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 transition period from January 1, 1999 to September 30, 1999

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

                             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,  1999:
$3,296,378.

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
December 10, 1999 was  $2,994,736  (for  purposes of the  foregoing  calculation
only,  each of the  registrant's  officers  and  directors  is  deemed  to be an
affiliate).

There were 28,917,147 shares of the registrant's  common stock outstanding as of
December 10, 1999.

                      DOCUMENTS INCORPORATED BY REFERENCE:

          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.

The Company grew through acquisitions in 1997 and 1998 and now consists of JRECK
Subs Group, Inc. (JRECK) 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"
Admiral's Fleet, Inc.            Washington     "Mountain Mike's"
Admiral Subs Group, Inc.         Washington     "Seawest Sub Shops"
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

In March of 1998 the Company acquired Li'l Dino Corporation,  a 43 unit sandwich
shop franchisor  located in North Carolina.  The Company paid the purchase price
of  $2,400,000 by assuming  $400,000 in existing  bank debt and issuing  735,294
common  shares  valued  at $2.72 per  share.  The  Company  also  issued  43,290
additional  shares valued at $100,000 to two  individuals  as brokerage fees for
their assistance in arranging the transaction.

General Description of Business

The Company is a multiple concept franchisor of submarine  sandwich  restaurants
and sit-down pizza  restaurants.  Through its concepts,  JRECK Subs Group,  Inc.
offers a menu of high quality,  fresh  submarine  sandwiches,  soups and hot and
cold side order items, a full range of gourmet pizza  selections and a full line
of bagel offerings at selected franchise locations.

Submarine Sandwich Menu and Stores

Through  four of its  subsidiaries,  JRECK  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. JRECK'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, JRECK 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, 1999 there was an aggregate  of 137  franchised  locations
under various submarine sandwich concepts as follows:

               Concept:              Number of Units        Geographic Area
               --------              ---------------        ---------------
   "JRECK Subs","Lox, Stox & Bagel"        45              Upstate New York
   "Sub Shops"                             28              Pacific Northwest
   "Sobik's"                               26               Central Florida
   "Li'l Dino"                             38           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.

Pizza Menu and Stores

Mountain  Mike's  provides high quality,  fresh (never frozen) pizza made of the
finest  ingredients  available in the industry.  Mountain Mike's uses only whole
milk mozzarella cheese, natural casing pepperoni and fresh "made in store daily"
pizza  dough.  The dough is never  frozen and is always used the day it is made.
This gives Mountain  Mike's pizza the "Signature  Dough" quality for which it is
famous.  Among  Mountain  Mike's  pizzas are  specialties  such as the  "Classic
Pepperoni",  the "Robber's Roost" (tangy garlic chicken),  or the mountain sized
"Mt.  Everest",  over five pounds of pizza with 8 toppings.  Mountain Mike's has
been a regional innovator in the pizza industry for over 21 years.

The Mountain  Mike's  locations  are designed for casual  family dining in a fun
filled  environment.  The restaurants  have large screen TV's, a children's game
room, and a menu offering  pizza,  salad bar,  sandwiches,  beer,  wine and soft
drinks.  Restaurants  range in size from 2,500  square feet to 4,500 square feet
and typically seat 80-120 diners.  Each franchisee  leases or owns its own store
facilities.  Neither the Company,  nor any of its affiliates,  engage in leasing
any of these store premises to any franchisees.

Mountain  Mike's offers take out and delivery of its complete menu and currently
derives approximately 35%-40% of its revenue from such sales.

As of  September  30, 1999 there were 72  franchised  locations  under the pizza
concept as follows:

         Concept:          Number of Units        Geographic Area
         --------          ---------------        ---------------
    "Mountain Mike's"            72             Northern California

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, 1999 the Company had a combined 209  submarine  sandwich and
pizza restaurants, all of which are franchised.

JRECK 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 pizza 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                    1999       On Contract     Agreements    Agreement     Franchise     Franchises
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>           <C>        <C>
"JRECK Subs","Lox, Stox & Bagel"           45            8.2            4.3%          5.0%       $ 10,000         Yes
"Sub Shops"(1)                             28            5.5            5.0%          5.0%         10,000         Yes
"Sobik's"                                  26            5.8            4.6%          5.0%         12,500         Yes
"Li'l Dino"                                38           15.0            5.9%          7.0%         12,500         Yes
"Mountain Mike's"                          72            9.0            4.6%          5.0%         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, 1999, the Company had an aggregate of twelve agreements with
area  developers  under the Mountain  Mike's and Li'l Dino's  concepts  covering
areas of California and North Carolina, respectively.

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.

In  October,  1997 the  Company  completed  its  acquisition  of Pastry  Product
Producers,  LLC (PPPI).  PPPI is a bakery in  Watertown,  NY, and  consists of a
plant,  offices and  equipment.  PPPI produces the JRECK  signature roll that is
supplied fresh (never frozen) to JRECK  franchisees in upstate NY. PPPI produces
other baked  goods such as bagels and  cookies,  however  the rolls  supplied to
JRECK franchisees account for 99% of sales. In 1997, JRECK franchisees committed
to purchase their sub rolls exclusively from PPPI over a 10 year period.

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. The Company does not currently operate any stores.

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  maintain
and expand its franchise program.

Competition

The  Company  competes  in the fast  food  sandwich  and pizza  segments  of the
restaurant  industry.  As a franchisor  of fast food  sandwich and dine in-pizza
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 200 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.

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
 "Admiral J"                                      Service Mark                             2,237,548       Feb 27, 1999
 "Original Deli Taste Without Deli Cost"          Service Mark                             1,675,510       Feb 11, 1992
 "Full Boat"                                      Service Mark                             1,761,574       March 30, 1999
 "Destroyer"                                      Service Mark                             1,761,573       March 30, 1999
 "Enough for two or just for you"                 Service Mark                             1,764,733       April 13, 1999
 "Seawest Sub Shops"                              Name, Service Mark & Design              1,703,894       July 28, 1992
 "Substantially More"                             Service Mark                             1,772,028       May 18, 1999
 "Sub Shop"                                       Name, Service Mark & Design              1,862,112       Nov  8, 1994
                                                                                           020443 (Wash)   March 29, 1991
                                                                                           407629 (Canada) Feb 5, 1993

 "Mountain Mike's"                                Name, Service Mark & Design              1,716,962       Sept 15, 1992
 "Mountain Mike's Pizza"                          Service Mark                             2,004,536       Oct 1, 1996
 "Pizza The Way It Oughta Be"                     Service Mark                             75/174377       Sept 1, 1996
 "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
</TABLE>

Employees

As of September 30, 1999 the Company had  approximately  35 full time  employees
consisting  of 15  administrative  employees  and 20 employed  in the  Watertown
bakery.

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 June 30, 2002.

                                       6
<PAGE>

A  summary  of all real  estate  locations  owned or leased  by the  Company  at
September 30, 1999 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 $ 354,661   $ 120,369
Watertown, NY 13601                          Bakery                8,561

2101 W. State Road 434 Suite 100             Office    Leased      3,064                           $  5,359  12/31/00
Longwood, FL 32779

4212 Freeway Blvd. Suite 6                   Office    Leased      1,830                              1,309  10/31/00
Sacramento, CA 95834

4858 Mercury St. Suite 109                   Office    Leased        450                                672  Mo.- Mo.
San Diego, CA  92111

5601 Roanne Way Suite 100                    Office    Leased        864                                825  06/30//02
Greensboro, NC 27409
                                                                  ------ ---------   ---------     --------
           TOTALS                                                 16,833 $ 354,661   $ 120,369     $  8,165
                                                                  ====== =========   =========     ========
</TABLE>

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

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 Civil  Action  Number
1:99:CV631 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 October 23, 1998 in Orlando,
Florida.  Two matters  were  submitted to a vote of the common  shareholders  of
record on September 1, 1998.  One was the election of Directors  Christopher  M.
Swartz,  Bradley L.  Gordon,  Eric T.  Swartz,  Kelly A. Swartz and  Jeremiah J.
Haley. The second matter was for approval of the Employee Stock Option Incentive
Plan.  The Stock Option Plan (as included in the Company's  Proxy  statement and
filed with the Securities and Exchange  Commission and incorporated by reference
herein) was approved by the  shareholders  and all the directors were elected by
the following vote tabulation:

-----------------------------------------------------------------------------
                          Votes        Votes
                          Cast          Cast          Votes        Broker
Director                   For        Against        Withheld     Non-Votes
-----------------------------------------------------------------------------
Christopher M. Swartz   10,558,337   Not Tallied      194,538      5,900,000
Bradley L. Gordon       10,620,925   Not Tallied      131,950      5,900,000
Eric T. Swartz          10,552,737   Not Tallied      200,138      5,900,000
Kelly A. Swartz         10,551,613   Not Tallied      201,262      5,900,000
Jeremiah J. Haley       10,620,925   Not Tallied      131,950      5,900,000
-----------------------------------------------------------------------------
Both Kelly Swartz and Jeremiah Haley have resigned as of December 31, 1998.

                                       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
"JSUB".  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, 1997  First Quarter     4 1/8       1 3/4
                                     Second Quarter     8 1/4       3 1/4
                                      Third Quarter     4 1/8         3
                                     Fourth Quarter    3 7/16       2 1/8

 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
                                     Second Quarter      5/8         1/8
                                      Third Quarter      3/8        3/16

Stockholders:

As of December 10, 1999 there were  approximately  8,200  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 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 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.

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:

                                       8
<PAGE>
<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>
  415,095   Common      Jan 20, 1997    220,000 Public Offering            Cash Investment                          Rule 504 Reg D
  230,000   Common      Feb 5, 1997     424,003 Certified Food Service     Acquire Bakery Equipment                 Section 4(2)
   94,650   Common      Feb 28, 1997    336,954 4 Individuals              Consulting Services                      Section 4(2)
   39,118   Common      Apr 1, 1997     114,248 400 Wstrn FF Shhldrs       Investors in Predecessor Company         Section 4(2)
   60,000   Common      May 23, 1997     30,000 Deegan Group               Exercise of Options                      Section 4(2)
  289,500   Common      Jun 19, 1997  1,331,156 Chai Entrp. etal           Acquisition of "Hymies" Bagel Chain      Section 4(2)
  100,000   Common      Jul 8, 1997     200,000 Pref "A" Holders           Conversion to Common Stock               Section 4(2)
  300,000   Common      Jul 10, 1997    225,000 Corp. Relations Group      Exercise of Options                      Section 4(2)
  198,000   Common      Jul 25, 1997    198,000 Public Offering            Cash Investment                          Rule 504 Reg D
   59,710   Common      Jul 30, 1997    227,227 4 Individuals              Consulting & Settlement of Debt          Section 4(2)
   93,794   Common      Aug 15, 1997    340,000 W. & C Richey              Acquisition of "Georgio's" Restaurant    Section 4(2)
                                                                              Chain
  500,000   Common      Sep 3, 1997   1,531,250 Sidney Wertheim etal       Acquisition of "Little King" Restaurant  Section 4(2)
                                                                              Chain
   75.000   Common      Sep 17, 1997    229,286 Olympus Capital            Consulting Services                      Section 4(2)
  495,000   Common      Oct 15, 1997    547,800 20 Individuals             Conversion of Debt to Equity-Cash        Section 4(2)
                                                                              Investment
      120 Preferred "C" Oct 8, 1997     120,000 12 Individuals             Acquisition of "Mtn Mike's" Restaurant   Section 4(2)
                                                                              Chain
  899,967   Common      Oct 8, 1997   2,643,653 QFS Shareholders           Acquisition of "Mtn Mike's" Restaurant   Section 4(2)
                                                                              Chain
  262,500   Common      Oct 27, 1997    658,594 3 Individuals              Acquire 50% Pastry Product Producers,    Section 4(2)
                                                                              LLC
   60,000   Common      Nov 30, 1997    146,400 1 Investor                 Loan Inducement                          Section 4(2)
  500,000   Common      Sep 24, 1997  1,500,000 Bradley Gordon             Issued for Promissory Note-Corp Officer  Section 4(2)
  300,000   Common      Sep 24, 1997    900,000 Richard Silberman          Issued for Promissory Note               Section 4(2)
   61,111   Common      Nov 6, 1997     137,500 3 Individuals              Cash Investment                          Section 4(2)
   25,000   Common      Nov 6, 1997      50,000 1 Individual               Cash Investment                          Section 4(2)
  187,266   Common      Dec 4, 1997     526,686 Interfoods of America LLC  Acquisition of "Sobik's" Restaurant      Section 4(2)
                                                                              Chain
  138,889   Common      Dec 31, 1997    250,000 Nadaff &Youngmann          Cash Investment                          Section 4(2)
  150,003   Common      Mar 26, 1998    309,375 QFS Shareholders           Acquisition of "Mtn Mike's" Restaurant   Section 4(2)
                                                                              Chain
------------------------------------------------------------------------------------------------------------------------------------
<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"
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

Options and Warrants

Since January,  1997 the Company has issued options and warrants to purchase its
common  stock.  The  following  table  describes  selected  data with respect to
unexercised options and warrants at September30, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
      Date         Expiration                             Number of     Exercise
    of Grant          Date                Name              Shares       Price                Business Purpose
---------------------------------------------------------------------------------------------------------------------------------
<S>              <C>             <C>                          <C>             <C>         <C>
Sept 15, 1997    Sept 15, 2000   Corporate Relations Group      100,000       $ 3.93      Advertising and Marketing Services
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         0.84      Business Expansion Consulting Services
Dec 29, 1997     Dec 29, 2000    Christopher M. Swartz*       1,000,000         0.29      Employee Compensation
Aug 3, 1998      Aug 3, 2001     Christopher M. Swartz*       1,000,000         0.29      Employee Compensation
Jan 6, 1997      Jan 6, 2000     Tri-Emp Enterprises, Inc.      225,000         0.75      Assignment of Other Rights
May 23, 1997     April 1, 2002   Thomas Larcomb                  60,000         0.50      Loan Inducement
May 23, 1997     April 1, 2002   Richard Deegan                  60,000         0.50      Loan Inducement
Sept 30, 1997    Feb 1, 2001     AB Laffer &Cantoo Assoc.        13,500         3.08      Acquisition of Mtn. Mike's
Sept 30, 1998    Sept 30, 2003   Wall St. Group                 114,285        0.875      Investment Banking Services
Sept 30, 1998    Sept 30, 2003   Dr. Sol Lizerbram              114,285        0.875      Investment Banking Services
Feb 10, 1999     Feb 10, 2002    Employees/nonemployee Director 845,000          .20      Employee Stock Option Plan
                                                           ------------
                                 TOTAL                        4,782,070
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Original options at $2.75 and $1.55  were repriced on October 1, 1999 at $0.29
per share.

The weighted average exercise price of these  outstanding  options is $1.02  and
the weighted average life until expiration is 29.9 months.  Options representing
350,000  shares  expired in 1999 and  options  representing  37,500  shares were
exercised in 1999 while the Company granted additional options on 895,000 shares
during the year.

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  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

                                       10
<PAGE>

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>

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;  the potential  effect on business
from year 2000  issues;  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. All Company owned stores were disposed of in 1998.

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).  Royalties  have increased
most  dramatically  as the  result of the  acquisition  of the  chains  that now
constitute the Company. These acquisitions occurred in the last half on 1997 and
first quarter of 1998.

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

                                       11
<PAGE>

submarine  sandwich  restaurants  and  $20,000 for pizza  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.

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.  These  sales are
expected  to decline as the  Company  completes  its  strategic  shift to become
strictly a  franchisor.  The Company  owned 11 stores at the end of 1997 and had
completely  divested  itself of all such stores by the end of 1998 by selling or
transferring them to new or existing franchisees.  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. As such, store sales are not considered
to be a primary  source of income.  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.

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

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 Mt. Mikes 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
1998 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 '98 sales before
it was closed.

                                       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
             Central 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 '98 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.

The  following  graph  illustrates  the net cash flow derived from the Company's
three main operating activities:


                                 [GRAPH OMITTED]



Central 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
'98. 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 '99 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.

                                       13
<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.

The Company  believes that cash flow from operations and collections  from notes
receivable  will continue to fund its operations as well as generate most of the
capital  necessary to meet the  Company's  obligations  of $1,606,041 in current
portion  of its long term debt.  The  Company  intends to seek other  sources of
financing,  restructure  and/or pay off all its current  obligations in 2000. Of
the total  amount of  $1,606,041  due in 1999,  the  Company  has taken steps to
restructure,  or  eliminate  approximately  $1,200,000.  The  Company's  capital
requirements   are   anticipated  to  be  funded  through   current   operations
supplemented by additional debt or equity financing, as expansion plans require.
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, 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.

Impact of Year 2000

The Company's business and relationships with it business partners and customers
depend  significantly  on a  number  of  computer  software  programs,  internal
operating systems and connections to other networks. The failure of any of these
programs,  systems or networks to  successfully  address the Year 2000  rollover
problem  could  have  a  material  adverse  effect  on the  Company's  business,
financial  condition or results of operations.  Many installed computer software
and network  processing  systems  currently accept only two digit entries in the
date code field and may need to be upgraded  or replaced in order to  accurately
record and process information and transactions on or after January 1, 2000.

                                       14
<PAGE>

The Company utilizes personal computers (PC's) at all its employee workstations,
some of which are  connected to a network  while others are  stand-alone  units.
These personal  computers all utilize  Microsoft Windows or Microsoft Windows NT
as their operating  system.  The Company believes that the Windows version found
on all its computers is Year 2000 compliant.  Additionally, the Company recently
acquired  and  updated  software to operate all its  accounting  functions.  The
Company believes this new software, the system in which it runs and its computer
hardware to be Year 2000 compliant.  Management  anticipates that all accounting
functions will be performed  using Year 2000  compliant.  The costs of acquiring
and  implementing the software are expected to be minimal.  Management  believes
that any  additional  expenditures  required to implement  this software will be
funded from the cash flow generated by operations.

The Company primarily does business with its  subfranchisors and its franchisees
who in turn deal with retail  customers  and food  distribution  companies.  The
Company has considered the transactions it conducts with its  subfranchisors and
its franchisees in its analysis of the Year 2000 issue, and believes that it has
completed  substantially all modifications to the computer systems used in these
transactions to ensure the systems are Year 2000  compliant.  The Company is not
certain  as  whether  the  computer   software  and  business   systems  of  its
franchisees'  suppliers are Year 2000  compliant.  The failure or delay of these
distributors to successfully address the Year 2000 issue may result in delays in
placing or receiving orders for goods and services at the restaurant level. Such
delays may result in lost  revenues  for the  franchisees  and,  in turn,  lower
continuing  royalties to the Company.  The Company  anticipates that such delays
and lost revenues, if any, would be minimal.

An inventory and assessment of all  non-information  technology systems (such as
telephone systems, fax machines and copiers) has not been completed. The Company
does not believe that the failure of such systems will have a significant impact
on its ability to conduct  business.  If a year 2000 failure should occur in any
of these systems, management intends to resort to traditional hand methods until
such failure can be cured.

The  Company  intends to continue  to monitor  its Year 2000  compliance  and to
correct any noncompliance as it is discovered. Management will fund such efforts
out of  operating  cash  flow.  The  Company  believes  that the  effects on any
noncompliance  on its part, or by its customers and  suppliers,  will not have a
material adverse effect on the Company's business,  financial condition, results
of operations or cash flows.

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 26, 1999 the Company appointed Pender, Newkirk and Company
as independent accountants for the fiscal year to end on September 30, 1999. The
decision to dismiss BDO Seidman,  LLP was approved by the audit committee acting
pursuant to the authority delegated by the Company's Board of Directors.

BDO Seidman,  LLP's reports on the  consolidated  financial of JRECK Subs Group,
Inc. for each of the two most recent fiscal years  contained no adverse  opinion
or disclaimer of opinion,  and were not qualified or modified as to uncertainty,
audit scope or accounting principles.

During the last two fiscal  years and in the  subsequent  interim  period to the
date hereof, there were no disagreements  between JRECK Subs Group, Inc. and BDO
Seidman,  LLP 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 BDO Seidman,  LLP would have caused it to make a
reference to the subject  matter of the  disagreements  in  connection  with its
reports.

The Company has provided  BDO Seidman,  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 26, the Company engaged Pender, Newkirk and Company as its
new independent accountants to audit the Company's financial statements.  During
the period that BDO Seidman served as independent auditor, including all interim
periods, the Company (or someone on its behalf) never consulted Pender,  Newkirk
and Company regarding any matter.

                                       15
<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     29   Yes/10/23/98   Chairman, President and Chief
                                              Executive Officer
Bradley L. Gordon         46   Yes/10/23/98   Chief Operating Officer
Eric T. Swartz            33   Yes/10/23/98   Secretary
Michael F. Cronin         43        No        Chief Financial Officer/Treasurer
Gary E. Rowe              45        No        Controller

--------------------------------------------------------------------------------

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 President of Tri-Emp  Enterprises,
Inc. and the brother of Eric Swartz.

Bradley L. Gordon has been Chief  Operating  Officer and Director of the Company
since 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.

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 and Treasurer  since January 1, 1999. 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.

Gary Rowe has been the Corporate  Controller  since  September,  1993.  Prior to
joining the Company, Mr. Rowe was the Controller of the Development Authority of
the North Country,  a  quasi-independent  New York State government  agency. Mr.
Rowe graduated from the State  University of New York at Albany in 1974 where he
received a  bachelor's  degree in  Accounting.  Mr. Rowe is a  Certified  Public
Accountant.

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.

                                       16
<PAGE>
<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>
                          1999(C)     $ 96,154     $ 0          $ 0          $ 0        0(d)       $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
 Christopher M. Swartz     1998      $ 175,000     $ 0          $ 0          $ 0     1,000,000     $ 0         $ 0
    President & CEO     -----------------------------------------------------------------------------------------------
                           1997      $ 115,393     $ 0          $ 0          $ 0     1,000,000     $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
                          1999(C)     $ 39,000     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
     Gary E. Rowe          1998        $51,000     $ 0          $ 0          $ 0         0         $ 0         $ 0
      Controller        -----------------------------------------------------------------------------------------------
                           1997        $52,600     $ 0          $ 0          $ 0         0         $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
                          1999(C)    $ 102,500     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
   Bradley L. Gordon       1998      $ 150,000     $ 0      $ 60,000(b)      $ 0         0         $ 0         $ 0
Chief Operating Officer -----------------------------------------------------------------------------------------------
                           1997(a)    $ 37,500     $ 0          $ 0          $ 0         0         $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
                          1999(C)     $ 84,615     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
   Michael F. Cronin       1998       $ 93,750     $ 0          $ 0          $ 0         0         $ 0         $ 0
Chief Financial Officer -----------------------------------------------------------------------------------------------
                           1997            $ 0     $ 0          $ 0          $ 0         0         $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Does not include compensation earned at Mountain Mike's prior to acquisition
    by the company in Oct., 1997.

(b) Relocation expense reimbursement.

(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.

Employment Contracts:
<TABLE>
<CAPTION>

Only Mr. Gordon and Mr. Cronin 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>
Bradley L. Gordon        Chief Operating          Sept 22, 1997   3 Years   $ 150,000    12 Months        No
Michael F. Cronin        Officer/Director         July 31, 1998   3 Years   $ 125,000    12 Months        No
                     Chief Financial Officer
-----------------------------------------------------------------------------------------------------------------
</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     Promissory
                                         Options  Shares of     Date of                 Exercise    Options      Note
                                         Granted   Common       Grant                   Price of  Granted to   Payable to
                                          (in       Stock        or         Expiration  Purchase   Employees     the
        Name              Position       Shares)  Purchased    Purchase        Date     Price     During Year  Company(1)
---------------------------------------------------------------------------------------------------------------------------
<S>                   <C>              <C>         <C>       <C>           <C>           <C>       <C>        <C>
Christopher M. Swartz    President &    1,000,000            Aug 29, 1999  Dec 29, 2000  $ 0.29
                        CEO/Director    1,000,000            Aug 29, 1999  Aug 3, 2001   $ 0.29    1999-95%

  Bradley L. Gordon    Chief Operating               500,000 Sept 22, 1997     Not       $ 3.00                 $1,500,000
                      Officer/Director               500,000 July 30, 1998  Applicable   $ 1.38                  $ 687,500

  Michael F. Cronin    Chief Financial               500,000 July 30, 1998     Not       $ 1.38                  $ 687,500
                           Officer                                          Applicable
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       17
<PAGE>

(1) Mr.  Gordon and Mr. Cronin each  purchased  common shares of the Company and
    paid for such purchases by a promissory  note(s).  The notes call for annual
    interest at 9.5% with  principal  and interest due three years from purchase
    date.  Both Mr.  Gordon and Mr. Cronin have the right to require the Company
    to repurchase  their shares as  consideration  for the  cancellation  of the
    note. All accrued interest under these notes through  September 30, 1999 has
    been waived by the Board of Directors..

The following  table sets forth  information  regarding the value of Options and
    Stock Appreciation Rights granted to officers of the Company during 1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                       Number of Securities Underlying         Value of In-The-Money
                                                        Unexercised Options and SAR's            Options and SAR's
                                                            at September 30, 1999              at September 30, 1999
----------------------------------------------------------------------------------------------------------------------------
                   Shares Acquired
Name and Position    on Exercise     Value Realized     Exercisable      Unexercisable     Exercisable      Unexercisable
----------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                <C>             <C>               <C>                <C>             <C>
  Christopher M.         None             None           2,225,000           None              None             None
      Swartz
 President & CEO

Bradley L. Gordon      500,000            None              None             None              None             None
 Chief Operating
     Officer

Michael F. Cronin      500,000            None              None             None              None             None
 Chief Financial
     Officer
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Other:

The  Company  does  not  carry  officers  &  directors  liability  insurance  or
disability  benefits  in excess of  statutorially  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  and a  $1,000,000  whole 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, 1999.  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) 5,569,300         18.18 %
  Common Stock    Bradley L. Gordon     Yes           1,114,956          3.64 %
  Common Stock    Michael F. Cronin     Yes             500,000          1.63 %
  Common Stock       Eric Swartz        Yes                   0          0.00 %
       All Officers and Directors as a Group          7,184,256         23.46 %

  (a)  Includes   3,344,300   shares  of  the  common  stock  owned  by  Tri-Emp
Enterprises,  Inc.  Mr.  Swartz is  President  and sole  shareholder  of Tri-Emp
Enterprises,  Inc. and as such,  is deemed to have  beneficial  ownership of the
shares of the  Company  owned by  Tri-Emp  Enterprises,  Inc.  It also  includes
2,000,000  shares subject to options  currently  exercisable by Mr.  Christopher
Swartz and 225,000 shares subject to options exercisable by Tri-Emp Enterprises,
Inc.

                                       18
<PAGE>

Item 12. Certain Relationships and Related Transactions

Kalin  Enterprises,  Inc. is a franchisee  of JRECK Subs in  Watertown,  NY. Mr.
Christopher  M. Swartz is a 25%  shareholder  and officer of Kalin  Enterprises,
Inc.

In April,  1997 Tri-Emp  Enterprises,  Inc. borrowed  $445,000 from 20 investors
secured  by  445,000  shares of the  Company's  common  stock  owned by  Tri-Emp
Enterprises,  Inc. Tri-Emp Enterprises, Inc. in turn, loaned the entire proceeds
to the Company.  On October 8, 1997 the Company  issued 495,000 shares of Common
Stock to the 20 note holders in full satisfaction of the amounts owed by Tri-Emp
Enterprises, Inc.

The Company  issued  options to purchase  375,000 shares of Common Stock to Gulf
Atlantic Publishing, Inc. on January 6, 1997, exercisable at $0.75 per share. On
November 17, 1997 Gulf  Atlantic  assigned  225,000 of those  options to Tri-Emp
Enterprises,  Inc. in exchange for  purchasing  225,000  shares of the Company's
common stock directly from Tri-Emp Enterprises, Inc.

In 1997 the Company  adjusted the  $104,141  carrying value of a note receivable
from Mr. H. Thomas Swartz to  $0. Mr. Thomas Swartz is the father of Christopher
Swartz and Eric Swartz.

In February,  1998 the Company  issued  112,793 shares of common stock to Sidney
Wertheim and or his designees in  satisfaction  of  $277,404 in debt owed to him
by the Company's Little King, Inc. subsidiary.

Mr. Jeremiah  Haley, a former  director,  received  175,000 shares of JRECK Subs
Group,  Inc. Series A Preferred stock in exchange of his JRECK Subs, Inc. Series
A  Preferred  Stock on May 6,  1996.  Mr.  Haley  was  elected  to the  board of
directors  pursuant  to the rights of the  holders  of the  series A. Mr.  Haley
received  $15,750 in cash  dividends on his Preferred  Stock in 1997.  Mr. Haley
has  converted all 175,000  shares of Preferred A into 190,000  shares of common
stock during 1998. The shares received upon conversion  include 15,000 shares in
consideration of accrued dividends.

Mr.  Christopher M. Swartz,  Chairman of the Company and its President and Chief
Executive Officer,  received (through his control of Tri-Emp Enterprises,  Inc.)
5,000,000  shares of the  Company in  exchange  for all the  outstanding  common
shares of Jreck Subs,  Inc. on May 6, 1996.  Mr.  Swartz also  received  350,000
shares of the Company's  Series B Preferred Stock for his 50% interest in Pastry
Product  Producers Inc. In June, 1998 Mr. Swartz converted all 350,000 shares of
Series B Preferred into 350,000 shares of the Company's Common Stock.

Mr.  Bradley  Gordon,  the  Company's  Chief  Operating  Office and a  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 bear interest at 9.5% per annum and are due three years from the date
of issuance.  Mr. Gordon has the right to require the Company to repurchase  the
shares as consideration for the cancellation of the underlying  promissory note.
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.
All  accrued  interest  under these notes  through  September  30, 1999 has been
waived by the Board of Directors.

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 bear  interest at
9.5% per annum and are due three years from the date of issuance.  Mr. Silberman
has the right to require the Company to repurchase  the shares as  consideration
for the cancellation of the underlying  promissory note. 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.  All accrued
interest  under these notes  through  September  30, 1999 has been waived by the
Board of Directors.

Mr.  Michael F. Cronin,  Chief  Financial  Officer and Treasurer 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, 1999 has been waived by the
Board of Directors.

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

                                       19
<PAGE>

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 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 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 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.  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.

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

                                       20
<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:

                                       21
<PAGE>

                                                                   Financial
      Date of Filing               Items Reported                 Statements
      --------------               --------------                 ----------
     October 8, 1999      Rescission of Little King, Inc.             No

     November 8, 1999     Change in Certifying Accountants            No
                                            Change in Fiscal Year



                                   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.

Jreck Subs Group, Inc.
------------------------
      (Registrant)



                               President & Duly Authorized
                                   Officer Member of
01/05/00   Christopher M. Swartz   Board of Directors  /s/ Christopher M. Swartz
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature




                                   Chief Financial
                                  Officer & Principal
01/05/00      Michael F. Cronin    Accounting Officer  /s/ Michael F. Cronin
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature



                                   Chief Operating
                                 Officer & Member of
01/05/00     Bradley L. Gordon    Board of Directors    /s/ Bradley L. Gordon
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature


                                       22
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries

                        Consolidated Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

                                    Contents

Independent Auditors' Reports on Consolidated Financial Statements.... F-1 - F-2

Consolidated Financial Statements:

     Consolidated Balance Sheets...................................... F-3 - F-4
     Consolidated Statements of Operations............................       F-5
     Consolidated Statements of Cash Flows............................ F-6 - F-7
     Consolidated Statements of Stockholders' Equity.................. F-8 - F-9
     Consolidated Notes to Financial Statements..................... F-10 - F-46


                                       23
<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  ended  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 provide 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.

Pender Newkirk & Company, CPAs
Tampa, Florida

November 12, 1999

                                                                             F-1
<PAGE>

Report of Independent Certified Public Accountants

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

We have audited the accompanying consolidated balance sheet of JRECK Subs Group,
Inc.  as of  December  31,  1998  and the  related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  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 audits provide 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. at December 31, 1998,  and the results of their  operations  and their cash
flows for the year then ended in conformity with generally  accepted  accounting
principles.

                                                              BDO Seidman, LLP

Orlando, Florida
April 1, 1999

                                                                             F-2
<PAGE>
<TABLE>
<CAPTION>
                                       JRECK Subs Group, Inc. and Subsidiaries
                                            Consolidated Balance Sheets

                                                                             September 30,          December 31,
                                                                                 1999                   1998
---------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S>                                                                         <C>                     <C>
    Cash and cash equivalents, including restricted cash of $35,086
        and $34,315 for 1999 and 1998, respectively                          $      121,292         $      310,578
    Accounts receivable - trade, net of allowance for doubtful
        accounts of $152,886 and $157,000 for 1999 and 1998,
        respectively                                                                365,618                398,755
    Prepaid expenses                                                                456,883                650,215
    Current portion of notes receivable                                              80,000                398,778
---------------------------------------------------------------------------------------------------------------------
        Total current assets                                                      1,023,793              1,758,326
---------------------------------------------------------------------------------------------------------------------
Property and equipment, net                                                         726,667                820,722
---------------------------------------------------------------------------------------------------------------------

Other assets:
    Goodwill, net of accumulated amortization of $984,817 and $767,385
        for 1999 and 1998, respectively                                           8,987,076             11,102,937
    Covenants not to compete, net of accumulated amortization of
        $388,458 and $283,039 for 1999 and 1998, respectively                       113,542                318,961
    Deferred loan costs, net                                                        376,403                433,155
    Notes receivable, net of allowance for doubtful accounts of
        $180,000 and $0 for 1999 and 1998, respectively                                   -                159,182
    Other                                                                           106,750                114,571
---------------------------------------------------------------------------------------------------------------------
Total assets                                                                 $   11,334,231         $   14,707,854
=====================================================================================================================
</TABLE>

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

                                                                             F-3
<PAGE>
<TABLE>
<CAPTION>

                     JRECK Subs Group, Inc. and Subsidiaries
                     Consolidated Balance Sheets, Continued

                                                                             September 30,          December 31,
                                                                                 1999                   1998
---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity Current liabilities:
<S>                                                                          <C>                    <C>
    Current portion of long-term debt                                        $    1,606,041         $    2,003,198
    Accounts payable                                                                496,553              1,002,109
    Accrued liabilities                                                             552,881                708,759
    Accrued preferred stock dividends                                               247,764                201,540
---------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                         2,903,239              3,915,606

Long-term debt, less current portion                                                763,505              1,511,642
Note payable to related party                                                       245,939                363,339
---------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                 3,912,683              5,790,587
---------------------------------------------------------------------------------------------------------------------
Redeemable common stock                                                             293,000                593,000
---------------------------------------------------------------------------------------------------------------------

Redeemable Series F Preferred Stock, no par value,
    250 shares authorized, 197.5 and 0 shares
    issued and outstanding for 1999 and 1998,
    respectively                                                                  2,468,750                      -
---------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
    Series C Convertible Preferred Stock, no par value, 120 shares
        authorized, issued and outstanding                                          120,000                120,000
    Series D Convertible Preferred Stock, no par value, 2,500 shares
        authorized, 0 and 2,350 shares issued and outstanding for 1999
        and 1998, respectively                                                            -              3,918,271
    Common stock, no par value, 50,000,000 shares authorized,
        28,403,440 and 19,503,596 shares issued and outstanding for
        1999 and 1998, respectively                                              28,394,179             26,225,338
    Accumulated deficit                                                         (19,666,881)           (17,751,842)
    Less:  Stock subscriptions receivable                                        (4,187,500)            (4,187,500)
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                        4,659,798
---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                   $   11,334,231         $   14,707,854
=====================================================================================================================
</TABLE>

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

                                                                             F-4
<PAGE>
<TABLE>
<CAPTION>

                              JRECK Subs Group, Inc. and Subsidiaries
                              Consolidated Statements of Operations

                                                                             Nine Months
                                                                                 Ended               Year Ended
                                                                             September 30,          December 31,
                                                                                 1999                   1998
---------------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                           <C>                    <C>
    Continuing royalty revenues                                               $   2,046,280          $   2,867,145
    Initial royalty revenues                                                         78,250                160,666
    Retail sales - company-owned stores                                                   -              1,534,086
    Retail sales - bakery and other products                                        571,844                829,803
    Other revenues                                                                  600,004                598,844
---------------------------------------------------------------------------------------------------------------------
                                                                                  3,296,378

Operating costs and expenses:
    Franchise servicing costs                                                     1,296,506              2,037,631
    Cost of retail sales and operating costs - stores                                     -              1,446,876
    Cost of retail sales and operating costs - bakery                               541,014              1,032,806
    General and administrative                                                    1,177,276              1,404,131
    Consulting and investor relations                                               722,541                998,287
    Bad debt expense                                                                254,507                125,417
    Long-lived asset writedown                                                            -              1,902,290
    Series D preferred stock conversion penalty                                           -                718,272
    Amortization and depreciation                                                   670,442              1,040,260
---------------------------------------------------------------------------------------------------------------------
                                                                                  4,662,286             10,705,970
---------------------------------------------------------------------------------------------------------------------

Loss from operations                                                             (1,365,908)            (4,715,426)

Other income (expense):

    Interest, net                                                                  (356,192)              (435,584)
    Loss on disposal of property, plant and equipment                                     -               (525,382)
    Loss on sale of other assets                                                    (98,202)                     -
    Other, net                                                                       52,203                      -
---------------------------------------------------------------------------------------------------------------------

Net loss                                                                         (1,768,099)            (5,676,392)
Preferred stock dividends                                                          (146,940)            (1,724,092)
---------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock                                           $  (1,915,039)         $  (7,400,484)
=====================================================================================================================
Weighted average of common shares outstanding                                    22,796,417             16,333,684
=====================================================================================================================
Net loss per common share - basic and diluted                                 $        (.08)         $        (.45)
=====================================================================================================================
</TABLE>

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

                                                                             F-5
<PAGE>
<TABLE>
<CAPTION>
                              JRECK Subs Group, Inc. and Subsidiaries
                              Consolidated Statements of Cash Flows

                                                                                     Nine Months
                                                                                        Ended               Year Ended
                                                                                    September 30,          December 31,
                                                                                        1999                   1998
----------------------------------------------------------------------------------------------------------------------------
Operating activities:
<S>                                                                                  <C>                    <C>
    Net loss                                                                         $  (1,768,099)         $  (5,676,392)
    Adjustments to reconcile net loss to net cash used by operating
        activities:
        Amortization and depreciation                                                      670,442              1,040,260
        Write down of long-lived assets                                                          -              1,902,290
        Bad debts                                                                          254,507                125,418
        Loss on disposal of property, plant and equipment                                        -                525,382
        Loss on sale of marketable security                                                 58,596                      -
        Loss on sale of other assets                                                        39,606                      -
        Stock and stock options issued for services                                        239,595                188,232
        Conversion penalty on Series D preferred stock                                           -                718,272
        Prepaid interest and loan fees amortized to interest expense                        75,502                 83,055
        Amortization of deferred loan costs                                                 56,889                 55,111
        Prepaid consulting fees amortized to consulting and investor                       487,356                450,643
           relations expense
        Other                                                                                    -                 14,630
        (Increase) decrease in:
           Accounts receivable                                                              32,184                (84,018)
           Prepaid expenses                                                                (14,674)                72,341
        Increase (decrease) in:
           Accounts payable                                                               (362,255)              (109,335)
           Accrued liabilities                                                            (198,919)              (337,046)
----------------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities                                                     (429,270)            (1,031,157)
----------------------------------------------------------------------------------------------------------------------------

Investing activities:
    Proceeds from sale of marketable security                                              115,967                      -
    Purchase of property and equipment                                                      (2,059)              (214,934)
    Proceeds from disposal of property, plant and equipment and sale of assets              33,403                149,982
    Advances made on notes receivable                                                      (12,185)              (200,373)
    Payments from notes receivable                                                               -                145,241
    (Increase) decrease in other assets                                                      1,721                (75,474)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities                                           136,847               (195,558)
----------------------------------------------------------------------------------------------------------------------------

Financing activities:
    Proceeds from the sale of common stock                                                 150,000                      -
    Proceeds from the sale of Series E preferred stock                                     200,000                      -
    Proceeds from the sale of Series D preferred stock                                           -              1,817,500
    Payments to repurchase Series E preferred stock                                       (100,000)                     -
    Payments on redeemable common stock                                                          -               (232,000)
    Proceeds from long-term debt                                                                 -                350,000
    Payments on long-term debt                                                             (90,546)              (832,102)
    Proceeds from related party notes payable                                                    -                 40,307
    Payment of preferred stock dividends                                                   (56,317)               (33,832)
----------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                                  103,137              1,109,873
----------------------------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                                 (189,286)              (116,842)
Cash and cash equivalents, beginning of year                                               310,578                427,420
----------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                                               $     121,292          $     310,578
============================================================================================================================
</TABLE>

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

                                                                             F-6
<PAGE>
<TABLE>
<CAPTION>

                     JRECK Subs Group, 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:

                                                                                     Nine Months
                                                                                        Ended               Year Ended
                                                                                    September 30,          December 31,
                                                                                        1999                   1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                         <C>
Cash paid for interest                                                          $          223,801          $     266,904
============================================================================================================================
Issuance of common stock in exchange for subscriptions receivable               $                 -         $   1,787,500
Stock and stock options issued in exchange for prepaid expenses                            298,100                456,304
Stock and stock options issued in exchange for prepaid interest and deferred                     -                 92,125
    loan costs
Conversion of Series A preferred to common stock                                                 -              1,200,000
Conversion of Series B preferred to common stock                                                 -                700,000
Conversion of Series D preferred to common stock                                           791,983                250,102
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                                                 197,695                      -
Common shares received from sale of Little King and Richey Enterprises                   1,111,031                      -
Common shares issued to satisfy liability to issue common stock to prior
    owner of Little King                                                                         -                918,750
Renegotiation of liability to issue common stock to prior owner of Little King                   -                875,000
Common shares issued to satisfy Mountain Mike's acquisition contingency                          -                250,000
Conversion of long-term debt into Series D preferred stock                                       -                250,000
Dividend on assumed conversion of Series D preferred stock into common stock                     -              1,382,601
Redeemable common stock obligation incurred upon exercise of stock options                       -                325,000
Conversion of long-term debt into common stock                                             159,400                277,404
Decrease in goodwill resulting from the disposals of assets                                      -                499,080
Preferred stock dividends paid in common stock                                              44,399                130,651
Preferred stock dividends accrued                                                          114,023                201,540
Other increases in notes receivable                                                              -                 43,369
============================================================================================================================

<CAPTION>
In addition to the above non-cash items,  the following is a summary of non-cash
transactions  entered  into for the  acquisitions  listed in Note 3 for the nine
months ended September 30, 1999 and the year ended December 31, 1998:

                                                                                     Nine Months
                                                                                        Ended               Year Ended
                                                                                    September 30,          December 31,
                                                                                        1999                   1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                          <C>
Common stock and stock options issued                                           $                -          $  (2,100,000)
----------------------------------------------------------------------------------------------------------------------------
Total non-cash consideration paid                                                                -             (2,100,000)
----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment acquired                                                           -                 15,000
Goodwill acquired                                                                                -              2,485,000
----------------------------------------------------------------------------------------------------------------------------
Total non-cash acquisition of assets                                                             -              2,500,000
----------------------------------------------------------------------------------------------------------------------------
Long-term debt assumed                                                                           -               (400,000)
----------------------------------------------------------------------------------------------------------------------------
Total non-cash assumption of liabilities                                                         -               (400,000)
----------------------------------------------------------------------------------------------------------------------------
Net cash paid                                                                   $                -          $           -
============================================================================================================================
</TABLE>

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

                                                                             F-7
<PAGE>
<TABLE>
<CAPTION>

                     JRECK Subs Group, Inc. and Subsidiaries
                Consolidated Statements of Stockholders' Equity

                                                        Common                Preferred Series A           Preferred Series B
                                                 Shares        Amount        Shares         Amount        Shares        Amount
----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>               <C>        <C>               <C>         <C>
Balance, December 31, 1997                     14,328,337   $18,170,103       600,000    $ 1,200,000       350,000     $ 700,000

Exercise of options for redeemable common         100,000      (325,000)            -              -             -             -
    stock
Stock issued to settle liability to issue         300,000       918,750             -              -             -             -
    common stock
Common stock issued for acquisition               778,584     2,100,000             -              -             -             -
Conversion of debt to equity                      112,793       277,404             -              -             -             -
Stock issued for current and prepaid              248,581       537,295             -              -             -             -
    services
Conversion of preferred Series A to common        600,000     1,200,000      (600,000)    (1,200,000)            -             -
    stock
Conversion of preferred Series B to common        350,000       700,000             -              -      (350,000)     (700,000)
    stock
Stock sold for subscription notes receivable    1,300,000     1,787,500             -              -             -             -
Preferred stock dividends                          99,727       130,651             -              -             -             -
Stock issued in connection with debt               70,000        70,000             -              -             -             -
Stock issued to satisfy acquisition               500,000       250,000             -              -             -             -
    contingencies
Issuance of options for services                        -        85,366             -              -             -             -
Issuance of preferred Series D shares                   -             -             -              -             -             -
Conversion of preferred Series D to common        615,384       250,102             -              -             -             -
    stock
Preferred Series D stock dividend                       -             -             -              -             -             -
Other                                             100,190        73,167             -              -             -             -
Net loss                                                -             -             -              -             -             -
----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998                     19,503,596    26,225,338             -              -             -             -

Conversion of debt to equity                      692,308       159,400             -              -             -             -
Stock issued for current and prepaid            1,291,667       340,000             -              -             -             -
    services
Exercise of options for common stock               37,500             -             -              -             -             -
Stock issued for marketable security              769,230       174,563             -              -             -             -
Conversion of preferred Series D to common      4,250,499       791,983             -              -             -             -
    stock
Conversion of preferred Series D stock            397,966        44,399             -              -             -             -
    dividend
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             -              -             -             -
Preferred dividends                                     -             -             -              -             -             -
Net loss                                                -             -             -              -             -             -
----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999                    28,403,440   $28,394,179             -    $         -             -     $       -
==================================================================================================================================
</TABLE>

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

                                                                             F-8
<PAGE>
<TABLE>
<CAPTION>

                     JRECK Subs Group, Inc. and Subsidiaries
           Consolidated Statements of Stockholders' Equity, Continued

     Preferred Series C            Preferred Series D          Preferred Series E       Accumulated    Subscription       Total
    Shares          Amount        Shares        Amount        Shares        Amount        Deficit          Notes          Equity
------------------------------------------------------------------------------------------------------------------------------------
      <S>          <C>          <C>          <C>             <C>         <C>            <C>
        120         $120,000             -   $         -             -   $         -    $(10,351,358)  $  (2,400,000)  $  7,438,745

          -                -             -             -             -             -               -               -       (325,000)
          -                -             -             -             -             -               -               -        918,750
          -                -             -             -             -             -               -               -      2,100,000
          -                -             -             -             -             -               -               -        277,404
          -                -             -             -             -             -               -               -        537,295
          -                -             -             -             -             -               -               -              -
          -                -             -             -             -             -               -               -              -
          -                -             -             -             -             -               -      (1,787,500)             -
          -                -             -             -             -             -        (341,491)              -       (210,840)
          -                -             -             -             -             -               -               -         70,000
          -                -             -             -             -             -               -               -        250,000
          -                -             -             -             -             -               -               -         85,366
          -                -         2,500     2,785,772             -             -               -               -      2,785,772
          -                -          (150)     (250,102)            -             -               -               -              -
          -                -             -     1,382,601             -             -      (1,382,601)              -              -
          -                -             -             -             -             -               -               -         73,167
          -                -             -             -             -             -      (5,676,392)              -     (5,676,392)
------------------------------------------------------------------------------------------------------------------------------------
        120          120,000         2,350     3,918,271             -             -     (17,751,842)     (4,187,500)     8,324,267

          -                -             -             -             -             -               -               -        159,400
          -                -             -             -             -             -               -               -        340,000
          -                -             -             -             -             -               -               -              -
          -                -             -             -             -             -               -               -        174,563
          -                -          (475)     (791,983)            -             -               -               -              -
          -                -             -             -             -             -         (44,399)              -              -
          -                -             -             -             -             -               -               -     (1,111,031)
          -                -             -             -             -             -               -               -        150,000
          -                -             -             -             -             -               -               -        197,695
          -                -             -             -             -             -               -               -        664,294
          -                -             -             -            20       200,000               -               -        200,000
          -                -             -             -           (10)     (100,000)              -               -       (100,000)

          -                -        (1,875)   (3,126,288)          (10)     (100,000)              -               -     (2,468,750)
          -                -             -             -             -             -        (102,541)              -       (102,541)
          -                -             -             -             -             -      (1,768,099)              -     (1,768,099)
------------------------------------------------------------------------------------------------------------------------------------
        120         $120,000             -   $         -             -   $         -    $(19,666,881)  $  (4,187,500)  $  4,659,798
====================================================================================================================================
</TABLE>

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

                                                                             F-9
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998


1.       Background Information

         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.

         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,
         Admiral Subs of Washington,  Inc., a Washington corporation,  Admiral's
         Fleet,  Inc., a Washington  corporation and Pastry Products  Producers,
         LLC, a New York limited liability company. Also, prior to the Company's
         disposition or sale, the Company included  Leovera,  Inc., a Washington
         corporation,  Little King, Inc., a Delaware corporation and through its
         Admiral's  Fleet,  Inc.   subsidiary,   Richey  Enterprises,   Inc.,  a
         Washington corporation.

         The Company is a  multi-concept  franchisor of sandwich shops and pizza
         restaurants  located throughout the United States. Its headquarters are
         located in  Longwood,  Florida.  Currently,  the Company  serves as the
         franchisor to  approximately  209 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  previously  had  operated
         company-owned  stores.  The bakery is the supplier of bread products to
         certain franchisees of the Company. For the nine months ended September
         30,  1999,  all  bakery  sales  were to  franchisees  (17.3%  of  total
         revenues).  During the year ended  December 31,  1998,  sales of bakery
         products to the franchisees of the Company  amounted to $767,378 (12.8%
         of  total  revenues).  As  of  December  31,  1998,  all  company-owned
         restaurants had been disposed of.

         As indicated in the accompanying consolidated financial statements, the
         Company has reduced its loss from  approximately  $5.7  million for the
         year ended December 31, 1998 to approximately $1.8 million for the nine
         months ended  September 30, 1999.  Cash used by operations for the nine
         months ended September 30, 1999 was approximately  $400,000 compared to
         approximately  $1.0 million used for the year ended  December 31, 1998.
         Working capital deficit  decreased from  approximately  $2.2 million at
         December 31, 1998 to approximately $1.9 million at September 30, 1999.

Read independent auditors' report.                                          F-10
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

1.       Background Information (continued)

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

                  1.       the conversion  and/or the extension of approximately
                           $1.2  million of debt due in the next twelve  months;
                           and

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

         Management  believes  based on these major steps  outlined  above,  the
         Company's  operating  losses before  amortization  and negative working
         capital could be reduced and to the extent that the Company's  business
         strategies  could be realized,  the Company's  operating  losses before
         amortization and negative working capital could be eliminated, although
         no assurances can be given.

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.

         Principles of Consolidation

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

Read independent auditors' report.                                          F-11
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

2.       Significant Accounting Policies (continued)

         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 nine months ended  September  30, 1999 and the year ended
         December 31, 1998, 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.

         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  by  the  straight-line  method  over  the
         estimated  useful lives of the assets,  generally  ranging from 5 to 40
         years. For income tax purposes, the Company uses accelerated methods of
         depreciation  for certain  assets.  For the nine months ended September
         30, 1999 and the year ended  December  31, 1998,  depreciation  expense
         amounted to $96,114 and $256,349, respectively.

         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.

         Deferred Loan Costs

         Deferred loan costs are amortized ratably over the terms of the related
         loans.

Read independent auditors' report.                                          F-12
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

2.       Significant Accounting Policies (continued)

         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.

         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
         period.  The  Company  applies APB 25 and  related  interpretations  in
         accounting for employee stock options.

Read independent auditors' report.                                          F-13
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

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, 1999.

         The  respective  carrying value of certain  on-balance-sheet  financial
         instruments approximates their fair values. These financial instruments
         include cash and  equivalents,  trade  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.

         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.

Read independent auditors' report.                                          F-14
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

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,  1999  and  December  31,  1998  include  4,782,070  and
         4,274,570  stock  options and  warrants,  15,986 and  1,398,071  shares
         underlying the  convertible  preferred stock and 48,803 shares from the
         convertible  notes  payable,   respectively.   The  maximum  number  of
         contingent  shares to be issued is 0 and  333,846 as of  September  30,
         1999 and December 31, 1998, respectively.

         Income Taxes

         The Company  accounts for income taxes on 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 is  effective  for all fiscal  quarters  or
         fiscal years beginning after June 15, 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.

Read independent auditors' report.                                          F-15
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

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 1998 financial statements have been reclassified
         to conform to the 1999 presentation.

3.       Acquisition of Subsidiaries

         Changes in goodwill  and  accumulated  amortization  for the year ended
         December 31, 1998 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, 1997                            $   11,717,891      $   (196,365)  $   11,521,526

Goodwill from Li'l Dino acquisition                        2,485,000                 -        2,485,000
Issuance of 500,000 contingent shares to QFS
    shareholders                                             250,000                 -          250,000
Adjustment on liability to issue common stock to
    Little King shareholders                                (875,000)                -         (875,000)
Impairment in value                                       (1,177,212)                -       (1,177,212)
Goodwill attributable to sold restaurants                   (457,804)                -         (457,804)
Other                                                        (72,553)                -          (72,553)
Amortization expense for the year ended December
    31, 1998                                                       -          (571,020)        (571,020)
---------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                11,870,322          (767,385)      11,102,957

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
=========================================================================================================
</TABLE>

Read independent auditors' report.                                          F-16
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

         Changes in covenants not to compete and  accumulated  amortization  for
         the year ended  December 31, 1998 and the nine months  ended  September
         30, 1999 are as follows:
<TABLE>
<CAPTION>
                                                                  Non-compete       Accumulated          Net
                                                                   Convenants      Amortization        Goodwill
           ---------------------------------------------------------------------------------------------------------
           <S>                                                      <C>               <C>              <C>
           Balance, December 31, 1997                               $   602,000       $   (89,223)     $   512,777

           Amortization expense for the year ended December
               31, 1998                                                       -          (193,816)        (193,816)
           ---------------------------------------------------------------------------------------------------------
           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
           =========================================================================================================
</TABLE>

         During 1998 and 1997, the Company  acquired eight entities  through the
         purchase of assets or stock. 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.

                  Li'l Dino Corporation

                  On March 22, 1998, the Company acquired all of the outstanding
                  common stock of Li'l Dino Corporation ("Li'l Dino"). Li'l Dino
                  is a franchisor of sandwich shops in North Carolina.

                  The purchase price of Li'l Dino consisted of 778,584 shares of
                  the Company's  common stock,  valued at $2.72 per share,  plus
                  debt assumed. The transaction was recorded as follows:

                      Total consideration paid                   $  2,100,000
                      Less fair value of assets acquired              (15,000)
                      Debt assumed                                    400,000
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired    $  2,485,000
                      ==========================================================

Read independent auditors' report.                                          F-17
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  Chai Enterprises, Inc.

                  On June  19,  1997,  the  Company,  through  its  wholly-owned
                  subsidiary,   Leovera,   Inc.,  acquired  all  of  the  bakery
                  equipment  of Chai  Enterprises,  Inc.  ("Chai").  Chai is the
                  franchisor  of the Hymie's bagel  restaurant  chain located in
                  Tampa,   Florida.  The  purchase  price  of  the  Chai  assets
                  consisted of 289,500  shares of the  Company's  common  stock,
                  valued at $4.598 per share ($1,331,156) and $200,000 cash. The
                  transaction was recorded as follows:

                       Total consideration paid                  $  1,531,156
                       Less fair value of assets acquired            (537,336)
                       ---------------------------------------------------------
                       Excess of cost over net assets acquired   $    993,820
                      ==========================================================

                  At  December  31,  1997,  the  Company  recognized  a goodwill
                  impairment  charge of $993,820  related to the  acquisition of
                  Chai Enterprises.  In determining the amount of the impairment
                  charge,  the Company developed its best estimate of the future
                  operating cash flows attributable to the assets purchased.  In
                  the  fourth  quarter,  the  Company  concluded  that  based on
                  current  market  conditions,  including  the  reduction in the
                  number  of  franchises,  the  anticipated  future  cash  flows
                  indicated   the   recoverability   of  the  goodwill  was  not
                  reasonably assured.

                  During 1998,  the Company ceased all operations of the Leovera
                  subsidiary,  and as further  discussed in Note 5,  recorded an
                  impairment  in  the  value  of  certain  of  the  subsidiary's
                  property, plant and equipment.

                  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.  The purchase  price of Seawest was $150,000 cash.
                  In addition,  the Company entered into a noncompete  agreement
                  with the former shareholder valued at $502,000.  Consideration
                  for the  agreement  consisted  of a $96,000  note  payable and
                  stock options valued at $4.06 per share ($406,000).

Read independent auditors' report.                                          F-18
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  The transaction was recorded as follows:

                      Total consideration paid                   $   150,000
                      Less fair value of assets acquired            (231,281)
                      Liabilities assumed                            976,106
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired    $   894,825
                      ==========================================================

                  As noted above, options were granted to purchase up to 100,000
                  shares of Company  common  stock to the prior owner of Seawest
                  at an exercise price of $.001 per share.

                  During 1998, all of these options were exercised.

                  Upon  request of the prior  owner of  Seawest,  the Company is
                  obligated to repurchase  these exercised shares at the greater
                  of fair market value or $3.25 over a mutually agreeable period
                  of time which has not been  determined.  During 1998,  $32,000
                  was  paid   pursuant  to  the   guarantee  and  the  remaining
                  obligation  to  repurchase  these shares has been  recorded as
                  redeemable common stock.

                  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.  The
                  purchase  price of Richey  consisted  of 93,794  shares of the
                  Company's common stock, valued at $3.625 per share.

                  The transaction was recorded as follows:

                      Common stock issued in connection
                        with acquisition                         $   340,000
                      Less fair value of assets acquired             (95,174)
                      Liabilities assumed                            143,057
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired    $   387,883
                      ==========================================================

Read independent auditors' report.                                          F-19
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  The Company was  obligated  to  reimburse  the prior owners of
                  Richey if the fair market value of the Company's  common stock
                  falls  below 80% of its value on the  original  closing  date.
                  This  contingency  was to take effect August 15, 1999 and only
                  if the prior owners of Richey transfer their shares to a third
                  party   during  the  first  30  days   following   the  second
                  anniversary date of the closing.

                  In February  1999,  the Company  executed an agreement to sell
                  Richey  Enterprises,  Inc. 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. As a result of this transaction, an impairment to
                  the Richey Enterprises, Inc. acquisition goodwill was recorded
                  at December 31, 1998 in the amount of  $177,000.  For the nine
                  months ended  September 30, 1999, the Company  recorded a loss
                  on the sale of assets of $39,606  relating to the  disposition
                  of Richey Enterprises, Inc.

                  Little King, Inc.

                  On August 31,  1997,  the Company  purchased  the  outstanding
                  shares  of  Little  King,   Inc.,  a  franchisor  of  sandwich
                  restaurants in Omaha, Nebraska. In addition to the purchase of
                  the Little King shares,  the Company  purchased certain assets
                  and assumed certain liabilities from a separate entity related
                  by common ownership to the previous Little King owners.  These
                  assets and  liabilities  represent  company-owned  stores.  In
                  addition, the Company entered into a noncompete agreement with
                  the former shareholder valued at $100,000.

                  Included in the original  purchase  price was an obligation to
                  issue  700,000  additional  shares of common  stock within one
                  year of the  acquisition.  This  obligation was accrued for in
                  the balance of  "Liability  to issue common stock" at December
                  31, 1997. In 1998, the Company and the former owners of Little
                  King  renegotiated the purchase price and agreed to reduce the
                  number of shares to be issued to 300,000.  As a result of this
                  renegotiation,  the goodwill and the liability to issue common
                  stock was reduced by $875,000.

                  The Company  must  provide the prior owners of Little King the
                  opportunity to repurchase  Little King, based on a fair market
                  value,  as  defined,  if the quoted  closing  market  price of
                  Company  common  stock is less  than  $1.50  per  share on the
                  second anniversary of the closing of the acquisition.

Read independent auditors' report.                                          F-20
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  The final purchase price of Little King and the  company-owned
                  stores was $2,600,000 as follows:

                      500,000 shares of Company common stock     $   1,531,250
                      300,000 shares of Company common stock           918,750
                      Cash paid                                         50,000
                      Note payable                                     100,000
                      ----------------------------------------------------------
                      Total acquisition price                    $   2,600,000
                      ==========================================================

                  The  800,000  shares of Company  common  stock were  valued at
                  $3.0625 per share.

                  The transaction was recorded as follows:

                      Total consideration paid                   $   2,600,000
                      Less fair value of assets acquired              (475,470)
                      Liabilities assumed                            1,230,675
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired    $   3,355,205
                      ==========================================================

                  During  1998,   the  Company  sold  all  of  its  Little  King
                  company-owned    stores   for   notes   receivable    totaling
                  approximately  $185,000,  resulting  in a loss on  disposal of
                  approximately $490,000,  including $438,729 of net acquisition
                  goodwill allocated to the stores.

                  During the fourth  quarter of 1998,  the Company  completed an
                  evaluation  of  the  economic  value  of  this   acquisition's
                  goodwill  through an updated  analysis  of the  expected  cash
                  flows.  It was determined  during the evaluation that the cash
                  flow to be generated from the Little King acquisition would be
                  less  than  the  recorded  cost  of  the  investment  and  the
                  unamortized   goodwill   balances   at  December   31,   1998.
                  Accordingly,  the Company  recorded a provision for impairment
                  of goodwill for $1,000,000 to reduce the carrying value of the
                  goodwill  to its current  fair value  based on the  discounted
                  cash flows expected.

                  Effective  August 31, 1999, the Company  executed an agreement
                  to sell Little King,  Inc. back to the prior  owners.  Per the
                  agreement,  the  prior  owners  surrendered  686,793  of their
                  Company  shares and assumed all assets and  liabilities.  As a
                  result of this  transaction,  the Company recorded a reduction
                  in common stock of $1,088,534  relating to the  disposition of
                  Little King, Inc.

Read independent auditors' report.                                          F-21
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition 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  through  a  newly  created
                  wholly-owned  subsidiary.   The  purchase  price  of  QFS  was
                  summarized as follows:

                      Company common stock                       $   3,084,278
                      Company Series "C" Preferred stock,
                         120 shares                                    120,000
                      Options for 32,204 shares of Company
                         common stock                                   23,000
                      ----------------------------------------------------------
                      Total acquisition price                    $   3,227,278
                      ==========================================================

                  Included  in the  acquisition  price  were  899,967  shares of
                  common stock issued at date of  acquisition  and an additional
                  150,000  shares that were issued during 1998.  The  additional
                  150,000   shares  were  issued  upon  the   resolution   of  a
                  contingency  relating  to  market  price  performance  of  the
                  Company's common stock.

                  The  Company's  common  stock was valued at $2.9375 per share.
                  The Series "C"  Preferred  Stock is valued at its par value of
                  $1,000 per share.  The value of the stock options was computed
                  using the market value at the date of grant.

                  The transaction was recorded as follows:

                      Total consideration paid                   $   3,227,278
                      Less fair value of assets acquired              (325,406)
                      Liabilities assumed                            1,047,261
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired    $   3,949,133
                      ==========================================================

                  The Company was contingently  liable to the previous owners of
                  QFS for the payment of up to an additional  500,000  shares of
                  common stock based on the 1998 earnings of the Mountain Mike's
                  division,  as defined.  These shares, with a fair market value
                  of $250,000 on the date of issuance,  were issued during 1998,
                  resulting in a corresponding increase to goodwill.

Read independent auditors' report.                                          F-22
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  Pastry Product Producers, LLC

                  On October 28, 1997,  the Company  acquired the  remaining 50%
                  interest of Pastry Product Producers,  LLC ("Pastry").  Pastry
                  is  a  bakery  operation  which  primarily  serves  the  JRECK
                  restaurant  franchisees.  In 1996, the Company purchased a 50%
                  investment  in Pastry  and  accounted  for it under the equity
                  method.  The balance  sheet of Pastry as of December  31, 1997
                  and its  results  of  operations  for the period  between  the
                  acquisition  date of the  remaining 50% ownership and year end
                  have  been   consolidated   in  the   accompanying   financial
                  statements.  The Company's  share of  operations  prior to the
                  acquisition  have been treated as a loss on equity  investment
                  and classified as such in the statement of operations.

                  The carrying value of the original 50% of Pastry was $743,984,
                  consisting  of 350,000  shares of $2 par Series "B"  preferred
                  stock,  plus  $43,984  in  subsidiary  equity  earnings.   The
                  purchase  price of the remaining 50% of Pastry is comprised of
                  the following:

                      Company common stock, 262,500 shares       $   658,594
                      Options for 37,500 shares of Company
                         common stock                                 79,000
                      Other                                           48,000
                      ----------------------------------------------------------
                      Total acquisition price of remaining
                         50% share                               $   785,594
                      ==========================================================

                  The Company's common stock was valued at $2.509 per share. The
                  value of the stock options was computed  based upon the market
                  value at the date of grant.  The  transaction  was recorded as
                  follows:

                      Total consideration paid                    $     785,594
                      Carrying value of initial 50% investment          743,984
                      Less fair value of assets acquired               (669,738)
                      Liabilities assumed                               269,697
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired     $   1,129,537
                      ==========================================================

Read independent auditors' report.                                          F-23
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  SBK Franchise Systems, Inc.

                  On December 4, 1997,  the Company  purchased  the  outstanding
                  shares of SBK  Franchise  Systems,  Inc.  ("SBK").  SBK is the
                  franchisor of the Sobik's sandwich restaurant chain in Central
                  Florida.

                  The  purchase  price of SBK  consisted  of a note  payable for
                  $500,000, cash of $100,000 and 187,266 shares of the Company's
                  common  stock  valued at  $2.8125  per share  ($526,686).  The
                  transaction was recorded as follows:

                      Total consideration paid                   $   1,126,686
                      Less fair value of assets acquired               (90,342)
                      Liabilities assumed                               89,963
                      ----------------------------------------------------------
                      Excess of cost over net assets acquired    $   1,126,307
                      ==========================================================

                  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.  The Company was only  required to repurchase a maximum
                  of 37,453 shares in any six-month period commencing six months
                  from the date of closing. The redeemable common stock purchase
                  obligation was noncumulative and was to expire in June 2000.

                  During  1998,  the Company  repurchased  74,906  shares of the
                  redeemable common stock and 112,360 shares remained subject to
                  redemption  at December  31, 1998.  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. This transaction resulted in $149,294 of
                  additional excess of cost over net assets acquired.

Read independent auditors' report.                                          F-24
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

3.       Acquisition of Subsidiaries (continued)

                  Pro Forma Financial Information (Unaudited)

                  The  following  summarized  unaudited  pro forma  consolidated
                  results of  operations  for the year ended  December  31, 1998
                  have been prepared as if the preceding  acquisitions  occurred
                  at the beginning of the applicable year presented and includes
                  pro  forma   adjustments   for  interest,   depreciation   and
                  amortization:

                                                                       1998
                  --------------------------------------------------------------
                  Revenue                                        $   6,114,936
                  Net loss                                       $  (5,684,118)
                  --------------------------------------------------------------
                  Net loss per share - basic and diluted         $       (.34)
                  --------------------------------------------------------------
                  Weighted average number of common shares
                    outstanding                                    16,631,492
                  ==============================================================

                  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 periods presented,  nor do
                  they  purport to be  indicative  of the  results  that will be
                  obtained in the future.

Read independent auditors' report.                                          F-25
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

4.       Notes Receivable

         Notes  receivable  are comprised of the following at September 30, 1999
         and December 31, 1998:
<TABLE>
<CAPTION>

                                                                                          1999               1998
           ---------------------------------------------------------------------------------------------------------
          <S>                                                                      <C>               <C>
           $321,342 note receivable from a franchisee;  payable in equal monthly
               installments  of principal and interest at 15% through  September
               2013; this note  is secured by the  underlying franchise  rights,
               currently past-due.                                                 $   180,000       $   180,000

           $130,000 note receivable  from an area  developer;  payable in annual
               installments  of $50,000 plus  interest at 8-1/4%;  final payment
               was due November 1998; this note is unsecured and is now due upon
               demand.                                                                  80,000            80,000

           $50,000  note  receivable  from  a  franchisee;  payable  in  monthly
               installments  of $1,185  including  principal and interest at 12%
               through November 2001;  this note is  secured  by the  underlying
               franchise rights.                                                             -            38,229

           Eight  notes   receivable  from   franchisees;   payable  in  monthly
               installments  of $879  including  principal  and  interest  at an
               average rate of 9%; the notes mature at various  dates  beginning
               April  1999  through   September  2004;   collateralized  by  the
               underlying   franchise  rights.   These  notes  were  assumed  in
               connection with the sale of Little King, Inc. in August 1999.                 -           235,582

           Three notes receivable from  franchisees;  entire amount of principal
               and interest at an  average  rate of 9%;  collateralized  by  the
               underlying franchise rights.                                                  -            24,149
           ---------------------------------------------------------------------------------------------------------
                                                                                       260,000           557,960

           Less current portion                                                        (80,000)         (398,778)
           Less allowance for doubtful accounts                                       (180,000)                -
           ---------------------------------------------------------------------------------------------------------
                                                                                   $         -       $   159,182
           =========================================================================================================
</TABLE>

Read independent auditors' report.                                          F-26
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

5.       Property and Equipment

         Property and  equipment are comprised of the following at September 30,
         1999 and December 31, 1998:
<TABLE>
<CAPTION>

                                                                                          1999               1998
           ---------------------------------------------------------------------------------------------------------
           <S>                                                                     <C>               <C>
           Land and building                                                       $   371,771       $   371,771
           Machinery and equipment                                                     372,201           378,730
           Office and computer equipment                                               147,034           110,948
           Vehicles                                                                     92,636            92,636
           Leasehold improvements                                                       83,291           110,787
           ---------------------------------------------------------------------------------------------------------
                                                                                     1,066,933         1,064,872
           Less accumulated depreciation                                              (340,266)         (244,150)
           ---------------------------------------------------------------------------------------------------------
           Net property and equipment                                              $   726,667       $   820,722
           =========================================================================================================
</TABLE>

         During 1998,  the Company ceased  operations of the Leovera  subsidiary
         and  evaluated  the  future  undiscounted  cash  flows  of  its  bakery
         operations.  In the  fourth  quarter  of  1998,  pursuant  to FAS  121,
         "Accounting  for  Impairment  of Long-Lived  Assets and for  Long-Lived
         Assets to be Disposed of," the Company  adjusted  those assets to their
         estimated net realizable value of approximately  $80,000. This resulted
         in a writedown of property, plant and equipment of $725,078.

6.       Accrued Liabilities

         Accrued  liabilities  are  comprised of the  following at September 30,
         1999 and December 31, 1998:
<TABLE>
<CAPTION>
                                                                                          1999               1998
           ---------------------------------------------------------------------------------------------------------
          <S>                                                                      <C>                <C>
           Accrued payroll and payroll-related items                               $   106,442        $   256,590
           Deferred revenue                                                            166,195            162,500
           Accrued interest                                                            161,730            118,888
           Accrued insurance and taxes                                                 118,514             51,452
           Other                                                                             -            119,329
           ---------------------------------------------------------------------------------------------------------
                                                                                   $   552,881        $   708,759
           =========================================================================================================
</TABLE>

Read independent auditors' report.                                          F-27
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

7.       Note Payable to Related Party

         Note payable to related party consists of a working  capital  borrowing
         facility with the Company's largest stockholder. 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 largest  stockholder
         in satisfaction  of $109,400 of principal.  The note had an outstanding
         balance of $245,939 and $363,339 at September 30, 1999 and December 31,
         1998, respectively, and is unsecured.

         Interest  expense on the related party debt totaled $24,525 and $22,172
         during the nine  months  ended  September  30,  1999 and the year ended
         December 31, 1998, respectively.

Read independent auditors' report.                                          F-28
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

8.       Long-Term Debt

         Long-term  debt  consists of the  following at  September  30, 1999 and
         December 31, 1998:
<TABLE>
<CAPTION>
                                                                                              1999            1998
           ---------------------------------------------------------------------------------------------------------
           <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.                                                      $    530,000    $    530,000

           Notepayable  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.                                                         200,000         500,000

           Notepayable  to  bank  assumed  upon  the  Li'l  Dino's  acquisition;
               payable in monthly  installments of $4,762 principal and interest
               at the bank's prime  lending rate plus 1% (9.5% at September  30,
               1999) through  February 2000; final payment of $290,474 due March
               2000;  collateralized by personal assets and a personal guarantee
               of the prior owners of Li'l Dino's.                                         314,284         357,142

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

           Fournotes  payable to  individuals  with an aggregate  face amount of
               $350,000  net  of  unamortized  loan  costs  of $0  and  $38,889,
               respectively; all unpaid principal and interest at 8% currently
               past-due; collateralized by a personal guarantee of the Company's
               chief executive officer.                                                    285,000         311,111

           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.                                                           259,900         301,400

           Notepayable 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.                                                            176,476         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 $138,000 and $156,000,
               respectively.                                                                42,000          24,000
</TABLE>

Read independent auditors' report.                                          F-29
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

8.       Long-Term Debt (continued)
<TABLE>
<CAPTION>
                                                                                              1999            1998
           ---------------------------------------------------------------------------------------------------------
           <S>                                                                        <C>             <C>
           Mortgage note payable to former owner of Pastry  Products  Producers,
               Inc.; 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.                                                                   120,369         140,234

           Various notes payable to banks,  supplier and  individual  related to
               the  Company's  former Little King  subsidiary.  These notes were
               assumed in connection with the  sale of this subsidiary in August
               1999.                                                                             -         573,428

           Various  uncollateralized  notes  payable;  due  in  average  monthly
               principal  payments of $825 including interest at an average rate
               of 9.25%; maturing  at various  dates beginning  through November
               2000.                                                                       183,934         343,466
           ---------------------------------------------------------------------------------------------------------
                                                                                         2,369,546       3,514,840
           Less current portion                                                         (1,606,041)     (2,003,198)
           ---------------------------------------------------------------------------------------------------------
           Total long-term debt                                                       $    763,505   $   1,511,642
           =========================================================================================================
</TABLE>

         Interest  expense  on  long-term  debt  during  the nine  months  ended
         September  30, 1999 and the year ended  December  31, 1998  amounted to
         $205,596 and $291,580, respectively.

         The annual  maturities of long-term debt and related party debt for the
         five years subsequent to September 30, 1999 are as follows:
<TABLE>
<CAPTION>
                                                                  Long-Term            Related
                                                                       Debt         Party Debt              Total
           ---------------------------------------------------------------------------------------------------------
           <S>                                                <C>                 <C>               <C>
           2000                                               $   1,606,041       $     15,965      $   1,622,006
           2001                                                     406,475             17,463            423,938
           2002                                                      32,250             19,101             51,351
           2003                                                      31,778             20,893             52,671
           2004                                                     212,525             22,853            235,378
           Thereafter                                                80,477            149,664            230,141
           ---------------------------------------------------------------------------------------------------------
                                                              $   2,369,546      $     245,939      $   2,615,485
           ---------------------------------------------------------------------------------------------------------
</TABLE>

Read independent auditors' report.                                          F-30
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity

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

         Preferred Series A

         In 1996,  the Company  designated  and issued  700,000 shares of no par
         value Series A voting nonredeemable  cumulative  convertible  preferred
         stock ("Preferred Series A"). The Preferred Series A stock was entitled
         to cumulative,  preferential  dividends at a rate of $.09 per share and
         was convertible  into common stock at a conversion rate of one share of
         common stock for each preferred share. The Preferred Series A stock was
         redeemable  in  liquidation  at  $2.00  per  share.  During  1998,  the
         remaining 600,000 shares of Preferred Series A stock was converted into
         600,000 shares of the Company's  common stock and there is currently no
         Preferred Series A stock outstanding.

         Preferred Series B

         In 1996,  the Company  designated  and issued  350,000 shares of $2 par
         value Series B voting nonredeemable  cumulative  convertible  preferred
         stock ("Preferred Series B"). The Preferred Series B stock was entitled
         to receive non-cumulative  preferential dividends only when declared by
         the Board of  Directors  and was  convertible  into  common  stock at a
         conversion rate of one share of common stock for each preferred  share.
         The Preferred Series B stock was redeemable in liquidation at $2.00 per
         share.  During 1998,  all of the 350,000  shares of Preferred  Series B
         stock was converted into 350,000  shares of the Company's  common stock
         and there is currently no Preferred Series B stock outstanding.

         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 (see Note 3). 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.

Read independent auditors' report.                                          F-31
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         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.

         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.

Read independent auditors' report.                                          F-32
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         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 stock 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 and there is currently no Preferred Series E stock outstanding.

Read independent auditors' report.                                          F-33
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       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.

         Redeemable Common Stock

         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.  The Company  was only  required  to  repurchase  a
         maximum of 37,453 shares in any six-month period  commencing six months
         from  the  date  of  closing.  The  redeemable  common  stock  purchase
         obligation was noncumulative and was to expire in June 2000.

         During 1998,  the Company  repurchased  74,906 shares of the redeemable
         common stock for  $200,000 and 112,360  shares with a value of $300,000
         remained  subject to redemption at December 31, 1998. 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.

Read independent auditors' report.                                          F-34
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         In connection with the Company's  acquisition of Seawest,  options were
         granted to the prior owner of Seawest to purchase up to 100,000  shares
         of Company common stock at an exercise price of $.001 per share. During
         1998, all of these options were exercised.  The Company is obligated to
         repurchase  these 100,000 shares at the greater of fair market value or
         $3.25  over a  mutually  agreeable  period of time.  The value of these
         100,000  redeemable  shares was recorded at $325,000.  During 1998, the
         Company  repurchased  10,000 shares for $32,000.  At September 30, 1999
         and  December  31,  1998,  there  were  90,000  shares  with a value of
         $293,000 subject to redemption.

         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.

         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  $4,187,500  at September 30, 1999 and
         December 31, 1998. All  accrued interest through September 30, 1999 has
         been waived by the Board of Directors.

Read independent auditors' report.                                          F-35
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         Common Stock Issued in Connection with Debt

         During the year ended December 31, 1998, the Company borrowed  $350,000
         from four individuals. The Company issued 70,000 shares of common stock
         to these  investors.  The market price of the shares on the date of the
         issuance was $1.00 per share, and accordingly,  $70,000 was recorded as
         original issue discount and is being amortized as interest expense over
         the life of the loan.  The  Company is  obligated  to issue  additional
         shares to these  investors  if the  underlying  per share  value of the
         stock is less than $1.50 upon the occurrence of certain  defined future
         events.  The number of shares to be issued  will be based upon the fair
         market value of the Company's  common stock at the date the contingency
         is met.

         Stock Issued for Services

         For the nine  months  ended  September  30,  1999  and the  year  ended
         December 31, 1998, the Company  issued  1,291,667 and 248,581 shares of
         its common stock,  respectively,  in exchange for  consulting and legal
         services. The aggregate fair value of these shares was calculated to be
         $340,000 and $537,295,  respectively,  based on the market value of the
         stock on the date of issuance. Of these amounts,  $298,100 and $434,429
         were classified as prepaid consulting fees, respectively, and are being
         amortized over the lives of the agreements.

         Conversion of Debt to Equity

         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 to its
         largest stockholder as satisfaction of $109,400 in principal.

         During the year ended  December 31, 1998,  the Company  issued  112,793
         shares of its common  stock with a fair  market  value of  $277,404  in
         exchange for extinguishment of long-term debt.

Read independent auditors' report.                                          F-36
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         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 if $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.

         The Company also 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.

         In November  1998, the Company issued 50,000 shares of its common stock
         to  the  former  owners  of  Sobik's.   These  shares  were  issued  as
         consideration  for the  granting  of an  extension  on the due  date of
         long-term  debt of $500,000  (see Note 9) incurred on the  acquisition.
         The fair value of these shares, $21,875, has been classified as prepaid
         loan fees and is included in other  assets as December  31,  1998.  The
         loan fees are being  amortized over the remaining  contractual  life of
         the loan.

Read independent auditors' report.                                          F-37
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       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  director 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.

         For  the  year  ended  December  31,  1998,  the  Company  granted  two
         consultants  options to  purchase  a total of 228,570  shares of common
         stock at an exercise price of $0.875 per share, the quoted market price
         of the  underlying  shares on the date of the grant.  The fair value of
         these options,  $85,366, was recorded as prepaid consulting fees and is
         being  amortized over one year,  the life of the underlying  consulting
         agreements.  In September 1999, the Company adjusted the exercise price
         on options  granted to these two  consultants  from $0.875 per share to
         $0.50 per share.

         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 of the exercise price which was based on 50%
         of the fair market value on the date of exercise. In addition,  options
         to purchase 100,000 shares of the Company's common stock were exercised
         by the prior owners of Seawest during the year ended December 31, 1998.
         The Company waived the exercise price of $0.001 per share.

         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 exercisable
         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.  In
         September 1999, the Company  adjusted the exercise price of both option
         grants to $0.29 per share.

         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.

Read independent auditors' report.                                          F-38
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         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 nine months ended
         September  30, 1999 and the year ended  December 31, 1998:  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 nine months ended  September  30, 1999 and the year ended
         December 31, 1998:

                                                         1999             1998
           ---------------------------------------------------------------------
           Net loss applicable to common stock
               As reported                        $(1,915,039)     $(7,400,484)
               Proforma                           $(1,968,285)     $(7,650,484)
           Loss per share - basic and diluted
               As reported                        $      (.08)     $      (.45)
               Proforma                           $      (.09)     $      (.47)
           ---------------------------------------------------------------------

Read independent auditors' report.                                          F-39
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

9.       Stockholders' Equity (continued)

         Changes in options  outstanding for the nine months ended September 30,
         1999 and the year ended December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>

                                                                                                        Weighted-
                                                                                     Weighted-            Average
                                                                                       Average         Fair Value
                                                                                      Exercise         of Options
                                                                     Shares              Price            Granted
           ---------------------------------------------------------------------------------------------------------
           <S>                                                    <C>                   <C>           <C>
           Balance, December 31, 1997                             3,246,000              $2.48        $         -

           Granted                                                1,228,750               1.42                .27
           Less options exercised                                  (100,000)                 -                  -
           Less options expired                                    (100,000)              2.81                  -
           ---------------------------------------------------------------------------------------------------------
           Balance, December 31, 1998                             4,274,570               2.22                  -

           Granted                                                  895,000                .20                .20
           Less options exercised                                   (37,500)                 -                  -
           Less options expired                                    (350,000)              2.77                  -
           ---------------------------------------------------------------------------------------------------------
           Balance, September 30, 1999                            4,782,070              $1.02                  -
           =========================================================================================================
</TABLE>

         The following table summarizes information about options outstanding at
         September 30, 1999:
<TABLE>
<CAPTION>

                                                                     Options Outstanding and Exercisable
                                                           ---------------------------------------------------------
                                                                                     Weighted-          Weighted-
                                                                                       Average            Average
           Range of                                                                  Remaining           Exercise
           Exercise Prices                                           Shares   Contractual Life              Price
           ---------------------------------------------------------------------------------------------------------
           <S>                                                   <C>              <C>                      <C>
           $0.20 to $0.75                                         3,418,570        29.7 months              $0.32
           $1.92 to $3.93                                         1,363,500        30.3 months              $2.78
           ---------------------------------------------------------------------------------------------------------
                                                                  4,782,070        29.9 months              $1.02
           =========================================================================================================
</TABLE>

Read independent auditors' report.                                          F-40
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

10.      Commitments and Contingencies

         Operating Leases

         The Company  leases office space under certain  operating  leases which
         expire  through  2003.  Total rent  expense for the nine  months  ended
         September 30, 1999 and the year ended December 31, 1998 was $88,848 and
         $323,473, respectively.

         Future annual minimum lease payments due under these  operating  leases
         at September 30, 1999 are as follows:

                    2000                          $     88,917
                    2001                                27,286
                    2003                                 7,425
                    --------------------------------------------
                                                   $   123,628
                    ============================================

         Legal Issues

         On August 2, 1999,  shareholders  of Li'l Dino  Management  Corporation
         filed a complaint against the Company and some of its officers in Civil
         Action Number  1:99-CV631 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 of
         the  assets of Li'l Dino  Management.  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.

Read independent auditors' report.                                          F-41
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

10.      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:

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

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

                  o   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 Agreements

         The  Company  is a  party  to  employment  agreements  with  its  Chief
         Operating  Officer  and  Chief  Financial  Officer.   Pursuant  to  the
         agreements,   these  officers  are  to  receive  an  annual  salary  of
         approximately  $150,000 and $125,000  through  September  2000 and July
         2001, respectively.

         Consulting Fees

         In  October  1998,  the  Company  entered  into  an  agreement  with  a
         consultant to receive  advisory  services.  Pursuant to this agreement,
         the Company is obligated to pay consulting  fees ranging from 3% to 10%
         based upon performance results, as defined.

         During 1997, the Company entered into an agreement with a consultant to
         receive advisory services. The Company is contingently obligated to the
         consultant  to provide for  options of up to 500,000  shares of Company
         common  stock in the event the Company  either  raises  $10,000,000  or
         achieves  a total  store  level of 630 units by  December  2000.  Since
         management believes the 630-store level will be achieved,  options with
         a fair market value of $681,000  were  recorded as prepaid  consulting,
         which is being amortized over the life of the agreement.

Read independent auditors' report.                                          F-42
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

11.      Income Taxes

         The  components  of  income  tax  expense  for the  nine  months  ended
         September 30, 1999 and the year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>

                                                                                          1999               1998
           ---------------------------------------------------------------------------------------------------------
           Current:
           <S>                                                                <C>                  <C>
               Federal                                                        $              -     $             -
               State                                                                       650             12,610
           ---------------------------------------------------------------------------------------------------------
                                                                                           650             12,610
           ---------------------------------------------------------------------------------------------------------
           Deferred:
               Federal                                                                       -                  -
               State                                                                         -                  -
           ---------------------------------------------------------------------------------------------------------
                                                                                             -                  -
           ---------------------------------------------------------------------------------------------------------
           Total income taxes                                                 $            650     $       12,610
           ---------------------------------------------------------------------------------------------------------
<CAPTION>
         The components of deferred tax assets and  liabilities are comprised of
         the following at September 30, 1999 and December 31, 1998:

                                                                                          1999               1998
           ---------------------------------------------------------------------------------------------------------
           Deferred tax assets:
           <S>                                                                   <C>                <C>
               Net operating loss carryforwards                                  $   2,092,000      $   1,796,000
               Stock and stock options issued for services                             874,000          1,066,000
               Allowance for doubtful accounts                                         125,000            128,000
               Goodwill and covenants not to compete                                    69,000             69,000
               Property, plant and equipment                                            51,000             51,000
               Accrued expenses                                                         20,000             36,000
           ---------------------------------------------------------------------------------------------------------
           Gross deferred income tax assets                                          3,231,000          3,146,000
           Valuation allowance                                                      (3,231,000)        (3,146,000)
           ---------------------------------------------------------------------------------------------------------
           Total deferred tax assets                                             $           -      $           -
           ---------------------------------------------------------------------------------------------------------
</TABLE>

Read independent auditors' report.                                          F-43
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

11.      Income Taxes (continued)

         The following summary reconciles  differences from taxes at the federal
         statutory rate with the effective rate:
<TABLE>
<CAPTION>
                                                                                          1999               1998
           ---------------------------------------------------------------------------------------------------------
           <S>                                                                       <C>                <C>
           Income taxes at federal statutory rates                                    (34.0)%            (34.0)%
           State income taxes, net of federal benefit                                   5.2                 .3
           Operating loss with no tax benefit                                          28.9               34.0
           ---------------------------------------------------------------------------------------------------------
           Income tax at effective rates                                                 .1%                .3%
           ---------------------------------------------------------------------------------------------------------
</TABLE>

         At September 30, 1999, the Company has net operating loss carryforwards
         of approximately $5,500,000 for federal income tax purposes that expire
         as follows:

                    2012                      $   2,900,000
                    2018                          1,800,000
                    2019                            800,000
                    -----------------------------------------
                                              $   5,500,000
                    =========================================

12.      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:

                  o   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 Company also operates  company-owned stores
                      on a limited basis.

                  o   The bakery  operations  segment is  comprised  of a bakery
                      that primarily serves the JRECK restaurant franchises.

Read independent auditors' report.                                          F-44
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

12.      Operating Segments (continued)

         The table below shows certain financial information by business segment
         for the nine  months  ended  September  30,  1999  and the  year  ended
         December 31, 1998:
<TABLE>
<CAPTION>
           Segment Reporting                                      Franchise             Bakery       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
           ---------------------------------------------------------------------------------------------------------


           Segment Reporting                                      Franchise             Bakery       Consolidated
           December 31, 1998                                     Operations         Operations              Total
           ---------------------------------------------------------------------------------------------------------
           Revenue from external customers                    $   5,160,741      $     829,803      $   5,990,544
           Interest expense - net                                   408,836             26,748            435,584
           Depreciation and amortization                            873,981            166,279          1,040,260
           Segment loss                                          (5,457,918)          (218,474)        (5,676,392)
           Segment assets                                        13,068,764          1,639,090         14,707,854

           Expenditures for segment assets                          208,685             21,249            229,934
           ---------------------------------------------------------------------------------------------------------
</TABLE>

13.      Subsequent Events

         In October 1999, the Company granted options to officers, employees and
         consultants to purchase an aggregate of 3,995,000  shares of its common
         stock with exercise  prices ranging from $0.29 to $0.50 per share.  All
         of the granted options have an expiration date of September 2004.

Read independent auditors' report.                                          F-45
<PAGE>

                     JRECK Subs Group, Inc. and Subsidiaries
                   Consolidated Notes to Financial Statements

                  For the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998

14.      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 nine month
         period and twelve month period  ended  September  30, 1999 and December
         31,  1998,  respectively.   For  comparative  purposes,  the  unaudited
         operating  results and cash flows for the nine months  ended  September
         30, 1998 are as follows:
<TABLE>
<CAPTION>
                                                                                   Nine Months
                                                                                      Ended
                                                                                  September 30,
                                                                                       1998
                                                                                   (Unaudited)
                    -----------------------------------------------------------------------------------
                    Revenues:
                    <S>                                                                <C>
                        Franchising related revenues                                   $   2,652,781
                        Retail sales - company-owned stores                                1,353,366
                        Retail sales - bakery and other products                             736,171
                        Other revenues                                                        46,522
                    -----------------------------------------------------------------------------------
                                                                                           4,788,840

                    Operating costs and expenses:
                        Franchise servicing costs                                          1,484,583
                        Cost of retail sales and operating costs - stores                  1,460,087
                        Cost of retail sales and operating costs - bakery                    680,363
                        General and administrative                                         1,257,656
                        Consulting and investor relations                                    852,486
                        Series D preferred stock conversion penalty                          718,272
                        Amortization and depreciation                                        865,678
                    -----------------------------------------------------------------------------------
                                                                                           7,319,125
                    -----------------------------------------------------------------------------------

                    Loss from operations                                                  (2,530,285)
                    Other expense - interest                                                (248,830)
                    -----------------------------------------------------------------------------------
                    Net loss                                                              (2,779,115)
                    Preferred stock dividends                                             (1,724,092)
                    -----------------------------------------------------------------------------------
                    Net loss applicable to common stock                                   (4,503,207)
                    ===================================================================================
                    Weighted average of common shares outstanding                         16,378,836
                    ===================================================================================
                    Net loss per common share - basic and diluted                      $        (.27)
                    ===================================================================================

                    Net cash used by operating activities                              $  (1,256,394)
                    Net cash used by investing activities                                   (531,748)
                    Net cash provided by financing activities                              1,613,908
                    -----------------------------------------------------------------------------------
                        Net decrease in cash and cash equivalents                      $    (174,234)
                    ===================================================================================
</TABLE>

Read independent auditors' report.                                          F-46