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

                                   Form 10-KSB

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

                      For the year ended September 30, 2003


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

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

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

              Nevada                                   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) 333-8998
                 -----------------------------------------------
                 (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, $.001 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, 2003:
$2,619,847.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates (computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity) as of
December 16, 2003 was $601,845 (for purposes of the foregoing calculation only,
each of the registrant's officers and directors is deemed to be an affiliate).

There were 13,749,350 shares of the registrant's common stock outstanding as of
December 16, 2003.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None

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

<PAGE>
                                     PART I

This Annual Report on Form 10-KSB contains certain statements concerning the
future that are subject to risks and uncertainties. Additional written or oral
forward-looking statements may be made by the Company from time to time, in
filings with the Securities and Exchange Commission or otherwise. Such
statements include, among other things, information concerning possible-future
results of operations, capital expenditures, the elimination of losses under
certain programs, financing needs or plans relating to products or services of
the Company, assessments of materiality, predictions of future events, and the
effects of pending and possible litigation, as well as assumptions relating to
the foregoing, and those accompanied by the words "believes", "anticipates,"
"estimates," "expects," "intends," "plans," or similar expressions. For those
statements we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.

You should specifically consider the various factors identified in this 10-KSB,
including the matters set forth in "Item 1. Description of Business"; "Item 3.
Legal Proceedings"; "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations"; and the Notes to Consolidated Financial
Statements that could cause actual results to differ materially from those
indicated in any forward-looking statements. Other factors that could contribute
to or cause such differences include, but are not limited to, unanticipated
increases in operating costs, labor disputes, capital requirements, increases in
borrowing costs, product demand, pricing, market acceptance, intellectual
property rights and litigation, risks in product and technology development and
other risk factors detailed in the Company's Securities and Exchange Commission
filings.

Readers are cautioned not to place undue reliance on any forward-looking
statements contained in this 10-KSB, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unexpected events.

ITEM 1. DESCRIPTION OF BUSINESS.

Form and Year of Organization
-----------------------------

Ultimate Franchise Systems, Inc. (collectively "we" and "our"), was incorporated
on July 19, 1995 under the laws of the State of Colorado.

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 July 2001, a vote of the shareholders approved a change of our corporate
domicile from the state of Colorado to Nevada. This change was formally made in
April 2002.

Restaurant Brands
-----------------

We have begun our transition from a restaurant franchising company with
exclusive ownership of five restaurant concepts into a franchise management and
venture company with minority interests in numerous franchised brands. As part
of the strategy we have continued to sell portions of our equity interests in
some of our brands in order to redeploy our assets into additional concepts. We
feel these assets may be positioned in more exciting categories or companies
that have a greater chance of exponential growth. Our new partners in these
ventures are strong entrepreneurs who we believe will grow these brands and
therefore increase the value of our now smaller ownership. Management hopes by
increasing our portfolio of brands and the strength of our joint venture
partners that we will be able to increase shareholder value. In line with this
transition, during the year ended September 30, 2002 we sold our Li'L Dino and
Jreck Subs restaurant concepts for $3,100,000. We received $1,278,005 in cash
and notes receivable aggregating $1,800,000. We used this capital to acquire
minority interests in other franchise concepts. $650,000 was used to form a
joint venture which acquired 100% of the common stock in Flamers. Flamers is a
mall based hamburger concept with 55 units located in eight states on the east
coast. Additionally, we have entered into management agreements with Weight Loss
Forever, Inc. and Topper's Brick Oven Pizza, Inc. These agreements require us
to provide franchising services in exchange for equity ownership interests in
these publicly traded companies. The company received six million shares of
common stock in each company.

                                       1
<PAGE>

As a result of this significant change in our business model, our company has
sustained considerable operating losses during the year ended September 30,
2003. During this period we have made substantial changes to our corporate
overhead structure which will reduce our overhead costs by $450,000 annually.
Additionally, we have several possible acquisitions or management agreements
that would provide the company with significant recurring revenue streams.
First, we have the potential to consummate a management agreement with a quick
casual restaurant concept. This management agreement would pay the company a
significant management fee in return for services we would provide to assist in
franchise development and general franchise management. Secondly, we have an
opportunity to acquire a minority interest in a 70 unit deli concept operating
in the Mid-Atlantic states. The terms of this transaction are currently being
negotiated, but will likely consist of an exchange of common stock in each
company. In addition, we would also enter into a management agreement which
would pay the company a substantial fee in exchange for services. Finally, we
have an opportunity to acquire a significant ownership interest in a management
company with over 350 units under several trade names. This acquisition would be
similar to the others mentioned above to include some exchange of stock and cash
for services.

As we complete these restructuring efforts we feel confident that the financial
condition of the company will improve significantly. We believe that these
restructuring efforts will be completed by the 2nd quarter of fiscal year 2004
and expect to see substantial signs of growth and financial improvement at that
time.

In total, we have financial investments in 385 restaurants and 40 weight loss
clinics. Our equity interests include the following:
<TABLE>
--------------------------------------------------------------------------------------------------------
                                        State of Ownership
Corporation Name                          Incorporation    Percentage   Predominant Restaurant Concept
----------------                          -------------    -----------  ------------------------------
<S>                                         <C>               <C>          <C>
Central Park of America, Inc.               Delaware          100%         "Central Park"
Sobik's International Franchising, Inc.     Florida            79%         "Sobik's"
Gator's Dockside Int'l Franchising, LLC     Florida            30%         "Gator's Dockside"
Uptown Restaurant Group. Inc.               Colorado           29%         "New York Burrito"
Jreck Subs, Inc.                            New York           20%         "Jreck Subs"
Li'l Dino Corporation                       North Carolina     20%         "Li'l Dino"
Concept Acquisitons, Inc.                   California         18%         "Mountain Mike's"
Concept Acquisitions II, LLC                Florida            25%         "Flamer's"
Sea West Subs, Inc.                         Washington         10%         "Sea West"
Famous Food Group, Inc.                     Delaware           13%         "Uncle Al's Famous Hot Dogs"
Weight Loss Forever Int'l, Inc.             Colorado           18%         "Weight Loss Forever"
--------------------------------------------------------------------------------------------------------
</TABLE>
                                       2
<PAGE>

Recent Dispositions
-------------------

On September 30, 2002 we sold a 100% equity interest in our Li'l Dino subsidiary
to Emily's Ventures, LLC ("Emily's") for $1,081,800 and a 20% Class III
Convertible Interest in the purchaser. $581,800 was received in cash in October
2002. Additionally, we entered into a note receivable with Emily's for the
remaining $500,000. This note receivable was subsequently sold to a third party
for $225,000 in cash in June 2003 and the difference between the carrying value
and the cash received was expensed during the year ended September 30, 2003.

According to this agreement, the 20% Class III Interests will not receive any
economic benefit until the retirement of the $500,000 note in September 2010. At
that time, the Class III Interests will have the right to 20% pro-rata of the
net income of the Emily's Ventures in perpetuity.

On August 31, 2002 we sold 100 percent of the common stock in our Jreck Subs
subsidiary to Grace Ventures, LLC ("Grace") for $1,996,205 and a 20% Class III
Convertible Interest in the Purchaser. $696,205 was received in cash, and we
entered into a note receivable with Grace for the remaining $1,300,000. The note
originally required Grace to make quarterly principal payments of $35,000 until
August 31, 2004 and during that time the principal would accrue interest at 5%.
Thereafter, the note would begin to earn interest at 7% and Grace will make
quarterly principal and interest payments of $35,000 through August 31, 2006. At
which time Grace would have the option to pay all unpaid principal and interest,
or Grace may opt to fully amortize the remaining principal and interest at an
increased rate of 10% over the next 60 months through August 2011. Additionally,
if Grace does not perform on one of the pay-off options, the note allows us to
convert our interest into an 80% ownership interest in Grace.

According this agreement, the 20% Class III Interests will not receive any
economic benefit until the retirement of the $500,000 note in September 2010. At
that time, the Class III Interests will have the right to 20% pro-rata of the
net income of the Grace Ventures in perpetuity.

Due to several operational changes at the Jreck Subs, they are currently past
due on approximately $95,000 in principal payments. These changes were the
result of aggressive representations by UFSI for new store growth at the time of
the sale. As of September 30, 2003 this expected growth had not materialized,
but recently two new stores opened subsequent to the year end and one additional
store is under construction. During the year ended September 30, 2003 we
received principal payments of $45,000. We have modified the terms of this note
to allow Grace Ventures to pay $50,000 annually in principal payments until
August 2006. At this time Grace will have the option to either make a balloon
payment on the outstanding principal and accrued interest or amortize this
balance at an increased rate of 10% through August 2011.

Grace Ventures, LLC is partially owned and operated by our Chief Executive
Officer, Christopher Swartz.

On March 30, 2002 we sold our bakery operation (Pastry Product Producers, LLC)
and building which the business operated to CFB Enterprises, Inc. ("CFB") and
Mahar Partnership, LLC ("Mahar"), respectively. The purchase price of the
business consisted of $10,000 in cash and the issuance of two notes receivable
with values of $90,000 and $900,000, respectively.

The purchase price of the building consisted of a note receivable with a
discounted value of $191,942 and $174,319 in cash.

In 2003 the management of the bakery formalized a plan to improve daily
operations. While we fully expect that the results of this plan to take shape in
2004 there are no guarantees. As a result, based on the 2003 operating
performance of the bakery we have recorded an allowance for uncollectible notes
receivable of $274,500.00 which is 25% of the notes carrying value. This
allowance will be monitored during 2004 and will be adjusted when the execution
of the operating plan takes place.

CFB and Mahar are partially owned and operated by our Chief Executive Officer,
Christopher Swartz.

                                       3
<PAGE>

General Description of Business
-------------------------------

We are a multi-brand franchise management and venture company that invests in
and manages franchise concepts predominately in the restaurant industry.

The brands include:

Quick Service Sandwich Restaurants:

Our Quick Service Sandwich category philosophy is to offer a wider selection of
menu items and higher quality ingredients cooked on the premises.

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 restaurant 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.

Sobik's
-------

Our Sobik's Subs subsidiary offers a lunch and dinner menu of different
submarine sandwiches, soups and hot and cold side orders. 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, french fries as
well as dessert items such as cookies.

As of September 30, 2003 there were 33 franchised locations in the Central
Florida Area and eight additional locations under various stages of development.

Li'l Dino
---------

Li'l Dino restaurants feature delicatessen and submarine type sandwiches, pizza,
and hot and cold side orders. In addition, we offer a selection of soft drinks,
French fries as well as dessert items.

As of September 30, 2003 there were 23 franchised locations primarily located in
North and South Carolina and three additional locations under various stages of
development.

Jreck Subs
----------

Jreck Subs offers a full assortment of submarine sandwiches, soups, and hot and
cold side orders. In addition, a selection of soft drinks, French fries as well
as desert items are available.

As of September 30, 2003 there were 39 franchised locations in Upstate New York
and one additional location under development.

Seawest Subs
------------

Seawest Subs offers a lunch a dinner menu of different submarine sandwiches,
soups and hot and cold side orders. As of September 30, 2003, there were 31
franchised locations located in the state of Washington.

                                       4
<PAGE>

Quick Service Fresh Mex Restaurants:

New York Burrito
----------------

New York Burrito restaurants feature an assortment of gourmet wraps, burritos,
and quesadillas ranging in price from $4.89-$5.99. Restaurants range in size
from 1,000 to 2,000 square feet, and are located in strip shopping malls, and
free standing buildings.

As of September 30, 2003 there were 36 franchised locations located in 12 states
and two additional locations under various stages of development.

Quick Service Hamburger and Hot Dog Restaurants:

Central Park
------------

Central Park is a fast service, double drive-thru 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-thru and 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, 2003 there were 46 franchised locations located throughout
the Southeastern United States and Utah.

Flamers
-------

Flamers is a mall based fast service restaurant format. Flamers offers
hamburgers, french fries, chicken sandwiches, hot dogs and soft drinks.

As of September 30, 2003 there were 55 franchised locations located throughout
the Mid-Atlantic United States and Florida.

Uncle Al's Famous Hot Dogs
--------------------------

Uncle Al's is a casual fast service restaurant format. Uncle Al's offers a very
specific menu consisting of different styles of hot dogs and bratwurst.

As of September 30, 2003 there were three franchised locations under
construction in Florida.

Casual Dining Restaurants:

Gators Dockside
---------------

Gators Dockside is a casual sports themed restaurant concept which features a
wide variety of food items ranging from quality appetizers to large portion
entrees. Gators specialty is their signature-grilled chicken wings which are
available in three styles with 12 different sauce choices. Restaurants range in
size from 6,000 square feet to 7,000 square feet, and are located in strip
shopping centers, and free standing buildings.

                                       5
<PAGE>

Weight Loss Clinics:

Weight Loss Forever
-------------------

The Weight Loss Forever concept franchises weight loss and wellness centers
under various trade names. These centers offer clients independent counseling
programs to assist people live more healthy lifestyles. In addition, they offer
a full assortment of meals and dietary supplements to aid clients in meeting
their goals.

As of September 30, 2003, there were approximately 40 locations located in
Virginia, North Carolina, New England, and Florida.

Pizza Restaurants:

Mountain Mike's
---------------

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

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

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

As of September 30, 2003 there were 94 franchised locations in California.


Franchise Programs
------------------

Ultimate Franchise Systems, Inc. is a leading restaurant franchisor with an
exclusive focus on growing leading restaurant brands.

We provide superior franchise brand management services which has resulted in
the creation of numerous regional market leaders.

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:

                                       6
<PAGE>

         -        review and approval of restaurant location

         -        review and approval of plans and layout design

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

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

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

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

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


We obtain prospective franchisees primarily from the ranks of our current and
former franchisees and employees, referrals from existing franchisees,
affiliations with industry experts and from selected marketing efforts such as
restaurant trade shows. We intend to develop new franchise locations primarily
through existing franchisees and industry affiliations. 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 restaurant from a
franchisee before the contract term has expired. We may operate such restaurants
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
are $12,500 for new locations in the sandwich segment, $20,000 in the hamburger
and Fresh-Mex segments, and $25,000 for Casual Dining (Gator's). 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%-5% 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
majority owned concepts and current franchise agreements:

                                       7
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                         No. of
                                       Franchised                     Rate on       Rate on                    Currently
                                        Units at      Avg. Yrs.       Existing      Current      Price of       Selling
                                        Sept 30,      Remaining      Franchise     Franchise        New           New
               Concept                    2003       On Contract     Agreements    Agreement     Franchise     Franchises
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>           <C>        <C>
"Sobik's"                                  33            6.3            4.8%          5.0%         12,500         Yes
"Central Park"                             46            8.6            4.3%          5.0%         20,000         Yes
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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.

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
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.

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. 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".

                                       8
<PAGE>

From time to time we will operate company owned restaurants. While operating the
restaurants, 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 quick service and casual dining segments of the restaurant
industry. As a franchisor of 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 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 19,000 units while
Blimpie and Quiznos each have about 1,700 and 2,500 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.

Competitors of our Central Park hamburger chain include Checkers Drive-In
Restaurants and Back Yard Burgers. Checkers currently has approximately 410
units while Back Yard Burgers has about 116 units. Both Checkers and Back Yard
Burgers offer a drive-thru format, with a low cost product in a fast food style
environment.

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 well established and recognized brands.

                                       9
<PAGE>

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>
 "Sobik's Subs"                Name, Service Mark & Design       2,087,639       Aug 12, 1997
 "Central Park"                Name, Service Mark & Design       1,240,692       May 31, 1983
 "Central Park"                Name, Service Mark & Design       1,278,181       May 15, 1984
 "Central Park"                Name, Service Mark                1,280,984       Jun 5, 1984
 "Central Park"                Name, Service Mark                1,290,349       Aug 14, 1984
 "Central Park"                Name, Service Mark & Design       1,297,136       Sept 18, 1984
 "Drive Through the Park"      Name & Service Mark               1,287,395       July 24, 1984
</TABLE>

Employees
---------

As of September 30, 2003 we had approximately 29 employees consisting of 9
administrative employees, and 20 employees at our one corporately owned Central
Park location.

Copy of Report
--------------

A copy of this report is available for review at the SEC Public Reference Room
located at 450 Fifth Street, N.W., Washington, DC 20549. You may obtain more
information regarding the operation of the Public Reference Room by calling
1-800-SEC-0330. You may also obtain a copy of this report via the internet at
www.sec.gov.

                                       10
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

Our office space is leased at various terms up to September 2006.

A summary of all real estate locations owned or leased by us at September 30,
2003 are as follows:
<TABLE>
<CAPTION>

                                                       Owned                Base     Lease
                                                         or     Square     Monthly Expiration
Address of Property                           Type     Leased   Footage     Rent     Date
==============================================================================================
<S>                                         <C>       <C>         <C>       <C>       <C>
Leases not assigned to third parties

300 International Pkwy. Suite 100             Office     Leased      2,833   $ 4,778    02/11/06
Heathrow, FL 32746

300 International Pkwy., Suite 180            Office     Leased        747     1,276    02/11/06
Hewthrow, FL 32746

300 International Pkwy., Suite 104            Office     Leased        712     1,187    10/31/06
Hewthrow, FL 32746

537 Market Street, Suite 301                  Office     Leased      1,748     2,331    04/15/04
Chattanooga, TN  37402

1376 Highland Avenue                          Land       Leased       N/A      1,614    02/28/06
Selma, AL

7205 Waters Ave.                              Land       Leased       N/A      2,650    09/09/06
Savanah, GA 31406                                                   ------  --------
                                                                     6,040   $13,836

<CAPTION>
                                                       Owned                Base     Lease
                                                         or     Square     Monthly Expiration
Address of Property                           Type     Leased   Footage     Rent     Date
==============================================================================================
<S>                                         <C>       <C>         <C>       <C>       <C>
Leases that have been assigned to
franchisee's, but which we remain
contingently liable

6204 Lee Highway                              Land       Leased       N/A    $ 1,600    04/01/08
Chattanooga, TN

West Broadway Street                          Land       Leased       N/A        750    06/06/06
West Memphis, AR

395 Inman St. SW                              Land       Leased       N/A        601    12/31/04
Cleveland, TN

3717 Mercer Blvd.                             Land       Leased       N/A       1,650   03/01/05
Macon, GA                                                                    --------
                                                                             $  4,601
                                                                             ========
</TABLE>
                                       11
<PAGE>

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

ITEM 3. LEGAL PROCEEDINGS

In August 2002, the former manager of a corporately owned Central Park store
brought forth an Equal Employment Opportunity Commission (EEOC) claim against us
claiming wrongful termination. We formally responded to the EEOC on October 10,
2002 explaining that this employee was terminated with cause. In August 2003 the
EEOC found no cause to believe any discrimination had occurred. The plaintiff
had until November 30, 2003 to file a claim to personally sue us in federal
court without EEOC assistance. As of the date of this filing we have not
received any notice that this has occurred. No liabilities have been accrued as
we do not anticipate that any further action will have any material adverse
effect on our financial position or results of 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 VOTE OF SECURITY HOLDERS

None

                                       12
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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, 2002    First Quarter    $ .18        $ .07
                                        Second Quarter     .30          .13
                                        Third Quarter      .28          .14
                                        Fourth Quarter     .26          .18

Fiscal Year Ended September 30, 2003    First Quarter    $ .22        $ .16
                                        Second Quarter     .18          .14
                                        Third Quarter      .20          .10
                                        Fourth Quarter     .15          .12

Stockholders
------------

As of December 16, 2003 there were approximately 2,700 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
--------------------------------------

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:

                                       13
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                  Exempt From
                                                                                                                     1933 Act
                                      Value or                                                                    Registration
  Shares    Type of                   Consider-   To Whom                                                               In
  Issued   Security         Date       ation      Issued                       Business Purpose                    Reliance of:
------------------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>          <C>        <C>                        <C>                                      <C>
   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)
1,851,852   Common      Aug 07, 2002    500,000 TAS, LLC                   Sale of Common Stock                     Section 4(2)
  226,699   Common      Mar 31, 2002     34,004 5 Individuals              Restructuring of Debt                    Section 4(2)
  100,000   Common      Feb 20, 2002     25,000 Gary Pereira               Conversion of Debt                       Section 4(2)
  500,000   Common      Jul 23, 2002     50,000 Agricola Coco              Conversion of Debt                       Section 4(2)
  500,000   Common      Jul 23, 2002     50,000 Bain Investments           Conversion of Debt                       Section 4(2)
  250,000   Common      Jul 23, 2002     25,000 John Mitchell              Conversion of Debt                       Section 4(2)
  250,000   Common      Jul 23, 2002     25,000 James Spratt               Conversion of Debt                       Section 4(2)
  400,000   Common      Dec 11, 2002    100,000 Allor Trust                Sale of Stock for Cash                   Section 4(2)
  100,000   Common      Jan 24, 2003     14,000 4 Individuals              Consulting Services                      Section 4(2)
   50,000   Common      Feb 12, 2003      8,000 Gary Pereira               Consulting Services                      Section 4(2)
  100,000   Common      Mar 24, 2003     14,000 JAS Investments            Interest on Long-Term Debt               Section 4(2)
  200,000   Common      Mar 31, 2003     28,000 Wall Street Group          Consulting Services                      Section 4(2)
  100,000   Common      Apr 17, 2003     15,000 Barka Mat S.A.             Interest on Long-Term Debt               Section 4(2)
  100,000   Common      Sep 25, 2003     12,000 CLD IR, Inc.               Consulting Services                      Section 4(2)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       14
<PAGE>

Options and Warrants
--------------------

In February 1999, we approved the 1998 Incentive Plan ("Incentive Plan") to
enable us to offer employees and consultants equity interests. There are 150,000
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, 2003:
<TABLE>
<CAPTION>

1998 Incentive Plan
-------------------

As of September 30, 2003 there were no outstanding options under the Incentive
Plan.

Outside of the Incentive Plan
------------------------------------------------------------------------------------------------------------------------------------
      Date         Expiration                             Number of     Exercise
    of Grant          Date                Name              Shares       Price                Business Purpose
------------------------------------------------------------------------------------------------------------------------------------
<S>              <C>             <C>                          <C>             <C>         <C>
Sep 30, 1998     Sep 30, 2006    Wall St. Group                  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, 2007    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 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
Dec 05, 2001     Dec 05, 2006    Noble International            429,791          .10      Investment Relations Services
Oct 01, 2002     Oct 01, 2007    Christopher Swartz             250,000          .08      Employee Compensation
Oct 01, 2002     Oct 01, 2008    Christopher Swartz             250,000          .08      Employee Compensation
Oct 01, 2002     Oct 01, 2007    Michael Cronin                 250,000          .08      Employee Compensation
Oct 01, 2002     Oct 01, 2008    Michael Cronin                 250,000          .08      Employee Compensation
Oct 01, 2002     Oct 01, 2007    14 Employees                   400,001          .08      Employee Compensation
Oct 01, 2002     Oct 01, 2008    14 Employees                   400,001          .08      Employee Compensation
                                                           ------------
                                 TOTAL                        2,697,722
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The weighted average exercise price of these outstanding options is $.65 outside
of the Incentive Plan. The aggregate of all options has a weighted average life
until expiration of 43.4 months. Options representing 136,429 shares expired in
2003. No options were granted in 2003.

                                       15
<PAGE>

The following table provides information about the Company's equity compensation
plans as of September 30, 2003 and including the Ultimate Franchise System's,
Inc. 1998 Stock Option Plan.
<TABLE>
<CAPTION>
                      Equity Compensation Plan Information

                                        Number of                           Number of securities
                                    securities to be                         remaining available
                                       issued upon                           for future issuance
                                       exercise of      Weighted-average        under equity
                                       outstanding      exercise price of    compensation plans
                                        options,           outstanding           (excluding
                                      warrants and      options, warrants   securities reflected
          Plan Category                  rights            and rights          in column (a))
----------------------------------- ------------------ -------------------- ----------------------
                                           (a)                 (b)                   (c)
<S>                                       <C>             <C>                      <C>
Equity compensation plans
approved by security holders                -             $         -              150,000

Equity compensation plans not
approved by security holders                -             $         -                 -
                                    ------------------ -------------------- ----------------------

Total                                       -                                      150,000
                                    ------------------ -------------------- ----------------------
</TABLE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview
--------

As described in Item 1, management has significantly changed the direction of
the Company and the way its on-going revenue will be derived in the future.
Currently, we derive our revenue from several sources: sale of investment
securities, royalties, franchise fees, developer fees, company owned restaurants
sales and other franchise related activities. In the future, the Company's
revenue will be derived predominately from dividends, interest income,
management fees and the gain on disposition of assets.

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.

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.

                                       16
<PAGE>

Restaurant Sales
----------------

Restaurant sales are reported from our one Company owned Central Park store
located in Selma Alabama. Management's intent is to resell this store to
prospective franchisee 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, 2003 Compared to Year Ended September 30, 2002

Revenue
-------

Total Revenue decreased $709,179 in 2003 over 2002 from $3,329,026 to
$2,619,847.

Franchise operations revenue decreased $1,697,631, or 56.0%, from $3,033,489 in
2002 to $1,335,858 in 2003. The primary reason for this decrease resulted from
from the sale of our Li'L Dino and Jreck Subs divisions in 2002. In 2002, these
divisions reported franchise operations revenues of $411,990 and $720,694,
respectively. In addition, we received a one-time $300,000 funding from major
proprietary vendors during 2002 to convert our concepts to new food and beverage
products. Additionally we experienced an 8% decline in same store sales for our
Central Park division. This decrease in sales resulted in a decrease in royalty
revenue of approximately $192,000 in 2003.

Retail restaurant sales in Company owned stores increased $460,676 or 155.9%
from $295,537 in 2002 to $756,213 in 2003. This increase resulted from the
re-acquisition of our one Company owned Central Park store in April 2002. We
operated this location for only six months in 2002 compared to twelve months in
2003.

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
             General Corporate Operating Expenses
             Consulting and Investor Relations
             Non-Cash
             Other

Franchise servicing costs, decreased $661,568 or 47.1% from $1,405,066 in 2002
to $743,498 in 2003. This decrease resulted from the sale of our Li'L Dino and
Jreck Subs divisions in 2002. During that time these divisions incurred
franchise servicing costs of $250,482 and $334,197, respectively.

Retail cost of sales and operating expenses from company owned stores increased
from $168,921 in 2002 to $804,228 in 2003. Retail cost of sales and operating
expenses as a percentage of retail sales increased from 57.2% in 2002 to 106.4%
in 2003. This increase was the result of several factors: First, we increased
our local marketing efforts to increase sales volumes by spending approximately
5% of gross sales in this effort. Second we hired an operations manager to
oversee the operations of our Company owned store as well as to assist in
quality assurance monitoring of franchised locations. Finally, we incurred
approximately $50,000 in repairs and maintenance costs to improve the condition
of our Company owned store in Selma Alabama.

                                       17
<PAGE>

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 $151,433 or 13.8% from $1,097,921 in 2002 to
$1,249,354 in 2003. This increase was primarily the result of additional payroll
costs associated with the addition of our Chief Concept Officer in September
2002 and an increase in rent expense associated with our decision to lease and
additional 750 square feet of office space.

Consulting and investor relations costs increased $62,361 or 42.2% from $147,683
in 2002 to $210,044 in 2003.

Routine or recurring non-cash charges such as depreciation, amortization (of
goodwill and non-compete covenants) and the write off of uncollectible
receivables was $275,933 in 2002 compared to $15,324 in 2003. The primary reason
for the decrease was amortization of covenants not to compete with the prior
owners of the Central Park division. The covenants were fully amortized in July
2002.

The gain on the disposal of franchise concepts was $937,398 in 2002 resulting
from a gain of $1,929,129 from the sale of the Jreck Subs franchise concept and
a loss of $991,733 from the sale of the Li'l Dino franchise concept.

We also sold our bakery operation (Pastry Products) in April 2002, which
resulted in a gain of $146,955.

Impairment of notes receivalbe, investment securities and goodwill was $846,204
for 2003, compared to $27,051 in 2002, an increase of $819,153. This increase
was the result of several factors. First, we recorded an impairment of the
goodwill associated with our Sobik's Subs Division in the amount of $221,704.
Additionally, we recorded a valuation allowance on our note receivable from CFB
Enterprises, Inc. in the amount of $274,500. This valuation allowance represents
25% of the carrying value of the note receivable and was recorded based on the
possibility that CFB will lack sufficient cash to be able to make payments on
this debt. Finally, in June 2003 we sold a note receivable with a carrying value
of $500,000 for $225,000 in cash. The difference between the cash received and
the carrying value was expensed at that time.

Net interest expense was $344,574 in 2003 compared to $419,261 in 2002, a
decrease of $74,687.

Liquidity and Capital Resources
-------------------------------

Net cash used in operating activities was $811,598 in 2003 compared to $252,345
in 2002, an increase of $559,253. This was primarily due to an increase net loss
from operations of $636,892.

Net cash of $328,458 was provided by investing activities in 2003 compared to
$875,577 in 2002, a decrease of $547,119. This change is primarily the result of
three factors: First, we received $696,205 from the sale of consolidated
subsidiaries in 2002. In 2003, we used $650,000 to form the COAC II joint
venture and received $897,000 from receivables compared to $212,719 in 2002.

Net cash used by financing activities was $195,011 in 2003 compared to $15,075
provided from financing activities in 2002. The change of $210,086 primarily
results from the decrease in cash received from the sale of common stock of
$343,000 and the decrease in payments of long-term debt of $111,793.

                                       18
<PAGE>

Working capital at September 30, 2003 was a deficit of $1,603,821 compared with
a deficit of $77,236 at September 30, 2002. Three significant items contributed
to the increase in our working capital deficit. The first was the use of
$650,000 in cash that was invested in the acquisition of a 50% joint venture
interest in COAC II. The second was an increase in non-cash deferred revenue of
$291,669 which relates to the unamortized balance of services required to be
provided to Weight Loss Forever, Inc. and Topper's Brick Oven Pizza, Inc. In
December, 2002 we received 6 million shares of common stock in each company in
exchange for services to be provided through November 2004. A third factor was
the collection of $581,800 in receivables that helped fund our operations.

The current working capital deficit of $1,603,821 includes several items that
will not require any cash within the next 12 months. Our deferred revenue of
$291,669 will be earned by providing management services for two unconsolidated
affiliates. The cost of this support is already in place and will require no
marginal incremental costs. Our accrued expenses of $520,523 includes other
deferred revenue items of $249,482 requiring no cash outlay and accrued interest
of $197,405 on which payments are not scheduled to begin until August 2005. In
the aggregate, these items as adjusted results in an actual cash working capital
deficit of $791,629.

To address this deficiency we have identified three critical opportunities that
could enable us to continue as a going concern. They are:

1.       Sale of Marketable Securities

              We currently own 8,997,368 restricted shares of the publicly
              traded Weight Loss Forever Int'l, Inc. This stock is traded on the
              OTC Bulletin Board under the symbol WLFI and has traded at $.06 to
              $.43 over the past twelve months. These shares have been held for
              over 12 months, but are still subject to some trading restrictions
              under Securities and Exchange Rule 144K. During 2004 we intend to
              sell approximately 3,000,000 shares at a price not less than $.20
              per share. This will generate approximately $600,000 in cash which
              will be used to subsidize our current working capital deficit.

2.       Formation of Management Partnership

              We have begun plans to form a partnership whereby some of our
              brands would combine our franchising revenues and expenses with
              other regional quick service restaurant concepts. The benefit of
              this type of partnership is twofold; first, we will be able to
              significantly reduce our overhead costs by spreading these costs
              over multiple brands. Second, we expect an increase in franchising
              revenue by increasing our purchasing power associated with the
              aggregation of these concepts. In 2004, we expect to realize an
              increase in net income of approximately $300,000 through these
              efforts.

3.       Sale of Sobik's International Franchising, Inc.

              As of September 30, 2003, we owned 17,445,664 shares of common
              stock in Sobik's International Franchising, Inc., "Sobik's" which
              represents approximately 79% of the total issued and outstanding
              shares of the Company. In December 2003, we entered into a
              preliminary agreement whereby we would sell these shares in
              exchange for $1 million dollars. $100,000 would be paid at
              closing, and we would hold a note receivable which would accrue
              interest of 6% until December 2004. At that time an additional
              $100,000 in principal would be paid to us and quarterly interest
              payments of $14,000 would be made to us until December 2005. The
              remaining principal balance would then be paid to us in equal
              principal and interest payments amortizing through December 2013.

                                       19
<PAGE>

We believe that cash flows from operations and commitment ot the three
strategies above 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
2004. 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.


Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
--------------------------------------------------------------------

Off-Balance Sheet Arrangements. In accordance with the definition under the new
Securities and Exchange Commission rules, the following qualify as off-balance
sheet arrangements:

         o        Any obligation under certain guarantees or contracts;

         o        A retained or contingent interest in assets transferred to an
                  unconsolidated entity or similar arrangement that serves as
                  credit, liquidity or market risk support to that entity for
                  such assets;

         o        Any obligation under certain derivative instruments;

         o        Any obligation under a material variable interest held by the
                  registrant in an unconsolidated entity that provides
                  financing, liquidity, market risk or credit risk support to
                  the registrant, or engages in leasing, hedging or research and
                  development services with the registrant.

During 2002, we sold majority interests in the Li'L Dino and Jreck Subs
restaurant brands. Upon the sale of these divisions we received cash, notes
receivable and Class III equity interest. Once the notes receivable are fully
paid in September 2010, the Class III Interests entitle us to receive 20%
pro-rata of the net income of the purchasing entities in perpetuity.

As a result, we no longer consolidate the results of operations into our
financial statements. The ongoing 20% allocation of net income will be recorded
as revenue in the period it is received.

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

In September 2001, we adopted SFAS 141, Business Combinations, SFAS 142,
Goodwill and Other Intangible Assets. SFAS 141 requires business combinations to
be accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and
reported separate from goodwill. SFAS 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for impairment at least
annually. There was no impairment of goodwill upon adoption of SFAS 142.

Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------

The Company believes that its revenues and results of operations have not been
significantly affected by inflation during the two years ended September 30,
2003.

One of the Company's long-term debt loans is subject to variable interest rates.
Significant fluctuations in interest rates therefore could have an adverse
effect on the Company and its ability to fund working capital requirements.

                                       20
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

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

ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None

ITEM 8A. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with participation of our management,
including the Chief Executive Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon that evaluation, the Chief Executive Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting members of the management to material information relating to the
Company required to be included in our periodic SEC filings.

(b) Changes in internal controls.

No significant changes were made in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.

                                       21
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors of the Company
-----------------------------------------------

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     33   Yes/ Apr 1996   Chairman, President and Chief
                                               Executive Officer
Eric T. Swartz            37   Yes/ Apr 1996   Secretary
Michael F. Cronin         47   Yes/ Apr 2000   Chief Financial Officer/Treasurer
                                               and Chief Operating Officer
Robert C. Taft*           51   Yes/ Sep 2002   Chief Concept Officer, Director
Richard Beattie           40   Yes/ Oct 2002   Director
--------------------------------------------------------------------------------

* Mr. Taft resigned from the board of directors on September 30, 2003.

Christopher M. Swartz, Chairman, President and CEO 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 1994.
Mr. Swartz is on the Board of Directors of the Florida Restaurant Association
and sits as the Vice Chairman of the Association Finance Committee and has won
multiple National leadership awards from the National Republican Committee. Mr.
Swartz is also a member of the board of our affiliate company Weight Loss
Forever International, Inc. Mr. Swartz is a 1992 honors graduate from Syracuse
University.

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.

Robert C. Taft joined the company in September 2002 as a director and Chief
Concept Officer. Since 1975 Mr. Taft has served as an executive for several
large restaurant companies including Fuddruckers, Inc., Papa Gino's, Inc., Au
Bon Pain, Skipper's, Inc., and Mazzio's Corporation. Mr. Taft is a graduate of
the University of New Hampshire.

                                       22
<PAGE>

Richard P. Beattie has had a very long and successful career as a developer and
operator of some of the largest and most respected restaurant chains in the
country. He is currently the largest franchisee of the Denny's corporation,
operating over 65 units and in November 2000 was presented with the award for
Developer of the Year for Denny's Inc. Mr. Beattie has been involved with the
Franchise Advisory Council for Denny's for nine years and served on several
corporate committees. He is also one of only eight Chili's franchisees with
ownership rights for the states of Washington and Oregon. In addition to the
eight Chili's restaurants he presently operates, there are two more under
development. Mr. Beattie is considered to be one of the top fifty franchise
operators in the country by most industry publications.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires executive officers
and directors, and persons who beneficially own more than 10% of the Company's
common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than 10% beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on the Company's review of copies of such reports and written
representations from the Company's executive officers and directors, the Company
believes that its executive officers and directors complied with all Section
16(a) filing requirements during the fiscal year ended September 30, 2003.

ITEM 10. EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table
--------------------------

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>
                           2003      $ 175,000     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
 Christopher M. Swartz     2002      $ 175,000     $ 0          $ 0          $ 0     500,000       $ 0         $ 0
    President & CEO     -----------------------------------------------------------------------------------------------
                           2001      $ 175,000     $ 0          $ 0      $ 22,000        0         $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
                           2003      $ 140,000     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
   Michael F. Cronin       2002      $ 140,000     $ 0          $ 0          $ 0     500,000       $ 0         $ 0
Chief Financial Officer -----------------------------------------------------------------------------------------------
& Chief Operating Officer  2001      $ 140,000     $ 0          $ 0      $ 22,000        0         $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
                           2003      $ 120,000     $ 0          $ 0          $ 0         0         $ 0         $ 0
                        -----------------------------------------------------------------------------------------------
  Robert C. Taft           2002(a)   $  10,000     $ 0          $ 0          $ 0         0         $ 0         $ 0
  Chief Concept Officer -----------------------------------------------------------------------------------------------
                           2001      $       0     $ 0          $ 0          $ 0         0         $ 0         $ 0
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Mr. Taft began his employment with the company on September 1, 2002, and
resigned from his position as chief concept officer and director on September
30, 2003.

                                       23
<PAGE>

Employment Contracts
--------------------

None


Options and Rights Granted to Purchase Common Stock
---------------------------------------------------

The following table summarizes options and rights to purchase common stock that
were granted or issued to executive officers and directors over each of the last
two fiscal years:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                         Number                                                   Percent of
                                           of     Number of                                          Total
                                         Options  Shares of     Date of                 Exercise    Options
                                         Granted   Common       Grant                   Price of  Granted to
                                          (in       Stock        or         Expiration  Purchase   Employees
        Name              Position       Shares)  Purchased    Purchase        Date     Price     During Year
---------------------------------------------------------------------------------------------------------------
<S>                     <C>               <C>      <C>       <C>           <C>           <C>        <C>
Christopher M. Swartz President and       250,000            Oct 01, 2002  Oct 01, 2007  $ 0.08     13.9%
                      Chief Executive     250,000            Oct 01, 2002  Oct 01, 2008  $ 0.08     13.9%
                      Officer

Michael F. Cronin     Chief Financial     250,000            Oct 01, 2002  Oct 01, 2007  $ 0.08     13.9%
                      Officer and Chief   250,000            Oct 01, 2002  Oct 01, 2008  $ 0.08     13.9%
                      Operating Officer
---------------------------------------------------------------------------------------------------------------

Stock Appreciation Rights granted to our officers during 2003
-------------------------------------------------------------

The following  table sets forth  information  regarding the value of Options and
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                       Number of Securities Underlying         Value of In-The-Money
                                                        Unexercised Options and SAR's            Options and SAR's
                                                            at September 30, 2003              at September 30, 2003
----------------------------------------------------------------------------------------------------------------------------
                   Shares Acquired
Name and Position    on Exercise     Value Realized     Exercisable      Unexercisable     Exercisable      Unexercisable
----------------------------------------------------------------------------------------------------------------------------
<S>                    <C>               <C>             <C>                 <C>              <C>              <C>
Christopher M. Swartz    None             None           500,000             None             $30,000           None
 President and
 Chief Executive
 Officer

Michael F. Cronin        None             None           600,000             None             $36,000           None
 Chief Financial
 Officer and Chief
 Operating Officer
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       24
<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.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information relating to the beneficial ownership
of the Company's common stock by those persons beneficially holding more than 5%
of the Company's common stock or held by our executive officers and directors,
and by all our officers and directors as a group as of September 30, 2003. 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) 2,556,709         17.21%
  Common Stock    Michael F. Cronin     Yes       (b)   720,000          4.85%
  Common Stock    Robert C. Taft        Yes       (c)   314,815          2.12%
  Common Stock       Eric Swartz        Yes              70,005          0.05%
  Common Stock    Richard Beattie       Yes       (d)   100,000          0.07%
         All Officers and Directors as a Group        3,761,529         24.30%

(a)      Includes 1,537,037 shares of common stock owned by TAS LLC. Mr. Swartz
         is an 83% partner in TAS, and as such, is deemed to have beneficial
         ownership of 83% of the shares owned by TAS. It also includes 374,421
         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 500,000 shares subject to
         options exercisable by Mr Swartz.

(b)      Includes 600,000 shares subject to options currently exercisable by Mr.
         Cronin.

(c)      Includes 314,815 shares of common stock owned by TAS LLC. Mr. Taft is a
         17% partner in TAS, and as such, is deemed to have beneficial ownership
         of 17% of the shares owned by TAS. Mr. Taft resigned from the Board of
         Directors on September 30, 2003.

(d)      Includes 400,000 shares of common stock owned by The Allor Trust In
         October 2002, pursuant to a stock purchase agreement we issued 400,000
         shares of our common stock to The Allor Trust, ("Allor") in exchange
         for $100,000. In addition, Richard Beattie was appointed to our Board
         of Directors as a result of this transaction.

                                       25
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Formation of Joint Venture
--------------------------

In October 2002, we formed a joint venture with Concept Acquisitions, LLC.,
("COAC") The joint venture Concept Aquisitions II, LLC ("COACII"), has purchased
100% of the assets in the Flamers hamburger concept with 55 units throughout the
Mid-Atlantic United States. The purchase price consisted of $1,000,000 in cash
and a note payable for $1,600,000 which will require principal and interest
payments over a three year period with a balloon payment due thereafter. The
transaction was funded as follows:

                                               UFSI        COAC        Total
                                             ---------- ------------ -----------
 Cash for equity position in Joint Venture   $350,000    $350,000    $  700,000
 Cash for note receivable                     300,000        -          300,000
                                             ---------- ------------ -----------
 Total cash used for acquisition             $650,000    $350,000    $1,000,000
                                             ===================================

Conversion of Note Receivable to Equity
---------------------------------------

Subsequent to the formation of the COACII joint venture, in March 2003 we
converted our $300,000 note receivable issued to form the joint venture into
equity. Under the terms of the agreement, Ultimate Franchise Systems, Inc. will
receive the greater of $15,000 per month or 50% of the cash distributions or
sales proceeds of COAC II until December 31, 2005. Thereafter, Ultimate
Franchise Systems will be entitled to a 25% interest in cash distributions and
sales proceeds.

In addition, and in connection with this transaction we converted a separate
note receivable of $265,000 which related to our sales of the Mountain Mike's
Pizza Concept in april 2000 into an equity position in COAC. This equity
interest provides for UFSI to receive 18% of the cash distributions and sales
proceeds of COAC commencing after repayment by COAC of all outstanding debt
obligations which is expected to occur in October 2006.

Management Agreements
---------------------

In December 2002, we entered into a letter agreements with Topper's Brick Oven
Pizza, Inc. ("Topper's") and Weight Loss Forever, International Inc. ("Weight
Loss Forever") whereby we will offer our expertise in purchasing, marketing,
franchise legal services, franchise sales, and general management to each
company in exchange for 6,000,000 shares of common stock of each company. The
value of these services is $500,000 and will be amortized over a 24 month period
beginning in December 2002.

Allor Trust
-----------

In October 2002, we entered into a limited liability company agreement with The
Allor Trust, ("Allor"). Pursuant to this agreement, a company named B & U
Ventures, LLC has been created to operate and facilitate the ongoing franchising
operations of Gator's Dockside International Franchising, LLC. Both Allor and
UFSI will initially be required to capitalize the company with cash
contributions in the amount of $50,000 each, and will participate equally in any
earnings or losses generated through the operations of the company.

In November 2002, we assigned 100% of our ownership interest in Gator's Dockside
International Franchising, LLC, ("Gator's") to B & U Ventures, LLC, ("B & U").

                                       26
<PAGE>

Sale of Bakery Operation
------------------------

In March 2002, we sold our bakery operation (Pastry Product Producers) and the
building which was used to run the operation to CFB Enterprises, Inc. ("CFB")
and Mahar Partnership, LLC ("Mahar"), respectively. CFB and Mahar are partially
controlled by our Chief Executive Officer, Christopher Swartz.

Sale of Jreck Subs Division
---------------------------

In August 2002 we sold 100 percent of the common stock in our Jreck Subs
subsidiary to Grace Ventures, LLC ("Grace") for $1,996,205 and a 20% Class III
Convertible Interest in the Purchaser. $696,205 was received in cash, and we
entered into a note receivable with Grace for the remaining $1,300,000. The note
requires Grace to make annual principal payments of $50,000 until August 31,
2004 and during that time the principal will accrue interest at 5%. Thereafter,
the note will begin to earn interest at 7% and Grace will make annual principal
and interest payments of $50,000 through August 31, 2006. At which time Grace
will have the option to pay all unpaid principal and interest, or Grace may opt
to fully amortize the remaining principal and interest at an increased rate of
10% over the subsequent 60 months through August 2011. Additionally, if Grace
does not perform on one of the pay-off options, the note allows us to convert
our interest into an 80% ownership interest in Grace. Grace Ventures, LLC is
partially owned and operated by our Chief Executive Officer, Christopher Swartz.


Item 13. Exhibits and Reports on Form 8-K.

a) Exhibits. The following exhibits are included as part of this report at the
location indicated:

              SEC
 Exhibit   Reference
  Number     Number        Title of Document                        Location
---------- --------- ----------------------------------------   ----------------
Item 31                 Rule 13a-14(a)/15d14(a) Certifications
---------- --------- ----------------------------------------   ----------------
  31.01         31   Certification of Chief Executive Officer       Attached
                     Pursuant to Rule 13a-14
  31.02         31   Certification of Chief Financial Officer       Attached
                     Pursuant to Rule 13a-14

Item 32                 Section 1350 Certifications
---------- --------- ----------------------------------------   ----------------
  32.01         32   Certification of Chief Executive Officer       Attached
                     Pursuant to 18 U.S.C. Section 1350, as
                     Adopted Pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002

  32.02         32   Certification of Chief Financial Officer       Attached
                     Pursuant to 18 U.S.C. Section 1350, as
                     Adopted Pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K. During the year ended September 30, 2003, Ultimate
Franchise Systems, Inc. did not file any reports on Form 8-K.

                                       27
<PAGE>

                                   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
01/09/04   Christopher M. Swartz   Board of Directors  /s/ Christopher M. Swartz
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature




                                 Chief Financial Officer
                                   Treasurer & Chief
01/09/04      Michael F. Cronin     Operating Officer    /s/ Michael F. Cronin
--------   ---------------------  -------------------  -------------------------
  Date          Print Name               Title                   Signature


                                       28
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries

                        Consolidated Financial Statements

                 For the Years Ended September 30, 2003 and 2002


                                    Contents



Independent Auditors' Report on Consolidated Financial Statements...........F-1

Consolidated Financial Statements:

     Consolidated Balance Sheets......................................F-2 - F-3
     Consolidated Statements of Operations..................................F-4
     Consolidated Statements of Cash Flows............................F-5 - F-6
     Consolidated Statements of Stockholders' Equity........................F-7
     Notes to Consolidated Financial Statements......................F-8 - F-40


                                       i
<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. and subsidiaries as of September 30, 2003, and 2002 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, 2003, and 2002 and the
results of its operations and its cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.

Berman Hopkins Wright & LaHam, CPA's, LLP
Melbourne, Florida
November 7, 2003                                                             F-1
<PAGE>
<TABLE>
<CAPTION>
                                Ultimate Franchise Systems, Inc. and Subsidiaries
                                          Consolidated Balance Sheets


                                                                             September 30,         September 30,
                                                                                 2003                   2002
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>
Assets
Current assets:
    Cash                                                                        $    21,083           $    699,234
    Accounts receivable                                                              56,059                 56,160
    Accounts receivable - other                                                           -                581,800
    Prepaid expenses                                                                  6,014                 24,388
    Current portion of notes receivable                                             132,796                 64,716
---------------------------------------------------------------------------------------------------------------------
        Total current assets                                                        215,952              1,426,298
---------------------------------------------------------------------------------------------------------------------

Property and equipment, net                                                          63,449                 68,090
---------------------------------------------------------------------------------------------------------------------

Other assets:
    Goodwill                                                                      3,531,057              3,752,761
    Deferred loan costs, net                                                        114,563                180,023
    Notes receivable, net of current portion and allowance of $274,500
        and $0, respectively                                                      2,275,952              3,291,653
    Investment securities                                                           749,816                 95,024
    Other                                                                         1,041,717                186,787
---------------------------------------------------------------------------------------------------------------------

        Total other assets                                                        7,713,105              7,506,248
---------------------------------------------------------------------------------------------------------------------

Total assets                                                                    $ 7,992,506           $  9,000,636
=====================================================================================================================


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements                                                  F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                Ultimate Franchise Systems, Inc. and Subsidiaries
                                     Consolidated Balance Sheets, Continued


                                                                             September 30,         September 30,
                                                                                 2003                   2002
---------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                    <C>
Liabilities and Stockholders' Equity
Current liabilities:
    Current portion of long-term debt                                         $     788,489          $     888,493
    Accounts payable                                                                199,267                160,413
     Deferred revenue                                                               291,669                  2,013
     Accrued expenses                                                               520,523                408,973
    Accrued preferred stock dividends                                                19,825                 43,642
---------------------------------------------------------------------------------------------------------------------

Total current liabilities                                                         1,819,773              1,503,534
---------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion                                              2,037,073              2,241,580
---------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                 3,856,846              3,745,114
---------------------------------------------------------------------------------------------------------------------
Minority interest                                                                   202,902                242,911
---------------------------------------------------------------------------------------------------------------------
Redeemable common stock                                                             293,000                293,000
---------------------------------------------------------------------------------------------------------------------

Stockholders' equity:
    Series C convertible preferred stock, no par value, 120 shares
        authorized, issued and outstanding                                          120,000                120,000
    Common stock, $.001 par value, 100,000,000 shares authorized,
        13,749,350, and 12,749,415 shares issued and outstanding,
        respectively                                                             30,611,215             31,096,152
    Accumulated deficit                                                         (27,305,884)           (25,809,041)
    Less:  Stock subscriptions receivable                                                 -               (687,500)
    Accumulated other comprehensive income                                          214,427                      -
---------------------------------------------------------------------------------------------------------------------

Total stockholders' equity                                                        3,639,758              4,719,611
---------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                    $   7,992,506          $   9,000,636
=====================================================================================================================


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements                                                  F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        Ultimate Franchise Systems, Inc. and Subsidiaries
                              Consolidated Statements of Operations


                                                                       Year             Year
                                                                       Ended           Ended
                                                                   September 30,   September 30,
                                                                       2003             2002
--------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>
Revenues:
    Franchise operations                                          $     1,335,858    $   3,033,489
    Retail sales - company-owned stores                                   756,213          295,537
    Other income                                                          527,776                -
--------------------------------------------------------------------------------------------------
                                                                        2,619,847        3,329,026

Operating costs and expenses:
    Franchise servicing costs                                             743,498        1,405,066
    Cost of retail sales and operating costs - stores                     804,228          168,921
    General and administrative                                          1,249,354        1,097,921
    Consulting and investor relations                                     210,044          147,683
    Amortization and depreciation                                          15,324          275,933
--------------------------------------------------------------------------------------------------

                                                                        3,022,448        3,095,524
--------------------------------------------------------------------------------------------------

Income (loss) from operations                                            (402,601)         233,502

Other income (expense):
    Interest, net                                                        (344,574)        (419,261)
    Impairment of notes receivable and investment securities             (624,500)         (27,051)
    Impairment of goodwill                                               (221,704)               -
    Equity of earnings/(losses) of unconsolidated subsidiary                 (789)           5,517
    Gain on disposal of consolidated subsidiaries                               -          937,398
    Minority interest in income of subsidiary                              40,008           14,965
    Other, net                                                             40,000           17,512
--------------------------------------------------------------------------------------------------
                                                                       (1,111,559)         529,080
--------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before discontinued
      operations                                                       (1,514,160)         762,582
Discontinued operations:
      Income (loss) from operations of discontinued operations                  -          (10,747)
      Gain from disposal of discontinued operations                             -          146,955
--------------------------------------------------------------------------------------------------
Net income (loss)                                                      (1,514,160)         898,790
--------------------------------------------------------------------------------------------------
Preferred stock dividends                                                 (15,600)         (15,600)
--------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock                      $    (1,529,760)   $     883,190
==================================================================================================

Weighted average number of common shares outstanding                   13,335,826        9,452,918

Earnings (loss) per basic and diluted common share:
    Income (loss) from continuing operations - basic              $          (.11)   $         .08
    Income (loss) from continuing operations - diluted                        N/A              .07
    Income (loss) from discontinued operations - basic                        N/A              .01
    Income (loss) from discontinued operations - diluted                      N/A              .01
    Net income (loss) per common share - basic                               (.11)             .09
    Net income (loss) per common share - diluted                              N/A              .08
==================================================================================================


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 Cash Flows


                                                                     Year             Year
                                                                    Ended             Ended
                                                                September 30,     September 30,
                                                                     2003             2002
-------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>
Operating activities:
    Net income (loss)                                          $    (1,514,160)       $  898,790
    Adjustments to reconcile net loss to net cash used
      by operating activities:
        Amortization and depreciation                                   15,324           302,669
        Allowance for notes receivable                                 274,500                 -
        Impairment of long-lived assets                                277,635            27,051
        Permanent impairment of goodwill                               221,704                 -
        Gain on settlement of long-term debt                           (40,000)                -
        Gain on sale of discontinued operation                               -          (146,955)
        Gain on sale of consolidated subsidiaries                            -          (937,398)
        Stock and stock options issued for services                     65,000          (112,409)
        Stock of majority owned subsidiary issued for services           8,563                 -
        Stock issued for restructuring of long-term debt                29,000                 -
        Minority interest in income (loss) of subsidiary               (40,008)          (14,965)
        Amortized discounts on financial instruments                         -            63,041
        Amortization of deferred loan costs to interest expense         65,460            65,460
        Capitalized interest on notes receivable                      (136,109)                -
        Amortization of prepaid costs                                        -           114,402
        (Increase) decrease in:
           Accounts receivable                                             101           (11,905)
           Prepaid expenses                                             21,333           (77,335)
           Other assets                                                      -           (23,106)
        Increase (decrease) in:
           Accounts payable                                             38,853          (243,010)
           Deferred revenue                                           (210,344)          (14,517)
           Accrued liabilities                                         111,550          (142,158)
-------------------------------------------------------------------------------------------------

Net cash used by operating activities                                 (811,598)         (252,345)
-------------------------------------------------------------------------------------------------

Investing activities:
    Purchase of property and equipment                                  (2,550)           (9,452)
    Proceeds from sale of consolidated subsidiary                            -           696,205
    Proceeds from sale of marketable securities                         57,000             4,600
    Issuance of notes receivable                                             -           (28,495)
    Proceeds from collection of dividends                               27,008                 -
    Cash used for formation of joint venture                          (650,000)                -
    Proceeds from collection of notes receivable                       897,000           212,719
-------------------------------------------------------------------------------------------------

Net cash provided by investing activities                              328,458           875,577
-------------------------------------------------------------------------------------------------

Financing activities:
    Borrowings on long-term debt                                       300,000           335,000
    Proceeds on sale of stock options of majority owned                      -             5,000
        subsidiary
    Proceeds from sale of common stock                                 100,000           443,000
    Cash surrendered from sale of consolidated subsidiaries                  -           (18,246)
    Dividends paid on preferred stock                                   (6,500)          (49,375)
    Payments on long-term debt                                        (588,511)         (700,304)
-------------------------------------------------------------------------------------------------

Net cash provided (used) by financing activities                      (195,011)           15,075
-------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                  (678,151)          638,307

Cash and cash equivalents, beginning of period                         699,234            60,927
-------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                       $        21,083   $       699,234
=================================================================================================


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, 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,
                                                                                        2003                   2002
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                       <C>
Cash paid for interest                                                          $          184,508        $       191,139
----------------------------------------------------------------------------------------------------------------------------
Conversion of series G debt  into common stock                                  $                         $       175,000
                                                                                                 -
Conversion of note receivable into joint venture equity                                    543,083                      -
Repossession of corporately owned Central Park store                                             -                155,229
Accrued preferred stock dividends relieved                                                  32,917                185,948
Acquisition of investment securities for services                                          500,000                      -
Write down of non-refundable deposit of potential acquisition                               75,000                      -
Acquisition of fixed assets for note payable                                                     -                 29,183
Unrealized gain on marketable securities                                                   214,427                      -
Preferred stock dividends accrued                                                           15,600                 15,600
Stock issued to acquire common stock of unrelated entity                                         -                 75,000
Stock returned to treasury for cancellation of subscription receivable                     687,500                      -
Subsidiary common stock issued for investment securities                                         -                 57,000
============================================================================================================================

Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements                                                            F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                        Ultimate Franchise Systems, Inc. and Subsidiaries
                                        Consolidated Statements of Stockholders' Equity

                                                                                                              Accumulated
                                                                                                                Other
                                                                          Preferred                             Compre-
                                                    Common                 Series C                  Subscrip-  hensive
                                             ----------------------  -----------------  Accumulated    tion     Income     Total
                                              Shares       Amount     Shares   Amount     Deficit      Notes    (Loss)     Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>            <C>    <C>      <C>           <C>        <C>      <C>
Balance, September 30, 2001                  8,695,864  $30,113,718    120    $120,000 $(26,692,231) $(687,500) $      - $2,853,987
Issuance of options for prepaid services             -       42,979      -           -            -          -         -     42,979
Issuance of options of majority owned
 subsidiary                                          -        5,000      -           -            -          -         -      5,000
Cost in excess of par on retirement of stock
 of majority owned  subsidiary                       -      (35,498)     -           -            -          -         -    (35,498)
Conversion of Series G debenture             1,600,000      175,000      -           -            -          -         -    175,000
Issuance of common stock for cash and
 investment securities                       1,851,852      500,000      -           -            -          -         -    500,000
Stock issued for acquisitions                  375,000       75,000      -           -            -          -         -     75,000
Stock issued for conversion of debt            226,699       34,005      -           -            -          -         -     34,005
Preferred dividends                                  -      185,948      -           -      (15,600)         -         -    170,348
Net income                                           -            -      -           -      898,790          -         -    898,790
------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2002                 12,749,415  $31,096,152    120    $120,000 $(25,809,041) $(687,500) $      - $4,719,611

Issuance of common stock as payment of
 interest on long-term debt                    200,000       29,000      -           -            -          -         -     29,000
Excess of par value of subsidiary common
 stock issued for services                                    8,563      -           -            -          -         -      8,563
Stock returned to the treasury of the company  (50,065)    (687,500)     -           -            -    687,500         -          -
Issuance of common stock for cash              400,000      100,000      -           -            -          -         -    100,000
Stock issued for services                      450,000       65,000      -           -            -          -         -     65,000
Write off of preferred Series F dividends            -            -      -           -       32,917          -         -     32,917
Preferred dividends                                  -            -      -           -      (15,600)         -         -    (15,600)
Net income                                           -            -      -           -   (1,514,160)         -         - (1,514,160)
Unrealized gain on investment securities             -            -      -           -            -          -   214,427    214,427

Balance, September 30, 2003                 13,749,350  $30,611,215    120    $120,000 $(27,305,884) $       -  $214,427 $3,639,758
====================================================================================================================================


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements                                                                    F-7
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


1.       Background Information

         Ultimate Franchise Systems, Inc. (collectively "we" and "our"), was
         incorporated on July 19, 1995 under the laws of the State of Colorado.
         On April 25, 2002, we changed our state of domicile from the State of
         Colorado to the State of Nevada.

         We are a franchise management and venture company with minority
         interests in numerous restaurant concepts located throughout the United
         States. Our headquarters are located in Heathrow, Florida. Currently,
         we have equity interest in companies controlling approximately 385
         franchised restaurant locations and 40 weight loss clinics throughout
         the United States. Our strategy continues to be one of growth through
         the acquisition of minority positions in other restaurant franchise
         companies. This allows us to provide franchise management services to
         other companies without any increase to operating expenses and provides
         us with a more diversified portfolio of restaurant brands. 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 consolidating subsidiaries include Sobik's International
         Franchising, Inc. a Florida corporation, and Central Park of America,
         Inc., a Delaware corporation. These subsidiaries operate restaurants
         under the trade names of Sobik's Subs, and Central Park, respectively.
         Also, prior to the subsidiaries' equity disposition, our company
         included Jreck Subs, Inc. a New York corporation, and Li'l Dino
         Corporation, a North Carolina corporation. During the year ended
         September 30, 2002, Jreck Subs, Inc. and Li'l Dino Corporation were
         sold on August 31, 2002 and September 30, 2002, respectively (See Note
         3)


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

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

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


2.       Significant Accounting Policies (continued)

         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.

         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, 2003 and 2002, depreciation
         expense amounted to $7,191 and $26,738 respectively.

         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 years ended September 30, 2003 and 2002, we determined that certain
         investments and notes receivable had incurred impairment (see note 5).
         As a result, the accompanying consolidated statements of operations
         reflects a write-down of note receivable and investment securities in
         the amount of $624,500 and $27,051, respectively.

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

         Deferred loan costs are amortized ratably over the terms of the related
         loans. For the years ended September 30, 2003 and 2002, 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 examined regularly for impairment using
         the discounted future cash flows method pursuant to FASB 144. If any
         such impairment exists, the related assets are written down to fair
         value.

Read independent auditors' 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, 2003 and 2002


2.       Significant Accounting Policies (continued)

         As a result of these tests, we concluded that the goodwill associated
         with the purchase of the Sobik's Subs division had suffered impairment
         during 2003. As a result, we recorded an impairment expense of $221,704
         in 2003. No impairment of the goodwill associated with the Central Park
         division was present in 2003.

         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.

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

         Advertising costs are charged to operations as incurred. Advertising
         expenses were $13,219 and $29,747 for the years ended September 30,
         2003 and 2002, 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.

Read independent auditors' 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, 2003 and 2002


2.       Significant Accounting Policies (continued)

         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.

         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, 2003.

         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.

Read independent auditors' 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, 2003 and 2002


2.       Significant Accounting Policies (continued)

         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.

         Potential common shares at September 30, 2003 and 2002 include
         2,229,794 and 1,108,942 stock options and warrants and approximately
         450,000 shares from convertible notes payable, for both years. We also
         have a liability to issue 25,000 shares of common stock as of September
         30, 2003 and 2002, respectively. This liability to issue common stock
         of $58,650 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 January 2003, the FASB issued Interpretation 46, Consolidation of
         Variable Interest Entities. In general, a variable interest entity is a
         corporation, partnership, trust, or any other legal structure used for
         business purposes that either (a) does not have equity investors with
         voting rights or (b) has equity investors that do not provide
         sufficient financial resources for the entity to support its
         activities. Interpretation 46 requires a variable interest entity to be
         consolidated by a company if that company is subject to a majority of
         the risk of loss from the variable interest entity's activities or
         entitled to receive a majority of the entity's residual returns or
         both. The consolidation requirements of Interpretation 46 apply
         immediately to variable interest entities created after January 31,
         2003. The consolidation requirements apply to transactions entered into
         prior to February 1, 2003 in the first fiscal year or interim period
         beginning after June 15, 2003. Certain of the disclosure requirements
         apply in all financial statements issued after January 31, 2003,
         regardless of when the variable interest entity was established. The
         adoption of the Interpretation on July 1, 2003 did not have a material
         impact on our financial statements.

Read independent auditors' 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, 2003 and 2002


2.       Significant Accounting Policies (continued)

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
         Stock-Based Compensation-- Transition and Disclosure--an Amendment to
         SFAS No. 123." SFAS No. 148 provides alternative methods of transition
         for a voluntary change to the fair value based method on accounting for
         stock-based employee compensation, as well as additional disclosure
         requirements for both quarterly and annual reporting. The Company has
         elected to continue to account for stock-based employee compensation by
         the intrinsic value method under APB 25, as the Company's financial
         statements had the fair value method been used. Accordingly, the
         implementation of SFAS No. 148 has not had a material effect on the
         Company's consolidated financial position or results of operations.

         In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
         Derivative Instruments and Hedging Activities, which amends and
         clarifies accounting for derivative instruments, including certain
         derivative instruments embedded in other contracts, and for hedging
         activities under SFAS 133. The Statement is effective (with certain
         exceptions) for contracts entered into or modified after June 30, 2003.
         We do not believe the adoption of this Statement will have a material
         impact on our financial statements.

         In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
         Instruments with Characteristics of both Liabilities and Equity. The
         Statement establishes standards for how an issuer classifies and
         measures certain financial instruments with characteristics of both
         liabilities and equity. It requires that an issuer classify a financial
         instrument that is within its scope as a liability (or an asset in some
         circumstances). It is effective for financial instruments entered into
         or modified after May 31, 2003, and otherwise is effective at the
         beginning of the first interim period beginning after June 15, 2003. We
         do not believe the adoption of this Statement will have a material
         impact on our financial statements.

         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 our newly franchised stores. We
         believe that we have taken the steps necessary to minimize these risks.

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

         Certain amounts in the 2002 financial statements have been reclassified
         to conform to the 2003 presentation.

Read independent auditors' 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, 2003 and 2002


3.       Disposition of Subsidiaries

         Changes in goodwill and accumulated amortization for the years ended
         September 30, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>
                                                                                  Accumulated          Net
                                                                  Goodwill       Amortization        Goodwill
         ---------------------------------------------------------------------------------------------------------
         <S>                                                  <C>                  <C>            <C>
         Balance, September 30, 2001                          $     7,692,816      $ (1,127,712)  $    6,565,104
         Disposition of L'il Dino                                  (2,485,000)          434,872       (2,050,128)
         Disposition of Pastry Products                            (1,129,537)          269,748         (859,789)
         Adjustment for re-acquisition of Central Park store           97,574                 -           97,574
         ---------------------------------------------------------------------------------------------------------
         Balance, September 30, 2002                          $     4,175,853      $   (423,092)  $    3,752,761
         Impairment of Sobik's Subs                                  (221,704)                -         (221,704)
         ---------------------------------------------------------------------------------------------------------
         Balance, September 30, 2003                          $     3,954,149      $   (423,092)  $    3,531,057
         =========================================================================================================
</TABLE>

         During the year ended September 30, 2002 we sold majority interests in
         three of our wholly owned subsidiaries. The operating results of these
         subsidiaries were included in the consolidated financial statements up
         to the date of their disposition.

                  Li'l Dino Corporation
                  ---------------------

                  On September 30, 2002 we sold 100 percent of the common stock
                  in our Li'l Dino subsidiary to Emily's Ventures, LLC
                  ("Emily's) for $1,081,800 and a 20% Class III Convertible
                  Interest in the Purchaser. $581,800 was received in cash in
                  October 2002. Additionally, we entered into a note receivable
                  with Emily's for the remaining $500,000. This note receivable
                  was subsequently sold to a third party for $225,000 in cash in
                  June 2003 and the difference between the carrying value and
                  the cash received was expensed during the year ended September
                  30, 2003.

                  According to this agreement, the 20% Class III Interests will
                  not receive any economic benefit until the retirement of the
                  $500,000 note in September 2011. At that time, the Class III
                  Interests will have the right to 20% pro-rata of the net
                  income of the Emily's Ventures in perpetuity.

                  As a result, we recognized a loss on the sale of this
                  subsidiary in the amount of $991,733. The transaction was
                  recorded as follows:

                      Total consideration paid                      $ 1,081,800
                      Less book value of assets sold                 (2,081,563)
                      Plus book value of liabilities sold                 8,030
                                                                    -----------
                      Loss on sale of partial equity of subsidiary  $  (991,733)
                                                                    ===========
Read independent auditors' 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, 2003 and 2002


3.       Disposition of Subsidiaries, (continued)

                  Jreck Subs, Inc.
                  ----------------

                  On August 31, 2002 we sold 100 percent of the common stock in
                  our Jreck Subs subsidiary to Grace Ventures, LLC ("Grace") for
                  $1,996,205 and a 20% Class III Convertible Interest in the
                  Purchaser. $696,205 was received in cash, and we entered into
                  a note receivable with Grace for the remaining $1,300,000. The
                  note requires Grace to make annual principal payments of
                  $50,000 until August 31, 2004 and during that time the
                  principal will accrue interest at 5%. Thereafter, the note
                  will begin to earn interest at 7% and Grace will make annual
                  principal and interest payments of $50,000 through August 31,
                  2006. At which time Grace will have the option to pay all
                  unpaid principal and interest, or Grace may opt to fully
                  amortize the remaining principal and interest at an increased
                  rate of 10% over the subsequent 60 months through August 2011.
                  Additionally, if Grace does not perform on one of the pay-off
                  options, the note allows us to convert our interest into an
                  80% ownership interest in Grace.

                  Due to several operational changes and increases in required
                  human resources and other systems at the Jreck Subs, they are
                  currently, past due on approximately $95,000 in principal
                  payments. These changes were the result of aggressive
                  representations of growth and income levels at the time of
                  sale which have not materialized, but recently two new stores
                  opened subsequent to the year end and one additional store is
                  under construction. During the year ended September 30, 2003
                  we received principal payments of $45,000. We have modified
                  the terms of this note to allow Grace Ventures to pay $50,000
                  annually in principal payments until August 2006. At this time
                  Grace will have the option to either make a balloon payment on
                  the outstanding principal and accrued interest or amortize
                  this balance at an increased rate of 10% through August 2011.

                  According this agreement, the 20% Class III Interests will not
                  receive any economic benefit until the retirement of the
                  $500,000 note in September 2011. At that time, the Class III
                  Interests will have the right to 20% pro-rata of the net
                  income of the Grace Ventures in perpetuity.

                  Grace Ventures, LLC is partially owned and operated by our
                  Chief Executive Officer, Christopher Swartz who individually
                  could influence the collection and satisfaction of the note
                  receivable.

Read independent auditors' 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, 2003 and 2002


3.       Disposition of Subsidiaries, (continued)

                  Jreck Subs, Inc., (continued)
                  -----------------------------

                  As a result, we recognized a gain on the sale of this
                  subsidiary in the amount of $1,929,129. The transaction was
                  recorded as follows:

                      Total consideration paid                      $ 1,996,205
                      Less book value of assets sold                   (101,865)
                      Plus book value of liabilities sold                34,789
                                                                    -----------
                      Gain on sale of partial equity of subsidiary  $ 1,929,129
                                                                    ===========

                  Pastry Product Producers, LLC
                  -----------------------------

                  On March 30, 2002 we sold our bakery operation (Pastry Product
                  Producers, LLC) and the building it operated in to CFB
                  Enterprises, Inc. ("CFB") and Mahar Partnership, LLC,
                  ("Mahar") respectively. CFB and Mahar are partially owned and
                  operated by our Chief Executive Officer, Christopher Swartz.
                  The purchase price of the business consisted of $10,000 in
                  cash and the issuance of two notes receivable with values of
                  $90,000 and $900,000, respectively.

                  In 2003 the management of the bakery formalized a plan to
                  improve daily operations. While we fully expect that the
                  results of this plan to take shape in 2004 there are no
                  guarantees. As a result, based on the 2003 operating
                  performance of the bakery we have recorded an allowance for
                  uncollectible notes receivable of $274,500 which is 25% of the
                  original carrying value. This allowance will be monitored
                  during 2004 and will be adjusted when the execution of the
                  operating plan takes place.

                  The purchase price of the building consisted of a note
                  receivable with a discounted value of $191,942 and $174,319 in
                  cash. From the cash proceeds we paid the remaining balance on
                  our existing mortgage of $69,797. The transaction was recorded
                  as follows:

                      Total consideration paid                    $  1,366,261
                      Less book value of assets sold                (1,303,138)

                      Plus book value of liabilities sold               83,832
                                                                  ------------
                      Gain on sale of subsidiary                  $    146,955
                                                                  ============

Read independent auditors' 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, 2003 and 2002


4.       Formation of Joint Venture

         In October 2002, we formed a joint venture with Concept Acquisitions,
         LLC., ("COAC") The joint venture concept Aquisition II, LLC ("COACII"),
         has purchased 100% of the assets in the Flamers hamburger concept that
         has 55 units throughout the Mid-Atlantic United States. The purchase
         price consisted of $1,000,000 in cash and a note payable for $1,600,000
         which will require principal and interest payments over a three year
         period with a balloon payment due thereafter. The transaction was
         funded as follows:

                                                      UFSI     COAC      Total
                                                    -------- -------- ----------
         Cash for equity position in Joint Venture  $350,000 $350,000 $  700,000
           Cash for note receivable                  300,000        -    300,000
                                                    -------- -------- ----------
           Total cash used for acquisition          $650,000 $350,000 $1,000,000
                                                    ======== ======== ==========


         Subsequent to this transaction in March 2003, we converted our $300,000
         note receivable issued to form the joint venture into a reduced equity
         position in this joint venture. Under the terms of the agreement,
         Ultimate Franchise Systems, Inc. will receive a guaranteed distribution
         of profits in the joint venture equal to the greater of $15,000 per
         month or 50% of the cash distributions or sales proceeds of COAC II
         until December 31, 2005. Thereafter, Ultimate Franchise Systems will be
         entitled to a 25% interest in cash distributions and sales proceeds.

         We have reported the carrying value of this asset at the original cost
         basis of $650,000. To date we have received $135,000 in cash associated
         with the guaranteed distribution of net income in the joint venture.
         These cash receipts have been reported in the other income section of
         the statement of operations.

         In addition, and in connection with this transaction we converted a
         seperate note receivable of $265,000 which related to our sale of the
         Mountain Mikes's Pizza concept in April 2000 into an equity position in
         COAC. COAC. This equity interest provides for UFSI to receive 18% of
         the cash distributions and sales proceeds of COAC commencing after
         repayment by COAC of all outstanding debt obligations which is expected
         to occur in October 2006.

Read independent auditors' 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, 2003 and 2002


5.       Notes Receivable

         Notes receivable are comprised of the following at September 30, 2003
         and 2002:
<TABLE>
<CAPTION>
                                                                                          2003               2002
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                     <C>             <C>
         $800,000 note receivable from COAC from sale of Mountain Mike's Pizza;
           written down to $265,000 in March 2001, and converted into 18%
           ongoing equity interest in COAC starting in 2006. (See note 4)        $           -   $        232,125

         $500,000 note receivable from Emily's Ventures, LLC; with various
           interest rates from 5% to 10%, sold for $225,000 in cash in June 2003
           (See note 3)                                                                      -            500,000

         $1,300,000 note receivable from Grace Ventures Group, LLC; with various
           interest rates from 5% to 10%, annual principal only payments of
           $50,000 until August 2004, Currently in default (See note 3 Grace
           Ventures is a related party)                                              1,320,000          1,300,000

         $260,682 non-interest bearing note receivable from Mahar Partnership
           from sale of building that was used in the Pastry Products Bakery
           operation. Payable in full by March 2009, net of unamortized discount
           of $50,434 at September 30, 2003. A 7% discount rate was used for
           this computation. (See note 3 Mahar Partnership is a related party)         210,248            198,044

         $1,000,000 notes receivable from CFB Enterprises from sale of Pastry
           Products; $90,000, interest-free, due in March 2003, and $900,000,
           accruing interest at 8%, due in equal quarterly payments from April
           2005 through March 2012. Net of $274,500 allowance for doubtful
           accounts. (See note 3 CFB Enterprises is a related party)                   823,500          1,026,000

         $55,000 note receivable from Clark from sale of Seawest; due September
           2004                                                                         55,000             55,000

         Various notes receivable from franchisees; with interest of 8% to 10%,
           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.                                              -             45,200
         ---------------------------------------------------------------------------------------------------------
                                                                                     2,408,748          3,356,369

         Less current portion                                                         (132,796)           (64,716)
         ---------------------------------------------------------------------------------------------------------
                                                                                 $   2,275,952   $      3,291,653
         =========================================================================================================

Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-18
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


6.       Concentrations and Credit Risk

         As indicated in the table above, we have several notes receivable with
         related parties. While we fully anticipate timely collection of these
         notes, their nature causes a possible credit risk.

7.       Investment Securities

         The following details an itemized list of our investment securities as
         of September 30, 2003.
<TABLE>
<CAPTION>
                                                                                  Current Market
                                                   Number of      Bid Price on       Value of         Valuation     Book Value
       Corporation Name           Percentage     Shares Owned       9/30/03         Investment        Allowance     on 9/30/03
-------------------------------- -------------- ---------------- --------------- ----------------- ---------------- ------------
<S>                                        <C>     <C>            <C>             <C>               <C>              <C>
Weight Loss Forever Int'l, Inc.            18%     8,997,368      $    0.14       $  1,259,632      $  (629,816)     $629,816
Famous Food Group, Inc.                    13%     6,000,000      $    0.02       $    120,000                -      $120,000
                                                ----------------              ----------------- ---------------- ------------
                                                  14,997,368                      $  1,379,632      $  (629,816)     $749,816

<CAPTION>
         The following summarizes our portfolio of investment securities as of
         September 30, 2003 and 2002:

         ---------------------------------------------------------------------------------------
         <S>                                                                        <C>
         Carrying value at September 30, 2001                                       $  69,675
         Recognition of impairment in value of investment
           securities due to other than temporary decline in
           market value                                                               (27,051)
         Investment securities acquired via sale of common stock                       57,000
         Sale of investment securities                                                 (4,600)
         ---------------------------------------------------------------------------------------

         Carrying value at September 30, 2002                                       $  95,024
         Acquisition of investment securities                                         500,000
         Recognition of impairment in value of investment
           securities due to other than temporary decline in
           market value                                                                (2,635)
         Sale of investment securities for cash                                       (57,000)
         Cumulative unrealized gains on investment securities                         214,427
         ---------------------------------------------------------------------------------------

         Carrying value at September 30, 2003                                       $ 749,816
         =======================================================================================


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-19
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


8.       Other Assets

         The following table summarizes our other long-term assets as of
         September 30, 2003 and 2002:

                                                            2003        2002
         -----------------------------------------------------------------------
         Equity in COAC II Joint Venture (See note 4)   $  650,000   $       -
         Equity in Mountain Mike's (See note 4)            243,084           -
         Investment in Uptown Restaurant Group              38,554      66,351
         Investment in Gators Franchising, LLC.             35,864      38,086
         Trademarks, net of accumulated amortization        74,215      82,350
         -----------------------------------------------------------------------
                                                        $1,041,717   $ 186,787

         Our ownership interest in the companies is as follows:

                                                                   Method of
             Corporation Name                       Percentage  Accounting Used
         -----------------------------------------------------------------------
         Concept Acquisitions II, LLC                   25%     Equity Method
         Mountain Mike's                                18%     Equity Method
         Uptown Restaurant Group                        29%     Equity Method
         Gator's Dockside Int'l Franchising, Inc.       30%     Equity Method

9.       Property and Equipment

         Property and equipment are comprised of the following at September 30,
         2003 and 2002:

                                                          2003          2002
         -----------------------------------------------------------------------
         Land and buildings                          $    34,554     $   51,897
         Machinery and equipment                          13,241         10,691
         Office and computer equipment                    11,261         11,261
         Leasehold improvements                           17,343              -
         -----------------------------------------------------------------------
                                                          76,399         73,849
         Less accumulated depreciation                   (12,950)        (5,759)
         -----------------------------------------------------------------------
         Net property and equipment                  $    63,449     $   68,090
         =======================================================================

Read independent auditors' 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, 2003 and 2002


10.      Accrued Expenses

         Accrued expenses are comprised of the following at September 30, 2003
         and 2002:

                                                                 2003      2002
         -----------------------------------------------------------------------

         Accrued payroll and payroll-related items           $  3,219  $  1,321
         Accrued interest                                     197,405   154,266
         Liability to issue common stock                       58,650    58,650
         Accrued sales tax payable                                  -       230
         Accrued settlement costs                                   -   177,907
         Accrued fountain incentive due to related companies  249,482         -
         Other accrued expenses                                11,767    16,599
         -----------------------------------------------------------------------
                                                             $520,523  $408,907
         =======================================================================


Read independent auditors' 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, 2003 and 2002


11.      Long-Term Debt

         Long-term debt consists of the following at September 30, 2003 and
         2002:
<TABLE>
<CAPTION>
                                                                                         2003            2002
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                         <C>             <C>
         Note payable to former owners of acquired Central Park subsidiary,
           payable in monthly installments at the prime lending rate less 0.5%
           (3.5% at September 30, 2003) of $6,670 through July 2005;
           collateralized by certain accounts receivable, real and personal
           property and inventory.                                                   $    133,250    $    202,231

         Note payable to former owner of acquired Central Park subsidiary,
           payable in equal monthly principal and interest installments at the
           greater of the prime lending rate plus 3% (7% at September 30, 2003)
           or 12% of $12,289 through July 2005; collateralized by certain
           accounts receivable, real and personal property and inventory.                 231,739         343,974

         Note payable to former owner of acquired Central Park subsidiary,
           payable in equal monthly principal and interest installments at the
           greater of the prime lending rate plus 3% (7% at September 30, 2003)
           or 12% of $12,289 through July 2005; collateralized by certain
           accounts receivable, real and personal property and inventory.                  62,632          92,966

         Convertible note payable in the face amount of $950,000; monthly
           principal and interest payments at 7% until July 2010 of $12,952. The
           note is convertible into Company common stock at $1.00 per share
           beginning July 2001. This note is uncollateralized.                            934,608         948,267

         Convertible note payable to former owners of acquired Central Park
           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. One note with a face amount of $80,000
           was retired in January 2003 for $40,000.                                       520,000         600,000

         Note payable to related party (Mahar Partnership), Paid in full in
           April 2003.                                                                          -         170,709

Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-22
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


11.      Long-Term Debt (continued)
<CAPTION>
                                                                                         2003            2002
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                         <C>             <C>
         Note payable to former owner of acquired subsidiary; monthly principal
           and interest payments at 7% of $3,019 are due through July 2007;
           collateralized by royalty revenues generated by the Sobik's
           franchises.                                                                    126,054         148,171

         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 executive
           officer.                                                                        80,000          80,000

         Two notes payable to individuals with an aggregate face amount of
           $150,000; quarterly interest at 15%; principal and interest payments
           of $10,840 continue through July 2006. Non-collateralized.                     102,935         128,219

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

         Note payable to a corporation; monthly interest only payments at 12%
           until September 2003; thereafter quarterly principal and interest
           payments of $77,000 until fully paid in June 2004.                             226,000               -

         Note payable to five individuals with an aggregate face amount of
           $85,000; monthly interest only payments at 15% due through March 11,
           2003, at which time principal is due; upon mutual agreement between
           parties the note may be extended for an additional twelve month
           period; this note is collateralized by a personal guaranty and a
           UCC-1 filing on the royalty stream of Sobik's. Two of these notes
           payable with a face value of $25,000 were paid in 2003.                         60,000          85,000

         Various uncollateralized notes payable; due with various monthly
           principal and interest payments; maturing at various dates through
           July 2004.                                                                      10,344          16,536
         ---------------------------------------------------------------------------------------------------------
                                                                                        2,825,562       3,130,073

         Less current portion                                                            (788,489)       (888,493)
         ---------------------------------------------------------------------------------------------------------

         Total long-term debt                                                        $  2,037,073    $  2,241,580
         =========================================================================================================


Read independent auditors' 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, 2003 and 2002


11.      Long-Term Debt (continued)

         Interest expense on long-term debt during the years ended September 30,
         2003 and 2002 amounted to $344,574 and $444,217, respectively.

         The annual maturities of long-term debt for the five years subsequent
         to September 30, 2003 are as follows:

                                                           Total
                      ------------------------------------------------
                      2004                             $     788,489
                      2005                                   553,266
                      2006                                   321,006
                      2007                                   288,260
                      2008                                   270,227
                      Thereafter                             604,314
                      ------------------------------------------------
                                                       $   2,825,562
                      ================================================

12.      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 Quality Franchise Systems, Inc.. 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 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.


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-24
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


12.      Stockholders' Equity (continued)

         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 fair value of the subscription was based on the quoted market price
         of our common stock on the date of issuance. In January 2003 these
         shares were returned to the treasury of the company and subscription
         receivable of $687,500 was eliminated.

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

         For the years ended September 30, 2003 and 2002, we issued 450,000 and
         0 shares of common stock, respectively, in exchange for consulting and
         legal services. The aggregate fair value of these shares was $65,000
         and $0, respectively, based on the market value of the stock on the
         date of issuance.

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

         During the years ended September 30, 2003 and 2002, we issued 0 and
         1,600,000 shares of common stock to convert $0 and $175,000 of our
         series G convertible debentures into common stock. As of September 30,
         2002, all shares of the Series G convertible debentures were converted
         into common stock.

         Stock Issued as Interest on Long-Term Debt
         ------------------------------------------

         During 2003 we issued 200,000 shares of common stock as payment of
         interest on Long-Term debt. The fair market value of these securities
         was $29,000 at the date of the issuance of these shares.

         Stock Issued for Cash and Investment Securities
         -----------------------------------------------

         In October 2002, pursuant to a stock purchase agreement we issued
         400,000 shares of our common stock to The Allor Trust, ("Allor") in
         exchange for $100,000. In addition, Richard Beattie was appointed to
         our Board of Directors as a result of this transaction.

Read independent auditors' 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, 2003 and 2002


12.      Stockholders' Equity (continued)

         In August 2002, we entered into a stock purchase agreement with TAS LLC
         ("TAS") whereby TAS was issued 1,851,852 shares of common stock in
         return for $443,000 in cash and 81,000 shares of common stock of a
         publicly traded franchising company located in the Northeastern United
         States. The fair market value of these shares at the date of the
         transaction was determined to be approximately $57,000.

         Our Chief Executive Officer, Christopher Swartz and Chief Concept
         Officer, Robert Taft have beneficial ownership interests in TAS, LLC of
         83% and 17%, respectively.

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

         In July 2002, we issued 375,000 shares of common stock in exchange for
         the 2,100,000 shares of common stock of Uptown Restaurant Group, Inc.
         ("Uptown"). Uptown is a publicly traded company which controls three
         restaurant franchising concepts. The acquisition of these shares
         represents a 29% interest in Uptown and the results from operations
         have been accounted for under the equity method of accounting.

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

         We have currently authorized 100,000,000 shares of our common stock to
         be issued.

         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.

         As of September 30, 2003, we own approximately 79% of the outstanding
         common stock of this subsidiary. The accompanying consolidated
         financial statements appropriately reflect a minority interest in the
         amount of $202,902 and the minority's share of the subsidiary's income
         in the amount of $40,008.

Read independent auditors' 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, 2003 and 2002


12.      Stockholders' Equity (continued)

         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 2001, we granted 1,800,000 options to our employees. These
         options were granted with an exercise price of $.08 per share which was
         equal to the market value of our stock on that day. 900,000 options
         vested on October 1, 2002 and the remaining 900,000 vested on October
         1, 2003. These options will expire on October 1, 2007, and October 1,
         2008, respectively.

         In December 2001, we issued 429,792 options pursuant to an agreement
         with an investor relations company. These options have an exercise
         price of $.10 and expire in December 2006. Furthermore, this agreement
         allows for purchase of up to 5% of our diluted common stock at a price
         equal to the current bid.

         In August 2002, we issued options to purchase up to 10% of the then
         outstanding common stock pursuant to the stock purchase with TAS LLC.
         The exercise price is equal to 75% of the market value of the stock at
         the time the options are exercised and the options expire in August
         2005.

         The Company had 2,697,723 options outstanding at September 30, 2003,
         all of these options were issued outside of the Incentive Plan. Changes
         in options outstanding for the year ended September 30, 2003 and 2002
         under the Incentive Plan and options outstanding outside of the
         Incentive Plan are summarized as follows:


Read independent auditors' 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, 2003 and 2002


12.      Stockholders' Equity (continued)

         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, 2001                               62,000       $       2.00        $         -
         Granted                                                        -
                                                                                           -                  -
         Less options expired                                     (62,000)              1.94                  -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2002                                    -       $          -        $         -
         Granted                                                        -                  -                  -
         Less options expired                                           -                  -                  -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2003                                    -       $          -        $         -
         =========================================================================================================

<CAPTION>
         Options Outside of the Incentive Plan
         -------------------------------------
                                                                                                      Weighted-
                                                                                   Weighted-            Average
                                                                                     Average         Fair Value
                                                                                    Exercise         of Options
                                                                   Shares              Price            Granted
         ---------------------------------------------------------------------------------------------------------
         <S>                                                   <C>              <C>                 <C>
         Balance, September 30, 2001                              938,857       $      10.42        $         -

         Granted                                                2,229,794                .08                .08
         Less options expired                                    (334,500)              2.99                  -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2002                            2,834,151       $       1.94        $         -

         Granted                                                        -                  -                  -
         Less options expired                                    (136,429)      $      27.95        $         -
         ---------------------------------------------------------------------------------------------------------

         Balance, September 30, 2003                            2,697,723       $        .65        $         -
         =========================================================================================================

Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-28
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


12.      Stockholders' Equity (continued)

         The following table summarizes information about options outstanding at
         September 30, 2003:
<TABLE>
<CAPTION>
                                                                   Options Outstanding and Exercisable
                                                         ---------------------------------------------------------
                                                                                   Weighted-          Weighted-
                                                                                     Average            Average
         Range of                                                                  Remaining           Exercise
         Exercise Prices                                           Shares   Contractual Life              Price
         ---------------------------------------------------------------------------------------------------------
         <S>                                                    <C>              <C>                      <C>
         $08 to $2.00                                           2,290,723        50.3 months              $ .10
         $2.01 to $38.40                                          407,000        14.1 months              $2.95
         ---------------------------------------------------------------------------------------------------------
                                                                2,697,723        43.4 months              $ .65
         =========================================================================================================


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements                                                F-29
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


12.      Stockholders' Equity (continued)

         We follow only the disclosure provisions of SFAS No. 123, "Accounting
         for Stock-Based Compensation," as it relates to employment awards. It
         applies APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
         and SFAS No. 148, "Accounting for Stock Based Compensation-Transition
         and Disclosure," and related interpretations in accounting for its
         plans and does not recognize compensation expense based upon the fair
         value at the grant date for awards under these plans consistent with
         the methodology prescribed by SFAS 123, the Company's net income and
         earnings per share would be reduced to the proforma amounts indicated
         below:

                                                                   2002
         -----------------------------------------------------------------------

         Net income applicable to common stock
             As reported                                        $   883,190
             Proforma                                           $   740,331
         Earnings per share - basic
             As reported                                        $       .09
             Proforma                                           $       .08
         Earnings per share - diluted
             As reported                                        $       .08
             Proforma                                           $       .06
         =======================================================================


Read independent auditors' 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, 2003 and 2002


13.      Commitments and Contingencies

         Going Concern
         -------------

         As indicated in the accompanying consolidated financial statements, we
         reported a net loss of $1,514,160 for the year ended September 30, 2003
         compared to net income of $898,790 for the year ended September 30,
         2002. Cash used by operations for the year ended September 30, 2003 was
         approximately $812,000 compared to approximately $252,000 used for the
         year ended September 30, 2002. Working capital deficit increased from
         approximately $77 thousand at September 30, 2002 to approximately $1.6
         million at September 30, 2003. These conditions have given rise to our
         ability to continue as a going concern. To address this situation and
         remedy our working capital deficit, we have continued to ramp up the
         pace of our new company model. With our expertise in franchise
         management, we plan to continue to obtain minority equity positions in
         many restaurant franchising companies by making our extensive
         management expertise available to growing franchising companies.

         We believe the following steps are critical to our future:

         1.       Transition to Franchise Management / Venture Company
                  ----------------------------------------------------

         We recognize that certain consumer industry segments and investment
         strategies could benefit from the successful execution of a
         consolidation strategy. Our extensive experience in industry mergers
         and acquisitions lends itself to an in-depth understanding of when and
         how to apply such a strategy. Our financial and transaction experience
         allows us to play an integral role in raising debt or equity to
         implement consolidations. In addition, we assist portfolio companies in
         sourcing and executing synergistic follow-on acquisitions.

         As part of the strategy we have continued to sell portions of our
         equity interests in some of our brands in order to redeploy our assets
         into additional concepts. We feel these assets may be positioned in
         more exciting categories or companies that have a greater chance of
         exponential growth. Our new partners in these ventures are strong
         entrepreneurs who we believe will grow these brands and therefore
         increase the value of our now smaller ownership. Management hopes by
         increasing our portfolio of brands and the strength of our joint
         venture partners that we will be able to increase shareholder value. In
         line with this transition, during the year ended September 30, 2002 we
         sold our Li'L Dino and Jreck Subs restaurant concepts for $3,100,000.
         We received $1,278,005 in cash and notes receivable aggregating
         $1,800,000. We used this capital to acquire minority interests in other
         franchise concepts. $650,000 was used to acquire a 50% interest in a
         mall based hamburger concept with 55 units located in eight states on
         the east coast. Additionally, we have entered into management
         agreements with Weight Loss Forever, Inc. and Topper's Brick Oven
         Pizza, Inc. These agreements required us to provide franchising


Read independent auditors' 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, 2003 and 2002


13.      Commitments and Contingencies, (continued)

         services in exchange for equity ownership interests in these publicly
         traded companies. The company received six million shares of common
         stock in each company.

         2.       Sale of Investment Securities
                  -----------------------------

         We currently own 8,997,368 restricted shares of the publicly traded
         Weight Loss Forever Int'l, Inc. This stock is traded on the OTC
         Bulletin Board under the symbol WLFI and has traded at $.06 to $.43
         over the past twelve months. These shares have been held for over 12
         months, but are still subject to some trading restrictions under
         Securities and Exchange Rule 144K. During 2004 we intend to sell
         approximately 3,000,000 shares at a price not less than $.20 per share.
         This will generate approximately $600,000 in cash which will be used to
         subsidize a portion of our current working capital deficit. These
         securities continue to be classified as long-term assets given they
         still subject to some restrictions and the volatility associated with
         this stock. Upon our reasonable assurance that these securities will be
         sold within the next twelve months an adjustment will be made to
         reclassify them to current assets.

         3.       Formation of Management Company
                  -------------------------------

         We have begun negotiations to merge some of our brands into a
         synergistic management company. The benefit of this type of partnership
         is twofold; first, we will be able to significantly reduce our overhead
         costs by spreading these costs over multiple brands. Second, we expect
         an increase in franchising revenue by increasing our purchasing power
         associated with the aggregation of these concepts. In 2004, we expect
         to realize an increase in net income of approximately $300,000 through
         these efforts.

         4.       Fostering Growth
                  ----------------

         We believe that the long-term equity value can be created through a
         variety of strategic initiatives, including brand building, new product
         development, strategic alliances and entry into new channels of
         distribution, among others. Therefore we work closely with each
         management team to establish and implement their respective strategic
         and operating plans which will maximize long-term equity value.

         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.

Read independent auditors' 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, 2003 and 2002


13.      Commitments and Contingencies, (continued)

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

         We lease office space and restaurant land space under certain operating
         leases which expire on various dates through September 2006. Total rent
         expense for the years ended September 30, 2003 and 2002 was $150,133
         and $152,730, respectively.

         Future annual minimum lease payments due under these operating leases
         for the five years subsequent to September 30, 2003 are as follows:


                             2004                    $   138,315
                             2005                        124,275
                             2006                         40,459
                             2007                              -
                             2008                              -
                             ------------------------------------
                                                     $   303,049
                             ====================================

         Consulting Agreement
         --------------------

         Pursuant to the stock purchase agreement with Uptown Restaurant Group,
         Inc. ("Uptown") in July 2002, we have entered into a consulting
         agreement with Robert Palmer, the former Chief Executive Officer of
         Uptown. The agreement requires us to pay Mr. Palmer an aggregate amount
         of $100,000 which will be paid in monthly installments of $4,166 per
         month until July 2004.

         Management Agreements
         ---------------------

         In December 2002, we entered into letter agreements with Topper's Brick
         Oven Pizza, Inc. ("Topper's") and Weight Loss Forever, International
         Inc. ("Weight Loss Forever") whereby we will offer our expertise in
         purchasing, marketing, franchise legal services, franchise sales, and
         general management to each company in exchange for 6,000,000 shares of
         common stock of each company. The value of these services is $500,000
         and is being amortized over a 24 month period which began in December
         2002.


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-33
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


13.      Commitments and Contingencies (continued)

         Allor Trust
         -----------

         In October 2002, we entered into a limited liability company agreement
         with The Allor Trust, ("Allor"). Pursuant to this agreement, a company
         named B & U Ventures, LLC has been created to operate and facilitate
         the ongoing franchising operations of Gator's Dockside International
         Franchising, LLC. Both Allor and UFSI were required to capitalize the
         company with cash contributions in the amount of $50,000 each, and will
         participate equally in any earnings or losses generated through the
         operations of the company.

         In November 2002, we assigned 100% of our ownership interest in Gator's
         Dockside International Franchising, LLC, ("Gator's") to B & U Ventures,
         LLC, ("B & U").

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

         Equal Employment Opportunity Commission Claim
         ---------------------------------------------

         In August 2002, the former manager of a corporately owned Central Park
         store brought forth an Equal Employment Opportunity Commission (EEOC)
         claim against us claiming wrongful termination. We formally responded
         to the EEOC on October 10, 2002 explaining that this employee was
         terminated with cause. In August 2003 the EEOC found no cause to
         believe any discrimination had occurred. The plaintiff now has until
         November 30, 2003 to file a claim to personally sue us in federal court
         without EEOC assistance. As of the date of this filing we have not
         received any notice that this has occurred. No liabilities have been
         accrued as we do not anticipate that any further action will have any
         material adverse effect on our financial position or results of
         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 auditors' 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, 2003 and 2002


13.      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 $25,000.

         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 auditors' 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, 2003 and 2002


14.      Income Taxes

         The components of income tax expense (benefit) for the years ended
         September 30, 2003 and 2002 are as follows:

                                                           2003         2002
         -----------------------------------------------------------------------
         Current:
             Federal                                   $        -   $        -
             State                                              -            -
         -----------------------------------------------------------------------
                                                                -            -
         -----------------------------------------------------------------------

         Deferred:
             Federal                                      346,000      235,000
             State                                         42,000       42,000
         -----------------------------------------------------------------------
                                                          388,000      277,000
         -----------------------------------------------------------------------
         Total current and deferred income taxes          388,000      277,000
         -----------------------------------------------------------------------
         Increase / (Decrease) in valuation allowance    (388,000)    (277,000)
         -----------------------------------------------------------------------
         Total income taxes                            $        -   $        -
         =======================================================================

Read independent auditors' 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, 2003 and 2002


14.      Income Taxes (continued)

         Our net deferred tax asset is comprised of the following at September
         30, 2003 and 2002:
<TABLE>
<CAPTION>
                                                                                        2003               2002
         ---------------------------------------------------------------------------------------------------------
         <S>                                                                    <C>               <C>
         Current deferred tax asset:
             Allowance for doubtful accounts                                    $          -      $           -
             Prepaid interest                                                              -                  -
         ---------------------------------------------------------------------------------------------------------
                                                                                           -                  -
         Less, valuation allowance                                                         -                  -
         ---------------------------------------------------------------------------------------------------------
         Net current deferred tax asset                                         $          -      $           -
         ---------------------------------------------------------------------------------------------------------

         Non-current deferred tax asset:
             Net operating loss carryforwards                                   $  4,500,000      $   4,139,000
             Prepaid interest                                                        218,000            199,000
             Stock and stock options issued for services                             530,000            500,000
             Investment securities                                                   328,000            263,000
         ---------------------------------------------------------------------------------------------------------
                                                                                   5,576,000          5,101,000
         Less, valuation allowance                                                (5,576,000)        (5,101,000)
         ---------------------------------------------------------------------------------------------------------
         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:

                                                                                        2003               2002
         ---------------------------------------------------------------------------------------------------------
         <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 auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-37
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


14.      Income Taxes (continued)

         At September 30, 2003, we had net operating loss carryforwards of
         approximately $12,000,000 for federal income tax purposes that expire
         as follows:


                    2012                                    $   3,400,000
                    2018                                        1,700,000
                    2019                                          700,000
                    2020                                        2,800,000
                    2021                                        3,100,000
                    2022                                          500,000
                    -------------------------------------------------------
                                                           $   12,200,000
                    =======================================================

15.      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 assist
                  the franchisees with selecting suitable locations, assist on
                  the negotiation of lease terms and store design, and assist
                  with securing of food product supply and purchase of furniture
                  and fixtures.

         o        The restaurant operations segment is comprised of franchise
                  concept stores that we operate on a temporary basis until a
                  new franchise is located.

Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-38
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


15.      Operating Segments (continued)

         The table below shows certain financial information by business segment
         for the years ended September 30, 2003 and 2002:
<TABLE>
<CAPTION>
         Segment Reporting                                      Franchise         Restaurant       Consolidated
         September 30, 2003                                    Operations         Operations              Total
         ---------------------------------------------------------------------------------------------------------
         <S>                                                 <C>                 <C>              <C>
         Revenue from external customers                     $  1,863,634        $   756,213      $   2,619,847
         Interest- net                                            344,574                  -            344,574
         Permanent impairment of long-lived assets
                                                                  846,204                  -            846,204
         Depreciation and amortization                              8,867              6,457             15,324
         Segment loss                                          (1,456,692)           (57,468)        (1,514,160)
         Segment assets                                         7,825,434            167,072          7,992,506
         =========================================================================================================

<CAPTION>
         Segment Reporting                                      Franchise         Restaurant       Consolidated
         September 30, 2002                                    Operations         Operations              Total
         ---------------------------------------------------------------------------------------------------------
         <S>                                                 <C>                 <C>              <C>
         Revenue from external customers                     $  3,033,489        $   295,537      $   3,329,026
         Interest- net                                            419,261                  -            419,261
         Permanent impairment of long-lived assets
                                                                   27,051                  -             27,051
         Depreciation and amortization                            275,933                  -            275,933
         Segment income                                           772,174            126,616            898,790
         Segment assets                                         8,733,946            209,690          8,943,636
         =========================================================================================================

Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-39
</TABLE>
<PAGE>

                Ultimate Franchise Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                 For the Years Ended September 30, 2003 and 2002


16.      Subsequent Events

Amendment of Grace Ventures Note Receivable
-------------------------------------------

We have modified the terms of the $1,300,000 note receivable from Grace
Ventures. This modification reduces the cash payments to us from $35,000
quarterly to $50,000 annually until August 2006. No modifications have been made
to the interest rates associated with this note and all other terms and
conditions remain the same.

Borrowing of Long-Term Debt
---------------------------

In December 2003, we used our Central Park hamburger concept as collateral on an
$800,000 loan payable. The loan will be paid in equal monthly principal and
interest payments of $22,265 through November 2007. The proceeds of this loan
were used to pay down existing long-term debt and for general corporate
purposes.

Formation of Management Partnership
-----------------------------------

In December we began negotiations to merge some of our brands into a synergistic
management company. This company would combine the operations and cash flows of
two other franchise restaurant concepts in the quick service restaurant segment.
The formation of this company will allow us to reduce operating costs by
combining the resources of each organization together. Additionally, we expect
to receive a significant increase in revenue associated with the combined
purchasing power of these combined companies.

The management company is expected to be consummated in the first quarter of
2004.

Sale of Sobik's International Franchising, Inc.
-----------------------------------------------

As of September 30, 2003, we owned 17,445,664 shares of common stock in Sobik's
International Franchising, Inc., "Sobik's" which represents approximately 79% of
the total issued and outstanding shares of the Company. In December 2003, we
entered into a preliminary agreement whereby we would sell these shares in
exchange for $1 million dollars. $100,000 would be paid at closing, and we would
hold a note receivable which would accrue interest of 6% until December 2004. At
that time an additional $100,000 in principal would be paid to us and quarterly
interest payments of $14,000 would be made to us until December 2005. The
remaining principal balance would then be paid to us in equal principal and
interest payments amortizing through December 2013.


Read independent auditors' report. The accompanying notes
Are an integral part of the consolidated financial statements               F-40