U.S Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-KSB

               [ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

      [X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                      For the year ended September 30, 2000

                                     0-23545
                                     -------
                             Commission File Number

            Ultimate Franchise Systems, Inc. (formerly Jreck Subs Group, Inc.)
                             ----------------------
        (Exact name of small business issuer as specified in its charter)

             Colorado                                  84-1317674
             --------                                  ----------
    (State or other jurisdiction of                   (IRS Employer
     incorporation or organization)                Identification Number)


         2101 West State Road 434, Suite 100, Longwood, Florida, 32779
         --------------------------------------------------------------
                    (Address of principal executive offices)

                                 (407) 682-6363
                                 --------------
                 (Issuer's telephone number including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                           Common Stock, No Par Value

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 [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B contained in this form and no disclosure  will be contained,  to
the best of the  Registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [ ]

The  Registrant's  revenue  for  the  fiscal  year  ended  September  30,  2000:
$4,491,940.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  (computed by  reference to the price at which the common  equity
was sold,  or the  average  bid and asked  price of such  common  equity)  as of
January 5, 2001 was $3,309,447 (for purposes of the foregoing  calculation only,
each of the registrant's officers and directors is deemed to be an affiliate).

There were 52,951,156 shares of the registrant's  common stock outstanding as of
January 5, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None

          Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>

                                     PART I

Item 1. Description of Business.

Form and Year of Organization

In May, 1996 the Company  concluded a reverse  acquisition  wherein all of its
capital  stock was  acquired  by Circa  Media,  Inc.,  a  Colorado  corporation,
incorporated  on July 19, 1995 and  formerly  engaged in  reproducing  archival,
public domain art and photographs in digital form.  Pursuant to an agreement and
Plan of  Reorganization  between JRECK Subs, Inc. and Circa Media,  Inc.,  Circa
Media,  Inc. changed its name to JRECK Subs Group,  Inc. (the Company) on May 7,
1996 and the former  shareholders of JRECK Subs, Inc. received  5,000,000 common
shares of the Company in the  transaction or 56% of the outstanding  shares.  In
addition the former Series A Preferred shareholders of JRECK Subs, Inc. received
700,000 shares of the Company's Series A Preferred stock. The former business of
Circa Media, Inc. was discontinued.

In June 2000, the Company changed the name of the corporation from Jreck Subs
Group, Inc. to Ultimate Franchise Systems, Inc. and changed its ticker symbol
from JSUB to UFSI.

The  Company  has  primarily  grown  through  acquisitions  and now  consists of
Ultimate  Franchise  Systems,  Inc. (UFSI) and its wholly owned  subsidiaries as
follows:

- ------------------------------------------------------------------------------
                                 State of
Corporation Name               Incorporation     Predominant Restaurant Concept
- ----------------               -------------     -----------------------------
JRECK  Subs, Inc.                 New York      "JRECK Subs","Lox, Stox & Bagel"
Central Park of America, Inc.     Delaware      "Central Park"
SBK Franchise Systems, Inc.        Florida      "Sobik's"
Li'l Dino Corporation          North Carolina   "Li'l Dino"
Pastry Product Producers, LLC     New York       Bakery Operations
- ------------------------------------------------------------------------------

Recent Acquisition and Dispositions

In July of  2000  the  Company  acquired  the  franchising  rights  and  certain
corporately  owned  restaurants  from Central Park USA, Inc., a twenty-year  old
60-unit hamburger  restaurant  franchisor  located primarily in the Southeastern
United  States and the state of Utah.  The Company  paid the  purchase  price of
$2,373,074  by issuing  notes with a value of  $1,433,874,  $800,000 in cash and
435,000  shares of the  Company's  common  stock with a value of  $139,200.  The
Company also entered into three  non-compete  agreements with a discounted value
of $364,020.

In April 2000, the Company sold its Mountain  Mike's Pizza  concept,  a chain of
approximately 80 franchised  restaurants to Concept  Acquisitions,  LLC ("COAC")
for $3,000,000 cash and two notes  receivable with discounted  value of $165,534
of $377,645,  respectively.  COAC is controlled by Bradley L. Gordon, the former
Chief Operating Officer and Director of the Company.

In August 2000,  the Company sold the Seawest Subs  sandwich  chain,  a chain of
approximately  30 franchised  restaurants for a $55,000 note receivable plus the
assumption by the buyer of notes payable of approximately $207,000.

The Company  continues to have financial  interests in the Mountain Mike's Pizza
and Seawest Subs franchise concepts.

In  October  2000,  the  Company  formed  a  wholly-owned   subsidiary,   Bakery
Acquisition  Corporation  ("Bakery").  It is the  Company's  intention  to merge
Pastry  Products  Producers,  LLC into Bakery and for Bakery to issue  2,750,000
shares of its common stock to the current shareholders of the Company.

General Description of Business

The Company is a multiple concept franchisor of submarine  sandwich  restaurants
and  drive-through  hamburger  restaurants.   Through  its  concepts,   Ultimate
Franchise  Systems,  Inc.  offers  a  menu  of  high  quality,  fresh  submarine
sandwiches, hamburgers, chicken sandwiches, french fries, soups and hot and cold
side order  items,  and a full line of bagel  offerings  at  selected  franchise
locations.


Submarine Sandwich Menu and Stores

Through  three of its  subsidiaries,  UFSI  offers a lunch  and  dinner  menu of
different submarine sandwiches,  soups and hot and cold side orders as well as a
line of bagels and additional  breakfast items. UFSI's submarine shop philosophy
is to offer a wider selection of menu items and higher quality ingredients (such
as rib eye steak) cooked on the premises.  The food  preparation area is open to
customer  view to engage  customer  interest  and to  showcase  cleanliness  and
freshness.  The food preparation process is designed to deliver a completed food
order  within 60  seconds.  Sandwich  menu  prices  range from  $2.50-$5.95.  In
addition,  UFSI offers a selection of soft drinks, deep fried mushrooms,  cheese
sticks  and  french  fries as well as dessert  items  such as  cookies.  Certain
restaurant concepts also offer signature rolls baked fresh on the premises.

As of  September  30, 2000 there was an aggregate  of 102  franchised  locations
under various submarine sandwich concepts as follows:

               Concept:              Number of Units        Geographic Area
               --------              ---------------        ---------------
   "JRECK Subs","Lox, Stox & Bagel"        44              Upstate New York
   "Sobik's"                               28               Central Florida
   "Li'l Dino"                             30           Central North Carolina

Each location is designed as a "dine in" location (with many offering a drive up
window).  Restaurants  range in size from 1,000 square feet to 2,000 square feet
(1,400 to 1,500 square feet being  typical),  and are located in strip  shopping
centers, shopping malls and free standing buildings.

                                        2
<PAGE>

As is typical in sandwich shops,  the majority of store sales occur during lunch
with the  balance  during  the  dinner  hours.  Dine in and take out  (including
delivery) comprise 60% and 40% of sales respectively. Individual franchisees may
also offer catering services for special events and also may provide a full line
of products on a temporary site basis by utilizing authorized mobile facilities.

Each franchisee  leases or owns its own store  facilities.  Neither the Company,
nor  any  of its  affiliates,  engage  in  leasing  any  store  premises  to any
franchisees.

Hamburger Menu and Stores

Central Park provides its products  under a fast service,  double  drive-through
restaurant format.
Central Park offers hamburgers,  french fries, chicken sandwiches,  hot dogs and
soft drinks.  Central Park also offers a limited  breakfast  menu  consisting of
breakfast sandwiches, hashed browns and pastries.

The Central Park  locations  are designed  for  drive-through  with some walk-up
order service. Some restaurants provide limited outside seating. The approximate
size of the real  property  for the unit is  10,000  to  40,000  square  feet to
accommodate parking and drive-through lanes. Restaurants generally range in size
from 500 to 600 square feet.

As of September 30, 2000 there were 60 locations under the hamburger concept (of
which 53 are franchised and 7 are corporately owned) and are as follows:

         Concept:          Number of Units        Geographic Area
         --------          ---------------        ---------------
    "Central Park"              60             Southeast United States

Franchise Programs

Through  the  terms  of  its  "Franchise   Agreement"  the  Company   authorizes
individuals   and/or   companies  to  form  or  establish  and  operate  concept
restaurants at approved locations. Under the agreement, the company is obligated
to provide certain services both for the opening of, and the ongoing support of,
each restaurant. Those services generally include:

                  -review and approval of restaurant location

                  -review and approval of plans and layout design

                  -identification  of  sources of supply of food  purveyors  and
                  other suppliers

                  -provide  an   operations   manual  with  respect  to  service
                  guidelines and restaurant management techniques

                  -provide initial and ongoing training in acceptable methods of
                  operations, food preparation techniques,  management controls,
                  accounting   functions,    legal   framework   of   restaurant
                  operations,  human resources,  promotional programs and public
                  relations

                  -provide  ongoing support with respect to maintaining  quality
                  products and insuring such products are offered at competitive
                  prices

                  -perform  ongoing   consistency  and  quality  inspections  of
                  restaurants in order to maintain uniform acceptable standards

As of September 30, 2000 the Company had a combined 162  submarine  sandwich and
hamburger restaurants,  of which 155 are franchised and 7 are corporately owned.
Also,  the Company  continues to have  financial  interests in the recently sold
Mountain   Mike's  Pizza  and  Seawest  Subs   franchise   concepts  which  have
approximately 80 restaurants and 30 restaurants, respectively.

UFSI obtains prospective franchisees primarily from the ranks of its current and
former franchisees and employees,  referrals from existing  franchisees and from
selected  marketing  efforts such as restaurant trade shows. The Company intends
to develop new franchise locations primarily through existing  franchisees.  The
primary selective criteria  considered by the Company in the review and approval
of new  franchisees is prior  experience in operating  restaurants or comparable
business acumen and the existence of sufficient  capital resources to reasonably
insure success.

                                        3
<PAGE>


Management  believes  the  Company has a national  presence  which it intends to
strengthen by developing each of its regional concepts.

From time to time the Company  will take over the  operations  of a store from a
franchisee  before the contract  term has expired.  The Company may operate such
stores until a suitable  franchisee  can be found,  at which time all or part of
the Company's  investment in such operations may be recovered,  or it may choose
to close the location.

Initial  franchise fees are considered to be within industry norms and currently
range from  $10,000-$12,500  for new  locations in the sandwich  segment and are
$20,000  in the  hamburger  segment.  Initial  franchise  fees  are due upon the
execution of the Franchise  Agreement.  Ongoing royalties are also considered to
be within  industry  norms  ranging from 4%-7% of sales.  In addition to ongoing
royalties,  all  franchisees  are  required  to  contribute  2%-4% of sales to a
concept  based  pooled  marketing  fund.  The  following  table  sets  forth and
summarizes  certain   information  about  the  Company's  Concepts  and  current
franchise agreements:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
                                         No. of                     Avg. Royalty    Royalty
                                       Franchised                     Rate on       Rate on                    Currently
                                        Units at      Avg. Yrs.       Existing      Current      Price of       Selling
                                        Sept 30,      Remaining      Franchise     Franchise        New           New
               Concept                    2000       On Contract     Agreements    Agreement     Franchise     Franchises
- ----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>           <C>        <C>
"JRECK Subs","Lox, Stox & Bagel"           44            8.2            4.3%          5.0%       $ 10,000         Yes
"Sobik's"                                  28            5.8            4.6%          5.0%         12,500         Yes
"Li'l Dino"                                30           14.0            5.9%          7.0%         12,500         Yes
"Central Park"                             60            9.0            4.0%          4.0%         20,000         Yes
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

In connection with the Company's mandatory  monitoring program,  all franchisees
are  required to adhere to the  Company's  specifications  and  standards on the
selection and purchase of products used in the operation of the restaurant.  The
Company  provides a detailed  "product  profile" of acceptable  food,  paper and
supply  items for each  concept.  Franchisees  requesting  to use  products  not
falling under the concept "product  profile" must first receive  permission from
the Company.


Area Development Agreements

The  Company  offers  to Area  Developers  a  "Territory"  within  which to sell
franchised  restaurants pursuant to the terms of an Area Development  Agreement.
Territories  are  generally  based on  defined  geographic  areas and  generally
require the Area  Developer  to increase the number of  restaurants  within that
territory and to provide continuing operational support.

As of September 30, 2000, the Company had five  agreements  with area developers
under the Li'l Dino's concepts covering areas of North Carolina.

Each Area  Developer  pays the Company a  negotiated  fee for the  non-exclusive
right to sell and open franchises in its defined  geographic  territory and also
requires the Area  Developer to be  responsible  for  marketing,  soliciting and
screening   prospective   franchisees  as  well  as  identifying  possible  site
selections,   providing   on-site  opening   assistance  and  providing  ongoing
operational  support.  The agreements  also require the Area Developer to open a
minimum number of new franchised  restaurants each year or forfeit future rights
to the territory. In some situations, the Company requires the Area Developer to
own and operate at least one franchised restaurant in their territory.

The Area  Development  Agreement does not grant the Area Developer the exclusive
right to market or solicit  franchisees in the territory.  The Company  reserves
the right, under the agreements,  to market and sell franchises and/or establish
company owned restaurants in any territory.

The Company pays the area  developer  50% of the initial  franchise  fee for any
franchises it sells in its respective  territory.  The Area  Developers are also
entitled to an ongoing fee of 40% to 50% of  continuing  franchise  royalties as
consideration  for providing  ongoing support.  Ongoing support includes many of
the tasks required to be performed by the  franchisor  and are described  above.
The  company  believes  the shared  ongoing  revenue  approach  rewards the area
developer for selecting higher quality  franchisees and higher quality locations
while  discouraging  the area developer  from  selecting  sites that may have an
adverse effect on current locations.

                                        4
<PAGE>

The Area Development Agreements set increasing "Minimum Performance Levels" that
require the area  developer  to sell and open a specified  number of  franchised
restaurants  each  year.  The  Company's  experience  with the area  development
program  indicates that while some area developers will exceed their development
schedules,  others will fail.  Delays in the sale and opening of restaurants can
occur for many reasons. The most common reasons are delays in locating desirable
sites,  in  negotiating  acceptable  site lease  terms or in  obtaining  project
financing.

Suppliers

The Company has entered into  distribution and pricing  agreements with national
and regional food product  manufacturers  and distributors  that allow owners to
obtain meat products, produce, cheeses,  condiments,  spices, paper products and
supplies  at  prices  more  favorable  than  those  that  could be  obtained  by
individual owners.

The Company  believes that if such regional and national  distributors  could no
longer  provide  such  goods  and  services,  adequate  alternate  suppliers  or
distributors  are  available  to  provide  such  goods  and  services  without a
significant increase in costs.

Pastry Product Producers,  LLC (PPPI) operates a bakery in Watertown,  New York.
PPPI  produces  the Jreck Subs  signature  roll that is  supplied  fresh  (never
frozen) to Jreck Subs franchisees in upstate New York. PPPI produces other baked
goods such as bagels  and  cookies,  however  the rolls  supplied  to Jreck Subs
franchisees  account for 99% of sales.  Currently,  Jreck Subs  franchisees have
committed to purchase their sub rolls exclusively from PPPI through 2007.

Government Regulation

The Company's  principal activity of selling restaurant  franchises is regulated
by the Federal Trade Commission (the "FTC") and various states. Such regulations
govern disclosure, performance and procedure in the sale and transfer of new and
existing  franchises.  In general the FTC's  regulations  require the Company to
timely  furnish  a  franchise  offering  circular  to  prospective   franchisees
containing prescribed information.  Certain state laws also require registration
of the franchise  offering  circular with applicable  state  authorities.  Other
states monitor or regulate the franchise  relationship,  particularly  the sale,
renewal  and  termination  of  an  agreement.  The  Company  believes  it  is in
compliance with the applicable franchise disclosure and registration regulations
of the FTC and the various states that it operates in.

The Company is also subject to "Federal Fair Labor Standards Act", which governs
minimum  wages,  overtime,  working  conditions and other matters as well as the
"Americans With Disabilities Act".

From time to time the Company will operate company owned stores. While operating
stores,  the  Company is subject to a variety of  federal,  state and local laws
regarding minimum wage standards,  sanitation,  health, fire, alcoholic beverage
and safety codes.

While the Company  believes it is in  compliance  with all  applicable  federal,
state and local laws and  regulations,  there can be no  assurance  that it will
continue to meet the requirements of such laws and  regulations.  Such a default
could result in a  withdrawal  of approval to market  franchises  in one or more
jurisdictions. Any such loss of approval may have a material adverse effect upon
the  Company's  ability to  successfully  market its  franchises.  Violations of
federal and state  franchising laws and/or  regulations  regulating  substantive
aspects of the  Company's  business  activity  could subject the Company and its
affiliates  to  rescission  offers,  monetary  damages,  penalties or injunctive
proceedings.  In addition, under court decisions in certain states, absolute and
vicarious  liability  may be imposed upon  franchisors  based upon the facts and
circumstances  of the claim.  Current expected changes in federal and individual
state laws and regulations  concerning the sale,  termination and non-renewal of
franchises  are  not  expected  to  have a  material  impact  on  the  Company's
operation.  There  can  be  no  assurance  that  existing  or  future  franchise
regulations will not have an adverse effect on the Company's ability to maintain
and expand its franchise program.

Competition

The Company  competes in the fast food  sandwich and  hamburger  segments of the
restaurant  industry.   As  a  franchisor  of  fast  food  sandwich  and  double
drive-through  hamburger restaurants,  the company competes on two fronts. First
it  must  attract  successful  franchisees;  and,  second,  it must  assist  its
franchisees  in  attracting  customers  in  each  of  those  two  niches  of the
restaurant industry.  The Company and its franchisees compete with an increasing
number of  national  chains of quick  service  outlets,  several  of which  have
dominant market positions, and possess substantially greater financial resources
and longer operating histories than the Company.

                                        5

<PAGE>

The segments of the  restaurant  industry  that the Company and its  franchisees
compete  in are  highly  competitive  with  respect  to price,  service,  outlet
location,  and food quality and are often affected by changes in consumer taste,
local and national  economic  conditions,  population  trends and local  traffic
patterns.

The  three  most  prolific   submarine  sandwich  chains  the  Company  and  its
franchisees compete with are Subway,  Blimpie and Quiznos.  Subway currently has
approximately  14,000 units while  Blimpie and Quiznos each have about 2,000 and
500 units respectively.  The Company's franchisees operate 93 units. Both Subway
and  Blimpie  offer a low cost  product in a fast food style  environment  while
Quiznos is  positioned  between  the  traditional  fast food style of Subway and
Blimpie and full  service  dining.  Through its regional  concepts,  the Company
offers a  comfortable,  fast food style,  family  atmosphere in which to dine on
higher quality food products.

Competitiors  of the Company's  Central Park  hamburger  chain include  Checkers
Drive-In Restaurants and Back Yard Burgers. Checkers currently has approximately
440 units while Back Yard Burgers has about 90 units.  The Company's  franchisee
operates 53 units while the Company  operates 7  corporately  owned units.  Both
Checkers and Back Yard Burgers  offer a  drive-through  format,  with a low cost
product in a fast food style environment.

A number of companies  have adopted  "value  pricing"  strategies in response to
flattening  growth rates and/or  declines in average sale per  restaurant.  Such
strategies could draw customers away from companies that do not engage in "value
pricing",  or discount  pricing,  and could also negatively impact the operating
margins by attempting to match competition pricing points.

In addition to  competing  with these  chains as  restaurants,  the Company also
competes with these and other fast food chains for qualified  franchisees.  Many
franchisors,  including  but not limited to, those in the  restaurant  industry,
have greater market  recognition and financial  resources than the Company.  The
Company  believes  its well  established  regional  concepts  offer  prospective
franchisees the balance of a moderately  priced  alternative with which to enter
the  fast  food  restaurant  industry  and  the  pride  of  ownership  in a well
established and recognized name.

Trademarks

The Company, through its affiliates,  currently owns the following trademarks or
service marks, each of which is registered and listed on the Principal  Register
of the United States Patent and Trademark Office:
<TABLE>
<CAPTION>
                                                                                          Registration
                                                                                           Number or        Registration
                                                                                          Application        or Renewal
      Trademark                                       Type                                   Number              Date
      ---------                                       ----                                   ------              ----
<S>                                               <C>                                       <C>             <C>
 "JRECK Subs"                                     Service Mark                             1,022,898       Oct 14, 1975

 "Li'l Dino"                                      Name, Service Mark & Design              1,411,762       Sept 30, 1986
 "Li'l Dino Bagel Deli and Grille"                Name, Service Mark & Design              2,101,316       Sept 30, 1997
 "Sobik's Subs"                                   Name, Service Mark & Design              2,087,639       Aug 12, 1997

 "Central Park"                                   Name, Service Mark & Design              1,240,692       May 31, 1983
 "Central Park"                                   Name, Service Mark & Design              1,278,181       May 15, 1984
 "Central Park"                                   Name, Service Mark                       1,280,984       Jun 5, 1984
 "Central Park"                                   Name, Service Mark                       1,290,349       Aug 14, 1984
 "Central Park"                                   Name, Service Mark & Design              1,297,136       Sept 18, 1984
 "Drive Through the Park"                         Name & Service Mark                      1,287,395       July 24, 1984
</TABLE>


Employees

As of September 30, 2000 the Company had  approximately 144 employees
consisting  of 22  administrative  employees,  103  restaurant  employees at the
Company's seven Central Park corporately  owned  restuarants and 19 employees at
the Watertown bakery of PPPI.

Item 2. Description of Property

The Company owns its bakery plant in  Watertown,  NY. The land and building that
comprise  that  facility  include  2,064  square feet of office  space and 8,651
square feet of bakery facilities. The remainder of the Company's office space is
leased at terms varying from month to month or monthly expiring on various dates
up to July 30, 2008.

A  summary  of all real  estate  locations  owned or leased  by the  Company  at
September 30, 2000 is as follows:
<TABLE>
<CAPTION>
                                                                         If Owned:   If Owned:  If Leased:  If Leased:
                                                       Owned              Current     Current      Base        Lease
                                                         or     Square   Book Value  Mortgage     Monthly   Expiration
Address of Property                           Type     Leased   Footage               Balance      Rent        Date
========================================================================================================================
<S>                                         <C>       <C>         <C>    <C>         <C>           <C>       <C>
24685 NYS Rte 37                             Office    Owned       2,064 $ 280,131   $ 101,637
Watertown, NY 13601                          Bakery                8,561

2101 W. State Road 434 Suite 100             Office    Leased      3,604                           $  6,475  12/31/00
Longwood, FL 32779

5601 Roanne Way Suite 100                    Office    Leased        864                                825  06/30/02
Greensboro, NC 27409

537 Market Street, Suite 301                 Office    Leased      1,748                              2,331  05/31/04
Chattanooga, TN  37402

Central Park Restaurant                    Restaurant  Leased                                           750  07/31/08
West Broadway                                 Land
West Memphis, AR

Central Park Restaurant                    Restaurant  Leased                                           775  07/31/08
4019 Jackson Avenue                           Land
Memphis, TN

Central Park Restaurant                    Restaurant  Leased                                         1,467  07/31/08
1376 Highland Avenue                          Land
Selma, AL

Central Park Restaurant                    Restaurant  Leased                                         1,500  07/31/08
6204 Lee Highway                              Land
Chattanooga, TN

Central Park Restaurant                    Restaurant  Leased                                         2,400  07/31/08
7205 Waters Avenue                            Land
Savannah, GA

Central Park Restaurant                    Restaurant  Leased                                         2,900  07/31/01
3855 Hickory Hill Road                        Land
Memphis, TN
                                                                  ------ ---------   ---------     --------
           TOTALS                                                 16,841 $ 280,131   $ 101,637     $ 19,723
                                                                  ====== =========   =========     ========
</TABLE>

The Company believes it has obtained, and currently carries,  adequate liability
insurance on all the properties it owns or leases.

                                        6
<PAGE>


Item 3. Legal Proceedings

On August 2, 1999, the shareholders of Li'l Dino Management  Corporation filed a
complaint  against  the Company  and two of its  officers  in the United  States
District Court for the Middle District of North Carolina,  Greensboro  Division.
The Company was served with this  complaint  on August 5, 1999.  This  complaint
alleges  damages of $4.5  million  for  securities  fraud,  misappropriation  of
corporate  opportunities  and  negligent   misrepresentation  and  seeks  treble
damages,  interest and attorney's  fees. The allegations in the complaint relate
to the  Company's  acquisition  of  substantially  all the  assets  of Li'l Dino
Management Corporation.

The Company  believes  the claims made in the  complaint  are without  merit and
intends to defend itself vigorously in this matter.

The Company may be involved in various other lawsuits and litigation,  from time
to time, as a result of its day to day  operations.  Management does not believe
that any of these other  threatened or pending  lawsuits or litigation will have
an adverse effect on the Company's financial position or results of operations.


Item 4. Submission of Matters to a Vote of Security Holders

The  Company  held its annual  shareholder  meeting on May 16,  2000 in Orlando,
Florida. One matter was submitted to a vote of the common shareholders of record
on April 3, 2000.  The matter was for approval of the corporate name change from
Jreck Subs Group, Inc. to Ultimate  Franchise  Systems,  Inc. The corporate name
change was approved by the shareholders as follows:

Votes Cast For          16,993,241
Votes Cast Against         332,852
Votes Withheld             114,640


                                        7
<PAGE>

                                     PART II

Item 5. Market for Common Equity

The Company's  Common Stock is listed on the OTC Bulletin Board under the symbol
"UFSI".  The prices reported below reflect  inter-dealer  prices and are without
adjustments  for  retail  markups,   markdowns  or  commissions,   and  may  not
necessarily represent actual transactions.

                                                      High Bid     Low Bid
                                                      --------     -------
Fiscal Year Ended December 31, 1998   First Quarter     3 1/8      1 13/16
                                     Second Quarter    2 11/16      1 3/4
                                      Third Quarter    1 1/16       9/16
                                     Fourth Quarter      7/8         1/4

Fiscal Year Ended September 30, 1999  First Quarter     17/32       1/16
 (Transition Year from Change in     Second Quarter      5/8         1/8
  Fiscal Year End)                    Third Quarter      3/8        3/16

Fiscal Year Ended September 30, 2000  First Quarter     17/64       3/32
                                     Second Quarter     7/16        3/32
                                      Third Quarter     13/32      13/64
                                     Fourth Quarter     11/32       9/64

Stockholders:

As of  January  5, 2001 there were  approximately  8,300  record  holders of the
Company's common stock.

Dividends:

The Company has never paid any dividends on its Common Stock and does not expect
to pay any dividends on its common stock in the foreseeable  future.  Management
currently  intends to retain all  available  funds for  working  capital and the
development of its business.  Dividends, if declared, must be from funds legally
available  after  dividends  are  first  paid to any  senior  series  of  equity
securities such as the Company's Preferred Stock. Currently no surplus exists.

Recent Sale of Unregistered Securities

On January 5, 1998 the Company  concluded its Preferred "D" stock offering.  The
Company raised $2,500,000  through the offering.  Eighteen  investors  purchased
2,500 shares for $1,000 each. The holders of the Series "D" Preferred Stock have
no voting rights and are entitled to cumulative  dividends of $80 per share, per
year,  payable in cash or common stock.  Holders of the Series "D" may convert a
portion or all of their holdings into common stock based upon a conversion  rate
formula of 65% of the  average  five day  closing  bid price five  trading  days
before conversion.  The conversion rate was further adjusted by two five percent
penalty  increments for the Company's  failure to file and make effective a Form
SB-2 within certain time parameters.  As of June 10, 1999 the Company had issued
5,303,574 common shares as conversion shares under this agreement.

On June 10,  1999,  the holders of the  Preferred  "D"  converted  their  entire
holding to the Company's  newly created  Preferred "F" series.  The Series D was
canceled and 197.5 shares of the Series F were issued in its place.  The holders
of Series F are each  entitled  to receive  an annual  dividend  of $1,000.  The
dividend is payable quarterly  beginning August 1, 1999. The holders may require
the Company to repurchase the outstanding  shares at a 25% premium over the face
value of $10,000 no sooner  than June 1, 2000 and no later than  August 1, 2000.
The  Company may also redeem the shares at any time prior to February 1, 2000 at
$12,500 per share. In the event of liquidation, dissolution, or winding up of
the  Corporation,  whether  voluntary or  involuntary,  the Series F holders are
entitled to receive $13,000 per share. On December 28, 2000, the Company retired
all 197.5 outstanding  shares of the Series F for $500,000 cash and the issuance
of 19,750,000 shares of its common stock. The issuance of these shares increased
the number of outstanding common shares by 61.9%.

In December 2000, the Company issued a Convertible  Debenture for $575,000 which
calls for monthly interest  payments at 12% interest and is due in January 2002.
The  Convertible  Debenture may be converted in whole or in part to common stock
of the  Company at a  conversion  price  equal to 65% of the  three-day  average
closing price prior to the date of conversion. In anticipation of the conversion
of the Convertible Debenture, the Company has placed in escrow 10,000,000 shares
of its common stock.

In December 2000, the Company  increased its authorized  shares of commons stock
from 50,000,000 shares to 100,000,000 shares.


                                        8

<PAGE>

The following table sets forth  information with respect to the sale or issuance
of unregistered securities by the Company over the last three fiscal years:

<TABLE>
<CAPTION>
                                                                                                                 Exempt From
                                                                                                                     1933 Act
                                      Value or                                                                    Registration
  Shares    Type of                   Consider-   To Whom                                                               In
  Issued   Security         Date       ation      Issued                       Business Purpose                    Reliance of:
- ----------------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>           <C>       <C>                       <C>                                       <C>
    2,500 Preferred "D" Jan 5, 1998   2,500,000 18 Investors               Cash Investment                          Section 4(2)
   25,000   Common      Feb 5, 1998          25 Mitchell Day               Exercise of Seawest Options              Section 4(2)
   11,550   Common      Feb 9, 1998      30,319 Andrew Caffey              Legal Services                           Section 4(2)
   40,000   Common      Mar 16, 1998     97,500 Allan Richman              Consulting Services                      Section 4(2)
    9,400   Common      Mar 16, 1998     22,913 Francis Jenne              Consulting Services                      Section 4(2)
   52,631   Common      Mar 26, 1998    125,000 Frmr Seawest Shhdrs        Acquisition of "Seawest" Restaurant      Section 4(2)
                                                                             Chain
  112,793   Common      Apr 29, 1998    277,404 Sidney Wertheim etal       Settlement of Debt                       Section 4(2)
  735,294   Common      May 18, 1998  2,000,000 Li'l Dino Shareholders     Acquisition of "Li'l Dino" Restaurant    Section 3(a)(10)
                                                                             Chain
  115,000   Common      May 27, 1998    251,563 Pat Gerrard                Consulting Services                      Section 4(2)
  350,000   Common      Jun 3, 1998     700,000 Preferred "B" Hldrs        Conversion to Common                     Section 4(2)
   43,290   Common      Jun 16, 1998    100,000 R. Berg & S. Wemple        Finder's Fee on Acquisition of           Section 4(2)
                                                                             "Li'l Dino"
  660,000   Common      Jul 6, 1998   1,320,000 Preferred "A" Hldrs        Conversion to Common                     Section 4(2)
    6,857   Common      Jul 21, 1998      9,000 Interfoods of America      Extend Due Date on Puts                  Section 4(2)
  500,000   Common      Jul 31, 1998    687,500 Bradley Gordon             Issued for Promissory Note-Corp Officer  Section 4(2)
  300,000   Common      Jul 31, 1998    412,500 Richard Silberman          Issued for Promissory Note               Section 4(2)
  500,000   Common      Jul 31, 1998    687,500 Michael Cronin             Issued for Promissory Note-Corp Officer  Section 4(2)
   10,000   Common      Aug 5, 1998      13,125 W. & C. Richey             Extend Due Date on Puts                  Section 4(2)
   70,000   Common      Sep 16, 1998     70,000 5 Investors                Loan Inducement                          Section 4(2)
   33,333   Common      Oct 1, 1998      29,166 Mitchell Day               Acquisition of "Food Court" Concept      Section 4(2)
   20,000   Common      Oct 31, 1998     10,000 JG Partners L.P.           Consulting Services                      Section 4(2)
  500,000   Common      Nov 6, 1998     250,000 QFS Shareholders           Acquisition of "Mtn Mike's" Restaurant   Section 4(2)
                                                                             Chain
  615,384   Common      Nov 25, 1998    150,000 Barry Seidman              Conversion of 150 Sh of Preferred "D"    Section 4(2)
   39,727   Common      Nov 25, 1998     25,652 Barry Seidman              Dividends on Preferred "D"               Section 4(2)
   50,000   Common      Dec 4, 1998      21,875 Interfoods of America      Inducement to Extend Loan Due Date       Section 4(2)
  300,000   Common      Dec 14, 1998     75,000 Sidney Wertheim etal       Acquisition of "Little King" Restaurant  Section 4(2)
                                                                              Chain
   75,000   Common      Dec 22, 1998         75 Mitchell Day               Exercise of Seawest Options              Section 4(2)
- ----------------------------------------------------------------------------------------------------------------------------------

                                        9

<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Exempt From
                                                                                                                     1933 Act
                                      Value or                                                                    Registration
  Shares    Type of                   Consider-   To Whom                                                               In
  Issued   Security         Date       ation      Issued                       Business Purpose                    Reliance of:
- ----------------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>           <C>       <C>                       <C>                                       <C>
  491,980   Common      Jan 6, 1999     139,810 Preferred "D" Holders      Conversion of 80 shares of Preferred "D" Section 4(2)
  361,766   Common      Jan 25, 1999     52,546 Preferred "D" Holders      Conversion of 30 shares of Preferred "D" Section 4(2)
1,346,463   Common      Feb 19, 1999    254,731 Preferred "D" Holders      Conversion of 145 shares of Preferred    Section 4(2)
                                                                              "D"
  307,151   Common      Feb 22, 1999     70,308 Preferred "D" Holders      Conversion of 40 shares of Preferred "D" Section 4(2)
  241,159   Common      Mar 5, 1999      44,007 Preferred "D" Holders      Conversion of 25 shares of Preferred "D" Section 4(2)
  248,138   Common      Apr 27, 1999     35,320 Preferred "D" Holders      Conversion of 20 shares of Preferred "D" Section 4(2)
1,000,000   Common      May 28, 1999    250,000 Norstarr Services          Consulting Services                      Section 4(2)
1,456,679   Common      May 10, 1999    194,868 Preferred "D" Holders      Conversion of 110 shares of Preferred    Section 4(2)
  500,000   Common      Apr 14, 1999    150,000 Three Investors            Cash Investment                          Section 4(2)
   96,154   Common      May 14, 1999     25,000 Phoenix Capital            Conversion of Debt                       Section 4(2)
   96,154   Common      May 14, 1999     25,000 C.A. Opportunidad          Conversion of Debt                       Section 4(2)
  130,000   Common      May 29, 1999     48,100 Gulf Atlantic Publishng    Consulting Services                      Section 4(2)
  769,230   Common      May 14, 1999    174,563 2 Investors                Sale of Stock for cash                   Section 4(2)
   37,500   Common      May 14, 1999          0 P. Truax, R. Longely       Exercise of Options                      Section 4(2)
    197.5 Preferred "F" Jun 10, 1999  2,468,500 19 Investors               Conversion of Preferred "D" to "F"       Section 4(2)
  700,187   Common      Jun 11, 1999    329,088 Interfoods                 Modification of Terms of SBK acquisition Section 4(2)
   20,000   Common      Jun 21, 1999      4,400 Barry Seidman              Penalty on Loan Default                  Section 4(2
   50,000   Common      Jun 24, 1999     12,500 Blaine Quick               Consulting Services                      Section 4(2)
  187,266   Common      Jun 11, 1999    335,206 Interfoods                 Conversion from redeemable to fully      Section 4(2)
                                                                             issued
   66,667   Common      Jun 28, 0999     20,000 Thornbury Associates       Consulting Services                      Section 4(2)
  100,000   Common      Aug 11, 1999     21,880 Preferred "A"  Holders     Preferred "A" conversion price           Section 4(2)
                                                                              adjustment
  750,000   Common      Aug 11, 1999    175,815 7 Individual Investors     Price adjustments on previously issued   Section 4(2)
                                                                              stock
  500,000   Common      Aug 11, 1999    109,400 Tri-Emp Enterprises        Loan Payment                             Section 4(2)
   25,000   Common      Sep 10, 1999      5,000 Robert Weiner              Consulting Services                      Section 4(2)
  195,127   Common      Sep 20, 1999     44,793 Preferred "D" Holders      Conversion of 25 shares of Preferred     Section 4(2)
                                                                              "D"
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Exempt From
                                                                                                                     1933 Act
                                      Value or                                                                    Registration
  Shares    Type of                   Consider-   To Whom                                                               In
  Issued   Security         Date       ation      Issued                       Business Purpose                    Reliance of:
- ----------------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>           <C>       <C>                       <C>                                       <C>
  380,000   Common      Oct 19, 1999     71,250 Compass Point Group        Consulting Services                      Section 4(2)
  500,000   Common      Jan 19, 2000    110,200 Stockbroker Relations      Consulting Services                      Section 4(2)
  235,000   Common      Jan 28, 2000     54,050 Compass Point Group        Consulting Services                      Section 4(2)
  300,000   Common      Mar 21, 2000    105,000 2 Individuals              Consulting Services                      Section 4(2)
  894,911   Common      Mar 31, 2000    223,728 Tri-Emp Enterprises        Conversion of Debt                       Section 4(2)
  848,831   Common      Mar 31, 2000    212,208 Monterrey Corp.            Conversion of Debt                       Section 4(2)
  260,000   Common      Apr 1, 2000      57,200 Stockbroker Relations      Consulting Services                      Section 4(2)
  150,000   Common      May 12, 2000     48,000 Olympus Capital            Consulting Services                      Section 4(2)
   40,000   Common      Jun 5, 2000      11,200 Dan Patterson              Consulting Services                      Section 4(2)
   40,000   Common      Jun 28, 2000      9,200 Compass Point Group        Consulting Services                      Section 4(2)
  435,000   Common      Jul 18, 2000    139,200 Various                    Acquisition of "Central Park"            Section 4(2)
                                                                              Restaurant Chain
1,000,000   Common      Jul 27, 2000    260,000 E-Rex, Inc.                Sale of Stock for Investment Security    Section 4(2)

- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Options and Warrants

In February  1999,  the Company  approved the 1998  Incentive  Plan  ("Incentive
Plan") to enable  the  Company to offer  employees  and its  consultants  equity
interests  in the  Company.  There are  1,500,000  shares  designated  under the
Incentive Plan and are fully vested upon grant. Since January,  1997 the Company
has issued  options and  warrants to purchase  its common  stock  outside of the
Incentive  Plan.  The following  table  describes  selected data with respect to
unexercised options and warrants at September 30, 2000:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
      Date         Expiration                             Number of     Exercise
    of Grant          Date                Name              Shares       Price                Business Purpose
- ---------------------------------------------------------------------------------------------------------------------------------
<S>              <C>             <C>                          <C>             <C>         <C>

1998 Incentive Plan

Feb 10, 1999     Feb 10, 2002    Employees/nonemployee Director 720,000         0.20      Employee Stock Option Plan
Oct 15, 1999     Oct 10, 2002    Patricia Charles                35,000         0.16      Employee Stock Option Plan
                                                           ------------
                                 TOTAL                          755,000
- --------------------------------------------------------------------------------------------------------------------------------

Outside of the Incentive Plan

May 23, 1997     Mar 1, 2002     Thomas Larcomb                  60,000         0.50      Loan Inducement
May 23, 1997     Mar 1, 2002     Richard Deegan                  60,000         0.50      Loan Inducement
Sep 15 1997      Sep 15, 2002    Tri-Emp Enterprises            225,000         0.75      Assignment of Other Rights
Sep 30, 1997     Feb 1, 2001     AB Laffer Canto & Assoc.        13,500         3.08      Acquisition of Mtn. Mike's
Dec 17, 1997     Dec 17, 2002    Business Advisors              375,000         1.92      Business Expansion Consulting Services
Dec 17, 1997     Dec 17, 2002    Business Advisors              375,000         2.56      Business Expansion Consulting Services
Dec 17, 1997     Dec 17, 2002    Business Advisors              375,000         3.20      Business Expansion Consulting Services
Dec 17, 1997     Dec 17, 2002    Business Advisors              125,000         3.84      Business Expansion Consulting Services
Dec 29, 1997     Dec 29, 2000    Christopher M. Swartz(a)(b)  1,000,000         0.29      Employee Compensation
Aug 3, 1998      Aug 3, 2001     Christopher M. Swartz(a)     1,000,000         0.29      Employee Compensation
Sep 30, 1998     Sep 30, 2003    Wall St. Group                 114,285         0.50      Investment Banking Services
Sep 30, 1998     Sep 30, 2003    Dr. Sol Lizerbram              114,285         0.50      Investment Banking Services
Oct 15, 1999     Oct 15, 2004    Blaine Quick                   645,000         0.29      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Dr. Sol Lizerbram              125,000         0.50      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Wall St. Group                 125,000         0.50      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Richard Silberman              600,000         0.29      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Bradley Gordon               1,000,000         0.29      Employee Compensation
Oct 15, 1999     Oct 15, 2004    Michael Cronin               1,000,000         0.29      Employee Compensation
Oct 15, 1999     Oct 15, 2004    Richard Huey                   500,000         0.29      Employee Compensation
Oct 15, 1999     Oct 15, 2004    Kelly Swartz                    35,000         0.16      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Linda Patterson                 35,000         0.16      Business Expansion Consulting Services
Jul 27, 2000     Jun 30, 2002    E-Rex, Inc.                  3,000,000        0.278      Exchanged for Investment Security
Jul 31, 2000     Jul 31, 2007    Lloyd, Benton & Taylor         200,000        0.229      Business Expansion Consulting Services
                                                           ------------
                                 TOTAL                       11,102,070
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)  Original  options  at $2.75 and $1.55 were  repriced  on October 1, 1999 at
$0.29 per share.

(b) These options expired on December 29, 2000 and were not extended.

The weighted  average exercise price of these  outstanding  options is $0.20 and
$0.58 under the Incentive Plan and outside of the Incentive Plan,  respectively.
The aggregate of all options under the Incentive  Plan and outside the Incentive
Plan has a  weighted  average  life until  expiration  of 29.9  months.  Options
representing  225,000  shares  (125,000 and 100,000 under the Incentive Plan and
outside of the Incentive Plan,  respectively)  expired in 2000 while the Company
granted  additional  options on 7,300,000 shares (35,000 and 7,265,000 under the
Incentive Plan and outside of the Incentive Plan respectively) during the year.

                                       10
<PAGE>


Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Transition Period Due to Change in Fiscal Year

During 1999, the Company changed its fiscal period from December 31 to September
30.  Accordingly,  the audited financial  statements  included in item 7 of this
Form 10-KSB reflect  operating  results and cash flows for a twelve month period
and a nine month  period  ended  September  30,  2000 and  September  30,  1999,
respectively.  Management has elected to present this discussion and analysis on
a twelve month  comparative basis with the unaudited results as disclosed on the
third  quarter Form 10-QSB  filed with the S.E.C.  on November 19, 1998 and Form
10-KSB filed in August 1999.  Readers are  suggested to  supplement a reading of
this discussion and analysis with a review of those financial statements as well
as review the  following  comparative  table of results of  operations  and cash
flows:
<TABLE>
<CAPTION>

Account Description                            Twelve Months Ended   Twelve Months Ended
                                                  Sept 30, 2000        Sept 30, 1999
                                                 --------------        -------------
<S>                                                <C>                  <C>
Total Franchising Revenue                          $ 3,144,956          $ 3,591,216
Franchising Costs                                    1,419,548            1,701,348
                                                   -----------          -----------
Net Franchising Income                               1,725,408            1,889,868

Bakery Sales                                           825,237              734,868
Bakery Cost of Sales and Expenses                      816,376              710,014
                                                   -----------          -----------
Net Bakery Income                                        8,861               24,854

Retail Sales of Company Owned Stores                   521,747              110,878
Cost of sales and Expenses                             594,905              117,561
                                                   -----------          -----------
Net Income (Loss) From Company Owned Stores            (73,158)              (6,683)

Net Operating Line Profit                            1,661,111            1,908,039
Other Expenses:
     Business Expansion and Investor Relations       1,417,263              775,392
     General Corporate Expenses                      1,415,752            1,497,151
     Interest Expense                                  318,633              542,946
     Write Off of Uncollectible Accounts                25,442              379,924
     Amortization and Depreciation                     745,692              964,681
     Loss on disposals of franchise concepts           843,092               39,606
     Loss on sale of investment security                     -               58,596
     Loss on sale of property & equipment                    -              465,032
     Write-down of property & equipment                 70,101              725,078
     Long-lived asset write-down                             -            1,177,212
     Other Expense (Income)                           (169,171)             (52,203)
                                                   -----------          -----------
       Net Loss                                    $(3,005,693)         $(4,665,376)
                                                   ===========          ===========

Net Loss Per Share                                 $     (0.11)         $     (0.23)
Weighted Average Shares Outstanding                 30,102,278           21,517,608

Cash Consumed by Operating activities              $  (239,547)         $  (162,952)
Cash Provided (Consumed) by Financing Activities    (1,434,237)            (624,013)
Cash Provided by Investing Activities                1,700,564              655,073
                                                   -----------          -----------
  Net Change in Cash                               $    26,780         $  (131,892)
                                                   ===========          ===========
</TABLE>


Forward Looking Statements

The following  discussion contains certain forward looking statements subject to
the safe harbor  created by the  "Private  Securities  Litigation  Reform Act of
1995". These statements use such words as "may," "will," "expect,"  "believe," "
plan,"  "anticipate" and other similar  terminology.  These  statements  reflect
management's   current   expectations   and   involve  a  number  of  risks  and
uncertainties. Actual results could differ materially due to changes in global
and  local  business  and  economic   conditions;   legislation  and  government
regulation;  competition; success of operating initiatives including advertising
and  promotional  efforts;  changes in food,  labor and other  operating  costs;
availability  and cost of land and  construction;  adoption of new or changes in
accounting  policies and practices;  changes in consumer  preferences,  spending
patterns  and  demographic  trends and  changes  in the  political  or  economic
climate.

Overview

The Company derives its revenue from several sources: royalties, franchise fees,
developer fees,  company owned  restaurants  sales and other  franchise  related
activities  as well as a bakery  acquired  to supply  sandwich  rolls to certain
franchisees.

Royalties

Royalties are based on a percentage of franchisees' net sales and are recognized
by the  Company  in the  same  period  that the  franchise  store  sales  occur.
Generally  royalties are earned at the rate of 4%-7% of sales.  Royalties earned
under newer franchise agreements are paid by means of weekly automatic drafts by
the Company  drawn on franchisee  bank  accounts.  Royalties  earned under older
agreements  are  generally  paid by the  remittance  of a check  payable  to the
Company on a weekly,  bi-weekly  or monthly  basis.  A portion of the  royalties
received by the Company are paid to its area developers as royalty service costs
for providing  on-going services to franchisees in their respective  territories
(see Item 1. Business-Franchising-Area Developers).

Franchise Fees

Franchise  Fees are payments  received by the Company from  franchisees  and are
recognized as revenue in the period in which the store opens.  The franchise fee
for a  franchisee's  initial  store is currently  $10,000-$12,500  for submarine
sandwich restaurants and $20,000 for hamburger restaurants.  Expenses associated
with the sale of franchises also include area developer fees and are included in
franchise servicing costs.  Generally,  area developers are paid one half of the
franchise fees received or collected in their territory.

                                       11
<PAGE>


Area Developer Fees

The Company charges area developers a non refundable fee for the exclusive right
to  develop  and  market a defined  territory  for a  specified  period of time.
Typically,  a portion of the  developer  fee is paid in cash and the  balance is
paid with a promissory note (see Item 1. Business-Franchising-Area  Developers).
When the Company has fulfilled  substantially all of its contractual obligations
such as training, providing manuals, and reasonable efforts to obtain and retain
trademark registrations, the Company recognizes, as revenue, the cash portion of
the fee and the value of the promissory note.  Certain  performance  obligations
are ongoing.  On these the income has been  deferred to future  periods in which
the services will be substantially performed.

Restaurant Sales

Restaurant  sales are reported from Company owned stores.  Since July 2000,  the
Company  had  operated   seven  Company  owned  stores  from  its  Central  Park
acquisition.  From time to time the Company will take over the  operations  of a
store from a  franchisee  before the  contract  term has  expired.  Management's
intent  is to  resell  these  stores  to  prospective  franchisees  as  soon  as
practicable. Management does not believe that the operating costs of its Company
owned  stores are  indicative  of costs for  franchised  stores on a  systemwide
basis. Store sales are expected to vary widely from year to year and reflect the
uncertainty  of when,  where and how long a store may be operated by the Company
before being returned to the franchising system.

Year Ended September 30, 2000 Compared to Year Ended September 30, 1999

Revenue:  Total Revenue increased  $54,978 in 2000 over 1999 from  $4,436,962
to $4,491,940.

Royalties  decreased  $587,431,  or  21.8%,  from  $2,695,768  in  1999  to
$2,108,337 in 2000. The primary reason for the decrease was from the sale of the
Mountain  Mike's  Pizza  concept  in April  2000 and thus only  seven  months of
royalty  income of $822,049  from this  concept was  included for the year ended
September 30, 2000 compared to $1,350,853 for the year ended September 30, 1999,
a decrease of $528,804.  This decrease was offset by $176,226 in royalty  income
as the result of the  acquisition  of the Central Park  hamburger  chain in July
2000.

Franchise  fees  decreased  $48,916 or 43.7% from $111,916 in 1999 to $63,000 in
2000.
The Company added six new stores during the year ended  September 30, 2000.  The
new restaurants were primarily opened by existing franchisees. This reflects the
Company's  policy  of growth  through  existing  franchisees.  The  decrease  in
franchise fees is primarily from the Company  having fewer  restaurant  concepts
from the  disposal  of the  Mountain  Mike's  Pizza and Seawest  Subs  franchise
concepts.

Retail  restaurant  sales in Company owned stores  increased  $410,869 or 370.6%
from  $110,878 in 1999 to $521,747 in 2000.  In 1999,  retail  restaurant  sales
reflected the Company's attempt to dispose all corporately owned restaurants and
all Company  owned stores were sold by the year ended  September  30, 1999.  The
retail  restaurant sales for the year ended September 30, 2000 resulted from the
Company's  acquisition of the Central Park hamburger  chain which included seven
corporately  owned  restaurants and only reflects activity from July 19, 2000 to
September 30, 2000 (less than 2.5 months). The Company's intention is to dispose
of these seven restaurants in fiscal year 2001.

Bakery sales for the bakery owned and operated by the Company  increased $90,369
or 12.3% from  $734,868 in 1999 to $825,237 in 2000 which  reflected an increase
in per restaurant sale.

                                       12
<PAGE>


Costs and Expenses

The Company  segregates  its operating  expenses into six general  categories as
follows:

             Ongoing Franchise Servicing
             Retail Company Owned Store Cost of Sales and Expenses
             Bakery Cost of Sales and Expenses
             General Corporate Operating Expenses
             Consulting and Investor Relations
             Non-Cash
             Other

Franchise  servicing  costs,  including  ongoing area developer fees, decreased
$281,800 or 16.6% from  $1,701,348 in 1999 to  $1,419,548  in 2000.  The primary
reason for the decrease was from the sale of the Mountain  Mike's Pizza chain in
April 2000 offset by the addition of $258,067 of franchise  servicing costs from
the  Company's   Central  Park  acquisition  in  July  2000.  The  other  chains
experienced a slight decrease in franchise servicing costs. These reductions are
the result of management's  ongoing efforts to assimilate and combine  functions
previously   performed  at  each  division   level.   Many  of  the  purchasing,
administrative,  accounting and  regulatory  tasks  previously  performed by the
divisional employees are now being handled at the corporate level. The effect of
this was to  reduce  the staff  necessary  to  perform  these  functions  at the
divisional  level.  The  Company  continues  to focus its  efforts on  franchise
royalty  management with the result that despite the sale of the Mountain Mike's
Pizza chain, the operating profit from this activity  decreased only $164,460 or
8.7% $1,889,868 in 1999 to $1,725,408 in 2000.

Retail cost of sales and operating  expenses from company owned stores  increase
from  $117,561 in 1999 to $594,905 in 2000.  Retail cost of sales and  operating
expenses as a percentage of retail sales increased from 106.0% in 1999 to 114.0%
in  2000.  The  increase  in  cost  reflected  transitioning  the  Central  Park
restaurants which included the sale and closure of two restaurants.

Bakery cost of sales and expenses  increased  $106,362 or 15.0% from $710,014 in
1999 to $816,376 in 2000. The increase is consistent with the increase in bakery
sales.

General corporate operating expenses generally include:  officers and office
support staff payroll and payroll  costs;  legal,  audit and other  professional
fees;  office  occupancy  costs and other general  administrative  costs.  These
administrative  costs decreased  81,399 or 5.4% from $1,497,151 to $1,415,752 in
2000 which was partially  attributable to the Company's Chief Operating  Officer
resigning in April 2000.

Consulting  and  investor  relations  costs  increased  $641,871  or 82.8%  from
$775,392 in 1999 to  $1,415,752 as the Company  entered into several  consulting
agreements for capital  raising efforts and  identifying  potential  acquisition
candidates.

Routine or recurring  non-cash  charges such as  depreciation,  amortization (of
goodwill  and  non-compete   covenants)  and  the  write  off  of  uncollectible
receivables  was  $1,344,605  in 1999  compared to  $771,134  in 2000.  Of these
amounts  $379,924 and $25,442 was attributable to bad debt expense for the years
ended  September 30, 1999 and 2000,  respectively.  The bad debt expense in 1999
was  due to  the  write-down  of  certain  notes  receivable.  Amortization  and
depreciation  was  $964,681 in 1999  compared to $745,692 in 2000, a decrease of
218,989 or 22.7%.  The  primary  reason for the  decrease  was the  decrease  in
goodwill amortization from the Mountain Mike's Pizza chain in April 2000 and the
amortization  of the non-compete  covenant  pertaining to Seawest Subs which was
fully  amortized in early 2000.  Amortization of goodwill  decreased  $87,472 or
41.7%  from  $209,957  in  1999  to  $122,475  in  2000  for  Mountain   Mike's.
Amortization of goodwill and the non-compete covenant decreased $57,865 or 26.8%
from $216,144 in 1999 to $158,279 in 2000 for Seawest Subs.

                                       13
<PAGE>

Non-routine  or  non-recurring  non-cash  charges  such as losses on disposal of
franchise  concepts,  asset  valuation  charges and losses on the sale of assets
totaled  $913,193 in 2000 and was $1,552,331 less than the $2,465,524  aggregate
charge for those items in 1999.  The loss on the disposal of franchise  concepts
was  $843,092 in 2000  resulting  from a loss of  $535,506  from the sale of the
Mountain  Mike's  Pizza  franchise  concept  and  $307,586  from the sale of the
Seawest Subs  franchise  concept  compared to a loss of $39,606 from the sale of
the Georgio's franchise concept in 1999.  Write-down of property & equipment was
$70,101 in 2000  compared to  $725,078 in 1999.  The 1999 charge was a result of
the Company  writing  down the value of some of its bakery  equipment to reflect
current market value for such equipment.  Also in 1999, the Company recognized a
goodwill  impairment  of  $1,177,212  with respect to its Little King  franchise
concept prior to its sale.

Net  interest  expense  was  $318,633 in 2000  compared  to $542,946 in 1999,  a
decrease of $224,313.  The decrease in interest  expense  reflects the Company's
payment on related party and long-term  debt of $1,267,013 and the conversion of
$343,291 of related  party and  long-term  debt for common stock during the year
ended  September  30,  2000.  There was less than 3 months of  interest  expense
incurred in 2000 from the  long-term  debt  issued and assumed of  approximately
$2,400,000 on the Central Park acquisition in July 2000.

Liquidity and Capital Resources

Net  cash  used in  operating  activities  was  $239,547  in  2000.  Net cash of
$1,700,564 was provided by investing activities. $2,682,130 of cash proceeds was
primarily  received  from  the  sale  of the  Company's  Mountain  Mike's  Pizza
franchised concept while $925,595 was expended on the acquisition of the Central
Park franchise concept. Net cash of $1,434,237 was used on financing activities,
primarily  from the payments on related party and  long-term  debt of $1,267,013
and dividend payments of $213,100.

At  September  30, 2000 the Company had  $3,189,248  in debt and  $2,468,750  in
redeemable   preferred  stock   outstanding.   The  Company  issued  or  assumed
approximately  $2,400,000  in debt relating to its Central Park  acquisition  in
July 2000. In December 2000, the Company issued $575,000 in convertible debt and
redeemed  the entire  $2,468,750  in  preferred  stock  through  the  payment of
$500,000 in cash and the issuance of 19,750,000 shares of common stock.

The Company  believes that cash flow from operations and the sale and subsequent
refranchising  of its seven corporate  Central Park restaurants will continue to
fund its  operations  as well as generate all the capital  necessary to meet the
Company's  obligations of $417,140 in the current portion of its long term debt.
The Company may seek other sources of financing,  restructure and/or pay off all
its current  obligations in 2001. There is no assurance that additional  funding
will be available, or if available, it can be obtained on terms favorable to the
company.  Failure to obtain such funding  could  adversely  affect the Company's
financial condition.

Working capital at September 30, 2000 was a deficit of $1,490,301  compared with
a deficit of  $1,879,446  on September  30,  1999,  a decrease of $389,145.  The
decrease  in deficit is  reflected  in a  $1,188,901  reduction  in the  current
portion of long term debt and an increase  of  $622,532 in accounts  payable and
accrued expenses.

                                       14
<PAGE>

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998

During 1999, the Company changed its fiscal period from December 31 to September
30.  Accordingly,  the audited financial  statements  included in item 7 of this
Form 10-KSB reflect  operating  results and cash flows for a twelve month period
and a nine  month  period  ended  December  31,  1998 and  September  30,  1999,
respectively.  Management has elected to present this discussion and analysis on
a nine month  comparative  basis with the unaudited  results as disclosed on the
third quarter Form 10-QSB filed with the S.E.C. on November 15, 1998 and Form
10-QSB/A filed in January 2000. Readers are suggested to supplement a reading of
this discussion and analysis with a review of those financial statements as well
as review the  following  comparative  table of results of  operations  and cash
flows:
<TABLE>
<CAPTION>

Account Description                            Nine Months Ended     Nine Months Ended
                                                 Sept. 30, 1999        Sept 30, 1998
                                                 --------------        -------------
<S>                                                <C>                  <C>
Total Franchising Revenue                          $ 2,724,534          $ 2,652,781
Franchising Costs                                    1,296,506            1,484,583
                                                   -----------          -----------
Net Franchising Income                               1,428,028            1,168,198

Bakery Sales                                           571,844              736,171
Bakery Cost of Sales and Expenses                      541,014              680,363
                                                   -----------          -----------
Net Bakery Income                                       30,830               55,808

Retail Sales of Company Owned Stores                         0            1,353,366
Cost of sales and Expenses                                   0            1,460,087
                                                   -----------          -----------
Net Income From Company Owned Stores                         0             (106,721)

Net Operating Line Profit                            1,458,858            1,117,285
Other Expenses:
     Business Expansion and Investor Relations         722,541              852,486
     Central Corporate Expenses                      1,177,276            1,257,656
     Interest Expense                                  356,192              248,830
     Write Off of Uncollectible Accounts               254,507                    0
     Amortization and Depreciation                     670,442              865,678
     Penalty Charge on Preferred "D"                         0              718,272
     Other                                              45,999              (46,522)
                                                   -----------          -----------
       Net Loss                                    $(1,768,099)         $(2,779,115)
                                                   ===========          ===========

Net Loss Per Share                                 $     (0.08)          $    (0.17)
Weighted Average Shares Outstanding                 22,796,417           16,378,836

Cash Consumed by Operating activities              $  (429,270)         $(1,256,394)
Cash Provided by Financing Activities                  103,137            1,613,908
Cash Consumed by Investing Activities                  136,847             (531,748)
                                                   -----------          -----------
  Net Change in Cash                               $  (189,286)         $  (174,234)
                                                   ===========          ===========
</TABLE>

Revenue:  Total Revenue decreased  $1,445,940 in 1999 over 1998 from  $4,742,318
to $3,296,378.

Royalties  increased  $49,835,  or  about  2.5%,  from  $1,996,445  in  1998  to
$2,046,280 in 1999. An increase of $84,857 was the result of the  acquisition of
the Li'l Dino chain in March of 1998 and  reporting  only six months of revenues
in 1998 compared to a full nine months of operations in 1999.  This increase was
offset by overall lower royalty revenues in the other concepts of $35,022.

Franchise  fees  decreased  $48,750  from  $127,000  in 1998 to $78,250 in 1999.
$47,500 of the decrease was recognized  through the Mountain  Mike's Pizza chain
and was the result of scheduled  openings  being pushed into the next  reporting
period.  The  Company  began 1999 with 273  franchised  restaurants.  During the
current  nine month  period the  Company  added an  additional  6 new stores and
closed or terminated  franchise agreements on 42 stores. These closings were the
result of voluntary  terminations due to competitive conditions in the Company's
market segment and to the cancellation or rescission of franchise  agreements of
certain  franchisees  that were not fulfilling their contract  obligations.  The
Company  ended the year with 209  franchised  units  after the sale of 28 Little
King  restaurants,  or a pro-forma  decrease  of 13.2%.  The six new stores were
primarily opened by existing franchisees.  This reflects the Company's policy of
growth through existing franchisees with the belief that this will contribute to
a high rate of new store successes.

Developer  fees were $24,896 in 1998  compared to none in 1999.  This was due to
the recognition of the deferred  performance amounts on existing contracts.  The
Company has not sold development  rights in any territories in 1999 or 1998. The
Company anticipates that developer fees received in the future will primarily be
the result of re-marketing existing agreements.

Retail  restaurant  sales in Company owned stores  decreased from  $1,353,366 in
1998 to $0 in 1999. The decrease was the result of operating 10-11 stores in the
Little King chain for most of 1998.  All Company  owned stores were sold in 1999
and no new stores were acquired or operated by the Company in 1999.  Comparative
average  store sales volume for these stores  remained  substantially  unchanged
from the previous year. The Company also  discontinued  its Hymie's retail bagel
sales efforts in Tampa in early 1998.

Bakery sales for the bakery owned and operated in 1999  remained  about the same
as 1998's sales at $566,329 and $571,844,  respectively. The Company also closed
the Tampa bakery in 1998. This operation generated $159,843 in 1998 sales before
it was closed.

                                       15
<PAGE>


Costs and Expenses

The Company  segregates  its operating  expenses into six general  categories as
follows:

             Ongoing Franchise Servicing
             Retail Company Owned Store Cost of Sales and Expenses
             Bakery Cost of Sales and Expenses
             General Corporate Operating Expenses
             Non-Cash
             Other

Franchise  servicing  costs,  including  ongoing area developer fees,  decreased
$188,077 to  $1,296,506  in 1999.  The addition of L'il Dino  operations in late
March of 1998  accounted for an increase in current  period  expenses of $49,125
over 1998  while all the other  chains,  combined,  experienced  a  decrease  of
$237,202.  These  reductions are the result of  management's  ongoing efforts to
assimilate and combine  functions  previously  performed at each division level.
Many  of  the  purchasing,  administrative,   accounting  and  regulatory  tasks
previously  performed by the  divisional  employees are now being handled at the
corporate level. The effect of this was to reduce the staff necessary to perform
these  functions at the  divisional  level.  The Company  continues to focus its
efforts on  franchise  royalty  management  with the result  that the  operating
profit  from  this  activity  increased  $259,830  from  1998  to  1999  or from
$1,168,198 in 1998 to $1,428,028 in 1999.

Retail  cost of sales and  operating  expenses  from  company  owned  stores was
eliminated  in 1999 as the Company  neither  owned or operated any stores during
that period.

Bakery cost of sales and expenses  decreased  $139,349 in 1999 from 1998's level
of $680,363.  The  decrease is primarily  due the closing of the Tampa bakery in
1998 which amounted to a $127,393 cost elimination.

General corporate  operating  expenses  generally  include:  officers and office
support staff payroll and payroll  costs;  legal,  audit and other  professional
fees;  office  occupancy  costs and other general  administrative  costs.  These
administrative  costs  decreased 6.4% in 1999 to $1,177,276  from  $1,257,656 in
1998. This decrease was the result of non-recurring  charges of $160,843 in 1998
for  additional  legal and accounting  fees in connection  with the audit of its
1997 financial statements and the filing of its S.E.C.  registration  statements
on forms 10-SB and SB-2.

Routine or recurring  non-cash  charges such as  depreciation,  amortization (of
goodwill and non-compete covenants), write off of uncollectable receivables, and
the  amortization of certain  prepaid  expenses  (interest and consulting)  over
their contractual terms was $1,544,695 in 1999 compared to $865,678 in 1998. The
increase  of  $679,017  in 1999 was  principally  the result of an  increase  of
$254,507 in bad debts  expense due to write downs of certain  notes  receivable;
increased  amortization  of $185,715 in prepaid  consulting  agreements;  and an
increase of $117,088 in goodwill and non compete covenant amortization.

                                       16
<PAGE>


Non-routine or  non-recurring  non-cash charges such as stock and options issued
for services,  asset valuation charges,  losses on the sale of assets,  deferred
taxes and a preferred stock conversion  penalty totaled $337,797 in 1999 and was
$786,055 less than the $1,123,852  aggregate charge for those items in 1998. The
net  decrease  was due to a combined  mix of several  factors.  A portion of the
decrease was due to a $105,635  reduction in stock and stock options  issued for
services  while the balance of the  decrease was the  elimination  of a one time
charge of  $718,272  due to a penalty  feature  imposed  on the  Company  by the
preferred "D" class of stock issued January 5, 1998.

Total non cash expenses  decreased  $107,038 in 1999 to  $1,882,492  from 1998's
level of $1,989,530.

Interest  expense  of  $356,192  and  $248,830  for 1999 and 1998  respectively,
increase by $107,362 over 1998. The increase in interest expense reflects a full
nine months of interest  charges in 1999 of the  $400,000  note  assumed in late
March upon the acquisition of Li'l Dino and new borrowings of $300,000 in August
of 1998.

Liquidity and Capital Resources

Net cash used in operating activities was $429,270 in 1999. Accounts payable and
accrued liabilities  decreased  $561,174.  Net cash of $136,847 was generated by
investing  activities,  primarily  through  $149,370  generated  by the  sale of
assets.  Net cash of $103,137 was  generated by financing  activities.  This was
primarily the result of $250,000 in additional  capital  raised through the sale
of the  Company's  common stock and Series F preferred  stock.  Debt payments of
$90,546 and  dividend  payments of $56,317 on the  preferred  stock  offset cash
generated by financing activities.

Net cash used in operating  activities was $1,256,394 in 1998.  Accounts payable
and accrued  liabilities  decreased  $760,506.  Net cash of $531,748 was used in
investing  activities.  The  substantial  portion  being  $402,636  paid  out in
connection  with notes  receivable.  Net cash of  $1,613,908  was  generated  by
financing activities. This was primarily the result of $1,817,490 raised through
the  successful  offering of the Company's  preferred  stock.  New borrowings of
$550,000  matched  against  debt  payments of $740,350  also  contributed  to an
application  of  $190,350  to the net  change  in cash  generated  by  financing
activities.

At  September  30,  1999 the  Company  had  $5,084,235  in debt  and  redeemable
preferred stock  outstanding.  No new debt was incurred  during the period.  The
Company did, however,  convert all holders of the preferred D stock to preferred
F stock. The preferred F carries a mandatory  redemption  feature in 2001 and is
therefore carried as a $2,468,750 liability.

During 1998, the Company borrowed $550,000 to finance its operations and assumed
$400,000 in connection with its acquisition of L'il Dino.

Working capital at September 30, 1999 was a deficit of $1,879,446  compared with
a deficit of  $2,157,280  on  December  31,  1998 a decrease  of  $277,834.  The
decrease in deficit is reflected in a $397,157  reduction in the current portion
of long term debt and a $661,434  reduction  in  accounts  payable  and  accrued
expenses which were offset by a $189,286 reduction in cash.


                                       17
<PAGE>


Item 7. Financial Statements

Attached  hereto  and filed as part of this  Form  10-KSB  are the  consolidated
financial  statements  listed  in  the  index  to  the  Consolidated   Financial
Statements at page F-1.

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

(a) Effective October 24, 2000 the Company appointed Berman, Hopkins, Wright and
LaHam,  CPA's,  LLP as  independent  accountants  for the  fiscal  year ended on
September  30,  2000.  The decision to dismiss  Pender,  Newkirk and Company was
approved by the audit committee  acting  pursuant to the authority  delegated by
the Company's Board of Directors.

Pender,  Newkirk and Company's report on the consolidated  financial of Ultimate
Franchise Systems, Inc. (formerly JRECK Subs Group, Inc.) as of and for the nine
months ended  September 30, 1999  contained no adverse  opinion or disclaimer of
opinion,  and were not qualified or modified as to  uncertainty,  audit scope or
accounting principles.

During the nine months ended September 30, 1999 and in the subsequent  period to
the date hereof, there were no disagreements between Ultimate Franchise Systems,
Inc. and Pender,  Newkirk and Company on any matters of accounting principles or
practices,  financial statement disclosure or auditing scope or procedure, which
disagreements,  if not  resolved  to the  satisfaction  of Pender,  Newkirk  and
Company  would have caused it to make a reference  to the subject  matter of the
disagreements in connection with its reports.

The Company has provided  Pender,  Newkirk and  Company,  prior to the filing of
Form 8-K with the  Commission,  a copy of the  disclosures  made in Item 4(a) on
Form 8K.

(b) Effective October 24, 2000 the Company engaged Berman,  Hopkins,  Wright and
LaHam,  CPA's,  LLP as its new  independent  accountants  to audit the Company's
financial statements.  During the period that Pender, Newkirk and Company served
as independent  auditor,  including all interim periods, the Company (or someone
on its behalf) never consulted  Berman,  Hopkins,  Wright and LaHam,  CPA's, LLP
regarding any matter.

                                       18
<PAGE>
                                    PART III

Item 9. Directors, Executive Officers and Control Persons

 The  following  table  sets  forth  certain  information  with  respect  to the
executive  officers  and  directors  of the Company.  Each  director  holds such
position until the next annual meeting of the Company's  shareholders  and until
his successor has been duly qualified and elected. Any of the Company's officers
may be removed, with or without cause, by the company's board of directors.

- ------------------------------------------------------------------------------
      Name                Age   Director/Date    Office or Position
                                 Elected
- ------------------------------------------------------------------------------

Christopher M. Swartz     30   Yes/ Apr 1996   Chairman, President and Chief
                                               Executive Officer
S. Elliott Davenport      41   Yes/ Jul 2000   Director
Eric T. Swartz            34   Yes/ Apr 1996   Secretary
Michael F. Cronin         44   Yes/ Apr 2000   Chief Financial Officer/Treasurer
                                               and Chief Operating Officer
- ------------------------------------------------------------------------------

Christopher M. Swartz has been Chairman,  President and Chief Executive  Officer
of the Company  since April,  1996 and Chairman,  President and Chief  Executive
Officer of JRECK Subs,  Inc. since  September,  1995.  From 1992 to 1995, he was
Director of Operations of Lox, Stox & Bagels of Liverpool,  Inc. Mr. Swartz is a
graduate of Syracuse University. He is the second generation of his family to be
involved  with  JRECK.  Mr.  Swartz  is also  the  general  partner  of  Tri-Emp
Enterprises, a limited family partnership and the brother of Eric Swartz.

S. Elliott  Davenport has been a Director of the Company  since July 2000.  From
February 1997 up to joining the Company in July 2000, he was Chairman, President
and Chief  Executive  Officer of Central Park USA, Inc.  (the  franchisor of the
Central Park hamburger chain). He was Vice President and Chief Operating Officer
of Central Park USA, Inc. from September 1986 to July 2000.

Eric T. Swartz has been a Director  and  Secretary  of the Company  since April,
1996.  He was awarded his J.D.  degree and  undergraduate  degree from  Syracuse
University College of Law and Syracuse  University  respectively.  From October,
1993 to the present he has been a partner in the Swartz Law Firm,  P.C.  and was
associated  with the law firm of Pease  and  Willer  after  graduating  from law
school in 1992. Mr. Swartz is the brother of Christopher M. Swartz.

Michael F. Cronin has been Chief Financial Officer of the Company since March 8,
1998,  Treasurer  since January 1, 1999 and a director since April 2000. He also
became Chief Operating  Officer of the Company in May 2000 after the resignation
of this position by Bradley L. Gordon.  He is a Certified Public  Accountant who
has managed his own practice,  specializing in S.E.C audits and business and tax
planning,  since  February,  1985. He has been licensed in New York State for 17
years.  Mr. Cronin is a graduate of St. John Fisher  College.  From 1979 to 1985
Mr. Cronin was employed as a staff  accountant and partner in a regional  public
accounting firm in Rochester,  NY. Mr. Cronin served in the United States Marine
Corps for three years and was honorably discharged in 1976.

In April  2000,  Bradley L.  Gordon  resigned  as Chief  Operating  Officer  and
Director of the Company,  positions he assumed in September 1997. From September
1993 up to joining the company in 1997,  he was  president of Quality  Franchise
Systems,  Inc. (the  franchisor of Mountain  Mike's  Pizza),  Quality  Franchise
Systems,  Inc.'s Chief  Executive  Officer  since 1992 and one of its  directors
since January,  1993.  Before joining Quality Franchise  Systems,  Inc., he held
various positions at Pace Membership  Warehouse,  Inc. in Denver,  Co. from 1983
forward as an Executive Vice President-Sales;  Senior Vice  President-Operations
and Vice President-Human Resources.

                                       19
<PAGE>

Item 10. Executive Compensation

The following table sets forth the cash compensation of the Company's  executive
officers  and  directors  during  each  of the  last  three  fiscal  years.  The
remuneration  described in the table does not include the cost to the company of
benefits such as health insurance premiums, and other benefits, furnished to the
named  executive  officers,  that are extended in  connection  with the ordinary
conduct  of the  Company's  business.  The  value  of such  benefits  cannot  be
precisely determined, however no executive officer named below received any such
benefits  in  excess of the  lesser of  $25,000  or 10% of such  officer's  cash
compensation.

<TABLE>
<CAPTION>
                                          Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------------
                           Annual Compensation                                       Long Term Compensation
- -----------------------------------------------------------------------------------------------------------------------
   Name & Principal                                        Other Annual    Awards      Awards    Payouts    All Other
       Position            Year       Salary      Bonus    Compensation  ----------------------------------------------
                                                                         Restricted   Options      LTIP
                                                                         Stock in $   SARS (#)  Payouts
                                                                                                   ($)
- -----------------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>          <C>          <C>          <C>     <C>           <C>         <C>
                           2000      $ 175,000     $ 0          $ 0          $ 0        0          $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
 Christopher M. Swartz    1999(c)     $ 96,154     $ 0          $ 0          $ 0        0(d)       $ 0         $ 0
    President & CEO     -----------------------------------------------------------------------------------------------
                           1998      $ 175,000     $ 0          $ 0          $ 0     1,000,000     $ 0         $ 0
- -----------------------------------------------------------------------------------------------------------------------
                           2000      $ 85,000(a)   $ 0     $ 150,000(b)      $ 0     1,000,000     $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
   Bradley L. Gordon      1999(c)    $ 102,500     $ 0          $ 0          $ 0         0         $ 0         $ 0
Chief Operating Officer -----------------------------------------------------------------------------------------------
                           1998      $ 150,000     $ 0      $ 60,000(e)      $ 0         0         $ 0         $ 0
- -----------------------------------------------------------------------------------------------------------------------
                           2000      $ 130,625     $ 0          $ 0          $ 0     1,000,000     $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
   Michael F. Cronin      1999(c)     $ 84,615     $ 0          $ 0          $ 0         0         $ 0         $ 0
Chief Financial Officer -----------------------------------------------------------------------------------------------
& Chief Operating Officer  1998       $ 93,750     $ 0          $ 0          $ 0         0         $ 0         $ 0
- -----------------------------------------------------------------------------------------------------------------------
                          2000(f)     $ 25,412     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
  S. Elliott Davenport    1999(c)        $ 0       $ 0          $ 0          $ 0         0         $ 0         $ 0
      Director          -----------------------------------------------------------------------------------------------
                           1998          $ 0       $ 0          $ 0          $ 0         0         $ 0         $ 0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Mr. Gordon resigned as Chief Operating Officer and Director in April 2000
    and his salary was for seven months.

(b) Payment received upon termination of services to the Company.

(c) Due to a change in fiscal years, 1999 compensation  covers only a nine month
    period.

(d) Options  on  2,000,000  shares  granted to Mr.  Swartz in 1997 and 1998 were
    modified and regranted in 1999.

(e) Relocation expense reimbursement.

(f) Mr. Davenport joined the Company in July 2000.



Employment Contracts:
<TABLE>
<CAPTION>

Mr. Cronin and Mr. Davenport have employment contracts with the Company. The following table
summarizes the significant terms of these agreements:

- -----------------------------------------------------------------------------------------------------------------
                                                                                        Termination
                                                                                           Clause
                                                                            Initial        Salary     Change in
                                               Commencement                  Annual     Continuation   Control
      Name                   Position               Date           Term   Compensation     Period    Arrangement
- -----------------------------------------------------------------------------------------------------------------
<S>                  <C>                         <C>              <C>       <C>          <C>             <C>
Michael F. Cronin        Director,                July 31, 1998   3 Years   $ 125,000    12 Months        No
                     Chief Financial Officer
                     & Chief Operating Officer

S. Elliott Davenport     Director                 July 19, 2000    1 Year   $ 125,000       None          No
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

Options and Rights Granted to Purchase Common Stock:

The following table summarizes  options and rights to purchase common stock that
were granted or issued to executive officers and directors over each of the last
two fiscal years:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
                                         Number                                                   Percent of
                                           of     Number of                                          Total
                                         Options  Shares of     Date of                 Exercise    Options
                                         Granted   Common       Grant                   Price of  Granted to
                                          (in       Stock        or         Expiration  Purchase   Employees
        Name              Position       Shares)  Purchased    Purchase        Date     Price     During Year
- ---------------------------------------------------------------------------------------------------------------------------
<S>                   <C>              <C>         <C>       <C>           <C>           <C>       <C>
  Bradley L. Gordon(a) Chief Operating  1,000,000            Oct 15, 1999  Oct 15, 2004  $ 0.29      13.7%
                      Officer/Director

  Michael F. Cronin    Chief Financial  1,000,000            Oct 15, 1999  Oct 15, 2004  $ 0.29      13.7%
                       Officer and Chief
                       Operating Officer
- ---------------------------------------------------------------------------------------------------------------------------

(a)  Mr. Gordon resigned as Chief Operating Officer and Director in April 2000.

</TABLE>

The following  table sets forth  information  regarding the value of Options and
    Stock Appreciation Rights granted to officers of the Company during 2000:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
                                                       Number of Securities Underlying         Value of In-The-Money
                                                        Unexercised Options and SAR's            Options and SAR's
                                                            at September 30, 2000              at September 30, 2000
- ----------------------------------------------------------------------------------------------------------------------------
                   Shares Acquired
Name and Position    on Exercise     Value Realized     Exercisable      Unexercisable     Exercisable      Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                <C>             <C>               <C>                <C>             <C>
Bradley L. Gordon        None             None           1,000,000             None              None             None
 Chief Operating
     Officer (a)

Michael F. Cronin        None             None           1,000,000             None              None             None
 Chief Financial
 Officer and Chief
 Operating Officer
- ----------------------------------------------------------------------------------------------------------------------------

(a) Mr. Gordon resigned as Chief Operating Officer and Director in April 2000.

</TABLE>

                                       20
<PAGE>

Other:

The  Company  does  not  carry  officers  &  directors  liability  insurance  or
disability benefits in excess of statutorily mandated amounts. Directors receive
no compensation for their duties.

The Company  maintains,  and is the  beneficiary  of, a  $3,000,000 key man term
life  insurance  policy  on Mr. Christopher Swartz.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information  relating to the beneficial ownership
of the Company's Common Stock by those persons beneficially holding more than 5%
of the Company's  common stock or held by the company's  executive  officers and
directors,  and by all the Company's executive officers and directors as a group
as of September  30, 2000.  The address of each person is in care of the Company
unless noted.

As used in the table, The term  "beneficial  ownership" means the sole or shared
power to vote,  or to direct  the  voting of a  security,  or the sole or shared
investment power with respect to a security (i.e. the power to dispose of, or to
direct the disposition of, a security). In addition, for purposes of this table,
a person is deemed to have "beneficial ownership" of any security if such person
has the right to acquire such security within sixty days.

- ------------------------------------------------------------------------------
                               Name and Amount and
                      Address of      Officer        Nature of
    Title of          Beneficial         or         Beneficial        Percent of
     Class              Owner         Director         Owner             Class
- ------------------------------------------------------------------------------
  Common Stock  Christopher M. Swartz   Yes       (a) 5,816,711         12.81 %
  Common Stock    Michael F. Cronin     Yes       (b) 1,500,000          3.31 %
  Common Stock       Eric Swartz        Yes       (c)   150,000          0.33 %
  Common Stock   S. Elliott Davenport   Yes                   0          0.00 %
       All Officers and Directors as a Group          7,466,711         16.45 %

         (a)  Includes  4,139,211  shares  of  common  stock  owned  by  Tri-Emp
Enterprises, a limited family partnership.  Mr. Swartz is the general partner of
Tri-Emp Enterprises,  and as such, is deemed to have beneficial ownership of the
shares of the Company owned by Tri-Emp  Enterprises.  It also includes 1,000,000
shares subject to options currently  exercisable by Mr.  Christopher  Swartz and
225,000  shares  subject  to options  exercisable  by  Tri-Emp  Enterprises.  It
excludes  1,000,000  shares subject to options by Mr.  Christopher  Swartz which
expired on December 29, 2000.

         (b) Includes 1,000,000 shares subject to options currently  exercisable
by Mr. Cronin.

         (c) Includes 150,000 shares subject to options currently exercisable by
Mr. Eric Swartz

                                       21
<PAGE>


Item 12. Certain Relationships and Related Transactions

In March 2000,  the Company issued 894,211 shares of its common stock to Tri-Emp
Enterprises,  Inc. for the  retirement of a note payable of $166,815 and accrued
interest of $56,913.  Tri-Emp  Enterprises,  Inc. received 500,000 shares of the
Company's  common  stock on August 11,  1999 in a partial  payment  of  $109,400
toward an outstanding debt obligation of the Company to Tri-Emp of $343,000.

In April 2000, the Company sold the Mountain Mike's Pizza  franchise  concept to
Concept Acquisitions,  LLC ("COAC") for $3,000,000 cash and two notes receivable
with  discounted  values  of  $165,534  and  $377,645,   respectively.  COAC  is
controlled by Bradley L. Gordon,  the Company's  former Chief Operating  Officer
and Director who resigned in April 2000.

Mr. Bradley Gordon,  the Company's  former Chief Operating  Office and Director,
purchased  500,000 shares of the Company's  Common Stock in each of two separate
transactions  to  obtain an  aggregate  of  1,000,000  shares.  One  transaction
occurred in September, 1997 and the other transaction occurred on July 30, 1998.
The Company received a promissory note from Mr. Gordon on each agreement for the
full amount of each purchase price of $1,500,000 and $687,500 respectively.  The
notes each  beared  interest at 9.5% per annum and were due three years from the
date of issuance.  Mr. Gordon had the right to require the Company to repurchase
the
shares as consideration for the cancellation of the underlying  promissory note.
In April 2000,  Mr. Gordon  required the Company to repurchase the 1,000,000 for
cancellation  of the two  promissory  notes  totaling  $2,187,500.  All  accrued
interest  under these notes through the date of  cancellation  in April 2000 had
been waived by the Board of Directors.

Mr. Gordon received  options to acquire an additional  1,000,000 shares at $0.29
per share on October 15, 1999.  These  options  expire on October 15, 2004.  Mr.
Gordon has not exercised his rights to acquire any shares under this  agreement.

Mr. Richard Silberman, a shareholder of the Company, purchased 300,000 shares of
the  Company's  Common Stock in each of two separate  transactions  to obtain an
aggregate of 600,000 shares. One transaction occurred in September, 1997 and the
other  transaction  occurred on July 30, 1998. The Company received a promissory
note from Mr.  Silberman on each  agreement for the full amount of each purchase
price of $900,000 and $412,500  respectively.  The notes each beared interest at
9.5% per annum and were due three years from the date of issuance. Mr. Silberman
had the right to require the Company to repurchase the shares as consideration
for the  cancellation  of the  underlying  promissory  note. In April 2000,  Mr.
Silberman required the Company to repurchase the 600,000 for cancellation of the
two promissory notes totaling $1,312,500. All accrued interest under these notes
through the date of  cancellation  in April 2000 had been waived by the Board of
Directors.

Mr. Silberman  received options to acquire an additional 600,000 shares at $0.29
per share on October 15, 1999.  These  options  expire on October 15, 2004.  Mr.
Silberman  has not  exercised  his  rights to  acquire  any  shares  under  this
agreement.

Mr. Michael F. Cronin,  Chief  Financial  Officer,  Treasurer,  Chief  Operating
Officer and Director of the Company,  purchased  500,000 shares of the Company's
Common Stock. The transaction  occurred on July 30, 1998. The Company received a
promissory  note from Mr.  Cronin on the  agreement  for the full  amount of the
purchase price of $687,500. The note bears interest at 9.5% per annum and is due
three years from the date of issuance.  Mr.  Cronin has the right to require the
Company to repurchase the shares as  consideration  for the  cancellation of the
underlying promissory note. Mr. Cronin received options to acquire an additional
1,000,000 shares at $0.29 per share on October 15, 1999. These options expire on
October 15, 2004.  Mr. Cronin has not exercised his rights to acquire any shares
under this agreement.  All accrued interest under these notes through  September
30, 2000 has been waived by the Board of Directors.

                                       22
<PAGE>

Mr.  Christopher M. Swartz,  Chairman of the Company and its President and Chief
Executive  Officer,  was  granted  options to purchase  2,000,000  shares of the
Company's  Common  Stock.  The options  were  granted in the amount of 1,000,000
shares each on December 29, 1997 and August 3, 1998.  The  exercise  prices were
$2.75 and $1.55,  respectively,  and expire three years from the date of grant..
These  options to acquire  were  repriced at $0.29 per share on October 1, 1999.
Mr.  Swartz  has not  exercised  his rights to acquire  any shares  under  these
agreements.  On December 29, 2000, options for 1,000,000 shares of the Company's
common stock expired.

On January 5, 1998 the Company  concluded its Preferred "D" stock offering.  The
Company raised $2,500,000  through the offering.  Eighteen  investors  purchased
2,500 shares for $1,000 each. The holders of the Series "D" Preferred  Stock had
no voting rights and were entitled to cumulative dividends of $80 per share, per
year,  payable in cash or common stock.  Holders of the Series "D" may convert a
portion or all of their holdings into common stock based upon a conversion  rate
formula of 65% of the  average  five day  closing  bid price five  trading  days
before conversion.  The conversion rate was further adjusted by two five percent
penalty  increments for the Company's  failure to file and make effective a Form
SB-2 within certain time parameters.  As of June 10, 1999 the Company has issued
5,303,574 common shares as conversion shares under this agreement.

On June 10,  1999,  the holders of the  Preferred  "D"  converted  their  entire
holding to the Company's  newly created  Preferred "F" series.  The Series D was
canceled and 197.5 shares of the Series F were issued in its place.  The holders
of Series F were each  entitled  to receive an annual  dividend  of $1,000.  The
dividend  was payable  quarterly  beginning  August 1, 1999.  The holders  could
require the Company to repurchase the  outstanding  shares at a 25% premium over
the face value of $10,000 no sooner  than June 1, 2001 and no later than  August
1, 2001.  The Company could also redeem the shares at any time prior to February
1, 2001 at  $12,500  per share.  In the event of  liquidation,  dissolution,  or
winding up of the Corporation,  whether  voluntary or involuntary,  the Series F
holders were entitled to receive $13,000 per share.

In December  2000,  the Company  redeemed  all 197.5  shares of the Series F for
$500,000 cash and 19,750,000 shares of the Company's common stock. This issuance
of these shares increased the number of outstanding common shares by 61.9%.

In December  2000, the Company issued  Convertible  Debentures of $575,000.  The
Convertible  Debentures call for monthly interest payments at 12% and are due in
January 2002. The Convertible Debentures may be converted in whole or in part to
common stock of the Company at a conversion  price equal to 65% of the three day
average  closing price prior to the date of conversion.  In  anticipation of the
conversion  of the  Convertible  Debentures,  the Company has placed into escrow
10,000,000 shares of its common stock.

In December  2000, the Company  increased its authorized  shares of common stock
from 50,000,000 shares to 100,000,000 shares.



Item 13. Exhibits and Reports on Form 8-K
Schedule of Exhibits:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                         Reserved
                                                                                           for     Incorporated
 Exhibit                                                                                  Future        by         Date of
 Item No.                              Description of Exhibit                              Use     Reference in:    Filing
- ----------------------------------------------------------------------------------------------------------------------------
<S>         <C>                                                                          <C>       <C>            <C>
2.0         Plans of purchase, sale, reorganization, arrangement, liquidation or
              succession:

2.1         Repurchase Agreement between Paul Truax and Robin Longley and JRECK Subs,               Form 10-SB    02/17/99
              Inc., a New York corporation and JRECK Subs Group, Inc. a Colorado
              corporation dated October 28, 1997 (Pastry Products)
2.2         Agreement and Plan of Reorganization and Merger among JRECK Subs Group, Inc.            Form 10-SB    02/17/99
              and Admiral's Fleet, Inc. and Quality Franchise Systems, Inc. Quality
              Agreement)
2.3         Amendment to Quality Agreement                                                          Form 10-SB    02/17/99
2.4         Agreement between JRECK Subs Group, Inc. and CHAI Enterprises, Inc. ("Hymie's")         Form 10-SB    02/17/99
2.5         Agreement and Plan of Reorganization among JRECK Subs Group, Inc., Li'l Dino            Form 10-SB    02/17/99
              Management Corporation and Li'l Dino Corporation dated December 18, 1997
2.6         Purchase agreement among JRECK Subs Group, Inc., Interfoods of America, Inc.            Form 10-SB    02/17/99
              and SBK Franchise Systems, Inc. dated December 4, 1997
2.7         Agreement between JRECK Subs Group, Inc. and Little King, Inc. dated July               Form 10-SB    02/17/99
              23, 1997
2.8         Agreement between JRECK Subs Group, Inc. and Mitchell R. Day and Julie A.               Form 10-SB    02/17/99
              Day to purchase Seawest Sub Shops, Inc.
2.9         Stock Option Grants to acquire Seawest Sub Shops, Inc.                                  Form 10-SB    02/17/99
2.10        Representation and Warranty Agreement among Mitchell R. Day and Julie A. Day            Form 10-SB    02/17/99
              and Admiral Subs of Washington, Inc. dated May 19, 1997.
2.11        Purchase and Sale Agreement  between  Admiral's Fleet,  Inc, JRECK                      Form 10-SB    02/17/99
              Subs Group, Inc., and Richey Enterprises, Inc.
2.12        Repurchase Agreement by Paul Truax and Robin Longley                                    Form 10-SB    02/17/99

                                       23
<PAGE>

- ----------------------------------------------------------------------------------------------------------------------------
                                                                                         Reserved
                                                                                           for     Incorporated
 Exhibit                                                                                  Future        by         Date of
 Item No.                              Description of Exhibit                              Use     Reference in:    Filing
- ----------------------------------------------------------------------------------------------------------------------------
<S>         <C>                                                                          <C>       <C>            <C>
3.0         Articles of Incorporation and Bylaws:

3.1         Articles of Incorporation-Circa Media, Inc.                                             Form 10-SB    02/17/99
3.2         Articles of Amendment of Circa Media dated May 2, 1996 and filed May 7, 1996            Form 10-SB    02/17/99
3.3         Articles of Amendment of Jreck Subs, Inc. filed May 7, 1997                             Form 10-SB    02/17/99
3.4         Certificate of Correction to Articles of Amendment filed July 24, 1996                  Form 10-SB    02/17/99
3.5         Articles of Amendment  to Articles of Incorporation regarding Certificate of            Form 10-SB    02/17/99
              Description of JRECK Subs Group, Inc. Series C Preferred Stock dated Sept. 27, 1997
3.6         Articles of Amendment  to Articles of Incorporation regarding Certificate of            Form 10-SB    02/17/99
              Description of JRECK Subs Group, Inc. Series D Preferred Stock dated
              January 5, 1998
3.7         Bylaws of JRECK Subs Group, Inc. dated August 23, 1998                                  Form 10-SB    02/17/99

10.0        Material Contracts:

10.1        Form of Franchise Agreement                                                             Form 10-SB    02/17/99
10.2        Facility Lease agreement between Springs Equity, Ltd. and  JRECK Subs Group,            Form 10-SB    02/17/99
              Inc. dated December 16, 1997
10.3        Quality Franchise Systems, Inc. Area development Agreements:                            Form 10-SB    02/17/99
              (a) MKJ Holdings, Inc.
              (b) Master Franchising and Development Systems, Inc.
              (c) John E. and Ann M. Maddox
              (d) Alex Golshanara
10.4        Promissory Note from Bradley L. Gordon to  JRECK Subs Group, Inc. dated                 Form 10-SB    02/17/99
              September 24, 1997
10.5        Promissory Note from Richard T. Silberman to  JRECK Subs Group, Inc. dated              Form 10-SB    02/17/99
              September 24, 1997
10.6        Promissory Note from Michael F. Cronin to  JRECK Subs Group, Inc. dated July            Form 10-SB    02/17/99
              31, 1998
10.7        Promissory Note from Richard T. Silberman to JRECK Subs Group, Inc. dated               Form 10-SB    02/17/99
              July 31, 1998
10.8        Promissory Note from Bradley L. Gordon to  JRECK Subs Group, Inc. dated July            Form 10-SB    02/17/99
              31, 1998
10.9        Employment Agreement between Bradley L. Gordon and JRECK Subs, Group, Inc.              Form 10-SB    02/17/99
              effective September 24, 1997
10.10       Employment Agreement between Michael F. Cronin and JRECK Subs, Group, Inc.              Form 10-SB    02/17/99
              effective July 31, 1998
10.11       Stock Option Grant between JRECK Subs Group, Inc. and Christopher M. Swartz             Form 10-SB    02/17/99
              dated August 3, 1998
10.12       Stock Option Grant between JRECK Subs Group, Inc. and Christopher M. Swartz             Form 10-SB    02/17/99
              dated December 29, 1997
10.13       Resale agreement of Little King, Inc. back to its previous owners dated                 Form 8-K      10/08/99
              September 29, 1999

16.0        Letter of change in certifying accountants                                              Form 8-K      11/08/99

16.1        Former accountants letter to Commission                                                 Form 10-SB    02/17/99
16.2        Former accountants letter to Commission                                                 Form 8-K      11/08/99

21          Subsidiaries of Registrant                                                              Form 10-SB    02/17/99
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Reports filed on form 8-K:

                                       24
<PAGE>


                                                                   Financial
      Date of Filing               Items Reported                 Statements
      --------------               --------------                 ----------
     June 22, 2000        Change in Legal Corporate Name              No

     November 1, 2000     Change in Certifying Accountants            No




                                   SIGNATURES

In accordance with all the  requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Ultimate Franchise Systems, Inc.
- ------------------------
      (Registrant)



                               President & Duly Authorized
                                   Officer Member of
01/12/01   Christopher M. Swartz   Board of Directors  /s/ Christopher M. Swartz
- --------   ---------------------  -------------------  -----------------------
  Date          Print Name               Title                   Signature




                                 Chief Financial Officer
                                   Treasurer & Chief
01/12/01      Michael F. Cronin     Operating Officer /s/ Michael F. Cronin
- --------   ---------------------  -------------------  -----------------------
  Date          Print Name               Title                   Signature


                                       25
<PAGE>

                       Consolidated Financial Statements

               Ultimate Franchise Systems, Inc. and Subsidiaries
                       (formerly Jreck Subs Group, Inc.)


                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

                         Independent Auditors' Reports

                                      F-1

<PAGE>

               Ultimate Franchise Systems, Inc. and Subsidiaries

                       Consolidated Financial Statements

                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


                                    Contents



Independent Auditors' Reports on Consolidated Financial Statements.....F-3 - F-4

Consolidated Financial Statements:

Consolidated Balance Sheets............................................F-5 - F-6
Consolidated Statements of Operations........................................F-7
Consolidated Statements of Cash Flows..................................F-8 - F-9
Consolidated Statements of Stockholders' Equity......................F-10 - F-11
Notes to Consolidated Financial Statements...........................F-12 - F-48

                                      F-2
<PAGE>

                          Independent Auditors' Report




Board of Directors and Stockholders
Ultimate Franchise Systems, Inc.
Longwood, Florida


We  have  audited  the  accompanying  consolidated  balance  sheet  of  Ultimate
Franchise Systems, Inc. (formerly JRECK Subs Group, Inc.) and subsidiaries as of
September  30,  2000 and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash flows for the year then ended. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Ultimate Franchise
Systems,  Inc. and subsidiaries as of September 30, 2000, and the results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
generally accepted accounting principles.



/s/ Berman Hopkins Wright & LaHam, CPA's, LLP


Berman Hopkins Wright & LaHam, CPA's, LLP
Melbourne, Florida
December 12, 2000


                                      F-3
<PAGE>

                          Independent Auditors' Report




Board of Directors and Stockholders
JRECK Subs Group, Inc.
Longwood, Florida


We have audited the accompanying consolidated balance sheet of JRECK Subs Group,
Inc.  and  subsidiaries  as of September  30, 1999 and the related  consolidated
statements  of  operations,  stockholders'  equity  and cash  flows for the nine
months  then   ended.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of JRECK Subs Group,
Inc.  and  subsidiaries  as of  September  30,  1999,  and  the  results  of its
operations and its cash flows for the nine months then ended in conformity  with
generally accepted accounting principles.


/s/ Pender Newkirk & Company, CPAs

Pender Newkirk & Company, CPAs
Tampa, Florida
November 12, 1999

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
               Ultimate Franchise Systems, Inc. and Subsidiaries

                          Consolidated Balance Sheets


                                                                                 September 30,                September 30,
                                                                                      2000                         1999
                                                                                --------------               --------------
Assets
<S>                                                                             <C>                          <C>
Current assets:
  Cash and cash equivalents, including restricted cash of
    $0 and $35,086 for 2000 and 1999, respectively                              $      148,072               $      121,292
  Accounts receivable  trade, net of allowance for
    doubtful accounts of $85,436 and $152,886 for 2000
    and 1999, respectively                                                             272,107                      365,618
  Prepaid expenses                                                                     277,416                      456,883
  Inventory                                                                             85,390                            -
  Current portion of notes receivable                                                   63,584                       80,000
                                                                                --------------               --------------
        Total current assets                                                           846,569                    1,023,793
                                                                                --------------               --------------
Property and equipment, net                                                          1,116,837                      726,667
                                                                                --------------               --------------
Other assets:
  Goodwill, net of accumulated amortization of $736,243
    and $984,817 for 2000 and 1999, respectively                                     7,094,183                    8,987,076
  Covenants not to compete, net of accumulated
    amortization of $36,402 and $388,458 for 2000 and
    1999, respectively                                                                 327,618                      113,542
  Deferred loan costs, net                                                             310,943                      376,403
  Notes receivable, net of allowance for doubtful
    accounts of $0 and $180,000 for 2000 and 1999,
    respectively                                                                       736,503                            -
  Investment securities                                                                789,430                            -
  Other                                                                                108,801                      106,750
                                                                                --------------               --------------
    Total assets                                                                $   11,330,884               $   11,334,231
                                                                                ==============               ==============

           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-5
<PAGE>
<CAPTION>
               Ultimate Franchise Systems, Inc. and Subsidiaries

                     Consolidated Balance Sheets, Continued

                                                                                 September 30,                September 30,
                                                                                      2000                         1999
                                                                                --------------               --------------
Liabilities and Stockholders' Equity
<S>                                                                             <C>                          <C>
Current liabilities:
  Current portion of long-term debt                                             $      417,140               $    1,606,041
  Accounts payable                                                                     708,767                      496,553
  Accrued liabilities                                                                  963,199                      552,881
  Accrued preferred stock dividends                                                    247,764                      247,764
                                                                                --------------               --------------
Total current liabilities                                                            2,336,870                    2,903,239
Long-term debt, less current portion                                                 2,772,108                      763,505
Note payable to related party                                                                -                      245,939
                                                                                --------------               --------------
Total liabilities                                                                    5,108,978                    3,912,683
                                                                                --------------               --------------
Redeemable common stock                                                                293,000                      293,000
                                                                                --------------               --------------

Redeemable Series F Preferred Stock, no par value, 250
  shares authorized,  197.5 shares issued and outstanding                            2,468,750                    2,468,750
                                                                                --------------               --------------
Commitments and contingencies                                                                -                            -

Stockholders' equity:
  Series C Convertible Preferred Stock, no par value, 120
    shares authorized, issued and outstanding                                          120,000                      120,000
  Common stock, no par value, 50,000,000 shares authorized,
    31,887,182 and 28,403,440 shares issued and outstanding
    for 2000 and 1999, respectively                                                 26,830,014                   28,394,179
  Accumulated deficit                                                              (22,885,674)                 (19,666,881)
  Less:  Stock subscriptions receivable                                               (687,500)                  (4,187,500)
  Accumulated other comprehensive income                                                83,316                            -
                                                                                --------------               --------------
Total stockholders' equity                                                           3,460,156                    4,659,798
                                                                                --------------               --------------
Total liabilities and stockholders' equity                                      $   11,330,884               $   11,334,231
                                                                                ==============               ==============
</TABLE>
           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-6
<PAGE>
<TABLE>
<CAPTION>
               Ultimate Franchise Systems, Inc. and Subsidiaries

                     Consolidated Statements of Operations



                                                                                  Year Ended                 Nine Months Ended
                                                                                 September 30,                September 30,
                                                                                     2000                          1999
                                                                                --------------               --------------
Revenues:
<S>                                                                             <C>                          <C>
  Continuing royalty revenues                                                   $    2,108,337               $    2,046,280
  Initial royalty revenues                                                              63,000                       78,250
  Retail sales  company-owned stores                                                   521,747                            -
  Retail sales  bakery and other products                                              825,237                      571,844
  Other revenues                                                                       973,619                      600,004
                                                                                --------------               --------------
                                                                                     4,491,940                    3,296,378
Operating costs and expenses:
  Franchise servicing costs                                                          1,419,548                    1,296,506
  Cost of retail sales and operating costs - stores                                    594,905                            -
  Cost of retail sales and operating costs - bakery                                    816,376                      541,014
  General and administrative                                                         1,415,752                    1,177,276
  Consulting and investor relations                                                  1,417,263                      722,541
  Bad debt expense                                                                      25,442                      254,507
  Amortization and depreciation                                                        745,692                      670,442
                                                                                --------------               --------------
                                                                                     6,434,978                    4,662,286
                                                                                --------------               --------------

Loss from operations                                                                (1,943,038)                  (1,365,908)

Other income (expense):
  Interest, net                                                                       (318,633)                    (356,192)
  Write-down of property and equipment                                                 (70,101)                           -
  Loss on disposals of franchise concepts                                             (843,092)                     (39,606)
  Loss on sale of investment securities                                                      -                      (58,596)
  Other, net                                                                           169,171                       52,203
                                                                                --------------               --------------
Net loss                                                                            (3,005,693)                  (1,768,099)
Preferred stock dividends                                                             (213,100)                    (146,940)

Net loss applicable to common stock                                             $   (3,218,793)              $   (1,915,039)
                                                                                ==============               ==============
Weighted average of common shares outstanding                                       30,102,278                   22,796,417
                                                                                ==============               ==============
Net loss per common share - basic and diluted                                   $         (.11)              $         (.08)
                                                                                ==============               ==============

</TABLE>
           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-7
<PAGE>
<TABLE>
<CAPTION>
               Ultimate Franchise Systems, Inc. and Subsidiaries

                     Consolidated Statements of Cash Flows



                                                                                  Year Ended                Nine Months Ended
                                                                                 September 30,                September 30,
                                                                                     2000                         1999
                                                                                -------------                -------------
Operating activities:
<S>                                                                             <C>                          <C>
  Net loss                                                                      $  (3,005,693)               $  (1,768,099)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
  Amortization and depreciation                                                       745,692                      670,442
  Write down of property, plant and equipment                                          70,101                            -
  Bad debts                                                                            25,442                      254,507
  Loss on disposals of franchise concepts                                             843,092                       39,606
  Loss on sale of investment securities                                                     -                       58,596
  Stock and stock options issued for services                                         227,569                      239,595
  Prepaid interest, amortized discounts and loan fees
    charged to interest                                                                 8,997                       75,502
  Amortization of deferred loan costs                                                  65,460                       56,889
  Prepaid consulting fees amortized to consulting and investor
    relations expense                                                                 732,720                      487,356
  (Increase) decrease in:
    Accounts receivable                                                                (8,178)                      32,184
    Prepaid expenses                                                                   52,083                      (14,674)
    Inventory                                                                          (6,256)                           -
  Increase (decrease) in:
    Accounts payable                                                                     (199)                    (362,255)
    Accrued liabilities                                                                 9,623                     (198,919)
                                                                                -------------                -------------
Net cash used by operating activities                                                (239,547)                    (429,270)
                                                                                -------------                -------------

  Investing activities:
    Proceeds from sale of investment securities                                             -                      115,967
    Purchase of investment securities                                                 (20,915)                           -
    Proceeds from disposal of property and equipment                                    7,462                            -
    Purchase of property and equipment                                                      -                       (2,059)
    Proceeds from disposals of franchise concepts                                   2,682,130                       33,403
    Payments on acquisition of franchise concept                                     (925,595)                           -
    Advances made on notes receivable                                                 (35,000)                     (12,185)
    (Increase) decrease in other assets                                                (7,518)                       1,721
                                                                                -------------                -------------
Net cash provided by investing activities                                           1,700,564                      136,847
                                                                                -------------                -------------
  Financing activities:
    Proceeds from the sale of common stock                                                  -                      150,000
    Proceeds from the sale of Series E preferred stock                                      -                      200,000
    Payments to repurchase Series E preferred stock                                         -                     (100,000)
    Borrowings from related party debt                                                 45,876                            -
    Payments on related party debt                                                   (125,000)                           -
    Payments on long-term debt                                                     (1,142,013)                     (90,546)
Payment of preferred stock dividends                                                 (213,100)                     (56,317)
                                                                                -------------                -------------
Net cash provided (used) by financing activities                                   (1,434,237)                     103,137
                                                                                -------------                -------------
Net increase (decrease) in cash and cash equivalents                                   26,780                     (189,286)
Cash and cash equivalents, beginning of year                                          121,292                      310,578
                                                                                -------------                -------------
Cash and cash equivalents, end of year                                          $     148,072                $     121,292
                                                                                =============                =============

           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-8
<PAGE>
<CAPTION>
               Ultimate Franchise Systems, Inc. and Subsidiaries

                Consolidated Statements of Cash Flows, Continued


Certain supplemental  disclosure of cash flow information and non-cash investing
and financing activities is as follows:

                                                                                  Year Ended                Nine Months Ended
                                                                                 September 30,                September 30,
                                                                                     2000                         1999
                                                                                -------------                -------------
<S>                                                                             <C>                          <C>
Cash paid for interest                                                          $     219,187                $     223,801
Cash paid for income taxes                                                                999                          650
                                                                                =============                =============

Stock and stock options issued in exchange for prepaid expenses                 $     447,931                $     298,100
Conversion of Series D preferred to common stock                                            -                      791,983
Conversion of Series D and E preferred to redeemable Series F preferred                     -                    3,226,288
Common shares issued to satisfy dispute with prior owners of SBK                            -                      664,294
Common shares issued for price adjustments                                                  -                       97,695
Common shares received from sale of Little King and Richey Enterprises                      -                    1,111,031
Conversion of long-term debt and related party debt into common stock                 343,291                      159,400
Conversion of accrued interest into common stock                                       92,645                            -
Stock and stock options issued in exchange for investment securities                  685,199                            -
Preferred stock dividends paid in common stock                                              -                       44,399
Preferred stock dividends accrued                                                           -                      114,023
Cancellation of stock subscriptions receivable                                      3,500,000                            -
                                                                                =============                =============
</TABLE>

In addition to the above non-cash items,  the following is a summary of non-cash
transactions entered into for the acquisition of the franchise concept described
in Note 3 for the year ended September 30, 2000.  There were no acquisitions for
the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                                                 September 30,
                                                                                     2000
                                                                                -------------
<S>                                                                             <C>
Common stock issued                                                             $    (139,200)
Long-term debt issued                                                              (1,433,874)
                                                                                -------------
Total non-cash consideration paid                                                  (1,573,074)
                                                                                -------------
Accounts receivable                                                                    84,895
Prepaid expenses                                                                       47,205
Inventory                                                                              79,134
Property, plant and equipment                                                         622,169
Goodwill acquired                                                                   2,940,289
Covenant not to compete                                                               364,020
Notes receivable                                                                      147,337
                                                                                -------------
Total non-cash acquisition of assets                                                4,285,049
                                                                                -------------
Accounts payable                                                                     (352,939)
Accrued expenses                                                                     (444,040)
Long-term debt assumed                                                               (989,401)
                                                                                -------------
Total non-cash assumption of liabilities                                           (1,786,380)
                                                                                -------------
Net cash paid                                                                   $    (925,595)
                                                                                =============
</TABLE>

           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-9
<PAGE>
<TABLE>
<CAPTION>
               Ultimate Franchise Systems, Inc. and Subsidiaries

                Consolidated Statements of Stockholders' Equity




                                                  Common                   Preferred Series C              Preferred Series D
                                          Shares          Amount          Shares          Amount         Shares          Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>                   <C>         <C>              <C>          <C>
Balance, December 31, 1998              19,503,596     $26,225,338           120         $120,000         2,350        $3,918,271
Conversion of debt to equity               692,308         159,400             -                -             -                 -
Stock issued for current and
  prepaid services                       1,291,667         340,000             -                -             -                 -
Exercise of options for common stock        37,500               -             -                -             -                 -
Stock issued for investment security       769,230         174,563             -                -             -                 -
Conversion of preferred Series D to
  common stock                           4,250,499         791,983             -                -          (475)         (791,983)
Conversion of preferred Series D
  stock dividend                           397,966          44,399             -                -             -                 -
Acquisition and retirement of common
  stock                                   (776,779)     (1,111,031)            -                -             -                 -
Other stock sales                          500,000         150,000             -                -             -                 -
Stock issued for price adjustments         850,000         197,695             -                -             -                 -
Stock issued on acquisition
  restructuring                            887,453         664,294             -                -             -                 -
Issuance of preferred E shares                   -               -             -                -             -                 -
Repurchase of preferred E shares                 -               -             -                -             -                 -
Conversion of preferred Series D
  and Series E to Series F redeemable
  preferred stock                                -         757,538             -                -        (1,875)       (3,126,288)
Preferred dividends                              -               -             -                -             -                 -
Net loss                                         -               -             -                -             -                 -
-----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999             28,403,440      28,394,179           120          120,000             -                 -
Conversion of debt to equity             1,743,742         435,936             -                -             -                 -
Stock issued for current and
  prepaid services                       1,905,000         465,900             -                -             -                 -
Issuance of options for services                 -         209,600             -                -             -                 -
Stock issued for investment security     1,000,000         260,000             -                -             -                 -
Options issued for investment security           -         425,199             -                -             -                 -
Common stock issued for acquisition        435,000         139,200             -                -             -                 -
Cancellation of stock subscriptions
  receivable                            (1,600,000)     (3,500,000)            -                -             -                 -
Preferred dividends                              -               -             -                -             -                 -
Net loss                                         -               -             -                -             -                 -
Unrealized gain on investment
  securities                                     -               -             -                -             -                 -
-----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000             31,887,182     $26,830,014           120         $120,000             -       $         -
===================================================================================================================================
</TABLE>

           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-10
<PAGE>
<TABLE>
<CAPTION>

               Ultimate Franchise Systems, Inc. and Subsidiaries

           Consolidated Statements of Stockholders' Equity, Continued

        Preferred Series E                                                  Accumulated Other
                                      Accumulated         Subscription        Comprehensive         Total
     Shares          Amount             Deficit               Notes               Income            Equity
----------------------------------------------------------------------------------------------------------------
     <S>         <C>                 <C>                 <C>                   <C>               <C>
          -      $           -       $(17,751,842)       $(4,187,500)          $          -      $  8,324,267
          -                  -                  -                  -                      -           159,400
          -                  -                  -                  -                      -           340,000
          -                  -                  -                  -                      -                 -
          -                  -                  -                  -                      -           174,563
          -                  -                  -                  -                      -                 -
          -                  -            (44,399)                 -                      -                 -
          -                  -                  -                  -                      -        (1,111,031)
          -                  -                  -                  -                      -           150,000
          -                  -                  -                  -                      -           197,695
          -                  -                  -                  -                      -           664,294
         20            200,000                  -                  -                      -           200,000
        (10)          (100,000)                 -                  -                      -          (100,000)

        (10)          (100,000)                 -                  -                      -        (2,468,750)
          -                  -           (102,541)                 -                      -          (102,541)
          -                  -         (1,768,099)                 -                      -        (1,768,099)
----------------------------------------------------------------------------------------------------------------
          -                  -        (19,666,881)        (4,187,500)                     -         4,659,798
          -                  -                  -                  -                      -           435,936
          -                  -                  -                  -                      -           465,900
          -                  -                  -                  -                      -           209,600
          -                  -                  -                  -                      -           260,000
          -                  -                  -                  -                      -           425,199
          -                  -                  -                  -                      -           139,200
          -                  -                  -          3,500,000                      -                 -
          -                  -           (213,100)                 -                      -          (213,100)
          -                  -         (3,005,693)                 -                      -        (3,005,693)
          -                  -                  -                  -                 83,316            83,316
----------------------------------------------------------------------------------------------------------------
          -     $            -       $(22,885,674)       $  (687,500)               $83,316      $  3,460,156
================================================================================================================
</TABLE>

           Read independent auditors' reports. The accompanying notes
         are an integral part of the consolidated financial statements

                                      F-11
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


1. Background Information

Ultimate  Franchise  Systems,  Inc.  (formerly  JRECK  Subs  Group,  Inc.)  (the
"Company"),  a Colorado  corporation,  was formerly  known as Circa Media,  Inc.
which was organized on July 19, 1995. On May 7, 1996, Circa Media, Inc. acquired
100% of JRECK Subs, Inc. For financial reporting  purposes,  the acquisition was
accounted for as a reverse merger, whereby JRECK Subs, Inc. was deemed to be the
acquiring  entity.  In June 2000,  the  shareholders  of the Company  approved a
corporate name change from JRECK Subs Group, Inc. to Ultimate Franchise Systems,
Inc.

The wholly-owned subsidiaries of the Company include Jreck Subs Inc., a New York
corporation,  SBK  Franchise  Systems,  Inc., a Florida  corporation,  Li'l Dino
Corporation,  a North  Carolina  corporation,  Central Park of America,  Inc., a
Delaware  corporation  and Pastry  Products  Producers,  LLC, a New York limited
liability  company.  Also, prior to the  subsidiaries'  disposition or sale, the
Company included Admiral Subs of Washington,  Inc., a Washington corporation and
Admiral's Fleet, Inc., a Washington corporation.

The  Company is a  multi-concept  franchisor  of  sandwich  shops and  hamburger
restaurants  located  throughout the United States. Its headquarters are located
in Longwood,  Florida.  Currently,  the Company  serves as the franchisor to 162
stores  operating under various trade names.  Franchise  arrangements  include a
license to operate under the applicable trade name and generally provide for the
receipt of initial  royalty  revenues,  as well as continuing  royalty  revenues
based upon a percentage of sales.  In addition,  the Company offers guidance and
assistance to the  franchisees in areas such as product  preparation,  equipment
purchasing, marketing, administrative support and employee training.

The Company also operates a bakery and from its  acquisition of the Central Park
hamburger chain in July 2000 (see Note 3), seven company-owned restaurants.  The
bakery is the supplier of bread products to certain  franchisees of the Company.
For the year ended  September  30, 2000 and the nine months ended  September 30,
1999, all bakery sales were to franchisees  (18.4% and 17.3% of total  revenues,
respectively).

As  indicated  in  the  accompanying  consolidated  financial  statements,   the
Company's net loss has increased  from  approximately  $1.8 million for the nine
months ended September 30, 1999 to approximately $3.0 million for the year ended
September  30, 2000.  Cash used by operations  for the year ended  September 30,
2000 was approximately  $240,000 compared to approximately $429,000 used for the
nine months ended September 30, 1999.  Working  capital  deficit  decreased from
approximately  $1.9 million at September 30, 1999 to approximately  $1.5 million
at September 30, 2000.

                                      F-12
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


1.      Background Information (continued)

Management believes the following steps are important to the Company's future:

1. The sale of the Company's seven company-owned  restaurants with proceeds used
to reduce indebtedness;

2. The  continuation  of the positive  trends  indicated  above,  including  the
continuation  of the decline in franchise  expenses,  reduction of payroll costs
and reduction of corporate general and administrative expenses; and

3. The conversion or redemption of the Company's  Series F preferred  stock (see
Note 14).

Management  believes,  based on its plans  outlined  above,  that the  Company's
operating  cash flow  deficit,  operating  losses  before  non-cash  charges and
negative  working capital can be reduced or eliminated  based on the extent that
its  business  strategies  are  realized.  As of the  date  of  these  financial
statements  (and  subsequent to September 30,  2000),  the Company  entered into
agreements  to dispose  of five of the  company-owned  restaurants  and to fully
convert its Series F  preferred  stock.  Regardless  of the  improvement  of the
Company's  financial  position and the initiation of management's plan indicated
above,  no assurance can be given that its  financial  position will continue to
improve and the detrimental financial trends will be corrected.

2.      Significant Accounting Policies

The significant accounting policies of the Company are as follows:

Use of Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the period. Actual results could differ from those estimates.

                                      F-13
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


2.      Significant Accounting Policies (continued)

Principles of Consolidation

The consolidated financial statements include the accounts of Ultimate Franchise
Systems,  Inc. and its wholly-owned  subsidiaries.  All significant accounts and
transactions have been eliminated in consolidation.

Change in Accounting Year

Beginning  January 1, 1999, the Company changed its accounting  reporting period
from a calendar  year ending  December  31st to a fiscal  year ending  September
30th. Thus the consolidated  financial statements present results of operations,
changes in stockholders'  equity and cash flows for the year ended September 30,
2000 and the nine months ended September 30, 1999, respectively.

Cash and Cash Equivalents

For financial  presentation  purposes,  the Company  considers those short-term,
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.

Inventory

Inventory  consists  primarily of food and beverage  stock at the  company-owned
restaurants.  Inventory is stated at the lower of cost  (generally on an average
basis) or market.

Property and Equipment

Property and equipment are recorded at cost. Maintenance and repairs are charged
to  operations  as incurred.  Betterments  and renewals  are  capitalized.  When
property and equipment are sold or otherwise  disposed of, the asset account and
the related accumulated depreciation accounts are relieved, and any gain or loss
is included in operations.  Depreciation is calculated  using the  straight-line
method over the  estimated  useful lives of the assets,  generally  ranging from
five to 40 years.  For the year ended  September  30,  2000 and the nine  months
ended September 30, 1999, depreciation expense amounted to $137,286 and $96,114,
respectively.

                                      F-14
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


2.      Significant Accounting Policies (continued)

Asset Impairment

When  the  Company  has  long-lived  assets  which  have a  possible  impairment
indicator,  the Company  estimates  the future cash flows from the  operation of
these  assets.  If the  estimated  cash flows recoup the  recorded  value of the
assets, they remain on the books at that value. If the net recorded value cannot
be  recouped,  the assets are written  down to their fair market  value if lower
than the recorded  value.  For the year ended  September  30, 2000,  the Company
wrote  off  equipment  with a net  book  value  of  $70,101  as a  result  of an
impairment in value.

Deferred Loan Costs

Deferred loan costs are amortized  ratably over the terms of the related  loans.
For the year ended  September  30, 2000 and the nine months ended  September 30,
1999,  amortization  of deferred  loan costs  amounted  to $65,460 and  $56,889,
respectively.

Goodwill

Goodwill  represents  the  excess  of cost  over  the fair  value of net  assets
acquired and is being  amortized on a  straight-line  method over 20 years.  The
realization of goodwill is evaluated  periodically  for impairment  events or if
changes in circumstances  indicate a possible  inability to recover the carrying
amount.  When any such impairment exists, the related assets are written down to
fair value.

Covenants Not to Compete

Covenants not to compete are amortized using the  straight-line  method over the
estimated useful lives of the underlying  agreements,  ranging from three to six
years.

Revenue Recognition

Continuing  franchise royalty revenue is recognized  monthly as earned.  Initial
franchise royalty revenue is recognized when all services or conditions relating
to the  sale of the  individual  franchise  has  been  substantially  performed.
Revenues from  company-owned  stores and bakery products are recognized upon the
sale of products.

                                      F-15
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

2.      Significant Accounting Policies (continued)

Advertising Costs

Advertising costs are expensed as incurred.  Advertising  expenses were $251,237
and $76,535  for the year ended  September  30,  2000 and the nine months  ended
September 30, 1999, respectively.

Accounting for Stock-Based Compensation

The  Financial  Accounting  Standards  Board issued  Statement  123 ("FAS 123"),
"Accounting for Stock-Based Compensation",  which provides that expense equal to
the fair value of all stock-based  awards on the date of the grant be recognized
over the vesting period.

Alternatively,   this  statement  allows  entities  to  continue  to  apply  the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees",  whereby compensation expense is recorded on the
date the  options  are  granted  equal to the excess of the market  price of the
underlying stock over the exercise price. The Company applies APB 25 and related
interpretations in accounting for employee stock options.

Investment Securities

The  Company's   investment   securities  have  been   classified   entirely  as
available-for-sale  securities.  Available-for-sale  securities  are recorded at
cost and adjusted to fair market value on each  subsequent  balance  sheet date.
Any change in fair market  value  between the purchase  date and all  subsequent
balance sheet dates is excluded from earnings.  Rather,  this amount is included
as a component of other comprehensive income.

Upon disposal, the entire amount of a security's accumulated other comprehensive
gain or loss is reclassified  into the statement of operations as a component of
the realized gain or loss on disposal.  Realized  gains or losses on the sale of
investment securities are determined on the first-in, first-out ("FIFO") basis.

                                      F-16
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


2.      Significant Accounting Policies (continued)

Fair Value of Financial Instruments

Financial Accounting Standards Board Statement No. 107 ("FAS 107"), "Disclosures
about Fair Value of Financial  Instruments,"  requires  disclosure of fair value
information about financial  instruments.  Fair value estimates discussed herein
are based upon certain market assumptions and pertinent information available to
management as of September 30, 2000.

The respective carrying value of certain on-balance-sheet  financial instruments
approximates  their fair values.  These financial  instruments  include cash and
equivalents,  accounts receivables,  prepaid expenses, accounts payable, accrued
liabilities and accrued  preferred stock dividends.  Fair values were assumed to
approximate carrying values for these financial instruments since they are short
term in nature and their carrying  amounts  approximate  fair values or they are
receivable  or  payable  on  demand.  The fair  values  of the  Company's  notes
receivable and long-term debt are estimated  based upon the quoted market prices
for the same or similar  issues or on the current rates offered for  instruments
of the same  remaining  maturities.  The carrying  value of the Company's  notes
receivable and long-term debt approximates  their fair market value.  Investment
securities are stated at fair market value which are determined by quoted market
prices.

Net Loss Per Common Share

The Company  adopted the  provisions  of Financial  Accounting  Standards  Board
Statement  No. 128 ("FAS  128"),  "Earnings  per Share".  FAS 128  replaces  the
previously  reported primary and fully diluted earnings per share with basic and
diluted earnings per share.  Unlike primary  earnings per share,  basic earnings
per share  exclude any dilutive  effects of options,  warrants  and  convertible
securities.  Diluted earnings per share are computed  similarly to fully diluted
earnings per share.

Contingently  issuable shares are included in basic earnings (loss) per share as
of the date all necessary  conditions have been satisfied.  Contingently  issued
shares are included in diluted  earnings (loss) per share based on the number of
shares,  if any,  that  would be  issuable  under the  terms of the  acquisition
agreements  if the end of the reporting  period were the end of the  contingency
period.

                                      F-17
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


2.      Significant Accounting Policies (continued)

The  Company's  basic and  diluted  earnings  per  share are the same  since the
Company has a loss for both years presented,  and the impact of potential common
shares is  antidilutive.  Potential common shares at September 30, 2000 and 1999
include  11,857,070 and 4,782,070 stock options and warrants,  15,986 and 15,986
shares  underlying  the  convertible  preferred  stock and  1,150,000 and 48,803
shares from  convertible  notes  payable,  respectively.  The Company also has a
liability to issue 490,000  shares of common stock at September  30, 2000.  This
liability  to  issue  common  stock  of  $112,700  is  included  in the  accrued
liabilities total of $963,199 at September 30, 2000.

Income Taxes

The Company  accounts for income taxes using the  liability  method.  Under this
method,  deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. Measurement
of  deferred  income tax is based on enacted  tax rates and laws that will be in
effect when the  differences  are expected to reverse,  with the  measurement of
deferred  income tax assets being reduced by available tax benefits not expected
to be realized.

Recent Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards Board Statement No. 133 ("FAS 133"),  "Accounting
for Derivative  Instruments and Hedging Activities".  FAS 133 requires companies
to recognize all  derivative  contracts as either assets or  liabilities  in the
balance sheet and to measure them at fair value. If certain  conditions are met,
a derivative may be specifically  designated as a hedge,  the objective of which
is to match the timing of gain or loss  recognition  on the  hedging  derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are  attributable  to the hedged risk or (ii) the earnings effect
of the hedged  forecasted  transaction.  For a derivative  not  designated  as a
hedging  instrument,  the gain or loss is  recognized in income in the period of
change.  FAS 133 was subsequently  amended by Statement of Financial  Accounting
Standards No. 137 ("FAS 137"), "Accounting for Derivative and Hedging Activities
- Deferral of the Effective  Date of FAS 133".  FAS 133 is now effective for all
fiscal quarters or fiscal years beginning after July 1, 2000.

Historically,  the Company has not entered into  derivatives  contracts to hedge
existing risks or for speculative  purposes.  Accordingly,  the Company does not
expect  adoption of the new standard on October 1, 2000 to affect its  financial
statements.

                                      F-18
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


2.      Significant Accounting Policies (continued)

Risk and Uncertainties

The  primary  uncertainty  which  the  Company  faces is its  ability  to locate
knowledgeable  franchisees who also have the financial resources to successfully
operate  the  stores.  In  addition,  the  Company  needs to be able to identify
appropriate locations for its newly franchised stores. The Company believes that
it has taken the steps necessary to minimize these risks.

Reclassifications

Certain  amounts in the 1999  financial  statements  have been  reclassified  to
conform to the 2000 presentation.

3.      Acquisition and Disposition of Subsidiaries

Changes in goodwill and  accumulated  amortization  for the year ended September
30, 2000 and the nine months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
                                                                       Accumulated           Net
                                                      Goodwill         Amortization        Goodwill
                                                   --------------      ------------      --------------
<S>                                                <C>                 <C>               <C>
Balance, December 31, 1998                         $   11,870,322      $   (767,385)     $   11,102,937

Disposition of Richey Enterprises, Inc.                  (150,322)           25,858            (124,464)
Disposition of Little King, Inc.                       (1,897,401)          188,322          (1,709,079)

Settlement related to SBK Franchise Systems, Inc.         149,294                 -             149,294

Amortization expense for the nine months ended
  September 30, 1999                                            -          (431,612)           (431,612)
                                                   --------------      ------------      --------------

Balance, September 30, 1999                             9,971,893          (984,817)          8,987,076

Disposition of Mountain Mike's Pizza                   (4,199,133)          542,388          (3,656,745)

Disposition of Seawest Subs                              (882,623)          156,515            (726,108)

Acquisition of Central Park                             2,940,289                 -           2,940,289

Amortization expense for the year ended
  September 30, 2000                                            -          (450,329)           (450,329)
                                                   --------------      ------------      --------------
Balance, September 30, 2000                        $    7,830,426      $   (736,243)     $    7,094,183
                                                   ==============      ============      ==============
</TABLE>

                                      F-19
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


3.      Acquisition and Disposition of Subsidiaries (continued)

Changes in covenants not to compete and  accumulated  amortization  for the year
ended  September  30, 2000 and the nine months ended  September  30, 1999 are as
follows:

<TABLE>
<CAPTION>
                                                     Non-compete         Accumulated              Net
                                                     Convenants         Amortization             Amount
                                                   -------------       ------------      --------------
<S>                                                <C>                 <C>               <C>
Balance, December 31, 1998                         $     602,000       $   (283,039)     $      318,961

Disposition of Little King                              (100,000)            31,197             (68,803)

Amortization expense for the nine months
  ended September 30, 1999                                     -           (136,616)           (136,616)
                                                   -------------       ------------      --------------

Balance, September 30, 1999                              502,000           (388,458)            113,542

Disposition of Seawest Subs                             (502,000)           502,000                   -

Acquisition of Central Park                              364,020                  -             364,020

Amortization expense for the year
  ended September 30, 2000                                     -           (149,944)           (149,944)
                                                   -------------       ------------      --------------
Balance, September 30, 2000                        $     364,020       $    (36,402)     $      327,618
                                                   =============       ============      ==============
</TABLE>

During the year ended September 30, 2000, the Company formed its Central Park of
America,  Inc.  subsidiary  and  acquired  the  franchising  assets and  certain
corporately-owned  restaurants  from  Central  Park USA,  Inc.  The Company also
disposed its Seawest Sub Shops  sandwich  chain and Mountain  Mike's Pizza chain
during the year ended  September 30, 2000 and its Georgio's  Subs sandwich chain
during the nine months ended  September  30, 1999.  The  acquisitions  have been
accounted for using the purchase  method of  accounting,  and the results of the
acquired businesses have been included in the consolidated  financial statements
since the date of acquisition.

Richey Enterprises, Inc.

On August 15, 1997, the Company, through its wholly-owned subsidiary,  Admiral's
Fleet, Inc., acquired all of the outstanding common stock of Richey Enterprises,
Inc. ("Richey"). Richey was the franchisor of the Georgio's sandwich restaurants
located in Seattle, Washington.

In February  1999,  the  Company  executed an  agreement  to sell the  Georgio's
franchise concept back to the prior owners. Per the agreement,  the prior owners
surrendered  89,986 of their  Company  shares,  paid  $35,000  cash and  assumed
certain  liabilities.  For the nine months ended September 30, 1999, the Company
recorded a loss on the disposal of the Georgio's franchise concept in the amount
of $39,606.

                                      F-20
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


3.      Acquisition and Disposition of Subsidiaries (continued)

Quality Franchise Systems, Inc.

On  September  30,  1997,  the  Company,  through its  wholly-owned  subsidiary,
Admiral's  Fleet,  Inc.,  purchased  all of the  outstanding  shares of  Quality
Franchise Systems,  Inc. ("QFS"). QFS is the franchisor of Mountain Mike's Pizza
restaurants located in Northern California.

Effective  April 28, 2000, the Company sold the Mountain  Mike's Pizza franchise
concept  to  Concept  Acquisitions,  LLC  ("COAC")  for a  total  of  $3,543,179
consisting of $3,000,000 cash, a non-interest  bearing note due on September 30,
2002  with a  discounted  value  of  $165,534  and  other  consideration  with a
discounted value of $377,645.  The other consideration  represents an 18% equity
interest in COAC or at the Company's  discretion in April 2008,  the Company may
convert this equity interest into a note receivable of $800,000 with interest at
3%  above  the  five-year  government  bond  rate,  payable  quarterly  with all
principal and any accrued but unpaid interest due and payable in five years from
the date of  conversion  by the Company.  Since it  currently  is the  Company's
intention to convert the equity interest into a note receivable,  the Company is
currently  carrying this  consideration  as a note  receivable with a discounted
value of $377,645.  COAC is controlled by the former chief operating officer and
director  of the Company who  resigned  from the Company in April 2000.  For the
year ended  September 30, 2000,  the Company  recorded a loss on the disposal of
the  Mountain  Mike's  Pizza  franchise  concept  in the amount of  $535,506  as
follows:


                Total consideration received             $ 3,543,179
                Net goodwill                              (3,656,745)
                Net tangible assets sold                    (156,255)
                Liabilities assumed                           48,627
                Transaction costs                           (314,312)
                                                         -----------
                Loss on disposal of franchise concept    $   535,506
                                                         ===========

Central Park of America, Inc.

On July 19,  2000,  the  Company,  through  its Central  Park of  America,  Inc.
("Central Park") subsidiary, purchased the franchising assets and certain assets
pertaining  to  corporately-owned  restaurants  from Central  Park U.S.A.,  Inc.
Central Park is the franchisor of the Central Park hamburger sandwich restaurant
chain located in Tennessee, Alabama, Georgia and Utah.

                                      F-21
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

3.      Acquisition and Disposition of Subsidiaries (continued)

The purchase  price of Central Park  consisted of the issuance of notes  payable
with a discounted  value of  $1,433,874,  cash of $800,000 and 435,000 shares of
the Company's common stock valued at $0.32 per share  ($139,200).  Additionally,
the  Company  entered  into three  separate  noncompete  agreements  with former
shareholders  and/or  officers  with a discounted  valued of $364,020.  Payments
under the noncompete agreements commence on July 19, 2005 with aggregate monthly
payments of $10,000 for sixty months. The transaction was recorded as follows:

                Total consideration paid                 $ 2,373,074
                Less fair value of assets acquired          (994,904)
                Value of noncompete agreements              (364,020)
                Liabilities assumed                        1,786,380
                Transaction costs                            139,759
                                                         -----------
                Excess of cost over net assets acquired  $ 2,940,289
                                                         ===========

Seawest Sub Shops, Inc.

On June 30, 1997, the Company, through its wholly-owned subsidiary, Admiral Subs
of  Washington,  Inc.,  acquired  all of the  outstanding  shares of Seawest Sub
Shops,  Inc.  ("Seawest").  Seawest is a franchisor of sandwich  restaurants  in
Seattle, Washington.

Effective August 31, 2000, the Company sold the Seawest Sub Shops chain to Clark
Retail  Development  Company  ("Clark") for a note receivable of $55,000.  Clark
also assumed certain indebtedness of the Company of approximately  $207,000. For
the year ended  September 30, 2000, the Company  recorded a loss on the disposal
of the Seawest Sub Shops franchise concept in the amount of $307,586 as follows:

                Total consideration received            $     55,000
                Net goodwill                                (726,108)
                Net tangible assets sold                     (28,095)
                Notes payable assumed                        207,400
                Other liabilities assumed or
                  extinguished                               184,217
                                                        ------------
                Loss on disposal of franchise concept   $    307,586
                                                        ============

                                      F-22
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


3.      Acquisition and Disposition of Subsidiaries (continued)


Pro Forma Financial Information (Unaudited)

The following  summarized unaudited pro forma consolidated results of operations
for the year ended  September  30, 2000 have been  prepared as if the  preceding
acquisition  occurred  at the  beginning  of the year  and  includes  pro  forma
adjustments for interest, depreciation and amortization:

                                                                2000
                                                                ----
Revenue                                                   $   7,614,000
Net loss                                                  $  (3,790,000)
Net loss per share - basic and diluted                    $        (.13)
                                                          -------------
Weighted average number of common shares outstanding         30,450,000
                                                          =============

The pro forma  consolidated  results do not purport to be  indicative of results
that  would have  occurred  had the  acquisitions  been in effect for the period
presented,  nor do they  purport to be  indicative  of the results  that will be
obtained in the future.

                                      F-23
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


4.      Notes Receivable

Notes receivable are comprised of the following at September 30, 2000 and 1999:
<TABLE>
<CAPTION>
                                                                                   2000             1999
                                                                                -----------     -------------
     <S>                                                                        <C>              <C>
     $200,000 note receivable from COAC from sale of Mountain Mike's Pizza;
       non-interest bearing due on September 30, 2002, net of unamortized
       discount of $27,286 at September 30, 2000.                               $  172,714       $          -


     $800,000 note receivable from COAC from sale of Mountain Mike's Pizza;
       non-interest bearing through April 2008, then payable in quarterly
       interest only installments at 3% above the five-year government bond rate
       for five years with all amounts due on April 2003, net of unamortized
       discount of $407,298 at September 30, 2000.                                 392,702                  -

     $55,000 note receivable from Clark from sale of Seawest.                       55,000                  -

     11 notes receivable from franchisees; payable in various monthly principal
       and interest installments with various maturity dates.                      179,671                  -

     $321,342 note receivable from a franchisee; payable in equal monthly
       installments of principal and interest at 15% through September 2013;
       this note was secured by the underlying franchise rights. This note was
       written-off during the year ended September 30, 2000                              -            180,000

     $130,000 note receivable from an area developer; payable in annual
       installments of $50,000 plus interest at 8-1/4%. This note was
       written-off during the year ended September 30, 2000                              -             80,000
                                                                                -----------     -------------
                                                                                   800,087            260,000

     Less current portion                                                          (63,584)           (80,000)

     Less allowance for doubtful accounts                                                -           (180,000)
                                                                                -----------     -------------
                                                                                $   736,503     $           -
                                                                                ===========     =============
</TABLE>

                                      F-24
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


5.      Investment Securities

As of September  30, 2000,  the  Company's  portfolio of  investment  securities
consisted of the following:

        Marketable equity securities, at cost            $   706,114
        Gross unrealized gains                                83,316
                                                         -----------
        Fair market value                                $   789,430
                                                         ===========

The Company's entire portfolio of investment securities was purchased during the
year ended  September  30,  2000.  There were no  dispositions  during the ended
September 30, 2000. During the nine months ended September 30, 1999, the Company
acquired an  investment  security  for  $174,563 and disposed of it for $115,967
resulting in a realized loss of $58,596.

It is  the  Company's  intention  to  hold  the  investment  securities  for  an
indefinite   period  of  time,  and  therefore  has  classified  the  investment
securities as a non-current asset.

Changes in unrealized holding gains on investment securities, which are reported
in accumulated other comprehensive income, are as follows:

        Balance at October 1, 1999                        $        -
        Unrealized holding gains for the year ended
          September 30, 2000                                  83,316
                                                          ----------
        Balance at September 30, 2000                     $   83,316
                                                          ==========


                                      F-25
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

6.      Property and Equipment

Property and  equipment are comprised of the following at September 30, 2000 and
1999:

                                            2000             1999
                                        ------------     -----------
        Land and buildings              $    912,633     $   371,771
        Machinery and equipment              867,700         372,201
        Office and computer equipment        174,413         147,034
        Vehicles                              92,636          92,636
        Leasehold improvements               385,019          83,291
                                        ------------     -----------
                                           2,432,401       1,066,933
        Less accumulated depreciation     (1,315,564)       (340,266)
                                        ------------     -----------
        Net property and equipment      $  1,116,837     $   726,667
                                        ============     ===========


7.      Accrued Liabilities

Accrued  liabilities  are  comprised of the  following at September 30, 2000 and
1999:

                                                         2000             1999
                                                    ------------     -----------
        Deferred revenue                            $    202,049     $   166,195
        Accrued payroll and payroll-related items        120,939         106,442
        Accrued interest                                 118,813         161,730
        Accrued marketing expenses                       118,111               -
        Liability to issue common stock                  112,700               -
        Accrued sales tax payable                         59,546               -
        Other accrued expenses                           231,041         118,514
                                                    ------------     -----------
                                                    $    963,199     $   552,881
                                                    ============     ===========

                                      F-26
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


8.      Note Payable to Related Party

Note payable to related party consisted of a working capital borrowing  facility
with a company  controlled  by the Company's  president.  The related party note
agreement  calls for payments of  interest-only  at 9% payable  monthly  through
January 1999, monthly principal and interest payments of $3,121 through December
2008,  at which time any  remaining  unpaid  balances  are due.  During the nine
months ended September 30, 1999, the Company issued 500,000 shares of its common
stock to this company in  satisfaction of $109,400 of principal and at September
30, 1999 the note had an  outstanding  balance of $245,939.  In March 2000,  the
Company  issued  894,911  shares of its common  stock to this  company  for full
satisfaction of the remaining principal balance of $166,815 and accrued interest
of $56,913.

Interest  expense on the related party debt totaled  $13,625 and $24,525  during
the year ended  September 30, 2000 and the nine months ended September 30, 1999,
respectively.

                                      F-27
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


9.      Long-Term Debt

Long-term debt consists of the following at September 30, 2000 and 1999:
<TABLE>
<CAPTION>
                                                                                            2000             1999
                                                                                        ------------     -----------
     <S>                                                                               <C>               <C>
     Note payable to former owners of acquired subsidiary, payable in monthly
       installments of interest only at the prime lending rate less 0.5% (7.75%
       at September 30, 2000) through July 2002 and then payable in equal
       monthly principal and interest installments of $12,387 through July 2005;
       collateralized by certain accounts receivable, real and personal property
       and inventory.                                                                  $     396,759     $         -

     Note payable to former owner of acquired subsidiary, monthly interest only
       payments at the greater of the prime lending rate plus 3% (11.25% at
       September 30, 2000) or 12% through July 2002 and then payable in equal
       monthly principal and interest installments of $11,625 through July 2005;
       collateralized by certain accounts receivable, real and personal property
       and inventory.                                                                        350,000               -

     Note payable to former owner of acquired subsidiary, monthly interest only
       payments at the greater of the prime lending rate plus 3% (11.25% at
       September 30, 2000) or 12% through July 2002 and then payable in equal
       monthly principal and interest installments of $6,321 through July 2005;
       collateralized by certain accounts receivable, real and personal property
       and inventory.                                                                        100,000               -

     Convertible note payable in the face amount of $950,000; non-interest
       bearing for the first two years until July 2002 and then monthly
       principal and interest payments at 7% until July 2010 of $12,952; net of
       unamortized discount of $78,810 at September 30, 2000. The note is
       convertible into Company common stock at $1.00 per share beginning July
       2001. This note is uncollateralized.                                                  871,190               -

     Convertible note payable to former owners of acquired subsidiary, interest
       accrues at 7% until July 2005 and then monthly principal and interest
       payments of $3,960 until July 2010. The note is convertible into Company
       common stock at $1.00 per share beginning July 2001. This note is
       uncollateralized.                                                                     200,000               -

     Three notes payable in the cumulative face amount of $600,000 issued in
       connection with the Central Park acquisition for non-compete agreements,
       these notes are non-interest bearing until July 2005 and then payable in
       equal aggregate monthly payments of $10,000 until July 2010; net of
       unamortized discount of $230,082 at September 30, 2000. These notes are
       uncollateralized.                                                                     369,918               -

     Note payable with quarterly interest only payments at 7% until maturity at
       July 2002. This note is uncollateralized.                                              50,000               -

                                      F-28
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

9.      Long-Term Debt (continued)
<CAPTION>
                                                                                            2000             1999
                                                                                        ------------     -----------
     <S>                                                                               <C>               <C>
     Seventeen convertible notes payable with an aggregate face amount of
       $530,000; quarterly interest-only payments at 12.75% due through December
       1999; all unpaid principal and interest due March 2000; collateralized by
       royalty revenues generated by the Mountain Mike's franchises; convertible
       into Company common stock at $10.86 per share. The notes contained a
       requirement to maintain restricted cash to be held on deposit with a bank
       for interest payments. These notes were retired in April 2000 upon the
       disposal of the Mountain Mike's Pizza franchise concept.                                    -         530,000

     Note payable to former owner of acquired subsidiary; monthly interest-only
       payments at 7% through July 2000; thereafter monthly principal and
       interest payments of $3,019 are due through July 2007; collateralized by
       royalty revenues generated by the Sobik's franchises.                                 196,285         200,000

     Note payable to bank assumed upon the Li'l Dino's acquisition; payable in
       monthly principal installments of $6,012 plus interest at the bank's
       prime lending rate plus 1% (10.50% at September 30, 2000) through
       February 2004; collateralized by the Company's cash deposit at the bank
       and a personal guarantee of the prior owners of Li'l Dino's.                          255,890         314,284

     Note payable to financial institution; principal and interest at 10%
       payable upon demand; note is uncollateralized.                                              -         257,583

     Four notes payable to individuals with an aggregate face amount of
       $350,000; all unpaid principal and interest at 8% currently past-due;
       collateralized by a personal guarantee of the Company's chief executive
       officer.                                                                              100,000         285,000

     Two notes payable to former owners of Seawest with an aggregate face amount
       of $700,000; non-interest bearing; monthly principal payments of $4,000
       are due through April 2004, at which time any remaining unpaid principal
       is due; these notes are uncollateralized. These notes were assumed by the
       new owners of Seawest.                                                                      -         259,900

     Note payable to franchisee; monthly interest-only payments at 9% due
       through December 1999; thereafter monthly principal and interest payments
       of $2,236 are due through December 2009; this note is uncollaterlized.
       This note was retired in full through the conversion into 848,831 shares
       of the Company's common stock                                                               -         176,476

     Three notes payable to individuals; monthly interest-only payments at 15%
       due through November 2004, at which time any remaining unpaid principal
       and interest is due; these notes are uncollateralized and are net of
       unamortized loan costs of $114,000 and $138,000, respectively. The
       Company is in arrears with respect to the interest payments and thus has
       classified these notes as currently due.                                               66,000          42,000

                                      F-29
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

9.      Long-Term Debt (continued)

<CAPTION>
                                                                                            2000             1999
                                                                                        ------------     -----------
     <S>                                                                               <C>               <C>
     Mortgage note payable to former owner of Pastry Products Producers, LLC;
       monthly payments of $2,494 including principal and interest at 10% due
       through November 2004, at which time any remaining unpaid principal and
       interest is due; collateralized by real property.                                     101,637         120,369

     Various uncollateralized notes payable; due with various monthly principal
       and interest payments; maturing at various dates through July 2005.                   131,569         183,934
                                                                                      --------------   -------------
                                                                                           3,189,248       2,369,546

     Less current portion                                                                   (417,140)     (1,606,041)
                                                                                      --------------   -------------
     Total long-term debt                                                             $    2,772,108   $     763,505
                                                                                      ==============   =============
</TABLE>

Interest  expense on long-term debt during the year ended September 30, 2000 and
the nine months ended  September  30, 1999  amounted to $351,984  and  $331,667,
respectively.

The  annual  maturities  of  long-term  debt for the five  years  subsequent  to
September 30, 2000 are as follows:


                                        Total

                2001                $     417,140
                2002                      188,115
                2003                      431,555
                2004                      430,668
                2005                      408,896
                Thereafter              1,312,874
                                    -------------
                                    $   3,189,248
                                    =============

                                      F-30
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity

The following is a synopsis of significant  transactions involving the Company's
stockholders' equity accounts:

Preferred Series C

In September 1997, the Company  designated and issued 120 shares of no par value
Series C convertible  preferred stock ("Preferred  Series C") in connection with
the  acquisition of QFS. The Preferred  Series C stock is entitled to cumulative
dividends  at a rate of $32.50 per share per  quarter  and is  convertible  into
common stock at a rate of 133.22 shares of common stock for each preferred share
with a face  amount of  $1,000.  The stock is  redeemable  at the  option of the
Company or in liquidation at a rate of $1,000 per share.

Preferred Series D

In  January  1998,  the  Company  sold  2,500  shares of no par  value  Series D
convertible  preferred stock  ("Preferred  Series D") under a private  placement
offering  at a stated  face value of $1,000 per share.  The net  proceeds to the
Company were  $1,817,500  after  deducting the placement  agent  commission  and
expenses.  In addition,  $250,000 of long-term debt was extinguished through the
issuance  of 250  shares  of the  Preferred  Series D stock.  Each  share of the
Preferred  Series D stock was  convertible,  at the option of the shareholder at
any time, into a number of shares of common stock of the Company at a conversion
rate which shall be a number of shares of common  stock equal to $1,000  divided
by the lower of 55% of the average market price of the common stock for the five
trading  days  immediately  prior  to  the  conversion  date  or  $1.96875.  The
conversion  price was  based on 55% of the fair  market  value of the  Company's
common stock at the date of  conversion.  The holders of the Preferred  Series D
stock were entitled to receive  cumulative  yearly  dividends at a rate of 8% of
the face  value in cash or, at the  option of the  Company,  in shares of common
stock. The Preferred  Series D shares were entitled to a liquidation  preference
of $1,300 per share.

Since the Preferred  Series D stock was  convertible at a discount,  a Preferred
Series D stock  dividend of $1,382,601  was recorded for the year ended December
31, 1998 for the  difference  between  the  discounted  conversion  price of the
Preferred Series D stock and the fair market value of the Company's common stock
at the time of issuance.

                                      F-31
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

Pursuant  to the terms of the  private  placement  agreement,  the  Company  was
required to register with the Securities  and Exchange  Commission the shares of
common stock underlying the Preferred Series D stock within 30 days of the final
closing of the private placement.  In addition, the registration was required to
be declared  effective  within 120 days of the closing date.  Since those events
did not occur,  the Company was required to increase  the  discount  rate by 10%
from 35% to 45% to the  purchasers of the private  placement  during 1998.  This
additional  discount was valued at $718,272 (the difference between the original
discounted  conversion  price and the fair market value of the common stock) and
was  recorded for the year ended  December  31,  1998.  As of December 31, 1998,
there were 2,350 shares of Preferred Series D stock outstanding after holders of
150 shares of  Preferred  Series D stock  converted  their  shares into  615,384
shares of the Company's common stock.

During  the nine  months  ended  September  30,  1999,  holders of 475 shares of
Preferred  Series D stock  converted  their shares into 4,250,499  shares of the
Company's  common stock and holders of 1,875 shares of Preferred  Series D stock
converted their shares into 187.5 shares of the Company's  Redeemable  Preferred
Series F stock. As of September 30, 1999 there were no Preferred Series D shares
outstanding.

Preferred Series E

In February  1999,  the Company  designated  135 shares of no par value Series E
voting nonredeemable  cumulative  convertible preferred stock ("Preferred Series
E") and issued 20 shares of its  Preferred  Series E stock at $10,000  per share
for a total  consideration  of $200,000.  Each share of the  Preferred  Series E
stock was  convertible,  at the option of the  shareholder  at any time,  into a
number of shares of common stock of the Company at a conversion rate which shall
be a number of shares of common  stock equal to $10,000  divided by the lower of
65% of the average  market  price of the common  stock for the five trading days
immediately  prior to the conversion  date or $1.96875.  The Preferred  Series E
stock was entitled to cumulative,  preferential  dividends at a rate of $800 per
share. The Preferred Series E stock was redeemable in liquidation at $12,000 per
share.  In June 1999,  the Company  reacquired  10 shares of Preferred  Series E
stock for $100,000.  Also in June 1999, the holder of the remaining 10 shares of
Preferred  Series E stock  converted into 10 shares of the Company's  Redeemable
Preferred  Series F stock.  As of September  30,  1999,  there were no Preferred
Series E shares outstanding.

                                      F-32
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

Redeemable Preferred Series F

In June  1999,  the  Company  designated  250  shares of no par  value  Series F
non-voting redeemable  cumulative preferred stock ("Redeemable  Preferred Series
F").  The  Redeemable  Preferred  Series  F stock  is  entitled  to  cumulative,
preferential  dividends  at a rate of  $1,000  per  share.  The  holders  of the
Redeemable  Preferred  Series F stock may require the Company to repurchase  the
stock at $12,500 per share  anytime  between June 1, 2001 and August 1, 2001. In
June 1999,  holders of 1,875 shares of the  Company's  Preferred  Series D stock
converted their shares into 187.5 shares of Redeemable Preferred Series F stock.
Also in June 1999,  holders  of 10 shares of the  Company's  Preferred  Series E
stock  converted  their shares into 10 shares of Redeemable  Preferred  Series F
stock.  The carrying  value of the 1,875 shares of Preferred  Series D stock was
$3,126,288 and the carrying  value of the 10 shares of Preferred  Series E stock
was $100,000 for a total conversion carrying value of $3,226,288. The redemption
value of the 197.5 shares of Redeemable  Preferred Series F stock is $2,468,750.
The  difference of $757,538  between the total  carrying value (of the Preferred
Series  D and  Preferred  Series  E  stocks)  and the  redemption  value  of the
Redeemable Preferred Series F stock was credited to common stock.

In December 2000, the Company redeemed all the outstanding  Redeemable Preferred
Series F stock  through the payment of $500,000 and the  issuance of  19,750,000
shares of its common stock (see Note 14).

Redeemable Common Stock

In connection  with the  Company's  acquisition  of Seawest,  the prior owner of
Seawest has the right to require the Company to  repurchase  90,000  shares at a
purchase price of $3.25 per share for a total repurchase value of $293,000.

In connection with the Company's acquisition of SBK, the prior owners of SBK had
the right to require  the  Company to  repurchase  187,266  shares at a purchase
price of $2.67 per share for a total repurchase value of $500,000.  During 1998,
the  Company  repurchased  74,906  shares  of the  redeemable  common  stock for
$200,000.  In June 1999,  the Company  entered into a settlement  with the prior
owners of SBK whereby the Company  issued 187,266 shares of its common stock for
the remaining 112,360 outstanding shares of redeemable common stock with a value
of $300,000 held by the prior owners of SBK.

                                      F-33
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

Stock Subscriptions Receivable

During  1998,  the Company  sold the  following  common  shares in exchange  for
subscription  notes  receivable:  (1) 500,000  shares  valued at $687,500 to the
Company's Chief Operating Officer,  (2) 500,000 shares valued at $687,500 to the
Company's Chief Financial Officer,  and (3) 300,000 shares valued at $412,500 to
a consultant. Each of the underlying stock subscription agreements bear interest
at 9.5% per annum and are due on or before  July  2001.  The  shareholders  also
retain the right to require the Company to  repurchase  the shares  within three
years of their issuance in exchange for the cancellation of the notes.

During  1997,  the Company  sold the  following  common  shares in exchange  for
subscription  notes  receivable:  (1) 500,000 shares valued at $1,500,000 to the
Company's Chief Operating Officer and (2) 300,000 shares valued at $900,000 to a
consultant of the Company. Each of the underlying stock subscription  agreements
bear  interest at 9.5% per annum and are due on or before  September  2000.  The
officer  and the  consultant  also  retain the right to require  the  Company to
repurchase  the shares  within  three years of their  issuance  in exchange  for
cancellation of the notes.

On April 28, 2000,  the  Company's  Chief  Operating  Officer  resigned from the
Company  and  returned  his  total  of  1,000,000   shares  to  the  Company  in
satisfaction  of the $2,187,500  notes due for the stock.  The  consultant  also
returned  his total of  600,000  shares to the  Company in  satisfaction  of the
$1,312,500 notes due for the stock.

The fair value of each  subscription was based on the quoted market price of the
Company's common stock on the date of issuance. Stock subscriptions  receivables
were $687,500 and $4,187,500 at September 30, 2000 and 1999,  respectively.  All
accrued  interest  through  September  30,  2000 has been waived by the Board of
Directors.

Stock Issued for Services

For the year ended September 30, 2000 and the nine months ended September 30,
1999, the Company issued 1,905,000 and 1,291,667 shares of its common stock,
respectively, in exchange for consulting and legal services. The aggregate fair
value of these shares was $465,900 and $340,000, respectively, based on the
market value of the stock on the date of issuance. Of these amounts, $301,700
and $298,100 were classified as prepaid consulting fees, respectively, and are
being amortized over the lives of the agreements.

                                      F-34
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

Conversion of Debt to Equity

During the year ended  September 30, 2000,  the Company issued 848,831 shares of
its  common   stock  with  a  fair  value  of  $212,208  in  exchange   for  the
extinguishment  of long-term  debt and accrued  interest.  Also, as described in
Note 8, the Company  issued 894,911 shares of its common stock with a fair value
of $223,728 in exchange for the extinguishment of related party debt and accrued
interest.

During the nine months ended  September  30, 1999,  the Company  issued  192,308
shares  of its  common  stock  with a fair  value of  $50,000  in  exchange  for
extinguishment  of  long-term  debt.  Also,  as described in Note 8, the Company
issued 500,000 shares of its common stock as satisfaction of $109,400 of related
party debt.

Private Placement of Common Stock

For the nine months ended  September  30, 1999,  the Company sold to  accredited
investors a total of 769,230 shares of the Company's  freely-traded common stock
at a  purchase  price of $0.23 per share in a private  transaction  exempt  from
registration  under applicable  Federal  securities laws. The Company  collected
proceeds of $174,563 in connection with this transaction. No offering costs were
incurred as part of the transaction.  In addition,  during the nine months ended
September  30, 1999,  the Company  sold 500,000  shares of its common stock at a
purchase price of $0.30 per share.  The Company  collected  proceeds of $150,000
with no offering costs incurred.

Common Stock Issued in Conjunction with Prior Year Subsidiary Acquisitions

In June 1999, the Company entered into a settlement with the prior owners of SBK
whereby the Company  issued 187,266 shares of its common stock for the remaining
112,360  outstanding shares of redeemable common stock owned by the prior owners
of SBK. Also, the Company issued 700,187 shares of its common stock to the prior
owners of SBK to settle  disputes on the amount of  liabilities  in existence at
the date of acquisition  of SBK by the Company and for a principal  reduction of
$300,000 of a note due to the former  owners of SBK which  reduced the principal
balance from $500,000 to $200,000.

Authorized Number of Common Shares

In December  2000, the Company  increased its authorized  shares of common stock
from 50,000,000 shares to 100,000,000 shares (see Note 14).

                                      F-35
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

Common Stock Options and Warrants

In February  1999,  the Company  approved the 1998  Incentive  Plan  ("Incentive
Plan") to enable  the  Company to offer  employees  and its  consultants  equity
interests  in the  Company.  There are  1,500,000  shares  designated  under the
Incentive  Plan and are fully vested upon grant.  In February  1999, the Company
granted  options  to  purchase  a total of  745,000  shares of  common  stock to
non-officer  employees  and an option to  purchase a total of 150,000  shares of
common stock to one of the Company's  non-employee directors under the Incentive
Plan.  The  options  were issued at an  exercise  price of $0.20 per share,  the
quoted market price of the underlying  shares on the date of grant and expire in
February 2002. In October 1999, the Company  granted options to purchase a total
of 35,000  shares of common  stock to a  non-officer  employee  with an exercise
price of $0.16 per share with an expiration date of October 2002.

The Company also grants stock options  outside of the Incentive Plan. In October
1999, the Company granted options to purchase a total of 4,065,000 shares of its
common stock to ten individuals  including  2,535,000 shares to two officers and
two  employees of the Company.  The options were issued at an exercise  price of
$0.29 per share and expire in October 2004.

In July 2000, the Company issued options to purchase a total of 3,000,000 shares
of its common  stock as part of the  consideration  paid for its  investment  in
marketable  equity  securities.  The options were issued at an exercise price of
$0.27875 per share and expire in June 2002.

In July 2000,  the Company  issued options to purchase a total of 200,000 shares
of its common stock in exchange for consulting services.  The exercise price was
$0.2288 per share and the options expire in July 2007.

During the nine months  ended  September  30, 1999,  options to purchase  37,500
shares of the  Company's  common stock were  exercised by grantees in connection
with the Company's acquisition of Pastry. The Company waived the exercise price,
which was based on 50% of the fair market value on the date of exercise.

                                      F-36
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

In August  1998 and  December  1997,  the  Company  granted  options to purchase
1,000,000  shares each of its common stock to the President and Chief  Executive
Officer.  The options were issued with an exercise  price of $1.55 per share and
$2.75 per share, respectively, with expiration dates of August 2001 and December
2000,  respectively.  The  President  has yet to  exercise  any portion of these
options and in December 2000 his option to purchase  1,000,000  shares of common
stock expired.  In September  1999,  the Company  adjusted the exercise price of
both  option  grants to $0.29 per share  which was equal to or greater  than the
fair value of the Company's common stock. In December 2000, the first traunch of
1,000,000 options were allowed to expire.

The Company had 11,857,070 options  outstanding at September 30, 2000 consisting
of 755,000  outstanding  options under the Incentive Plan and 11,102,070 options
issued outside of the Incentive  Plan.  Changes in options  outstanding  for the
year ended September 30, 2000 and the nine months ended September 30, 1999 under
the  Incentive  Plan  and  options  issued  outside  of the  Incentive  Plan are
summarized as follows:
<TABLE>
<CAPTION>
Incentive Plan

                                                                              Weighted-
                                                       Weighted-               Average
                                                        Average               Fair Value
                                                       Exercise               of Options
                                     Shares              Price                 Granted
--------------------------------------------------------------------------------------------
<S>                              <C>             <C>                      <C>
Balance, December 31, 1998              -        $         -               $         -

Granted                           895,000                .20                       .20
Less options exercised                  -                  -                         -
Less options expired              (50,000)               .20                         -

Balance, September 30, 1999       845,000                .20                         -

Granted                            35,000                .16                       .16
Less options exercised                  -                  -                         -
Less options expired             (125,000)               .20                         -
--------------------------------------------------------------------------------------------
Balance, September 30, 2000       755,000        $       .20                         -
============================================================================================


                                      F-37
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)
<CAPTION>

Options Outside of the Incentive Plan

                                                                              Weighted-
                                                       Weighted-               Average
                                                        Average               Fair Value
                                                       Exercise               of Options
                                     Shares              Price                 Granted
--------------------------------------------------------------------------------------------
<S>                              <C>             <C>                      <C>
Balance, December 31, 1998       4,274,570       $      1.24              $         -

Granted                                  -                 -                        -
Less options exercised             (37,500)                -                        -
Less options expired              (300,000)             3.21                        -

Balance, September 30, 1999      3,937,070              1.10                        -

Granted                          7,265,000               .29                      .29
Less options exercised                   -                 -                        -
Less options expired              (100,000)             3.93                        -
--------------------------------------------------------------------------------------------
Balance, September 30, 2000     11,102,070       $       .58                        -
============================================================================================
</TABLE>

The  following  table  summarizes   information  about  options  outstanding  at
September 30, 2000:

<TABLE>
<CAPTION>
Options Outstanding and Exercisable


                                              Weighted-                    Weighted-
                                              Average                      Average
Range of                                      Remaining                    Exercise
Exercise Prices           Shares              Contractual Life             Price
-------------------------------------------------------------------------------------
<S>                     <C>                      <C>                         <C>
$0.16 to $0.75          10,593,570               31.2 months                 $0.30
$1.92 to $3.93           1,263,500               22.1 months                 $2.69
-------------------------------------------------------------------------------------
                        11,857,070               29.9 months                 $0.55
=====================================================================================
</TABLE>

                                      F-38
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


10.     Stockholders' Equity (continued)

The Financial  Accounting  Standards Board issued Statement No. 123 ("FAS 123"),
"Accounting for Stock-Based  Compensation",  which provides that expense equaled
to the fair  value of all stock  based  awards on the date of the grant over the
testing period be recognized.

No  compensation  cost has been  recognized for options  granted to employees at
exercise  prices which equal or exceed the market price of the Company's  common
stock at the date of grant.  Options  granted at exercise  prices  below  market
prices are recognized as  compensation  cost measured as the difference  between
market price and exercise price at the date of grant.

FAS 123  requires  the Company to provide pro forma  information  regarding  net
income and earnings per share as if compensation cost for the Company's employee
stock options had been determined in accordance with the fair value based method
prescribed in FAS 123. The Company estimates the fair value of each stock option
at the  grant  date by using the  Black-Scholes  option-pricing  model  with the
following  weighted-average  assumptions  used for  grants  for the  year  ended
September  30, 2000 and the nine months ended  September  30, 1999:  no dividend
yield; an expected life of five years; expected volatility of 64%, and risk-free
interest rate of 5.5%.

Under the accounting  provisions of FAS 123, the Company's net loss and loss per
share would have increased to the pro forma amounts indicated below for the year
ended September 30, 2000 and the nine months ended September 30, 1999:

                                                      2000              1999
--------------------------------------------------------------------------------
Net loss applicable to common stock
  As reported                                   $  (3,218,793)    $  (1,915,039)
  Proforma                                      $  (3,592,967)    $  (1,968,285)

Loss per share - basic and diluted
  As reported                                   $        (.11)    $        (.08)
  Proforma                                      $        (.12)    $        (.09)
================================================================================

                                      F-39
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

11.     Commitments and Contingencies

Operating Leases

The  Company  leases  office  space and  restaurant  land  space  under  certain
operating  leases which expire in various dates through 2008. Total rent expense
for the year ended  September  30, 2000 and the nine months ended  September 30,
1999 was $156,324 and $88,848, respectively.

Future annual  minimum lease payments due under these  operating  leases for the
five year subsequent to September 30, 2000 are as follows:


                2001            $   142,812
                2002                118,101
                2003                110,676
                2004                101,352
                2005                 82,704
                                -----------
                                $   555,645
                                ===========

Legal Issues

On August 2, 1999,  shareholders of Li'l Dino Management  Corporation (the prior
owners of Li'l Dino Corporation)  filed a complaint against the Company and some
of its officers in the United States  District Court for the Middle  District of
North  Carolina.  The Company was served with this  complaint on August 5, 1999.
This  complaint   alleges   damages  of  $4.5  million  for  securities   fraud,
misappropriation of corporate opportunities and negligent misrepresentation, and
seeks treble  damages,  interest and  attorney's  fees.  The  allegations in the
complaint relate to the Company's acquisition of substantially all of the assets
of Li'l Dino.  The Company  believes  that the claims made in the  complaint are
without merit. The Company intends to defend itself vigorously in this matter.

The Company is involved in various other lawsuits and  litigation  matters on an
ongoing basis as a result of its  day-to-day  operations.  However,  the Company
does not  believe  that  any of  these  other  or any  threatened  lawsuits  and
litigation  matters  will  have a  material  adverse  effect  on  the  Company's
financial position or results of operations.

                                      F-40
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


11.     Commitments and Contingencies (continued)

Franchise Agreements

Under the terms of the various franchise agreements, which are for terms ranging
from 10 to 15 years and contain  various  renewal  options,  the franchisees are
obligated for the payment of the following fees to the Company:

         *        Franchise Fees - In accordance with the terms of the franchise
                  agreements, the Company receives an initial franchise fee of
                  $10,000 to $20,000.

         *        Royalties - The Company receives royalties ranging from 4% to
                  7% of gross sales from the franchisees' operations of the
                  restaurants.

         *        Advertising Fund - The franchise agreements require the
                  franchisees to contribute to an advertising fund based upon 2%
                  to 4% of gross sales. The funds are maintained in separate
                  bank accounts, and their use is restricted solely for
                  advertising, marketing and public relations programs and
                  materials to develop the goodwill and public image of each of
                  the respective franchises.

Employment Agreement

The  Company  is a party to an  employment  agreement  with its Chief  Financial
Officer and Chief Operating Officer.  Pursuant to the agreement, this officer is
to receive an annual  salary of  approximately  $125,000  through July 2001.  In
addition,  the Company is a party to a consulting agreement with a member of the
Board of  Directors.  Pursuant to this  agreement,  this  director is to receive
annual compensation of $125,000 through July 2001.

                                      F-41
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


12.     Income Taxes

The components of income tax expense  (benefit) for the year ended September 30,
2000 and the nine months ended September 30, 1999 are as follows:



                                                   2000            1999
-----------------------------------------------------------------------------
Current:
  Federal                                      $        -      $         -
  State                                               999              650
-----------------------------------------------------------------------------
                                                      999              650
-----------------------------------------------------------------------------
Deferred:
  Federal                                         194,650          (72,250)
  State                                            34,350          (12,750)
-----------------------------------------------------------------------------
                                                  229,000          (85,000)
-----------------------------------------------------------------------------
Total current and deferred income taxes           229,999          (84,350)
-----------------------------------------------------------------------------
Increase (decrease) in valuation allowance       (229,000)          85,000
-----------------------------------------------------------------------------
Total income taxes                             $      999      $       650
=============================================================================

                                      F-42
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


12.     Income Taxes (continued)

The Company's  deferred tax asset is comprised of the following at September 30,
2000 and 1999:



                                                        2000            1999

Current deferred tax asset:
  Allowance for doubtful accounts             $        33,000  $      125,000
  Accrued expenses                                          -          20,000
-----------------------------------------------------------------------------
                                                       33,000         145,000

Less, valuation allowance                             (33,000)       (145,000)
Net current deferred tax asset                $             -  $            -

Non-current deferred tax asset:
  Net operating loss carryforwards            $     2,796,000  $    2,092,000
  Intangibles                                         129,000          69,000
  Property and equipment                               71,000          51,000
  Stock and stock options issued for services         160,000         874,000
  Investment securities                              (187,000)              -
-----------------------------------------------------------------------------
                                                    2,969,000       3,086,000
Less, valuation allowance                          (2,969,000)     (3,086,000)
-----------------------------------------------------------------------------
Net non-current deferred tax asset            $             -  $            -
-----------------------------------------------------------------------------
Net deferred tax asset                        $             -  $            -
=============================================================================


The following summary reconciles differences from taxes at the federal statutory
rate with the effective rate:



                                                     2000             1999
-----------------------------------------------------------------------------
Income taxes at federal statutory rates             (34.0)%          (34.0)%
Operating loss with no tax benefit                   34.0             34.0
-----------------------------------------------------------------------------
Income tax at effective rates                         0.0%             0.0%
=============================================================================

                                      F-43
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999

12.     Income Taxes (continued)

At September  30, 2000,  the Company has net  operating  loss  carryforwards  of
approximately $7,200,000 for federal income tax purposes that expire as follows:


                        2012            $   3,800,000
                        2018                1,700,000
                        2019                  700,000
                        2020                1,000,000
                                        -------------
                                        $   7,200,000
                                        =============

13.     Operating Segments

The Company defines segments as each separate  franchising  concept it operates.
It clearly views each business as a separate  segment and makes  decisions based
on the activity and profitability of that particular segment.

The reportable segments are defined as follows:

         *        The franchise operations segment is engaged in the franchising
                  of various quick-service restaurants located throughout the
                  United States. These restaurants feature submarine sandwiches,
                  pizza, soups and hot and cold side order items. The Company
                  assists the franchisees with selecting suitable locations,
                  advises on the negotiation of lease terms and store design,
                  assists with securing of food product supply and purchase of
                  furniture and fixtures.

         *        The bakery and restaurant operations segment is comprised of a
                  bakery that primarily serves the JRECK restaurant franchises
                  and corporately-owned restaurants from the Central Park
                  acquisition.

                                      F-44
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


13.     Operating Segments (continued)

The table below shows certain financial  information by business segment for the
year ended September 30, 2000 and the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
                                                                Bakery and
Segment Reporting                     Franchise                 Restaurant                  Consolidated
September 30, 2000                    Operations                Operations                  Total
----------------------------------------------------------------------------------------------------------
<S>                                <C>                       <C>                          <C>
Revenue from external customers    $   3,094,956             $   1,346,984                $   4,441,940
Interest expense - net                   333,690                         -                      333,690
Depreciation and amortization            651,961                    93,731                      745,692
Segment loss                          (2,783,991)                 (221,702)                  (3,005,693)
Segment assets                         9,104,228                 1,833,954                   10,938,182
==========================================================================================================
<CAPTION>

                                                                 Bakery and
Segment Reporting                      Franchise                 Restaurant                  Consolidated
September 30, 1999                     Operations                Operations                  Total
----------------------------------------------------------------------------------------------------------
<S>                                <C>                        <C>                         <C>
Revenue from external customers    $   2,724,534              $     571,844               $   3,296,378
Interest expense - net                   356,192                          -                     356,192
Depreciation and amortization            565,642                    104,800                     670,442
Segment loss                          (1,674,185)                   (93,914)                 (1,768,099)
Segment assets                         9,777,453                  1,556,778                  11,334,231
Expenditures for segment assets            2,059                          -                       2,059
==========================================================================================================
</TABLE>

14.     Subsequent Events

Convertible Debenture

In December 2000, the Company issued a Convertible  Debenture for $575,000 which
calls for  monthly  interest  payments  at 12% and is due in January  2002.  The
Convertible  Debenture  may be  converted in whole or in part to common stock of
the Company at a conversion price equal to 65% of the three-day  average closing
price prior to the date of conversion.  In anticipation of the conversion of the
Convertible  Debenture,  the Company has placed into escrow 10,000,000 shares of
its common stock.

                                      F-45
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


14.     Subsequent Events, (continued)

Redemption of Series F Preferred Stock

In December 2000, the Company redeemed all the outstanding  Redeemable Preferred
Series F stock with a value of  $2,468,750  through the payment of $500,000  and
the issuance of  19,750,000  shares of its common  stock.  The issuance of these
shares increased the number of outstanding common shares by 61.9%.

Increase in Authorized Common Shares Outstanding

In December  2000, the Company  increased its authorized  shares of common stock
from 50,000,000 shares to 100,000,000 shares.

Reorganization of Subsidiary

In  October  2000,  the  Company  formed  a  wholly-owned   subsidiary,   Bakery
Acquisition  Corporation  ("Bakery").  It is the  Company's  intention  to merge
Pastry Products Producers,  LLC into Bakery and for Bakery to issue 2,750,000 of
its common stock to the current shareholders of the Company.

                                      F-46
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


15.     Transition Period Due to Change in Fiscal Year

During 1999, the Company changed its fiscal period from December 31 to September
30.  Accordingly,   the  consolidated  financial  statements  presented  reflect
operating results and cash flows for a twelve-month period and nine month period
ended  September 30, 2000 and December 31, 1999,  respectively.  For comparative
purposes,  the unaudited  operating results and cash flows for the twelve months
ended September 30, 1999 are as follows:


                                                    Twelve Months Ended
                                                    September 30, 1999
                                                        (Unaudited)
-----------------------------------------------------------------------
Revenues:
  Franchising royalties                                $   2,695,768
  Initial franchise revenue                                  111,916
  Retail sales - company-owned stores                        110,878
  Retail sales - bakery and other products                   734,868
  Other revenues                                             783,532
-----------------------------------------------------------------------
                                                           4,436,962

Operating costs and expenses:
  Franchise servicing costs                                1,701,348
  Cost of retail sales and operating costs - stores          117,561
  Cost of retail sales and operating costs - bakery          710,014
  General and administrative                               1,497,151
  Consulting and investor relations                          775,392
  Bad debt expense                                           379,924
  Amortization and depreciation                              964,681
-----------------------------------------------------------------------
                                                           6,146,071
-----------------------------------------------------------------------
Loss from operations                                      (1,709,109)
Other expense - interest                                    (542,946)
Long-lived asset write-down                               (1,177,212)
Write-down of property and equipment                        (725,078)
Loss on sale of assets                                      (523,628)
Loss on disposal of franchise concept                        (39,606)
Other, net                                                    52,203
-----------------------------------------------------------------------
Net loss                                                  (4,665,376)
Preferred stock dividends                                   (199,840)
-----------------------------------------------------------------------
Net loss applicable to common stock                       (4,865,216)
=======================================================================
Weighted average of common shares outstanding             21,517,608
=======================================================================
Net loss per common share - basic and diluted         $         (.23)
=======================================================================

                                      F-47
<PAGE>

                   Notes to Consolidated Financial Statements
                     For the Year Ended September 30, 2000
                  and the Nine Months Ended September 30, 1999


15.     Transition Period Due to Change in Fiscal Year, (continued)



Net cash used by operating activities                 $     (162,952)
Net cash provided by investing activities                    655,073
Net cash used by financing activities                       (624,013)
-----------------------------------------------------------------------
Net decrease in cash and cash equivalents             $     (131,892)
=======================================================================

                                      F-48