanying June 30, 1999 consolidated balance sheet.
Pursuant to SOP 93-7, the Company is required to expense all advertising
incurred at the end of the fiscal year.

<PAGE>

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

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

3. RESTRICTED CASH:

At June 30, 1999, the Company had a $999,990 certificate of deposit
hypothecated to an outstanding line of credit with Totalbank.

4. BANK CREDIT FACILITIES:

Bank credit facilities at June 30, 1999 and December 31, 1998 consist
of the following:

June 30, December 31,
1999 1998
(unaudited)
---------- ----------
<S> <C> <C>
Amerbank, S.A, IFFP overdraft credit line, variable rate
approximately equal to prime, expired April 1, 1999 ................... $ 0 $ 386
Amerbank, S.A., PKP overdraft credit line, variable rate
approximately equal to prime, expired June 1, 1999 .................... 0 25,288
Amerbank, PKP line of credit of $300,000 payable in 10 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 ........................... 206,363 266,362
Amerbank, IFFP line of credit of $950,000 payable in 29 monthly installments
of $32,000 commencing on March 12, 1998, interest payable monthly at
.50% above LIBOR, due
at maturity on August 12, 2000 ........................................ 438,000 630,000
Amerbank, IFFP revolving credit facility of $1,500,000, interest is payable
monthly at 2.50% above LIBOR, payable in 35 monthly installments of
$91,666 with
final payment of $41,690, due at maturity on May 18, ................ 1,500,000 1,500,000
2003
Totalbank, IFFC line of credit of $999,000 payable in full on August 19,
1999, interest at 6.50% 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 on January
15, 2000, interest at LIBOR plus
.80%, interest payable quarterly, unsecured ........................... 4,041,433 --
---------- ----------
Total Debt .................................................................. 7,184,796 3,404,622
Less: Current Maturities .................................................... 5,544,433 1,512,260
---------- ----------
Long Term Debt .............................................................. $1,640,363 $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 June 30, 1999 and December 31, 1998,
there were $2,756,000 of Debentures outstanding.

<PAGE>

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

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 June 30, 1999 and December 31, 1998, the notes are
comprised as follows:
<TABLE>
<CAPTION>

June 30, 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.................................................. (3,639,556) (4,890,798)
------------ -----------

Carrying value......................................... $ 23,896,444 $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 June 30, 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 six months ended June 30, 1999:
<TABLE>
<CAPTION>

Weighted Average
1999 Share Price
------------- ----------------

<S> <C> <C>
Outstanding at beginning of period...................... 1,020,000 $.52

Granted................................................. -- --

Exercised............................................... -- --

Expired................................................. (100,000) $.40
------------

Outstanding at end of period............................ 920,000 $.53
============

Exercisable at end of period............................ 402,500 $.46

Price range of options outstanding at end of period..... $.40 - $.81

Available for grant at end of period.................... 1,080,000

</TABLE>

<PAGE>

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

At June 30, 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 June 30, 1999,
$4,041,433 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 issued was
expensed in the first quarter.

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.

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

<PAGE>

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

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 $460,000, which amount has been accrued for
in the accompanying consolidated financial statements as of December 31, 1998
and June 30, 1999. 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.

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.

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.

<PAGE>

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

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. zo.o. ("IFFP") and Pizza King Polska Sp.
zo.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 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 in 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 six and three month
periods ended June 30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>

SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
------------------------------------------------------
IFFP PKP TOTAL CORPORATE CONSOLIDATED
---- --- ----- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue ....................................... $ 5,655 $ 2,187 $ 7,842 $ -- $ 7,842
Food and packaging costs ...................... 2,285 744 3,029 -- 3,029
Restaurant operating expenses ................. 3,104 1,146 4,250 -- 4,250
Preopening costs .............................. 599 140 739 -- 739
Depreciation and amortization ................. 1,030 255 1,285 -- 1,285
General and administrative expenses ........... 672 233 905 1,354 2,259
------- ------- ------- ------- -------
Loss from operations .......................... $(2,035) $ (331) $(2,366) $(1,354) $(3,720)
======= ======= ======= ======= =======

SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
------------------------------------------------------
IFFP PKP TOTAL CORPORATE CONSOLIDATED
---- --- ----- --------- ------------
Revenue ....................................... $ 2,755 $ 934 $ 3,689 $ -- $ 3,689
Food and packaging costs ...................... 1,120 331 1,451 -- 1,451
Restaurant operating expenses ................. 1,193 543 1,736 -- 1,736
Depreciation and amortization ................. 422 98 520 -- 520
General and administrative expenses ........... 459 117 576 567 1,143
------- ------- ------- ------- -------
Loss from operations .......................... $ (439) $ (155) $ (594) $ (567) $(1,161)
======= ======= ======= ======= =======

THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
------------------------------------------------------
IFFP PKP TOTAL CORPORATE CONSOLIDATED
---- --- ----- --------- ------------
Revenue ....................................... $ 2,990 $ 1,157 $ 4,147 $ -- $ 4,147
Food and packaging costs ...................... 1,185 391 1,576 -- 1,576
Restaurant operating expenses ................. 1,805 595 2,400 -- 2,400
Preopening costs .............................. 234 57 291 -- 291
Depreciation and amortization ................. 362 49 411 -- 411
General and administrative expenses ........... 342 108 450 530 980
------- ------- ------- ------- -------
Loss from operations .......................... $ (938) $ (43) $ (981) $ (530) $(1,511)
======= ======= ======= ======= =======

THREE MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
------------------------------------------------------
IFFP PKP TOTAL CORPORATE CONSOLIDATED
---- --- ----- --------- ------------
Revenue ....................................... $ 1,376 $ 527 $ 1,903 $ -- $ 1,903
Food and packaging costs ...................... 560 195 755 -- 755
Restaurant operating expenses ................. 579 326 905 -- 905
Depreciation and amortization ................. 256 57 313 -- 313
General and administrative expenses ........... 254 64 318 290 608
------- ------- ------- ------- -------
Loss from operations .......................... $ (273) $ (115) $ (388) $ (290) $ (678)
======= ======= ======= ======= =======

</TABLE>

<PAGE>

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 25 Burger King restaurants and 16 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.

SIX MONTHS ENDED JUNE 30, 1999 VS SIX MONTHS ENDED JUNE 30, 1998

RESULTS OF OPERATIONS

For the six months ended June 30, 1999 and June 30, 1998, IFFC
generated sales of $7,841,918 and $3,689,022, respectively, which includes sales

<PAGE>

of $5,654,843 and $2,755,198 for the Burger King restaurants and $2,187,075 and
$933,824 for the Domino's Pizza stores, respectively. In U.S. dollar and Polish
zloty terms IFFC's Burger King restaurant sales increased by approximately 105%
and 131%, respectively, for the six months ended June 30, 1999 as compared to
the six months ended June 30, 1998. Due to the devaluation of the zloty of
approximately 11%, IFFC's Burger King same restaurant sales, in U.S. dollar
terms, decreased by approximately 2.4% for the six months ended June 30, 1999 as
compared to the six months ended June 30, 1998. In Polish zloty terms, IFFC's
Burger King same restaurant sales increased by approximately 8.4% for the six
months ended June 30, 1999 as compared to the six months ended June 30, 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 134% and
164%, respectively, for the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998. In U.S. dollar and Polish zloty terms, IFFC's
Domino's same store sales increased by approximately 13.5% and 26%,
respectively, for the six months ended June 30, 1999 as compared to the six
months ended June 30, 1998. The increase in same store sales was attributed to
increased brand awareness.

During the six months ended June 30, 1999, IFFC incurred food and
packaging costs of $3,028,520, payroll and related costs of $1,517,851,
occupancy and other operating expenses of $2,732,853 and depreciation and
amortization expense of $1,284,967.

Food and packaging costs applicable to Burger King restaurants for the
six months ended June 30, 1999 and 1998 were 40.4% and 40.6% of restaurant
sales, respectively. The 0.2% decrease as a percentage of restaurant sales was
primarily attributable to lower meat costs as a percentage of sales. Food and
packaging costs applicable to Domino's stores for the six months ended June 30,
1999 and 1998 were 34% and 35.5% of store sales, respectively. The 1.5% decrease
as a percentage of store sales was primarily attributable to the reduction of
paper and cheese prices from locally sourced vendors.

Payroll and related costs applicable to Burger King restaurants for the
six months ended June 30, 1999 and 1998 were 18.6% and 17% of restaurant sales,
respectively. The 1.6% 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 coupled with a price increase in crew labor in the
Warsaw restaurants. Payroll and related costs applicable to Domino's stores for
the six months ended June 30, 1999 and 1998 were 21.3% and 21.8% of store sales,
respectively. The 0.5% 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 six months ended June 30, 1999 and 1998 were 36.3% and 26.3%
of restaurant sales, respectively. The 10% 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, rent and utilities associated with the new restaurants.
Occupancy and other operating expenses applicable to Domino's stores for the six
months ended June 30, 1999 and 1998 were relatively constant at 31.2% and 36.3%
of restaurant sales, respectively. The 5.1% decrease as a percentage of sales
was primarily attributable to the reduction of fixed costs (rent and commissary)
as a percentage of sales.

Depreciation and amortization expense applicable to Burger King
restaurants was $1,029,942 as compared to $422,200 for the six months ended June
30, 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 $255,025 as compared to $98,179 for
the six months ended June 30, 1999 and 1998, respectively. The increase was
primarily attributable to higher depreciation on new stores.

General and administrative expenses for the six months ended June 30,
1999 and 1998 were 28.8% and 30.9% of sales, respectively. The 2.1% decrease as
a percentage of sales was primarily attributable to increased higher sales that
partially offset certain fixed costs contained in general and administrative
expenses. For the six months ended June 30, 1999, general and administrative
expenses equaled $2,258,714. It consisted of executive and office staff salaries
and benefits ("Salary Expense") of $711,951; legal and professional fees, office
rent, travel, telephone and other corporate expenses ("Corporate Overhead
Expense") of $1,093,039, $366,416 of debt issuance costs, and depreciation and
amortization of $87,308. For the six months ended June 30, 1998, general and

<PAGE>

administrative expense included Salary Expenses of $466,766; Corporate Overhead
Expenses of $600,411, and depreciation and amortization of $75,230. The
$1,116,308 increase is primarily attributable to increased salaries associated
with the Polish operations, debt issuance costs associated with the $5.0 million
Citibank loan and higher legal fees.

For the six months ended June 30, 1999 and 1998 Interest and Other
Income consisted of the following:
<TABLE>
<CAPTION>

SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
--------- ----------

<S> <C> <C>
Interest income.................................................... $ 66,423 $ 539,969
All other, net..................................................... 185,006 11,768
-------- ----------
$251,429 $ 551,737
======== ==========
Interest Expense consisted of the following:
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
--------- ----------

Interest Expense on 9% Subordinated Convertible Debentures......... $ 124,020 $ 124,020
Amortization of Debt Issuance Costs................................ 65,056 140,278
Accretion of discount on 11% Convertible Senior Subordinated
Discount Notes.................................................. 1,251,242 1,101,136
Interest Expense on Bank Facilities................................ 226,434 49,108
Less: Interest Capitalized ........................................ (155,100) --
---------- ----------
Total.............................................................. $1,511,652 $1,414,542
========== ==========

</TABLE>

Interest expense exceeded interest and other income by $1,260,223 and
$862,805 for the six months ended June 30, 1999 and 1998, respectively. The
primary reason for the increase for the six month period ended June 30, 1999 was
higher interest on bank debt coupled with lower interest income.

IFFC's interest expense on bank facilities was $226,434 and $49,108 for
the six months ended June 30, 1999 and 1998, respectively. The $177,326 increase
was attributable to IFFC's increase of borrowings under bank credit facilities.

As a result of the foregoing, the six months ended June 30, 1999, IFFC
generated a net loss of $5,744,716 or $.13 per share of IFFC's Common Stock
compared to net loss of $1,961,486, or $.05 per share of IFFC's Common Stock for
the six months ended June 30, 1999.

IFFC anticipates that it will continue to incur certain expenses in
connection with its disputes with the Polish Fiscal Authorities. See "Legal
Proceedings - Dispute with Polish Fiscal Authorities" 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 $1,434,175 for the
six months ended June 30, 1999 compared to the six months ended June 30, 1998.
The increase was primarily attributable to increased losses from operations in
1999.

<PAGE>

Net cash flows used in investing activities decreased from $7,367,654
to $5,104,954 for the six months ended June 30, 1998 and 1999, respectively. The
decrease was attributable to the purchase of $5,000,000 of marketable securities
in the six months ended June 30, 1998. This decrease in purchases offset the
higher payments made for new Burger King restaurant buildings, furniture,
equipment, and other assets primarily associated with its new Burger King
restaurants.

Net cash provided by financing activities increased by $3,667,189 for
the six months ended June 30, 1999, compared to the six months ended June 30,
1998. The increase was primarily attributable to advances under the new Citibank
Loan.

As of June 30, 1999, IFFC had negative working capital of approximately
$6,344,392 and cash and cash equivalents of $784,203. 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 six months ended June 30, 1999 and 1998, the Company reported net losses of
$5,744,316 and $1,961,486, respectively. At June 30, 1999 the Company had an
accumulated deficit of $27,290,730 and a shareholders' deficit of $8,741,793.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated 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
(approximately $950,000 available at June 30, 1999) will be sufficient to fund
operations and development costs through at least September 1, 1999. 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.

<PAGE>

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 June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>

June 30, 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...... (3,639,556) (4,890,798)
------------ -----------
Carrying value........................................... $23,896,444 $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 June 30, 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 -- Dispute with Polish Fiscal
Authorities" 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 June 30, 1999 and December 31, 1998, the
Company had approximately $399,618 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.

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 June 30, 1999,
$4,041,433 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.

<PAGE>

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 six months 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 in the accompanying consolidated statement of
operations for the six months ended June 30, 1999. Preopening costs of $738,592
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 six months ended June 30, 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 six ended June 30, 1999, the
Company incurred advertising expense of approximately $1,490,056, of which
approximately $576,651 was deferred at June 30, 1999 and is included in prepaid
expenses on the accompanying consolidated 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
generally. At June 30, 1999, the exchange rate was 3.929 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, the
new Citibank line of credit 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.

<PAGE>

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 $25,000
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.

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.

<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 $460,000, 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.

<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.

<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: August 16, 1999 By: /S/ MITCHELL RUBINSON
----------------------
Mitchell Rubinson,
Chairman of the Board, Chief
Executive Officer
(Principal Executive Officer)

DATE: August 16, 1999 By:/S/ JAMES MARTIN
----------------
James Martin,
Chief Financial Officer
(Principal Financial and
Accounting Officer)

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