As filed with the Securities and Exchange Commission on December 29, 2010

Registration No. 333-______

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

UFOOD RESTAURANT GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		5812		20-4463582
(State or other jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
incorporation or organization)		Classification Code Number)		Identification No.)

255 Washington Street, Suite 150
Newton, MA 02458
(617) 787-6000
(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive offices)

George Naddaff, Chief Executive Officer
UFood Restaurant Group, Inc.
255 Washington Street, Suite 150
Newton, MA 02458
(617) 787-6000
(Name, address including zip code, and
telephone number, including area code, of agent for service)

Copy to:

Richard A. Krantz, Esq.
Robinson & Cole LLP
1055 Washington Blvd.
Stamford, CT 06901
(203) 462-7500

Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

Title of Each Class of

Amount

Proposed

Proposed Maximum

Amount of

Securities

To Be

Maximum Offering

Aggregate Offering

Registration

to Be Registered

Registered(1)

Price Per Share(2)

Price(2)

Fee

Common Stock, par value $0.001 per share

21,940,870

$0.235

$5,156,104.45

$598.62

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to completion, dated December 29, 2010

UFOOD RESTAURANT GROUP, INC.

Prospectus

21,940,870 shares of common stock

This prospectus relates to the offering by the selling stockholders of UFood Restaurant Group, Inc., of up to 21,940,870 shares of our common stock, par value $0.001 per share. These shares include (i) 14,956,522 shares of our common stock issuable upon the conversion of Series B 8% Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”) issued to investors, (ii) 1,196,522 shares of common stock issuable for accrued dividends upon the Series B Preferred Stock issued to investors, (iii) 3,440,000 shares of our common stock issuable upon exercise of warrants (the “Warrants”) issued to investors, (iv) 2,173,913 shares of common stock issuable upon the conversion of Series B Preferred Stock issued to a public relations firm, and (v) 173,913 shares of common stock issuable for accrued dividends upon the conversion of Series B Preferred Stock issued the public relations firm. We are registering the offer and sale of the common stock to satisfy registration rights we have granted to the selling stockholders. We will not receive any proceeds from the sale of the common stock by the selling stockholders.

The selling stockholders have advised us that they will sell the shares of our common stock from time to time in the open market, in privately negotiated transactions or a combination of these methods, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices.

Our common stock is traded on the OTC Bulletin Board under the symbol “UFFC.OB”. On ___, 2010, the closing price of our common stock was $___ per share.

Investing in our common stock involves risks. Before making any investment in our securities, you should read and carefully consider risks described in the “Risk Factors” section beginning on page 8 of this prospectus.

You should rely only on the information contained in this prospectus or any prospectus supplement or amendment thereto. We have not authorized anyone to provide you with different information. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus is only accurate on the date of this prospectus, regardless of the time of any sale of securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is dated _____ , 2010.

TABLE OF CONTENTS

		PAGE
SUMMARY			3
NOTE REGARDING FORWARD-LOOKING STATEMENTS			8
RISK FACTORS			8
SELLING STOCKHOLDERS			19
USE OF PROCEEDS			22
DETERMINATION OF OFFERING PRICE			23
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			23
DESCRIPTION OF BUSINESS			24
PROPERTIES			29
LEGAL PROCEEDINGS			29
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS			29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			32
EXECUTIVE COMPENSATION			33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			37
PLAN OF DISTRIBUTION			38
DESCRIPTION OF SECURITIES			39
LEGAL MATTERS			43
EXPERTS			44
WHERE YOU CAN FIND MORE INFORMATION			44
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES			44
FINANCIAL STATEMENTS			F-1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			F-27 F-54
EX-5.1
EX-10.43
EX-23.2

SUMMARY

The following summary highlights information contained elsewhere in this prospectus. Potential investors should read the entire prospectus carefully, including the more detailed information regarding our business provided below in the “Description of Business” section, the risks of purchasing our common stock discussed under the “Risk Factors” section, and our financial statements and the accompanying notes.

As used in this prospectus, “UFood,” “the Company,” “we,” “us” and “our” refer to UFood Restaurant Group, Inc., a Nevada corporation, and its wholly-owned subsidiaries taken as a whole, unless otherwise stated or the context clearly indicates otherwise. “KnowFat” refers to the operations of KnowFat Franchise Company, Inc., a Delaware company, prior to the December 18, 2007 merger discussed below, which resulted in KnowFat Franchise Company, Inc. becoming a wholly-owned subsidiary of ours.

Our Company

We are a franchisor and operator of fast-casual food service restaurants that capitalize on what we believe are the developing trends toward healthier living and eating and the increasing consumer demands for restaurant fare that offers appetizing food with healthy attributes. We believe our menu items are made with higher quality ingredients and healthier cooking techniques than ordinary quick serve food. Delivering great taste and an overall pleasing dining experience for an individual customer is the focus of UFood’s mission and concept.

We were incorporated in the State of Nevada on February 8, 2006 as Axxent Media Corporation. Prior to December 18, 2007, we were a development stage company as defined by Accounting Standards Codification (ASC) 915, Development Stage Entities. As Axxent Media Corporation, our business was to obtain reproduction and distribution rights to foreign films within North America and also to obtain the foreign rights to North American films for reproduction and distribution to foreign countries. Following the merger described below, we abandoned our plans to obtain reproduction and distribution rights to films. On August 8, 2007, we changed our name to UFood Franchise Company, and on September 25, 2007, we changed our name to UFood Restaurant Group, Inc.

On December 18, 2007, a wholly-owned subsidiary of our Company merged with and into KnowFat Franchise Company, Inc., with KnowFat surviving the merger as our wholly-owned subsidiary. Following the merger, we continued KnowFat’s business operations. KnowFat was founded in 2004 to capitalize on the popularity of a chain of fast-casual concept restaurants operating under the trade name “Lo Fat Know Fat” in the greater Boston area, as well as the trend we believe is developing in the United States towards healthier living and eating. After operating for three years as KnowFat! Lifestyle Grille, while continuously modifying and improving the concept, management decided that future locations will operate under the name UFood Grill. During the third quarter of 2008, the four remaining KnowFat! Lifestyle Grille locations were converted to UFood Grill outlets. All of our Company-owned restaurants and franchise-owned locations now operate, and all future locations will operate, under the name UFood Grill.

Three of our four Company-owned restaurants that were originally KnowFat! Lifestyle Grilles included an integrated convenience-style retail store that carried a variety of health-oriented nutritional products, such as supplements, vitamins, nutrition bars, energy drinks and healthy snacks. As part of the process of conversion to UFood Grill outlets, floor space formerly devoted to the sale of nutritional products in two of these stores was reconfigured to accommodate the sale of smoothie drinks and frozen yogurt, because we believe that these products will generate higher revenues in these locations. None of our franchise locations currently carries nutrition products, and only our Watertown, Massachusetts Company-owned location carries nutritional products. We will continue to evaluate the placement of nutrition products in our existing and future locations based on our assessment of demand in the particular location and, in the case of franchise locations, the franchisee’s preferences.

Our operations currently consist of eight restaurants in the Boston area and Dallas Forth Worth, TX and Cleveland, OH; comprising four Company-owned restaurants and four franchise-owned locations. We have entered into a total of four area development agreements and three franchise agreements covering 56 franchise units in the following states: Texas, Ohio, Massachusetts and the Washington, DC area. Furthermore, two of the area development agreements are for non-traditional locations such as airports, colleges, travel plazas, and hospitals across the United States. The 56 units include four franchise locations currently open and operating, and requiring an additional 52 future UFood Grill outlets to be developed by franchisees. The Naples, FL location was closed on July 24, 2010. On July 17, 2010 the Cleveland Hopkins International Airport location was open.

We believe the sale of franchises allows us to expand the UFood Grill brand faster than the construction and operation of Company-owned outlets due to the Company’s limited human and financial resources, while allowing us to collect franchise fees and royalties. Under our area development and franchise agreements, we receive royalties on gross franchise sales as described above, and we do not pay any of the construction, opening (other than the training and advice described above), operating or marketing costs. We do not provide or arrange financing to franchisees or area developers.

All of our Company-owned restaurants and franchise-owned locations now operate, and all future locations will operate, under the name UFood Grill.

Corporate Information

Our principal executive offices are located at 255 Washington Street, Suite 150, Newton, Massachusetts 02458. Our telephone number is (617) 787-6000. Our website address is www.ufoodgrill.com . Information contained on our website is not deemed part of this prospectus.

The Offering

Common stock currently outstanding		40,489,033 (1)
Common stock offered by the Company		None
Common stock offered by the selling stockholders		21,940,870 shares (2)
Common stock outstanding after the offering		62,429,903 shares (3)
Use of proceeds		We will not receive any of the proceeds from the sales of our common stock offered by this prospectus.
OTC Bulletin Board symbol		UFFC.OB
Risk Factors		You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 8 of this prospectus before deciding whether or not to invest in shares of our common stock.

Private Placement

On October 4 and October 29, 2010, we sold an aggregate of $3,440,000 of Series B Preferred Stock in a private offering (the “Private Placement”). The Series B Preferred Stock is convertible into 14,956,522 shares of our common stock at the rate of $0.23 per share. The initial closing of the sale of Series B Preferred stock took place on October 4, 2010, when the market price of the common shares was $0.30 per share. The subsequent delayed closing took place on October 29, 2010. On that date, the market price per share of our common stock was $0.28, but the shares of Series B Preferred Stock were identical to those issued earlier with a conversion price of $0.23 per share. As of October 1, 2010 (the date on which the terms of the Series B Preferred Stock were determined), the market value of the common stock into which all of Series B Preferred Stock sold in the Private Placement is convertible was $4,636,522.

In conjunction with the sale of the Series B Preferred Stock, we also sold Warrants to purchase an aggregate of 3,440,000 shares of common stock. The Warrants are exercisable at a price of $0.29 per share of common stock.

In connection with the Private Placement, we engaged a placement agent and agreed to pay the placement agent (i) a cash fee equal to 10% of the funds raised from the investors in connection with the Offering; (ii) warrants to purchase 15% of the shares of our common stock underlying the Series B Preferred Stock issuable to investors in the Private Placement at an exercise price equal to $0.29, and exercisable for a period of 5 years; and (iv) $37,500 for its fees and expenses.

The approximate total amount of payments made or which we may be required to make in connection with the Private Placement is as follows:

						TOTAL
						PAYMENT
Placement Agent
Legal expenses		$	30,000
Cash Expenses			7,500
Commission			344,000
Total cash paid to Placement Agent						$	381,500
Legal Expenses						$	91,017
Issuance of Warrants to Placement Agent
Total fair value of warrants						$	563,166
TOTAL PAYMENTS						$	1,035,683

Dividends

The holders of Series B Preferred Stock are entitled to receive cumulative dividends at a rate per share (as a percentage of the stated value of such share) of 8% per annum, compounded annually, payable upon a liquidation, dissolution or winding up of UFood, or payable in shares of common stock upon the conversion of the Series B Preferred Stock.

Liquidated Damages

If we fail for any reason to deliver certificates to the investors upon conversion of the Series B Preferred Stock, we must pay, in cash, as liquidated damages and not as a penalty, for each $5,000 of stated value of Series B Preferred Stock being converted, $50 per trading day (increasing to $100 per trading day on the sixth (6^th) trading day after such liquidated damages begin to accrue and increasing to $200 per trading day on the ninth (9^th) trading day after such liquidated damages begin to accrue) for each trading day until the certificates are delivered.

Series B Preferred Stock Conversion Price

On October 1, 2010, the date that the terms of the Series B Preferred Stock were contractually agreed upon, the conversion price per common share ($0.23) represented a twenty-six percent (26%) discount to the market price of the common shares ($0.31).

Market price per share (as of October 1, 2010)		$	0.31
Conversion price per share		$	0.23
Total shares of common stock underlying the Series B Preferred Stock (excluding dividends)			14,956,522
Market price of total shares (as of October 1, 2010)		$	4,636,522
Total conversion price of shares		$	3,440,000
Total discount to the market price		$	1,196,522

A portion of the Series B Preferred Stock (representing 12,152,174 shares of common stock underlying the Series B Preferred Stock) was issued on October 4, 2010, when the market price per share of common stock was $0.30. Accordingly, the market value of these shares on day these shares of Series B Preferred Stock were issued ($3,645,652) exceeded their aggregate conversion price ($2,795,000) by $850,652. The remainder of the Series B Preferred Stock (representing 2,804,348 shares of common stock underlying the Series B Preferred Stock) was issued on October 29, 2010, when the market price per share of common stock was $0.28. Accordingly, the market value of these shares on day these shares of Series B Preferred Stock were issued ($785,217) exceeded their aggregate conversion price ($645,000) by $140,217.

Warrant Exercise Price

On October 1, 2010, the date that the terms of the Warrants were contractually agreed upon, the exercise price per common share ($0.29) represented a six percent (6%) discount to the market price of the common shares ($0.31).

Market price per share		$	0.31
Exercise price per share		$	0.29
Total shares underlying the Warrants			3,440,000
Market price of total shares (as of October 1, 2010)		$	1,066,400
Total exercise price of shares		$	997,600
Total discount to the market price		$	68,800

A portion of the Warrants (representing 2,795,000 shares of common stock underlying the Warrants) was issued on October 4, 2010, when the market price per share was $0.30. Accordingly, the market value of these shares on day these Warrants were issued ($838,500) exceeded their aggregate exercise price ($810,550) by $27,950. The remainder of the Warrants (representing 645,000 shares of common stock underlying the Warrants) was issued on October 29, 2010, when the market price per share was $0.28. Accordingly, the market value of these shares on day these Warrants were issued ($180,600) exceeded their aggregate exercise price ($187,050) by $6,450.

Warrant Adjustment

If we (or any of our subsidiaries), at any time while the Warrants are outstanding, sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any common stock or common stock equivalents entitling any person to acquire shares of common stock, at an effective price per share less than the then exercise price of the Warrants, then (i) the exercise price of the Warrants shall be reduced by multiplying the exercise price by a fraction, the numerator of which is the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock which the offering price for such dilutive issuance would purchase at the exercise price, and the denominator of which shall be the sum of the number of shares of common stock issued and outstanding immediately prior to the dilutive issuance plus the number of shares of common stock so issued or issuable in connection with the dilutive issuance, and (ii) the number of warrant shares issuable under the Warrants shall be increased such that the aggregate exercise price payable, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.

Summary of Proceeds

The summary of the proceeds from the Private Placement is:

Gross Proceeds from the sale of Series B Preferred Stock and Warrants		$	3,440,000
Total payments made by us		$	472,517
Net proceeds		$	3,912,517
Possible total net proceeds as a result of the additional exercise of Warrants		$	997,600

The total payments made by us in connection with the Private Placement equaled 13.73% of the gross proceeds from the sale of Series B Preferred Stock before taking into account the proceeds from the exercise of the Warrants included in this transaction. Including the proceeds from the exercise of all of the Warrants, the total payments made by us in the Private Placement transaction equaled 10.65% of the gross proceeds from the sale of Series B Preferred Stock and the exercise of Warrants.

Summary Financial Information

The following tables summarizes historical financial data regarding our business and should be read together with the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes included in this prospectus.

		Year Ended
		December 27,				December 28,
		2009				2008
Statement of Operations Data
Revenues		$	5,450,836			$	5,824,042
Total costs and expenses			9,408,187				15,699,347
Net loss		$	(3,957,351	)		$	(9,875,305	)
Weighted average shares outstanding, basic and fully diluted			35,320,547				33,851,004
Net loss per common share, basic and fully diluted		$	(0.11	)		$	(0.29	)
Statement of Cash Flows Data
Net cash used in operating activities		$	(3,189,391	)		$	(5,171,158	)
Cash and cash equivalents (end of period)			2,278,427				787,551

		Nine months				Nine months
		ended September				ended September
		26, 2010				27, 2009
Statement of Operations Data
Revenues		$	3,719,211			$	3,879,562
Total costs and expenses			10,646,832				6,973,906
Net loss		$	(6,927,621	)		$	(3,094,344	)
Weighted average shares outstanding, basic and fully diluted			39,039,355				34,950,705
Net loss per common share, basic and fully diluted		$	(0.18	)		$	(0.09	)
Statement of Cash Flows Data
Net cash used in operating activities		$	(1,239,833	)		$	(2,566,029	)
Cash and cash equivalents (end of period)			518,140				3,045,060

		At				At				At
		September 26,				December 27,				December 28,
Balance Sheet Data		2010				2009				2008
Current assets		$	757,306			$	2,711,239			$	1,578,878
Total assets			2,646,617				4,992,339				3,642,666
Current liabilities			1,159,076				1,517,222				2,664,873
Total liabilities			7,020,283				4,880,964				3,326,468
Total stockholders’ equity (deficit)			(4,373,666	)			111,375				316,198

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Matters discussed in this prospectus and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, of our annual growth, operating results, future earnings, plans and objectives, contain forward-looking statements. In some cases, you can identify such forward-looking statements by words such as “estimate,” “project,” “intend,” “forecast,” “future,” “anticipate,” “plan,” “anticipates,” “target,” “planning,” “positioned,” “continue,” “expect,” “believe,” “will,” “will likely,” “should,” “could,” “would,” “may” or the negative of such terms and other comparable terminology that are not statements of historical fact. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this prospectus and in our other public filings with the Securities and Exchange Commission. It is routine for internal projections and expectations to change as the year or each quarter of the year progresses, and therefore it should be clearly understood that all forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this prospectus or other periodic reports are made only as of the date made and may change. We do not undertake any obligation to update or publicly release the result of any revision to these forward-looking statements to reflect events or circumstances occurring after the date they are made or to reflect the occurrence of unanticipated events.

RISK FACTORS

An investment in shares of our common stock is highly speculative and involves a high degree of risk. We face a variety of risks that may affect our operations or financial results and many of those risks are driven by factors that we cannot control or predict. Before investing in our common stock you should carefully consider the following risks, together with the financial and other information contained in this prospectus. If any of the following risks actually occurs, our business, prospects, financial condition and results of operations could be materially adversely affected. In that case, the trading price of our common stock would likely decline and you may lose all or a part of your investment. Only those investors who can bear the risk of loss of their entire investment should participate in this offering.

Risks Related to Our Company and Our Business

We have a limited operating history and are subject to all of the risks inherent in the expansion of an early-stage business.

We were formed approximately six years ago, and we have a short operating history upon which an investor can evaluate our performance. Our proposed operations are subject to all of the risks inherent in the expansion of an early-stage business enterprise, including higher-than-expected expenses and uncertain revenues. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the expansion of an early-stage business and the competitive environment in which we operate. We have had no profits to date, and there can be no assurance of future profits. As a result of the expansion-stage nature of our business and the fact that we will incur significant expenses in connection with our activities, we can be expected to sustain operating losses for the foreseeable future.

We have not been profitable to date and expect our operating losses to continue for the foreseeable future; we may never be profitable. Our auditors have included an explanatory paragraph in their opinion as to the substantial doubt about our ability to continue as a going concern.

We have incurred annual operating losses and generated negative cash flows since our inception and have financed our operations principally through equity investments and borrowings. At this time, our ability to generate sufficient revenues to fund operations is uncertain. For the nine months ended September 26, 2010 we had revenue of $3,719,211 and incurred an operating loss of $6,927,621. For the nine months ended September 27, 2009, we had revenue of $3,879,562 and incurred an operating loss of $3,094,344. Our total accumulated deficit through September 26, 2010, was $32,463,270.

Due to, among other factors, our history of losses and negative cash flows from operations, our independent auditors have included an explanatory paragraph in their opinion for the year ended December 27, 2009 as to the substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared in accordance with accounting principals generally accepted in the United States, which contemplate that we will continue to operate as a going concern. Our financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.

As a result of our brief operating history, revenue is difficult to predict with certainty. Current and projected expense levels are based largely on estimates of future revenue. We expect expenses to increase in the future as we expand our sales, marketing and administrative activities and incur the expenses of being a public company. As a result, we expect to incur additional losses for at least

the next 18 months. We cannot assure you that we will be profitable in the future or generate future revenues. Accordingly, the extent of our future losses and the time required to achieve profitability, if ever, is uncertain. Failure to achieve profitability could materially and adversely affect the value of our Company and our ability to effect additional financings. The success of the business depends on our ability to increase revenues to offset expenses. If our revenues fall short of projections, our business, financial condition and operating results will be materially adversely affected. If we are unable to generate positive cash flow from our Company-owned restaurants or if the market price of our common stock declines, we may be required to recognize an impairment loss with respect to the assets of our Company-owned restaurants or our goodwill.

There are risks inherent in expansion of operations, including our ability to sell franchises, generate profits from new restaurants, find suitable sites and develop and construct stores in a timely and cost-effective way.

We cannot project with certainty, nor do we make any representations regarding, the number of franchises we will be able to sell or the number of new restaurants we and our franchisees will open in accordance with our present plans and within the timeline or the budgets that we currently project. While our business plan focuses primarily on the sale of franchises rather than building and operating additional Company-owned stores, sales at Company-owned stores represented over 85% of our total revenues for the year ended December 27, 2009. Our failure to sell the projected number of franchises would adversely affect our ability to execute our business plan by, among other things, reducing our revenues and profits and preventing us from realizing our strategy of being the first major franchiser of retail outlets offering a combination of food service featuring low-fat, low-carbohydrate and low-calorie food items, selected beverages to the general public. Furthermore, we cannot assure you that our new restaurants will generate revenues or profit margins consistent with those currently operated by us and our franchisees or that our restaurants will be operated profitably.

During the nine months ended September 26, 2010, our store operations business segment generated revenue of $3,447,118 and an operating profit of $132,426. During the nine months ended September 27, 2009, our store operations business segment generated revenue of $3,548,216 and an operating loss of $5,439. During the year ended December 27, 2009, our store operations business segment generated revenue of $4,632,651 and an operating loss of $13,056.

We will rely primarily upon area developers to open and operate franchise units. The number of openings and the performance of new stores will depend on various factors, including:

	•		the availability of suitable sites for new stores;
	•		our and our franchisees’ ability to negotiate acceptable lease or purchase terms for new locations, obtain adequate financing, on favorable terms, requires to construct, build-out and operate new stores and meet construction schedules, and hire and train and retain qualified store managers and personnel;
	•		managing construction and development costs of new stores at affordable levels;
	•		the establishment of brand awareness in new markets; and
	•		the ability of our Company and our area developers to manage this anticipated expansion.

While the impact varies with the location and the qualifications of the franchisee, tight credit markets are generally making financing for construction and operation of restaurants more difficult to obtain on favorable terms.

Competition for suitable store sites in target markets is intense and lease costs are increasing (particularly for urban locations). Not all of these factors are within our control or the control of our franchisees, and there can be no assurance that we will be able to accelerate our growth or that we will be able to manage the anticipated expansion of our operations effectively.

We will depend on contractors and real estate developers to construct our stores. Many factors may adversely affect the cost and time associated with the development and construction of our stores, including:

	•		labor disputes;
	•		shortages of materials or skilled labor;
	•		requirements to use union labor;
	•		energy prices;
	•		adverse weather;

	•		unforeseen engineering problems;
	•		environmental problems;
	•		construction or zoning problems;
	•		local government regulations;
	•		modifications in design; and
	•		other unanticipated increases in costs.

Any of these factors could give rise to delays or cost overruns, which may prevent us from developing additional stores within our anticipated budgets or time periods or at all. Any such failure could cause our business, results of operations and financial condition to suffer. The recent volatility in certain commodity markets, such as those for energy, grains and dairy products, which have experienced significant increases in prices, may be generally causing franchisees in our industry to delay construction of new restaurants and/or causing potential new franchisees to reconsider entering into franchise agreements.

Our business plan is dependent on the franchising model; therefore, our success will generally depend on the success of our franchisees and the profitability of their stores.

Because royalties from franchisees’ sales are a principal component of our revenue base, our success is dependent upon our ability to attract highly qualified franchisees and the ability of our franchisees to promote and capitalize upon UFood’s concept. Our franchisees generally depend upon financing from banks and other financial institutions to finance the cost of opening a new restaurant. If franchisees cannot obtain reasonable financing and restaurants do not open, our royalties from those restaurants will not exist. Even if we are successful in selling franchise units, the contemplated expansion may entail difficulty in maintaining quality standards, operating controls and communications, and in attracting qualified restaurant operators. Locations for units will be based on theoretical projections of market demand with no assurance that such locations will prove successful. As a result, franchise units may not attain desired levels of revenues or may attain them more slowly than projected, and this would adversely affect our results of operations. Since we are dependent on franchisee royalties, we are also at risk for the non-performance by our franchisees of their payment and other obligations under our franchise agreements. For example, in May 2008, we terminated a 2005 franchise agreement with our franchisee operator in Dade and Broward Counties, Florida, covering 24 unopened franchise locations because the franchisee did not meet the opening timeline specified in the agreement, and we have reclaimed the franchise territory. In 2007, two agreements covering two operating and four unopened locations were terminated after the stores ceased operations. Two other agreements covering twelve unopened locations were also terminated when the area developers did not meet the opening timeline set forth in their agreements. In 2009, we terminated three Area Development Agreements that included the following states Colorado, Utah, Montana, Wyoming, Idaho, Illinois, and the Houston, TX area. Also, during 2009 we terminated two franchise agreements for stores in DeMoines, IA and Burlington, MA. During 2010, we terminated the franchise agreements for the area developers in San Jose, CA and Naples, FL whose agreements require them to develop an aggregate of 12 restaurants, had failed to meet their agreed opening timelines. Similar defaults or failures by other franchisees could materially adversely affect our growth plans and our business, financial condition and operating results.

Our past and future operating losses may make it more difficult for us to attract new franchisees.

Potential new franchisees may be reluctant to commit to develop new UFood Grill restaurants as long as we are not profitable. As stated above, we have not been profitable to date and expect our operating losses to continue for at least the next 18 months. Until we have demonstrated the ability to be profitable, we may find it difficult to attract new franchisees, who are required to expend substantial sums to develop, construct and operate new restaurants, if they perceive that there is a risk that we will not continue in business or that our lack of profitability will impair their ability to make a profit.

We may be subject to general risk factors affecting the restaurant industry, including current economic climate, costs of labor, food prices, gasoline prices and the unemployment levels.

If we grow as anticipated, our Company and our franchisees may be affected by risks inherent in the restaurant industry, including:

	•		adverse changes in national, regional or local economic or market conditions;
	•		increased costs of labor (including increases in the minimum wage);

	•		increased costs of food products;
	•		availability of, and ability to obtain, adequate supplies of ingredients that meet our quality standards;
	•		increased energy costs;
	•		management problems;
	•		increases in the number and density of competitors;
	•		limited alternative uses for properties and equipment;
	•		changing consumer tastes, habits and spending priorities;
	•		changing demographics;
	•		the cost and availability of insurance coverage;
	•		uninsured losses;
	•		changes in government regulation;
	•		changing traffic patterns;
	•		weather conditions; and
	•		local, regional or national health and safety matters.

Our Company and our franchisees may be the subject of litigation based on discrimination, personal injury or other claims. We can be adversely affected by publicity resulting from food quality, illness, injury or other health concerns or operating issues resulting from one restaurant or a limited number of restaurants in our system. None of these factors can be predicted with any degree of certainty, and any one or more of these factors could have a material adverse effect on our Company.

There is intensive competition in our industry, and we will be competing with national and regional chains and independent restaurant operators.

The restaurant industry is intensely competitive. There are several healthy-food themed restaurants, most of which have fewer than six units. Moreover, the retail food industry in general, which is highly competitive and includes highly sophisticated national and regional chains, has begun to offer “healthier” alternatives to its typical menu offerings. We operate in the fast-casual sector of the retail food industry. This sector is highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location and the ambiance and condition of each restaurant. Some of the restaurants and franchises have substantial financial resources, name recognition and reputations. While we strive to differentiate ourselves from major restaurants and food-service establishments through the nutritional attributes of the items we offer on our menu (all-natural and hormone-free meat, reduced fat sauces, cheeses and salad dressings, whole grain breads, and whenever possible, organic vegetables), the manner in which those items are prepared (baked, steamed or grilled) and the environment in which they are offered, we will, nonetheless, be required to compete with national and regional chains and with independent operators for market share, access to desirable locations and recruitment of personnel. Many of our competitors have existed longer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than us. No assurances can be given that we will have the financial resources, distribution ability, depth of key personnel or marketing expertise to compete successfully in these markets.

Our business has been adversely affected by declines in discretionary spending and may be affected by changes in consumer preferences.

Our success depends, in part, upon the popularity of our food products and our ability to develop new menu items that appeal to consumers. Shifts in consumer preferences away from our restaurants or cuisine, our inability to develop new menu items that appeal to consumers or changes in our menu that eliminate items popular with some consumers could harm our business. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during economic downturns or during periods of uncertainty like that which followed the 2001 terrorist attacks on the United States and the possibility of further terrorist attacks. A

continuing decline in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, business and financial condition.

For the nine months ended September 26, 2010, comparable store sales for our Company-owned stores decreased by 2.8%. For the twelve months ended December 27, 2009, comparable store sales for our Company-owned stores decreased by 5.6%. We believe higher gasoline prices, inflationary pressures on groceries and utilities, increased unemployment, home foreclosures and tightening credit conditions have all reduced consumer discretionary spending which in turn has adversely impacted our revenues and may continue to do so.

Increases in costs, including food, labor and energy prices, will adversely affect our results of operations.

Our profitability is dependent on our ability to anticipate and react to changes in our operating costs, including food, labor, occupancy (including utilities and energy), insurance and supplies costs. Various factors beyond our control, including climatic changes and government regulations, may affect food costs. Specifically, our dependence on frequent, timely deliveries of fresh meat and produce subject us to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely affect the availability and cost of any such items. In the past, we have been able to recover some of our higher operating costs through increased menu prices. There have been, and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit our ability to recover such cost increases in their entirety. The recent volatility in certain commodity markets, such as those for energy, grains and dairy products, which have experienced significant increases in prices, may have an adverse effect on us in the fiscal 2010 and beyond and may cause franchisees in our industry to delay construction of new restaurants and/or cause potential new franchisees to reconsider entering into franchise agreements. The extent of the impact may depend on our ability to increase our menu prices and the timing thereof.

Our stores are concentrated in a small geographic area.

Four of our stores are located in the greater Boston area. A downturn in the regional economy or other significant adverse events in the greater Boston area could have a material adverse effect on our financial condition and results of operations.

The growth of our Company is dependent on the skills and expertise of management and key personnel.

During the upcoming stages of our Company’s growth, we will be entirely dependent upon the management skills and expertise of our management and key personnel, including George Naddaff, our current Chairman and Chief Executive Officer, and Charles A. Cocotas, our current President and Chief Operating Officer. We would be materially adversely affected in the event that the services of these individuals or other management or key personnel for any reason ceased to be available and adequate replacement personnel were not found. We have obtained key-man insurance on the life of George Naddaff. Such insurance may be cancelled if premiums are not paid when due. If the current policy is cancelled and when it expires, similar insurance may not be available in the future on terms acceptable to us, and there can be no assurance we will be able to secure such insurance.

Our food service business and the restaurant industry are subject to extensive government regulation.

We are subject to extensive and varied federal, state and local government regulation, including regulations relating to public health and safety and zoning codes. We operate each of our stores in accordance with standards and procedures designed to comply with applicable codes and regulations. However, if we could not obtain or retain food or other licenses, it would adversely affect our operations. Although we have not experienced, and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular store or group of stores.

Massachusetts, and most other states and local jurisdictions have enacted laws, rules, regulations and ordinances which may apply to the operation of a UFood store, including those which:

	•		Establish general standards, specifications and requirements for the construction, design and maintenance of the store premises;
	•		regulate matters affecting the health, safety and welfare of our customers, such as general health and sanitation requirements for restaurants, employee practices concerning the storage, handling, cooking and preparation of food, special health, food service and licensing requirements, restrictions on smoking, exposure to tobacco smoke or other carcinogens or reproductive toxicants and saccharin and availability of and requirements for public accommodations, including restrooms;
	•		set standards pertaining to employee health and safety;

	•		set standards and requirements for fire safety emergency preparedness; regulate the proper use, storage and disposal of waste, insecticides, and other hazardous materials;
	•		establish general requirements or restrictions on advertising containing false or misleading claims, or health and nutrient claims on menus or otherwise, such as “low calorie” or “fat free”, and
	•		establish requirements concerning withholdings and employee reporting of taxes on tips.

In addition, some jurisdictions now require menu or other in-store disclosure of calorie and other nutritional information for each menu item.

In order to develop and construct more stores, we need to comply with applicable zoning, land use and environmental regulations. Federal and state environmental regulations have not had a material effect on our operations to date, but more stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay or even prevent construction and increase development costs for new stores. We are also required to comply with the accessibility standards mandated by the U.S. Americans with Disabilities Act, which generally prohibit discrimination in accommodation or employment based on disability. We may, in the future, have to modify stores, for example, by adding access ramps or redesigning certain architectural fixtures, to provide service to or make reasonable accommodations for disabled persons. While these expenses could be material, our current expectation is that any such action will not require us to expend substantial funds.

We are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986 and various federal and state laws governing various matters including minimum wages, overtime and other working conditions. We pay a significant number of our hourly staff at rates consistent with but higher than the applicable federal or state minimum wage. Accordingly, increases in the minimum wage would increase our labor cost. We are also subject to various laws and regulations relating to our current and any future franchise operations.

We are also subject to various federal and state laws that regulate the offer and sale of franchises and aspects of the licensor-licensee relationships. Many state franchise laws impose restrictions on the franchise agreement, including the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew and the ability of a franchisor to designate sources of supply. The Federal Trade Commission, or the FTC, and some state laws also require that the franchisor furnish to prospective franchisees a franchise offering circular that contains prescribed information and, in some instances, require the franchisor to register the franchise offering.

We have not conducted a comprehensive review of all the potential environmental liabilities at our properties.

We are subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances. These environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered or interpreted or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. While, during the period of their ownership, lease or operation, our stores have not been subject to any material environmental matters, we have not conducted a comprehensive environmental review of our properties or operations. We have not conducted investigations of our properties to identify contamination caused by third-party operations; in such instances, our landlords would be required to address the contamination. If the relevant landlord does not identify contamination properly or completely, then under certain environmental laws, we could be held liable as an owner and operator to address any remaining contamination. Any such liability could be material.

Our success and competitive position depends on our ability to protect our proprietary intellectual property.

We own certain common law trademark rights and a number of federal trademark and service mark registrations. We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We therefore devote what we believe to be appropriate resources to the protection of our trademarks and proprietary rights. The protective actions that we take, however, may not be enough to prevent unauthorized usage or imitation by others, which may cause us to incur significant litigation costs and could harm our image or our brand or competitive position. To date, we have not been notified that our trademarks or menu offerings infringe upon the proprietary rights of third parties, but we cannot assure you that third parties will not claim infringement by us. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause product delays or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of

operations and financial condition. As a franchisor, we will grant our franchisees a limited license to use our trademarks and service marks. The general public could incorrectly identify our franchisees as controlled by us. In the event that a court determines the franchisee is not adequately identified as a franchisee, we could be held liable for the misidentified franchisee’s debts, obligations and liabilities.

Our plan to rapidly increase the number of stores may make future results unpredictable, as our success will depend on acceptance of our products in new markets.

We plan to significantly increase the number of our stores in the next three years. This growth strategy and the substantial investment associated with the development of each new store may cause operating results to fluctuate and be unpredictable or adversely affect profits. Our future results depend on various factors, including successful selection of new markets and store locations, market acceptance of the UFood experience, consumer recognition of the quality of our food and willingness to pay our prices (which in some instances reflect higher ingredient costs), the quality of operations and general economic conditions. In addition, as has happened when other fast-casual restaurant concepts have tried to expand nationally, we may find that the UFood concept has limited or no appeal to customers in new markets or we may experience a decline in the popularity of UFood restaurants. Newly opened stores may not succeed, future markets and stores may not be successful and, even if we are successful, our average store sales may not increase.

New stores, once opened, may not be profitable, and the increases in average store sales and Company store sales that we have experienced in the past may not be indicative of future results.

Our ability to operate new stores profitably and increase sales will depend on many factors, some of which are beyond our control, including:

	•		sales performance of new stores
	•		competition, either from competitors in the restaurant industry or our own stores;
	•		changes in consumer preferences and discretionary spending;
	•		consumer understanding and acceptance of UFood stores;
	•		road construction and other factors limiting access to new stores;
	•		general economic conditions, which can affect store traffic, local labor costs and prices we pay for ingredients and other supplies; and
	•		changes in government regulation.

If we fail to open stores as quickly as planned, or if new stores do not perform as planned, our business and future prospects could be harmed. In addition, a decrease in store sales could cause operating results to vary adversely from expectations.

Expansion into new markets may present increased risks due to our unfamiliarity with those areas.

Some of the new stores are planned for markets where we have little or no operating experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets. As a result, those new stores may be less successful than stores in existing markets. Consumers in a new market may not be familiar with the UFood brand, and we may need to build brand awareness in that market through greater investments in advertising and promotional activity than we originally planned. We may find it more difficult in new markets to hire, motivate and keep qualified employees who can project the UFood vision, passion and culture. Stores opened in new markets may also have lower average store sales than stores opened in existing markets, and may have higher construction, occupancy or operating costs than stores in existing markets. Sales at stores opened in new markets may take longer to ramp up and reach expected sales and profit levels, and may never do so, thereby affecting overall profitability.

We may not persuade customers of the benefits of paying higher prices for higher-quality food.

Due to what we believe are our higher quality standards, our food prices may be substantially higher than those of many of our competitors, particularly those in the fast food sector. Our success depends in large part on our ability to persuade customers that food and beverages made with higher-quality ingredients are worth the higher prices they will pay at our stores relative to prices offered by these competitors. That could require us to change our pricing, advertising or promotional strategies, which could materially and adversely affect its results or the brand identity we have tried to create.

Additional instances of avian flu or “mad cow” disease or other food-borne illnesses could adversely affect the price and availability of chicken, beef or other meat, cause the temporary closure of some stores and result in negative publicity, thereby resulting in a decline in sales.

In 2004 and 2005, Asian and European countries experienced outbreaks of avian flu. Incidents of “mad cow” disease have occurred in Canadian and U.S. cattle herds. These problems, other food-borne illnesses (such as E. coli, hepatitis A, trichinosis or salmonella) and illnesses and injuries caused by food tampering have in the past, and could in the future, adversely affect the price and availability of affected ingredients and cause customers to shift their preferences, particularly if we choose to pass any higher ingredient costs along to consumers. As a result, our sales may decline. Instances of food-borne illnesses, real or perceived, whether at our restaurants or those of our competitors, could also result in negative publicity about us or the restaurant industry, which could adversely affect sales. If we react to negative publicity by changing our menu or other key aspects of our restaurants, we may lose customers who do not accept those changes, and may not be able to attract enough new customers to produce the revenue needed to make our stores profitable. If customers become ill from food-borne illnesses, we could face substantial liability and be forced to temporarily close restaurants.

Our franchisees could take actions that harm our reputation and reduce our royalty revenues.

We do not exercise control over the day-to-day operations of our franchised stores. While we try to ensure that franchised stores meet the same operating standards demanded of our Company-operated stores, one or more franchised stores may not do so. Any operational shortcomings of our franchised stores are likely to be attributed by the public and/or regulators to our system-wide operations and could adversely affect our reputation and have a direct negative impact on the royalty revenues received from those stores.

We could be party to litigation that could adversely affect us by distracting management, increasing expenses or subjecting us to material money damages and other remedies.

Customers may occasionally file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to a restaurant, or that we have problems with food quality or operations. We could also become subject to a variety of other claims arising in the ordinary course of business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, and could become subject to class action or other lawsuits related to these or different matters in the future. In addition, the restaurant industry has been subject to a growing number of claims based on the nutritional content of food products they sell and disclosure and advertising practices. We may also be subject to this type of proceeding in the future and, even if not, publicity about these matters (particularly directed at the fast food and fast-casual sectors of the industry) may harm our reputation or prospects and adversely affect our results.

Unfavorable publicity or consumer perception of our nutritional products and any similar products distributed by other companies could cause fluctuations in our operating results and could have a material adverse effect on our reputation, the demand for our products and our ability to generate revenues.

Consumer perception of products can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to the nutritional products market or any of our particular products and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that question such earlier research or publicity could have a material adverse effect on our ability to generate revenues from nutritional products. For example, our sales were adversely affected when the Food and Drug Administration’s rule banning the sale of dietary supplements containing ephedra went into effect in 2004. As a result of the above factors, our revenues from nutritional products may fluctuate significantly from quarter to quarter, which may impair our overall revenues and profitability. Adverse publicity in the form of published scientific research or otherwise, whether or not accurate, that associates consumption of our nutritional products or any other similar products with illness or other adverse effects, that questions the benefits of our or similar products or that claims that any such products are ineffective could have a material adverse effect on our reputation, the demand for our nutritional products and our ability to generate revenues.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

As a retailer of nutritional products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products include vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain innovative ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. All of the

nutritional products we sell are produced by third-party manufacturers. Even though we are only a retailer of nutritional products manufactured by third parties, we may nevertheless be liable for various product liability claims. We may be subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could adversely affect our revenues and operating income. Any claims would be tendered to the third-party manufacturer or to our insurer; however, there can be no assurance that the manufacturer would have sufficient financial resources to satisfy any claim or that a claim would be covered by or would not exceed the limits of our insurance.

We will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.

We expect we will need to raise additional capital to fund our operating plan. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Funding and Capital Resources” below. Additional capital may not be available on reasonable terms or at all. Our income from operations is unlikely to be sufficient to fund our business plan. We may need to raise additional funds through borrowings or public or private debt or equity financings to meet various objectives including, but not limited to:

	•		pursuing growth opportunities, including more rapid expansion;
	•		opening additional Company-owned stores beyond the four we currently operate;
	•		acquiring complementary businesses;
	•		making capital improvements to improve our infrastructure;
	•		hiring qualified management and key employees;
	•		research and development of new products;
	•		increased advertising and marketing expenses;
	•		responding to competitive pressures;
	•		complying with regulatory requirements such as licensing and registration; and
	•		maintaining compliance with applicable laws.

Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages. See “You may experience dilution of your ownership interests because of other future issuance of additional shares of common stock” below. Furthermore, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business and, further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes, restricted stock, stock options and warrants, which may adversely impact our financial condition.

Compliance with the reporting requirements of federal securities laws can be expensive.

We are a public reporting company in the United States, and accordingly, are subject to the information and reporting requirements of the Securities Exchange Act of 1934 (the Exchange Act) and other federal securities laws. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if we had remained privately-held.

Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our common stock.

We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive and financial officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.

Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain listing of our common stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.

We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and pay dividends.

We are a holding company with no material assets other than the stock of our wholly-owned subsidiaries. Accordingly, all of our operations will be conducted by KnowFat, our wholly-owned subsidiary (and the wholly-owned subsidiaries of KnowFat). We currently expect that the earnings and cash flow of our subsidiaries will primarily be retained and used by them in their operations, including servicing any debt obligations they may have now or in the future. Therefore, our subsidiaries may not be able to generate sufficient cash flow to distribute funds to us in order to allow us to pay the obligations of UFood Restaurant Group, Inc., as they become due or, although we do not anticipate paying any dividends in the foreseeable future, pay future dividends on, or make any distributions with respect to, our common or other stock.

We have reported a material weakness in our internal control over financial reporting as of December 27, 2009. If we fail to maintain an effective system of internal controls, including internal controls over financial reporting, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on our internal controls over financial reporting. Such report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 27, 2009, resulted in a determination that we had a material weakness related to our control environment because we did not have adequate segregation of duties due to limited resources.

We must maintain effective internal controls to provide reliable financial reports on a timely basis and detect fraud. We have been assessing our internal controls to identify areas that need improvement. During 2010, we plan to implement changes to internal controls to improve segregation of duties, but have not yet completed implementing these changes. Failure to implement these changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our stock.

Risks Related to Our Securities

There is not now, and there may not ever be, an active market for our common stock.

There currently is a limited public market for our common stock. Further, although the common stock is currently quoted on the OTC Bulletin Board, trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, the common stock. There can be no assurance that a more active market for the common stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of the common stock, and would likely have a material adverse effect on the market price of the common stock and on our ability to raise additional capital.

We cannot assure you that our common stock will become liquid or that it will be listed on a securities exchange.

Until our common stock is listed on an exchange, we expect the common stock to remain eligible for quotation on the OTC Bulletin Board, or on another over-the-counter quotation system, or in the “pink sheets.” In those venues, however, an investor may find it difficult to obtain accurate quotations as to the market value of the common stock. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or

selling the common stock, which may further affect the liquidity of the common stock. This would also make it more difficult for us to raise additional capital in the future.

Applicable SEC rules governing the trading of “penny stocks” limits the trading and liquidity of our common stock, which may affect the trading price of the common stock.

Our common stock is currently quoted on the OTC Bulletin Board, and trades below $5.00 per share; therefore, the common stock is considered a “penny stock” and subject to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of the common stock and reducing the liquidity of an investment in the common stock.

The price of our common stock may become volatile due to our operating results, products offered by our competitors and stock market conditions, which could lead to losses by investors and costly securities litigation.

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:

	•		actual or anticipated variations in our operating results;
	•		announcements of developments by us or our competitors;
	•		announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
	•		adoption of new accounting standards affecting our industry;
	•		additions or departures of key personnel;
	•		introduction of new products by us or our competitors;
	•		sales of our common stock or other securities in the open market; and
	•		other events or factors, many of which are beyond our control.

The stock market in general, and in particular the penny stock market, is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against the Company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.

We do not anticipate dividends to be paid on the common stock, and investors may lose the entire amount of their investment.

Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.

Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on its market price.

The trading market for our common stock will depend on the research and reports that securities analysts publish about our business and our Company. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts, and our stock is the subject of an unfavorable report, our stock price would likely decline. If one or more of these analysts ceases to cover our Company or fails to publish regular reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. In addition, because KnowFat became public through a “reverse triangular merger,” we may have further difficulty attracting the coverage of securities analysts.

You may experience dilution of your ownership interests because of the future issuance of additional shares of common stock.

Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As stated above, we may need to raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our articles of incorporation. We are currently authorized to issue an aggregate of 310,000,000 shares of capital stock, consisting of 300,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors. As of December 16, 2010, there (i) were 40,489,033 shares of common stock outstanding and 59,768,715 shares of common stock subject to outstanding options and warrants, (ii) 56,925 shares of Series A Preferred Stock outstanding, and (iii) 39,400 shares of Series B Preferred Stock outstanding. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded on the OTC Bulletin Board or other then-applicable over-the-counter quotation system or exchange.

SELLING STOCKHOLDERS

This prospectus covers the resale from time to time by the selling stockholders identified in the table below of:

	•		Up to 14,956,522 shares of our common stock issuable upon conversion of the shares of Series B Preferred Stock sold in a private placement which closed on October 4, 2010 and October 29, 2010;
	•		Up to 1,196,522 shares of our common stock issuable for accrued dividends upon the conversion of shares of Series B Preferred Stock sold in a private placement which closed on October 4, 2010 and October 29, 2010;
	•		Up to 3,440,000 shares of our common stock issuable upon the exercise of Warrants sold in the private placement which closed on October 4, 2010 and October 29, 2010;
	•		Up to 2,173,913 shares of our common stock issuable upon conversion of the shares of Series B Preferred Stock issued to a public relations firm; and
	•		Up to 173,913 shares of common stock issuable for accrued dividends upon the conversion of Series B Preferred Stock issued the public relations firm.

Pursuant to registration rights agreements executed in connection with the closing of the private placement which closed on October 4, 2010 and October 29, 2010, we have filed with the SEC a registration statement on Form S-1, of which this prospectus forms a part, under the Securities Act to register these resales. The selling stockholders identified in the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column “Shares of Common Stock Being Offered in the Offering” in the table below.

Certain selling stockholders may be deemed to be “underwriters” as defined in the Securities Act. Any profits realized by such selling stockholder may be deemed to be underwriting commissions.

The table below has been prepared based upon the information furnished to us by the selling stockholders as of the date of this prospectus, as supplemented by our books and records. The selling stockholders identified below may have sold, transferred or otherwise disposed of some or all of their shares since the date on which the information in the following table is presented in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerning the selling stockholders may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling stockholders upon termination of this offering because the selling stockholders may offer some or all of their common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

We have been advised, as noted below in the footnotes to the table, that none of the selling stockholders are broker-dealers and none of the selling stockholders are affiliates of broker-dealers.

The following table sets forth the name of each selling stockholder, the nature of any position, office or other material relationship, if any, which the selling stockholder has had, within the past three years, with us or with any of our predecessors or affiliates (in a footnote), the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days after the date of this prospectus through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 40,489,033 shares of our common stock outstanding as of December 16, 2010. Unless otherwise set forth below, based upon the information furnished to us, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable.

						Shares of
						Common
						Stock								Shares of
						Underlying								Common								Shares of				Percentage of
						Series B				Shares of				Stock								Common				Common
						Preferred				Common Stock				Underlying								Stock				Stock
						Stock				Payable as				Warrants								Beneficially				Outstanding
		Shares of				Beneficially				Dividends				Beneficially								Owned Upon				Beneficially
		Common Stock				Owned				Under the				Owned				Shares of				Completion				Owned Upon
		Owned Before				Before the				Series B				Before the				Common Stock				of the				Completion of
Selling Stockholder		the Offering				Offering				Preferred Stock				Offering				Being Offered				Offering(a)				the Offering
1998 Rey Family Trust U.A.D. 1-16-98 (1)			0				434,783				34,783				100,000				569,565				0				*
Alfano, Michael J.			0				108,696				8,696				25,000				142,391				0				*
Alger, Wm. Christopher			0				217,391				17,391				50,000				284,783				0				*
Armor, Jeffrey D.			0				43,478				3,478				10,000				56,957				0				*
Barclays Wealth Trustees (Isle of Man) Limited as Trustee of the D.J. Rush Family Trust (2)			0				869,565				69,565				200,000				1,139,130				0				*
Barone, Charles			0				217,391				17,391				50,000				284,783				0				*
Beamon, Andrew			0				86,957				6,957				20,000				113,913				0				*
Bradley A. Luepnitz and Fay Luepnitz, JTWROS			170,659				86,957				6,957				20,000				113,913				170,659				*
Brouwer, A.J.			0				217,391				17,391				50,000				284,783				0				*
Buckley, James E.			0				43,478				3,478				10,000				56,957				0				*
Charnoff, Daniel E.			0				43,478				3,478				10,000				56,957				0				*
Cranshire Capital LP (3)			384,615				217,391				17,391				50,000				284,783				384,615				*
Daniel Blacker & Stefanie Lisa Schwartz, Tenants By the Entirety			127,994				108,696				8,696				25,000				142,391				127,994				*
Davis, David			0				217,391				17,391				50,000				284,783				0				*
Davis, Joseph E., Jr.			0				108,696				8,696				25,000				142,391				0				*
DeZuani, Milvia			0				434,783				34,783				100,000				569,565				0				*
Dunbar, Todd A.			0				217,391				17,391				50,000				284,783				0				*
Edward L. Bair / Jana-Lee Bair			0				130,435				10,435				30,000				170,870				0				*
Farish, Douglas			0				108,696				8,696				25,000				142,391				0				*
Favre, Donald P.			0				217,391				17,391				50,000				284,783				0				*
Freyne, James Martin			0				434,783				34,783				100,000				569,565				0				*
Gallant, John O.			0				108,696				8,696				25,000				142,391				0				*
Gegg, James L.			0				434,783				34,783				100,000				569,565				0				*

						Shares of
						Common
						Stock								Shares of
						Underlying								Common								Shares of				Percentage of
						Series B				Shares of				Stock								Common				Common
						Preferred				Common Stock				Underlying								Stock				Stock
						Stock				Payable as				Warrants								Beneficially				Outstanding
		Shares of				Beneficially				Dividends				Beneficially								Owned Upon				Beneficially
		Common Stock				Owned				Under the				Owned				Shares of				Completion				Owned Upon
		Owned Before				Before the				Series B				Before the				Common Stock				of the				Completion of
Selling Stockholder		the Offering				Offering				Preferred Stock				Offering				Being Offered				Offering(a)				the Offering
Goodson, Michael Davis			849,803				434,783				34,783				100,000				569,565				849,803				2.08	%
Greenberg, Mark			1,279,940				217,391				17,391				50,000				284,783				1,279,940				3.10	%
Hanley, Timothy P. / Hanley, Monica			0				434,783				34,783				100,000				569,565				0				*
Harrell, Douglas			0				217,391				17,391				50,000				284,783				0				*
Harris, Philip Craig			0				217,391				17,391				50,000				284,783				0				*
Johnson III, Miller Alanson			0				108,696				8,696				25,000				142,391				0				*
John Hawkins and Nancy Passamano			0				217,391				17,391				50,000				284,783				0				*
Keller, Kenton C.			1,279,940				652,174				52,174				150,000				854,348				1,279,940				3.10	%
Lehnus, Juergen			0				434,783				34,783				100,000				569,565				0				*
Lenns, Charles A.			0				282,609				22,609				65,000				370,217				0				*
Lloyd, Judith Helen			384,615				434,783				34,783				100,000				569,565				384,615				*
Luethe, Greg			0				65,217				5,217				15,000				85,435				0				*
Macagna, James			0				21,739				1,739				5,000				28,478				0				*
Mark A. Kenney and Diane R. Watson, JTWROS			0				108,696				8,696				25,000				142,391				0				*
McGrath, Charles			0				108,696				8,696				25,000				142,391				0				*
Mehallick, Jeffrey G.			0				108,696				8,696				25,000				142,391				0				*
Mitchell, Graham			150,000				217,391				17,391				50,000				284,783				150,000				*
Morgan, Guy			76,923				173,913				13,913				40,000				227,826				76,923				*
MPML Consulting AB (4)			0				86,957				6,957				20,000				113,913				0				*
Munnings, Mark			0				86,957				6,957				20,000				113,913				0				*
Nelson, Ian			0				152,174				12,174				35,000				199,348				0				*
Norris, Russell D.			0				108,696				8,696				25,000				142,391				0				*
O’Dea, Frank			0				217,391				17,391				50,000				284,783				0				*
Pagano, Scott			0				130,435				10,435				30,000				170,870				0				*
Pash, Robert L.			0				217,391				17,391				50,000				284,783				0				*
Pasieka, Adam			0				43,478				3,478				10,000				56,957				0				*
Pein, Uwe			0				43,478				3,478				10,000				56,957				0				*
Piscitelli, Joseph			76,923				43,478				3,478				10,000				56,957				76,923				*
Price, James			0				108,696				8,696				25,000				142,391				0				*
Randolph C. Barba Trust (5)			0				217,391				17,391				50,000				284,783				0				*
Sheibley, Philip B.			0				434,783				34,783				100,000				569,565				0				*
Silbet Partners LLC (6)			0				108,696				8,696				25,000				142,391				0				*
Smelgus, James			152,470				217,391				17,391				50,000				284,783				152,470				*
Smith, Mark T.			0				108,696				8,696				25,000				142,391				0				*
Smith, Scott K.			0				43,478				3,478				10,000				56,957				0				*
Stone, Keith J.			0				108,696				8,696				25,000				142,391				0				*
Summit Trading Limited (7)			0				2,173,913				173,913				0				2,347,826				0				*
Surendranath, Srinivasan			0				43,478				3,478				10,000				56,957				0				*
Sweeney, Gregg M.			0				217,391				17,391				50,000				284,783				0				*
Tutino, Victor			229,808				108,696				8,696				25,000				142,391				229,808				*
Tyrrell, Jospeh			0				217,391				17,391				50,000				284,783				0				*
Universal Technology Inc. 401(k) Profit Sharing Plan and Trust FBO Robert G. Curtin (8)			0				217,391				17,391				50,000				284,783				0				*
Wakil, Salman			424,901				65,217				5,217				15,000				85,435				424,901				1.05	%
Warren H. Watkins Trust, Warren H. Watkins, Trustee U/A with Warren H. Watkins dated 1/24/2003 (9)			853,293				434,783				34,783				100,000				569,565				853,293				2.09	%
Washburn, Stephanie / Washburn, Christopher			0				217,391				17,391				50,000				284,783				0				*
Weir, Sean			424,901				217,391				17,391				50,000				284,783				424,901				1.05	%

Shares of

Common

Stock

Shares of

Underlying

Common

Shares of

Percentage of

Series B

Shares of

Stock

Common

Common

Preferred

Common Stock

Underlying

Stock

Stock

Stock

Payable as

Warrants

Beneficially

Outstanding

Shares of

Beneficially

Dividends

Beneficially

Owned Upon

Beneficially

Common Stock

Owned

Under the

Owned

Shares of

Completion

Owned Upon

Owned Before

Before the

Series B

Before the

Common Stock

of the

Completion of

Selling Stockholder

the Offering

Offering

Preferred Stock

Offering

Being Offered

Offering(a)

the Offering

Were, Hugo

172,470

217,391

17,391

50,000

284,783

172,470

*

Wittkemper, Gerd

1,153,293

869,565

69,565

200,000

1,139,130

1,153,293

2.80

%

Woodward Jr., John L.

84,981

86,957

6,957

20,000

113,913

84,981

*

All selling stockholders (other than the Summit Trading Limited) acquired (i) shares of Series B Preferred Stock which are convertible into shares of common stock which are being registered, and (ii) warrants, the shares of common stock underlying which are being registered, in the private placement offering which occurred on October 4, 2010 and October 29, 2010. In connection with the first and second closings of the private placement, we issued (i) Series B Preferred Stock with an aggregate stated value of $3,440,000, and (ii) warrants to purchase an aggregate of 3,440,000 shares of our common stock. The securities were sold to accredited investors, as defined under Regulation D under the Securities Act, and non-U.S. persons, as defined under Regulation S under the Securities Act and otherwise in accordance with the provisions of Regulation D and/or Regulation S.

USE OF PROCEEDS

We will not receive proceeds from the sale of common stock under this prospectus. We could, however, receive proceeds from the selling stockholders if and when they exercise Warrants the common stock underlying which is covered by this prospectus. We would use any proceeds received for working capital and general corporate purposes. The Warrant holders may exercise their Warrants at any time until their expiration, by cash payment of the exercise price or by “cashless exercise,” as further described below under “Description of Securities.” If the Warrants are exercised in full, the estimated proceeds from such exercise would be between $0 (if all of the Warrants which can be exercised by a cashless exercise are so exercised) and $997,600 (if all of the Warrants are exercised through the payment of cash to the Company). Because the Warrant holders may exercise the Warrants in their own discretion, if at all, we cannot plan on specific uses of proceeds beyond application of proceeds to general corporate purposes. We have agreed to bear the expenses (other than any underwriting discounts or commissions or agent’s commissions) in connection with the registration of the common stock being offered hereby by the selling stockholders.

DETERMINATION OF OFFERING PRICE

There currently is a limited public market for our common stock. The selling stockholders will determine at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices. See “Plan of Distribution” below for more information.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information and Holders

Our common stock is quoted on the OTC Bulletin Board under the symbol “UFFC.OB.” As of December 16, 2010, there were 40,489,033 shares of our common stock issued and outstanding and 65,597,193 shares issuable upon exercise of outstanding stock options and warrants. On that date, there were approximately 394 holders of record of shares of our common stock.

Prior to the merger on December 18, 2007, there was a limited sales history for our common stock, because it had never been actively traded. As of December 16, 2010, the last reported sale price of our shares on the OTC Bulletin Board was $0.25. For the periods indicated, the following table sets forth the range of high and low bid quotations for our common stock, as reported by Nasdaq in the Info Quotes section of its web site located at www.nasdaq.com . The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

Quarter Ended		High				Low
December 30, 2007		$	1.87			$	0.52
March 30, 2008		$	1.52			$	0.95
June 29, 2008		$	2.10			$	1.15
September 28, 2008		$	1.65			$	0.625
December 28, 2008		$	0.67			$	0.18
March 29, 2009		$	0.36			$	0.10
June 28, 2009		$	0.28			$	0.17
September 27, 2009		$	0.20			$	0.09
December 27, 2009		$	0.14			$	0.07
March 28, 2010		$	0.27			$	0.06
June 27, 2010		$	0.50			$	0.16
September 26, 2010		$	0.39			$	0.18
January 2, 2011 (through December 16, 2010)		$	0.349			$	0.249

Dividends

We have never declared or paid dividends on our equity securities. We do not intend to pay cash dividends on our common stock for the foreseeable future, but currently intend to retain any future earnings to fund the development and growth of our business. The payment of dividends, if any, on the common stock will rest solely within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors. We are a holding company with no material assets and therefore are dependent on our operating subsidiaries to make distributions to us in order to have cash with which to pay dividends. We currently expect that the earnings and cash flow of our subsidiaries will primarily be retained and used by them in their operations, including servicing any debt obligations they may have now or in the future. See “Risk Factors— We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and pay dividends” above and Note 5, Long-Term Debt, to our 2009 Consolidated Financial Statements below.

Securities Authorized for Issuance under Equity Compensation Plans

The Company has two share-based, shareholder-approved equity compensation plans, the 2004 Stock Option Plan (the “2004 Plan”) and the 2007 Equity Incentive Plan (the “2007 Plan”). Descriptions of these plans, and certain information regarding options issued thereunder, are presented in Note 8, Stock-Based Compensation, of our 2009 Consolidated Financial Statements below.

As of the end of fiscal year 2009, we had the following securities authorized for issuance under our equity compensation plans:

Number of securities

remaining available for

future issuance under

Number of securities to

Weighted-average

equity compensation

be issued upon exercise

exercise price of

plans (excluding

of outstanding options,

outstanding options,

securities reflected in

Plan Category

warrants and rights

warrants and rights

column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

3,952,747

$

0.20

2,080,010

Equity compensation plans not approved by security holders

175,000

(1)

$

0.15

0

Total

4,127,747

$

0.19

2,080,010

The table above does not include the approval by the Board of Directors on April 1, 2010 of options to purchase 2,070,000 shares of common stock.

DESCRIPTION OF BUSINESS

We are a franchisor and operator of fast-casual food service restaurants that capitalize on what we believe are the developing trends toward healthier living and eating and the increasing consumer demands for restaurant fare that offers appetizing food with healthy attributes. We believe our menu items are made with higher quality ingredients and healthier cooking techniques than ordinary quick serve food. Delivering great taste and an overall pleasing dining experience for an individual customer is the focus of UFood’s mission and concept.

We were incorporated in the State of Nevada on February 8, 2006, as Axxent Media Corporation. Prior to December 18, 2007, we were a development stage company as defined by Accounting Standards Codification (ASC) 915, Development Stage Entities. As Axxent Media Corporation, our business was to obtain reproduction and distribution rights to foreign films within North America and also to obtain the foreign rights to North American films for reproduction and distribution to foreign countries. Following the merger described below, we abandoned our plans to obtain reproduction and distribution rights to films. On August 8, 2007, we changed our name to UFood Franchise Company, and on September 25, 2007, we changed our name to UFood Restaurant Group, Inc.

On December 18, 2007, a wholly-owned subsidiary of our Company merged with and into KnowFat Franchise Company, Inc., with KnowFat surviving the merger as our wholly-owned subsidiary. Following the merger, we continued KnowFat’s business operations. KnowFat was founded in 2004 to capitalize on the popularity of a chain of fast-casual concept restaurants operating under the trade name “Lo Fat Know Fat” in the greater Boston area, as well as the trend we believe is developing in the United States towards healthier living and eating. After operating for three years as KnowFat! Lifestyle Grille, while continuously modifying and improving the concept, management decided that future locations will operate under the name UFood Grill. During the third quarter of 2008, the four remaining KnowFat! Lifestyle Grille locations were converted to UFood Grill outlets. All of our Company-owned restaurants and franchise-owned locations now operate, and all future locations will operate, under the name UFood Grill.

Three of our four Company-owned restaurants that were originally KnowFat! Lifestyle Grilles included an integrated convenience-style retail store that carried a variety of health-oriented nutritional products, such as supplements, vitamins, nutrition bars, energy drinks and healthy snacks. As part of the process of conversion to UFood Grill outlets, floor space formerly devoted to the sale of nutritional products in two of these stores was reconfigured to accommodate the sale of smoothie drinks and frozen yogurt,

because we believe that these products will generate higher revenues in these locations. None of our franchise locations currently carries nutrition products, and only our Watertown, Massachusetts Company-owned location carries nutritional products. We will continue to evaluate the placement of nutrition products in our existing and future locations based on our assessment of demand in the particular location and, in the case of franchise locations, the franchisee’s preferences.

Our operations currently consist of eight restaurants in the Boston area and Dallas Forth Worth, TX and Cleveland, OH; comprising four Company-owned restaurants and four franchise-owned locations. We have entered into a total of four area development agreements and three franchise agreements covering 56 franchise units in the following states: Texas, Ohio, Massachusetts and the Washington, DC area. Furthermore, two of the area development agreements are for non-traditional locations such as airports, colleges, travel plazas, and hospitals across the United States. The 56 units include four franchise locations currently open and operating, and requiring an additional 52 future UFood Grill outlets to be developed by franchisees. The Naples, FL location was closed on July 24, 2010. On July 17, 2010 the Cleveland Hopkins International Airport location was open.

We believe the sale of franchises allows us to expand the UFood Grill brand faster than the construction and operation of Company-owned outlets due to the Company’s limited human and financial resources, while allowing us to collect franchise fees and royalties. Under our area development and franchise agreements, we receive royalties on gross franchise sales as described above, and we do not pay any of the construction, opening (other than the training and advice described above), operating or marketing costs. We do not provide or arrange financing to franchisees or area developers.

All of our Company-owned restaurants and franchise-owned locations now operate, and all future locations will operate, under the name UFood Grill.

We operate in two business segments: Store Operations and Franchise Operations. The Store Operations segment comprises the operating activities of restaurants owned or operated by the Company. The Franchise Operations segment is comprised of the operating activities of the franchise business unit that licenses qualified operators to conduct business under the UFood Grill tradename and monitors the operations of these business units. Certain financial information for each segment is set forth in Note 14, Segment Data, of Notes to Consolidated Financial Statements.

Our headquarters are located at 255 Washington Street, Suite 150, Newton, Massachusetts 02458. Our telephone number is (617) 787-6000.

Concept and Strategy

We are a franchisor and operator of fast-casual food service restaurants that capitalize on what we believe are the developing trend toward healthier living and eating and the increased consumer demands for restaurant fare that offers appetizing food with healthy attributes. We believe our menu items are made using higher quality ingredients and healthier cooking techniques than ordinary quick serve food. Consequently, we believe our menu provides customers with a delicious and healthy alternative to typical fast food options. Guests order at a counter and wait three to five minutes for their meals to be prepared. At UFood Grill, we bake, grill or steam our menu offerings; we never fry our food. Our sauces, cheeses and salad dressings are reduced-fat. We serve whole-grain breads and side dishes and, where we can do so while still charging our customers a reasonable price, organic meats and vegetables (meeting U.S. Food and Drug Administration standards for “organic”). The food is served on ceramic plates with metal utensils and is taken to the table by each guest. Delivering great taste and an overall pleasing dining experience for an individual customer is the focus of UFood’s mission and concept.

The UFood Grill concept attempts to provide each customer segment with the features it seeks in a quick service restaurant. Understanding the market segmentation model allows us to focus on those market segments that afford the greatest sales opportunities. The UFood Grill brand has four pillars on which it rests:

U Love Great Food
U Are Always on the Go
U Want It Your Way
U Want to Look and Feel Great

Approximately half of all our sales are prepared for take-out, with the guest either calling ahead or ordering in the restaurant. Nearly 60% of customers frequent our restaurants for lunch, with the remaining 40% enjoying our fare at dinner time. Most of Our restaurants are not open for breakfast service. We are required to offer breakfast service at our UFood Grill outlet at Logan International Airport in Boston.

We believe the UFood concept has significant growth potential, which we hope to realize through a combination of company and franchisee efforts. Franchising will be a key component of our success. There are currently a total of seven UFood Grill restaurant locations open. Four of the locations are in the greater Boston area, with one location in Cleveland, OH and two locations in the area of the Dallas/Ft. Worth Texas.

Industry Background

The United States restaurant industry is benefitting from a long-term trend of consumers eating out more frequently. According to the National Restaurant Association, the restaurant industry’s share of consumer food expenditures has increased from 25% in 1955 to 49% in 2009, and restaurant sales are expected to reach $580 billion in 2010, an increase of 2.5% over 2009 sales. The leading factors contributing to the recent growth have been the growing population, the trend toward busier lifestyles, greater spending on dining and entertainment activities and the increased availability of high-quality dining options.

The recent emergence of the fast-casual dining sector has capitalized significantly on the industry’s expansion. This group, led by companies such as Chipotle Mexican Grill and Panera Bread Company, caters to customers who desire the convenience of fast food, and who are willing to pay a premium for higher quality, differentiated menu items. According to the National Restaurant Association, these consumer preferences have made fast-casual one of the fastest growing sub-sectors within the restaurant industry.

However, the increase in eating out has also contributed to a general deterioration in the health of Americans. Today, obesity has reached epidemic proportions in the United States. According to the Centers for Disease Control and Prevention (CDC), approximately 34% of American adults aged 20 and over, or 72 million people, met the criterion for obesity in 2007-2008. In addition, a CDC study indicates that in the past 30 years, the occurrence of obesity in children has doubled, and it is now estimated that one in five children in the United States is overweight. According to published studies, obese children are more likely to be obese as adults, which leads to an increased risk for a number of diseases including stroke, cardiovascular disease, hypertension, diabetes and some cancers. Obesity also contributes to additional negative health consequences, including Type 2 Diabetes, high total and LDL (bad) cholesterol and triglyceride levels in the blood, low HDL (good) cholesterol levels in the blood, sleep apnea and inflammation of the liver. Poor food choices, such as diets high in calories (including fats and simple sugars) and lower in fruits and vegetables, are linked with being overweight.

Menu

We believe our menu items are made with higher quality ingredients and healthier cooking techniques than ordinary quick serve food. Consequently, we believe our menu provides customers with a delicious and healthy alternative to typical fast food options. Guests order at a counter and wait three to five minutes for their meals to be prepared. At UFood Grill, we bake, grill or steam our menu offerings; we never fry our food. Our sauces, cheeses and salad dressings are reduced-fat. We serve whole-grain breads and side dishes and, where we can do so while still charging our customers a reasonable price, organic meats and vegetables (meeting U.S. Food and Drug Administration standards for “organic”). The food is served on ceramic plates with metal utensils and is taken to the table by each guest. Delivering great taste and an overall pleasing dining experience for an individual customer is the focus of UFood’s mission and concept.

With our innovative menu, we are targeting mainstream customers as well as health conscious customers. We believe the taste and quality of our food offerings will have wide market appeal.

Our menu contains a wide variety of food types, including hot entrees, burgers, salads, sandwiches, wraps, smoothies, and desserts, each of which is united in the theme that the food is “better for you” than many other dining-out options. Each item is prepared with healthier alternatives in mind, whether an ingredient or a method of preparation, and has better nutritional qualities than the equivalent item a consumer might find at a typical quick serve establishment.

Growth Strategy

We plan to further expand our franchising network as well as open other Company-owned stores. We have increased our focus on nontraditional locations such as airports, hospitals, colleges and travel plazas. We anticipate announcing several new nontraditional locations in the coming months.

Franchise sales are led by our chairman and chief executive officer, George Naddaff. In addition, we have entered into a services agreement with George Foreman, the well-known world heavyweight boxing champion, businessman and celebrity, to be a spokesperson for the brand as well as to assist in generating interest in franchising the UFood concept. Under the terms of an agreement, Mr. Foreman has agreed to lend his name and likeness and assist in marketing and branding efforts of UFood restaurants. Mr. Foreman is expected initially to be involved in helping to sell franchises. Once we have more than 50 stores opened, he is expected to shift his

focus to generating publicity through personal appearances in UFood restaurants and traditional media. The agreement expires in June 2011.

Outside of the Boston area, we plan to award only multi-unit territories to sophisticated, experienced owner-operators. These operators will sign area development agreements wherein they will obtain an exclusive territory in which to build UFood outlets. Upon signing these agreements, the operators will pay an upfront fee for the rights to their territory, and they will then be bound to a timeline over which they must open the units.

We have five area developers in the areas other than Boston. We seek to sell franchises to sophisticated, experienced restaurant operators who already know their markets, having operated other restaurants in their territories. We believe these sophisticated operators will enable our concept to grow rapidly and help establish the UFood brand across the country. We do not allow sub-franchising. All franchise agreements are directly with us.

We also intend to grow our store base through the building of Company-owned stores. Our current plan calls for approximately 10% of our stores to be Company-owned. The primary purpose of this effort is to ensure that management understands how the stores evolve and operate and has its own “kitchen” to test new initiatives (menu items, loyalty programs etc.) in front of real customers. We have transitioned our loyalty program to an email club to communicate with our guests and send out special offers. To leverage the current geographical concentration of UFood stores in the Boston area, we plan to locate the new Company-owned stores in the New England area, close to our headquarters.

We have developed two prototype stores that we believe are suitable to differing site and demographic conditions: 1) 1,500 — 2,500 sq. feet units (currently four stores); and 2) 800 — 1,000 sq. feet units that are kiosks in airports, bus and train stations, hospitals and other high-traffic locations (currently three store). We cannot currently estimate the proportion of our planned future locations that will fall in each of these categories.

Franchise Operations

UFood has pursued a broad-based franchising program since 2004. UFood continues to extend its franchise relationships beyond its current franchisees. Pursuant to federal and state regulations, UFood annually updates its Franchise Disclosure Document, which includes a disclosure statement, a Franchise Agreement, and an Area Development Agreement, to facilitate sales of additional franchise and area development licenses. The UFood franchise agreement typically requires the payment of a franchise fee of $35,000 per restaurant, royalties of 5.0% of gross sales and contributions to a system-wide advertising fund of 1.5% of gross sales. The franchisee is also required to spend 1.5% of gross sales on local marketing. In general, 50% of the franchise fee is payable at the time the Franchise Agreement is signed and the balance is due at the time each store opens. Each Franchise Agreement generally provides for a term of 15 years and two, five-year renewal options.

The Area Development Agreement is similar to the Franchise Agreement in its terms. In order for an area developer to acquire the rights to a territory, the developer must pay one-half of the franchise fee up front for each unit that developer agrees to build in the territory. In some agreements, UFood has deferred the payment of the upfront fee, so that the developer pays up-front fees for the first few stores upon the execution of the agreement and fees for the stores opening in phase 2 of the build-out at a later date. UFood estimates that it costs between $560,000 and $760,000 to open one of its outlets, these costs include traditional and non-traditional locations, which in some cases we are required to employ union labor for the remodeling.

To ensure that the UFood concept is consistent across all geographic areas, we have fully built out the corporate support system for franchisees. New franchisees get assistance on all levels, including build-out specifications, operational guidance, and menu and recipes. We also provide a three week training program for each of our new franchisees and employees prior to new store openings.

Suppliers

We strive to obtain consistent high-quality ingredients at competitive prices from reliable sources. To obtain operating efficiencies and to provide fresh ingredients for our food products while obtaining the lowest possible ingredient prices for the required quality, we purchase over 70% of our restaurant supplies from a single supplier, Sysco Boston, LLC. The balance of our restaurant supplies come from local vegetable and bread suppliers. Most food, produce and other products are shipped from Sysco’s distribution facility directly to our restaurant locations two to three times per week. We do not maintain a central food product warehouse or commissary. We do not have any long-term contracts with our food suppliers. In the past, we have not experienced delays in receiving our food and beverage inventories, restaurant supplies or equipment.

Competition

The restaurant industry is intensely competitive. There are many different sectors within the restaurant industry that are distinguished by types of service, food types and price/value relationships. We position our restaurants in the highly competitive and fragmented fast-casual sector of the restaurant industry. In addition to competing against other fast-casual restaurants, we compete against other sectors of the restaurant industry, including fast-food restaurants and casual dining restaurants. The number, size and strength of competitors within each sector vary by region. We compete based on a number of factors including taste, product quality, speed of service, value, name recognition, restaurant condition and ambiance, location and customer service. Although we believe we compete favorably with respect to each of these factors, many of our direct and indirect competitors are well-established national, regional or local chains and have substantially greater financial, marketing, personnel and other resources.

Customers seeking a healthier meal at a foodservice establishment, have several choices available to them throughout the country. However, we are not aware of any national chains of health-oriented quick-service restaurants that geographically cover the whole United States or even a number of states.

The following is a list of restaurants that position themselves as healthier and compete in the quick-serve environment, mostly on a local level. The largest chain has six stores.

	•		Better Burger (New York City)
	•		Energy Kitchen (New York City)
	•		The Pump (New York City)
	•		Topz (California)
	•		Evo’s (California, Florida, Nevada, North Carolina)
	•		b. good (Boston)
	•		Soma Grill (Arizona)
	•		Healthy Bites (Florida)

Of the restaurants listed above, only b. good operates in the Boston area. A number of fast food chains and local eateries operating in the greater Boston area offer similar products and services as UFood Grill but without the emphasis on health. b. good operates five locations in the Boston area. In addition to b. good, there are several vegetarian and raw vegan restaurants in the Boston area as well as several health food stores. These outlets offer healthy food but not in a quick-serve environment.

We also compete with these and many other retail establishments for desirable site locations. See “Risk Factors—There is intensive competition in our industry, and we will be competing with national and regional chains and independent restaurant operators.”

Employees

As of December 27, 2009, we employed approximately 32 full-time associates (defined as associates who average 32 hours or more per week), of whom 11 were employed in general or administrative functions, principally at our headquarters in Newton, Massachusetts, and approximately 21 were employed in our four Company-operated restaurant locations in the Boston area as managers and associates. UFood does not have any collective bargaining agreements with its employees and considers its employee relations to be good. UFood places a priority on staffing its restaurant and store operations with skilled associates and invests in training programs to ensure the quality of its operations.

Trademarks

We have registered the following trademarks with the United States Patents and Trademarks Office: “Unfries” , “UFood Grill”, “Proccino,” “KnowFat! Lifestyle Grille,” “KnowFat,” “Prolatta,” “UBerry,” “Ubowls,” “Smuuthies,” and “LoFat KnowFat”. We believe that our trademarks and other proprietary rights have significant value and are important to the marketing of our restaurant concept.

Seasonality

While our business is not significantly seasonal, revenues in the first two quarters of the calendar year are slightly higher than the last two quarters of the year.

Government Regulation

Our restaurants are subject to licensing and regulation by state and local health, sanitation, safety, fire and other authorities, including licensing and permit requirements for the sale of food. To date we have not experienced an inability to obtain or maintain any necessary licenses, permits or approvals. In addition, the development and construction of additional units are also subject to compliance with applicable zoning, land use and environmental regulations. See “Risk Factors—Our food service business and the restaurant industry are subject to extensive government regulation.”

Environmental Regulation

Our business is subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances. These environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. To date, our stores have not been the subject of any material environmental matters. See “Risk Factors—We have not conducted a comprehensive review of all the potential environmental liabilities at our properties.”

PROPERTIES

Our corporate headquarters, consisting of approximately 3,850 square feet, are located in Newton, Massachusetts. We occupy our headquarters under a lease that expires in 2013, with an option to extend the lease for an additional seven years. We lease each of our restaurant facilities. Our leases expire on various dates through December 2016. The leases require us to pay our share of the operating expenses of the leased properties, including taxes, utilities and insurance.

At September 26, 2010, future minimum payments under non-cancelable leases are as follows:

Year ending December 31,
2010		$	199,000
2011			466,000
2012			470,000
2013			473,000
2014			440,000
Thereafter			192,000
		$	2,240,000

LEGAL PROCEEDINGS

We are subject to legal proceedings and claims which arise in the normal course of business. Although there can be no assurance as to the ultimate outcome, we generally have denied, or believe we have a meritorious defense and will deny, liability in all significant cases pending against us. Based on information currently available, we believe the amount, or range, of reasonably possible losses in connection with the actions against us, in excess of established reserves, in the aggregate, not to be material to our consolidated financial condition or cash flows. However, losses may be material to our operating results for any particular future period, depending on the level of our income for such period.

DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS

Our executive officers and directors are as follows:

Name		Age				Position
George Naddaff			80			Chief Executive Officer and Chairman of the Board of Directors
Charles Cocotas			75			President and Chief Operating Officer, Director
Irma Norton			43			Chief Financial Officer

Name		Age				Position
Robert C. Grayson			65			Director
Mark Giresi			52			Director
Richard Golden			57			Director
Keith Mueller			51			Director

Background of Officers and Directors

George Naddaff has been our Chairman and Chief Executive Officer since December 18, 2007. Prior to the merger Mr. Naddaff was the Chief Executive Officer of KnowFat Franchise Company (“KnowFar”), a predecessor to the Company, since February 2004, its CEO since September 2007 and its Chairman of the Board since March 2004. From February 1986 to February 2004, he was Chief Executive Officer of Business Expansion Capital, Inc., an investment firm located in Newton, Massachusetts. From 1997 to 2001, he held various management positions (including acting Chief Executive Officer) at Ranch*1, Inc., a franchisor of quick service restaurants with its headquarters in New York, New York. Mr. Naddaff is one of the founders of KnowFat Franchise Co., Inc. with more than 40 years of experience in the franchise industry. In addition to Boston Chicken, Mr. Naddaff has been significantly involved with several other successful concepts including the founding of Mulberry Child Care Centers, which had over 90 company-owned childcare centers when it was sold to Kindercare, America’s largest chain. George also founded Living and Learning Schools, which operated more than 50 upscale childcare facilities and was sold to Kindercare in 1980. In addition, he founded VR Business Brokers, the nation’s largest business brokerage franchise with over 350 offices, which was acquired in 1986 by Christies, LLP, London. In 1984, as a director and investor in Sylvan Learning Centers, Mr. Naddaff helped launch their franchising effort which today has over 1100 units. Mr. Naddaff is a serial entrepreneur and franchise leader, which are the perfect attributes to be the Chairman of Board and CEO of our Company.

Charles A. Cocotas has been our President and Chief Operating Officer and a director since December 18, 2007. Mr. Cocotas joined KnowFat as a consultant in May 2007. In September 2007 he was appointed as UFood’s President and Chief Operating Officer. From 1999 to 2007, Mr. Cocotas was principal of the Charles A. Cocotas Restaurant Consulting firm in Massachusetts. Mr. Cocotas has served as Executive Vice-President with International Dairy Queen. Inc, Chief Operating Officer of Churchs Fried Chicken, was the original President/Chief Operating Officer of Boston Chicken, Inc., President/CEO of TCBY, Inc., and Chairman of the Board/CEO of Best Friends Pet Care, Inc. He is an experienced executive with more than 35 years experience in the restaurant industry, which included the launch of start-up ventures as well as turn-arounds with established corporations operating both Company and franchise restaurants. Mr. Cocotas’ leadership experience, particularly as a food operator for over three decades, and extensive functional skill set give him an appreciation for business practices that are vital to the success of a developing company such as ours.

Irma Norton joined KnowFat as its Controller in November 2004 and became our Acting Chief Financial Officer in April 2009. Most recently (from September 2002 through October 2004), Ms. Norton was the controller for Handmade Bow Company, a privately held consumer products company. Prior to that position, from March 1990 through October 1995, Norton was the CFO for the Dunkin’ Donuts master franchisee in Mexico. Ms. Norton holds a B.A. degree in Accounting from University of Guadalajara in Mexico and is a graduate of the distinguished Executive Management Program of ITAM in Mexico City.

Robert C. Grayson has been a director of KnowFat since 2004 and a director of UFood since 2007. Since 1992 Mr. Grayson has been President and Chief Executive Officer of RC Grayson and Associates, a retail-oriented consulting firm in New York City. Mr. Grayson served initially as an outside consultant to Tommy Hilfiger Corp., a wholesaler and retailer of men’s sportswear and boyswear, and later accepted titles of Chairman of Tommy Hilfiger Retail, Inc. and Vice Chairman of Tommy Hilfiger Corp. From 1970 to 1992, Mr. Grayson served in various capacities for Limited Inc., including President and CEO of Lerner New York from 1985 to 1992, and President and CEO of Limited Stores from 1982 to 1985. He also serves as a director of Kenneth Cole Productions, St. John Knits, Lillian August Inc., and Stax Incorporated. Mr. Grayson’s leadership roles in the retail industry, consumer marketing, research and development, retail technology have made him an integral member of our Board.

Mark Giresi has been a director of KnowFat since December 6, 2007, and a director of UFood since 2007. From February 2000 until May 2008, Mr. Giresi worked for Limited Brands where, as Executive Vice President, he was responsible for the retail operation of Victoria’s Secret, Bath & Body Works, Express and The Limited, as well as real estate, store design and construction and loss prevention functions. Most recently, he led the strategic growth of Victoria’s Secret and Bath & Body Works outside of the United States. Prior to Limited Brands, Mr. Giresi spent almost 16 years at Burger King Corporation, where he held several executive positions including Senior Vice President of U.S. Franchise Operations and Development and Worldwide General Counsel. Mr. Giresi holds a Bachelor of Sciences degree in accounting from Villanova University and a Juris Doctorate degree from Seton Hall Law School. He also serves as a director of NXT Nutritional Holdings, Inc. His extensive experience in retail, food and franchising industries has been a tremendous contribution to our board.

Richard Golden is currently a private investor in a number of emerging companies and takes an active role in overseeing the investments. From 2007 to mid-2010, he was a Managing Director of Alumni Capital Network, a private equity firm specializing in buying and building small to mid-sized businesses. He managed the fund-raising for the firm’s $68 million fund and served on the Board of the company. Previously, he spent 28 years with Accenture in various executive management roles as well as managed large-scaled business improvement projects for Global 1000 companies, concentrating on airlines, manufacturers and retailers. His management positions included Country Managing Director — Sweden and Finland; Managing Director of the Retail Industry in Europe and Africa; Chief Operating Officer for the Products Market Unit; and Corporate Chief of Staff where he helped manage the transition of Accenture from a global partnership to an international corporation. Mr. Golden’s contribution to our Company is his vast experience in leadership roles and fund-raising activities that have made him a critical member of our Board.

Keith Mueller currently serves as Advisor to BookKeeping Express, the only national franchise providing book keeping services to small and medium-sized businesses, and Cate Street Capital, the owner and developer of a New Hampshire based bio-mass power plant that is intended to provide 65 megawatts of clean energy starting in 2010. He also held a number of management roles during his 27 years at Accenture and focused on large clients in the utility Industry. Some of experiences include leading the utilities practice in North America that had over $800 million in revenues and 1,000 people and building an outsourcing practice from start-up to over $500 million in revenue in four years with over 4,000 individuals. Mr. Mueller’s brings to our board a deep understanding of business strategy and during his tenure as a member he has gained additional expertise in the restaurant industry.

There are no family relationships among our executive officers and directors. None of our executive officers or directors has, during the past five years:

	(a)		had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of, such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
	(b)		been convicted in a criminal proceeding or subject to a pending criminal proceeding;
	(c)		been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or
	(d)		been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers, directors and persons who own more than ten percent of the issued and outstanding shares of Common Stock to file reports of beneficial ownership and changes in beneficial ownership with the SEC and to furnish copies of all Section 16(a) forms to the Company. Form 3 filings are known to be late for each of the following directors, officers and beneficial owners of more than 10 percent of any class of equity securities of the Company: George A. Naddaff, Charles A. Cocotas, Irma Norton, Robert C. Grayson, Mark A. Giresi, Richard Golden and Keith Mueller.

Nominations to the Board of Directors

Stockholders may recommend individuals to the Nominating and Corporate Governance Committee of the Board of Directors for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials, to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, UFood Restaurant Group, Inc., 255 Washington Street, Suite 150, Newton, MA 02458.

Code of Ethics

We have a Code of Ethics that governs all of our employees, including our CEO, CFO, principal accounting officer or persons performing similar functions. We will provide a copy of our Code of Ethics free of charge to any person upon written request to us at the following address: 255 Washington Street, Suite 150, Newton, MA 02458 Attn: Chief Financial Officer.

Board of Directors

The Board of Directors currently consists of six members. Directors serve until their successors are duly elected or appointed. On February 12, 2008, the Board of Directors designated a Compensation Committee, Audit Committee and Nominating and Corporate Governance Committee of the Board. Mark Giresi, Robert Grayson and Keith Mueller are members of the Compensation Committee,

Mark Giresi and Richard Golden are members of the Audit Committee, and Robert Grayson is a member of the Nominating and Corporate Governance Committee of the Board.

Audit Committee Financial Expert

Our Board of Directors has determined that there is no financial expert serving on our Audit Committee. Since we are not a listed issuer as that term is defined in Rule 10A-3 under the Exchange Act, we are not required to have a financial expert serving on our Audit Committee.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following tables set forth certain information regarding the beneficial ownership of our common stock as of December 16, 2009, by (i) each person who, to our knowledge, owns more than 5% of the Common Stock; (ii) each of our directors and executive officers; and (iii) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following tables, each person named in the table has sole voting and investment power and that person’s address is c/o UFood Restaurant Group, Inc., 255 Washington Street, Suite 150, Newton, Massachusetts 02458. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days of December 16, 2010 are deemed outstanding for computing the share ownership and percentage of the person holding such options and warrants, but are not deemed outstanding for computing the percentage of any other person.

		Amount and
		Nature of				Percent
		Beneficial				of
Name and Address of Beneficial Owner		Ownership				Class+
George A. Naddaff(1)			7,058,412				14.86	%
Charles A. Cocotas(2)			1,925,729				4.55	%
Irma Norton(7)			290,080				*
Robert C. Grayson(3)			493,304				1.21	%
Mark Giresi(4)			392,821				*
Keith Mueller(5)			3,386,438				7.73	%
Richard Golden(6)			2,767,484				6.41	%
Directors and Executive Officers as a group(1)-(6)			16,024,187				28.75	%
Kevin Kimberlin(8)			4,483,712				10.07	%
535 Madison Avenue
New York, NY 10022

EXECUTIVE COMPENSATION

Summary Compensation Table

The table below sets forth, for the last two fiscal years, the compensation earned by our Chief Executive Officer and the other executive officers who received annual compensation in excess of $100,000. Each of the named executive officers (the “Named Executive Officers”) is entitled to certain payments in connection with resignation, retirement or other termination, as described more fully under the heading “Agreements with Executive Officers and Consultants.”

																						Non-Equity				Nonqualified
Name and																						Incentive				Deferred				All Other
Principal														Stock				Option				Plan				Compensation				Annual
Position(s)		Year				Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation				Total
(a)		(b)				(c)(4)				(d)				(e)(4)				(f)(1)				(g)				(h)				(i)				(j)
George Naddaff,			2009			$	301,485			$	-0-			$	7,500			$	212,000			$	-0-			$	-0-			$	7,500			$	528,485
Chairman and CEO			2008			$	301,620			$	-0-			$	55,000			$	608,700			$	-0-			$	-0-			$	-0-			$	965,320
Charles A. Cocotas			2009			$	201,485			$	-0-			$	-0-			$	43,200			$	-0-			$	-0-			$	-0-			$	244,685
President and COO			2008			$	206,703				-0-			$	-0-			$	182,620			$	-0-			$	-0-			$	-0-			$	389,313
Irma Norton			2009			$	133,409			$	10,000			$	-0-			$	4,465			$	-0-			$	-0-			$	-0-			$	147,874
CFO			2008			$	121,020			$	-0-			$	-0-			$	30,185			$	-0-			$	-0-			$	-0-			$	151,205
Thomas Mackey			2009			$	150,000				-0-0			$	-0-			$	7,170			$	-0-			$	-0-			$	10,950			$	168,120
SVP of Operations			2008			$	150,000			$	-0-0				-0-			$	49,615			$	-0-			$	-0-			$	9,925			$	209,540

The salary of Mr. Naddaff is currently $300,000, and the salary of Mr. Cocotas is currently $200,000.

Agreements with Executive Officers and Consultants

KnowFat entered into an employment contract with Mr. Naddaff on October 15, 2007 that provides: (i) the term of his employment agreement is for three years; (ii) the base salary for Mr. Naddaff is $300,000, plus benefits; (iii) Mr. Naddaff was granted options to purchase 1,500,000 our shares under the Equity Incentive Plan; and (iv) if a Mr. Naddaff’s employment is terminated by KnowFat without cause, or by Mr. Naddaff as a result of a constructive termination by KnowFat, or as a result of Mr. Naddaff’s death or disability, then KnowFat is obligated to pay severance (consisting of salary and benefits as in effect at the time of termination) to Mr. Naddaff (or Mr. Naddaff’s legal representatives) for a period equal to the lesser of 12 months or the then-remaining balance of the employment term. The options referenced above have an exercise price of $1.00 per share, have a term of ten years and vest over a three-year period as follows: Mr. Naddaff’s options to purchase (i) 500,000 shares vested upon the grant of the options and (ii) 1,000,000 shares vest in equal monthly amounts of approximately 27,778 shares over a three year period through December 17, 2010. In addition to the foregoing, upon our consummation of the sale of any franchise restaurant, we will pay Mr. Naddaff a fee of $10,000. To the extent any franchise transaction is a part of an Area Development Agreement, the fee will be payable to Mr. Naddaff upon consummation of the franchise sale as follows: (i) $5,000 in cash and (ii) the remaining portion in a number of shares of our common stock having an aggregate value of $5,000 on the date such fee is due. Mr. Naddaff’s employment agreement provides for severance (consisting of base salary and benefits continuation) for a period of up to 12 months upon termination of the executive without cause. On May 1, 2008, the Board of Directors granted to Mr. Naddaff options to purchase 1,000,000 shares of the Company’s Common Stock, exercisable at $1.23, which options were fully vested. These options were not granted pursuant to a compensation plan, but instead represent non-qualified stock options. All options granted to Mr. Naddaff were canceled on May 13 2009 and he received a new grant with the same amount of options to purchase shares of the Company’s Common stock under the 2007 Stock Option Plan, at an exercise price of $0.20 with the same vesting schedule of the canceled options. On June 30, 2010, the Company amended its employment agreement with George Naddaff to extend the employment period through October 15, 2013. As part of the amendment of the agreement, Mr. Naddaff received non-qualified stock options to purchase 3,250,000 shares of the Company’s common stock at an exercise price of $0.19. One half of options vested on the date of grant and the other half vest over a period of three years.

On February 12, 2008, the Board of Directors approved an employment agreement with Mr. Cocotas. The agreement provides: (i) for an initial term of two years; (ii) for a base salary of $200,000 per year, plus benefits; (iii) that Mr. Cocotas is entitled to receive options to purchase 200,000 shares of the Company’s Common Stock, exercisable at $1.00 per share of Common Stock, which options shall vest in equal amounts on the first day of each month for twenty-four months following the date of the employment agreement; and (iv) that if Mr. Cocotas’ employment is terminated by him for good reason (as defined in the agreement) or by the Company because of his permanent disability (as defined in the agreement), the Company is obligated to pay severance, consisting of base salary, for a six month period. On May 1, 2008, the Board of Directors granted to Mr. Cocotas options to purchase 300,000 shares of the Company’s Common Stock, exercisable at $1.23, which options shall vest monthly over the remaining period of his employment agreement. These options were not granted pursuant to a compensation plan, but instead represent non-qualified stock options. All options granted to Mr. Cocotas were canceled on May 13 2009 and he received a new grant with the same amount of options to purchase shares of the Company’s Common stock under the 2007 Stock Option Plan, at an exercise price of $0.20 with the same vesting schedule of the canceled options. On June 30, 2010, the employment agreement for Mr. Cocotas was amended to extend the term to continue through January 22, 2013. In connection with the execution of this amendment, the Company granted non-qualified stock options to purchase 1,205,673 shares of the Company’s common stock at an exercise price of $0.19 per share. One half of the options vested upon the date of the grant and the other half of the options shall vest in equal amounts on the first day of each month for thirty-six months following the date of the grant.

On April 1^st, 2010 the Company’s Board of Directors approved the grant of non-qualified stock options to purchase 600,000 shares of the Company’s common stock with an exercise price of $0.19 and a vesting schedule of equal amounts over the next four months to Mr. Richard Fisher. This grant was pursuant to the terms of his consulting agreement with the Company. As a result of this grant the Company recognized an expense of $39,853.

On June 12, 2010, the Board of Directors approved the grant of 10,000 Series “B” Preferred Shares to Summit Trading Limited according to their service agreement to provide Investor Relations and Public Relations services to the Company. These preferred

shares were fully vested at the execution of the agreement. As a result of this grant, General and Administrative expenses include $1,000,000 of stock-based compensation expense. The face value of the preferred shares is $100 per share and the conversion price to common stock is $0.23. On December 8, 2010 the Company decided to terminate this agreement effective as of December 29, 2010. Pursuant to the service agreement the compensation was reduced to half of the shares granted on June 12, 2010 to be only 5,000 Series “B” Preferred Shares.

Outstanding Equity Awards at Fiscal Year End
December 27, 2009

Equity

Incentive

Plan

Awards:

No. of

No. of

Number of

Securities

Securities

Securities

Underlying

Underlying

Underlying

Unexercised

Unexercised

Unexercised

Option

Option

Options (#)

Options (#)

Unearned

Exercise

Expiration

Name

Exercisable

Unexercisable

Options

Price

Date

George Naddaff

2,166,667

333,333

(1)

-0-

$

0.20

April 30, 2018

Charles A. Cocotas

705,673

-0-

-0-

0.20

April 30, 2018

Irma Norton

71,330

18,590

-0-

0.20

February 11, 2018

Thomas Mackey

90,160

18,590

-0-

0.20

February 11, 2018

2004 Stock Option Plan

UFood Grill did not grant any options or other stock awards under the 2004 Stock Option Plan to any named executive officers in 2009 or 2008.

2007 Equity Incentive Plan

Our Board of Directors and stockholders adopted the 2007 Equity Incentive Plan on August 17, 2007, which reserves a total of 3,000,000 shares of our common stock for issuance under the 2007 Plan. If an incentive award granted under the 2007 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2007 Plan.

Shares issued under the 2007 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the 2007 Plan. In addition, the number of shares of common stock subject to the 2007 Plan, any number of shares subject to any numerical limit in the 2007 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

On February 12, 2008, our Board of Directors approved an increase in the number of shares of common stock reserved for issuance under the 2007 Plan to 6,000,000 shares. The increase was approved by shareholders at a meeting of shareholders on August 29, 2008. On April 1, 2010 the Board of Directors approved the grant to Mr. Naddaff of 750,000 stock options to acquire shares of the Company’s common stock. Also, the Board approved the grant for Mr. Cocotas of 500,000 stock options to purchase shares of the Company’s common stock. The Board also approved the grant of 175,000 options to acquire shares of the Company’s common stock to Ms. Irma Norton and 125,000 options to Mr. Mackey. All stock options were granted under the Corporation’s 2007 Equity Incentive Plan and fully vested as of the day of the grant.

Administration

The Compensation Committee of the Board, or the Board in the absence of such a committee, will administer the 2007 Plan. Subject to the terms of the 2007 Plan, the Compensation Committee has complete authority and discretion to determine the terms of awards under the 2007 Plan.

Grants

The 2007 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code, as amended, and stock appreciation rights, as described below:

	•		Options granted under the 2007 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of common stock covered by an option cannot be less than the fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant.
	•		Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units.
	•		The compensation committee may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable and other terms and conditions.
	•		The 2007 Plan authorizes the granting of stock awards. The compensation committee will establish the number of shares of common stock to be awarded and the terms applicable to each award, including performance restrictions.
	•		Stock appreciation rights (SARs) entitle the participant to receive a distribution in an amount not to exceed the number of shares of common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR.