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

                                   Form 10-KSB

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

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

                      For the year ended September 30, 2001

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

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

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


         300 International Pkwy., Suite 100, Heathrow, Florida, 32746
         --------------------------------------------------------------
                    (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,  2001:
$4,863,598.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates (computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity) as of
January 3, 2002 was $1,043,500 (for purposes of the foregoing calculation only,
each of the registrant's officers and directors is deemed to be an affiliate).

There were 8,695,830 shares of the registrant's common stock outstanding as of
January 3, 2002.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                                None

          Transitional Small Business Disclosure Format: Yes [ ] No [X]

<PAGE>

                                     PART I

Item 1. Description of Business.

Form and Year of Organization

In May, 1996 we concluded a reverse acquisition wherein all of our 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. On May 7, 1996 and the former shareholders of
JRECK Subs, Inc. received 5,000,000 common shares of the Company in the
transaction or 56% of the outstanding shares. In addition the former Series A
Preferred shareholders of JRECK Subs, Inc. received 700,000 shares of the
Company's Series A Preferred stock. The former business of Circa Media, Inc. was
discontinued.

In June 2000, we changed our name from Jreck Subs Group, Inc. to Ultimate
Franchise Systems, Inc. and changed our ticker symbol from JSUB to UFSI. In
August 2001 we completed a 1 for 10 reverse stock split, and changed our ticker
symbol to UFSY.

In February 2001, we completed a reverse merger whereby 100% of the outstanding
common stock of our wholly-owned subsidiary, SBK Franchise Systems, Inc., the
franchisor of the Sobik's Sub chain, was acquired by Krypton Distribution Corp.
Upon completion of the merger, SBK Franchise Systems, Inc. changed its name to
Sobik's International Franchising, Inc. (see item 11).

We have primarily grown through acquisitions and now consist of Ultimate
Franchise Systems, Inc. (UFSY) and our subsidiaries as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                            State of
Corporation Name                         Incorporation      Predominant Restaurant Concept
----------------                         -------------      ------------------------------
<S>                                      <C>               <C>
JRECK  Subs, Inc.                           New York       "JRECK Subs","Lox, Stox & Bagel"
Central Park of America, Inc.               Delaware       "Central Park"
Sobik's International Franchising, Inc.      Florida       "Sobik's"
Li'l Dino Corporation                    North Carolina    "Li'l Dino"
Pastry Product Producers, LLC                New York       Bakery Operations
-------------------------------------------------------------------------------------------
</TABLE>

Recent Acquisition and Dispositions

In July 2001, Sobik's International Franchising, Inc. ("Sobik's") completed a
merger whereby Sobik's acquired 100% of the outstanding common stock of Weight
Loss Forever, Inc., ("WLF") a Virginia corporation, in exchange for 1,854,200
shares of Sobik's common stock. On September 30, 2001, Sobik's sold 100% of its
interest in Weight Loss Forever, Inc. to youticket.com, Inc. ("YTIX") a Nevada
corporation, in exchange for 26,004,716 shares of YTIX, which constituted
approximately 80% of the issued and outstanding common stock of YTIX at the date
of closing. Upon closing, Sobik's issued 15,878,311 shares of common stock of
YTIX received in the transaction to the previous shareholders of WLF in exchange
for the 1,854,200 shares of Sobik's these shareholders originally received in
July 2001. Also, 7,129,039 shares of YTIX common stock received in the
transaction have been distributed to individuals responsible for current fund
raising efforts of YTIX. These shares are being held in escrow until
consummation of the agreed upon consulting term. We ultimately retained
2,997,368 shares of YTIX at the completion of the transaction, which represents
9% of the total outstanding shares of YTIX at September 30, 2001. These holdings
are reflected on our balance sheet at cost.

General Description of Business

We are a multiple concept franchisor of submarine sandwich restaurants and
drive-through hamburger restaurants. Through our concepts, we offer a menu of

                                       1
<PAGE>

high quality, fresh submarine sandwiches, hamburgers, chicken sandwiches, french
fries, soups and hot and cold side order items, and a full line of bagel
offerings at selected franchise locations.

Submarine Sandwich Menu and Stores

Through three of our subsidiaries, we offer 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. Our 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, we offer a
selection of soft drinks, deep fried mushrooms, cheese sticks and french fries
as well as dessert items such as cookies.

As of September 30, 2001 there was an aggregate of 86 franchised locations under
various submarine sandwich concepts as follows:

               Concept:              Number of Units        Geographic Area
               --------              ---------------        ---------------
   "JRECK Subs","Lox, Stox & Bagel"        37              Upstate New York
   "Sobik's"                               26               Central Florida
   "Li'l Dino"                             23           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.

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.

Hamburger Menu and Stores

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

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

As of September 30, 2001 there were 55 locations under the hamburger concept as
follows:

         Concept:          Number of Units        Geographic Area
         --------          ---------------        ---------------
      "Central Park"              55             Southeast United States, & Utah

Franchise Programs

Through the terms of our "Franchise Agreement" we authorize individuals and/or
companies to form or establish and operate concept restaurants at approved
locations. Under the agreement, we are 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

                                        2
<PAGE>

    -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, 2001 we had a combined 141 submarine sandwich and hamburger
restaurants. Also, we continue to have financial interests in our former
subsidiaries Mountain Mike's Pizza and Seawest Subs franchise concepts which
have approximately 80 restaurants and 30 restaurants, respectively.

We obtain prospective franchisees primarily from the ranks of our current and
former franchisees and employees, referrals from existing franchisees and from
selected marketing efforts such as restaurant trade shows. We intend to develop
new franchise locations primarily through existing franchisees. The primary
selective criteria considered 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.

We believe we have a national presence which we intend to strengthen by
developing each of our regional concepts.

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

Initial franchise fees are considered to be within industry norms and currently
range from $10,000-$12,500 for new locations in the sandwich segment and are
$20,000 in the hamburger segment. Initial franchise fees are due upon the
execution of the Franchise Agreement. Ongoing royalties are also considered to
be within industry norms ranging from 4%-7% of sales. In addition to ongoing
royalties, all franchisees are required to contribute 2%-4% of sales to a
concept-based pooled marketing fund. We collect weekly and monthly sales and
other operating information from each franchisee. We have agreements with most
franchisees permitting us to electronically debit the franchisees' bank accounts
for the payment of royalties, marketing fund contributions, and other amounts
owed to us under the franchise agreement. This system significantly reduces the
resources needed to process receivables, improves cash flow and helps to limit
past due accounts related to these items. Franchisees generally are required to
purchase and install an approved point of sale system that, among other things,
allows us to poll sales information daily. The following table sets forth and
summarizes certain information about our 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                    2001       On Contract     Agreements    Agreement     Franchise      Franchises
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>           <C>        <C>                 <C>
"JRECK Subs","Lox, Stox & Bagel"           37            5.5            4.3%          6.0%       $ 10,000           Yes
"Sobik's"                                  26            7.0            4.6%          5.0%         12,500           Yes
"Li'l Dino"                                23           14.0            5.9%          7.0%         12,500           Yes
"Central Park"                             55            6.0            4.0%          5.0%         20,000           Yes
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       3
<PAGE>

In connection with our mandatory monitoring program, all franchisees are
required to adhere to our specifications and standards on the selection and
purchase of products used in the operation of the restaurant. We provide 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 us.

Area Development Agreements

We offer 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, 2001, we had four agreements with area developers under the
Li'l Dino's concept covering areas of North Carolina.

Each Area Developer pays us 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, we require 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. We reserve the right,
under the agreements, to market and sell franchises and/or establish company
owned restaurants in any territory.

We pay 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. We believe 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.

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. Our 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

Each franchisee is obligated to purchase raw materials, both food and non-food,
from authorized and designated distributors who may only sell authorized and
approved raw materials purchased from approved manufacturers and suppliers. We
negotiate relationships with manufacturers and suppliers on a national level for
all products except produce, whether or not they bear our logos. We negotiate
and enter into recognition agreements authorizing approved distributors to
deliver raw products to our franchisee outlets from approved manufacturers and
suppliers. All products purchased by franchisees on a local level must meet our
quality standards. Franchisees may request approval of additional manufacturers,
suppliers or distributors subject to our approval. We base our approval upon a
number of conditions including price, quality, ability to service the system on

                                       4
<PAGE>

a national basis and such other reasonable standards as we may promulgate from
time to time. Currently, there are no other manufacturers, suppliers or
distributors approved by us other than those that we have designated.

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

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

Government Regulation

Our 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 us 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.

In October 1999, the FTC issued proposed changes to the FTC Rule that would
effect certain disclosure obligations in connection with franchise sales. These
proposed changes are still subject to public comment, and even if adopted as
proposed, we do not think the changes would materially effect our franchise
sales or other operations. We are not aware of any other probable pending
franchise legislation that in our view is likely to affect our operations
significantly. We believe that our operations comply in all material respects
with the FTC Rule and the applicable state franchise laws.

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

While we believe we are in compliance with all applicable federal, state and
local laws and regulations, there can be no assurance that we 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 our ability to
successfully market our franchises. Violations of federal and state franchising
laws and/or regulations regulating substantive aspects of our business activity
could subject us and our 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 our operation. There can be no assurance that existing or future
franchise regulations will not have an adverse effect on our ability to maintain
and expand our franchise program.

Competition

We compete in the fast food sandwich and hamburger segments of the restaurant
industry. As a franchisor of fast food sandwich and double drive-through
hamburger restaurants, we compete on two fronts. First we must attract
successful franchisees; and, second, we must assist our franchisees in
attracting customers in each of those two niches of the restaurant industry. We

                                        5
<PAGE>

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 us.

The segments of the restaurant industry that we 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 we compete with are Subway,
Blimpie and Quiznos. Subway currently has approximately 14,000 units while
Blimpie and Quiznos each have about 2,000 and 1,500 units respectively. Both
Subway and Blimpie offer a low cost product in a fast food style environment
while Quiznos is positioned between the traditional fast food style of Subway
and Blimpie and full service dining. Through its regional concepts, the Company
offers a comfortable, fast food style, family atmosphere in which to dine on
higher quality food products.

Competitiors of our Central Park hamburger chain include Checkers Drive-In
Restaurants and Back Yard Burgers. Checkers currently has approximately 440
units while Back Yard Burgers has about 90 units. Both Checkers and Back Yard
Burgers offer a drive-through format, with a low cost product in a fast food
style environment.

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

In addition to competing with these chains as restaurants, we also compete 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 us. We believe our 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

We currently own the following trademarks or service marks, each of which is
registered and listed on the Principal Register of the United States Patent and
Trademark Office:
<TABLE>
<CAPTION>
                                                                                          Registration
                                                                                           Number or    Registration
                                                                                          Application    or Renewal
      Trademark                                       Type                                   Number         Date
      ---------                                       ----                                   ------         ----
<S>                                               <C>                                      <C>             <C>
 "JRECK Subs"                                     Service Mark                             1,022,898       Oct 14, 1975
 "Li'l Dino"                                      Name, Service Mark & Design              1,411,762       Sept 30, 1986
 "Li'l Dino Bagel Deli and Grille"                Name, Service Mark & Design              2,101,316       Sept 30, 1997
 "Sobik's Subs"                                   Name, Service Mark & Design              2,087,639       Aug 12, 1997
 "Central Park"                                   Name, Service Mark & Design              1,240,692       May 31, 1983
 "Central Park"                                   Name, Service Mark & Design              1,278,181       May 15, 1984
 "Central Park"                                   Name, Service Mark                       1,280,984       Jun 5, 1984
 "Central Park"                                   Name, Service Mark                       1,290,349       Aug 14, 1984
 "Central Park"                                   Name, Service Mark & Design              1,297,136       Sept 18, 1984
 "Drive Through the Park"                         Name & Service Mark                      1,287,395       July 24, 1984
</TABLE>

                                       6
<PAGE>

Employees

As of September 30, 2001 we had approximately 37 employees consisting of 17
administrative employees, and 20 employees at the Watertown bakery of PPPI.

Item 2. Description of Property

We own our bakery plant in Watertown, NY. The land and building that comprise
that facility include 2,064 square feet of office space and 8,561 square feet of
bakery facilities. The remainder of our office space is leased at terms varying
from month to month or monthly expiring on various dates up to September 2006.

A summary of all real estate locations owned or leased by us at September 31,
2001 are 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 $ 371,771   $ 80,943
Watertown, NY 13601                          Bakery                8,561

300 International Pkwy. Suite 100            Office    Leased      2,833                           4,663     02/11/06
Heathrow, FL 32746

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

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

7205 Waters Ave.                             Land      Leased       N/A                            2,650     09/09/06
Savanah, GA 31406

6204 Lee Highway                             Land      Leased       N/A                            1,500     Assigned 06/10/01
Chattanooga, TN

1376 Highland Avenue                         Land      Leased       N/A                            1,614     Assigned 06/12/01
Selma, AL

West Broadway Street                         Land      Leased       N/A                              750     Assigned 01/13/01
West Memphis, AR

4019 Jackson Ave.                            Land      Leased       N/A                              775     Assigned 05/23/01
Memphis, TN

Pio Nono Avenue                              Land      Leased       N/A                            2,068     09/31/01
Macon, GA

Taylor Street                                Land      Leased       N/A                            1,750     Assigned 10/19/00
Griffin, GA

Macon Rd.                                    Land      Leased       N/A                            3,802     Assigned 11/17/00

3717 Mercer Blvd.                            Land      Leased       N/A                            1,650     Assigned 11/03/00
Macon, GA
                                                                  ------ ---------   --------   --------
           TOTALS                                                 16,070 $ 371,771   $ 80,943   $ 24,378
                                                                  ====== =========   ========   ========
</TABLE>

We believe we have obtained, and currently carry, adequate liability insurance
on all the properties we own or lease.

                                       7
<PAGE>

Item 3. Legal Proceedings

On August 2, 1999, the shareholders of Li'l Dino Management Corporation filed a
complaint against us and two of our officers in the United States District Court
for the Middle District of North Carolina, Greensboro Division. We were served
with this complaint on August 5, 1999. The allegations in the complaint relate
to our acquisition of substantially all the assets of Li'l Dino Management
Corporation.

In February 2001, we entered into a confidential settlement and release
agreement in this matter. All the terms of the settlement are being complied
with. The entire amount of this settlement which is appropriately reflected in
the accompanying financial statements, did not have a material adverse effect on
our operations.

We are involved in various other lawsuits and litigation matters on an ongoing
basis as a result of our day-to-day operations. However, we do not believe that
any of these legal matters will have a material adverse effect on our financial
position or results of operations.


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

We held our annual shareholder meeting on July 10, 2001 in Orlando, Florida. Two
matters were submitted to a vote of the common shareholders of record on June
20, 2001. The first matter was for approval of a 1 for 10 reverse stock split of
our common stock. 43,829,201 votes (which represents a quorum) were cast in
favor of this resolution, and the motion was carried. On August 17, 2001, we
completed the 1 for 10 reverse stock split of our common stock reducing the
total outstanding shares from 81,259,142 to 8,125,914.

The second matter for vote was the change in our corporate domicile from the
State of Colorado to the State of Nevada. A majority of the shares represented
and voting at the meeting voted in favor of the resolution, and the motion was
carried. As of September 30, 2001, we have not taken action to change the
Corporate domicile from Colorado to Nevada.

                                       8
<PAGE>

                                     PART II

Item 5. Market for Common Equity

Our Common Stock is listed on the OTC Bulletin Board under the symbol "UFSY".
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 September 30, 2000  First Quarter    $ .27        $ .09
                                     Second Quarter      .44          .09
                                      Third Quarter      .41          .20
                                     Fourth Quarter      .34          .14

Fiscal Year Ended September 30, 2001  First Quarter    $ .08        $ .06
                                     Second Quarter      .03          .02
                                      Third Quarter      .01          .01
                                     Fourth Quarter      .08          .08

As noted in item 4, we effected a 1 for 10 reverse stock split in the fourth
quarter of 2001. The stock prices listed above are based on the pre-stock split
number of outstanding shares. The listed stock prices for the fourth quarter
2001 reflect the post-stock split number of shares.

Stockholders:

As of January 3, 2002 there were approximately 8,300 holders of record of our
common stock.

Dividends:

We have never paid any dividends on our Common Stock and do not expect to pay
any dividends on our 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 our Preferred Stock. Currently no surplus exists.

Recent Sale of Unregistered Securities

On January 5, 1998 we concluded our Preferred "D" stock offering. We 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
our failure to file and make effective a Form SB-2 within certain time
parameters. As of June 10, 1999 we had issued 5,303,574 common shares as
conversion shares under this agreement.

On June 10, 1999, the holders of the Preferred "D" converted their entire
holdings 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
us 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. We 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. In November 2000, we issued a dividend to the
holders of the Series F preferred stock. The dividend consisted of 32,918 shares
of common stock with a value of $49,375 being issued to all shareholders on
record. On December 28, 2000, we retired all 197.5 outstanding shares of the

                                       9
<PAGE>

Series F for $500,000 cash and the issuance of 1,975,000 shares of our common
stock. The issuance of these shares increased the number of outstanding common
shares by 61.9%.

In December 2000, we issued our Series G Convertible Debentures for $575,000
which calls for monthly interest payments at 12% interest and is due in January
2002. The Convertible Debenture may be converted in whole or in part to our
common stock at a conversion price equal to 65% of the three-day average closing
price prior to the date of conversion. In anticipation of the conversion of the
Convertible Debenture, we have placed in escrow 1,000,000 shares of our common
stock.

During the year ended September 30, 2001, holders of $225,000 of Convertible
Debentures converted their principal into 2,173,661 shares of our common stock.
All of these shares were from newly issued shares, no shares were issued from
the 1,000,000 shares held in escrow.

In December 2000, we increased our authorized shares of common stock from
50,000,000 shares to 100,000,000 shares.

                                       10
<PAGE>

The following table sets forth information with respect to the sale or issuance
of unregistered securities over the last three fiscal years, and includes the
effect of the 1 for 10 reverse stock split in August 2001:

<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>
    3,333   Common      Oct 1, 1998      29,166 Mitchell Day               Acquisition of "Food Court" Concept      Section 4(2)
    2,000   Common      Oct 31, 1998     10,000 JG Partners L.P.           Consulting Services                      Section 4(2)
   50,000   Common      Nov 6, 1998     250,000 QFS Shareholders           Acquisition of "Mtn Mike's" Restaurant   Section 4(2)
                                                                             Chain
   61,538   Common      Nov 25, 1998    150,000 Barry Seidman              Conversion of 150 Sh of Preferred "D"    Section 4(2)
    3,973   Common      Nov 25, 1998     25,652 Barry Seidman              Dividends on Preferred "D"               Section 4(2)
    5,000   Common      Dec 4, 1998      21,875 Interfoods of America      Inducement to Extend Loan Due Date       Section 4(2)
   30,000   Common      Dec 14, 1998     75,000 Sidney Wertheim etal       Acquisition of "Little King" Restaurant  Section 4(2)
                                                                              Chain
    7,500   Common      Dec 22, 1998         75 Mitchell Day               Exercise of Seawest Options              Section 4(2)
   49,198   Common      Jan 6, 1999     139,810 Preferred "D" Holders      Conversion of 80 shares of Preferred "D" Section 4(2)
   36,177   Common      Jan 25, 1999     52,546 Preferred "D" Holders      Conversion of 30 shares of Preferred "D" Section 4(2)
  134,646   Common      Feb 19, 1999    254,731 Preferred "D" Holders      Conversion of 145 shares of Preferred    Section 4(2)
                                                                              "D"
   30,715   Common      Feb 22, 1999     70,308 Preferred "D" Holders      Conversion of 40 shares of Preferred "D" Section 4(2)
   24,116   Common      Mar 5, 1999      44,007 Preferred "D" Holders      Conversion of 25 shares of Preferred "D" Section 4(2)
   24,814   Common      Apr 27, 1999     35,320 Preferred "D" Holders      Conversion of 20 shares of Preferred "D" Section 4(2)
  100,000   Common      May 28, 1999    250,000 Norstarr Services          Consulting Services                      Section 4(2)
  145,668   Common      May 10, 1999    194,868 Preferred "D" Holders      Conversion of 110 shares of Preferred    Section 4(2)
   50,000   Common      Apr 14, 1999    150,000 Three Investors            Cash Investment                          Section 4(2)
    9,615   Common      May 14, 1999     25,000 Phoenix Capital            Conversion of Debt                       Section 4(2)
    9,615   Common      May 14, 1999     25,000 C.A. Opportunidad          Conversion of Debt                       Section 4(2)
   13,000   Common      May 29, 1999     48,100 Gulf Atlantic Publishing   Consulting Services                      Section 4(2)
   76,923   Common      May 14, 1999    174,563 2 Investors                Sale of Stock for cash                   Section 4(2)
    3,750   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)
   70,019   Common      Jun 11, 1999    329,088 Interfoods                 Modification of Terms of SBK acquisition Section 4(2)
    2,000   Common      Jun 21, 1999      4,400 Barry Seidman              Penalty on Loan Default                  Section 4(2
    5,000   Common      Jun 24, 1999     12,500 Blaine Quick               Consulting Services                      Section 4(2)
   18,727   Common      Jun 11, 1999    335,206 Interfoods                 Conversion from redeemable to fully      Section 4(2)
                                                                             issued
    6,667   Common      Jun 28, 0999     20,000 Thornbury Associates       Consulting Services                      Section 4(2)
   10,000   Common      Aug 11, 1999     21,880 Preferred "A"  Holders     Preferred "A" conversion price           Section 4(2)
                                                                              adjustment
   75,000   Common      Aug 11, 1999    175,815 7 Individual Investors     Price adjustments on previously issued   Section 4(2)
                                                                              stock
   50,000   Common      Aug 11, 1999    109,400 Tri-Emp Enterprises        Loan Payment                             Section 4(2)
    2,500   Common      Sep 10, 1999      5,000 Robert Weiner              Consulting Services                      Section 4(2)
   19,513   Common      Sep 20, 1999     44,793 Preferred "D" Holders      Conversion of 25 shares of Preferred     Section 4(2)
                                                                              "D"
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                                    Exempt From
                                                                                                                      1933 Act
                                      Value or                                                                      Registration
  Shares    Type of                   Consider-   To Whom                                                               In
  Issued   Security         Date       ation      Issued                       Business Purpose                      Reliance of:
------------------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>           <C>       <C>                       <C>                                       <C>
   38,000   Common      Oct 19, 1999     71,250 Compass Point Group        Consulting Services                      Section 4(2)
   50,000   Common      Jan 19, 2000    110,200 Stockbroker Relations      Consulting Services                      Section 4(2)
   23,500   Common      Jan 28, 2000     54,050 Compass Point Group        Consulting Services                      Section 4(2)
   30,000   Common      Mar 21, 2000    105,000 2 Individuals              Consulting Services                      Section 4(2)
   89,491   Common      Mar 31, 2000    223,728 Tri-Emp Enterprises        Conversion of Debt                       Section 4(2)
   84,883   Common      Mar 31, 2000    212,208 Monterrey Corp.            Conversion of Debt                       Section 4(2)
   26,000   Common      Apr 1,  2000     57,200 Stockbroker Relations      Consulting Services                      Section 4(2)
   15,000   Common      May 12, 2000     48,000 Olympus Capital            Consulting Services                      Section 4(2)
    4,000   Common      Jun 5,  2000     11,200 Dan Patterson              Consulting Services                      Section 4(2)
    4,000   Common      Jun 28, 2000      9,200 Compass Point Group        Consulting Services                      Section 4(2)
   43,500   Common      Jul 18, 2000    139,200 Various                    Acquisition of "Central Park"            Section 4(2)
                                                                              Restaurant Chain
  100,000   Common      Jul 27, 2000    260,000 E-Rex, Inc.                Sale of Stock for Investment Security    Section 4(2)
------------------------------------------------------------------------------------------------------------------------------

                                       11
<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>
   25,000   Common      Oct 30, 2000     31,250 Stockbroker                Consulting Services                      Section 4(2)
                                                  Relations
   52,000   Common      Oct 30, 2000     65,000 2 Individuals              Consulting Services                      Section 4(2)
   32,918   Common      Nov 20, 2000     49,375 19 Individuals             Payment on Series F                      Section 4(2)
                                                                           Preferred Dividends
   35,647   Common      Dec 20, 2000     28,518 L. Van Stillman            Legal Services                           Section 4(2)
   15,000   Common      Dec 29, 2000     10,500 L. Van Stillman            Legal Services                           Section 4(2)
   20,000   Common      Dec 29, 2000     14,000 Christopher Swartz         Officer Compensation                     Section 4(2)
   20,000   Common      Dec 29, 2000     14,000 Michael Cronin             Officer Compensation                     Section 4(2)
1,975,000   Common      Dec 29, 2000  1,968,750 19 Individuals             Conversion of Series F                   Section 4(2)
                                                                             Preferred Stock
   17,500   Common      Jan 31, 2001     40,250 Charterbridge              Consulting Services                      Section 4(2)
    2,500   Common      Feb 02, 2001      1,125 Robert Weiner              Consulting Services                      Section 4(2)
   20,000   Common      Feb 12, 2001      8,200 Arcadia Mutual             Consulting Services                      Section 4(2)
   33,638   Common      Feb 12, 2001     13,792 Passy Holding              Consulting Services                      Section 4(2)
    6,000   Common      Feb 15, 2001     13,800 Charterbridge              Consulting Services                      Section 4(2)
   10,000   Common      Mar 13, 2001      3,300 Olympus Capital            Consulting Services                      Section 4(2)
  100,000   Common      Apr 18, 2001     25,000 Richard Fellows            Consulting Services                      Section 4(2)
  233,333   Common      Apr 18, 2001     58,333 CLD Investor               Consulting Services                      Section 4(2)
                                                  Relations
  100,000   Common      Apr 18, 2001     25,000 LC Corporate               Consulting Services                      Section 4(2)
                                                  Services
   25,000   Common      Apr 18, 2001      6,250 Stockbroker                Consulting Services                      Section 4(2)
                                                  Presentations
  168,691   Common      Apr 18, 2001     25,000 Fred Lenz                  Conversion of Debt                       Section 4(2)
  168,691   Common      Apr 18, 2001     25,000 Agricola Coco              Conversion of Debt                       Section 4(2)
  171,233   Common      Apr 23, 2001     25,000 Gary Pereira               Conversion of Debt                       Section 4(2)
  168,691   Common      May 04, 2001     25,000 Gotris S.A.                Conversion of Debt                       Section 4(2)
  213,675   Common      May 10, 2001     25,000 Olympus Capital            Conversion of Debt                       Section 4(2)
  347,222   Common      Jun 07, 2001     25,000 Agricola Coco              Conversion of Debt                       Section 4(2)
  347,222   Common      Jun 07, 2001     25,000 Short Capital              Conversion of Debt                       Section 4(2)
  294,118   Common      Jun 21, 2001     25,000 Agricola Coco              Conversion of Debt                       Section 4(2)
  294,118   Common      Jun 21, 2001     25,000 Olympus Capital            Conversion of Debt                       Section 4(2)
  570,000   Common      Sep 28, 2001     45,600 21 Employees               Employee Bonus                           Section 4(2)

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

                                       12
<PAGE>

Options and Warrants

In February 1999, we approved the 1998 Incentive Plan ("Incentive Plan") to
enable us to offer employees and its consultants equity interests. There are
1,500,000 shares designated under the Incentive Plan and are fully vested upon
grant. Since January, 1997 we have issued options and warrants to purchase our
common stock outside of the Incentive Plan. The following table describes
selected data with respect to unexercised options and warrants at September 30,
2001, and includes the effect of the 1 for 10 reverse stock split in August
2001:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
      Date         Expiration                             Number of     Exercise
    of Grant          Date                Name              Shares       Price                Business Purpose
---------------------------------------------------------------------------------------------------------------------------------
<S>              <C>             <C>                          <C>             <C>         <C>
1998 Incentive Plan

Feb 10, 1999     Feb 10, 2002    Employees/nonemployee Director  62,000         2.00      Employee Stock Option Plan
---------------------------------------------------------------------------------------------------------------------------------
Outside of the Incentive Plan

May 23, 1997     Mar 1, 2002     Thomas Larcomb                   6,000         5.00      Loan Inducement
May 23, 1997     Mar 1, 2002     Richard Deegan                   6,000         5.00      Loan Inducement
Sep 15, 1997     Sep 15, 2002    Tri-Emp Enterprises             22,500         7.50      Assignment of Other Rights
Dec 17, 1997     Dec 17, 2002    Business Advisors               37,500        19.20      Business Expansion Consulting Services
Dec 17, 1997     Dec 17, 2002    Business Advisors               37,500        25.60      Business Expansion Consulting Services
Dec 17, 1997     Dec 17, 2002    Business Advisors               37,500        32.00      Business Expansion Consulting Services
Dec 17, 1997     Dec 17, 2002    Business Advisors               12,500        38.40      Business Expansion Consulting Services
Sep 30, 1998     Sep 30, 2003    Wall St. Group                  11,429         5.00      Investment Banking Services
Sep 30, 1998     Sep 30, 2003    Dr. Sol Lizerbram               11,429         5.00      Investment Banking Services
Oct 15, 1999     Oct 15, 2004    Blaine Quick                    64,500         2.90      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Dr. Sol Lizerbram               12,500         5.00      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Wall St. Group                  12,500         5.00      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Richard Silberman               60,000         2.90      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Bradley Gordon                 100,000         2.90      Employee Compensation
Oct 15, 1999     Oct 15, 2004    Michael Cronin                 100,000         2.90      Employee Compensation
Oct 15, 1999     Oct 15, 2004    Richard Huey                    50,000         2.90      Employee Compensation
Oct 15, 1999     Oct 15, 2004    Kelly Swartz                     3,500         1.60      Business Expansion Consulting Services
Oct 15, 1999     Oct 15, 2004    Linda Patterson                  3,500         1.60      Business Expansion Consulting Services
Jul 27, 2000     Jun 30, 2002    E-Rex, Inc.                    300,000         2.79      Exchanged for Investment Security
Jul 31, 2000     Jul 31, 2007    Lloyd, Benton & Taylor          20,000         2.29      Business Expansion Consulting Services
Nov 30, 2000     Nov 30, 2005    Olympus Capital #1              10,000         1.00      Investment Relations Services
Nov 30, 2000     Nov 30, 2005    Olympus Capital #2              10,000         1.20      Investment Relations Services
Nov 30, 2000     Nov 30, 2005    Olympus Capital #3              10,000         1.50      Investment Relations Services
                                                           ------------
                                 TOTAL                          958,858
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The weighted average exercise price of these outstanding options is $2.00 and
$11.43 under the Incentive Plan and outside of the Incentive Plan, respectively.
The aggregate of all options under the Incentive Plan and outside the Incentive
Plan has a weighted average life until expiration of 19.6 months. Options
representing 214,850 shares (13,500 and 201,350 under the Incentive Plan and
outside of the Incentive Plan, respectively) expired in 2001 while we granted
additional options on 30,000 shares (0 and 30,000 under the Incentive Plan and
outside of the Incentive Plan respectively) during the year.

                                       13
<PAGE>

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

Forward Looking Statements

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

Overview

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

Royalties

Royalties are based on a percentage of franchisees' net sales and are recognized
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 us drawn on
franchisee bank accounts. Royalties earned under older agreements are generally
paid by the remittance of a check payable to us on a weekly, bi-weekly or
monthly basis. A portion of the royalties received are paid to our area
developers as royalty service costs for providing on-going services to
franchisees in their respective territories (see Item 1.
Business-Franchising-Area Developers).

Franchise Fees

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

Area Developer Fees

We charge area developers a nonrefundable 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 we have fulfilled substantially all of our contractual obligations such as
training, providing manuals, and reasonable efforts to obtain and retain
trademark registrations, we recognize, as revenue, the cash portion of the fee
and the value of the promissory note. Certain performance obligations are
ongoing. On these the income has been deferred to future periods in which the
services will be substantially performed.

Restaurant Sales

Restaurant sales are reported from Company owned stores. Since July 2000, we had
operated seven stores from our Central Park acquisition. In June of 2001, we had
sold all of our Company owned stores, however, from time to time we will take
over the operations of a store from a franchisee before the contract term has

                                       14
<PAGE>

expired. Management's intent is to resell these stores to prospective
franchisees as soon as practicable. Management does not believe that the
operating costs of its Company owned stores are indicative of costs for
franchised stores on a systemwide basis. Store sales are expected to vary widely
from year to year and reflect the uncertainty of when, where and how long a
store may be operated by us before being returned to the franchising system.

Year Ended September 30, 2001 Compared to Year Ended September 30, 2000

Revenue: Total Revenue increased $371,658 in 2001 over 2000 from $4,491,940 to
$4,863,598.

Royalties decreased $124,532, or 5.9%, from $2,108,337 in 2000 to $1,983,805 in
2001. The primary reason for the decrease was from the sale of the Mountain
Mike's Pizza concept in April 2000 and thus no royalty income from this concept
was included for the year ended September 30, 2001 compared to $822,049 for the
year ended September 30, 2000. This decrease was offset by royalty income
generated as the result of the acquisition of the Central Park hamburger chain
in July 2000. During the year ended September 30, 2000 royalty income for the
Central Park hamburger chain was $176,226, compared to $889,503 for the year
ended September 30, 2001, or an increase of $713,277.

Franchise fees decreased $23,000 or 36.5% from $63,000 in 2000 to $40,000 in
2001.

Retail restaurant sales in Company owned stores increased $607,984 or 116.5%
from $521,747 in 2000 to $1,129,731 in 2001. The retail restaurant sales for the
year ended September 30, 2000 resulted from our acquisition of the Central Park
hamburger chain which included seven corporately owned restaurants and only
reflects activity from July 19, 2000 to September 30, 2000 (less than 2.5
months). During the year ended September 30, 2001, we continued to operate these
locations while searching for potential buyers for the stores. As of September
30, 2001, we had sold all Company owned locations.

Bakery sales for the bakery owned and operated by us increased $104,240 or 12.6%
from $825,237 in 2000 to $929,477 in 2001 which reflected a $.31 increase in
sales price on a dozen rolls.

Costs and Expenses

We segregate our operating expenses into six general categories as follows:

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

Franchise servicing costs, including ongoing area developer fees, increased
$62,669 or 4.4% from $1,419,548 in 2000 to $1,482,217 in 2001.

Retail cost of sales and operating expenses from company owned stores increase
from $594,905 in 2000 to $1,122,520 in 2001. Retail cost of sales and operating
expenses as a percentage of retail sales decreased from 114.0% in 2000 to 99.4%
in 2001.

Bakery cost of sales and expenses increased $15,152 or 1.9% from $816,376 in
2000 to $831,528 in 2001. The increase is consistent with the increase in bakery
sales.

General corporate operating expenses generally include: officers and office
support staff payroll and payroll costs; legal, audit and other professional
fees; office occupancy costs and other general administrative costs. These
administrative costs increased $157,989 or 11.2% from $1,415,752 in 2000 to

                                       15
<PAGE>

$1,573,741 in 2001 which was partially attributable to an employment agreement
granted to the former owner of the Central Park hamburger chain. The employment
agreement was for $125,000 and was paid for a one year period beginning July 19,
2000.

Consulting and investor relations costs decreased $209,876 or 14.8% from
$1,417,263 in 2000 to $1,207,387 in 2001. During the year ended September 30,
2001, we used the services of several consulting organizations to assist us with
stockholder relations. Consideration for these services was granted in advance
in the form of common stock distributions, and we amortized these costs monthly
as services were preformed. During 2001 we determined that the value of these
services had declined to zero. Accordingly, a charge to earnings was taken for
$640,040.

Routine or recurring non-cash charges such as depreciation, amortization (of
goodwill and non-compete covenants) and the write off of uncollectible
receivables was $771,134 in 2000 compared to $851,060 in 2001. Of these amounts
$25,442 and $10,000 was attributable to bad debt expense for the years ended
September 30, 2000 and 2001, respectively. Amortization and depreciation was
$745,692 in 2000 compared to $841,060 in 2001, an increase of 95,368 or 12.8%.
The primary reason for the increase was the increase in goodwill amortization
from the Central Park Hamburger chain which increased $117,124 to $147,015 for
the year ended September 30, 2001. This increase was the result of a twelve
month amortization period during the year ended September 30, 2001, compared to
an amortization period of approximately 2 1/2 months (July 19, 2000 -
September 30, 2000) last year.

Non-routine or non-recurring non-cash charges such as losses on disposal of
franchise concepts and losses on the sale of assets totaled $83,335 in 2001, a
decrease of $759,757 from 2000. The loss on the sale of our seven corporately
owned Central Park restaurants was $83,335 in 2001. The loss on the disposal of
franchise concepts was $843,092 in 2000 resulting from a loss of $535,506 from
the sale of the Mountain Mike's Pizza franchise concept and $307,586 from the
sale of the Seawest Subs franchise concept.

Permanent impairment of long-lived assets was $971,033 for 2001, compared to
$70,101 in 2000, an increase of $900,932. This increase is attributable to three
factors. First, we recorded a permanent impairment of our marketable securities
in the amount of $671,828 in 2001. Our two marketable securities had steadily
declined in value during the year and recovery seemed highly unlikely. Second,
Several notes receivable totaling $87,622 that we assumed in the acquisition of
Central Park were determined to be uncollectable. As a result, we recorded an
adjustment to earnings. Finally, in March, we received $50,000 under a note
payable to Franchise Acquisition Company I, LLC, ("FAC") which accrued interest
at 10%. In connection with this note agreement, we granted FAC an option to
acquire our interest in a note receivable with a face value of $800,000 and a
discounted value of $411,566 for $265,000 payable by FAC on March 31, 2004. As a
result, we recorded an impairment on the note receivable in the amount of
$211,583.

Net interest expense was $441,337 in 2001 compared to $318,633 in 2000, an
increase of $122,704. The increase in interest expense reflects the 12 months of
interest expense incurred in 2001 from the long-term debt issued and assumed of
approximately $2,400,000 on the Central Park acquisition in July 2000 compared
to only three months during the year ended September 30, 2000.

Liquidity and Capital Resources

Net cash used in operating activities was $312,011 in 2001 compared to $247,065
in 2000, an increase of $64,946. Net cash of $341,705 was provided by investing
activities. $420,623 of cash proceeds and collections of notes receivable was
received from the sale of our seven corporately owned Central Park locations,
while $53,918 was expended on the purchase of property and equipment. We also
issued a note receivable for $25,000. Net cash of $116,839 was used on financing
activities, primarily from the payments on long-term debt of $485,728 and
$500,000 used to partially redeem the Series F preferred stock. Also we had
additional borrowings of long-term debt of $868,889 which consisted primarily of
our issuance of the Series G convertible debenture in the amount of $575,000.

                                       16
<PAGE>

At September 30, 2001 we had $3,591,807 in debt. Of this amount, we assumed
approximately $2,400,000 in debt relating to our Central Park acquisition in
July 2000. In December 2000, we issued $575,000 in convertible debt and redeemed
the entire $2,468,750 of Series F preferred stock through the payment of
$500,000 in cash and the issuance of 1,975,000 shares of common stock.

We believe that cash flows from operations will continue to fund our operations
as well as generate the capital necessary to meet our obligations as they come
due. We may seek other sources of financing, restructure and/or pay off all our
current obligations in 2002. There is no assurance that additional funding will
be available, or if available, it can be obtained on terms favorable to us.
Failure to obtain such funding could adversely affect our financial condition.

Working capital at September 30, 2001 was a deficit of $1,897,794 compared with
a deficit of $1,490,301 on September 30, 2000, an increase of $407,493. The
increase in deficit is reflected in a $461,026 increase in the current portion
of long-term debt as well as decreases in accounts receivable, prepaid expenses,
and inventory which totaled $488,502 in the aggregate.

Recent Accounting Pronouncements

In June, 2001, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 141, "Business Combinations" (SFAS 141), and No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 is effective for
business combinations completed after June 30, 2001, and SFAS 142 is effective
for fiscal years beginning after December 15, 2001 (with early adoption
permitted under certain circumstances).

SFAS 141 proscribes the exclusive use of the purchase method of accounting for
all business combinations subsequent to the effective date. SFAS 142 mandates
that acquired goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized. Rather, goodwill and these intangibles will be
subject to regular impairment tests in accordance with SFAS 142. All other
intangible assets will continue to be amortized over their estimated useful
lives.

We do not expect SFAS 141 to have a material effect on future operations as our
policy has always been to structure acquisitions using the purchase method of
accounting. As provided for in SFAS 142, we will elect early adoption of this
statement in our fiscal year beginning October 1, 2001. Management is currently
evaluating the effect of the adoption of SFAS 142.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. SFAS 143 is effective for the fiscal years
beginning after June 15, 2002.

SFAS 143 is expected to improve financial reporting because all asset retirement
obligations that fall within the scope of this Statement and their related asset
retirement cost will be accounted for consistently; financial statements of
different entities will be more comparable.

As provided for in SFAS 143, we will elect early adoption of this statement in
our fiscal year beginning October 1, 2001. Management is currently evaluating
the effect of the adoption of SFAS 143.

                                       17
<PAGE>

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations reporting
the effect of Disposal of a Segment of a Business. SFAS 144 is effective for
fiscal years beginning after December 15, 2001 (with early adoption permitted
under certain circumstances).

SFAS 144 is expected to improve financial reporting by requiring that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to include more disposal transactions.

As provided for in SFAS 144, we will elect early adoption of this statement in
our fiscal year beginning October 1, 2001. Management is currently evaluating
the effect of the adoption of SFAS 144.

                                       18
<PAGE>

Item 7. Financial Statements

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




                                       19
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                        Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


                                    Contents



         Independent Auditors' Report on Consolidated Financial
           Statements........................................................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
           Notes to Consolidated Financial Statements.................F-9 - F-41

                                       F-1
<PAGE>

                          Independent Auditors' Report



To the Board of Directors and Stockholders
Ultimate Franchise Systems, Inc.
Heathrow, Florida


We have  audited  the  accompanying  consolidated  balance  sheets  of  Ultimate
Franchise Systems, Inc. (formerly JRECK Subs Group, Inc.) and subsidiaries as of
September  30,  2001,  and  2000  and the  related  consolidated  statements  of
operations,  stockholders' equity and cash flows for the years 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 audits.

We conducted  our audits in accordance  with U.S.  generally  accepted  auditing
standards. Those standards require that we plan and perform the audits 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 opinions.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Ultimate Franchise
Systems,  Inc.  and  subsidiaries  as of September  30,  2001,  and 2000 and the
results  of its  operations  and its cash  flows  for the  years  then  ended in
conformity with U.S. generally accepted accounting principles.


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

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

November 21, 2001 (Except for note 13B, for which
the date is January 11, 2002)
                                                                             F-2
<PAGE>
<TABLE>
<CAPTION>
                                Ultimate Franchise Systems, Inc. and Subsidiaries
                                         Consolidated Balance Sheets


                                                                              September 30,        September 30,
                                                                                  2001                  2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                 <C>
Assets
Current assets:
    Cash and cash equivalents, including restricted cash of $38,068 and
        $35,836, respectively                                                    $     60,927        $     148,072
    Accounts receivable - trade, net of allowance for doubtful accounts
        of $36,536 and $85,436, respectively                                          136,092              272,107
    Prepaid expenses                                                                   10,319              277,416
    Inventory                                                                               -               85,390
    Current portion of notes receivable                                               167,776               63,584
---------------------------------------------------------------------------------------------------------------------

        Total current assets                                                          375,114              846,569
---------------------------------------------------------------------------------------------------------------------

Property and equipment, net                                                           469,188            1,116,837
---------------------------------------------------------------------------------------------------------------------

Other assets:
    Goodwill, net of accumulated amortization of $1,127,712 and
        $736,243, respectively                                                      6,565,104            7,094,183
    Covenants not to compete, net of accumulated amortization of
        $360,000 and $60,000, respectively                                            240,000              540,000
    Deferred loan costs, net                                                          245,483              310,943
    Notes receivable, net of current portion                                          330,033              736,503
     Investment securities                                                             69,675              789,430
    Other                                                                              96,814              126,501
---------------------------------------------------------------------------------------------------------------------

        Total other assets                                                          7,547,109            9,597,560
---------------------------------------------------------------------------------------------------------------------

Total assets                                                                     $  8,391,411        $  11,560,966
=====================================================================================================================


Read independent auditors' report.  The accompanying notes
are an integral part of the consolidated financial statements                                                     F-3
<PAGE>
<CAPTION>
                Ultimate Franchise Systems, Inc. and Subsidiaries
                     Consolidated Balance Sheets, Continued

                                                                                 September 30,         September 30,
                                                                                     2001                   2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                 <C>
Liabilities and Stockholders' Equity
Current liabilities:
    Current portion of long-term debt                                            $    878,166        $     417,140
    Accounts payable                                                                  481,674              708,767
    Deferred revenue                                                                  199,397              149,798
    Accrued expenses                                                                  450,306              813,401
    Accrued preferred stock dividends                                                 263,365              247,764
---------------------------------------------------------------------------------------------------------------------

        Total current liabilities                                                   2,272,908            2,336,870
---------------------------------------------------------------------------------------------------------------------

Long-term debt, less current portion                                                2,713,641            3,002,190
---------------------------------------------------------------------------------------------------------------------

Total liabilities                                                                   4,986,549            5,108,978
---------------------------------------------------------------------------------------------------------------------

Minority interest                                                                     257,875                    -
---------------------------------------------------------------------------------------------------------------------

Redeemable common stock                                                               293,000              293,000
---------------------------------------------------------------------------------------------------------------------

Redeemable Series F preferred stock, no par value, 250 shares authorized,
    0 and 197.5 shares issued and outstanding, respectively                                 -            2,468,750
---------------------------------------------------------------------------------------------------------------------

Commitments and contingencies                                                               -                    -
---------------------------------------------------------------------------------------------------------------------

Stockholders' equity:
    Series C convertible preferred stock, no par value, 120 shares
        authorized, issued and outstanding                                            120,000              120,000
    Common stock, no par value, 100,000,000 shares authorized,
        8,695,864 and 3,188,718 shares issued and outstanding,
        respectively                                                               30,113,718           26,830,014
    Accumulated deficit                                                           (26,692,231)         (22,885,674)
    Less:  Stock subscriptions receivable                                            (687,500)            (687,500)
    Accumulated other comprehensive income                                                  -               83,316
---------------------------------------------------------------------------------------------------------------------

        Total stockholders' equity                                                  2,853,987            3,460,156
---------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                       $  8,391,411        $  11,560,966
=====================================================================================================================

Read independent auditors' report.  The accompanying notes
are an integral part of the consolidated financial statements                                                     F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              Ultimate Franchise Systems, Inc. and Subsidiaries
                                    Consolidated Statements of Operations


                                                                                   Year                  Year
                                                                                   Ended                 Ended
                                                                                September 30,         September 30,
                                                                                   2001                  2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                    <C>
Revenues:
    Continuing royalty revenues                                               $   1,983,805          $   2,108,337
    Initial royalty revenues                                                         40,000                 63,000
    Retail sales - company-owned stores                                           1,129,731                521,747
    Retail sales - bakery products                                                  929,477                825,237
    Other operating revenues                                                        780,585                973,619
---------------------------------------------------------------------------------------------------------------------
                                                                                  4,863,598              4,491,940

Operating costs and expenses:
    Franchise servicing costs                                                     1,482,217              1,419,548
    Cost of retail sales and operating costs - stores                             1,122,520                594,905
    Cost of retail sales and operating costs - bakery                               831,528                816,376
    General and administrative                                                    1,573,741              1,415,752
    Consulting and investor relations                                             1,207,387              1,417,263
    Bad debts                                                                        10,000                 25,442
    Amortization and depreciation                                                   841,060                745,692
---------------------------------------------------------------------------------------------------------------------
                                                                                  7,068,453              6,434,978
---------------------------------------------------------------------------------------------------------------------

Loss from operations                                                             (2,204,855)            (1,943,038)

Other income (expense):
    Interest, net                                                                  (441,337)              (318,633)
    Debt discount from beneficial conversion feature of convertible
        debentures                                                                 (309,615)                     -
    Permanent impairment of long-lived assets                                      (971,033)               (70,101)
    Loss on disposal of property and equipment                                      (83,335)                     -
    Loss on disposals of franchise concepts                                               -               (843,092)
    Minority interest of loss of subsidiary                                         125,311                      -
    Other, net                                                                      143,282                169,171
---------------------------------------------------------------------------------------------------------------------

                                                                                 (1,536,727)            (1,062,655)
---------------------------------------------------------------------------------------------------------------------

Net loss                                                                         (3,741,582)            (3,005,693)
Preferred stock dividends                                                           (64,975)              (213,100)
---------------------------------------------------------------------------------------------------------------------

Net loss applicable to common stock                                           $  (3,806,557)         $  (3,218,793)
=====================================================================================================================

Weighted average number of common shares outstanding                              5,895,820              3,010,228
=====================================================================================================================

Net loss per common share - basic and diluted                                 $        (.65)         $       (1.07)
=====================================================================================================================

Read independent auditors' report.  The accompanying notes
are an integral part of the consolidated financial statements                                                    F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              Ultimate Franchise Systems, Inc. and Subsidiaries
                                    Consolidated Statements of Cash Flows


                                                                                         Year                    Year
                                                                                         Ended                  Ended
                                                                                     September 30,           September 30,
                                                                                         2001                    2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                    <C>
Operating activities:
    Net loss                                                                         $  (3,741,582)         $  (3,005,693)
    Adjustments to reconcile net loss to net cash used by operating
        activities:
        Amortization and depreciation                                                      841,060                745,692
        Permanent impairment of long-lived assets                                          971,033                 70,101
        Note receivable applied against operating expenses                                 107,622                      -
        Bad debts                                                                           10,000                 25,442
        Loss on disposals of property and equipment                                         83,335                      -
        Loss on disposals of franchise concepts                                                  -                843,092
        Stock and stock options issued for services                                        231,986                227,569
        Minority interest in loss of subsidiary                                           (125,311)                     -
        Amortized discounts on financial instruments                                        (1,382)                 8,997
        Amortization of deferred loan costs                                                 65,460                 65,460
        Prepaid consulting fees amortized                                                  534,416                732,720
        Write down of prepaid consulting                                                   145,098                      -
        Stock and stock options of subsidiary issued for consulting services               347,798                      -
        Beneficial conversion feature on long-term debt                                    309,615                      -
        (Increase) decrease in:
           Accounts receivable                                                             136,015                 (8,178)
           Prepaid expenses                                                                (48,400)                52,083
           Inventory                                                                        85,390                 (6,256)
           Other assets                                                                      7,854                 (7,518)
        Increase (decrease) in:
           Accounts payable                                                               (227,093)                  (199)
           Deferred revenue                                                                 49,599                 43,256
           Accrued liabilities                                                             (94,524)               (33,633)
----------------------------------------------------------------------------------------------------------------------------

Net cash used by operating activities                                                     (312,011)              (247,065)
----------------------------------------------------------------------------------------------------------------------------

Investing activities:
    Purchase of investment securities                                                            -                (20,915)
    Proceeds from disposal of property and equipment                                       277,774                  7,462
    Issuance of note receivable                                                            (25,000)               (35,000)
    Purchase of property and equipment                                                     (53,918)                     -
    Proceeds from disposals of franchise concepts                                                -              2,682,130
    Payments on acquisition of franchise concept                                                 -               (925,595)
    Repayment of  notes receivable                                                         142,849                      -
----------------------------------------------------------------------------------------------------------------------------

Net cash provided by investing activities                                                  341,705              1,708,082
----------------------------------------------------------------------------------------------------------------------------

Financing activities:
    Borrowings on long-term debt                                                           868,889                 45,876
    Payments on partial redemption of convertible preferred stock                         (500,000)                     -
    Payments on long-term debt                                                            (485,728)            (1,267,013)
    Payment of preferred stock dividends                                                         -               (213,100)
----------------------------------------------------------------------------------------------------------------------------

Net cash used by financing activities                                                     (116,839)            (1,434,237)
----------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                       (87,145)                26,780

Cash and cash equivalents, beginning of year                                               148,072                121,292
----------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                                               $      60,927          $     148,072
============================================================================================================================

Read independent auditors' report.  The accompanying notes
are an integral part of the consolidated financial statements                                                            F-6
<PAGE>
<CAPTION>
                              Ultimate Franchise Systems, Inc. and Subsidiaries
                               Consolidated Statements of Cash Flows, Continued


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

                                                                                         Year                   Year
                                                                                         Ended                  Ended
                                                                                     September 30,          September 30,
                                                                                         2001                    2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                    <C>
Cash paid for interest                                                              $      244,819         $      219,187
Cash paid for income taxes                                                                       -                    999
------------------------------------------------------------------------------- ---------------------- ---------------------

Stock issued in exchange for prepaid expenses                                       $      117,883         $      447,931
Conversion of series G debt into common stock                                              225,000                343,291
Conversion of accrued interest into common stock                                                 -                 92,645
Conversion of preferred series F into common stock                                       1,968,750                      -
Stock and stock options issued in exchange for investment securities                             -                685,199
Preferred stock dividends paid in common stock                                              49,375                      -
Pre-acquisition liabilities adjusted against purchase goodwill                             137,610                      -
Notes receivable obtained upon disposal of property and equipment                          199,000                      -
Preferred stock dividends accrued                                                           64,976                      -
Excess of par value of subsidiary common stock issued for services                         306,936                      -
Stock options issued for prepaid services                                                   16,109                      -
Stock issued to reduce liability to issue common stock                                      54,050                      -
Stock issued as consideration for joint venture                                              4,000                      -
Subsidiary common stock issued for investment securities                                    35,389                      -
Cancellation of stock subscriptions receivable                                                   -              3,500,000
------------------------------------------------------------------------------- ---------------------- ---------------------

In addition to the above non-cash items,  the following is a summary of non-cash
transactions entered into for the acquisition of the franchise concept described
in Note 3 for the year ended September 30, 2000:

<CAPTION>
   <S>                                                     <C>
   Common stock issued                                     $      (139,200)
   Long-term debt issued                                        (1,669,854)
   --------------------------------------------------------------------------

   Total non-cash consideration paid                            (1,809,054)
   --------------------------------------------------------------------------

   Accounts receivable                                              84,895
   Prepaid expenses                                                 47,205
   Inventory                                                        79,134
   Property, plant and equipment                                   622,169
   Goodwill acquired                                             2,940,289
   Covenant not to compete                                         600,000
   Notes receivable                                                147,337
   --------------------------------------------------------------------------

   Total non-cash acquisition of assets                          4,521,029
   --------------------------------------------------------------------------

   Accounts payable                                               (352,939)
   Accrued expenses                                               (444,040)
   Long-term debt assumed                                         (989,401)
   --------------------------------------------------------------------------

   Total non-cash assumption of liabilities                     (1,786,380)
   --------------------------------------------------------------------------

   Net cash paid                                                  (925,595)
   ==========================================================================


Read independent auditors' report.  The accompanying notes
are an integral part of the consolidated financial statements                F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                        Ultimate Franchise Systems, Inc. and Subsidiaries
                                         Consolidated Statements of Stockholders' Equity


                                                                                                          Accumulated
                                     Common          Preferred Series C                                     Other
                           ------------------------- ------------------   Accumulated    Subscription   Comprehensive      Total
                              Shares      Amount      Shares   Amount       Deficit         Notes       Income (Loss)      Equity
---------------------------------------------------- -------- ---------  -------------   ------------  -------------- --------------
<S>                          <C>       <C>             <C>    <C>        <C>             <C>           <C>            <C>
Balance,
  September 30, 1999         2,840,344 $28,394,179     120    $120,000   $(19,666,881)   $(4,187,500)  $           -  $   4,659,798

Conversion of debt to
  equity                       174,374     435,936       -           -              -              -               -        435,936
Stock issued for current
  and prepaid services         190,500     465,900       -           -              -              -               -        465,900
Issuance of options for
  services                           -     209,600       -           -              -              -               -        209,600
Stock issued for
  investment security          100,000     260,000       -           -              -              -               -        260,000
Options issued for
  investment security                -     425,199       -           -              -              -               -        425,199
Common stock issued for
  acquisition                   43,500     139,200       -           -              -              -               -        139,200
Cancellation of stock
  subscriptions receivable    (160,000) (3,500,000)      -           -              -      3,500,000               -              -
Preferred dividends                  -           -       -           -       (213,100)             -               -       (213,100)
Net loss                             -           -       -           -     (3,005,693)             -               -     (3,005,693)
Unrealized gain on
  investment securities              -           -       -           -              -              -          83,316         83,316
---------------------------------------------------- ------- ----------- ------------- --------------- -------------- --------------

Balance,
  September 30, 2000         3,188,718  26,830,014     120     120,000    (22,885,674)      (687,500)         83,316      3,460,156

Stock issued for current
  and prepaid services       1,262,067     349,869       -           -              -              -               -        349,869
Issuance of options for
  services                           -      16,109       -           -              -              -               -         16,109
Stock issued for
  preferred dividends           32,918      49,375       -           -              -              -               -         49,375
Stock issued for
  conversion of Series
  F preferred stock          1,975,000   1,968,750       -           -              -              -               -      1,968,750
Beneficial conversion
  feature on convertible
  debentures                         -     309,615       -           -              -              -               -        309,615
Conversion of Series G
  debenture                  2,173,661     225,000       -           -              -              -               -        225,000
Common stock issued for
  consideration in
  formation of joint
  venture                       40,000       4,000       -           -              -              -               -          4,000
Stock issued to reduce
  liability to issue
  common stock                  23,500      54,050       -           -              -              -               -         54,050
Proceeds in excess of
  par on stock of
  majority owned
  subsidiary                         -     306,936       -           -              -              -               -        306,936
Preferred dividends                  -           -       -           -        (64,975)             -               -        (64,975)
Net loss                             -           -       -           -     (3,741,582)             -               -     (3,741,582)
Reclassification for
  adjustment for
  permanent impairment
  of investment securities           -           -       -           -              -              -         (83,316)       (83,316)
---------------------------------------------------- ------- ----------- ------------- --------------- -------------- --------------

Balance,
  September 30, 2001         8,695,865 $30,113,718     120    $120,000   $(26,692,231)   $  (687,500)  $           -  $   2,853,987
---------------------------------------------------- ------- ----------- ------------- --------------- -------------- --------------

Read independent auditors' report.  The accompanying notes
are an integral part of the consolidated financial statements                                                                    F-8
</TABLE>

<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


1.       Background Information

         Ultimate  Franchise  Systems,  Inc.  (formerly JRECK Subs Group,  Inc.)
         (collectively  "we" and "our"), was incorporated on July 19, 1995 under
         the laws of the  State of  Colorado.  In June  2000,  our  shareholders
         approved  a  corporate  name  change  from JRECK Subs  Group,  Inc.  to
         Ultimate Franchise Systems, Inc.

         We are a  multi-concept  franchisor  of  sandwich  shops and  hamburger
         restaurants  located throughout the United States. Our headquarters are
         located in Heathrow,  Florida. Currently, we serve as the franchisor to
         141 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,  we offer guidance and assistance to the franchisees in areas
         such  as  product   preparation,   equipment   purchasing,   marketing,
         administrative support and employee training.

         Our subsidiaries  include Jreck Subs Inc., a New York corporation,  SBK
         Franchise Systems, Inc., a Florida corporation,  Li'l Dino Corporation,
         a North Carolina corporation, Central Park of America, Inc., a Delaware
         corporation.  These  subsidiaries  operate  restaurants under the trade
         names of Jreck Subs,  Sobik's  Subs,  Li'l  Dino's,  and Central  Park,
         respectively. Also, prior to the subsidiaries' disposition, our company
         included Admiral Subs of Washington, Inc., a Washington corporation and
         Admiral's Fleet, Inc., a Washington corporation.

         In  addition,  our  subsidiaries  include  a  bakery,  Pastry  Products
         Producers, LLC, a New York limited liability company. The bakery is the
         supplier of bread  products  to certain  franchisees  of ours.  For the
         years ended September 30, 2001 and 2000, all bakery sales were to Jreck
         Subs franchisees (19.1% and 18.4% of total revenues, respectively).

         As indicated in the accompanying consolidated financial statements, our
         net loss has  increased  from  approximately  $3.0 million for the year
         ended  September  30, 2000 to  approximately  $3.7 million for the year
         ended  September 30, 2001.  Cash used by operations  for the year ended
         September 30, 2001 was approximately $312,000 compared to approximately
         $240,000 used for the year ended  September 30, 2000.  Working  capital
         deficit increased from approximately $1.5 million at September 30, 2000
         to approximately $1.9 million at September 30, 2001.


Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                F-9
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


1.       Background Information (continued)

         We believe the following steps are important to our future:

         1.       The continued growth of our company through the acquisition of
                  outside restaurant concepts.

         2.       The  conversion  or  liquidation  of the  remaining  Series  G
                  debentures, which mature in January 2002.

         3.       The continued growth of our existing concepts,  by finding new
                  franchisees   qualified  to  operate  and  manage   successful
                  restaurant locations.

         We believe,  based on our plans outlined above, that the operating cash
         flow deficit,  operating  losses before  non-cash  charges and negative
         working  capital can be reduced or eliminated  based on the extent that
         the business strategies are realized. As of the date of these financial
         statements  (and  subsequent to September 30, 2001), we have obtained a
         letter of  intent to  purchase  100% of the  common  stock of a company
         which  is  the  franchisor  of  approximately   70  mexican   fast-food
         restaurants  located  throughout  the United  States (see note 13A). In
         addition,  we have entered into an agreement  with Noble  International
         Investments,  Inc.,  ("Noble") whereby Noble will become a market maker
         in our stock,  and will assist us in meeting our obligation  associated
         with the  Series G  convertible  debentures  (see  note  13B).  We have
         redesigned  the look of our  Central  Park  concept,  and now offer our
         existing  franchisees  the  opportunity  to upgrade the design of their
         stores.  In addition,  all new  locations  will be built using this new
         design.   We  believe  that  these  changes  will  make  our  locations
         attractive  to  perspective  franchisees,  and  enable us to expand our
         concept.  In addition,  we have been  successful in expanding our other
         concepts and will see the benefits of this growth in 2002.

         Regardless  of  the  improvement  of our  financial  position  and  the
         initiation of our plans indicated above, no assurance can be given that
         our financial  position  will  continue to improve and the  detrimental
         financial trends will be corrected.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-10
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


2.       Significant Accounting Policies

         Principles of Consolidation
         ---------------------------

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

         Use of Estimates
         ----------------

         The preparation of consolidated financial statements in conformity with
         U.S. 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.

         Cash and Cash Equivalents
         -------------------------

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

         Inventory
         ---------

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

         Property and Equipment
         ----------------------

         Property and  equipment are recorded at cost.  Maintenance  and repairs
         are charged to  operations  as incurred.  Betterments  and renewals are
         capitalized. When property and equipment are sold or otherwise disposed
         of, the asset account and the related accumulated depreciation accounts
         are  relieved,  and  any  gain  or  loss  is  included  in  operations.
         Depreciation  is  calculated  using the  straight-line  method over the
         estimated useful lives of the assets, generally ranging from five to 40
         years.  For the years ended  September 30, 2001 and 2000,  depreciation
         expense amounted to $141,458 and $137,286, respectively.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-11
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


2.       Significant Accounting Policies (continued)

         Asset Impairment
         ----------------

         We regularly  examine our  long-lived  assets for  possible  impairment
         indicators.   If  an  impairment  indicator  is  noted,  the  estimated
         undiscounted  future  cash flows of these  assets are  compared  to the
         recorded  value of the  assets.  If the net  recorded  value  cannot be
         recouped,  the assets are written down to their fair market value.  For
         the  year  ended   September  30,  2001,  we  determined  that  certain
         investments and notes  receivable had incurred an impairment (see notes
         4 and 5). As a result,  the  accompanying  consolidated  statements  of
         operations  reflects a write-down  of  long-lived  assets the amount of
         $971,033.

         Deferred Loan Costs
         -------------------

         Deferred loan costs are amortized ratably over the terms of the related
         loans. For the years ended September 30, 2001 and 2000, amortization of
         deferred loan costs amounted to $65,460 for both years.

         Goodwill
         --------

         Goodwill  represents  the  excess  of cost  over the fair  value of net
         assets acquired and is being amortized using the  straight-line  method
         over 20 years. As noted above, the realization of goodwill is regularly
         evaluated for impairment  indicators.  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 two year estimated useful lives of the underlying agreements.

         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.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-12
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


2.       Significant Accounting Policies (continued)

         Advertising Costs
         -----------------

         Advertising  costs are charged to operations  as incurred.  Advertising
         expenses  were $50,611 and $251,237 for the years ended  September  30,
         2001 and 2000, respectively.

         Accounting for Stock-Based Compensation
         ---------------------------------------

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

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

         Investment Securities
         ---------------------

         Our   investment   securities   have  been   classified   entirely   as
         available-for-sale   securities.   Available-for-sale   securities  are
         recorded at cost and adjusted to fair market  value on each  subsequent
         balance  sheet  date.  Any  change in fair  market  value  between  the
         purchase date and all  subsequent  balance sheet dates is excluded from
         earnings.  Rather,  this amount is  included  as a  component  of other
         comprehensive income. It is our intention to hold investment securities
         for an indefinite  period of time.  Therefore,  we have  classified our
         investment securities as non-current assets.

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

         A permanent  impairment  in value of equity  securities  classified  as
         available for sale is an impairment that is other than temporary.  If a
         permanent  impairment  is  deemed  to exist,  the  decline  in value is
         reflected in current operations and the reduced carrying amount becomes
         the new cost basis from which other increases or decreases in value are
         measured.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-13
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


2.       Significant Accounting Policies (continued)

         Investment Securities (continued)
         ---------------------------------

         During the year ended  September  30, 2001,  we  recognized a permanent
         impairment of our investment securities in the amount of $671,828. This
         amount is included as a component of impairment of long-lived assets on
         the accompanying consolidated statements of operations.

         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, 2001.

         The respective carrying value of on-balance-sheet financial instruments
         approximates  their fair values.  These financial  instruments  include
         cash and equivalents,  accounts receivables, prepaid expenses, accounts
         payable,  deferred revenue,  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  our  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 our notes  receivable  and long-term debt  approximates  their
         fair  market  value.  Investment  securities  are stated at fair market
         value which are  determined by quoted market prices or other  valuation
         indicators.

         Earnings Per Common Share
         -------------------------

         We have 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 per share
         as  of  the  date  all  necessary   conditions   have  been  satisfied.
         Contingently  issued shares are included in diluted  earnings 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 auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-14
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


2.       Significant Accounting Policies (continued)

         Earnings Per Common Share, (continued)
         --------------------------------------

         Our basic and diluted  earnings  per share are the same since we have a
         loss for both  years  presented,  and the  impact of  potential  common
         shares is  antidilutive.  Potential common shares at September 30, 2001
         and 2000 include 1,000,857 and 1,185,707 stock options and warrants,  0
         and  1,599  shares  underlying  the  convertible  preferred  stock  and
         approximately   450,000  and  115,000  shares  from  convertible  notes
         payable,  respectively.  We also have a liability  to issue  25,500 and
         49,000  shares  of  common  stock as of  September  30,  2001 and 2000,
         respectively.  This  liability  to issue  common  stock of $58,650  and
         $112,700  is  included  as a  component  of  accrued  expenses  on  the
         accompanying consolidated balance sheets.

         Income Taxes
         ------------

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

         Recent Accounting Pronouncements
         --------------------------------

         In  June,  2001,  the  Financial   Accounting  Standards  Board  issued
         Statement of Financial Standards No. 141, "Business Combinations" (SFAS
         141), and No. 142,  "Goodwill and Other Intangible  Assets" (SFAS 142).
         SFAS 141 is effective for business  combinations  completed  after June
         30, 2001,  and SFAS 142 is effective for fiscal years  beginning  after
         December  15,  2001  (with  early  adoption   permitted  under  certain
         circumstances).

         SFAS  141  proscribes  the  exclusive  use of the  purchase  method  of
         accounting  for all business  combinations  subsequent to the effective
         date.  SFAS 142 mandates that acquired  goodwill and intangible  assets
         deemed to have  indefinite  lives will no longer be amortized.  Rather,
         goodwill and these  intangibles  will be subject to regular  impairment
         tests in  accordance  with SFAS 142. All other  intangible  assets will
         continue to be amortized over their estimated useful lives.

         We do  not  expect  SFAS  141 to  have  a  material  effect  on  future
         operations  as our  policy has always  been to  structure  acquisitions
         using the purchase  method of accounting.  As provided for in SFAS 142,
         we will elect  early  adoption  of this  statement  in our fiscal  year
         beginning  October 1, 2001.  Management  is  currently  evaluating  the
         effect of the adoption of SFAS 142.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-15
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


3.       Significant Accounting Policies (continued)

         Recent Accounting Pronouncements (continued)
         --------------------------------------------

         In June 2001, the Financial Accounting Standards Board issued Statement
         of  Financial  Accounting  Standards  No.  143,  "Accounting  for Asset
         Retirement  Obligations"  (SFAS  143).  SFAS  143  addresses  financial
         accounting and reporting for obligations associated with the retirement
         of tangible long-lived assets and the associated retirement costs. SFAS
         143 is effective for the fiscal years beginning after June 15, 2002.

         SFAS 143 is expected to improve  financial  reporting because all asset
         retirement obligations that fall within the scope of this Statement and
         their related asset  retirement cost will be accounted for consistently
         and financial statements of different entities will be more comparable.

         As  provided  for in SFAS 143,  we will elect  early  adoption  of this
         statement in our fiscal year beginning  October 1, 2001.  Management is
         currently evaluating the effect of the adoption of SFAS 143.

         In  August  2001,  the  Financial  Accounting  Standards  Board  issued
         Statement of Financial  Accounting  Standards No. 144,  "Accounting for
         the Impairment or Disposal of Long-Lived  Assets" (SFAS 144).  SFAS 144
         addresses  financial  accounting  and reporting  for the  impairment or
         disposal of long-lived assets and supersedes SFAS No. 121,  "Accounting
         for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed  Of,"  and the  accounting  and  reporting  provisions  of APB
         Opinion No. 30,  "Reporting  the Results of  Operations  Reporting  the
         Effects of Disposal of a Segment of a Business.  SFAS 144 is  effective
         for fiscal years beginning after December 15, 2001 (with early adoption
         permitted under certain circumstances).

         SFAS 144 is expected to improve  financial  reporting by requiring that
         one accounting model be used for long-lived assets to be disposed of by
         sale,  whether  previously  held  and used or  newly  acquired,  and by
         broadening the presentation of discontinued  operations to include more
         disposal transactions.

         As  provided  for in SFAS 144,  we will elect  early  adoption  of this
         statement in our fiscal year beginning  October 1, 2001.  Management is
         currently evaluating the effect of the adoption of SFAS 144.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-16
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


2.       Significant Accounting Policies (continued)

         Risk and Uncertainties
         ----------------------

         The  primary  uncertainty  which  we  face  is our  ability  to  locate
         knowledgeable  franchisees  who also have the  financial  resources  to
         successfully  operate the stores.  In  addition,  we need to be able to
         identify  appropriate  locations for its newly  franchised  stores.  We
         believe that we have taken the steps necessary to minimize these risks.

         Reclassifications
         -----------------

         Certain amounts in the 2000 financial statements have been reclassified
         to conform to the 2001 presentation.

3.       Acquisition and Disposition of Subsidiaries

         Changes in goodwill and  accumulated  amortization  for the years ended
         September 30, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>
                                                                                  Accumulated          Net
                                                                  Goodwill       Amortization        Goodwill
         ---------------------------------------------------------------------------------------------------------
         <S>                                                     <C>                <C>             <C>
         Balance, September 30, 1999                                9,971,893          (984,817)       8,987,076

         Disposition of Mountain Mike's Pizza                      (4,199,133)          542,388       (3,656,745)
         Disposition of Seawest Subs                                 (882,623)          156,515         (726,108)
         Acquisition of Central Park                                2,940,289                 -        2,940,289
         Amortization expense for the year ended
             September 30, 2000                                             -          (450,329)        (450,329)
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2000                                7,830,426          (736,243)       7,094,183
         Adjustment for Central Park pre-acquisition
             liabilities                                             (137,610)                -         (137,610)
         Amortization expense for the year ended
             September 30, 2001                                             -          (391,469)        (391,469)
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2001                          $     7,692,816    $   (1,127,712)  $    6,565,104
         =========================================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                                 F-17
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


3.       Acquisition and Disposition of Subsidiaries (continued)

         Changes in covenants not to compete and  accumulated  amortization  for
         the years ended September 30, 2001 and 2000 are as follows:
<CAPTION>
                                                                Non-compete       Accumulated          Net
                                                                 Convenants      Amortization         Amount
         ---------------------------------------------------------------------------------------------------------
         <S>                                                     <C>                <C>             <C>
         Balance, September 30, 1999                                  502,000          (388,458)         113,542

         Disposition of Seawest Subs                                 (502,000)          502,000                -
         Acquisition of Central Park                                  600,000                 -          600,000
         Amortization expense for the year ended
              September 30, 2000                                            -          (173,542)        (173,542)
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2000                             $    600,000     $     (60,000)    $    540,000
         Amortization expense for the year ended
              September 30, 2001                                            -          (300,000)        (300,000)
         =========================================================================================================

         Balance, September 30, 2001                             $    600,000     $    (360,000)    $    240,000
         =========================================================================================================
</TABLE>

         During the year ended September 30, 2000, we formed our Central Park of
         America,  Inc.  subsidiary  and  acquired  the  franchising  assets and
         certain  corporately-owned  restaurants  from Central Park USA, Inc. We
         also  disposed  of the Seawest Sub Shops  sandwich  chain and  Mountain
         Mike's  Pizza  chain  during the year ended  September  30,  2000.  The
         acquisition  has been  accounted  for  using  the  purchase  method  of
         accounting,  and the results of the acquired business has been included
         in the consolidated financial statements since the date of acquisition.


Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-18
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


3.       Acquisition and Disposition of Subsidiaries (continued)

                  Central Park of America, Inc.
                  -----------------------------

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

                  The purchase  price of Central Park  consisted of the issuance
                  of notes payable with a discounted  value of $1,669,854,  cash
                  of $800,000  and 435,000  shares of our common stock valued at
                  $0.32 per share  ($139,200).  Additionally,  we  entered  into
                  three separate noncompete  agreements with former shareholders
                  and/or  officers  with a  discounted  valued of  $600,000,  as
                  evidenced  by three  notes  payable for the same  amount.  The
                  transaction was recorded as follows:

                  Total consideration paid                       $   2,609,054
                  Less fair value of assets acquired                  (994,904)
                  Value of noncompete agreements                      (600,000)
                  Liabilities assumed                                1,786,380
                  Transaction costs                                    139,759
                  --------------------------------------------------------------
                  Excess of cost over net assets acquired        $   2,940,289
                  ==============================================================

                  During   the  year   ended   September   30,   2001,   certain
                  pre-acquisition  liabilities  in the amount of  $137,610  were
                  waived and offset against the acquired goodwill.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-19
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


3.       Acquisition and Disposition of Subsidiaries (continued)

                  Quality Franchise Systems, Inc.
                  -------------------------------

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

                  Effective  April 28, 2000,  we sold the Mountain  Mike's Pizza
                  franchise concept to Concept Acquisitions,  LLC ("COAC") for a
                  total  of  $3,543,179   consisting   of  $3,000,000   cash,  a
                  non-interest  bearing  note due on  September  30, 2002 with a
                  discounted  value of $165,534 and other  consideration  with a
                  discounted  value of  $377,645.  Our  former  chief  operating
                  officer and director who resigned in April 2000 control  COAC.
                  The other  consideration  represents an 18% equity interest in
                  COAC or at our  discretion  in April 2008, we may convert this
                  equity  interest  into  a note  receivable  of  $800,000  with
                  interest  at 3% above  the  five-year  government  bond  rate,
                  payable  quarterly  with all  principal  and any  accrued  but
                  unpaid interest due and payable in five years from the date of
                  conversion.  Since it was our  intention to convert the equity
                  interest into a note receivable, we carried this consideration
                  as a note receivable with a discounted value of $411,566.  For
                  the year ended  September  30, 2000, we recorded a loss on the
                  disposal of the Mountain Mike's Pizza franchise concept in the
                  amount of $535,506 as follows:

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

                  In March 2001, we received  $50,000 under a note payable to an
                  entity   related  to  COAC.  In  connection   with  this  note
                  agreement, we granted the lender an open option to acquire our
                  interest in the note  receivable with a face value of $800,000
                  and a discounted  value of $411,566 for $265,000 payable to us
                  by March 2004. The discounted value of the $265,000 receivable
                  was  $199,983.  As a result,  we recorded an impairment on the
                  $411,566 receivable balance in the amount of $211,583.

                  In  addition,   in  January  2001,  we  settled  on  the  note
                  receivable  from COAC with a face  amount  of  $200,000  and a
                  discounted  value of $177,022 for $69,400 cash and $107,622 of
                  operating expenses paid on our behalf by COAC.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-20
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000

3.       Acquisition and Disposition of Subsidiaries (continued)

                  Seawest Sub Shops, Inc.
                  -----------------------

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

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

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

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-21
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


4.       Notes Receivable

         Notes  receivable  are comprised of the following at September 30, 2001
         and 2000:
 <TABLE>
<CAPTION>
                                                                                    2001              2000
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                    <C>                <C>
         $800,000 note receivable from COAC from sale of Mountain Mike's
             Pizza; written down by $211,583 to $265,000 in March 2001,
             payable in full by March 31, 2004, net of unamortized discount of
             $54,791 at September 30, 2001.                                     $    210,209       $    392,702

         $200,000 note receivable from COAC from sale of Mountain Mike's
              Pizza, non-interest bearing; due in September 2002; paid in full
              in 2001 through receipt of cash of $69,400, application against
              operating expenses of $107,622, and unamortized discount
              of $22,978.                                                                  -            172,714

         $55,000 note receivable from Clark from sale of Seawest; due
             September 2003                                                           55,000             55,000

         Various notes receivable from franchisees; payable in monthly
             principal and interest installments with maturity dates through
             September 2003; includes the effects of an impairment recognized
             in the amount of $87,622.                                               207,600            179,671

         $25,000 note receivable from Weight Loss Forever, Inc.; due
             September 2002.                                                          25,000                  -
         ---------------------------------------------------------------------------------------------------------
                                                                                     497,809            800,087

         Less current portion                                                       (167,776)           (63,584)
         ---------------------------------------------------------------------------------------------------------
                                                                                 $   330,033     $      736,503
         =========================================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                                 F-22
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


5.       Investment Securities

         The following summarizes our portfolio of investment securities as of
         September 30, 2001 and 2000:
<TABLE>
<CAPTION>
         <S>                                                                      <C>
         ------------------------------------------------------------------------------------
         Carrying value at October 1, 1999                                        $         -
         Purchase of investment securities                                            706,114
         Cumulative unrealized gains on investment securities                          83,316

         ------------------------------------------------------------------------------------
         Carrying value at September 30, 2000                                         789,430
         Reclassification adjustment of unrealized gains due to an
           other than temporary decline in market value                               (83,316)
         Recognition of impairment in value of investment securities
           due to other than temporary decline in market value                       (671,828)
         Purchase of investment securities                                             35,389
         ------------------------------------------------------------------------------------

         Carrying value at September 30, 2001                                     $    69,675
         ====================================================================================
<CAPTION>

         Changes  in the  unrealized  holding  gains  on  investment  securities
         classified as  available-for-sale  during the years ended September 30,
         2001 and 2000,  which are reported in accumulated  other  comprehensive
         income, are as follows:

         <S>                                                                      <C>
         ------------------------------------------------------------------------------------
         Balance at October 1, 1999                                               $         -
         Gross unrealized gains on investment securities                               83,316

         ------------------------------------------------------------------------------------
         Balance at September 30, 2000                                                 83,316
         Reclassification adjustment for permanent impairment of
           investment securities                                                      (83,316)
         ------------------------------------------------------------------------------------

         Balance at September 30, 2001                                            $         -
         ====================================================================================

         As reflected  above,  in July 2001 we (through our Sobik's  subsidiary)
         acquired  2,997,368  shares  of  youticket.com,   Inc.  ("YTIX")  which
         represents  9%  of  its  total  outstanding  shares.  This  holding  is
         reflected on our  consolidated  balance sheets at cost in the amount of
         $35,389, which approximates fair market value.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                            F-23
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


6.       Property and Equipment

         Property and  equipment are comprised of the following at September 30,
         2001 and 2000:
<TABLE>
<CAPTION>
                                                                                      2001               2000
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                      <C>              <C>
         Land and buildings                                                       $  371,771       $    912,633
         Machinery and equipment                                                     318,092            867,700
         Office and computer equipment                                                98,544            174,413
         Vehicles                                                                     87,206             92,636
         Leasehold improvements                                                       87,787            385,019
         ---------------------------------------------------------------------------------------------------------
                                                                                     963,400
         Less accumulated depreciation                                              (494,212)        (1,315,564)
         ---------------------------------------------------------------------------------------------------------

         Net property and equipment                                               $  469,188       $  1,116,837
         =========================================================================================================
</TABLE>

7.       Accrued Expenses

         Accrued  expenses are  comprised of the following at September 30, 2001
         and 2000:
<TABLE>
<CAPTION>
                                                                2001              2000
         ----------------------------------------------------------------------------------
         <S>                                              <C>                 <C>
         Accrued payroll and payroll-related items              3,551            200,883
         Accrued interest                                     157,955            118,813
         Accrued marketing expenses                                 -            118,111
         Liability to issue common stock                       58,650            112,700
         Accrued sales tax payable                             38,839             45,434
         Accrued professional and consulting                  144,311              8,400
         Other accrued expenses                                47,000            209,060
         ----------------------------------------------------------------------------------

                                                          $   450,306         $  813,401
         ==================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                          F-24
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


8.       Long-Term Debt

         Long-term  debt  consists of the  following at  September  30, 2001 and
         2000:
<TABLE>
<CAPTION>
                                                                                         2001            2000
         ------------------------------------------------------------------------- --------------- ---------------
         <S>                                                                       <C>             <C>
         Note payable to former owners of acquired subsidiary, payable in
             monthly installments of interest only at the prime lending rate
             less 0.5% (.5.5% at September 30, 2001) through July 2002 and
             then payable in equal monthly principal and interest installments
             of $12,387 through July 2005; collateralized by certain accounts
             receivable, real and personal property and inventory.                 $     208,007   $     396,759

         Note payable to former owner of acquired subsidiary, monthly interest
             only payments at the greater of the prime lending rate plus 3%
             (8% at September 30, 2001) or 12% through July 2002 and then
             payable in equal monthly principal and interest installments of
             $11,625 through July 2005; collateralized by certain accounts
             receivable, real and personal property and inventory.                       350,000         350,000

         Note payable to former owner of acquired subsidiary, monthly interest
             only payments at the greater of the prime lending rate plus 3%
             (8% at September 30, 2001) or 12% through July 2002 and then
             payable in equal monthly principal and interest installments of
             $6,321 through July 2005; collateralized by certain accounts
             receivable, real and personal property and inventory.                       100,000         100,000

         Convertible note payable in the face amount of $950,000; non-interest
             bearing until July 2002 and then monthly principal and interest
             payments at 7% until July 2010 of $12,952; net of unamortized
             discount of $70,794 at September 30, 2001. The note is
             convertible into Company common stock at $1.00 per share
             beginning July 2001. This note is uncollateralized.                         879,206         871,190

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

         Three notes payable in the cumulative face amount of $600,000 issued
             in connection with the Central Park acquisition for non-compete
             agreements, these notes bear interest at 7% until July 2005 and
             then payable in equal aggregate monthly payments until July 2010.
             These notes are uncollateralized.                                           600,000         600,000

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

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                               F-25
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000

<CAPTION>
8.       Long-Term Debt (continued)

                                                                                         2001            2000
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                       <C>             <C>
         Note payable to former owner of acquired subsidiary; monthly
             interest-only payments at 7% through July 2000; thereafter
             monthly principal and interest payments of $3,019 are due through
             July 2007; collateralized by royalty revenues generated by the
             Sobik's franchises.                                                         173,067         196,285

         Note payable to bank assumed upon the Li'l Dino's acquisition;
             payable in monthly principal installments of $6,012 plus interest
             at the bank's prime lending rate plus 1% (6% at
             September 30, 2001) through February 2004; collateralized by a cash
             deposit at the bank and a personal guarantee of the prior owners of
             Li'l Dino's. 180,369 255,890

         Four notes payable to individuals with an aggregate face amount of
             $350,000; all unpaid principal and interest at 8% currently
             past-due; collateralized by a personal guarantee of our chief                80,000         100,000
             executive officer.

         Two notes payable to individuals with an aggregate face amount of
             $150,000; quarterly interest at 15% and principle payments of
             $10,840 begin in October 2001, and continue through July 2006.              150,000               -
             Non-collateralized.

         The series "G" convertible debenture with an aggregate face amount of
             $575,000; interest is paid monthly at 12%; as of
             September 30, 2001 $225,000 had been converted into 2,173,661
             shares of common stock. This debt matures in January 2002.
             Non-collateralized 350,000 -

         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 $90,000 and $114,000
             respectively. We are in arrears with respect to the interest
             payments and thus have classified these notes as currently due.              90,000          66,000

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                               F-26
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000

<CAPTION>
8.       Long-Term Debt (continued)

                                                                                         2001           2000
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                       <C>             <C>
         Mortgage note payable to former owner of Pastry Products Producers,
             LLC; monthly payments of $2,494 including principal and interest
             at 10% due through November 2004, at which time any remaining
             unpaid principal and interest is due; collateralized by real
             property.                                                                    80,943         101,637

         Various uncollateralized notes payable; due with various monthly
             principal and interest payments; maturing at various dates through          100,215         131,569
             July 2005.
         ---------------------------------------------------------------------------------------------------------
                                                                                       3,591,807       3,419,330

         Less current portion                                                           (878,166)       (417,140)
         ---------------------------------------------------------------------------------------------------------

         Total long-term debt                                                      $    2,713,641  $    3,002,190
         =========================================================================================================
</TABLE>

         As noted  above,  in December  2000 we issued our series G  convertible
         debenture for $575,000. These debentures are convertible in whole or in
         part to our  common  stock at a  conversion  price  equal to 65% of the
         three day average closing price prior to the date of conversion period.
         Since the debentures are convertible at a discount,  we have recorded a
         charge to  operations  in the  amount of  $309,615  for the  beneficial
         conversion feature.

         Interest expense on long-term debt during the years ended September 30,
         2001 and 2000 amounted to $476,167 and $351,984, respectively.

         The annual  maturities of long-term debt for the five years  subsequent
         to September 30, 2001 are as follows:

                                                             Total
                -------------------------------------------------------
                2002                                    $     878,166
                2003                                          357,924
                2004                                          435,653
                2005                                          470,372
                2006                                          343,688
                Thereafter                                  1,106,004
                -------------------------------------------------------
                                                        $   3,591,807
                =======================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-27
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity

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

         Preferred Series C
         ------------------

         In September  1997, we designated and issued 120 shares of no par value
         Series  C  convertible   preferred  stock  ("Preferred  Series  C")  in
         connection with the acquisition of QFS. The preferred series C stock is
         entitled  to  cumulative  dividends  at a rate of $32.50  per share per
         quarter and is convertible  into common stock at a rate of 13.32 shares
         of common stock for each preferred  share with a face amount of $1,000.
         The stock is  redeemable at our option or in  liquidation  at a rate of
         $1,000 per share.

         Redeemable Preferred Series F
         -----------------------------

         In June  1999,  we  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 could have required
         us 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 our
         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 our Preferred  Series E stock  converted their shares into 10
         shares of Redeemable  Preferred  Series F stock.  The carrying value of
         the 1,875 shares of  Preferred  Series D stock was  $3,126,288  and the
         carrying  value  of the 10  shares  of  Preferred  Series  E stock  was
         $100,000  for a total  conversion  carrying  value of  $3,226,288.  The
         redemption  value of the 197.5 shares of Redeemable  Preferred Series F
         stock is  $2,468,750.  The  difference  of  $757,538  between the total
         carrying  value  (of the  Preferred  Series  D and  Preferred  Series E
         stocks) and the redemption  value of the Redeemable  Preferred Series F
         stock was credited to common stock.

         In November  2000,  we issued a dividend to the holders of the Series F
         preferred  stock.  The dividend  consisted  of 32,918  shares of common
         stock  with a value of  $49,375  being  issued to all  shareholders  on
         record.

         In December 2000, we redeemed all the outstanding  Redeemable Preferred
         Series F stock  with a value  of  $2,468,750  through  the  payment  of
         $500,000 cash and the issuance of 1,975,000 shares of common stock.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-28
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity (continued)

         Preferred Series H
         ------------------

         In July  2001,  we  designated  100  shares of $100 par value  Series H
         voting  preferred  stock. As of the date of these financials there were
         no shares issued or outstanding.

         Redeemable Common Stock
         -----------------------

         In  connection  with our  acquisition  of  Seawest,  the prior owner of
         Seawest  has the right to require us to  repurchase  9,000  shares at a
         purchase  price of $32.55  per share  for a total  repurchase  value of
         $293,000.

         Stock Subscriptions Receivable
         ------------------------------

         During 1998,  we sold 50,000  shares of common stock valued at $687,500
         to our Chief  Financial  Officer in  exchange  for  subscription  notes
         receivable.  The underlying stock subscription agreement bears interest
         at 9.5% per annum and is currently  due. The  shareholder  also retains
         the right to require us to  repurchase  the shares in exchange  for the
         cancellation of the note.

         The fair value of the subscription was based on the quoted market price
         of our  common  stock on the date of  issuance.  All  accrued  interest
         through September 30, 2001 has been waived by the Board of Directors.

         During the year ended  September 30, 2000,  our former Chief  Operating
         Officer and a former  consultant  returned a total of 160,000 shares of
         common stock to us upon cancellation of their subscription agreements.

         Stock Issued for Services
         -------------------------

         For the years ended  September 30, 2001 and 2000, we issued 652,067 and
         190,500  shares  of  common  stock,   respectively,   in  exchange  for
         consulting and legal services. The aggregate fair value of these shares
         was $276,269 and $465,900,  respectively,  based on the market value of
         the stock on the date of  issuance.  In  addition,  we  issued  610,000
         shares of common stock to our  employees as a bonus in September  2001.
         The fair market value of these shares was $73,600.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-29
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity (continued)

         Stock Issued to Form Joint Venture
         ----------------------------------

         In July 2001, we entered into a pre-organization agreement with Gator's
         Dockside  Licensing,  LLC to explore the  formation of a joint  venture
         between our two  companies.  This joint  venture  would be organized to
         begin  franchising  the  Gator's  Dockside   restaurant   concept.   As
         consideration  in the formation of the joint  venture,  we issued 4,000
         shares of our common stock.

         Conversion of Debt to Equity
         ----------------------------

         During the year ended September 30, 2001, we issued 2,173,661 shares of
         common stock to convert $225,000 of our series G convertible debentures
         into common stock.

         During the year ended  September 30, 2000, we issued  174,374 shares of
         our common  stock with a fair value of  $435,936  in  exchange  for the
         extinguishment of long-term debt and accrued interest.

         Stock Issued for Investment Security
         ------------------------------------

         In July 2000, we issued  100,000 shares of our common stock in exchange
         for the publicly traded common stock of an unrelated company.

         Authorized Number of Common Shares
         ----------------------------------

         In December  2000, we increased our  authorized  shares of common stock
         from 50,000,000 shares to 100,000,000 shares.

         Reverse Stock Split
         -------------------

         On August 17, 2001 we completed a  one-for-ten  reverse  stock split of
         all our outstanding  common stock.  This reduced our total  outstanding
         shares of common stock from 81,259,142 to 8,125,914.  The  consolidated
         financial  statements and  accompanying  notes have been  retroactively
         adjusted to reflect the effect of the split.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-30
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity (continued)

         Minority Interest
         -----------------

         In February  2001,  we completed a reverse  merger  whereby 100% of the
         outstanding common stock of our wholly-owned subsidiary,  SBK Franchise
         Systems,  Inc. the franchisor of the Sobik's Sub chain, was acquired by
         Krypton  Distribution  Corp.  ("Krypton"),  a Florida  corporation,  in
         exchange  for  17,445,664   shares  of  Krypton  common  stock,   which
         constituted  approximately  85% of the  issued and  outstanding  common
         stock of Krypton at the date of  closing.  Upon  closing,  the board of
         directors of the former SBK Franchise Systems,  Inc. assumed control of
         Krypton  and  changed  the  Company's  name  to  Sobik's  International
         Franchising, Inc.

         During  the year ended  September  30,  2001,  SBK  Franchising  issued
         approximately  5.1 million  shares and  warrants  to  purchase  500,000
         shares in exchange for  consulting  services in the amount of $654,732.
         We use the balance  sheet  approach,  as described in Staff  Accounting
         Bulletin 5H, to account for the subsidiary's  offering in excess of the
         parent's  carrying  value.  Therefore,  the  accompanying  consolidated
         statement of  stockholders'  equity reflects a capital  contribution in
         the amount of $306,936.

         As of September 30, 2001, we own  approximately  77% of the outstanding
         common  stock  of  this  subsidiary.   The  accompanying   consolidated
         financial statements  appropriately  reflect a minority interest in the
         amount of $257,875 and the minority's share of the subsidiary's loss in
         the amount of $125,311.

         Common Stock Options and Warrants
         ---------------------------------

         In February  1999,  we approved  the 1998  Incentive  Plan  ("Incentive
         Plan")  to  enable us to offer our  employees  and  consultants  equity
         interests. There are 150,000 shares designated under the Incentive Plan
         and are fully vested upon grant. In October 1999, we granted options to
         purchase  a total of 3,500  shares  of  common  stock to a  non-officer
         employee  with an exercise  price of $1.60 per share with an expiration
         date of October 2002.

         We also grant stock options  outside of the Incentive Plan. In November
         2000, we issued three  separate  traunches of options of 10,000 each to
         purchase  a total of  30,000  shares of common  stock in  exchange  for
         investor relations  services.  The exercise price was $1.00, $1.20, and
         $1.50,  respectively,  and the  options  expire in  November  2005.  In
         October 1999, we granted  options to purchase a total of 406,500 shares
         of common  stock to ten  individuals  including  253,500  shares to two
         officers and two  employees of the company.  The options were issued at
         exercise  prices  ranging  from  $1.60 to $5.00 per share and expire in
         October 2004.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-31
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity (continued)

         In July 2000, we issued  options to purchase a total of 300,000  shares
         of common stock as part of the consideration paid for our investment in
         marketable  equity  securities.  The options were issued at an exercise
         price of $2.79 per share and expire in June 2002.

         In July 2000, we issued options to purchase a total of 20,000 shares of
         common stock in exchange for  consulting  services.  The exercise price
         was $2.29 per share and the options expire in July 2007.

         In August  1998 and  December  1997,  we granted  options  to  purchase
         100,000  shares  each  of  common  stock  to our  President  and  Chief
         Executive  Officer.  The options were issued with an exercise  price of
         $1.55 and $2.75  per  share,  respectively,  with  expiration  dates of
         August 2001 and December 2000,  respectively.  As of September 30, 2001
         the President's options were allowed to expire.

         The Company had  1,000,857  options  outstanding  at September 30, 2001
         consisting of 62,000  outstanding  options under the Incentive Plan and
         938,857  options  issued  outside  of the  Incentive  Plan.  Changes in
         options  outstanding  for the year ended  September  30,  2001 and 2000
         under  the  Incentive  Plan  and  options  outstanding  outside  of the
         Incentive Plan are summarized as follows:

         Options Within the Incentive Plan
         ---------------------------------
<TABLE>
<CAPTION>
                                                                                                       Weighted-
                                                                                   Weighted-            Average
                                                                                     Average         Fair Value
                                                                                    Exercise         of Options
                                                                   Shares              Price            Granted
         ---------------------------------------------------------------------------------------------------------
         <S>                                                     <C>             <C>                <C>
         Balance, September 30, 1999                               84,500        $      2.00        $         -

         Granted                                                    3,500               1.60               1.60
         Less options expired                                     (12,500)              2.00                  -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2000                               75,500               2.00                  -
         Less options expired                                     (13,500)              2.00                  -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2001                               62,000        $      1.94                  -
         =========================================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                                 F-32
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity (continued)

         Options Outside of the Incentive Plan
         -------------------------------------
<CAPTION>
                                                                                                      Weighted-
                                                                                   Weighted-            Average
                                                                                     Average         Fair Value
                                                                                    Exercise         of Options
                                                                   Shares              Price            Granted
         ---------------------------------------------------------------------------------------------------------
         <S>                                                     <C>             <C>                <C>
         Balance, September 30, 1999                              393,707              11.10                  -

         Granted                                                  726,500               2.90               2.90
         Less options expired                                     (10,000)             39.30                  -
         ---------------------------------------------------------------------------------------------------------
         Balance, September 30, 2000                            1,110,207        $      5.80                  -

         Granted                                                   30,000               1.23               1.23
         Less options expired                                    (201,350)              3.09                  -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2001                              938,857        $     10.42                  -
         =========================================================================================================

<CAPTION>
         The following table summarizes information about options outstanding at
         September 30, 2001:

                                                                     Options Outstanding and Exercisable
                                                           ---------------------------------------------------------
                                                                                     Weighted-          Weighted-
                                                                                       Average            Average
           Range of                                                                  Remaining           Exercise
           Exercise Prices                                           Shares   Contractual Life              Price
           ---------------------------------------------------------------------------------------------------------
           <S>                                                   <C>              <C>                     <C>
           $1.00 to $7.50                                           875,857        20.4 months             $ 2.98
           $19.20 to $39.30                                         125,000        14.5 months             $26.88
           ---------------------------------------------------------------------------------------------------------
                                                                  1,000,857        19.7 months             $ 5.96
           =========================================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                                 F-33
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


9.       Stockholders' Equity (continued)

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

         Pursuant to APB 25, however,  no compensation  cost has been recognized
         for options  granted to  employees  at exercise  prices  which equal or
         exceed  the  market  price of our  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  entities  that choose to continue to apply APB 25 to
         provide pro forma  information  regarding  net income and  earnings per
         share as if  compensation  cost for our employee stock options had been
         determined in accordance with the fair value based method prescribed in
         FAS 123. We estimate  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  years  ended
         September  30, 2001 and 2000:  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, our net loss and loss per
         share would have changed to the pro forma amounts  indicated  below for
         the years ended September 30, 2001 and 2000 (no options were granted to
         employees in 2001):

                                                                2000
              ------------------------------------------------------------
              Net loss applicable to common stock
                  As reported                              $  (3,218,793)
                  Proforma                                 $  (3,592,967)
              Loss per share - basic and diluted
                  As reported                              $       (1.07)
                  Proforma                                 $       (1.19)
              ============================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-34
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


10.      Commitments and Contingencies

         Operating Leases
         ----------------

         We lease office space and restaurant land space under certain operating
         leases which expire in various dates through September 2006. Total rent
         expense for the years ended  September  30, 2001 and 2000 was  $226,492
         and $156,324, respectively.

         Future annual minimum lease payments due under these  operating  leases
         for the five year subsequent to September 30, 2001 are as follows:


                    2002                                     $   124,070
                    2003                                         118,071
                    2004                                         106,716
                    2005                                          85,059
                    2006                                          52,386
                    ------------------------------------------------------
                                                             $   486,302
                    ======================================================

         Legal Issues
         ------------

         On August 2, 1999,  shareholders  of Li'l Dino  Management  Corporation
         (the prior owners of Li'l Dino  Corporation)  filed a complaint against
         the Company  and some of its  officers  in the United  States  District
         Court for the Middle  District of North  Carolina.  We were served with
         this  complaint on August 5, 1999.  The  allegations  in the  complaint
         relate to our  acquisition of  substantially  all of the assets of Li'l
         Dino.

         In February 2001, we entered into a confidential settlement and release
         agreement in this  matter.  All the terms of the  settlement  are being
         complied  with.  The  entire  amount  of  this  settlement,   which  is
         appropriately  reflected  in the  accompanying  consolidated  financial
         statements, did not have a material adverse effect on our operations.

         We are involved in various other lawsuits and litigation  matters on an
         ongoing basis as a result of our day-to-day operations.  However, we do
         not  believe  that any of these  legal  matters  will  have a  material
         adverse effect on our financial position or results of operations.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-35
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


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.

         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.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-36
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


11.      Income Taxes

         The  components  of income tax  expense  (benefit)  for the years ended
         September 30, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>
                                                                 2001               2000
         ---------------------------------------------------------------------------------------
         <S>                                              <C>                <C>
         Current:
             Federal                                      $              -   $              -
             State                                                       -                  -
         ---------------------------------------------------------------------------------------
                                                                         -                  -
         ---------------------------------------------------------------------------------------
         Deferred:
             Federal                                            (1,240,000)          (708,050)
             State                                                (219,000)          (124,950)
         ---------------------------------------------------------------------------------------
                                                                (1,459,000)          (833,000)
         ---------------------------------------------------------------------------------------
         Total current and deferred income taxes                (1,459,000)          (833,000)
         ---------------------------------------------------------------------------------------
         Increase in valuation allowance                         1,459,000            833,000)
         ---------------------------------------------------------------------------------------
         Total income taxes                               $              -   $               -
         =======================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                               F-37
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


11.      Income Taxes (continued)
<CAPTION>
         Our net deferred  tax asset is comprised of the  following at September
         30, 2001 and 2000:

                                                                        2001               2000
         ----------------------------------------------------------------------------------------------
         <S>                                                     <C>                <C>
         Current deferred tax asset:
             Allowance for doubtful accounts                     $         18,000   $         33,000
             Prepaid interest                                                   -             12,000
         ----------------------------------------------------------------------------------------------
                                                                           18,000             45,000
         Less, valuation allowance                                        (18,000)           (45,000)
         ----------------------------------------------------------------------------------------------
         Net current deferred tax asset                          $              -   $              -
         ----------------------------------------------------------------------------------------------

         Non-current deferred tax asset:
             Net operating loss carryforwards                    $      4,516,000   $      3,387,000
             Property and equipment                                       166,000            132,000
             Stock and stock options issued for services                  443,000            431,000
             Investment securities                                        253,000            (31,000)
         ----------------------------------------------------------------------------------------------
                                                                        5,378,000          3,919,000
         Less, valuation allowance                                     (5,378,000)        (3,919,000)
         ----------------------------------------------------------------------------------------------
         Net non-current deferred tax asset                      $              -   $               -
         ----------------------------------------------------------------------------------------------
         Net deferred tax asset                                  $              -   $               -
         ==============================================================================================

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

                                                                         2001               2000
         ----------------------------------------------------------------------------------------------
         <S>                                                     <C>                <C>
         Income taxes at federal statutory rates                         (34.0)%            (34.0)%
         Operating loss with no tax benefit                               34.0               34.0
         ----------------------------------------------------------------------------------------------

         Income tax at effective rates                                     0.0%               0.0%
         ==============================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                      F-38
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


11.      Income Taxes (continued)

         At September  30, 2001,  we had net  operating  loss  carryforwards  of
         approximately  $12,000,000  for federal income tax purposes that expire
         as follows:


                    2012                            $    3,800,000
                    2018                                 1,700,000
                    2019                                   700,000
                    2020                                 2,800,000
                    2021                                 3,000,000
                    ------------------------------------------------
                                                    $   12,000,000
                    ================================================

12.      Operating Segments

         We define segments as each separate  franchising concept we operate. We
         clearly view 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,
                  hamburgers,  soups  and hot and  cold  side  order  items.  We
                  assists the  franchisees  with selecting  suitable  locations,
                  assist on the  negotiation  of lease  terms and store  design,
                  assist with  securing of food  product  supply and purchase of
                  furniture and fixtures.

         o        The bakery and  company-owned  store segment is comprised of a
                  bakery  that  primarily  serves   restaurant   franchises  and
                  franchise  concept stores that we operate on a temporary basis
                  until a new franchise is located.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-39
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


12.      Operating Segments (continued)

         The table below shows certain financial information by business segment
         for the years ended September 30, 2001 and 2000:
<TABLE>
<CAPTION>
                                                                                  Bakery and
         Segment Reporting                                      Franchise         Restaurant       Consolidated
         September 30, 2001                                    Operations         Operations           Total
         ---------------------------------------------------------------------------------------------------------
         <S>                                                <C>                <C>                <C>
         Revenue from external customers                    $   2,804,390      $   2,059,208      $   4,863,598
         Interest- net                                            426,860             14,477            441,337
         Permanent impairment of long-lived assets                971,033                  -            971,033
         Debt discount from beneficial conversion
           feature of convertible debentures                      309,615                  -            309,615
         Depreciation and amortization                            682,903            158,157            841,060
         Segment loss                                          (3,730,519)           (11,063)        (3,741,582)
         Segment assets                                         6,882,348          1,509,063          8,391,411
         =========================================================================================================

<CAPTION>
                                                                                  Bakery and
         Segment Reporting                                      Franchise         Restaurant       Consolidated
         September 30, 2000                                    Operations         Operations           Total
         ---------------------------------------------------------------------------------------------------------
         <S>                                                <C>                <C>                <C>
         Revenue from external customers                    $   3,094,956      $   1,346,984      $   4,441,940
         Interest- net                                            318,633                  -            318,633
         Permanent impairment of long-lived assets                 70,101                  -             70,101
         Depreciation and amortization                            651,961             93,731            745,692
         Segment loss                                          (2,783,991)          (221,702)        (3,005,693)
         Segment assets                                         9,496,930          1,833,954         11,330,884
         =========================================================================================================

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements                                                 F-40
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2001 and 2000


13.      Subsequent Events

         A.  Letter of Intent to Acquire Restaurant Concept.
             -----------------------------------------------

             In November  2001, we issued a letter of intent to purchase 100% of
             the outstanding common stock of a franchisor of a mexican fast-food
             concept,  consisting  of  approximately  70 stores  throughout  the
             United States.

         B.  Noble International Investments, Inc.
             -------------------------------------

             In December  2001, we entered into a one year  agreement with Noble
             International  Investments,  Inc.  ("Noble"),  whereby  Noble  will
             become a market  maker in our stock,  and will assist us in meeting
             our obligation associated with the Series G convertible  debentures
             which mature in January 2002. As  consideration  for these services
             we have agreed to pay $5,000 each month beginning in December 2001.
             In  addition,  Noble will  receive  five year  "cashless  exercise"
             warrants to purchase 5% of our outstanding common stock at $.10 per
             share.  Half of these options vest  immediately,  and the remainder
             will vest in March 2002.

Read independent auditor' report. The accompanying notes
are an integral part of the consolidated financial statements               F-41
<PAGE>

                                    PART III

Item 8. Directors, Executive Officers and Control Persons

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

--------------------------------------------------------------------------------
                                Director/Date
      Name                Age    Elected         Office or Position
--------------------------------------------------------------------------------
Christopher M. Swartz     31   Yes/ Apr 1996   Chairman, President and Chief
                                               Executive Officer
Eric T. Swartz            35   Yes/ Apr 1996   Secretary
Michael F. Cronin         45   Yes/ Apr 2000   Chief Financial Officer/Treasurer
                                               and Chief Operating Officer
--------------------------------------------------------------------------------

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

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

In July 2001, S. Elliott Davenport resigned as Director. Mr. Davenport owned the
Central Park Hamburger chain prior to its merger with the Company.

                                       20
<PAGE>

Item 9. Executive Compensation

The following table sets forth the cash compensation of our 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
our business. The value of such benefits cannot be precisely determined, however
no executive officer named below received any such benefits in excess of the
lesser of $25,000 or 10% of such officer's cash compensation.

<TABLE>
<CAPTION>
                                          Summary Compensation Table

-----------------------------------------------------------------------------------------------------------------------
                           Annual Compensation                                       Long Term Compensation
-----------------------------------------------------------------------------------------------------------------------
                                                                           Awards      Awards    Payouts    All Other
                                                                        ----------------------------------------------
   Name & Principal                                        Other Annual  Restricted   Options      LTIP
       Position            Year       Salary      Bonus    Compensation  Stock in $   SARS (#)  Payouts ($)
-----------------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>          <C>          <C>       <C>         <C>              <C>         <C>
                           2001      $ 175,000     $ 0          $ 0     $ 22,000           0          $ 0         $ 0

 Christopher M. Swartz     2000      $ 175,000     $ 0          $ 0          $ 0           0          $ 0         $ 0
    President & CEO
                          1999(a)    $  96,154     $ 0          $ 0          $ 0     200,000(b)       $ 0         $ 0
                           2001      $ 140,000     $ 0          $ 0     $ 22,000           0          $ 0         $ 0

-----------------------------------------------------------------------------------------------------------------------
   Michael F. Cronin       2000      $ 130,625     $ 0          $ 0          $ 0     100,000          $ 0         $ 0
Chief Financial Officer
& Chief Operating Officer  1999(a)   $  84,615     $ 0          $ 0          $ 0           0          $ 0         $ 0
                           2001      $  99,588     $ 0          $ 0          $ 0           0          $ 0         $ 0

-----------------------------------------------------------------------------------------------------------------------
  S. Elliott Davenport    2000(c)    $  25,412     $ 0          $ 0          $ 0           0          $ 0         $ 0
      Director
                          1999(a)    $       0     $ 0          $ 0          $ 0           0          $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Due to a change in fiscal years, 1999 compensation covers only a nine month
period.

(b) Options on 200,000 shares granted to Mr. Swartz in 1997 and 1998 expired in
2001.

(c) Mr. Davenport joined the Company in July 2000, and resigned in July 2001.

                                       21
<PAGE>

Employment Contracts:

Mr. Cronin and Mr. Davenport had employment contracts with the Company. The
following table summarizes the significant terms of these agreements:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                                        Termination
                                                                                           Clause
                                                                            Initial        Salary     Change in
                                               Commencement                  Annual     Continuation   Control
      Name                   Position               Date           Term   Compensation     Period    Arrangement
-----------------------------------------------------------------------------------------------------------------
<S>                  <C>                         <C>              <C>       <C>          <C>             <C>
Michael F. Cronin        Director,                July 31, 1998   3 Years   $ 125,000    12 Months        No
                     Chief Financial Officer
                     & Chief Operating Officer

S. Elliott Davenport    Former Director           July 19, 2000    1 Year   $ 125,000       None          No
-----------------------------------------------------------------------------------------------------------------

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:
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                         Number                                                   Percent of
                                           of     Number of                                          Total
                                         Options  Shares of     Date of                 Exercise    Options
                                         Granted   Common       Grant                   Price of  Granted to
                                          (in       Stock        or         Expiration  Purchase   Employees
        Name              Position       Shares)  Purchased    Purchase        Date     Price     During Year
---------------------------------------------------------------------------------------------------------------------------
<S>                   <C>              <C>         <C>       <C>           <C>           <C>       <C>
  Bradley L. Gordon(a) Former
                        Chief Operating   100,000            Oct 15, 1999  Oct 15, 2004  $ 0.029      13.7%
                       Officer/Director

  Michael F. Cronin    Chief Financial    100,000            Oct 15, 1999  Oct 15, 2004  $ 0.029      13.7%
                       Officer and Chief
                       Operating Officer
---------------------------------------------------------------------------------------------------------------------------


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

The following table sets forth information regarding the value of Options and
    Stock Appreciation Rights granted to our officers during 2000:

<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                       Number of Securities Underlying         Value of In-The-Money
                                                        Unexercised Options and SAR's            Options and SAR's
                                                            at September 30, 2001              at September 30, 2001
----------------------------------------------------------------------------------------------------------------------------
                   Shares Acquired
Name and Position    on Exercise     Value Realized     Exercisable      Unexercisable     Exercisable    Unexercisable
----------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                <C>             <C>               <C>                <C>             <C>
Bradley L. Gordon        None             None           100,000             None              None           None
 Former Chief
 Operating Officer (a)

Michael F. Cronin        None             None           100,000             None              None           None
 Chief Financial
 Officer and Chief
 Operating Officer
----------------------------------------------------------------------------------------------------------------------------

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

                                       22
<PAGE>

Other:

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

We maintain, and are the beneficiary of, a $3,000,000 key man term life
insurance policy on Mr. Christopher Swartz.

Item 10. 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 our executive officers and directors,
and by all our officers and directors as a group as of September 30, 2001. 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)   447,242          4.19 %
  Common Stock    Michael F. Cronin     Yes       (b)   270,000          2.53 %
  Common Stock       Eric Swartz        Yes       (c)    85,005          0.01 %
       All Officers and Directors as a Group            802,247          7.52 %

  (a) Includes 279,491 shares of common stock owned by Tri-Emp Enterprises, a
limited family partnership. Mr. Swartz is the general partner of Tri-Emp
Enterprises, and as such, is deemed to have beneficial ownership of the shares
owned by Tri-Emp Enterprises. It also includes 22,500 shares subject to options
exercisable by Tri-Emp Enterprises.

  (b) Includes 100,000 shares subject to options currently exercisable by Mr.
Cronin.

  (c) Includes 15,000 shares subject to options currently exercisable by Mr.
Eric Swartz.

                                       23
<PAGE>

Item 11. Certain Relationships and Related Transactions

In March 2001, we received $50,000 under a note payable to Franchise Acquisition
Company I, LLC, a California limited liability company ("FAC") which accrued
interest at 10% and was repaid on June 22, 2001. In connection with this note
agreement, we also granted FAC an option to acquire our interest in a note
receivable with a face value of $800,000 and a discounted value of $411,566 at
March 31, 2001 for $265,000 payable by FAC on March 31, 2004. The discounted
value of the $265,000 payable by FAC is $199,983. As a result, we recorded a
write-down on the $411,566 note receivable in the amount of $211,583 during the
year ended September 30, 2001.

Mr. Bradley Gordon, the former Chief Operating Officer, received options to
acquire 100,000 shares at $2.90 per share on October 15, 1999. These options
expire on October 15, 2004. Mr. Gordon has not exercised his rights to acquire
any shares under this agreement.

Mr. Richard Silberman, a shareholder received options to acquire 60,000 shares
at $2.90 per share on October 15, 1999. These options expire on October 15,
2004. Mr. Silberman has not exercised his rights to acquire any shares under
this agreement.

Mr. Michael F. Cronin, Chief Financial Officer, Treasurer, Chief Operating
Officer and Director, received options to acquire 100,000 shares at $2.90 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.

                                       24
<PAGE>

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

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

In December 2000, we redeemed all 197.5 shares of the Series F for $500,000 cash
and 1,975,000 shares of the common stock. This issuance of these shares
increased the number of outstanding common shares by 61.9%.

In December 2000, we issued our Series G Convertible Debentures of $575,000. The
Convertible Debentures call for monthly interest payments at 12% and are due in
January 2002. The Convertible Debentures may be converted in whole or in part to
common stock at a conversion price equal to 65% of the three day average closing
price prior to the date of conversion. In anticipation of the conversion of the
Convertible Debentures, we have placed into escrow 1,000,000 shares of our
common stock.

During the year ended September 30, 2001, holders of $225,000 of Convertible
Debentures converted their principle into 2,173,661 shares of common stock. All
of these shares were from newly issued shares, no shares were issued from the
1,000,000 shares held in escrow.

In December 2000, we increased our authorized shares of common stock from
50,000,000 shares to 100,000,000 shares.

In February 2001, we completed a reverse merger whereby 100% of the outstanding
common stock of our wholly-owned subsidiary, SBK Franchise Systems, Inc., the
franchisor of the Sobik's Sub chain, was acquired by Krypton Distribution Corp.
("Krypton"), a Florida corporation, in exchange for 17,445,664 shares of Krypton
common stock, which constituted approximately 85% of the issued and outstanding
common stock of Krypton at the date of closing. Upon closing, the board of
directors of the former SBK Franchise Systems, Inc. assumed control of Krypton
and changed the company's name to Sobik's International Franchising, Inc.

                                       25
<PAGE>

Item 12. 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

                                       26
<PAGE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                         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>

                                       27
<PAGE>

Reports filed on Form 8-K:

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

     November 1, 2000     Change in Certifying Accountants            No




                                   SIGNATURES

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




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



                             President & Duly Authorized
                                   Officer Member of
01/14/02   Christopher M. Swartz   Board of Directors  /s/ Christopher M. Swartz
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature




                               Chief Financial Officer
                                  Treasurer & Chief
01/14/02      Michael F. Cronin     Operating Officer /s/ Michael F. Cronin
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature

                                       28
<PAGE>