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<TITLE>S-1</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">As filed with the Securities and Exchange Commission on May&nbsp;1, 2009
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Registration No.&nbsp;333-______
</DIV>


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM S-1</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B>REGISTRATION STATEMENT<BR>
UNDER<BR>
THE SECURITIES ACT OF 1933</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>UFOOD RESTAURANT GROUP, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
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<TR valign="bottom">
    <TD align="center" valign="top">Nevada
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">5812
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">20-4463582</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Primary Standard Industrial
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Classification Code Number)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification No.)</TD>
</TR>
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</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">255 Washington Street, Suite&nbsp;100<BR>
Newton, MA 02458<BR>
(617)&nbsp;787-6000<BR>
(Address, including zip code, and telephone number, including area code,<BR>
of registrant&#146;s principal executive offices)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">George Naddaff, Chief Executive Officer<BR>
UFood Restaurant Group, Inc.<BR>
255 Washington Street, Suite&nbsp;100<BR>
Newton, MA 02458<BR>
(617)&nbsp;787-6000<BR>
(Name, address including zip code, and<BR>
telephone number, including area code, of agent for service)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Copy to:</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Richard A. Krantz, Esq.<BR>
Robinson &#038; Cole LLP<BR>
1055 Washington Blvd.<BR>
Stamford, CT 06901<BR>
(203)&nbsp;462-7500</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Approximate date of commencement of proposed sale to the public: <B>From time to time after this
registration statement becomes effective.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">If any of the securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule&nbsp;415 under the Securities Act of 1933 check the following box. <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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. <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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. <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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. <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 &#147;large
accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12b-2 of the Exchange Act. (Check one):</DIV>



<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="10%">&nbsp;</TD>
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    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="center" valign="top">Large accelerated filer
<FONT face="Wingdings">&#111;</FONT>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#111;</FONT>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD nowrap align="center">Non-accelerated filer &nbsp; <FONT face="Wingdings">&#111;</FONT><BR>
(Do not check if a smaller reporting company)</TD>
    <TD align="center">&nbsp;</TD>
    <TD nowrap align="center" valign="top">Smaller reporting company
<FONT face="Wingdings">&#254;</FONT>&nbsp;</TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
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    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
</TR><TR style="font-size: 1px" valign="bottom">
    <TD nowrap align="left" colspan="23" style="border-bottom: 3px double #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">    <TD width="1%">&nbsp;</TD>

    <TD nowrap align="center"><B>Title of Each Class of</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proposed</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proposed Maximum</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount of</B></TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">    <TD width="1%">&nbsp;</TD>

    <TD nowrap align="center"><B> Securities</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>To Be</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Maximum Offering</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate Offering</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Registration</B></TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">    <TD width="1%">&nbsp;</TD>

    <TD nowrap align="center"><B>to Be Registered</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Registered</B><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP> <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price Per Share</B><SUP style="font-size: 85%; vertical-align: text-top">(3) </SUP></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fee</B></TD>
    <TD width="1%">&nbsp;</TD>
</TR>

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    <TD width="1%" style="border-top: 2px solid #000000">&nbsp;</TD>

<TD style="border-top: 2px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">Common Stock, par
value $0.001 per
share</DIV></TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 2px solid #000000">79,567,064</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 2px solid #000000">$</TD>
    <TD align="right" style="border-top: 2px solid #000000">0.225</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 2px solid #000000">$</TD>
    <TD align="right" style="border-top: 2px solid #000000">17,902,589.40</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 2px solid #000000">$</TD>
    <TD align="right" style="border-top: 2px solid #000000">998.96</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-top: 2px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD nowrap align="left" colspan="23" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>

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</TABLE>
</DIV>
<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 3pt; width: 18%; border-top: 0px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Consists of (i)&nbsp;45,184,615 shares of common stock issuable upon the conversion of convertible
debentures issued to investors, (ii)&nbsp;10,844,308 shares of common stock issuable as in kind interest
under the debentures issued to investors, (iii)&nbsp;22,592,308 shares of common stock issuable upon
exercise of warrants issued to investors, and (iv)&nbsp;289,583 shares of common stock and 656,250
shares of common stock issuable upon the exercise of warrants issued to investor relations and
public relations firms.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to Rule&nbsp;416 under the Securities Act of 1933, as amended, the number of shares of
common stock registered hereby is subject to adjustment to prevent dilution resulting from stock
splits, stock dividends or similar transactions.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Estimated solely for the purpose of determining the amount of the registration fee, based on
the average of the high and low sale prices of the common stock as reported by the OTC Bulletin
Board on April&nbsp;28, 2009, in accordance with Rule 457(c) under the Securities Act of 1933.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>







<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P style="padding: 5px; border: 3px double #000000; font-size: 11pt; color: #FF0000">The information in this prospectus is not complete and may be changed. The selling stockholders may
not sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and the selling
stockholders are not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Subject to completion, dated May&nbsp;1, 2009
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><IMG src="y76886y7688600.gif" alt="(UFOOD GRILL LOGO)">

</DIV>

<DIV align="Center" style="font-size: 18pt; margin-top: 6pt"><B>UFOOD RESTAURANT GROUP, INC.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Prospectus

</DIV>

<DIV align="Center" style="font-size: 12pt; margin-top: 6pt">79,567,064 shares of common stock

</DIV>
<DIV align="left" style="font-size: 9pt; margin-top: 10pt">This prospectus relates to the offering by the selling stockholders of UFood Restaurant Group,
Inc., of up to 79,567,064 shares of our common stock, par value $0.001 per share. These shares
include (i)&nbsp;45,184,615 shares of our common stock issuable upon the conversion of 8% Senior Secured
Convertible Debentures (the &#147;Debentures&#148;) issued to investors, (ii)&nbsp;10,844,308 shares of common
stock issuable as in kind interest under the Debentures, (iii)&nbsp;22,592,308 shares of our common
stock issuable upon exercise of warrants (the &#147;Warrants&#148;) issued to investors, and (iv)&nbsp;289,583
shares of our common stock issued and 656,250 shares of our common stock issuable upon exercise of
warrants issued to investor relations and public relations firms (the &#147;IR Warrants&#148;). 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.
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 10pt">Our common stock is traded on the OTC Bulletin Board under the symbol &#147;UFFC.OB&#148;. On <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2009,
the closing price of our common stock was $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> per share.
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 10pt"><B>Investing in our common stock involves risks. Before making any investment in our securities, you
should read and carefully consider risks described in the &#147;Risk Factors&#148; section beginning on page
5 of this prospectus.</B>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 10pt"><B>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.</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">This prospectus is dated <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> , 2009.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>PAGE</B></TD>
    <TD>&nbsp;</TD>
</TR>

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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">SUMMARY</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">NOTE REGARDING FORWARD-LOOKING STATEMENTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">RISK FACTORS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">SELLING STOCKHOLDERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">USE OF PROCEEDS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">DETERMINATION OF OFFERING PRICE</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">DESCRIPTION OF BUSINESS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">PROPERTIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">LEGAL PROCEEDINGS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">EXECUTIVE COMPENSATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">PLAN OF DISTRIBUTION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">DESCRIPTION OF SECURITIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">LEGAL MATTERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">EXPERTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">WHERE YOU CAN FIND MORE INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">FINANCIAL STATEMENTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-1</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y76886exv5w1.htm">EX-5.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y76886exv10w40.htm">EX-10.40</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y76886exv23w2.htm">EX-23.2</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SUMMARY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>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 &#147;Description of Business&#148; section, the risks of
purchasing our common stock discussed under the &#147;Risk Factors&#148; section, and our financial
statements and the accompanying notes.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As used in this prospectus, &#147;UFood,&#148; &#147;the Company,&#148; &#147;we,&#148; &#147;us&#148; and &#147;our&#148; 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. &#147;KnowFat&#148; refers to the operations of
KnowFat Franchise Company, Inc., a Delaware company, prior to the December&nbsp;18, 2007 merger
discussed below, which resulted in KnowFat Franchise Company, Inc. becoming a wholly-owned
subsidiary of ours.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Our Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;s mission and concept.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We were incorporated in the State of Nevada on February&nbsp;8, 2006, as Axxent Media Corporation. Prior
to December&nbsp;18, 2007, we were a development stage company as defined by Statement of Financial
Accounting Standards (SFAS)&nbsp;No.&nbsp;7, <I>Accounting and Reporting by Development Stage Enterprises. </I>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&nbsp;8, 2007, we
changed our name to UFood Franchise Company, and on September&nbsp;25, 2007, we changed our name to
UFood Restaurant Group, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On December&nbsp;18, 2007, a wholly-owned subsidiary of the 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&#146;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 &#147;Lo Fat Know Fat&#148; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
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&#146;s preferences.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our operations currently consist of twelve restaurants in the Boston area, Naples, FL, Chicago, IL,
Draper, UT, Sacramento, CA and at the Dallas Ft. Worth Airport, comprising four Company-owned
restaurants and eight franchise-owned locations. We have entered into a total of six area
development agreements covering 68 franchise units in nine states (California, Colorado, Florida,
Illinois, Idaho, Montana, Texas, Utah and Wyoming), including seven of the eight franchise
locations currently open and operating, and requiring the construction by franchisees of 60 future
UFood Grill outlets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Of the six area development agreements described above, three were entered into during 2008. The
three area development agreements we entered into in 2008 cover 46
UFood Grill outlets (41 future
and five operating), comprising five UFood Grill units in the Chicago metropolitan area (including
three units that are currently open and operating), 38 UFood Grill units in a five-state area
composed of Colorado, Utah, Montana, Idaho and Wyoming (including one unit that opened in February
2009) and three units at airports in Texas (including one unit that opened in March&nbsp;2009). The
three area development agreements we entered into prior to 2008 cover 22 UFood Grill outlets
including three UFood Grill outlets currently open and operating and 19 UFood Grill outlets to be
constructed in the future in Naples, FL, Sacramento, CA, and San Jose, CA.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Of the 60 franchise locations to be constructed under existing area development agreements, six
locations are expected to open in 2009, ten locations in 2010, 13 locations in 2011 and 31
locations thereafter. The rate at which current and future area developers and franchisees open
locations will depend upon several factors, including the identification of suitable store sites,
the negotiation of long-term leases, the permitting process, the construction of the stores, the
ability to attract, train and retain employees and the ability to secure financing on acceptable
terms. We intend to supplement the opening of franchisee-owned locations with additional
Company-owned locations. While we have not set a specific target or timetable for Company-owned
stores, we expect Company-owned locations will be concentrated in the New England area and could
represent approximately 10% of total system-wide locations over the longer term. The rate at which
we open Company-owned locations will depend on the same factors that impact the development and
opening of franchisee-owned locations as well as the financial resources available to us. We
currently do not have the financing in place to construct and operate additional Company-owned
locations and there is no assurance that we will be able to secure the financing necessary to
construct and operate additional Company owned locations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">All of our company-owned restaurants and franchise-owned locations now operate, and all future
locations will operate, under the name UFood Grill.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Corporate Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our principal executive offices are located at 255 Washington Street, Suite&nbsp;100, Newton,
Massachusetts 02458. Our telephone number is (617)&nbsp;787-6000. Our website address is
<U>www.ufoodgrill.com</U> . Information contained on our website is not deemed part of this
prospectus.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>The Offering</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock currently outstanding
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">34,818,490 shares <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock offered by the Company
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">None</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock offered by the selling stockholders
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">79,567,064 shares <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock outstanding after the offering
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">114,095,971 shares <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Use of proceeds
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">We will not receive any of the
proceeds from the sales of our
common stock offered by this
prospectus.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">OTC Bulletin Board symbol
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">UFFC.OB</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Risk Factors
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">You should carefully consider
the information set forth in
this prospectus and, in
particular, the specific factors
set forth in the &#147;Risk Factors&#148;
section beginning on page 6 of
this prospectus before deciding
whether or not to invest in
shares of our common stock.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>As of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes (i)&nbsp;22,592,308 shares of common stock issuable upon exercise of warrants held by
the investors, (ii)&nbsp;45,184,615 shares of common stock issuable upon conversion of the 8% Senior
Secured Convertible Debentures held by the investors, (iii)&nbsp;10,844,308 shares of common stock
payable as in kind interest under the debentures held by the investors, and (iv)&nbsp;289,583 shares of
common stock and 656,250 shares of common stock issuable upon the exercise of warrants issued to
investor relations and public relations firms.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Assumes (i)&nbsp;the full exercise of the warrants held by the investor selling stockholders to
acquire 22,592,308 shares of common stock, (ii)&nbsp;the full conversion by of the 8% Senior Secured
Convertible Debentures held by the investor selling stockholders into 45,184,615 shares of common
stock, (iii)&nbsp;the issuance of 10,844,308 shares of common as in kind interest under the debentures
held by
the investor selling stockholders, (iv)&nbsp;the full exercise of the warrants held by the investor
relations and public relations firms selling stockholders to acquire 656,250 shares of common
stock, and (v)&nbsp;all of our other outstanding options and warrants are not exercised.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Summary Financial Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following tables summarizes historical financial data regarding our business and should be read
together with the information in the section titled &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations&#148; and our Consolidated Financial Statements and the
related notes included in this prospectus.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Year Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">December 28,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">December 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statement of Operations Data</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,824,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,904,883</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total costs and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,773,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,912,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding, basic and
fully diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,851,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,433,081</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per common share, basic and fully diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.68</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statement of Cash Flows Data</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,171,158</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,134,984</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents (end of period)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">787,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,352,201</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">At</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">December 28,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">December 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Balance Sheet Data</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,578,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,762,989</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,642,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,583,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,664,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,597,594</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,326,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,563,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total stockholders&#146; equity (deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,020,098</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>NOTE REGARDING FORWARD-LOOKING STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;estimate,&#148; &#147;project,&#148; &#147;intend,&#148; &#147;forecast,&#148; &#147;future,&#148; &#147;anticipate,&#148; &#147;plan,&#148;
&#147;anticipates,&#148; &#147;target,&#148; &#147;planning,&#148; &#147;positioned,&#148; &#147;continue,&#148; &#147;expect,&#148; &#147;believe,&#148; &#147;will,&#148; &#147;will
likely,&#148; &#147;should,&#148; &#147;could,&#148; &#147;would,&#148; &#147;may&#148; 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 &#147;Risk Factors&#148; 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.
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>RISK FACTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>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.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Related to Our Company and Our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have a limited operating history and are subject to all of the risks inherent in the expansion
of an early-stage business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KnowFat was formed approximately four 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have not been profitable to date and expect our operating losses to continue for the foreseeable
future; we may never be profitable.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 fiscal year
ended December&nbsp;28, 2008, we had revenue of $5,824,042 and incurred an operating loss of $9,949,481.
For the fiscal year ended December&nbsp;30, 2007, we had revenue of $4,904,883 and incurred an operating
loss of $5,007,129. Our total accumulated deficit through December&nbsp;28, 2008, was $24,717,544.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;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.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 94%
of our total revenues for the year ended December&nbsp;28, 2008. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During the year ended December&nbsp;28, 2008, our store operations business segment generated revenue of
$5,462,915 and an operating loss of $2,781,278. The store segment operating loss for the year ended
December&nbsp;28, 2008 included a loss resulting from the impairment of long lived assets and goodwill
of $2,050,655, and $305,000 of legal and other costs associated with the subcontractor liens
described in Note 13 of the Notes to Consolidated Financial Statements as of December&nbsp;28, 2008.
During the year ended December&nbsp;30, 2007, our store operations business segment generated revenues
of $4,543,194 and an operating loss of $999,385. The operating loss for our store operations
business segment for the year ended December&nbsp;30, 2007 included a loss on disposal of $666,838
resulting from the closure of one Company-owned store and the sale of another Company-owned store.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the availability of suitable sites for new stores;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our and our franchisees&#146; 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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>managing construction and development costs of new stores at affordable levels;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the establishment of brand awareness in new markets; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the ability of our Company and our area developers to manage this anticipated
expansion.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>labor disputes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>shortages of materials or skilled labor;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requirements to use union labor;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>energy prices;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse weather;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unforeseen engineering problems;</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>environmental problems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>construction or zoning problems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>local government regulations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>modifications in design; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other unanticipated increases in costs.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Because royalties from franchisees&#146; 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&#146;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
nonperformance by our franchisees of their payment and other obligations under our franchise
agreements. For example, in May&nbsp;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. Currently, the area developers in San Jose and Naples, whose agreements
require them to develop an aggregate of 12 restaurants, had failed to meet their agreed opening
timelines for an aggregate of eight restaurants; however, construction had begun on one of the
eight restaurants. Similar defaults or failures by other franchisees could materially adversely
affect our growth plans and our business, financial condition and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our past and future operating losses may make it more difficult for us to attract new franchisees.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">If we grow as anticipated, our Company and our franchisees may be affected by risks inherent in the
restaurant industry, including:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse changes in national, regional or local economic or market conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased costs of labor (including increases in the minimum wage);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased costs of food products;</TD>
</TR>

</TABLE>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>availability of, and ability to obtain, adequate supplies of ingredients that meet
our quality standards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased energy costs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>management problems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increases in the number and density of competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limited alternative uses for properties and equipment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changing consumer tastes, habits and spending priorities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changing demographics;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the cost and availability of insurance coverage;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>uninsured losses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in government regulation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changing traffic patterns;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>weather conditions; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>local, regional or national health and safety matters.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>There is intensive competition in our industry, and we will be competing with national and regional
chains and independent restaurant operators.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;healthier&#148; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our business has been adversely affected by declines in discretionary spending and may be affected
by changes in consumer preferences.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">According to a recent survey by the National Restaurant Association, restaurant operators reported
negative comparable store sales in four of the first six months of 2008. For the twelve months
ended December&nbsp;28, 2008, comparable store sales for our Company-owned stores decreased by 9.4% and
our system-wide comparable store sales decreased by 9.5%. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Increases in costs, including food, labor and energy prices, will adversely affect our results of
operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 2009 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. However, we believe the volatility in food and energy prices in 2008
has contributed to a slowdown in consumer spending in 2009, which in turn has adversely affected
our revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our stores are concentrated in a small geographic area.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Five 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The growth of our Company is dependent on the skills and expertise of management and key personnel.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During the upcoming stages of our Company&#146; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our food service business and the restaurant industry are subject to extensive government
regulation.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Massachusetts, California 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:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Establish general standards, specifications and requirements for the construction,
design and maintenance of the store premises;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

</TABLE>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>set standards pertaining to employee health and safety;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>set standards and requirements for fire safety emergency preparedness; regulate the
proper use, storage and disposal of waste, insecticides, and other hazardous materials;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establish general requirements or restrictions on advertising containing false or
misleading claims, or health and nutrient claims on menus or otherwise, such as &#147;low
calorie&#148; or &#147;fat free&#148;, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establish requirements concerning withholdings and employee reporting of taxes on tips.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In addition, some jurisdictions now require menu or other in-store disclosure of calorie and other
nutritional information for each menu item.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have not conducted a comprehensive review of all the potential environmental liabilities at our
properties.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 the identified 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our success and competitive position depends on our ability to protect our proprietary intellectual
property.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;s debts, obligations and liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our ability to operate new stores profitably and increase sales will depend on many factors, some
of which are beyond our control, including:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sales performance of new stores</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competition, either from competitors in the restaurant industry or our own stores;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in consumer preferences and discretionary spending;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>consumer understanding and acceptance of UFood stores;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>road construction and other factors limiting access to new stores;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>general economic conditions, which can affect store traffic, local labor costs and
prices we pay for ingredients and other supplies; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in government regulation.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Expansion into new markets may present increased risks due to our unfamiliarity with those areas.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may not persuade customers of the benefits of paying higher prices for higher-quality food.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Additional instances of avian flu or &#147;mad cow&#148; 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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In 2004 and 2005, Asian and European countries experienced outbreaks of avian flu. Incidents of
&#147;mad cow&#148; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our franchisees could take actions that harm our reputation and reduce our royalty revenues.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;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.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may incur material product liability claims, which could increase our costs and adversely affect
our reputation, revenues and operating income.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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&#146;
ownership interests.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As of December&nbsp;28, 2008, we estimated we will need to raise additional capital to fund our
operating plan. See &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations&#151;Liquidity and Capital Resources&#148; below. Additional capital in the future 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:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pursuing growth opportunities, including more rapid expansion;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>opening additional Company-owned stores beyond the four we currently operate</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>acquiring complementary businesses</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>making capital improvements to improve our infrastructure;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>hiring qualified management and key employees;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>research and development of new products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased advertising and marketing expenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>responding to competitive pressures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>complying with regulatory requirements such as licensing and registration; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintaining compliance with applicable laws.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Any future issuance of our equity or equity-backed securities may dilute then-current stockholders&#146;
ownership percentages. See &#147;You may experience dilution of your ownership interests because of
other future issuance of additional shares of common stock&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The failure of our subsidiary to satisfy its obligations under an existing credit facility could
result in a foreclosure on our assets.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KFLG Watertown, Inc. (KFLG), our wholly-owned subsidiary, is a party to an approximately $692,076
credit facility with TD Banknorth , N.A. (the Bank), which is secured by a lien on the assets of
KFLG. The obligations of KFLG under the credit facility are guaranteed by KnowFat of Downtown
Crossing, Inc., KnowFat of Landmark Center, Inc., and our Chief Executive Officer, and are secured
by liens on the assets of each. In the event that KFLG fails to satisfy its obligations under the
Bank credit facility, the Bank may attempt to foreclose on the assets of KFLG, KnowFat of Downtown
Crossing, Inc., KnowFat of Landmark Center, Inc., and our Chief Executive Officer. Any such
foreclosure could be costly and time consuming to us and our subsidiaries and could result in the
forfeiture of the assets subject to the Bank&#146;s liens. In addition, the Bank&#146;s liens could make it
more difficult for us to obtain additional debt or equity financing in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Compliance with the reporting requirements of federal securities laws can be expensive.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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, and the compliance obligations of the Sarbanes-Oxley Act. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Further, some of these changes heighten the requirements for board or committee membership,
particularly with respect to an individual&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We are a holding company that depends on cash flow from our subsidiaries to meet our obligations
and pay dividends; our subsidiary is restricted from making distributions to us.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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. Additionally, our ability to
participate as an equity holder in any distribution of assets of any subsidiary upon liquidation is
generally subordinate to the claims of creditors of the subsidiary. Under the terms of the credit
facility with TD Banknorth, KFLG is prohibited, without the prior written consent of TD Banknorth,
from declaring, making or paying any distribution of any kind or dividend (other than dividends
payable solely in common stock) except that any of KFLG&#146;s subsidiaries may make a distribution to
KFLG.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have reported a material weakness in our internal control over financial reporting as of
December&nbsp;28, 2008. 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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Pursuant to Section&nbsp;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&#146;s assessment of the effectiveness of our internal control over financial reporting as of
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">December&nbsp;28, 2008, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 2009, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may be exposed to potential risks resulting from new requirements under Section&nbsp;404 of the
Sarbanes-Oxley Act.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In addition to the report by management on our internal control over financial reporting described
above, for our fiscal year ending December&nbsp;27, 2009, and thereafter, such report must also contain
a statement that our auditors have issued an attestation report on our management&#146;s assessment of
such internal control. If our auditors are unable to attest that our management&#146;s report is fairly
stated (or they are unable to express an opinion on the effectiveness of our internal control when
such attestation is required), we could lose investor confidence in the accuracy and completeness
of our financial reports which could have a material adverse effect on our stock price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">While we intend to expend resources to prepare the documentation required by Section&nbsp;404 of the
Sarbanes-Oxley Act (Section&nbsp;404), and to perform the required testing procedures, there is a risk
that we will not comply with all of the requirements imposed by Section&nbsp;404. Accordingly, there can
be no assurance that our independent registered public accounting firm will be able to issue the
attestation required by Section&nbsp;404. In the event we identify significant deficiencies or
additional material weaknesses in our internal controls that we cannot remediate in a timely manner
or we are unable to receive an attestation from our independent registered public accounting firm
with respect to our internal controls, investors and others may lose confidence in the reliability
of our financial statements and our ability to obtain equity or debt financing could be adversely
affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Risks Related to Our Securities</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>There is not now, and there may not ever be, an active market for our common stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We cannot assure you that our common stock will become liquid or that it will be listed on a
securities exchange.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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
&#147;pink sheets.&#148; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Applicable SEC rules governing the trading of &#147;penny stocks&#148; limits the trading and liquidity of
our common stock, which may affect the trading price of the common stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;penny stock&#148; 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&#146;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.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>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.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The trading price of our common stock is likely to be highly volatile and could fluctuate in
response to factors such as:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>actual or anticipated variations in our operating results;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements of developments by us or our competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adoption of new accounting standards affecting our industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>additions or departures of key personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>introduction of new products by us or our competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sales of our common stock or other securities in the open market; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other events or factors, many of which are beyond our control.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;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&#146;s attention and resources, which could harm our business and
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We do not anticipate dividends to be paid on the common stock, and investors may lose the entire
amount of their investment.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Securities analysts may not initiate coverage or continue to cover our common stock, and this may
have a negative impact on its market price.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;reverse triangular merger,&#148; we may have further difficulty
attracting the coverage of securities analysts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>You may experience dilution of your ownership interests because of the future issuance of
additional shares of common stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Any future issuance of our equity or equity-backed securities may dilute then-current stockholders&#146;
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 March&nbsp;30, 2009, there were 34,818,490 shares of common stock
outstanding and 18,520,391 shares of common stock subject to outstanding
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">options and warrants. 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.
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SELLING STOCKHOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">This prospectus covers the resale from time to time by the selling stockholders identified in the
table below of:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Up to 45,184,615 shares of our common stock issuable upon conversion of 8% Senior
Secured Convertible Debentures sold in a private placement which closed on March&nbsp;19, 2009
and April&nbsp;20, 2009;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Up to 10,844,308 shares of our common stock issuable as in kind interest on the 8%
Senior Secured Convertible Debentures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Up to 22,592,308 shares of our common stock issuable upon the exercise of warrants sold
in the private placement which closed on March&nbsp;19, 2009 and April&nbsp;20, 2009;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Up to 289,583 shares of our common stock previously issued to certain in investor
relations and public relations firms; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Up to 656,250 shares of our common stock issuable upon the exercise of warrants issued
to such investor relations and public relations firms.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Pursuant to registration rights agreements executed in connection with the closing of the private
placement which closed on March&nbsp;19, 2009 and April&nbsp;20, 2009, 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 &#147;Shares of Common Stock Being Offered in the Offering&#148; in the table below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Certain selling stockholders may be deemed to be &#147;underwriters&#148; as defined in the Securities Act.
Any profits realized by such selling stockholder may be deemed to be underwriting commissions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The table below has been prepared based upon the information furnished to us by the selling
stockholders as of the date of this prospectus. 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 &#147;Plan of Distribution&#148; in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have been advised, as noted below in the footnotes to the table, that none of the selling
stockholders are broker-dealers and three of the selling stockholders are affiliates of
broker-dealers. We have been advised that each such broker-dealer and affiliate of a broker-dealer
purchased our common stock and warrants in the ordinary course of business, not for resale, and at
the time of purchase, did not have any agreements or understandings, directly or indirectly, with
any person to distribute the related common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;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&nbsp;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
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 34,818,490 shares of our
common stock outstanding as of April&nbsp;28, 2009. 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&#146;s name,
subject to community property laws, where applicable.
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payable as In</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Warrants</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Kind Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Under the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #ffffff"><B>Selling Stockholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Before the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Being Offered</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering(a)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Abrams, Marc</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adams, Terry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adilman, David</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anasazi Partners II, LLC&#135;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Andrews, David M.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Arie Leibovitz Trust
Agreement UAD 6/04/86</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Avent Jr., Thomas W.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Baker, Adrienne</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Baker, Christopher P. &#135;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Baldwin, Byron</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beadle, Loren G.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,538,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,676,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Benham, David</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">BonAnno Family
Partnership, LLLP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">626,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,007,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">BonAnno Jr., R. James</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">BonAnno, Raymond J. &#038;
Joan E.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">626,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,007,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bradley A.Luepnitz &#038; Fay
Luepnitz JTWROS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Brakeley, Harry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Campbell, Lisa L.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cannetti, Frank D.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Celi, John S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cimorolo Partners, LLC&#135;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corbett, Donald</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Coreless, Kenneth</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cornale, Alessandro</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cornelius, Craig B.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cranshire Capital, L.P.(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">D&#038;H Pinnacle Partners, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payable as In</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Warrants</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Kind Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Under the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #ffffff"><B>Selling Stockholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Before the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Being Offered</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering(a)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Daniel Blacker and
Stefanie Lisa Schwartz,
Tenants by the Entirety</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Daugherty, Paul</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">David Stone and Arlene
Stone JTWROS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Defries, Graham</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">535,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delves, Robert</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Donald Neil Gissler/ Lynn
Patton Gissler</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Donohue IV, James C.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Drew S. Dettling Living
Trust U/A Dated
06/06/1991</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eller, Ron</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finnegan, Timothy M.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">George, Philip Andrew</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gleichenhaus, Barry A.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Golden Opportunity
Consulting, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,538,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,676,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodson, Michael D.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gordon, Bruce</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gornick, Thomas G.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Greenberg, Mark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">576,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,007,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Henry S. Smith Revocable
Trust</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hill, Jr., James C.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hinkle, Donald E.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jaster, Gary W.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jecmen, Scott J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,923,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">461,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,346,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jewitt, Raymond</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Johnson, Keith F.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jones, Greg S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joseph C. Benucci &#038; Donna
M. Benucci</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Keller, Kenton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">576,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,007,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lavery, Paul</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,654</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leininger, Eric G.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leonard Mayne, Jonathan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Levine, Seth</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lin, Frank</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payable as In</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Warrants</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Kind Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Under the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #ffffff"><B>Selling Stockholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Before the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Being Offered</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering(a)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lloyd, Judith Helen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loomis, Roy S. / Claudia
J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">MarketByte LLC(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Martingale Holdings II,
LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,673,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mehok, Matthew W.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Monaco, Gene</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,307,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,015,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.29</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Montgomery, Robert L.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Morgan, Guy Vernon</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mueller, Keith</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,923,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">461,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,346,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mueller, Wendy O.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Neal, Barry S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Neptune Media, LLC(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New Century Capital
Consultants, Inc. (4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,604,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">625,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.14</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nicholson, Keith</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oxenreider, Keith B. and
Angela M.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pereira, Jr., Antonio J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Piscitelli, Jr., Joseph R.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Point Prospect, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rathjen, Steven L.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reinhart, John J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Richard, Donald J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robbins, Hilary A.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robbins, Jessica M.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robbins, John</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robert W. Denner Living
Trust 12-01-1995</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Semple, Bob</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sheldon, Alan J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Skaletsky, Marc S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Smee, Richard Anthony</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Smelgus, James</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Somelofske, Martin J.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Strom, Greg</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Snyder, Stephen C.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Susan K. Smith Trust</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">461,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">803,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payable as In</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Warrants</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Kind Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Upon</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Under the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #ffffff"><B>Selling Stockholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Before the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Debentures</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Being Offered</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering(a)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>the Offering</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TGR Group LLC(5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Apregan Family Living
Trust</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">576,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,003,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tompkins, Joseph B.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tutino, Victor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wakil, Salman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warren H. Watkins Trust,
Warren H. Watkins Trustee
U/A with Warren H Watkins
Dated 1/27/03</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Uelner, Scott M.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weir, Sean</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">669,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Were, Hugo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wittkemper, Gerd</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,338,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Woodward, Jr., John L.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wolf, Ronald</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>Assumes that all of the shares of common stock beneficially owned by each selling stockholder
being offered pursuant to this prospectus, including all shares of common stock underlying
warrants, are sold in the offering, and that shares of common stock beneficially owned by such
selling stockholder but not being registered by this prospectus are not sold.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Less than 1%</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">&#135;</TD>
    <TD>&nbsp;</TD>
    <TD>The selling stockholder is an affiliate of a broker-dealer.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Downsview Capital, Inc. (&#147;Downsview&#148;) is the general partner of Cranshire Capital, L.P.
(&#147;Cranshire&#148;) and consequently has voting control and investment discretion over securities held by
Cranshire. Mitchell P. Kopin (&#147;Mr.&nbsp;Kopin&#148;), President of Downsview, has voting control over
Downsview. As a result of the foregoing, each of Mr.&nbsp;Kopin and Downsview may be deemed to have
beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as
amended) of the shares of common stock beneficially owned by Cranshire.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>On April&nbsp;9, 2008, we entered into a services agreement with MarketByte LLC, as part of our
corporate awareness campaign, in connection with which we issued to them an aggregate of 200,000
shares of our common stock and warrants to purchase an aggregate of 83,333 shares of our common
stock in partial payment for their services. No dollar value was assigned to these services in the
agreements. The issuance of the shares and warrants above was exempt from registration under
Section&nbsp;4(2) of the Securities Act. One-half of the shares and warrants issued to MarketByte LLC
vested on January&nbsp;1, 2009 and were registered under a registration statement filed with the
Securities and Exchange Commission on June&nbsp;27, 2008, as amended. The remaining one-half of the
shares and warrants vested on March&nbsp;19, 2009 upon the publication and dissemination of a report
profiling the Company and its products and are being registered hereunder. Lawrence D. Isen has
the power to vote and dispose of the shares being registered on behalf of MarketByte LLC. Lawrence
D. Isen may also be deemed to beneficially own shares being registered on behalf of Lawrence D.
Isen and TGR Group LLC.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>On April&nbsp;9, 2008, we entered into a services agreement with Neptune Media, LLC, as part of our
corporate awareness campaign, in connection with which we issued to them an aggregate of 75,000
shares of our common stock in partial payment for their services. No dollar value was assigned to
these services in the agreements. The issuance of the shares above was exempt from registration
under Section&nbsp;4(2) of the Securities Act. One-half of the shares issued to Neptune Media, LLC
vested on January&nbsp;1, 2009. The remaining one-half of the shares vested on March&nbsp;19, 2009 upon the
publication and dissemination of a report profiling the Company and its products and are being
registered hereunder. Snezana Radovanovic- Estevez has the power to vote and dispose of the shares
being registered on behalf of Neptune Media, LLC.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>On April&nbsp;21, 2008, we entered into a consulting agreement with New Century Capital Consultants,
Inc., as part of our corporate awareness campaign, in connection with which we issued to them an
aggregate of 250,000 shares of our common stock and warrants to purchase an aggregate of 2,750,000
shares of our common stock in partial payment for their services. No dollar value was assigned to
these services in the agreements. The issuance of the shares and warrants above was exempt from
registration under Section&nbsp;4(2) of the Securities Act. The shares and warrants issued to New
Century Capital Consultants vest in equal installments over twenty-four months through April&nbsp;2010
or upon the achievement of specified milestones tied to average daily trading volume of the
Company&#146;s common stock and/or the publication of articles about the Company by local and national
media outlets. To date, the specified milestones have not been achieved and the shares and
warrants associated therewith have not vested. As of January&nbsp;8, 2009, 93,750 shares and 1,031,250
warrants had vested and were registered in a registration statement filed with the Securities and
Exchange Commission on June&nbsp;27, 2008, as amended. As of the date which is 60&nbsp;days from the date
hereof, 52,083 additional shares and 572,917 additional warrants issued to New Century will have
vested and are being registered hereunder. Stephen Schaeffer has the power to vote and dispose of
the shares being registered on behalf of New Century Capital Consultants, Inc.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>On April&nbsp;9, 2008, we entered into a services agreement with TGR Group LLC, as part of our
corporate awareness campaign, in connection with which we issued to them an aggregate of 200,000
shares of our common stock and warrants to purchase an aggregate of 83,333 shares of our common
stock in partial payment for their services. No dollar value was assigned to these services in the
agreements. The issuance of the shares and warrants above was exempt from registration under
Section&nbsp;4(2) of the Securities Act. One-half of the shares and warrants issued to TGR Group LLC
vested on January&nbsp;1, 2009 and were registered under a registration statement filed with the
Securities and Exchange Commission on June&nbsp;27, 2008, as amended. The remaining one-half of the
shares and warrants vested on March&nbsp;19, 2009 upon the publication and dissemination of a report
profiling the Company and its products and are being registered hereunder. Arthur Kang has the
power to vote and dispose of the shares being registered on behalf of TGR Group LLC. Lawrence D.
Isen may also be deemed to beneficially own these shares in addition to shares being registered on
behalf of Lawrence D. Isen and MarketByte LLC.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">All selling stockholders (other than the investor relations and public relations firms noted above)
acquired (i)&nbsp;8% Senior Secured Convertible Debentures which are convertible into shares of common
stock which are being registered, and (ii)&nbsp;warrants, the shares of common stock underlying which
are being registered, in the private placement offering which occurred on March&nbsp;19, 2009 and April
20, 2009. In connection with the first and second closings of the private placement, we issued (i)
debentures in the aggregate principal amount of $5,874,000, and (ii)&nbsp;warrants to purchase an
aggregate of 22,592,308 shares of our common stock. The securities were sold to accredited
investors, as defined under Regulation&nbsp;D under the Securities Act, and non-U.S. persons, as defined
under Regulation&nbsp;S under the Securities Act and otherwise in accordance with the provisions of
Regulation&nbsp;D and/or Regulation&nbsp;S.
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;cashless exercise,&#148;
as further described below under &#147;Description of Securities.&#148; 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&#146;s commissions) in
connection with the registration of the common stock being offered hereby by the selling
stockholders.
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>DETERMINATION OF OFFERING PRICE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;Plan of Distribution&#148; below for more
information.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Market Information and Holders</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our common stock is quoted on the OTC Bulletin Board under the symbol &#147;UFFC.OB.&#148; As of April&nbsp;28,
2009, there were 34,818,490 shares of our common stock issued and outstanding and 49,847,276
shares issuable upon exercise of outstanding stock options and warrants. On that date, there were
approximately 390 holders of record of shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Prior to the merger on December&nbsp;18, 2007, there was a limited sales history for our common stock,
because it had never been actively traded. As of April&nbsp;28, 2009, the last reported sale price of
our shares on the OTC Bulletin Board was $0.23. 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 <U>www.nasdaq.com</U>. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual
transactions.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Quarter Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;30, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;29, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;28, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.625</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;28, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;29, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;30, 2009 (through April&nbsp;28, 2009)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.21</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Dividends</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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. Under the terms of a credit agreement dated as of May&nbsp;27, 2005 between
our wholly-owned subsidiary, KFLG Watertown, Inc. (KFLG)&nbsp;and TD Banknorth, N.A. (as amended, the
Credit Agreement), KFLG is prohibited, without the prior written consent of TD Banknorth, from
declaring, making or paying any distribution of any kind or dividend (other than dividends payable
solely in common stock), except that any of KFLG&#146;s subsidiaries may make a distribution to KFLG.
See &#147;Risk Factors&#151; We are a holding company that depends on cash flow from our subsidiaries to
meet our obligations and pay dividends; our subsidiary is restricted from making distributions to
us&#148; above and &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations&#151;Liquidity and Capital Resources&#151;Credit Agreement with TD Banknorth, N.A.&#148; and Note 7,
<I>Long-Term Debt</I>, to our 2008 Consolidated Financial Statements below.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Securities Authorized for Issuance under Equity Compensation Plans</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company has two share-based, shareholder-approved equity compensation plans, the 2004 Stock
Option Plan (2004 Plan) and the
2007 Equity Incentive Plan (2007 Plan). Descriptions of these plans, and certain information
regarding options issued thereunder, are presented in Note 10, <I>Stock-Based Compensation</I>, our 2008
Consolidated Financial Statements below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As of the end of fiscal year 2008, we had the following securities authorized for issuance
under our equity compensation plans:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of securities</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>remaining available for</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>future issuance under</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of securities to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equity compensation</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>be issued upon exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise price of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>plans (excluding</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of outstanding options,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding options,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>securities reflected in</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>warrants and rights</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>warrants and rights</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>column (a))</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="center" style="border-bottom: 0px solid #000000"><B>Plan Category</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(b)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(c)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans approved by
security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,110,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,194,080</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans not approved
by security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1,387,090</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,497,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,194,080</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The options to purchase 1,000,000 shares shown in the table were not granted pursuant to a
compensation plan, but instead represent non-qualified stock options granted to our chief executive
officer, George Naddaff, by our board of Directors on May&nbsp;1, 2008. The options granted to Mr.
Naddaff were fully vested. On the same day, the Board of Directors also granted non-qualified
options to purchase 300,000 shares to our chief operating officer, Charles Cocotas. The stock
options granted to Mr.&nbsp;Cocotas will vest monthly over the remaining period of his employment
agreement and expire ten years from the date of the grant. The remaining balance of 87,090 options
was granted to Mr.&nbsp;Cocotas by our Board of Directors on December&nbsp;6, 2007, fully vested.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;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&nbsp;29, 2008.
</DIV>

<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS<BR>
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following discussion and analysis of financial condition and results of operations should be
read in conjunction with our financial statements and related notes included elsewhere in this
report. This discussion contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors discussed in &#147;Risk Factors&#148; and elsewhere
in this report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our operations currently consist of twelve restaurants in the Boston area, Naples, FL, Chicago, IL
and Sacramento, CA, comprising four Company-owned restaurants and eight franchise-owned locations.
We have entered into a total of six area development agreements covering 68 franchise units in nine
states (California, Colorado, Florida, Illinois, Idaho, Montana, Texas, Utah and Wyoming),
including seven of the eight franchise locations currently open and operating, and requiring the
construction by franchisees of 60 future UFood Grill outlets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We view ourselves primarily as a franchisor and continually review our restaurant ownership mix
(that is our mix among company-owned, franchised and joint venture) in an endeavor to deliver a
pleasant customer experience and drive profitability. In most cases, franchising is the best way to
achieve both goals. In our company-owned stores, and in collaboration with our franchisees, we
further develop and refine operating standards, marketing concepts and product and pricing
strategies, so that we introduce system-wide only those that we believe are most beneficial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We include in this discussion information on company, franchisee, and/or system-wide comparable
sales. System-wide sales are a non-GAAP financial measure that includes sales at all company-owned
and franchise-operated stores, as reported by franchisees.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Management uses system-wide sales
information internally in connection with store development decisions, planning and budgeting
analysis. Management believes it is useful in assessing customer acceptance of our brand and
facilitating an understanding of financial performance as our franchisees pay royalties and
contribute to marketing funds based on a percentage of their sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We derive revenues from three sources: (i)&nbsp;store sales which include sales of hot and cold prepared
food in a fast casual dining environment as well as sales of health and nutrition related products;
(ii)&nbsp;franchise royalties and fees represent amounts earned under franchise and area development
agreements; and (iii)&nbsp;other revenues derived primarily from the sale of marketing materials to
franchisees. Store operating expenses include the cost of goods, food and paper products sold in
company-owned stores as well as labor and other operating costs incurred to operate company-owned
stores. General and administrative expenses, advertising, marketing and promotion expenses and
depreciation expense relate to all three revenue sources.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies &#038; Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements for the fiscal years ended December&nbsp;28, 2008 and December&nbsp;30,
2007 which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of the consolidated financial statements requires us to make
estimates, judgments and assumptions, which we believe to be reasonable, based on the information
available. These estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses. Variances in the estimates or assumptions used could yield materially
different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our
accounting policies and resulting estimates to make adjustments we consider appropriate under the
facts and circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have chosen accounting policies we believe are appropriate to report accurately and fairly our
operating results and financial position, and we apply those accounting policies in a consistent
manner.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Revenue Recognition
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We follow the accounting guidance of SFAS No.&nbsp;45, <I>Accounting for Franchise Fee Income</I>. Franchisee
deposits represent advances on initial franchise fees prior to the opening of the franchisee
location. We recognize initial franchise fee revenue when all material services we are required to
perform and all material conditions we are required to satisfy have been substantially completed,
which is generally the opening of the franchised location. We defer direct costs related to
franchise sales until the related revenue is recognized; however, the deferred costs shall not
exceed anticipated revenue less estimated additional related costs. Such costs include training,
facilities design, menu planning and marketing. Franchise royalty revenues are recognized in the
same period the relevant franchisee sales occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We record revenue for Company-owned store sales upon delivery of the related food and other
products to the customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Valuation of Goodwill
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We account for goodwill and other intangible assets under SFAS No.&nbsp;141, <I>Business Combinations</I>, and
SFAS No.&nbsp;142, <I>Goodwill and Other Intangible Assets. </I>SFAS No.&nbsp;141 requires that the purchase method
of accounting be used for all business combinations initiated after June&nbsp;30, 2001, and that certain
intangible assets acquired in a business combination be recognized as assets apart from goodwill.
Under SFAS No.&nbsp;142, purchased goodwill and intangible assets with indefinite lives are not
amortized, but instead tested for impairment at least annually or whenever events or changes in
circumstances indicate the carrying value may not be recoverable. At December&nbsp;30, 2007, the
carrying amount of goodwill was $977,135 and was comprised of $841,135 of goodwill attributable to
our store operations segment and $136,000 of goodwill attributable to our franchise operations
segment. Goodwill attributable to our franchise operations segment is evaluated by comparing the
Company&#146;s fair market value, determined based upon quoted market prices of the Company&#146;s equity
securities, to the carrying amount of goodwill. Goodwill attributable to our store operations
segment is evaluated on a restaurant &#151;by-restaurant basis by comparing the restaurant&#146;s estimated
fair value to the carrying value of the restaurant&#146;s underlying net assets inclusive of goodwill.
Fair value is determined based upon the restaurant&#146;s estimated future cash flows. Future cash
flows are estimated based upon a restaurant&#146;s historical operating performance and management&#146;s
estimates of future revenues and expenses over the period of time that the Company expects to
operate the restaurant, which generally coincides with the initial term of the restaurant&#146;s lease
but which may take into account the restaurant&#146;s first lease renewal period up to 5&nbsp;years. The
estimate of a restaurant&#146;s future cash flows may also include an estimate of the restaurant&#146;s
terminal value, determined by applying a capitalization rate to the restaurant&#146;s estimated cash
flows during the last year of the forecast period. The capitalization rate used by the Company was
determined based upon the restaurant&#146;s location, cash flows and growth prospects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In August&nbsp;2008, the Company completed the conversion of three of its Company-owned stores from
KnowFat! locations to UFood Grill outlets, including two stores that have goodwill associated with
them. Following the store conversions, the Company tested the carrying value of the store&#146;s
goodwill for impairment as of the first day of the fourth quarter and determined that there was no
impairment. For purposes of estimating each store&#146;s future cash flows, the Company assumed that
comparable store sales would
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">increase by approximately 4% per year; store operating expenses as a
percentage of the store&#146;s revenues would decrease by a total of 1-1/2% of sales due to labor and
purchasing efficiencies; and the terminal value of each store was calculated using a 20%
capitalization rate applied to the final year&#146;s estimated cash flow. The present value of each
restaurant&#146;s estimated future cash flows was calculated using a discount rate of 8%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Following the impairment test performed as of the first day of the fourth quarter, economic
conditions in the United States have worsened. The U.S. Government and Federal Reserve have
provided an unprecedented level of financial support to U.S. financial institutions, unemployment
has risen, home foreclosures have increased, mortgage delinquency rates have increased, credit
markets have tightened, volatility in the equity markets has continued and the National Bureau of
Economic Research announced that the United States economy has been in recession for almost a year.
These factors have all contributed to economic uncertainty and a decrease in consumer spending
which in turn has contributed to a decline in sales at Company-owned stores. According to The
Conference Board, Inc., the decline in real consumer spending experienced in the third and fourth
quarters of 2008 are expected to last through the first half of 2009. As a result of these factors
and the uncertainty surrounding the level of economic activity in 2009 and beyond, the Company
tested the carrying value of the stores&#146; goodwill in December&nbsp;2008 and determined that the carrying
amount of the goodwill attributable to our store operations exceeded its implied fair value and
recognized a non-cash impairment charge of $765,772. For purposes of its mid-December&nbsp;2008
impairment test, the Company assumed that comparable store sales will decline by 6% in 2009 and
increase by 2.5% per year thereafter and store operating expenses will continue at their current
level as a percentage of store revenues. As a result of the economic uncertainty that currently
exists, the Company&#146;s estimate of future cash flows did not include an estimate of the restaurant&#146;s
terminal value since the Company cannot be certain that a buyer could be found for the restaurant
at the end of the lease term. The present value of the estimated future cash flows was calculated
using a 7% discount rate reflecting the recent decrease in long-term interest rates. Following the
non-cash impairment charge, the carrying value of goodwill attributable to our store operations
segment is $75,363. The carrying amount of goodwill may be impaired in the future if our actual
operating results and cash flows fall short of our expectations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Impairment of Long-Lived Assets
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In accordance with SFAS No.&nbsp;144, <I>Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of, </I>when impairment indicators exist, the Company evaluates its long-lived
assets for potential impairment. Potential impairment is assessed when there is evidence that
events or changes in circumstances have occurred that indicate the carrying amount of an asset may
not be recovered. When events or changes in circumstances have occurred that indicate a long-lived
asset may be impaired, the Company uses estimates of future cash flows on a restaurant-by-
restaurant basis to test the recoverability of its long-lived assets. Future cash flows are
estimated based upon the restaurant&#146;s historical operating performance and management&#146;s projections
of future revenues and expenses and may take into account the restaurant&#146;s estimated terminal
value. During the fourth quarter of 2008, the Company determined that the carrying value of the
long-lived assets of its store operations segment may not be recovered and recorded a non-cash
impairment charge of $1,249,150. The impairment charge was primarily due to a decrease in
forecasted sales resulting from the economic downturn which is expected to continue through 2009,
an increase in the carrying value of the underlying assets of two stores as a result of the
conversion from KnowFat! locations to UFood Grill outlets and new restaurants that opened in the
fall of 2008 in the vicinity of one of our Company-owned stores and which are expected to have an
adverse impact on the stores future sales growth. Long-lived assets may be impaired in the future
if our actual operating results and cash flows fall short of our expectations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Rent Expense
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We recognize rent expense on a straight-line basis over the reasonably assured lease term as
defined in SFAS No.&nbsp;98, <I>Accounting for Leases</I>. The reasonably assured lease term on most of our
leases is the initial non-cancelable lease term, which generally equates to between five and ten
years. In addition, certain of our lease agreements provide for scheduled rent increases during
the lease terms or for rental payments that commence on a date other than the date of initial
occupancy. We include any rent escalations and rent holidays in its determination of straight-line
rent expense. Consequently, rent expense for new locations is charged to expense beginning with
the consummation date of the lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Stock-Based Compensation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have adopted the provisions of SFAS No.&nbsp;123R, <I>Share-based Payment</I>, which establishes accounting
for equity instruments exchanged for employee services. Under the provisions of SFAS 123R,
shared-based compensation is measured at the grant date, based upon the fair value of the award,
and is recognized as an expense over the employee&#146;s requisite service period (generally the vesting
period of the equity grant).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We used the prospective approach as required by SFAS No.&nbsp;123R and accordingly, compensation costs
for periods prior to adoption were not restated. Under this approach, compensation cost is
recognized for all share-based payments granted after the date of adoption based on the grant date
fair value, estimated in accordance with the provisions of SFAS No.&nbsp;123R. Financial statement
amounts for prior periods have not been revised to reflect the fair value method of expensing
share-based compensation.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Executive Summary of Results
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following table sets forth the percentage relationship to total revenues, except where
otherwise indicated, of certain items included in our consolidated statements of operations for the
periods indicated. Percentages may not add due to rounding:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">93.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">92.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise royalties and fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store operating expenses (1):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Food and paper cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of goods sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Labor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Occupancy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other store operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advertising, marketing and promotion expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on disposal of assets, Impairment of
Goodwill and Long-lived assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total costs and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">270.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(170.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(169.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(111.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(169.6</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(111.2</TD>
    <TD nowrap>%)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Food and paper costs are shown as a percentage of food sales. The cost of nutritional
products, labor, occupancy and other store operating expenses are shown as a percentage of
total store sales.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following table sets forth certain data relating to the number of Company-owned,
franchise-operated and system-wide store locations:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Company-owned locations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations at the beginning of the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations opened</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations closed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations transferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations at the end of the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise-operated locations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations at the beginning of the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations opened</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations closed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations transferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations at the end of the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">System-wide locations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations at the beginning of the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations opened</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations closed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations transferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Locations at the end of the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Fiscal Year Ended December&nbsp;28, 2008 Compared to Fiscal Year Ended December&nbsp;30, 2007
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">General
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">For the twelve months ended December&nbsp;28, 2008, our comparable store sales for Company-owned stores
decreased by 9.4%. All of the comparable store locations are located in the greater Boston area. As
of December&nbsp;28, 2008, one franchisee-owned comparable store location was operated by the Company
pursuant to a separate management services agreement. Comparable store sales are based on sales for
stores that have been in operation for the entire period of comparison. Franchisee-owned stores
which we acquire are included in comparable store sales once they have been open for the entire
period of comparison. Comparable store sales exclude closed locations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Results of Operations
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenues
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our total revenues for the year ended December&nbsp;28, 2008 increased by $919,159, or 18.7%, to
$5,824,042 from $4,904,883 for the year ended December&nbsp;30, 2007. The increase in total revenues for
the year ended December&nbsp;28, 2008, as compared to the prior year was primarily due to sales
generated by new Company-owned restaurant that opened at Boston&#146;s Logan International Airport in
December&nbsp;2007 and two franchisee stores operated by the company under two management services
agreement partially offset by the decrease in comparable store sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Total store sales at Company-owned stores for the year ended December&nbsp;28, 2008 increased by
$919,721, or 20.2%, to $5,462,915 from $4,543,194 for the year ended December&nbsp;30, 2007. As a
percentage of total revenues, sales at Company-owned stores increased to 93.8% of total revenues
for the year ended December&nbsp;28, 2008 from 92.6% of total revenues for the year ended December&nbsp;30,
2007. The increase in sales at Company-owned stores for the year ended December&nbsp;28, 2008 was
primarily due to sales generated by the
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Logan Airport location opened in December&nbsp;2007 and the
operation of two franchisee stores under two separate management services agreements, partially
offset by a decrease in sales due to the sale of a Company-owned restaurant in September&nbsp;2007.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During the year ended December&nbsp;28, 2008, franchise royalties and fees increased by 9,127, or 2.8%
to $335,860 from $326,733 for the year ended December&nbsp;30, 2007 primarily due to a an increase in
franchise fees offset by a decrease in royalties. The Company recognized $87,500 of revenue from
initial franchise fees during the year ended December&nbsp;28, 2008 compared with $70,000 for the year
ended December&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As of December&nbsp;28, 2008, our operations consisted of ten restaurants in the Boston area, Naples,
FL, Chicago, IL and Sacramento, CA, comprising four Company-owned restaurants and six
franchise-owned locations. At December&nbsp;28, 2008, we operated one of the franchise-owned locations
pursuant to a management services agreement. As of December&nbsp;28, 2008, we had entered into a total
of six area development agreements covering 68 franchise units in nine states (California,
Colorado, Florida, Illinois, Idaho, Montana, Texas, Utah and Wyoming), including five of the six
franchise locations that were open and operating, and requiring the construction by franchisees of
63 future UFood Grill outlets (as of March&nbsp;23, 2009, three of the 63 outlets have opened).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The six area development agreements covering 68 franchise units do not include an area development
agreement covering five units in Houston, Texas. We have determined that the area developer for
Houston would not be able to construct or open the five units specified in his area development
agreement because the developer has not complied with the agreed development schedule and, to our
knowledge, has taken no steps to identify potential store locations or otherwise develop his
territory. While we have not formally terminated this agreement, we have not included those five
units in any discussions in this report. During the year ended December&nbsp;28, 2008, the franchise
location in Waltham, Massachusetts closed, two franchise locations opened in Chicago and one
location opened in California. Our standard franchise and area development agreements require
franchisees and area developers to develop a specified number of stores on or before specific
dates. If a franchisee or area developer fails to develop stores on schedule, we have the right to
terminate the agreement, retain up-front franchise fees and develop company-owned locations or
develop locations through new area developers in that market. We may exercise one or more
alternative remedies to address defaults by area developers and franchisees of the terms of their
franchise agreements including the failure to open locations on time and non-compliance with our
operating and brand requirements and other covenants under the franchise agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Costs and Expenses
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Cost of food and paper products for the year ended December&nbsp;28, 2008, increased by $461,166, or
40.0%, to $1,615,417 from $1,154,251 for the year ended December&nbsp;30, 2007. The increase in food and
paper cost was primarily due to an increase in the number of company-operated stores in 2008
compared with 2007. As a percentage of store sales, food and paper cost decreased to 34.5% of store
sales for the year ended December&nbsp;28, 2008, from 35.4% of store sales for the year ended December
30, 2007. The decrease in food and paper cost as a percentage of store sales was primarily due to
operational improvements such as portion control, loss prevention, locked meat prices and reduced
waste. The cost of goods sold for the year ended December&nbsp;28, 2008, decreased by $347,203, or 40.5%
to $509,775 from $856,978 for the year ended December&nbsp;30, 2007. The decrease in cost of goods sold
was primarily due to the elimination of the retail space within our stores as a result of the
conversion of the stores to UFood outlets. As a percentage of the retail sales, the cost of goods
sold decreased to 65.7% of store retail sales for the year ended December&nbsp;28, 2008, from 67.0% of
store retail sales for the year ended December&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Labor expense for the year ended December&nbsp;28, 2008, increased by $338,169, or 24.1%, to $1,743,831
from $1,405,662 for the year ended December&nbsp;30, 2007. The increase in labor expense was primarily
attributable to costs of new employees hired in connection with the opening of new company-owned
store locations and pay rate increases for employees that were due for pay rate review. As a
percentage of store sales, labor expense increased to 31.9% of store sales for the year ended
December&nbsp;28, 2008, from 30.9% of store sales for the year ended December&nbsp;30, 2007. The increase in
labor expense as a percentage of store sales for the year ended December&nbsp;28, 2008, was primarily
due to a decrease in same store sales and increase in pay rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Occupancy costs for the year ended December&nbsp;28, 2008, increased by $248,611, or 60.6%, to $658,672
from $410,061 for the year ended December&nbsp;30, 2007. The increase in occupancy costs was primarily
attributable to a new company-owned store and the two franchisee-owned stores operated by the
Company under management services agreement. As a percentage of store sales, occupancy costs
increased to 12.1% of store sales for the year ended December&nbsp;28, 2008, from 9.0% of store sales
for the year ended December&nbsp;30, 2007. The increase in occupancy costs as a percentage of store
sales was primarily due to the higher rent cost of our airport location and the decrease in same
store sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Other store operating expenses for the year ended December&nbsp;28, 2008, increased by $195,546, or
24.5%, to $992,350 from $796,804 for the year ended December&nbsp;30, 2007. The increase in other store
operating expenses was primarily due to our Logan Airport store that opened in December&nbsp;2007 and
two stores operated under management services agreements during 2008. As a percentage of store
sales, other store operating expenses increased to 18.2% of store sales during the year ended
December&nbsp;28, 2008, from 17.5% of store sales during the year ended December&nbsp;30, 2007.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">General and administrative expenses for the year ended December&nbsp;28, 2008, increased by $3,265,228,
or 92.8%, to $6,785,620 from $3,520,392 for the year ended December&nbsp;30, 2007. The increase in
general and administrative expenses for the year ended December&nbsp;28, 2008, compared to the same
period in the prior year is primarily due to employee stock option compensation, investor and
public relations expenses and legal fees and settlements. General and administrative expenses
include $996,792 of stock-based compensation expense in 2008 compared with $249,292 of stock-based
compensation expense in 2007. Also, general and administrative expenses for the year ended December
28, 2008 include $1,475,108 of investor and public relations expenses. As a percentage of total
revenues, general and administrative expenses increased to 117% of total revenues for the year
ended December&nbsp;28, 2008, from 71.8% of total revenues for the year ended December&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Advertising, marketing and promotion expenses for the year ended December&nbsp;28, 2008, increased by
$215,819, or 32.1%, to $887,259 from $671,440 for the year ended December&nbsp;30, 2007. The increase in
advertising, marketing and promotion expenses was primarily due to the rebranding of our KnowFat
stores into UFood outlets. As a percentage of total revenues, advertising, marketing and promotion
expenses increased to 15.2% of total revenues in 2008 from 13.7% of total revenues in 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Depreciation and amortization expense for the year ended December&nbsp;28, 2008, increased by $70,567,
or 16.4%, to $500,153 from $429,586 for the year ended December&nbsp;30, 2007 due to new company-owned
store locations and new equipment installed in previously existing company-owned store locations as
result of the conversion of the store to UFood outlets. As a percentage of total revenues,
depreciation and amortization expense decreased to 8.6% of total revenues for the year ended
December&nbsp;28, 2008, from 8.8% of total revenues for the year ended December&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The impairment of long-lived assets for the year ended December&nbsp;28, 2008 of $1,249,150 was due to
the write down of assets of two store locations. The write down was attributable to a decrease in
forecasted sales resulting from the economic downturn which is expected to continue through 2009
and new restaurants that opened in the vicinity of one of the stores and which are expected to have
an adverse impact on the stores future sales growth.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The loss on disposal of assets for the year ended December&nbsp;30, 2007, represents the costs
associated with the closing of one company-owned store and the sale of another company-owned store.
The costs associated with the disposition of the two stores were accounted for in accordance with
SFAS No.&nbsp;146, &#147;Accounting <I>for Costs Associated with Exit or Disposal Activities</I>&#148; and are comprised
of $232,073 representing the liability for the remaining lease obligation, $428,191 for the
write-off of goodwill and $6,574 representing a loss incurred on the disposition of inventory,
plant and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The company recognized a non-cash impairment charge for the year ended December&nbsp;28, 2008 of
$765,772 as result of testing the carrying value of goodwill attributable to our store operations
segment in December&nbsp;2008. We determined that the carrying amount of goodwill attributable to our
store operations exceeded its implied fair value, according with SFAS 142. For purposes of the
impairment test, the Company assumed that comparable store sales will decline by 6% in 2009 and
increase by 2-1/2% per year thereafter and store operating expenses will continue at their current
level as a percentage of store revenues. As a result of the economic uncertainty that currently
exists, the Company did not include an estimate of the restaurant&#146;s terminal value in its estimated
future cash flows since the Company cannot be certain that a buyer could be found for the
restaurant at the end of the lease term. The present value of the estimated future cash flows was
calculated using a 7% discount rate reflecting the recent decrease in long-term interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Net interest expense/income for the year ended December&nbsp;28, 2008, decreased by $373,353, or 101.
1%, to an income of $4,013, from $369,130 of expense for the year ended December&nbsp;30, 2007. As a
percentage of total revenues, net interest expense decreased to 0.1% of income of total revenues
for the year ended December&nbsp;28, 2008, from 7.6% of total revenues for the year ended December&nbsp;30,
2007. The decrease in net interest expense was primarily due to lower debt levels during the year
ended December&nbsp;28, 2008, compared to the year ended December&nbsp;30, 2007, and higher interest income.
In April&nbsp;2008, we repaid approximately $812,054 of debt incurred in connection with the acquisition
of one of our company owned store locations
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our net loss for the year ended December&nbsp;28, 2008, increased by $4,423,891, or 81.2%, to
$9,875,305, from $5,451,414 for the year ended December&nbsp;30, 2007. Our net loss increased primarily
due to higher stock-based compensation expense, higher depreciation and amortization expenses, the
loss recognized in connection with the impairment charges for long-lived assets and goodwill,
expenses for investor and public relations, and legal settlements. As a percentage of total
revenues, our net loss increased to 169.6% of total revenues for the year ended December&nbsp;28, 2008,
from 111.2 % of total revenues for the year ended December&nbsp;30, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Liquidity and Capital Resources
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Historically we have funded our operations, working capital requirements, acquisitions and capital
expenditures with proceeds from the issuance of debt and equity securities. Our future capital
requirements and the adequacy of available funds will depend on many factors, including the pace of
expansion, real estate markets, site locations and the nature of the arrangements negotiated with
landlords,
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">as well as access to the debt and/or equity capital markets. We have incurred
significant operating losses since our inception and we expect to incur operating losses for the
foreseeable future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our current business plan assumes no Company-owned stores will be constructed during 2009. As set
forth in the following table, we will need to secure approximately $6.0&nbsp;million of additional
capital through the sale of debt securities or equity securities or both to fund our current
business plan through December&nbsp;31, 2010. The amounts shown below may change as we execute our
business plan.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Estimated</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Capital Required</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">to Fund the</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Company&#146;s</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Operating Plan</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">from Dec. 28, 2008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">to Dec 31, 2010(Millions)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital Required to Fund the Company&#146;s Operating Plan (millions):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities (excluding marketing &#038; promotion services shown below)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Marketing and promotion services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Debt repayment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Estimated capital required through December&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The estimated capital required to fund our current plan is expected to come from the sale of debt
securities, equity securities or both. None of the capital required is expected to come from the
exercise of warrants. Currently, we do not have a bank line of credit or other source of additional
debt financing. There can be no assurance that we will be able to secure the additional capital
that our business plan requires. See &#147;Risk Factors&#151;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&#146; ownership interests.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">At and for the Fiscal Year Ended December&nbsp;28, 2008
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Cash and cash equivalents and restricted cash at December&nbsp;28, 2008 were $1,205,041 compared to
$4,435,813 at December&nbsp;30, 2007. Cash is primarily used to fund our (i)&nbsp;capital expenditures for
new and remodeled company-owned stores, (ii)&nbsp;acquisitions of franchisee-owned stores, (iii)&nbsp;working
capital requirements and (iv)&nbsp;net operating losses. At December&nbsp;28, 2008, restricted cash included
$41,852 of cash proceeds received from the private placement offering completed in March&nbsp;2008 and
deposited in an escrow account to fund qualified public relations and investor relations expenses
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We used $5,171,158 of cash to fund our operating activities in the twelve months ended December&nbsp;28,
2008 compared with $3,134,984 of cash used to fund our operating activities in twelve months ended
December&nbsp;30, 2007. The increase in cash used to fund our operating activities was primarily due to
cash used for investor relations and public relations activities, costs of operating as a public
company and legal and other costs associated with the settlement of a dispute with a former
franchisee and changes in working capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During the twelve months ended December&nbsp;28, 2008, we spent $792,225 primarily for the conversion of
four KnowFat! locations to UFood Grill outlets, compared with $992,447 spent for the acquisition of
equipment during the twelve months ended December&nbsp;30, 2007, primarily for the construction of one
company-owned location.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During the twelve months ended December&nbsp;28, 2008, financing activities provided $3,398,733 of cash
including $4,088,323 of net cash proceeds from the sale of 4,781,000 Units of our securities. In
addition, during the twelve months ended December&nbsp;28, 2008, we used $1,303,713 of cash to repay
outstanding indebtedness including $812,054 to repay indebtedness incurred in connection with the
acquisition of a company-owned store and $350,004 to repay bank debt. Restricted cash at December
31, 2007 was primarily comprised of $1,000,000 of cash received from the private sale of our
securities and deposited into an escrow account to be used to pay qualified public relations and
investor relations expenses. Restricted cash decreased by $666,122 during the twelve months ended
December&nbsp;28, 2008 primarily due to the payment of qualified public relations and investor relations
expenses. For the twelve months ended December&nbsp;30, 2007, financing activities provided $5,489,542
of cash, including $2,537,160 of net cash proceeds received from the issuance of notes payable and
$4,814,160 of net cash proceeds from the sales of 4,781,000 units of our securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Credit Agreement with TD Banknorth, N.A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Under the terms of a credit agreement dated as of May&nbsp;27, 2005 between our wholly-owned subsidiary,
KFLG Watertown, Inc. and TD Banknorth, N.A. (as amended, the Credit Agreement), KFLG is obligor on
a term loan that matures in May&nbsp;2010. No additional amounts are available to be borrowed under the
Credit Agreement. At December&nbsp;28, 2008, the outstanding balance on the term loan
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">was $692,076. The
term loan is due in monthly installments of $29,167 through May&nbsp;2010 and bears interest at the
bank&#146;s prime rate (3.25% at December&nbsp;28, 2008). The term loan is secured by substantially all of
the assets of KFLG and its subsidiaries. The term loan is guaranteed by the Company&#146;s chief
executive officer and its wholly-owned subsidiary, KnowFat Franchise Company, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Under the terms of the Credit Agreement, KFLG is prohibited, without the prior written consent of
TD Banknorth, from declaring, making or paying any distribution of any kind or dividend of any kind
whatsoever (other than dividends payable solely in common stock) except that any of KFLG&#146;s
subsidiaries may make a distribution to KFLG so long as there is a loan outstanding. Such
restriction has not had and is not expected to have any impact on our ability to meet our cash
obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Commitments, Contractual Obligations and Off Balance Sheet Arrangements
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In addition to our capital expenditures requirements, we have certain other contractual and
committed cash obligations. Our contractual cash obligations primarily consist of non-cancelable
operating leases for our stores, and administrative offices. Lease terms for our stores and
administrative offices are generally for seven to ten years with renewal options at most locations
and generally require us to pay a proportionate share of real estate taxes, insurance, common area,
and other operating costs. Some store leases provide for contingent rental ( <I>i.e. </I>, percentage
rent) payments based on sales in excess of specified amount. Certain of our lease agreements
provide for scheduled rent increases during the lease terms or for rental payments commencing at a
date other than the date of initial occupancy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following table sets forth information as of December&nbsp;28, 2008, with respect to our contractual
obligations and the effect they are expected to have on our liquidity and cash flows in future
periods:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Less Than</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">1 Year to</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">4 Years to</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">More than</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">1 Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">3 Years</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">5 Years</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">5 Years</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,233,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">883,684</TD>
    <TD nowrap> <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">349,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,747,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">626,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,218,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,274,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">629,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Scheduled interest payments(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>During the twelve months ended December&nbsp;28, 2008, we repaid $1,303,713
of our long-term debt including $812,054 paid in April&nbsp;2008 to
extinguish the note payable issued in connection with the acquisition
of the Boston Downtown Crossing restaurant and store. Long-term debt
due in less than 1&nbsp;year includes $450,000 that becomes due upon the
sale of our Landmark Center restaurant and store. We currently have no
plans to sell our Landmark Center unit.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Interest on the term note payable to T.D. Banknorth, N.A. is payable
monthly at the bank&#146;s prime rate (3.25% per annum at December&nbsp;28,
2008). Future interest on the T.D. Banknorth note was calculated using
an assumed rate of 3.25%.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Impact of Inflation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our profitability depends in part on our ability to anticipate and react to increases in our
operating costs, including food, labor, occupancy (including utilities and energy), insurance and
supplies costs. 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. Historically, the effects of inflation on our net income
have not been materially adverse. However, 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 latter half of fiscal 2008 and beyond and 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. The extent of
the impact may depend on our ability to increase our menu prices and the timing thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Many of our employees are paid hourly rates related to federal and state minimum wage laws.
Although we have and will continue to attempt to pass along any increased labor costs through food
price increases, there can be no assurance that all such increased labor costs can be reflected in
our prices or that increased prices will be absorbed by consumers without diminishing to some
degree
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">consumer spending at our stores. However, we have not experienced to date a significant
reduction in store profit margins as a result of changes in such laws, and management does not
anticipate any related future significant reductions in gross profit margins.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Recent Accounting Pronouncements
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Adoption of New Accounting Principle

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Effective January&nbsp;1, 2008, we adopted SFAS No.&nbsp;157, <I>Fair Value Measurements, </I>for all financial
assets and liabilities. SFAS No.&nbsp;157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS No.&nbsp;157 establishes a framework for measuring fair value
and enhances disclosures about fair value measures required under other accounting pronouncements,
but does not change existing guidance as to whether or not an instrument is carried at fair
value. The adoption of SFAS No.&nbsp;157 did not expect to have a material impact on our consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159, <I>The Fair Value Option for Financial Assets and
Financial Liabilities &#151; including an amendment of FASB Statement No.&nbsp;115</I>. Under SFAS No.&nbsp;159, a
company may elect to measure eligible financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported
in earnings at each subsequent reporting date. If elected, SFAS No.&nbsp;159 is effective for fiscal
year beginning after November&nbsp;15, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Recent Accounting Pronouncements</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the FASB issued SFAS No.&nbsp;141R, <I>Business Combinations. </I>SFAS No.&nbsp;141R establishes
principles and requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The statement also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and specifies what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. SFAS No.&nbsp;141R is effective for financial statements issued for fiscal
years beginning after December&nbsp;15, 2008. Accordingly, any business combinations we engage in will
be recorded and disclosed following existing GAAP until December&nbsp;28, 2008. We expect SFAS No.&nbsp;141R
will have an impact on our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions
we consummate after the effective date. We are still assessing the impact of this standard on our
future consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160, <I>Non-controlling Interests in Consolidated Financial
Statements, an Amendment of ARB 51. </I>SFAS No.&nbsp;160 changes the accounting and reporting for minority
interests. Minority interests will be re-characterized as non-controlling interests and will be
reported as a component of equity separate from the parent&#146;s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the non-controlling interest will be included
in consolidated net income on the face of the income statement and upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. SFAS No.&nbsp;160 is effective for financial statements issued for fiscal
years beginning after December&nbsp;15, 2008, and interim periods within those fiscal years, except for
the presentation and disclosure requirements, which will apply retrospectively. The adoption of
SFAS No.&nbsp;160 is not expected to have a material impact on our future consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In March&nbsp;2008 the FASB issued SFAS No.&nbsp;161, <I>Disclosures about Derivative Instruments and Hedging
Activities &#151; an amendment of FASB Statement No.&nbsp;133</I>. SFAS No.&nbsp;161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives and strategies for
using such instruments, as well as any details of credit risk-related contingent features contained
within derivatives. SFAS No.&nbsp;161 also requires entities to disclose additional information about
the amounts and location of derivatives included in the financial statements, how the provisions of
SFAS No.&nbsp;133 have been applied, and the impact that hedges have on an entity&#146;s financial position,
financial performance, and cash flows. SFAS No.&nbsp;161 is effective for fiscal years and interim
periods beginning after November&nbsp;15, 2008. The adoption of SFAS No.&nbsp;161 is not expected to have a
material impact on our future consolidated financial statements. In December&nbsp;2007, the Securities
and Exchange Commission issued Staff Accounting Bulletin (SAB)&nbsp;No.&nbsp;110. SAB No.&nbsp;110 expresses the
views of the staff regarding the use of a &#147;simplified&#148; method, as discussed in SAB No.&nbsp;107, in
developing an estimate of the expected term of &#147;plain vanilla&#148; share options in accordance with
SFAS No.&nbsp;123R. SAB No.&nbsp;110 is not expected to have a significant impact on our consolidated
financial statements.
</DIV>

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>DESCRIPTION OF BUSINESS</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 10pt">serve food. Delivering great taste and an overall pleasing dining experience for an
individual customer is the focus of UFood&#146;s mission and concept.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We were incorporated in the State of Nevada on February&nbsp;8, 2006, as Axxent Media Corporation. Prior
to December&nbsp;18, 2007, we were a development stage company as defined by Statement of Financial
Accounting Standards (SFAS)&nbsp;No.&nbsp;7, <I>Accounting and Reporting by Development Stage Enterprises. </I>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&nbsp;8, 2007, we
changed our name to UFood Franchise Company, and on September&nbsp;25, 2007, we changed our name to
UFood Restaurant Group, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On December&nbsp;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&#146;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 &#147;Lo Fat Know Fat&#148; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 process, 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 and we currently do not expect the sale of nutritional products
to be significant to our business in the future. None of our franchise locations currently carries
nutrition 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&#146;s preferences.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our operations currently consist of twelve restaurants in the Boston area, Naples, FL, Chicago, IL,
Draper, UT, Sacramento, CA and at the Dallas Ft. Worth Airport, comprising four Company-owned
restaurants and eight franchise-owned locations. We have entered into a total of six area
development agreements covering 68 franchise units in nine states (California, Colorado, Florida,
Illinois, Idaho, Montana, Texas, Utah and Wyoming), including seven of the eight franchise
locations currently open and operating, and requiring the construction by franchisees of 60 future
UFood Grill outlets.
</DIV>



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<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Of the six area development agreements described above, three were entered into during 2008. The
three area development agreements we entered into in 2008 cover 46 UFood Grill outlets (41future
and five operating), comprising five UFood Grill units in the Chicago metropolitan area (including
three units that are currently open and operating), 38 UFood Grill units in a five-state area
composed of Colorado, Utah, Montana, Idaho and Wyoming (including one unit that opened in February
2009) and three units at airports in Texas (including one unit that opened in March&nbsp;2009). The
three area development agreements we entered into prior to 2008 cover 22 UFood Grill outlets
including three UFood Grill outlets currently open and operating and 19 UFood Grill outlets to be
constructed in the future in Naples, FL, Sacramento, CA, and San Jose, CA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Of the 60 franchise locations to be constructed under existing area development agreements, six
locations are expected to open in 2009, ten locations in 2010, 13 locations in 2011 and 31
locations thereafter. The rate at which current and future area developers and franchisees open
locations will depend upon several factors, including the identification of suitable store sites,
the negotiation of long-term leases, the permitting process, the construction of the stores, the
ability to attract, train and retain employees and the ability to secure financing on acceptable
terms. We intend to supplement the opening of franchisee-owned locations with additional
Company-owned locations. While we have not set a specific target or timetable for Company-owned
stores, we expect Company-owned locations will be concentrated in the New England area and could
represent approximately 10% of total system-wide locations over the longer term. The rate at which
we open Company-owned locations will depend on the same factors that impact the development and
opening of franchisee-owned locations as well as the financial resources available to us. We
currently do not have the financing in place to construct and operate additional Company-owned
locations and there is no assurance that we will be able to secure the financing necessary to
construct and operate additional Company-owned locations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">All of our company-owned restaurants and franchise-owned locations now operate, and all future
locations will operate, under the name UFood Grill.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 10, Se<I>gment Data</I>, of Notes to Consolidated Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our headquarters are located at 255 Washington Street, Suite&nbsp;100, Newton, Massachusetts 02458. Our
telephone number is (617)&nbsp;787-6000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Concept and Strategy</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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
&#147;organic&#148;). The food is served on ceramic plates with metal utensils and is either taken to the
table by each guest or delivered to the table by a UFood server. Delivering great taste and an
overall pleasing dining experience for an individual customer is the focus of UFood&#146;s mission and
concept.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Many customers not only want to eat well; they also want to buy products that support an overall
healthy lifestyle. Some of our locations offer integrated convenience-style retail stores that
carry a wide variety of health-oriented nutrition products, such as supplements, vitamins,
nutrition bars, energy drinks and healthier snacks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As part of the re-branding effort that culminated in the UFood Grill concept, we developed a market
segmentation model that identified the following five customer personas:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Healthy life style enthusiast (eating healthier fits squarely into their way of life)</TD>
</TR>


</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Feel Gooder (eating at UFood makes them feel good about themselves)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Convenience-only (convenience trumps all decision factors when selecting where to dine)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>People with restricted diets</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Magic Bullet (people who seek to have it all at little cost and no effort)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U Love Great Food</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U Are Always on the Go</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U Want It Your Way</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U Want to Look and Feel Great</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 and are considering the addition of breakfast service at some of
our urban locations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Some of our restaurant locations also offer an integrated convenience-style retail store that
carries a wide variety of health-oriented nutrition products, such as supplements, vitamins,
nutrition bars, energy drinks, and healthy snacks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 twelve UFood Grill restaurant locations open. Five of the locations
are in the greater Boston area, with one location in Naples, Florida, three locations in Chicago,
Illinois, two locations in Sacramento, California, one location in Draper, Utah and one location at
the Dallas/Ft. Worth Airport.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Industry Background</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&#146;s share
of consumer food expenditures has increased from 25% in 1955 to 47.5% in 2005, and restaurant sales
are expected to reach $566&nbsp;billion in 2009, an increase of 2.9% over 2008 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The recent emergence of the fast-casual dining sector has capitalized significantly on the
industry&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;million people, met the criterion for obesity in 2006. In addition, a CDC study
indicates that in the past 30&nbsp;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)&nbsp;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.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Menu</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;organic&#148;). The food is served on ceramic plates with metal utensils and is either
taken to the table by each guest or delivered to the table by a UFood server. Delivering great
taste and an overall pleasing dining experience for an individual customer is the focus of UFood&#146;s
mission and concept.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;better for
you&#148; 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Growth Strategy</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We plan to further expand our franchising network as well as open other company-owned stores. We
have a two-part franchising strategy. We will award franchises both on an individual basis in the
Boston area and to area developers outside of Boston.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.&nbsp;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&nbsp;2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We will allow franchisees to build single units in the Boston metro area that will co-exist
alongside those of other franchisees as well as company-owned units. The proximity to our
headquarters of our Boston area restaurants will enable management to closely monitor these
single-unit franchises. In addition, the simultaneous construction of several franchises in the
Boston area would allow for more rapid growth of the Boston market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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. Currently we have six area developers who
have committed to building and operating 68 franchise locations (including 8 locations currently
open and operating) in six areas:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Dallas-Fort Worth International Airport and other airports in Texas</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Naples, FL</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sacramento, CA</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>San Jose, CA</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chicago, IL</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Five-State Region (MT, CO, UT, WY, ID)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have six 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.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->38<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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
&#147;kitchen&#148; to test new initiatives (menu items, loyalty programs etc.) in front of real customers.
We have already instituted a loyalty program that utilizes magnetically encoded discount loyalty
cards with our repeat customers. The program provides members with a 3% return on their purchases,
a free birthday meal and discount coupons. Our database contains the names of over 20,000 loyalty
card users. The loyalty card provides us with a direct communications channel with our customers,
drives sales and allows us to track consumer behavior. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have developed two prototype stores that we believe are suitable to differing site and
demographic conditions: 1) 1,500 &#151; 2,500 sq. feet units (currently twelve stores); and 2) 800 &#151;
1,000 sq. feet units that are kiosks in airports, bus and train stations, hospitals and other
high-traffic locations (currently one store). We cannot currently estimate the proportion of our
planned future locations that will fall in each of these categories.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Franchise Operations</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;years and two, five-year renewal options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Suppliers</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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, US Foodservice, Inc. The balance of our
restaurant supplies come from local vegetable and bread suppliers. Most food, produce and other
products are shipped from US Foodservice&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Competition</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->39<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Better Burger (New York City)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Energy Kitchen (New York City)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Pump (New York City)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Topz (California)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evo&#146;s (California, Florida, Nevada, North Carolina)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>b. good (Boston)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Soma Grill (Arizona)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Healthy Bites (Florida)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 four 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We also compete with these and many other retail establishments for desirable site locations. See
&#147;Risk Factors&#151;There is intensive competition in our industry, and we will be competing with
national and regional chains and independent restaurant operators.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Employees</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As of March&nbsp;28, 2009, we employed approximately 35 full-time associates (defined as associates who
average 35 hours or more per week), of whom 10 were employed in general or administrative
functions, principally at our headquarters in Newton, Massachusetts, and approximately 25 were
employed in our five 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Trademarks</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have registered the following trademarks with the United States Patents and Trademarks Office:
&#147;Unfries&#148; (pending), &#147;UFood Grill&#148; (pending), &#147;Proccino&#148; (pending), &#147;KnowFat! Lifestyle Grille,&#148;
&#147;KnowFat,&#148; &#147;Prolatta,&#148; and &#147;LoFat KnowFat&#148;. We believe that our trademarks and other proprietary
rights have significant value and are important to the marketing of our restaurant concept.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Seasonality</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">While our business is not significantly seasonal, revenues in the first two quarters of the
calendar year are slightly higher than the last two quarter of the year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Government Regulation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;Risk
Factors&#151;Our food service business and the restaurant industry are subject to extensive government
regulation.&#148;
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Environmental Regulation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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 &#147;Risk Factors&#151;We have not conducted a
comprehensive review of all the potential environmental liabilities at our properties.&#148;
</DIV>

<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>PROPERTIES</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our corporate headquarters, consisting of approximately 9,737 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&nbsp;2016. The leases require us to pay our share of
the operating expenses of the leased properties, including taxes, utilities and insurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">At December&nbsp;28, 2008, future minimum payments under non-cancelable leases were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Year ending December 28,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">626,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">616,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">633,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">641,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">629,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,747,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>LEGAL PROCEEDINGS</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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,
including the matters described below, and we intend to defend vigorously each such case. Based on
information currently available, we believe the amount, or range, of reasonably possible losses in
connection with the actions against us, including the matters described below, 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>BAA Boston, Inc., Default Claim</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KFLG Watertown, Inc. (KFLG)&nbsp;d/b/a KnowFat and or KnowFat Franchise Company, Inc., our wholly-owned
subsidiary, received a Default Letter and Notice of Liquidated Damages on September&nbsp;28, 2007, as
well as several other follow up notices of default (collectively, the Default Letters) from BAA
Boston, Inc. (BAAB)&nbsp;claiming certain defaults under KFLG&#146;s Sublease Agreement with BAAB for retail
premises (the Premises) at Logan International Airport in Boston, Massachusetts (the Sublease
Agreement). The Default Letters claimed that KFLG was in default of its obligations under the
Sublease Agreement due to, among other things, KFLG&#146;s failure to timely open the Premises for
business. The Default Letters demanded that KFLG pay $104,000 in liquidated damages to BAAB and pay
legal fees and expenses of BAAB in the amount of $48,000. The Company has resolved this matter and
the Default Letters have been rescinded.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Subcontractors&#146; Claims</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In connection with the build-out of the Premises, several of the subcontractors that performed work
at the Premises claimed that the general contractor failed or refused to pay amounts due them.
Accordingly, such subcontractors asserted mechanic&#146;s liens totaling $253,431 (the Lien Amounts)
against our leasehold interest in the Premises. In April&nbsp;2008, pursuant to the terms of the
Sublease Agreement, we obtained target lien dissolution bonds in order to dissolve the liens
against our leasehold interest in the Premises. The lien bond surety required the Company to post
cash collateral in the amount of 120% of the Lien Amounts. The general contractor on the project
was responsible for the amounts claimed by the subcontractors and was previously forced into
involuntary bankruptcy. We
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">have paid the general contractor and intend to assert claims against the
general contractor for, among other things, the amounts claimed by the subcontractors. In January,
2009, we settled with the subcontractors. The subcontractor liens have been removed and the bond
and cash collateral related to this matter have been released.
</DIV>

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>DIRECTORS, EXECUTIVE OFFICERS,<BR>
PROMOTERS AND CONTROL PERSONS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Our executive officers and directors are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Position</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">George Naddaff
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">79</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and Chairman of the Board of Directors</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Charles Cocotas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">73</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Operating Officer, Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Irma Norton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Acting Chief Financial Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert C. Grayson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">64</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jeffrey Ross
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">64</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mark Giresi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Background of Officers and Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>George Naddaff </B>has been our Chairman and Chief Executive Officer since the merger with KnowFat on
December&nbsp;18, 2007. Prior to the merger Mr.&nbsp;Naddaff was KnowFat&#146;s Co-Chief Executive Officer since
February&nbsp;2004, its CEO since September&nbsp;2007 and its Chairman of the Board since March&nbsp;2004. From
February&nbsp;1986 to February&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Charles A. Cocotas </B>has been our President and Chief Operating Officer and a director since the
merger with KnowFat on December&nbsp;18, 2007. Mr.&nbsp;Cocotas joined KnowFat as a consultant in May&nbsp;2007.
In September&nbsp;2007 he was appointed as KnowFat&#146;s President and Chief Operating Officer. From 1999 to
2007, Mr.&nbsp;Cocotas was principal of the Charles A. Cocotas Restaurant Consulting firm in
Massachusetts. He is an experienced executive with more than 35&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Irma Norton </B>joined KnowFat as its Controller in November&nbsp;2004 and became our Acting Chief Financial
Officer in April&nbsp;2009. Most recently (from September&nbsp;2002 through October&nbsp;2004), Ms.&nbsp;Norton was the
controller for Handmade Bow Company, a privately held consumer products company. Prior to that
position, from March&nbsp;1990 through October&nbsp;1995, Norton was the CFO for the Dunkin&#146; Donuts master
franchisee in Mexico. Ms.&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Robert C. Grayson </B>has been a director of KnowFat since 2004 and a director of UFood since the
merger. Since 1992 Mr.&nbsp;Grayson has been President and Chief Executive Officer of RC Grayson and
Associates, a retail-oriented consulting firm in New York City. Mr.&nbsp;Grayson has many years of
experience in the retail industry, and currently serves as a director of St. John&#146;s Knits, Inc.,
Kenneth Cole and Lillian August Designs, Inc..
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Jeffrey Ross </B>has been a director of KnowFat since 2005 and a director of UFood since the merger.
Since 1999 he has been Managing Partner of RossFialkow Capital Partners, an investment advisory
firm specializing in private equity and merger and acquisition transactions. From January&nbsp;1997 to
July&nbsp;1997, he was President and Chief Executive Officer of Hearthstone Assisted Living, a chain of
assisted living facilities in Houston, Texas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Mark Giresi </B>has been a director of KnowFat since December&nbsp;6, 2007, and a director of UFood since
the merger. From February&nbsp;2000 until May&nbsp;2008, Mr.&nbsp;Giresi worked for Limited Brands where, as
Executive Vice President, he was responsible for the retail operation of Victoria&#146;s Secret, Bath &#038;
Body Works, Express and The Limited, as well as the Company&#146;s real estate, store design and
construction and loss prevention functions. Most recently he led the strategic growth of Victoria&#146;s
Secret and Bath &#038; Body Works outside of the United States. Prior to Limited Brands, Mr.&nbsp;Giresi
spent almost 16&nbsp;years at Burger King Corporation where he held
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">several executive positions
including Senior Vice President of U.S. Franchise Operations and Development and Worldwide General
Counsel. Mr.&nbsp;Giresi holds a Bachelor of Sciences degree in accounting from Villanova University and
a Juris Doctorate of Law degree from Seton Hall Law School.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">There are no family relationships among our executive officers and directors. None of our executive
officers or directors has, during the past five years:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>been convicted in a criminal proceeding or subject to a pending criminal proceeding;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Section&nbsp;16(a) Beneficial Ownership Reporting Compliance</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Section&nbsp;16(a) of the Securities Exchange Act of 1934 requires the Company&#146;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&nbsp;3 filings are known to be late for each of
the following directors, officers and beneficial owners of more than 10&nbsp;percent of any class of
equity securities of the Company: George A. Naddaff, Charles A. Cocotas, Glenn E. Davis, Mark A.
Giresi, Robert C. Grayson and Eric Spitz.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nominations to the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;100, Newton, MA 02458.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Code of Ethics</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;100, Newton, MA 02458 Attn: Chief Financial Officer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Board of Directors currently consists of five members. Directors serve until their successors
are duly elected or appointed. On February&nbsp;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 Jeffrey Ross were designated as members of the Compensation
Committee, Mark Giresi and Charles Ramat, who resigned as a director on February&nbsp;29, 2008, were
designated as members of the Audit Committee, and Robert Grayson, Charles Ramat and Jeffrey Ross
were designated as members of the Nominating and Corporate Governance Committee of the Board.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Audit Committee Financial Expert</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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&nbsp;10A-3 under the
Exchange Act, we are not required to have a financial expert serving on our Audit Committee.
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables set forth certain information regarding the beneficial ownership of our
common stock as of April&nbsp;28, 2009, by (i)&nbsp;each person who, to our knowledge, owns more than 5% of
the Common Stock; (ii)&nbsp;each of our directors and executive officers; and (iii)&nbsp;all of our executive
officers and directors as a group. Unless otherwise indicated in the footnotes to the following
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">tables, each person named in the table has sole voting and investment power and that person&#146;s
address is c/o UFood Restaurant Group, Inc., 255 Washington Street, Suite&nbsp;100, Newton,
Massachusetts 02458. Shares of Common Stock subject to options or warrants currently exercisable or
exercisable within 60&nbsp;days of April&nbsp;28, 2009 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.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Amount and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Nature of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Beneficial</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name and Address of Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Class</B><SUP style="font-size: 85%; vertical-align: text-top"><B>&#043;</B></SUP></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">George Naddaff<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,834,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charles A. Cocotas<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Robert C. Grayson<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jeffrey Ross<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mark Giresi<SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Glenn Davis<SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eric Spitz<SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">774,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Directors and Executive Officers as a group<SUP style="font-size: 85%; vertical-align: text-top">(1)-(7)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,609,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan Antokal<SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,373,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Kevin Kimberlin<SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">12.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Spencer Trask Ventures, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">535 Madison Avenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New York, NY 10022</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top"><B>*</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Less than one percent</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">&#043;</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Based on 34,818,490 shares of common stock issued and outstanding as of April&nbsp;30, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 1,650,249 shares of Common Stock beneficially owned by Mr.
Naddaff. Also includes 184,533 shares of Common Stock issuable upon
exercise of warrants currently exercisable or exercisable within 60
days of April&nbsp;28, 2009 and 2,000,000 shares of Common Stock issuable
upon exercise of options currently exercisable or exercisable within 60
days of April&nbsp;28, 2009. Does not include 500,000 shares of Common
Stock issuable upon exercise of options granted to Mr.&nbsp;Naddaff which
will not be exercisable within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Consists of 570,968 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60&nbsp;days of April
28, 2009. Does not include 134,706 shares of Common Stock issuable upon
exercise of options granted to Mr.&nbsp;Cocotas which will not be
exercisable within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 74,815 shares of Common Stock beneficially owned by Mr.
Grayson. Also includes 25,668 shares of Common Stock issuable upon
exercise of warrants currently exercisable or exercisable within 60
days of April&nbsp;28, 2009 and 51,154 shares of Common Stock issuable upon
exercise of options currently exercisable or exercisable within 60&nbsp;days
of April&nbsp;28, 2009. Does not include an additional 53,846 shares of
Common Stock issuable upon exercise of options granted to Mr.&nbsp;Grayson
which will not be exercisable within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 122,646 shares of Common Stock beneficially owned by Mr.&nbsp;Ross.
Also includes 18,594 shares of Common Stock issuable upon exercise of
warrants currently exercisable or exercisable within 60&nbsp;days of April
28, 2009 and 55,725 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60&nbsp;days of April
28, 2009. Does not include an additional 53,846 shares of Common Stock
issuable upon exercise of options granted to Mr.&nbsp;Ross which will not be
exercisable within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 51,154 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60&nbsp;days of April
28, 2009. Does not include an additional 53,846 shares of Common Stock
issuable upon exercise of options granted to Mr.&nbsp;Giresi which will not
be exercisable within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 6,000 shares of Common Stock beneficially owned by Mr.&nbsp;Davis.
Also includes 23,077 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60&nbsp;days of April
28, 2009. Does not include an additional 26,923 shares of Common Stock
issuable upon exercise of options granted to Mr.&nbsp;Davis which will not
be exercisable within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 774,888 shares of common stock beneficially owned by Mr.&nbsp;Spitz.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 2,307,677 shares of Common Stock beneficially owned by Mr.
Antokal. Also includes 65,352 shares of Common Stock issuable upon
exercise of options or warrants currently exercisable or exercisable
within 60&nbsp;days of April&nbsp;28, 2009.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Based upon a Schedule&nbsp;13D filed with the SEC by Kevin B. Kimberlin on
July&nbsp;17, 2008, includes 102,125 shares of common stock held by Spencer
Trask Breakthrough Partners, LLC (&#147;STBP&#148;) and 3,240,000 shares of
common stock held by Spencer Trask Investment Partners, LLC. Also
includes warrants to purchase (i)&nbsp;51,063 share of common stock held by
STBP, (ii)&nbsp;372,500 shares of common stock held by Concord Equities
Group, Inc., (iii)&nbsp;358,584 shares of common stock held by Spencer Trask
&#038; Co., and (iv)&nbsp;359,440 shares of common stock held by Washington
Associates, LLC, all of which are currently exercisable. Kevin
Kimberlin may be deemed to beneficially own the shares of common stock
and currently exercisable warrants listed in this footnote 8.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>EXECUTIVE COMPENSATION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Summary Compensation Table</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The table below sets forth, for the last two fiscal years, the compensation earned by our Chief
Executive Officer, our President our former Chief Financial Officer and our former Executive Vice
President of Business Development. None of our other executive officers received annual
compensation in excess of $100,000 for fiscal year 2008. Our Chief Executive Officer and our
President are entitled to certain payments in connection with resignation, retirement or other
termination, as described more fully under the heading &#147;Agreements with Executive Officers and
Consultants.&#148;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Non-Equity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Nonqualified</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Incentive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>All Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Principal</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Option</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Plan</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Annual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Position(s)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Bonus</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Awards</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Awards</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>(</B>a<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>b<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Salary(</B>c<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>d<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>e<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>f<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>g<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>h<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>i<B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(</B>j<B>)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">George Naddaff,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">301,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">55,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">699,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,056,553</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chairman and CEO</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">221,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">357,924</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charles A. Cocotas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">206,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">102,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">309,269</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">President and COO</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em; background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Glenn Davis (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">180,614</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Former CFO</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eric Spitz</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">169,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">230,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Former Executive
Vice President of
Business
Development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">196,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">255,610</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The amount shown for option awards (column (f)) is based upon the
estimated fair value of stock options granted to the named executive
and represents the amount of compensation expense we recognized in our
consolidated financial statements for the indicated fiscal year. The
fair value of the stock option award(s) was determined using a Black
Scholes option pricing model and the assumptions for expected option
term, volatility of our Common Stock, risk-free interest rate and
expected annual dividend yield disclosed in Note 10, <I>Stock-Based
Compensation, </I>of the Notes to our 2008 Consolidated Financial
Statements included in the Company&#146;s annual report.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>All Other Annual Compensation (column (i)) earned by Mr.&nbsp;Naddaff in
2007 represents the amount of expense we recognized in our 2007
Consolidated Financial Statements for the repricing of 184,533
warrants issued to Mr.&nbsp;Naddaff in 2006 for his personal guaranty of
KnowFat&#146;s obligations to TD BankNorth, N.A. (the &#147;Bank&#148;). Immediately
prior to the consummation of the merger with KnowFat, the exercise
price of all outstanding KnowFat warrants was reduced to $1.00 and
such exercise price was not affected by the conversion ratio in the
merger.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>The Annual Compensation includes the aggregate amount paid to Fenway
Consulting Group and cash and options paid to the Consultant by the
Company.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The salary of Mr.&nbsp;Naddaff is currently $300,000, and the salary of Mr.&nbsp;Cocotas is currently
$200,000. Mr.&nbsp;Spitz&#146;s employment with the Company terminated on December&nbsp;31, 2008, and Mr.&nbsp;Davis&#146;
services for the Company were terminated on April&nbsp;29, 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Agreements with Executive Officers and Consultants</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On May&nbsp;1, 2004, KnowFat entered into a Founder&#146;s Agreement with George Naddaff, our current
Chairman and Chief Executive Officer. Under the Founder&#146;s Agreement, all 1,000,000 shares of
KnowFat common stock granted to Mr.&nbsp;Naddaff have vested.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KnowFat entered into an employment contract with Mr.&nbsp;Naddaff on October&nbsp;15, 2007 that provides: (i)
the term of his employment agreement is for three years; (ii)&nbsp;the base salary for Mr.&nbsp;Naddaff is
$300,000, plus benefits; (iii)&nbsp;Mr.&nbsp;Naddaff was granted options to purchase 1,500,000 our shares
under the Equity Incentive Plan; and (iv)&nbsp;if a Mr.&nbsp;Naddaff&#146;s employment is terminated by KnowFat
without cause, or by Mr.&nbsp;Naddaff as a result of a constructive termination by KnowFat, or as a
result of Mr.&nbsp;Naddaff&#146;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.&nbsp;Naddaff (or Mr.&nbsp;Naddaff&#146;s
legal representatives) for a period equal to the lesser of 12&nbsp;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.&nbsp;Naddaff&#146;s options to
purchase (i)&nbsp;500,000 shares vested upon the grant of the options and (ii)&nbsp;1,000,000 shares vest in
equal monthly amounts of approximately 27,778 shares over a three year period through December&nbsp;17,
2010. In addition to the foregoing, upon our consummation of the sale of any franchise restaurant,
we will pay Mr.&nbsp;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.&nbsp;Naddaff upon consummation of the
franchise sale as follows: (i) $5,000 in cash and (ii)&nbsp;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.&nbsp;Naddaff&#146;s
employment agreement provides for severance (consisting of base salary and benefits continuation)
for a period of up to 12&nbsp;months upon termination of the executive without cause. On May&nbsp;1, 2008,
the Board of Directors granted to Mr.&nbsp;Naddaff options to purchase 1,000,000 shares of the Company&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On January&nbsp;22, 2009, we entered into a letter agreement (the &#147;Separation Agreement&#148;) with Eric
Spitz pursuant to which the parties agreed to terminate Mr.&nbsp;Spitz&#146;s employment with us as of
December&nbsp;31, 2008. Under the terms of the Separation Agreement, Mr.&nbsp;Spitz is entitled to receive
severance payments in the aggregate amount of $175,000, payable in accordance with the terms of the
Separation Agreement, and to receive certain employee benefits during the severance period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Mr.&nbsp;Naddaff, Eric Spitz and Low Fat No Fat Gourmet Caf&#233;, Inc. (&#147;LFNF&#148;) are parties to a Joint
Venture Agreement dated January&nbsp;26, 2004 (the &#147;JV Agreement&#148;). Under the JV Agreement, LFNF
granted KnowFat the exclusive right to franchise the concept of retail outlets offering food
service featuring low-fat, low-carbohydrate and low-calorie food items, selected beverages and
nutritional products to the general public and agreed to contribute all its trademarks, copyrights,
know-how, trade secrets and other intellectual property to KnowFat. As consideration, KnowFat
issued 545,454 shares of its common stock to LFNF. The JV Agreement also provides that LFNF has
the right to send one attendee to meetings of the Board of directors as an observer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;12, 2008, the Board of Directors approved an employment agreement with Mr.&nbsp;Cocotas.
The agreement provides: (i)&nbsp;for an initial term of two years; (ii)&nbsp;for a base salary of $200,000
per year, plus benefits; (iii)&nbsp;that Mr.&nbsp;Cocotas is entitled to receive options to purchase 200,000
shares of the Company&#146;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)&nbsp;that if Mr.&nbsp;Cocotas&#146; 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&nbsp;1, 2008, the Board of Directors granted to Mr.&nbsp;Cocotas options to
purchase 300,000 shares of the Company&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On October&nbsp;23, 2007, KnowFat entered into a consulting agreement with Fenway Consulting Group to
refer Glenn Davis to provide financial consulting services to the Company as an Interim Chief
Financial Officer. Fenway and the Company agreed that the assignment was on a temporary basis as
determined by the Company. The Company paid Fenway an hourly rate for all hours worked by the
referred Consultant. Mr.&nbsp;Davis&#146; services for the Company were terminated on April&nbsp;29, 2009.<BR>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Outstanding Equity Awards at Fiscal Year End<BR>
December&nbsp;28, 2008</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following table sets forth certain information, as of December&nbsp;28, 2008, concerning securities
authorized for issuance under the our Equity Incentive Plan.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Outstanding Equity Awards at Fiscal Year End</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Equity</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Incentive Plan</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Awards:</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>No. of</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Number of</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Securities</B></FONT></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>No. of Securities</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Securities</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"> <B>Underlying</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Underlying</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Underlying</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Unexercised</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Unexercised</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Unexercised</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Option</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Options(#)</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Options(#)</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Unearned</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Exercise</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><FONT style="font-variant: SMALL-CAPS"><B>Option</B></FONT></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><FONT style="font-variant: SMALL-CAPS"><B>Name</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><FONT style="font-variant: SMALL-CAPS"> <B>Exercisable</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><FONT style="font-variant: SMALL-CAPS"><B>Unexercisable</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><FONT style="font-variant: SMALL-CAPS"><B>Options</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><FONT style="font-variant: SMALL-CAPS"><B>Price</B></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><FONT style="font-variant: SMALL-CAPS"><B>Expiration Date</B></FONT></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">George Naddaff</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">833,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">666,664</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">Dec. 17, 2017</FONT></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">April 30, 2018</FONT></TD>
</TR>
<TR valign="bottom" style="padding-top: 0em"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charles A. Cocotas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">Dec. 17, 2017</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">April 30, 2018</FONT></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 0em; background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Glenn Davis</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">February 11, 2018</FONT></TD>
</TR>
<TR valign="bottom" style="padding-top: 0em"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eric Spitz</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><FONT style="white-space: nowrap">Dec. 17, 2017</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The vesting schedule for the unexercised shares is outlined in the section entitled
&#147;Agreements with Executive Officers and Consultants&#148; above.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2004 Stock Option Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KnowFat did not grant any options or other stock awards under the 2004 Stock Option Plan to any
named executive officers in 2008 or 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2007 Equity Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our Board of Directors and stockholders adopted the 2007 Equity Incentive Plan on August&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;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&nbsp;29, 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Administration</I></B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Grants</I></B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">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:<BR>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Duration, Amendment and Termination</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Board has the power to amend, suspend or terminate the 2007 Plan without stockholder approval
or ratification at any time or from time to time. No change may be made that increases the total
number of shares of common stock reserved for issuance pursuant to incentive awards or reduces the
minimum exercise price for options or exchange of options for other incentive awards, unless such
change is authorized by our stockholders within one year. Unless sooner terminated, the 2007 Plan
would terminate ten years after it is adopted.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Equity Awards</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In May&nbsp;2008, the Board of Directors awarded Mr.&nbsp;Naddaff and Mr.&nbsp;Cocotas non-qualified options to
purchase 1,000,000 and 300,000 shares, respectively, of UFood common stock at an exercise price of
$1.23. The options granted to Mr.&nbsp;Naddaff are fully vested and expire ten years from the date of
grant. The options granted to Mr.&nbsp;Cocotas vest in monthly installments over the remaining term of
his employment agreement (through January&nbsp;2010) and expire ten years from the date of grant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Director Compensation</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;12, 2008, our Board of Directors approved the following compensation for non-employee
directors:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each non-employee director shall be granted non-qualified options
to purchase 100,000 shares of common stock at an exercise price equal to the
closing stock price on February&nbsp;11, 2008. Such grant shall represent a tri-annual
retainer for the 2008, 2009 and 2010 fiscal years. The options granted shall vest
weekly over 36&nbsp;months and shall expire February&nbsp;11, 2018.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each non-employee director who serves as chairman of the Audit,
Compensation or Nominating and Corporate Governance committee shall receive an
annual grant of non-qualified options to purchase 3,000 shares of common stock.
All other members of each committee shall receive an annual grant of
non-qualified options to purchase 2,500 shares of common stock.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KnowFat did not award stock options or other compensation to its directors in 2007. Our directors
are reimbursed for reasonable and necessary out-of-pocket expenses incurred in connection with
their service to us, including travel expenses.
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Directors and Officers of UFood</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In May&nbsp;2006, KnowFat entered into an agreement with George Naddaff, Chairman and CEO, by which Mr.
Naddaff received a warrant, exercisable at $1.00 per share, to purchase up to 184,533 shares of
KnowFat common stock in exchange for Mr.&nbsp;Naddaff&#146;s personal guaranty of KnowFat&#146;s credit
obligations to T.D. Banknorth N.A. of up to $1.75&nbsp;million. (The current loan balance is $575,408.)
The warrant issued to Mr.&nbsp;Naddaff expires in May&nbsp;2016.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KnowFat&#146;s directors have received stock option grants and reimbursement of certain expenses. See
the &#147;Director Compensation&#148; section of this prospectus. Two of our directors are also executive
officers. Messrs.&nbsp;Naddaff and Cocotas have entered into employment agreements with us, and each
receives compensation thereunder. See &#147;Executive Compensation&#151;Agreements with Executive Officers
and Consultants&#148; above in this prospectus.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Transactions with Spencer Trask Ventures, Inc. and Its Related Parties</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We retained the services of Spencer Trask Ventures, Inc., as placement agent in connection with a
private offering of up to 8,000,000 units of our securities, plus an over-allotment of 5,000,000
units, at a price of $1.00 per unit, to accredited investors in December&nbsp;2007. Each unit consists
of one share of common stock and a warrant to purchase one-half, or 50%, of a share of common
stock. We paid the Placement Agent a commission of 10% of the funds raised from the investors in
the offering plus an expense allowance of $190,000. In
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->48<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">addition, the placement agent received
warrants to purchase a number of shares of common stock equal to 20% of the shares of common stock
included in the units sold to investors in the offering. As a result of the foregoing, the
placement agent was paid commissions of $616,000 and received warrants to purchase 1,232,000 shares
of common stock in connection with the first and second closings of the offering in December&nbsp;2007.
The placement agent was paid further commissions of approximately $478,100 and received warrants to
purchase an additional 956,200 shares of common stock in connection with the third, fourth and
fifth closings of the offering which occurred on January&nbsp;22, 2008, February&nbsp;6, 2008 and March&nbsp;31,
2008 respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Spencer Trask and its related entities beneficially owned more than 10% of the Company&#146;s common
stock immediately after the reverse merger and to our knowledge continue to do so.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board Independence</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Although we are not currently subject to the listing standards of any exchange or to the SEC rules
pertaining to director independence, we believe that Messrs.&nbsp;Grayson and Giresi are &#147;independent&#148;
directors as that term is defined by applicable listing standards of the Nasdaq stock market and
SEC rules, including the rules relating to the independence standards of an audit committee and the
non-employee definition of Rule&nbsp;16b-3 promulgated under the Exchange Act. Jeffrey Ross, who is not
an independent director, is a member of the Compensation Committee and the Nominating and Corporate
Governance Committee of the Board of Directors.
</DIV>

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>PLAN OF DISTRIBUTION</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Each selling stockholder (the &#147;Selling Stockholders&#148;) of the common stock and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their
shares of common stock covered hereby on the OTC Bulletin Board or any other stock exchange, market
or trading facility on which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following
methods when selling shares:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate the
transaction;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>purchases by a broker-dealer as principal and resale by the broker-dealer for its
account;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an exchange distribution in accordance with the rules of the applicable exchange;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>privately negotiated transactions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in transactions through broker-dealers that agree with the Selling Stockholders
to sell a specified number of such shares at a stipulated price per share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a combination of any such methods of sale; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other method permitted pursuant to applicable law.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Selling Stockholders may also sell shares under Rule&nbsp;144 under the Securities Act of 1933, as
amended (the &#147;Securities Act&#148;), if available, rather than under this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission
in compliance with FINRA Rule&nbsp;2440; and in the case of a principal transaction a markup or markdown
in compliance with FINRA IM-2440.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In connection with the sale of the common stock or interests therein, the Selling Stockholders may
enter into hedging transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the common stock in the course of hedging the positions they assume.
The Selling Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The Selling Stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or create one or more
derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares
may be deemed to be &#147;underwriters&#148; within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does
not have any written or oral agreement or understanding, directly or indirectly, with any person to
distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company is required to pay certain fees and expenses incurred by the Company incident to the
registration of the shares. The Company has agreed to indemnify the Selling Stockholders against
certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Because Selling Stockholders may be deemed to be &#147;underwriters&#148; within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act
including Rule&nbsp;172 thereunder. The Selling Stockholders have advised us that there is no
underwriter or coordinating broker acting in connection with the proposed sale of the resale shares
by the Selling Stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We agreed to keep this prospectus effective until the earlier of (i)&nbsp;the date on which the shares
may be resold by the Selling Stockholders without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule&nbsp;144, without the requirement for the Company to be in
compliance with the current public information under Rule&nbsp;144 under the Securities Act or any other
rule of similar effect or (ii)&nbsp;all of the shares have been sold pursuant to this prospectus or Rule
144 under the Securities Act or any other rule of similar effect. The resale shares will be sold
only through registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares of Common Stock covered hereby
may not be sold unless they have been registered or qualified for sale in the applicable state or
an exemption from the registration or qualification requirement is available and is complied with.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Under applicable rules and regulations under the Exchange Act, any person engaged in the
distribution of the resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in Regulation&nbsp;M, prior
to the commencement of the distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations thereunder, including
Regulation&nbsp;M, which may limit the timing of purchases and sales of shares of the common stock by
the Selling Stockholders or any other person. We will make copies of this prospectus available to
the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to
each purchaser at or prior to the time of the sale (including by compliance with Rule&nbsp;172 under the
Securities Act).
</DIV>

<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>DESCRIPTION OF SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Authorized Capital Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Our amended and restated Articles of Incorporation provide for the issuance of 310,000,000 shares
of capital stock, of which 300,000,000 are shares of common stock, par value $0.001 per share, and
10,000,000 are blank-check preferred stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Equity Securities Issued and Outstanding</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As of April&nbsp;28, 2009, there were issued and outstanding:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>34,818,490 shares of our common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No shares of preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Options to purchase 4,197,365 shares of our common stock:</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">o</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>2,946,572 of which options are currently vested and exercisable; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">o</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>1,250,793 of which options will vest through May&nbsp;2011; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Warrants to purchase 45,651,911 shares of our common stock, 44,506,078 of which are currently exercisable.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Description of Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The holders of our common stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders, including the election of directors. Except as otherwise provided by law,
the holders of common stock vote as one class. Generally, all matters to be voted on by
stockholders must be approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of common stock that are present in
person or represented by proxy, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights granted holders of any
preferred stock, amendments to the articles of incorporation generally must be approved by a
majority of the votes entitled to be cast by all outstanding shares of common stock. The amended
and restated Articles of Incorporation do not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of preferred stock created
by the Board from time to time, the common stock holders will be entitled to share pro rata such
cash dividends as may be declared from time to time by the Board from funds available. Subject to
any preferential rights of any outstanding series of preferred stock, upon liquidation, dissolution
or winding up of our Company, the common stock holders will be entitled to receive pro rata all
assets available for distribution to such holders. There are no preemptive or other subscription
rights, conversion rights or redemption or scheduled installment payment provisions relating to
shares of common stock. All of the outstanding shares of common stock are fully paid and
nonassessable. Our common stock is traded on the OTC Bulletin Board under the symbol &#147;UFFC.OB.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Description of Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We are authorized to issue 10,000,000 shares of &#147;blank check&#148; preferred stock, $0.001 par value per
share, none of which as of the date hereof is designated or outstanding. Our Board of Directors is
vested with authority to divide the shares of preferred stock into series and to fix and determine
the relative rights and preferences of the shares of any such series. Once authorized, the dividend
or interest rates, conversion rates, voting rights, redemption prices, maturity dates and similar
characteristics of preferred stock will be determined by our Board of Directors, without the
necessity of obtaining approval of the stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Description of Options</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The options to purchase shares of our common stock under the 2004 Plan were issued to former
KnowFat option holders. All of these options became immediately exercisable upon consummation of
the merger, and no further options will be granted under the 2004 Plan. The options to purchase
shares of our common stock under the 2007 Plan were issued to our executive officers and certain
employees. On February&nbsp;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 stockholders on August&nbsp;29, 2008. We may grant options
to purchase up to an additional 3,412,080 shares of common stock pursuant to the 2007 Plan. See
&#147;Market for Common Equity and Related Stockholder Matters&#151;Securities Authorized for Issuance under
Equity Compensation Plans&#148; above and Note 10, <I>Stock-Based Compensation</I>, of Notes to our 2008
Consolidated Financial Statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Description of Warrants</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">There are currently 45,651,911 warrants outstanding representing the right to purchase 44,506,078
shares that are currently exercisable, as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(A)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(B)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(C)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(D)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Included in</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Column (A)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants Included</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of Shares of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">That Are</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">in Column (A)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Currently</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercisable by</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Issuable Upon</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Price per</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">Expiration</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercisable</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Cashless Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise of Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Share</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5" style="border-bottom: 1px solid #000000">Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,120,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,120,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,120,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,120,088      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.59      </TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">431,500      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.59      </TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2013</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">963,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">963,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">963,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">963,500      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.59      </TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2013</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">995,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">995,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">995,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">995,500      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.59      </TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2013</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(A)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(B)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(C)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(D)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Included in</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Column (A)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants Included</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of Shares of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">That Are</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">in Column (A)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Currently</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercisable by</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Issuable Upon</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Price per</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5">Expiration</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercisable</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Cashless Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise of Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Share</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5" style="border-bottom: 1px solid #000000">Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,916,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,770,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,916,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">April</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2013</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,988,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,988,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,988,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,988,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.49      </TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2015</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2016</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,779,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,779,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,779,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,779,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">April</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2016</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2016</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2016</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,651,911</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,506,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,128,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,651,911</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Warrants may be exercised in a cashless exercise any time after dates
ranging between December&nbsp;2008 through March&nbsp;2009 only if a
registration statement covering the resale of the underlying shares is
not available. A &#147;cashless exercise&#148; means that in lieu of paying the
aggregate purchase price for the shares being purchased upon exercise
of the warrants in cash, the holder will forfeit a number of shares
underlying the warrants with a &#147;fair market value&#148; equal to such
aggregate exercise price. We will not receive additional proceeds to
the extent that warrants are exercised by cashless exercise.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>As a result of the Company&#146;s recent private placement, the exercise
price of the warrants was reduced pursuant to the terms of such
warrants.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The exercise price and number of shares of common stock issuable on exercise of the warrants may be
adjusted in certain circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. The warrants also benefit from weighted
average price protection for the term of the warrants in the event that we issue additional
shares of common stock (or securities convertible into common stock) (with certain exceptions)
without consideration or for a consideration per share less than the exercise price of the warrants
then in effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Registration Rights</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Registration Rights Granted in Connection with the Private Placement</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In connection with the closing of the private placement which closed on March&nbsp;19, 2009 and April
20, 2009, we entered into registration rights agreements with the investors in that offering, under
the terms of which we committed to file a registration statement, within 45&nbsp;days from the first
closing of the offering, covering the resale of the common stock: (i)&nbsp;issuable upon conversion of
the Debentures; (ii)&nbsp;issuable as in kind interest due under the Debentures; and (iii)&nbsp;issuable upon
exercise of the Warrants, and to use reasonable best efforts to cause such registration statement
to become effective as promptly as possible. Also, we agreed to use reasonable best efforts to
maintain the effectiveness of such registration statement until the earlier of (i)&nbsp;the date on
which the shares may be resold by the Selling Stockholders without registration and without regard
to any volume or manner-of-sale limitations by reason of Rule&nbsp;144, without the requirement for the
Company to be in compliance with the current public information under Rule&nbsp;144 under the Securities
Act or any other rule of similar effect or (ii)&nbsp;all of the shares have been sold pursuant to this
prospectus or Rule&nbsp;144 under the Securities Act or any other rule of similar effect. Interest is
payable under the Debentures quarterly in cash or, at our option, in shares of our common stock at
a conversion rate equal to fair market value of our common stock on the interest payment date. For
the purpose of this registration statement, we have assumed that the conversion rate on each
applicable interest payment date will be $0.13 per share of common stock, which is the same
conversion rate used for the conversion of the principal amount of the Debentures.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Registration Rights Granted in Connection with the Corporate Awareness Campaign</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In May&nbsp;2008, we commenced a corporate awareness campaign in the investment community. In connection
with this campaign, we entered into service agreements with a number of investor relations and
public relations firms, under which we issued to the service providers an aggregate of 740,000
shares of our common stock and warrants to purchase an aggregate of 2,916,666 shares of our common
stock in partial payment for their services and granted them &#147;piggyback&#148; registration rights
entitling them to include their shares in the registration statement required to be filed following
the closing of the private placement as described above. Of the total number of shares and
warrants issued to the investor relations and public relations firms, 346,250 shares of our common
stock and warrants to purchase an aggregate of 1,114,583 shares of our common stock were vested as
of January&nbsp;7, 2009 and were included in the registration statement filed with the SEC on June&nbsp;26,
2008, as amended. 268,750 additional shares of common stock and warrants to purchase an
additional 427,084 shares of our common stock are included in the registration statement of which
this prospectus forms a part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The registration statement of which this prospectus forms a part was filed pursuant to the
registration rights granted in connection with the private placement as well as those granted in
connection with the corporate awareness campaign.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Anti-Takeover Effects of Provisions of Nevada State Law</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We may be or in the future we may become subject to Nevada&#146;s control share laws. A corporation is
subject to Nevada&#146;s control share law if it has more than 200 stockholders, at least 100 of whom
are stockholders of record and residents of Nevada, and if the corporation does business in Nevada,
including through an affiliated corporation. This control share law may have the effect of
discouraging corporate takeovers. We currently have approximately 400 stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The control share law focuses on the acquisition of a &#147;controlling interest,&#148; which means the
ownership of outstanding voting shares that would be sufficient, but for the operation of the
control share law, to enable the acquiring person to exercise the following proportions of the
voting power of the corporation in the election of directors: (1)&nbsp;one-fifth or more but less than
one-third; (2)&nbsp;one-third or more but less than a majority; or (3)&nbsp;a majority or more. The ability
to exercise this voting power may be direct or indirect, as well as individual or in association
with others.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The effect of the control share law is that an acquiring person, and those acting in association
with that person, will obtain only such voting rights in the control shares as are conferred by a
resolution of the stockholders of the corporation, approved at a special or annual meeting of
stockholders. The control share law contemplates that voting rights will be considered only once by
the other stockholders. Thus, there is no authority to take away voting rights from the control
shares of an acquiring person once those rights have been approved. If the stockholders do not
grant voting rights to the control shares acquired by an acquiring person, those shares do not
become permanent non-voting shares. The acquiring person is free to sell the shares to others. If
the buyer or buyers of those shares themselves do not acquire a controlling interest, the shares
are not governed by the control share law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">If control shares are accorded full voting rights and the acquiring person has acquired control
shares with a majority or more of the voting power, any stockholder of record, other than the
acquiring person, who did not vote in favor of approval of voting rights, is entitled to demand
fair value for such stockholder&#146;s shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In addition to the control share law, Nevada has a business combination law, which prohibits
certain business combinations between Nevada corporations and &#147;interested stockholders&#148; for three
years after the interested stockholder first becomes an interested stockholder, unless the
corporation&#146;s board of directors approves the combination in advance. For purposes of Nevada law,
an interested stockholder is any person who is: (a)&nbsp;the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the outstanding voting shares of the corporation, or (b)&nbsp;an
affiliate or associate of the corporation and at any time within the previous three years was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of the
then-outstanding shares of the corporation. The definition of &#147;business combination&#148; contained in
the statute is sufficiently broad to cover virtually any kind of transaction that would allow a
potential acquirer to use the corporation&#146;s assets to finance the acquisition or otherwise to
benefit its own interests rather than the interests of the corporation and its other stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The effect of Nevada&#146;s business combination law is to potentially discourage parties interested in
taking control of our Company from doing so if it cannot obtain the approval of our board of
directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transfer Agent</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The transfer agent for our common stock is Continental Stock Transfer &#038; Trust Company. The transfer
agent&#146;s address is 17 Battery Place, New York, New York 10004, and its telephone number is (212)
509-4000.
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>LEGAL MATTERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The validity of the common stock offered hereby will be passed upon for us by Robinson &#038; Cole, LLP,
1055 Washington Blvd., Stamford, Connecticut 06901.
</DIV>

<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>EXPERTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The consolidated financial statements for the fiscal years ended December&nbsp;28, 2008, and December
30, 2007, included in the registration statement have been audited by CCR LLP, independent
registered public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the registration statement, and are
included in reliance upon such report given upon the authority of said firm as experts in auditing
and accounting.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>WHERE YOU CAN FIND MORE INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We file annual reports, quarterly reports, current reports and other information with the SEC. You
may read or obtain a copy of these reports at the SEC&#146;s public reference room at 100 F Street,
N.E., Room&nbsp;1580, Washington, D.C. 20549 on official business days between the hours of 10:00 am and
3:00 pm. You may obtain information on the operation of the public reference room and their copy
charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
registration statements, reports, proxy information statements and other information regarding
registrants that file electronically with the SEC. The address of the website is
http://www.sec.gov.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have filed with the SEC a registration statement on Form S-1 under the Securities Act to
register the shares offered by this prospectus. The term &#147;registration statement&#148; means the
original registration statement and any and all amendments thereto, including the schedules and
exhibits to the original registration statement or any amendment. This prospectus is part of that
registration statement. This prospectus does not contain all of the information set forth in the
registration statement or the exhibits to the registration statement. For further information with
respect to us and the shares we are offering pursuant to this prospectus, you should refer to the
registration statement and its exhibits. Statements contained in this prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily complete, and you
should refer to the copy of that contract or other documents filed as an exhibit to the
registration statement. You may read or obtain a copy of the registration statement at the SEC&#146;s
public reference facilities and Internet site referred to above.
</DIV>

<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Under the Nevada Revised Statutes, our directors and officers are not individually liable to us or
our stockholders for any damages as a result of any act or failure to act in their capacity as an
officer or director unless it is proven that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>His act or failure to act constituted a breach of his fiduciary duty as a director or officer; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>His breach of these duties involved intentional misconduct, fraud or a knowing violation of law.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Nevada law allows corporations to provide broad indemnification to its officers and directors. At
the present time, our Articles of Incorporation and Bylaws also provide for broad indemnification
of our current and former directors, trustees, officers, employees and other agents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our
directors, officers and controlling persons we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
</DIV>

<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS<BR>
ON ACCOUNTING AND FINANCIAL DISCLOSURE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;12, 2008, our board of directors unanimously approved the dismissal of Manning Elliot
LLP as our principal accountants and engaged Carlin, Charron &#038; Rosen, LLP (CCR)&nbsp;as our new
principal accountants. The audit committee of the board did not separately approve the dismissal,
though all members of the committee were present at the board meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During our two most recently completed fiscal years and the subsequent interim period preceding the
decision to change principal accountants, there were no disagreements with Manning Elliot on any
matter of accounting principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Manning Elliot, would have caused it to
make references to the subject matter of the disagreement in connection with its report. Manning
Elliot&#146;s report to our directors and stockholders dated June&nbsp;13, 2007, which is included in our
Form 10-KSB filed with the Securities and Exchange Commission on June&nbsp;27, 2007, indicated Manning
Elliot&#146;s &#147;substantial doubt about the Company&#146;s ability to continue as a going concern.&#148; Manning
Elliot&#146;s reports on our financial statements for the past two years did not otherwise contain an
adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During our two most recently completed fiscal years and the
subsequent interim period preceding the decision to change principal accountants, there were no
reportable events as defined in Regulation&nbsp;S-K Item&nbsp;304(a)(v).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We provided Manning Elliot with a copy of the disclosures made by us in a current report filed with
respect to their dismissal (which were substantially the same as the statements made above), and at
our request Manning Elliot furnished us with a letter stating that it agrees with the statements as
they relate to Manning Elliott. A copy of this letter was filed as Exhibit&nbsp;16.1 to our Current
Report on Form 8-K/A filed with the SEC on March&nbsp;11, 2008, and is incorporated herein by reference.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We engaged CCR as our principal accountants effective as of February&nbsp;12, 2008. During our two most
recent fiscal years and the subsequent interim period prior to engaging CCR, neither we nor anyone
on our behalf consulted with CCR regarding the application of accounting principles to a specific
transaction, either completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, and neither a written report nor oral advice was provided to us by CCR
that was an important factor considered by us in reaching a decision as to any accounting, auditing
or financial reporting issue; provided, however, that on December&nbsp;18, 2007, a wholly-owned
subsidiary of ours merged with and into KnowFat Franchise Company, Inc., with KnowFat as the
surviving corporation in the merger, and prior to the merger, CCR was the principal accountant of
KnowFat since March&nbsp;2004.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF</B><BR>
<U><B>UFOOD RESTAURANT GROUP, INC.</B></U>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Consolidated Balance Sheets as of December&nbsp;28, 2008 and December&nbsp;30, 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated Statements of Operations for the Fiscal Years Ended December 28, 2008 and December&nbsp;30, 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated Statements of Stockholders&#146; Equity (Deficit) for the Fiscal Years Ended December&nbsp;28, 2008
and December&nbsp;30, 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Consolidated Statements of Cash Flows for the Fiscal Years Ended December&nbsp;28, 2008 and December&nbsp;30, 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Notes to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-8</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F - 1 <!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">To the Shareholders of UFood Restaurant Group, Inc:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We have audited the accompanying consolidated balance sheets of UFood Restaurant Group, Inc and
Subsidiary (the Company) as of December&nbsp;28, 2008 and December&nbsp;30, 2007, and the related
consolidated statements of operations, changes in stockholders&#146; equity and cash flows for the
fiscal years then ended. These consolidated financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States of America). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion of the
effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of UFood Restaurant Group, Inc and Subsidiary as of
December&nbsp;28, 2008 and December&nbsp;30, 2007, and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">/s/CCR LLP

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Westborough, Massachusetts<BR>
March&nbsp;30, 2009

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 2 <!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
</DIV>

<DIV align="left">
<A name="301"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Consolidated Balance Sheets

</DIV>
<DIV align="center" style="font-size: 10pt">December&nbsp;28, 2008 and December&nbsp;30, 2007</DIV>



<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Assets

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">787,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,352,201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">417,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,083,612</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193,359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,283</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,578,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,762,989</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">925,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874,853</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156,207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,782,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,301,571</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Website development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,736</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,913,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,413,367</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,172,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">699,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,740,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,714,062</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">977,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">323,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,106,495</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,642,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,583,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">See accompanying notes.

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 3 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Consolidated Balance Sheets<BR>
December&nbsp;28, 2008 and December&nbsp;30, 2007

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Liabilities and Stockholders&#146; Equity

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">883,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,874,993</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">614,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">727,293</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Franchisee deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">504,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">439,226</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,664,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,597,594</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">730,691</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other noncurrent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">225,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">661,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">965,854</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,326,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,563,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock, $0.001 par value, 300,000,000 shares
authorized, 34,818,490 and 29,241,158 shares
issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,241</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,998,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,833,096</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,717,544</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,842,239</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,020,098</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,642,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,583,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">See accompanying notes.

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F - 4 <!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
</DIV>

<DIV align="left">
<A name="302"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Consolidated Statements of Operations

</DIV>
<DIV align="center" style="font-size: 10pt">For the Fiscal Year Ended December&nbsp;28, 2008 and December&nbsp;30, 2007</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Store sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,462,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,543,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Franchise royalties and fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">335,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326,733</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,956</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,824,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,904,883</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Store operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Food and paper costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,615,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,154,251</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cost of Goods sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">509,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">856,978</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Labor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,743,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,405,662</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Occupancy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">658,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">410,061</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other store operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">992,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">796,804</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,785,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,520,392</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Advertising, marketing and promotion expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">887,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">765,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of long-lived assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,249,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">666,838</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total costs and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,773,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,912,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,949,481</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,007,129</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,627</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76,602</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(387,757</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(75,155</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(444,285</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic and diluted earnings (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.68</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">See accompanying notes.

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F -5 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>UFOOD RESTAURANT GROUP, INC.<BR>
and SUBSIDIARY</B>
</DIV>

<DIV align="left">
<A name="303"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Consolidated Statements of Changes in Stockholders&#146; Equity (Deficit)

</DIV>
<DIV align="center" style="font-size: 10pt">For the Fiscal Years Ended December&nbsp;28, 2008 and December&nbsp;30, 2007</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>Series B Convertible</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>Series A Convertible</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="35" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balances, January&nbsp;1, 2007</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,407,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,576,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">525,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,208,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,720,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,390,825</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,709,719</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends accrued on mandatory redeemable preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(244,886</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(244,886</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued preferred stock
dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">395,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(696,479</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,407,416</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(826,957</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,576,040</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(826,148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,710,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,965,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,315,698</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of promissory notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,248,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,650,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,656,809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock issued for marketing and promotional services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,371,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,292</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancellation and re-issuance
of warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reverse acquisition recapitalization adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of Units (net of
issuance costs of $1,345,840) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,160,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,808,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,814,160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for year ended
December&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="35" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balances, December&nbsp;30, 2007</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,241,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,833,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(14,842,239</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,020,098</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="35" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of Units (net of
issuance costs of $691,154) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,781,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,083,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,088,323</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock issued for marketing and promotional services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">740,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,030,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,031,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock issued for franchise
sales commission</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,040</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">996,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">996,792</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss for year ended
December&nbsp;28, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="35" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balances, December&nbsp;28, 2008</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,818,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,998,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(24,717,544</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">316,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="35" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F -6 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
</DIV>

<DIV align="left">
<A name="304"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Consolidated Statements of Cash Flows
</DIV>

<DIV align="center" style="font-size: 10pt">For the Fiscal Year Ended December&nbsp;28, 2008 and December&nbsp;30, 2007</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net loss to net cash used in operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of deferred financing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,001</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,229</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">765,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of long lived assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,249,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustment to warrant exercise prices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,051,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,292</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">666,838</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-cash promotion expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,031,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">424,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-cash interest on bridge loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119,650</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on extinguishment of debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68,575</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase (decrease)&nbsp;in cash from changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88,788</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(56,362</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,373</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(39,374</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,595</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other assets and noncurrent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232,429</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(112,737</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Franchisee deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(143,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(34,318</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,436</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,171,158</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,134,984</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(792,225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(992,447</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(792,225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(842,447</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from issuance of notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,537,160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from issuance of common stock, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,088,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,814,160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,303,713</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(715,094</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(51,999</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(63,072</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Increase) decrease in restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">666,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,083,612</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,398,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,489,542</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase(Decrease) in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,564,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,512,111</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#151; beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,352,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,840,090</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#151; end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">787,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,352,201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">See accompanying notes.

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F -7 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
</DIV>

<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Notes to Consolidated Financial Statements
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Nature of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">UFood Restaurant Group, Inc. was incorporated in the State of Nevada on February&nbsp;8, 2006 as Axxent
Media Corp. Prior to December&nbsp;18, 2007, UFood was a development stage company headquartered in
Vancouver, Canada. As Axxent Media Corp., the Company&#146;s 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. On August&nbsp;8, 2007, the
Company changed its name to UFood Franchise Company, and on September&nbsp;25, 2007, changed its name to
UFood Restaurant Group, Inc. (UFood or the Company).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On December&nbsp;18, 2007, (Merger Date) pursuant to the terms of an Agreement and Plan of Merger and
Reorganization, a wholly-owned subsidiary of the Company merged with and into KnowFat Franchise
Company, Inc. (KnowFat). Following the merger (the Merger), UFood continued KnowFat&#146;s business
operations as a franchisor and operator of fast-casual food service restaurants that capitalize on
consumer demands for great tasting food with healthy attributes. As of December&nbsp;28, 2008, the
Company&#146;s operations consisted of four company-owned restaurants and six franchise-owned locations.
One of the franchise-owned locations was operated by the company pursuant to a management series
agreement. On the Merger Date, each share of KnowFat common stock issued and outstanding
immediately prior to the Merger was exchanged for 1.52350763 shares of UFood Common Stock. All
share amounts have been adjusted to reflect the effect of the share exchange.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Summary of Significant Accounting Policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Basis of Presentation and Principles of Consolidation</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The accompanying consolidated financial statements of UFood Restaurant Group, Inc. and its
subsidiary consist of the accounts of UFood Restaurant Group, Inc. and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Certain reclassifications have been made to conform previously reported data to the current
presentation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Fiscal Year</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Following the merger described in Note 1, UFood changed its fiscal year end from April&nbsp;30 to a
52/53&nbsp;week fiscal year ending on the Sunday closes to December&nbsp;31 of each year. Our 2008 and 2007
fiscal years ended on December&nbsp;28, 2008 and December&nbsp;30, 2007, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Use of Estimates</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual amounts could differ from those estimates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Cash Equivalents</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Cash equivalents represent highly liquid instruments with original maturities of three months or
less when purchased. Cash equivalents consist of money market accounts at December&nbsp;28, 2008 and
December&nbsp;30, 2007. At December&nbsp;28, 2008 restricted cash was comprised of $375,638 used to
collateralize a standby letter of credit and $41,852 that can only be used to pay qualified
investor relations and public relations expenses.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Inventories</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Inventories, which primarily consist of food products, paper goods and supplies and vitamins and
supplements for resale, are stated at the lower of cost or market, with cost determined by the
average cost method.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Deferred Financing Costs</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Deferred financing costs represent costs paid to third parties in order to obtain long-term
financing and have been included in other assets. Deferred financing costs are amortized over the
life of the related debt. Amortization expense related to these costs were $15,871 and $20,001 for
the years ended December&nbsp;28, 2008 and December&nbsp;30, 2007, respectively, and is included in interest
expense.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F -8 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Property and Equipment</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Property, equipment and leaseholds are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated useful lives or the
related reasonably assured lease term. The estimated useful lives used for financial statement
purposes are:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leasehold improvements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Furniture and fixtures
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Website development costs
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3&nbsp;years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Upon retirement or sale, the cost of assets disposed and their related accumulated depreciation are
removed from the accounts. Any resulting gain or loss is credited or charged to operations.
Maintenance and repairs are charged to expense when incurred, while betterments are capitalized.
The total amounts expensed for maintenance and repairs were $92,808 and $70,182 for the fiscal
years ended December&nbsp;28, 2008 and December&nbsp;30, 2007, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Goodwill and Other Intangible Assets</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">We account for goodwill and other intangible assets under SFAS No.&nbsp;141, <I>Business Combinations</I>, and
SFAS No.&nbsp;142, <I>Goodwill and Other Intangible Assets. </I>SFAS No.&nbsp;141 requires that the purchase method
of accounting be used for all business combinations initiated after June&nbsp;30, 2001, and that certain
intangible assets acquired in a business combination be recognized as assets apart from goodwill.
Under SFAS No.&nbsp;142, purchased goodwill and intangible assets with indefinite lives are not
amortized, but instead tested for impairment at least annually or whenever events or changes in
circumstances indicate the carrying value may not be recoverable. At December&nbsp;28, 2008, the
Company had no indefinite-lived intangible assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Intangible assets with finite lives consist of costs incurred to obtain debt financing and are
being amortized on a straight-line basis over the term of the related debt.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Impairment of Long-Lived Assets</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In accordance with SFAS No.&nbsp;144, <I>Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of, </I>when impairment indicators exist, the Company evaluates its long-lived
assets for potential impairment. Potential impairment is assessed when there is evidence that
events or changes in circumstances have occurred that indicate the carrying amount of an asset may
not be recovered. When events or changes in circumstances have occurred that indicate a long-lived
asset may be impaired, the Company uses estimates of future cash flows on a restaurant-by-
restaurant basis to test the recoverability of its long-lived assets. Future cash flows are
estimated based upon the restaurant&#146;s historical operating performance and management&#146;s projections
of future revenues and expenses and may take into account the restaurant&#146;s estimated terminal
value. During the fourth quarter of 2008, the Company determined that the carrying value of the
long-lived assets of its store operations segment may not be recovered and recorded a non-cash
impairment charge of $1,249,150. The impairment charge is primarily due to a decrease in forecasted
sales resulting from the economic downturn which is expected to continue through 2009, an increase
in the carrying value of the underlying assets of two stores as a result of the conversion from
KnowFat! locations to UFood Grill outlets and new restaurants that opened in the fall of 2008 in
the vicinity of one of our Company-owned stores and which are expected to have an adverse impact on
the stores future sales growth. Long-lived assets may be impaired in the future if our actual
operating results and cash flows fall short of our expectations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Key man insurance</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company has obtained Key Man insurance on the Chairman and CEO of the Company with a base face
amount of $2,500,000 with no surrender value as of December&nbsp;28, 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income Taxes</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The provision for income taxes is determined in accordance with the provisions of SFAS No.&nbsp;109,
<I>Accounting for Income Taxes. </I>Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted income tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled.
Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In July&nbsp;2006, the Financial Accounting Standards Board (FASB)&nbsp;issued Interpretation (FIN)&nbsp;No.&nbsp;48,
<I>Accounting for Uncertainty in Income Taxes. </I>FIN No.&nbsp;48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise&#146;s financial statements in accordance with SFAS No.&nbsp;109.
FIN No.&nbsp;48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This
pronouncement also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. Effective January&nbsp;1, 2007, the Company
adopted the provisions of FIN No.&nbsp;48 and the provisions of FIN No.&nbsp;48 have been applied to all
income tax positions commencing from that date. The cumulative effect of adopting FIN No.&nbsp;48 was
not material.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Revenue Recognition</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company records revenue for company-owned store sales upon the delivery of the related food and
other products to the customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company follows the accounting guidance of SFAS No.&nbsp;45, <I>Accounting for Franchise Fee Income</I>.
Franchisee deposits represent advances on initial franchise fees prior to the opening of the
franchisee location. We recognize initial franchise fee revenue when all material services we are
required to perform and all material conditions we are required to satisfy have been substantially
completed, which is generally the opening of the franchised location. The Company defers direct
costs related to franchise sales until the related revenue is recognized; however, the deferred
costs shall not exceed anticipated revenue less estimated additional related costs. Such costs
include training, facilities design, menu planning and marketing. Franchise royalty revenues are
recognized in the same period the relevant franchisee sales occur.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Advertising Costs
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company expenses advertising costs as incurred. Advertising expense amounted to $90,279 in 2008
and $82,469 in 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Pre-Opening Costs
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">All pre-opening costs directly associated with the opening of new company-owned restaurant
locations, which consist primarily of labor and food costs incurred during in-store training and
preparation for opening, but exclude manager training costs which are included in other operating
expenses, are expensed when incurred.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Rent Expense
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company recognizes rent expense on a straight-line basis over the reasonably assured lease term
as defined in SFAS No.&nbsp;98, <I>Accounting for Leases. </I>The reasonably assured lease term on most of the
Company&#146;s leases is the initial non-cancelable lease term, which generally equates to between 5 and
10&nbsp;years. In addition, certain of the Company&#146;s lease agreements provide for scheduled rent
increases during the lease terms or for rental payments commencing at a date other than the date of
initial occupancy. The Company includes any rent escalations and other rent holidays in its
determination of straight-line rent expense. Therefore, rent expense for new locations is charged
to expense upon the commencement date of the lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Earnings Per Share Data
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Earnings per share are based on the weighted average number of shares outstanding during the period
after consideration of the dilutive effect, if any, for common stock equivalents, including stock
options, restricted stock, and other stock-based compensation. Earnings per common share are
computed in accordance with SFAS No.&nbsp;128, <I>Earnings Per Share, </I>which requires companies to present
basic earnings per share and diluted earnings per share. Basic earnings per share are computed by
dividing net income by the weighted average number of shares of common stock outstanding during the
year. Diluted earnings per common share are computed by dividing net income by the weighted average
number of shares of common stock outstanding and dilutive securities outstanding during the year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Fair Value of Financial Instruments
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The carrying amounts of the Company&#146;s financial instruments, which include accounts receivable,
accounts payable and other accrued expenses approximate their fair values due to the short-term
maturity of these instruments.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Stock-Based Compensation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company maintains two stock-based incentive plans. The Company grants options to purchase
common stock at an option price equal to the market value of the stock at the date of grant.
Options generally vest over a three year period beginning on the date of grant and have a ten year
term.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company applies the fair value recognition provisions of SFAS No.&nbsp;123R, <I>Share-Based Payment</I>,
which requires all stock-based compensation, including grants of employee stock options, to be
recognized in the statement of operations based on their fair values. The Company uses the
Black-Scholes option pricing model which requires extensive use of accounting judgment and
financial estimates, including estimates of the expected term participants will retain their vested
stock options before exercising them, the estimated volatility of the Company&#146;s common stock price
over the expected term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Stock-based compensation expense recognized during the fiscal year ended December&nbsp;28, 2008 totaled
approximately $996,792 for stock options. Stock-based compensation expense recognized during the
fiscal year ended December&nbsp;30, 2007 totaled approximately $218,082 for stock options. Stock-based
compensation expense was included in general and administrative expenses in the accompanying
Consolidated Statements of Operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">New Accounting Pronouncements
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Adoption of New Accounting Principle
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Effective January&nbsp;1, 2008, we adopted SFAS No.&nbsp;157, <I>Fair Value Measurements, </I>for all financial
assets and liabilities. SFAS No.&nbsp;157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS No.&nbsp;157 establishes a framework for measuring fair value
and enhances disclosures about fair value measures required under other accounting pronouncements,
but does not change existing guidance as to whether or not an instrument is carried at fair value.
The adoption of SFAS No.&nbsp;157 did not expect to have a material impact on our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159, <I>The Fair Value Option for Financial Assets and
Financial Liabilities &#151; including an amendment of FASB Statement No.&nbsp;115</I>. Under SFAS No.&nbsp;159, a
company may elect to measure eligible financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported
in earnings at each subsequent reporting date. If elected, SFAS No.&nbsp;159 is effective for fiscal
year beginning after November&nbsp;15, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Recent Accounting Pronouncements</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the FASB issued SFAS No.&nbsp;141R, <I>Business Combinations. </I>SFAS No.&nbsp;141R establishes
principles and requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The statement also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and specifies what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. SFAS No.&nbsp;141R is effective for financial statements issued for fiscal
years beginning after December&nbsp;15, 2008. Accordingly, any business combinations we engage in will
be recorded and disclosed following existing GAAP until December&nbsp;28, 2008. We expect SFAS No.&nbsp;141R
will have an impact on our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions
we consummate after the effective date. We are still assessing the impact of this standard on our
future consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160, <I>Non-controlling Interests in Consolidated Financial
Statements, an Amendment of ARB 51. </I>SFAS No.&nbsp;160 changes the accounting and reporting for minority
interests. Minority interests will be re-characterized as non-controlling interests and will be
reported as a component of equity separate from the parent&#146;s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the non-controlling interest will be included
in consolidated net income on the face of the income statement and upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. SFAS No.&nbsp;160 is effective for financial statements issued for fiscal
years beginning after December&nbsp;15, 2008, and interim periods within those fiscal years, except for
the presentation and disclosure requirements, which will apply retrospectively. The adoption of
SFAS No.&nbsp;160 is not expected to have a material impact on our future consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In March&nbsp;2008 the FASB issued SFAS No.&nbsp;161, <I>Disclosures about Derivative Instruments and Hedging
Activities &#151; an amendment of FASB Statement No.&nbsp;133</I>. SFAS No.&nbsp;161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives and strategies for
using such instruments, as well as any details of credit risk-related contingent features contained
within derivatives. SFAS No.&nbsp;161 also requires entities to disclose additional information about
the amounts and location of derivatives included in the financial statements, how the provisions of
SFAS No.&nbsp;133 have been applied, and the impact that hedges have on an entity&#146;s financial position,
financial performance, and cash flows. SFAS No.&nbsp;161 is effective for fiscal years and interim
periods beginning after November&nbsp;15, 2008. The adoption of SFAS No.&nbsp;161 is not expected to have a
material impact on our future consolidated financial statements.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)&nbsp;No.
110. SAB No.&nbsp;110 expresses the views of the staff regarding the use of a &#147;simplified&#148; method, as
discussed in SAB No.&nbsp;107, in developing an estimate of the expected term of &#147;plain vanilla&#148; share
options in accordance with SFAS No.&nbsp;123R. SAB No.&nbsp;110 is not expected to have a significant impact
on our consolidated financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Reverse Merger</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On December&nbsp;18, 2007, pursuant to the terms of an Agreement and Plan of Merger and Reorganization,
the Company, through a wholly-owned subsidiary, merged with and into KnowFat Franchise Company,
Inc. Following the merger, UFood continued KnowFat&#146;s business operations as a franchisor and
operator of fast-casual food service restaurants. Concurrently with the closing of the Merger and
in contemplation of the Merger, the Company consummated a private offering (the Offering) of up to
8,000,000 units of its securities (Units) at a price of $1.00 per Unit. Each Unit consists of one
share of Common Stock and a warrant to purchase one-half, or 50%, of a share of Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Immediately prior to the Merger, UFood had 23,700,000 shares of Common Stock issued and outstanding
and $2,000,000 principal amount of 9% Convertible Promissory Notes (Investor Notes) outstanding. On
the Closing Date, the Investor Notes together with accrued interest of $40,087 automatically
converted into 4,080,175 Units at a conversion rate of $0.50 per Unit. In conjunction with the
Merger, 16,200,000 shares of UFood&#146;s Common Stock issued and outstanding prior to the Merger were
retired.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Immediately prior to the Merger, KnowFat had 5,621,648 shares of common stock issued and
outstanding and 1,576,040 shares of Series&nbsp;A Preferred Stock (Series&nbsp;A Preferred Shares), 1,407,416
shares of Series&nbsp;B Preferred Stock (Series&nbsp;B Preferred Shares) and 719,440 shares of Series&nbsp;C
Preferred Stock (Series&nbsp;C Preferred Shares and, collectively, with the Series&nbsp;A Preferred Shares
and the Series&nbsp;B Preferred Shares, the Preferred Shares) issued and outstanding. KnowFat also had a
$1,000,000 convertible promissory note outstanding (the Antokal Note).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In connection with the Merger, on the Closing Date, all of KnowFat&#146;s issued and outstanding
Preferred Shares and the Antokal Note converted into 3,710,642 and 2,168,693 shares, respectively,
of KnowFat common stock. On the Closing Date and in connection with the Merger, each share of
KnowFat&#146;s issued and outstanding common stock before the merger, including the common stock issued
upon conversion of the Preferred Shares and the Antokal Note, automatically converted into the
right to receive 1.52350763 shares (the Conversion Ratio) of the Company&#146;s common stock, par value
$0.001 (Common Stock) per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In addition, on the Closing Date, all of the issued and outstanding options and warrants to
purchase shares of KnowFat common stock were exchanged, respectively, for options (the New Options)
and warrants (the New Warrants) to purchase shares of the Company&#146;s Common Stock. The number of
shares of Common Stock issuable under, and the price per share upon exercise of, the New Options
were calculated based on the terms of the original KnowFat options, as adjusted by the Conversion
Ratio. The number of shares of Common Stock issuable under the New Warrants was calculated based on
the terms of the original warrants, as adjusted by the Conversion Ratio. Immediately prior to the
consummation of the Merger, the exercise price of all outstanding KnowFat warrants was adjusted to
$1.00, and such exercise price was not affected by the conversion ratio in the Merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As a result of the foregoing, on the Closing Date, an aggregate of 12,500,000 shares of Common
Stock were issuable to former KnowFat stockholders and upon exercise of outstanding KnowFat options
and warrants. Of these, 11,500,983 shares of Common Stock were issued, and an aggregate of 391,791
and 607,226 shares of Common Stock were reserved for issuance upon the exercise of the New Options
and New Warrants, respectively. UFood&#146;s stockholders before the merger retained 7,500,000 shares of
Common Stock after the Merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The following table summarizes the effect of the reverse merger recapitalization adjustment on
stockholders&#146; equity:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Additional</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000">Par Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000">Paid-in Capital</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">UFood shares
outstanding
immediately prior
to the Merger</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(23,700</TD>
    <TD nowrap>)</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">UFood shares retired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,200,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reverse acquisition
recapitalization
adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(7,500</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Merger Agreement includes a post-merger adjustment to the number of shares of Common Stock
issued to the former KnowFat stockholders in an amount up to 2,000,000 shares of Common Stock for
any breach of the Merger Agreement discovered during the two-year period following the Closing
Date. The Merger has been treated as a recapitalization of the Company for financial accounting
purposes. Accordingly, the UFood&#146;s financial statements before the merger have been replaced with
the historical financial statements of KnowFat before the merger.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. Disposal of Assets</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During 2008, the company recorded a loss on disposal of assets of $35,733 due to the write off of
obsolete equipment and furniture and fixtures as a result of the conversion of four KnowFat stores
to UFood Grill outlets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">During 2007, the Company recorded a loss on disposal of assets of $666,838 resulting from the
closure of one restaurant and the sale of a second restaurant. The disposition of the two stores
was accounted for in accordance with SFAS No.&nbsp;146, <I>Accounting for Costs Associated with Exit or
Disposal Activities.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In April&nbsp;2007, the Company recorded a loss of $493,032 in connection with the closure of a
restaurant in Woburn, Massachusetts. The loss represents the net present value of the remaining
lease obligation and the write-off of goodwill and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In September&nbsp;2007, the Company sold its restaurant in Shrewsbury, Massachusetts, for $150,000 of
cash and a note receivable of $36,333. The note receivable is non-interest bearing and is due in
2008. The Company recorded a loss of $173,806 in connection with the sale.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Goodwill</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">At September&nbsp;28, 2008, the carrying amount of goodwill was $977,135 and was comprised of $841,135
of goodwill attributable to our store operations segment and $136,000 of goodwill attributable to
our franchise operations segment. Goodwill attributable to our franchise operations segment is
evaluated by comparing the Company&#146;s fair market value, determined based upon quoted market prices
of the Company&#146;s equity securities, to the carrying amount of goodwill.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In August&nbsp;2008, the Company completed the conversion of three of its Company-owned stores from
KnowFat! locations to UFood Grill outlets, including two stores that have goodwill associated with
them. Following the store conversions, the Company tested the carrying value of the store&#146;s
goodwill for impairment as of the first day of the fourth quarter and determined that there was no
impairment. For purposes of estimating each store&#146;s future cash flows, the Company assumed that
comparable store sales would increase by approximately 4% per year; store operating expenses as a
percentage of the store&#146;s revenues would decrease by a total of 1-1/2% of sales due to labor and
purchasing efficiencies; and the terminal value of each store was calculated using a 20%
capitalization rate applied to the final year&#146;s estimated cash flow. The present value of each
restaurant&#146;s estimated future cash flows was calculated using a discount rate of 8%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Following the impairment test performed as of the first day of the fourth quarter, economic
conditions in the United States have worsened. The U.S. Government and Federal Reserve have
provided an unprecedented level of financial support to U.S. financial institutions, unemployment
has risen, home foreclosures have increased, mortgage delinquency rates have increased, credit
markets have tightened, volatility in the equity markets has continued and the National Bureau of
Economic Research announced that the United States economy has been in recession for almost a year.
These factors have all contributed to economic uncertainty and a decrease in consumer spending
which in turn has contributed to a decline in sales at Company-owned stores. According to The
Conference Board, Inc., the decline in real consumer spending experienced in the third and fourth
quarters of 2008 are expected to last through the first half of 2009. As a result of these factors
and the uncertainty surrounding the level of economic activity in 2009 and beyond, the Company
tested the carrying value of the stores&#146; goodwill in December&nbsp;2008 and determined that the carrying
amount of the goodwill attributable to our store operations exceeded its implied fair value and has
recognized a non-cash impairment charge of $765,772. For purposes of its mid-December&nbsp;2008
impairment test, the Company has assumed that comparable store sales will decline by 6% in 2009 and
increase by 2-1/2% per year thereafter and store operating expenses will continue at their current
level as a percentage of store revenues. As a result of the economic uncertainty that currently
exists, the Company&#146;s estimate of future cash flows did not include an estimate of the restaurant&#146;s
terminal value since the Company cannot be certain that a buyer could be found for the restaurant
at the end of the lease term. The present value of the estimated future cash flows was calculated
using a 7% discount rate reflecting the recent decrease in long-term interest rates. Following the
non-cash impairment charge, the carrying value of goodwill attributable to our store operations
segment is $75,363. During 2007, goodwill decreased by $428,190 due to the write-off of goodwill
associated with the closure of one restaurant and the sale of another restaurant
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The carrying amount of goodwill may be impaired in the future if our actual operating results and
cash flows fall short of our expectations.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F -13 <!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Franchise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Store Operations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">Operations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000">Segment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000">Segment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of January&nbsp;1, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,269,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,405,325</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill written off in connection with the closure of
one restaurant and the sale of one restaurant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(428,190</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(428,190</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">841,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">977,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill written off in connection with impairment test</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(765,772</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(765,772</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;28, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">75,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">211,363</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. Notes Payable</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In April&nbsp;2007, KnowFat borrowed $1,000,000 from Alan Antokal, a stockholder, pursuant to the term
of a 12% Secured convertible Subordinated Promissory Note. This note was secured by substantially
all of KnowFat&#146;s assets and was subordinate in right of payment to the prior payment of all of
KnowFat&#146;s obligations to its senior lender. This note payable was due April&nbsp;23, 2008 but converted
into 2,168,693 shares of KnowFat common stock immediately prior to the Merger<B>.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">On September&nbsp;24, 2007, in connection with the Merger and the Offering of Units described in Note,
UFood sold $1,035,000 principal amount of 9% Convertible Promissory Notes and on October&nbsp;4, 2007,
UFood sold an additional $965,000 of Investor Notes. The proceeds from the sale of Investor Notes,
net of transaction costs of $462,840, were used to provide bridge financing to KnowFat prior to the
Merger. The Investor Notes were due 120&nbsp;days from the date of issuance. On the Closing Date, in
connection with the Merger, the Investor Notes together with accrued interest converted into
4,080,175 Units. The final closing of the offering describe above was March&nbsp;31, 2008. The total
units sold were 10,941,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">The Company retained a placement agent (Placement Agent) to sell the Investor Notes and paid the
Placement Agent a commission of 10% of the funds raised from the sale of the Investor Notes and an
expense allowance of $75,000. In addition, the Placement Agent received a warrant (Placement Agent
Warrants) to purchase 800,000 shares of Common Stock. The Placement Agent Warrants are exercisable
for seven years at an exercise price of $1.00 per share.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->F -14 <!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Long-Term Debt</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-term debt consists of the following at December&nbsp;28, 2008 and December&nbsp;30, 2007:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Term note payable to bank in monthly principal
installments of $29,167 commencing January&nbsp;2007
through May&nbsp;2010. Interest is payable monthly at
the bank&#146;s prime rate (3.25% at December&nbsp;31,
2008). The note is secured by substantially all
assets of the Company.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">692,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,042,080</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Downtown Crossing acquisition note payable.
Interest accrues at 6% per annum and is payable
monthly, with certain limitations as defined in
the agreement. All unpaid amounts are due on or
before December&nbsp;31, 2007, as defined in the
agreement. The note is secured by the assets
acquired.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,628</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Landmark Center acquisition promissory note with
no stated interest rate. Due upon the occurrence
of a sales event, as defined in the agreement.
The note agreement includes a restrictive
covenant requiring the Company&#146;s wholly-owned
subsidiary, KnowFat of Landmark Center, Inc., to
maintain net equity of not less than $450,000.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unsecured, non-interest bearing note payable.
This note payable is due on demand. Interest
imputed on the note using a discount rate of 5%
totaled $59,597, which is being amortized over
the term of the note.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">152,099</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Indebtedness incurred in connection with the
acquisition of the two franchisee locations. No
stated interest rate; this note payable is due
on demand.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,996</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Note payable to the Watertown landlord in
connection with the acquisition of the training
center in 2004. The note is payable in monthly
installments of $2,566 including interest at 5%
through April&nbsp;2010.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,881</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,233,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,605,684</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">883,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,874,993</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">349,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">730,691</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Maturities of long-term debt at December&nbsp;28, 2008 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Year ending December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">883,684</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349,712</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,233,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F - 15<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Capital Lease Obligations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company leases certain equipment under capital leases. The equipment has been recorded at the
present value of the total lease payments using discount rates ranging from 13.9% to 17.95%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Future minimum lease payments under these leases are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Year ending December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">81,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,855</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,259</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,339</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,786</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less imputed interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,725</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term portion of capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The recorded cost and accumulated amortization of the equipment acquired are $223,926 and $147,479,
respectively as of December&nbsp;28, 2008. Amortization expense in 2008 and 2007 was $40,528 and
$60,972, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Capital Stock</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;18, 2007, the Company, through a wholly-owned subsidiary, merged with and into KnowFat
Franchise Company, Inc. (see Note 3).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Share Transactions Prior to the Merger
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2007, prior to the Merger, KnowFat issued 1,412,903 shares of common stock comprised of
41,746 shares issued to consultants and vendors and 1,371,157 shares issued to George Foreman
Ventures LLC (GFV)&nbsp;pursuant to the terms of a Services Agreement which became effective June&nbsp;12,
2007. The 41,746 shares issued to consultants and vendors were valued at $31,237, or $0.75 per
share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the terms of the Services Agreement with GFV, KnowFat also agreed to (i)&nbsp;issue GFV an
additional 152,351 shares of common stock promptly following the sale of the 600<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>
franchise, provided the sale of such franchise occurs by December&nbsp;31, 2009 and (ii)&nbsp;pay GFV a
royalty equal to 0.2% of aggregate net sales, in exchange for the performance of certain services
by George Foreman and a limited license to use Mr.&nbsp;Foreman&#146;s name and likeness in connection with
the promotion of restaurants operated by KnowFat and its franchisees. At December&nbsp;28, 2008,990,280
shares of common stock issued to GFV were vested. The remaining 380,877 shares of common stock
issued to vest over four years in accordance with the following schedule:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Vesting Date</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of Shares</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;13, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;13, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;11, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,175</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the event there is a change of control after December&nbsp;18, 2007, as defined in the Services
Agreement, GFV has the right to return 50% of the shares of common stock received in exchange for a
prospective increase in the royalty rate to 0.5%
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Advertising, marketing and promotion expenses for the year ended December&nbsp;28, 2008 include $454,698
representing the fair value of 304,702 shares that vested on June&nbsp;13, 2008. Fair value was
determined to be equal to the fair value of the common shares included in the Offering of Units
(described below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Shares Issued in Connection with the Merger
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Merger described in Note 3, on the Closing Date, 1,576,040 shares of Series
A Preferred Stock and 719,440 shares of Series&nbsp;C Preferred Stock converted on a 1 for 1 basis into
2,295,480 shares of KnowFat common stock and 1,407,416 shares
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 16<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of Series&nbsp;B Preferred Stock converted on a 1.005504 for 1 basis into 1,415,162 shares of KnowFat
common stock. In addition, the Antokal Note converted into 2,168,693 shares of KnowFat common
stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All dividends on the Preferred Shares and accrued interest on the Antokal Note were forfeited upon
conversion. The amount of cumulative but undeclared dividends on the Closing Date and at December
31, 2006 was approximately $1,897,000 and $956,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Following the conversion of the Preferred Shares and the Antokal Note, on the Closing Date, all of
KnowFat&#146;s common stock, par value $0.001 per share, issued and outstanding before the merger were
exchanged for 11,500,983 shares of UFood&#146;s Common Stock, par value $0.001 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On the Closing Date and in connection with the Merger, $2,000,000 of Investor Notes issued by UFood
in 2007 together with accrued interest of $40,087 automatically converted into 4,080,175 Units at a
conversion rate of $0.50 per Unit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Offering of Units
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Concurrently with the closing of the Merger and in contemplation of the Merger, the Company
completed the initial closing of a private offering (the Offering) of 5,720,000 units of its
securities (Units), at a price of $1.00 per Unit. The Company subsequently consummated a second
closing of 440,000 Units on December&nbsp;21, 2007. During 2008, the company completed three additional
closings for a total of five closings combined; the units sold in the 2008 closings were 4,781,000
units of its securities (Units), at a price of $1.00 per Unit. Total amount of units sold in this
offering during 2007 and 2008 was 10,941,000 units. Each Unit consists of one share of Common
Stock and a warrant to purchase one-half, or 50%, of a share of Common Stock. The warrants
(Investor Warrants) are exercisable for a period of five years at an exercise price of $1.25 per
whole share of Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Offering, the Company retained a placement agent and paid the Placement
Agent a commission of 10% of the funds raised from the investors in the Offering plus an expense
allowance of $225,000. In addition, the Placement Agent received warrants to purchase a number of
shares of Common Stock equal to 20% of the shares of Common Stock included in the Units sold to
investors in the Offering. The Placement Agent warrants are exercisable for seven years at an
exercise price of $1.00 per share. The Placement Agent was paid commissions and expenses of
$1,336,250 and received warrants to purchase 2,088,200 shares of Common Stock in connection with
the first and second closings of the Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The company filed a registration statement that became effective on January&nbsp;12, 2009, including
Common Stock (i)&nbsp;included in the Units; (ii)&nbsp;issuable upon exercise of Investor Warrants; (iii)
issuable upon conversion of the Investor Notes; and (iv)&nbsp;issuable upon exercise of warrants issued
to purchasers of the Investor Notes in connection with the conversion of their Investor Notes. The
Company was obligated to pay monetary penalties equal to one and one-quarter percent (1.25%) of the
purchase price paid by the holders of registrable securities for each full month that (i)&nbsp;the
Company is late in filing the registration statement or (ii)&nbsp;the registration statement is late in
being declared effective; provided, that in no event shall the aggregate of any such penalties
exceed fifteen percent (15%) of the gross purchase price paid by the holders of registrable
securities. However, the company has obtained from the majority of the shares represented in this
Offering the waiver for the outstanding liquidated damages as a result of the delayed effectiveness
of the registration statement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 17<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Warrants
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;28, 2008, warrants to purchase 14,022,680 shares of UFood Common Stock were issued and
outstanding as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Number of Warrants</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise Price</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">607,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Placement Agent warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,988,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vendor Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,916,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investor Notes warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,040,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investor Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,470,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,022,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Merger, all of KnowFat&#146;s issued and outstanding warrants converted into New
Warrants to purchase shares of the Company&#146;s Common Stock. The number of shares of Common Stock
issuable under the New Warrants was calculated based on the terms of the original KnowFat warrants,
as adjusted by the Conversion Ratio. Immediately prior to the consummation of the Merger, the
exercise price of all outstanding KnowFat warrants was adjusted to $1.00, and such exercise price
was not affected by the conversion ratio in the Merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, on the Closing Date, 281,482 KnowFat warrants issued in the
connection with the sale of Series&nbsp;B preferred stock and 141,211 KnowFat warrants issued in
connection with the sale of Series&nbsp;C preferred stock were exchanged for 422,693 New Warrants with
an exercise price of $1.00. The Company recognized an expense of $75,158 as a result of the change
in the exercise price to $1.00.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, the warrant issued to an officer of the Company in 2006 to purchase up to 184,533
shares of KnowFat common stock for his personal guaranty of the Company&#146;s obligations to TD
BankNorth, N.A. was exchanged for a New Warrant with an exercise price of $1.00.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Company&#146;s sale of $2,000,000 of Investor Notes and the sale of 10,941,000
Units, the Placement Agent was issued warrants to purchase 800,000 and 2,188,200 shares,
respectively, of UFood Common Stock at an exercise price of $1.00. The warrants issued to the
Placement Agent expire seven years from the date they were issued.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the conversion of the $2,000,000 of Investor Notes, 2,040,088 warrants were
issued to the purchasers of the Investor Notes. The Investor Note warrants have an exercise price
of $1.25 and expire in five years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The sale of 10,941,000 Units included the issuance of 5,470,500 warrants. The Investor Warrants
have an exercise price of $1.25 and expire in five years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Stock-Based Compensation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;28,2008, the Company has two share-based, shareholder approved employee compensation
plans, the 2004 Stock Option Plan (2004 Plan) and the 2007 Equity Incentive Plan (2007 Plan, and
together with the 2004 Plan, the Equity Plans), which are described below. During 2008 and 2007,
the Company recognized $996,792 and $249,292 of compensation expense for awards under the Equity
Plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company estimates the fair value of the stock options using a Black Scholes option pricing
model with the assumptions noted in the following table. Key inputs used to estimate the fair value
of stock options include the exercise price of the award, the expected option term, the expected
volatility of the Company&#146;s stock over the option&#146;s expected term, the risk-free interest rate over
the option&#146;s expected term, and the Company&#146;s expected annual dividend yield.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 18<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The fair value of each stock option grant was estimated on the date of grant using the following
assumptions:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected term (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">6</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">6</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">45%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">45%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4.37%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4.37%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected annual dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">None</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">None</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The expected term is based on the weighted average midpoint between vesting and the contractual
term. Expected volatility is based on the historical volatility of published common stock prices
over the last six years of comparable publicly held companies. The risk-free interest rate for the
expected term of the stock option is based on the U.S. Treasury yield. The Company believes that
the valuation technique and the approach utilized to develop the underlying assumptions are
appropriate in calculating the fair values of stock options granted for the years ended December
28, 2008 and December&nbsp;30, 2007. Estimates of fair value are not intended to predict actual future
events or the value ultimately realized by persons who receive equity awards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The 2004 Plan
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the terms of the 2004 Plan, the Company was authorized to grant incentive stock options
(ISO&#146;s), non-qualified stock options and restricted stock for up to 304,702 shares of common stock
in the aggregate, to employees, officers, directors, consultants and agents of the Company. The
Company believes that such awards align the interests of its employees with those of its
shareholders. In general, stock option awards under the 2004 Plan are granted with an exercise
price equal to the fair value of the Company&#146;s stock at the date of grant, vest over a three-year
period and expire ten years from the date of grant. As a result of the Merger, no awards will be
made under the 2004 Plan after December&nbsp;18, 2007; A summary of option activity under the 2004 Plan
during 2008 and 2007 is presented below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Aggregate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Intrinsic</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Term</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at January&nbsp;1, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69,950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">146,257</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;30, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at December&nbsp;30, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;30, 2007, all of the options outstanding under the 2004 Plan were vested. The weighted
average grant date fair value of options granted during 2007 was $0.36. There was no unrecognized
compensation expense related to options outstanding under the 2004 Plan at December&nbsp;28, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The 2007 Plan
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The 2007 Plan was approved in contemplation of the Merger. There were no awards under the 2007 Plan
prior to December&nbsp;18, 2007, the Closing Date of the Merger. Awards of ISO&#146;s, non-qualified stock
options, stock appreciation rights, restricted stock units, restricted stock or performance units
may be made under the 2007 Plan of up to a maximum of 6,000,000 shares of Common Stock to
employees, directors, consultants and agents of the Company. The Company believes awards under the
2007 Plan align the interests of its employees with those of its shareholders. At December&nbsp;28,
2008, 2,845,920 stock options were outstanding under the 2007 Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Activity under the 2007 Plan from December&nbsp;18, 2007, the Merger Date, through December&nbsp;28, 2008 is
presented below:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 19<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Aggregate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Intrinsic</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Options </TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Term</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;18, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,950,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,950,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">175,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">897,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;28, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,845,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at December&nbsp;28,2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,402,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted average grant date fair value of options granted during 2008 and 2007 under the 2007
Plan was $0.60 and $0.27 respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At December&nbsp;28, 2008 there was $700,039 of total unrecognized compensation cost related to
non-vested options granted under the 2007 Plan. This cost will be recognized over approximately
three years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;6, 2007, the Company&#146;s board of directors approved the grant of 87,090 non-qualified
stock options to an employee. The options have an exercise price of $0.66 per share, are
exercisable for 10&nbsp;years and are fully vested. The Company recognized compensation expense of
$15,649 in connection with this option award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;12, 2008, the Company&#146;s board of directors approved a 3,000,000 increase in the number
of shares of Common Stock reserved for issuance under the 2007 Plan to 6,000,000 shares. The
increase was subject to approval by a majority of shares represented at the Company&#146;s annual
meeting and was obtained in August&nbsp;29, 2009
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Income Taxes</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2007, the Company adopted the provisions of FIN No.&nbsp;48. FIN No.&nbsp;48 requires that the
impact of tax positions taken by the Company be recognized in the financial statements if they are
more likely than not of being sustained based upon the technical merits of the position. The
Company has a valuation allowance against the full amount of its net deferred taxes. The Company
currently provides a valuation allowance against deferred taxes when it is more likely than not
that some portion, or all, of its deferred tax assets will not be realized. The implementation of
FIN No.&nbsp;48 had no impact on the Company&#146;s financial statements due to the valuation allowances that
have historically been provided against all deferred tax assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">No provision for current income taxes has been recorded for 2008 and 2007 due to the Company&#146;s
cumulative net losses. Significant components of deferred tax assets are net operating loss
carryforwards; start-up costs and organizational costs capitalized for tax purposes, and deferred
revenue. Significant components of deferred tax liabilities are depreciation of property and
equipment. The net deferred tax assets are fully reserved by a valuation allowance due to the
uncertainty of realizing the tax benefit of the deferred tax assets.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 20<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net deferred tax assets (liabilities)&nbsp;at December&nbsp;28, 2008 and December&nbsp;30, 2007 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,192,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,923,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,495,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">905,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,687,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,828,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,687,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,828,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of income tax benefit (expense)&nbsp;are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net operating loss carryforward</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,370,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,678,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">899,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,269,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,739,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net operating loss carryforward</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">424,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">317,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(286,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">590,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit before adjustment to valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,859,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,770,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustment to valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,859,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,770,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s effective income tax rate differs from the federal statutory income tax rate as
follows for the fiscal years ended December&nbsp;28, 2008 and December&nbsp;30, 2007.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="79%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Federal tax provision rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">34</TD>
    <TD>%</TD>
    <TD align="right" valign="top">34</TD>
    <TD>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State tax provision, net of federal provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">6</TD>
    <TD>%</TD>
    <TD align="right" valign="top">6</TD>
    <TD>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">(40</TD>
    <TD>%)</TD>
    <TD align="right" valign="top">(40</TD>
    <TD>%)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap  align="center" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap align="center" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Management has evaluated the evidence bearing upon the realization of its deferred tax assets and
has determined that it is more likely than not that the Company will not recognize the benefits of
federal and state deferred tax assets. As a result, management has recorded a full valuation
allowance. If the Company should generate sustained future taxable income against which these tax
attributes might be applied, some portion or all of the valuation allowance would be reversed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s income tax returns have not been audited by the Internal Revenue Service (IRS)&nbsp;or any
state taxing authority. The years 2005 through 2008 remain open to examination by the IRS and
state taxing authority. The Company believes it is not subject to any tax exposure beyond the
preceding discussion. The Company&#146;s policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date FIN No.&nbsp;48 was
adopted, we did not have any accrued interest or penalties associated with any unrecognized tax
benefits, nor was any significant interest expense recognized during the year ended December&nbsp;28,
2008
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Federal and state net operating loss carryforwards expire in 2027 and 2012, respectively. Ownership
changes, as defined in Section&nbsp;382 of the Internal Revenue Code, may have limited the amount of net
operating loss carryforwards that may be utilized annually to offset future taxable income.
Subsequent ownership changes could further affect the limitation in future years.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Concentration of Credit Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial instruments that potentially expose the Company to concentrations of credit risk include
cash and cash equivalents, which occasionally exceed current federal deposit insurance limits.
Substantially all of the cash and cash equivalents are maintained in a certain large commercial
bank. Senior management continually reviews the financial stability of this institution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Commitments and Contingencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Leases
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company rents store and office locations under non-cancelable operating leases and tenant at
will arrangements. The agreements expire on various dates through December&nbsp;2016, and some include
options to extend. The leases require the Company to pay its share of the operating expenses of the
leased properties, including taxes, utilities and insurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Future minimum payments at December&nbsp;28, 2008 under non-cancelable leases are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Year ending December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">626,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">616,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">633,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">641,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">629,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,747,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Employment Agreements</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;15, 2007, in contemplation of the Merger described in Note 3, the Company entered into
employment agreements with its chief executive and its vice president of business development. Each
agreement is for a term of three years and provides for the payment of a base salary and benefits,
an annual bonus to be determined by the Company&#146;s Board of Directors, an equity award under the
Company&#146;s 2007 Equity Incentive Plan and, in the case of the Company&#146;s chief executive, a payment
for each franchise sold.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2007, in contemplation of the Merger, UFood entered into an employment agreement with
its chief executive officer. Under the terms of the agreement, the Company agreed to pay
the executive a fee of $10,000 upon the consummation by the company of the sale of a franchise
restaurant. To the extent any franchise transaction is part of an Area Development Agreement,
$5,000 of the fee is payable in cash and the remainder is payable in shares of the Company&#146;s Common
Stock. The franchise and development fee arrangement included in the executive&#146;s employment
agreement replaced a similar arrangement covering the period preceding the Merger, except that
franchise and development fees earned prior to the Merger were payable 100% in cash. During 2008
and 2007, the Company recorded franchise and development fee expenses of $ 40,000 and $-0-,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The agreements further provide that if the executive&#146;s employment is terminated by the Company
without cause, or by the executive as a result of constructive termination by the Company, or as a
result of the executive&#146;s death or disability, the Company is obligated to pay severance
(consisting of salary and benefits as in effect at the time of termination) to the executive (or
the executive&#146;s legal representatives) for a period equal to the lesser of 12&nbsp;months or the then
remaining balance of the employment term. One of the employment agreements provides that if the
executive terminates his employment voluntarily at a point more than 30&nbsp;days after the effective
date of the registration statement by which the Units sold in the Offering are registered for
resale, the executive is entitled to the same termination benefits he would be entitled to if his
employment is terminated by the Company without cause.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Legal matters</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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,
including the matters described below, and we intend to defend vigorously each such case. Based on
information currently available, we believe the amount, or range, of reasonably possible losses in
connection with the actions against us, including the matters described below, 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
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">on the level of our income for such period. In the opinion of management, the ultimate liabilities
with respect to these actions will not have a material adverse effect on the Company&#146;s financial
position, results of operations or cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">BAA Boston, Inc., Default Claim
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">KFLG Watertown, Inc. (KFLG)&nbsp;d/b/a KnowFat and or KnowFat Franchise Company, Inc., our wholly-owned
subsidiary, received a Default Letter and Notice of Liquidated Damages on September&nbsp;28, 2007, as
well as several other follow up notices of default (collectively, the Default Letters) from BAA
Boston, Inc. (BAAB)&nbsp;claiming certain defaults under KFLG&#146;s Sublease Agreement with BAAB for retail
premises (the Premises) at Logan International Airport in Boston, Massachusetts (the Sublease
Agreement). The Default Letters claimed that KFLG was in default of its obligations under the
Sublease Agreement due to, among other things, KFLG&#146;s failure to timely open the Premises for
business. The Default Letters demanded that KFLG pay $104,000 in liquidated damages to BAAB and pay
legal fees and expenses of BAAB in the amount of $48,000. The Company has resolved this matter and
the Default Letters have been rescinded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Subcontractors&#146; Claims
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the build-out of the Premises, several of the subcontractors that performed work
at the Premises claimed that the general contractor failed or refused to pay amounts due them.
Accordingly, such subcontractors asserted mechanic&#146;s liens totaling $253,431 (the Lien Amounts)
against our leasehold interest in the Premises. In April&nbsp;2008, pursuant to the terms of the
Sublease Agreement, we obtained target lien dissolution bonds in order to dissolve the liens
against our leasehold interest in the Premises. The lien bond surety required the Company to post
cash collateral in the amount of 120% of the Lien Amounts. The general contractor on the project
was responsible for the amounts claimed by the subcontractors and was previously forced into
involuntary bankruptcy. We have paid the general contractor and intend to assert claims against the
general contractor for, among other things, the amounts claimed by the subcontractors. In January,
2009, we settled with the subcontractors. The subcontractor liens have been removed and the bond
and cash collateral related to this matter have been released.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. Supplemental Disclosures of Cash Flow Information:</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid during the year for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">76,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182,422</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Summary of non-cash investing and financing activities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued preferred stock dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">941,365</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of promissory notes into Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,656,809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of preferred stock into Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,968,803</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment acquired with capital lease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,420</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Loss per share</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The amounts used for basic and diluted per share calculations are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Preferred stock dividend requirements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(941,365</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss allocable to common stockholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,392,779</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of shares outstanding &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,851,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,433,081</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic and diluted loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.68</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our diluted earnings (loss)&nbsp;per share is the same as our basic loss per share since the effect of
the assumed exercise of options and warrants to purchase common stock is anti-dilutive. A total of
16,530,174 and 4,811,987 potential common shares from the assumed exercise of options and warrants
were excluded from the calculation de diluted net loss per share for the years ended December&nbsp;28,
2008 and December&nbsp;30, 2007, respectively, because their inclusion would have been anti-dilutive.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F - 23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. Segment Data</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company operates 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 which licenses qualified operators to conduct business under the KnowFat
and UFood Grill tradenames and also costs to monitor the operations of these business units. Under
the terms of the franchise agreements, the licensed operators pay royalties and fees to the Company
in return for the use of the Knowfat and UFood Grill tradenames.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accounting policies of the segments are the same as those described in Note 2. Interest
expense has been allocated based on operating results and total assets employed in each segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inter-segment transactions are uncommon and not material. Therefore, they have not been separately
reflected in the financial table below. The totals of the reportable segments&#146; revenues, net loss
and assets agree with the comparable amounts contained in the Company&#146;s audited financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Segment information for the Company&#146;s two business segments follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,462,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,543,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">361,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">361,689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,824,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,904,883</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,781,278</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(999,385</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,517,876</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(522,137</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total segment loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,299,154</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,521,522</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advertising, marketing and promotion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">887,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">671,440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unallocated general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,262,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,384,581</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest (income)&nbsp;expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369,130</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other (income)&nbsp;expenses, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69,303</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9,875,305</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,451,414</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">458,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">372,404</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">500,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">429,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">704,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">937,859</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">857,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,025,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F - 24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Store operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,050,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,834,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,591,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,749,391</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total segment assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,642,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,583,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. Subsequent Events</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;20, 2009, the Company sold $3,315,000 of Senior Secured Convertible Debentures (the
Debentures) in a private offering to accredited investors. The debentures bear interest at a rate
of 8% and are due three years from the date they are issued. The Debentures are convertible into
shares of common stock at $0.13 per share. In addition, each investor will receive 5-year
detachable Warrants to purchase a number of shares of Common Stock equal to 50% of the shares
underlying the Investor&#146;s Debenture. Interest on the Debentures a rate of 8% per annum is payable
on a quarterly basis. Subject to certain conditions, the company has the right to pay interest on
the Debentures in either cash or shares of Common Stock, or in a combination of cash and Common
Stock. After the one year anniversary of the Closing, the Company has the right to redeem the
Debentures at a 20% premium, subject to certain conditions. Subject to certain conditions, the
company has the right to force conversion of the Debenture into shares of Common Stock. The
company has agreed to file a registration statement with the Securities and Exchange Commission
covering all shares of Common Stock issuable upon conversion of the Debentures and/or exercise of
the Warrants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the offering, the Company engaged a placement agent and agreed to pay the
placement agent a cash fee equal to 10% of the gross proceeds received by the Company. and (ii)
issue to the placement agent warrant to purchase 25,500,000 shares of the Company&#146;s Common Stock
underlying the Debentures and Warrants issuable to Investors in this Offering at an exercise price
equal to $0.1365, and exercisable for a period of 5&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On
December&nbsp;31, 2008, Mr.&nbsp;Eric Spitz and the Company jointly decided to terminate his employment
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;27, 2009, the franchisee-owned outlet in Bedford, Massachusetts closed. The Company had
been operating the Bedford location pursuant to a management services agreement.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F - 25<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 12pt; margin-top: 10pt"><B>79,567,064 Shares of Common Stock</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><IMG src="y76886y7688600.gif" alt="(UFOOD GRILL LOGO)">

</DIV>

<DIV align="Center" style="font-size: 14pt; margin-top: 6pt"><B>UFood Restaurant Group, Inc.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>PROSPECTUS<BR>
<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2009</B>

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PART II</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>INFORMATION NOT REQUIRED IN PROSPECTUS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;13. Other Expenses of Issuance and Distribution.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Set forth below is an estimate (except for registration fees, which are actual) of the approximate
amount of the fees and expenses payable by us in connection with the issuance and distribution of
the shares of our common stock.<BR>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>EXPENSE</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>AMOUNT</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Registration Fee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">998.96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Legal Fees and Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounting Fees and Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous Fees and Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,499</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Item&nbsp;14. Indemnification of Directors and Officers.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Nevada Revised Statutes (NRS)&nbsp;Sections&nbsp;78.7502 and 78.751 provide us with the power to indemnify
any of our directors, officers, employees and agents. The person entitled to indemnification must
have conducted himself in good faith, and must reasonably believe that his conduct was in, or not
opposed to, our best interests. In a criminal action, the director, officer, employee or agent must
not have had reasonable cause to believe that his conduct was unlawful.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under NRS Section&nbsp;78.751, advances for expenses may be made by agreement if the director or officer
affirms in writing that he has met the standards for indemnification and will personally repay the
expenses if it is determined that such officer or director did not meet those standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our bylaws include an indemnification provision under which we have the power to indemnify our
current and former directors, trustees, officers, employees and other agents against expenses
(including attorneys&#146; fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by any such person, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such person&#146;s conduct was
unlawful. Our bylaws further provide for the advancement of all expenses incurred in connection
with a proceeding upon receipt of an undertaking by or on behalf of such person to repay such
amounts if it is determined that the party is not entitled to be indemnified under our bylaws.
These indemnification rights are contractual, and as such will continue as to a person who has
ceased to be a director, trustee, officer, employee or other agent, and will inure to the benefit
of the heirs, executors and administrators of such a person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;15. Recent Sales of Unregistered Securities.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Sales by KnowFat</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2006, KnowFat sold units consisting of 719,440 shares of Series&nbsp;C convertible preferred
stock and warrants to purchase 141,211 shares of KnowFat common stock to certain investors for an
aggregate consideration of $3,069,466. The shares and warrants were issued to accredited investors
as defined under Regulation&nbsp;D and otherwise in accordance with the provisions of Regulation&nbsp;D. None
of the securities were sold through an underwriter and, accordingly, there were no underwriting
discounts or commissions involved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2006, KnowFat entered into agreements with George Foreman Ventures, LLC, pursuant to
which KnowFat was granted the limited right to use George Foreman&#146;s name and likeness in connection
with the promotion of restaurants operated by KnowFat and its franchisees in exchange for: (i)
900,000 shares of KnowFat common stock; (ii)&nbsp;100,000 additional shares of KnowFat common stock
following the sale of the 600 <SUP style="font-size: 85%; vertical-align: text-top">th</SUP> franchise of an outlet offering our products, provided
such sale occurs by December&nbsp;31, 2009; and (iii)&nbsp;0.2% of the aggregate net sales of the franchise
and company owned stores during the term of the agreements. The sale was exempt from registration
under Section&nbsp;4(2) of the Securities Act.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II - 1<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2006 and September&nbsp;2007, KnowFat issued an aggregate of 4,234 shares of its common stock
valued at $5.00 per share (for an aggregate consideration of $21,170) to certain of its vendors in
consideration for the marketing and consulting services provided by such vendors to KnowFat. The
issuance was exempt from registration under Section&nbsp;4(2) of the Securities Act.<BR><BR>

<B>Sales by Axxent Media Corporation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September and October&nbsp;2007, Axxent Media Corporation sold $2,000,000 principal amount of its 9%
convertible promissory notes to accredited investors for total cash consideration of $2,000,000.
All of the gross proceeds that Axxent received from the note offering were used to provide a bridge
loan to KnowFat to meet KnowFat&#146;s capital needs prior to the closing of the merger and the private
placement. The convertible notes bore interest at the rate of 9% per annum and were for a term of
180&nbsp;days, and automatically converted into shares of our common stock and warrants to purchase our
common stock upon the closing of the merger. The aggregate principal amount of the convertible
notes, plus accrued and unpaid interest, converted into 4,080,175 shares of our common stock and
warrants to purchase 2,040,088 shares of our common stock. The convertible notes were sold to
accredited investors as defined under Regulation&nbsp;D and non-U.S. persons as defined under Regulation
S, and otherwise in accordance with the provisions of Regulation&nbsp;D and/or Regulation&nbsp;S. In
connection with the note offering, we paid the placement agent for the note offering a cash
commission of $200,000, and issued to that placement agent warrants to purchase 800,000 shares of
our common stock at an exercise price of $1.00 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Shares Issued in Connection with the Merger</B><BR><BR>

Simultaneously with the closing of the merger in December&nbsp;2007, all of the issued and outstanding
shares of KnowFat, consisting of (i)&nbsp;1,034,481 shares of series A preferred stock converted, on a
one-to-one basis, (ii)&nbsp;923,800 shares of series B preferred stock converted, one a 1-to-1.005504
basis and (iii)&nbsp;719,440 shares of series C preferred stock converted, on a one-to-one basis, into
shares of KnowFat common stock. On the closing date, the holders of common stock of KnowFat
(including the converted shares of preferred stock) surrendered all of their issued and outstanding
shares and received 11,500,983 shares of our common stock. Also on the closing date, (a)&nbsp;the
holders of the issued and outstanding warrants to purchase KnowFat common stock received the new
warrants to purchase shares of our common stock, and (b)&nbsp;the holders of issued and outstanding
options to purchase KnowFat common stock received new options to purchase shares of our common
stock. 607,226 and 391,791 shares of our common stock, respectively, are reserved for issuance on
exercise of the new warrants and the new options. The number of shares of our common stock issuable
under, and the price per share upon exercise of, the new options were calculated based on the terms
of the original options of KnowFat, as adjusted by the conversion ratio in the merger. The new
options became immediately exercisable upon consummation of the merger. The number of shares of our
common stock issuable under the new warrants was calculated based on the terms of the original
warrants of KnowFat, as adjusted by the conversion ratio in the merger. Immediately prior to the
consummation of the merger, the exercise price of all outstanding KnowFat warrants was adjusted to
$1.00, and such exercise price was not affected by the conversion ratio in the merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our pre-merger stockholders retained 7,500,000 shares of our common stock in the merger.<BR>
<BR>
The transactions described above were exempt from registration under Section&nbsp;4(2) of the Securities
Act and Rule&nbsp;506 of Regulation&nbsp;D. None of the securities were sold through an underwriter and,
accordingly, there were no underwriting discounts or commissions involved.

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Shares Issued in Connection with the First Private Placement</B><BR><BR>

Concurrently with the closing of the merger in December&nbsp;2007, and in contemplation of the merger,
we consummated a private offering of 6,160,000 units of our securities, at a price of $1.00 per
unit. Each unit consists of one share of our common stock and a warrant to purchase one-half, or
50%, of a share of our common stock. The investors collectively purchased the units for total cash
consideration of $6,160,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In January&nbsp;2008, we sold 863,000 units at a price of $1.00 per unit, in February&nbsp;2008, we sold
1,927,000 units at a price of $1.00 per unit and in March&nbsp;2008 we sold 1,991,000 units at a price
of $1.00 per unit. Each unit consists of one share of our common stock and a warrant to purchase
one-half of one share of our common stock. The investors collectively purchased these units for
aggregate cash consideration of $4,781,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of the units were sold only to accredited investors, as defined under Regulation&nbsp;D under the
Securities Act, and non-U.S. persons, as defined under Regulation&nbsp;S under the Securities Act and
otherwise in accordance with the provisions of Rule&nbsp;506 of Regulation&nbsp;D and/or Regulation&nbsp;S. In the
offering, no general solicitation was made by us or any person acting on our behalf. The units were
sold pursuant to transfer restrictions, and the certificates for shares of common stock and
warrants underlying the units sold in the offering contain appropriate legends stating that such
securities are not registered under the Securities Act and may not be offered or sold absent
registration or an exemption from registration.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II - 2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We paid the placement agent retained in connection with the offering a commission of 10% of the
funds raised from the investors in the offering plus an expense allowance. In addition, the
placement agent received warrants to purchase a number of shares of common stock equal to 20% of
the shares of common stock included in the units sold to investors in the offering. As a result of
the foregoing, the placement agent was paid commissions aggregating $1,094,100 and received
warrants to purchase a total of 2,188,200 shares of our common stock in connection with the
offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The offering is more fully described in the Company&#146;s Form 8-K, filed with the Securities and
Exchange Commission (the &#147;SEC&#148;) on December&nbsp;26, 2007, the Company&#146;s Form 8-K, filed with the SEC on
February&nbsp;8, 2008, and the Company&#146;s Form 8-K, filed with the SEC on March&nbsp;31, 2008, each of which
is incorporated herein by reference.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Shares and Warrants Issued in Connection with Corporate Awareness Campaign</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In May&nbsp;2008, we commenced a corporate awareness campaign in the investment community. The campaign
encompasses investor relations and public relations services, including traditional media outlets
like television, radio, and print, and the internet. The corporate awareness campaign encompasses
the following activities: (i)&nbsp;written articles and television coverage of the Company via
traditional media outlets; (ii)&nbsp;arranging meetings with investment professionals and prospective
investors in various cities in the United States; (iii)&nbsp;introductions to potential financing
sources; (iv)&nbsp;preparation, printing and distribution of profile reports about the Company to
various proprietary databases; and (v)&nbsp;distribution of press releases, news releases and research
on the Company and its activities. To date activities pursuant to the corporate awareness campaign
have encompassed the preparation and distribution of press releases and the preparation and
distribution in June&nbsp;2008 of a 12 page color report describing the Company. In general, the
campaign aims to build awareness for our brand with current and prospective shareholders,
franchisees and customers. The campaign does not involve the sale of franchises. In connection with
the campaign, we entered into service agreements with a number of investor relations and public
relations firms, in connection with which we issued to the service providers an aggregate of
740,000 shares of our common stock and warrants to purchase an aggregate of 2,916,666 shares of our
common stock in partial payment for their services. The services provided by the investor
relations and public relations firms are provided on a &#147;best efforts&#148; basis. The transactions
described above were exempt from registration under Section&nbsp;4(2) of the Securities Act as they did
not involve any public offering or general solicitation, the recipients had access to information
that would be included in a registration statement, the recipients acquired the shares for
investment and not resale, and we took appropriate measures to restrict resale.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below shows the recipient, date and the number of shares and warrants with respect to
each issuance to one of these service providers:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Service Provider</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Date</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Warrants</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New Century Capital Consultants, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>April 21, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,750,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">MarketByte LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">April 9, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TGR Group LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">April 9, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Neptune Media, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">April 9, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">AviaTech</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">April 9, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The shares and warrants issued to New Century Capital Consultants, Inc. (New Century) vest in equal
installments over twenty-four months through April&nbsp;2010 or upon the achievement of specified
milestones tied to average daily trading volume of the Company&#146;s common stock and/or the
publication of articles about the Company by local and national media outlets. To date, the
specified milestones have not been achieved. As of April&nbsp;28, 2009, 125,000 shares and 1,375,000
warrants issued to New Century were vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of the date hereof, all of the shares and warrants issued to MarketByte LLC, TGR Group LLC and
Neptune Media, LLC have vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of the shares issued to AviaTech were vested on June&nbsp;17, 2008 when they were granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">No dollar value was assigned to these services in the agreements. The aggregate consideration
received for each issuance is being accounted for in accordance with the provisions of SFAS 123R
and EITF 96-18. Since there are no performance criteria (e.g., deliverables) or performance
commitment dates specified in the agreements, the performance completion date is assumed to be the
measurement date for determining the fair value of the equity awards. Accordingly, since the terms
of each award are known, each award is valued at each vesting date until the award is fully vested.
Therefore, it is not feasible to state a total dollar value of the consideration received for the
shares. See Note 9 to our 2008 Consolidated Financial Statements, for additional information.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II - 3<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Shares Issued in Connection with the Second Private Placement</B><br><br>

On March&nbsp;19 and April&nbsp;20, 2009, we consummated a private offering of Debentures in the aggregate
principal amount of $5,874,000 and Warrants to purchase an aggregate of 22,592,308 shares of our
common stock. The investors collectively purchased the securities for total cash consideration of
$5,874,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of the securities were sold only to accredited investors, as defined under Regulation&nbsp;D under
the Securities Act, and non-U.S. persons, as defined under Regulation&nbsp;S under the Securities Act
and otherwise in accordance with the provisions of Rule&nbsp;506 of Regulation&nbsp;D and/or Regulation&nbsp;S. In
the offering, no general solicitation was made by us or any person acting on our behalf. The
securities were sold pursuant to transfer restrictions, and the certificates for shares of common
stock and warrants sold in the offering contain appropriate legends stating that such securities
are not registered under the Securities Act and may not be offered or sold absent registration or
an exemption from registration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We paid the placement agent retained in connection with the offering (i)&nbsp;a commission of 10% of the
aggregate subscription amount of the securities sold in the offering, plus (ii) $50,000 for its
fees and expenses, plus (iii)&nbsp;an expense allowance equal to 3% of the aggregate subscription amount
of the securities sold in the offering. In addition, the placement agent (or its assigns) received
warrants to purchase a number of shares of common stock equal to twenty percent (20%) of the
maximum number of shares of common stock underlying the securities sold in the offering. As a
result of the foregoing, the placement agent was paid a commission of $763,620 and received
warrants to purchase 9,036,023 shares our common stock in connection with the offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The offering is more fully described in the Company&#146;s Form 8-K, filed with the Securities and
Exchange Commission on April&nbsp;22, 2009, which is incorporated herein by reference.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Item&nbsp;16. Exhibits.</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger and Reorganization, dated as of December&nbsp;18, 2007, by and among
UFood Restaurant Group, Inc., KnowFat Acquisition Corp. and KnowFat Franchise Company, Inc.
(incorporated by reference to Exhibit&nbsp;2.1 to the Company&#146;s Form&nbsp;8-K filed with the
Securities and Exchange Commission on December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certificate of Merger (incorporated by reference to Exhibit&nbsp;2.2 to the Company&#146;s Form&nbsp;8-K
filed with the Securities and Exchange Commission on December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Articles of Incorporation of UFood Restaurant Group, Inc. (f/k/a Axxent
Media Corporation and UFood Franchise Company) (incorporated by reference to Exhibit&nbsp;3.1(a)
to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on August&nbsp;22,
2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Articles of Incorporation of UFood Restaurant Group, Inc. (incorporated by
reference to Exhibit&nbsp;3.1(b) to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange
Commission on September&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Bylaws of UFood Restaurant Group, Inc. (f/k/a Axxent Media Corporation
and UFood Franchise Company) (incorporated by reference to Exhibit&nbsp;3.2 to the Company&#146;s
Registration Statement on Form&nbsp;SB-2 filed with the Securities and Exchange Commission on
July&nbsp;31, 2006)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Opinion of Robinson &#038; Cole, LLP</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement between KnowFat Franchise Company, Inc., and George Naddaff
(incorporated by reference to Exhibit&nbsp;10.4 to the Company&#146;s Form&nbsp;8-K filed with the
Securities and Exchange Commission on December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment agreement between UFood Restaurant Group, Inc., and Charles A. Cocotas
(incorporated by reference to Exhibit&nbsp;10.1 to the Company&#146;s Form&nbsp;8-k filed with the
Securities and Exchange Commission on February&nbsp;19, 2008)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->II - 4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Joint Venture Agreement dated as of January&nbsp;26, 2004 between George Naddaff and Eric Spitz
and Low Fat No Fat Gourmet Caf&#233;, Inc. (incorporated by reference to Exhibit&nbsp;10.39 to the
Company&#146;s Form&nbsp;S-1/A filed with the Securities and Exchange Commission on September&nbsp;11,
2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of UFood Area Development Agreement (incorporated by reference to Exhibit&nbsp;10.41 to the
Company&#146;s Form&nbsp;S-1/A filed with the Securities and Exchange Commission on November&nbsp;18, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of UFood Franchise Agreement (incorporated by reference to Exhibit&nbsp;10.42 to the
Company&#146;s Form&nbsp;S-1/A filed with the Securities and Exchange Commission on November&nbsp;18, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">KnowFat Franchise Company, Inc., 2004 Stock Option Plan (incorporated by reference to
Exhibit&nbsp;10.6 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">UFood Restaurant Group, Inc., 2007 Equity Incentive Plan (incorporated by reference to
Exhibit&nbsp;10.7 to the Company&#146;s Form&nbsp;10-QSB filed with the Securities and Exchange Commission
on December&nbsp;13, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Option Agreement by and between UFood Restaurant Group, Inc., and participants
under the 2004 Stock Option Plan (incorporated by reference to Exhibit&nbsp;10.8 to the Company&#146;s
Form&nbsp;8-K filed with the Securities and Exchange Commission on December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Option Agreement by and between UFood Restaurant Group, Inc., and participants
under the 2007 Equity Incentive Plan (incorporated by reference to Exhibit&nbsp;10.9 to the
Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">UFood Restaurant Group, Inc., Non-Employee Director Compensation Plan (incorporated by
reference to Exhibit&nbsp;10.26 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange
Commission on February&nbsp;19, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Services Agreement dated September&nbsp;6, 2006, between KnowFat Franchise Company, Inc., and
George Foreman Ventures, LLC (incorporated by reference to Exhibit&nbsp;10.24 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Promotion License Agreement dated September&nbsp;6, 2006, between KnowFat Franchise Company,
Inc., and George Foreman Ventures, LLC (incorporated by reference to Exhibit&nbsp;10.25 to the
Company&#146;s Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter Agreement dated June&nbsp;12, 2007, between KnowFat Franchise Company Inc, and George
Foreman Ventures, LLC (incorporated by reference to Exhibit&nbsp;10.26 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement dated as of May&nbsp;27, 2005, between KFLG Watertown, Inc., and TD Banknorth,
N.A. (incorporated by reference to Exhibit&nbsp;10.27 to the Company&#146;s Form&nbsp;S-1/A filed with the
Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Guarantee and Security Agreement, dated as of September&nbsp;6, 2006, made by KnowFat Of Landmark
Center, Inc., in favor of TD Banknorth, N.A. (incorporated by reference to Exhibit&nbsp;10.28 to
the Company&#146;s Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Credit Agreement dated as of December&nbsp;31, 2005, between KFLG Watertown,
Inc., and TD Banknorth, N.A. (incorporated by reference to Exhibit&nbsp;10.29 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Amendment to Credit Agreement dated as of May&nbsp;31, 2006, between KFLG Watertown, Inc.,
and TD Banknorth, N.A. (incorporated by reference to Exhibit&nbsp;10.30 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Third Amendment to Credit Agreement dated as of July&nbsp;31, 2006, between KFLG Watertown, Inc.,
and TD Banknorth, N.A. (incorporated by reference to Exhibit&nbsp;10.31 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->II - 5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fourth Amendment to Credit Agreement dated as of October&nbsp;2, 2006, between KFLG Watertown,
Inc., and TD Banknorth, N.A. (incorporated by reference to Exhibit&nbsp;10.32 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Media Services Agreement dated as of April&nbsp;8, 2008, between Crosscheck Media Services and
UFood Restaurant Group, Inc. (incorporated by reference to Exhibit&nbsp;10.33 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of April&nbsp;21, 2008, between New Century Capital Consultants and
UFood Restaurant Group, Inc. (incorporated by reference to Exhibit&nbsp;10.34 to the Company&#146;s
Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of April&nbsp;21, 2008, between Stara Zagora Kompanija, LTD, UFood
Restaurant Group, Inc., and Neptune Media, LLC (incorporated by reference to Exhibit&nbsp;10.35
to the Company&#146;s Form&nbsp;S-1/A filed with the Securities and Exchange Commission on July&nbsp;9,
2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of April&nbsp;9, 2008, between MarketByte LLC and UFood Restaurant
Group, Inc. (incorporated by reference to Exhibit&nbsp;10.36 to the Company&#146;s Form&nbsp;S-1/A filed
with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of April&nbsp;9, 2008, between TGR Group LLC and UFood Restaurant
Group, Inc. (incorporated by reference to Exhibit&nbsp;10.37 to the Company&#146;s Form&nbsp;S-1/A filed
with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of June&nbsp;16, 2008, between Aviatech and UFood Restaurant
Group, Inc. (incorporated by reference to Exhibit&nbsp;10.38 to the Company&#146;s Form&nbsp;S-1/A filed
with the Securities and Exchange Commission on July&nbsp;9, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Placement Agency Agreement by and between UFood Restaurant Group, Inc., KnowFat Franchise
Company, Inc., and Spencer Trask Ventures, Inc., dated October&nbsp;17, 2007 (incorporated by
reference to Exhibit&nbsp;10.21 to the Company&#146;s Form&nbsp;10-KSB filed with the Securities and
Exchange Commission on April&nbsp;14, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to Placement Agency Agreement, dated February&nbsp;14, 2008, by and between UFood
Restaurant Group, Inc., KnowFat Franchise Company, Inc., and Spencer Trask Ventures, Inc.,
dated October&nbsp;17, 2007 (incorporated by reference to Exhibit&nbsp;10.22 to the Company&#146;s Form
10-KSB filed with the Securities and Exchange Commission on April&nbsp;14, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Finder&#146;s Fee Agreement between UFood Restaurant Group, Inc., and Spencer Trask Ventures,
Inc., dated December&nbsp;18, 2007 (incorporated by reference to Exhibit&nbsp;10.25 to the Company&#146;s
Form&nbsp;10-KSB filed with the Securities and Exchange Commission on April&nbsp;14, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Registration Rights Agreement, dated as of December&nbsp;18, 2007, by and between UFood
Restaurant Group, Inc., and the investors in the Spencer Trask private placement
(incorporated by reference to Exhibit&nbsp;10.1 to the Company&#146;s Form&nbsp;8-K filed with the
Securities and Exchange Commission on December&nbsp;26, 2007)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.30
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Placement Agent Agreement by and between UFood Franchise Company, Inc. and Garden State
Securities Inc., dated as of February&nbsp;4, 2009, as amended (incorporated by reference to
Exhibit&nbsp;10.5 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.31
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Securities Purchase Agreement by and between UFood Franchise Company, Inc., and the
Purchasers (as defined therein), dated March&nbsp;19, 2009 (incorporated by reference to
Exhibit&nbsp;10.3 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.32
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Securities Purchase Agreement by and between UFood Franchise Company, Inc., and the
Purchasers (as defined therein), dated April&nbsp;20, 2009 (incorporated by reference to
Exhibit&nbsp;10.4 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
April&nbsp;22, 2009)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->II - 6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.33
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement, dated as of March&nbsp;19, 2009, by and between UFood Restaurant
Group, Inc., and the Investors in the Private Placement (incorporated by reference to
Exhibit&nbsp;10.1 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.34
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement, dated as of April&nbsp;20, 2009, by and between UFood Restaurant
Group, Inc., and the Investors in the Private Placement (incorporated by reference to
Exhibit&nbsp;10.2 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.35
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiary Guarantee, dated as of March&nbsp;19, 2009, made by each of the Guarantors (as defined
in the Subsidiary Guarantee) in favor of the Purchasers (as defined in the Subsidiary
Guarantee) (incorporated by reference to Exhibit&nbsp;10.9 to the Company&#146;s Form&nbsp;8-K filed with
the Securities and Exchange Commission on April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.36
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiary Guarantee, dated as of April&nbsp;20, 2009, made by each of the Guarantors (as defined
in the Subsidiary Guarantee) in favor of the Purchasers (as defined in the Subsidiary
Guarantee) (incorporated by reference to Exhibit&nbsp;10.10 to the Company&#146;s Form&nbsp;8-K filed with
the Securities and Exchange Commission on April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.37
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Security Agreement, dated as of March&nbsp;19, 2009, among UFood Restaurant Group, Inc., all of
the subsidiaries of the Company and the Secured Parties (as defined in the Security
Agreement) (incorporated by reference to Exhibit&nbsp;10.8 to the Company&#146;s Form&nbsp;8-K filed with
the Securities and Exchange Commission on April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.38
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Common Stock Purchase Warrant of UFood Restaurant Group, Inc., issued as of March
19, 2009 and April&nbsp;20, 2009 to Investors in the Company&#146;s Private Placement (incorporated by
reference to Exhibit&nbsp;10.6 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange
Commission on April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.39
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of 8% Senior Secured Convertible Debenture, issued as of March&nbsp;19, 2009 and April&nbsp;20,
2009 to Investors in the Company&#146;s Private Placement (incorporated by reference to
Exhibit&nbsp;10.7 to the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on
April&nbsp;22, 2009)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.40*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter Agreement between UFood Restaurant Group, Inc. and Eric Spitz, dated January&nbsp;22, 2009.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">14.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">UFood Restaurant Group, Inc., Code of Ethics (incorporated by reference to Exhibit&nbsp;14.1 to
the Company&#146;s Form&nbsp;8-K filed with the Securities and Exchange Commission on February&nbsp;19,
2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">16.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter to the Securities and Exchange Commission from Manning Elliot LLP, dated March&nbsp;6,
2008, regarding a change in Certifying Accountant (incorporated by reference to Exhibit&nbsp;16.1
to the Company&#146;s Form&nbsp;8-K/A filed with the Securities and Exchange Commission on March&nbsp;11,
2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Registrant (incorporated by reference to Exhibit&nbsp;21 to the Company&#146;s
Form&nbsp;10-KSB filed with the Securities and Exchange Commission on April&nbsp;14, 2008)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Robinson &#038; Cole, LLP (included in its opinion filed as Exhibit&nbsp;5.1)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of CCR LLP</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt">*&nbsp;Filed herewith
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II - 7<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;17. Undertakings.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The undersigned registrant hereby undertakes:<BR>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To file, during any period in which offers or sales are being made, a post-effective amendment to this
registration statement:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To include any prospectus required by Section&nbsp;10(a)(3) of the Securities Act of 1933;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> To reflect in the prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the &#147;Calculation of Registration Fee&#148;
table in the effective registration statement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">iii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such
information in the registration statement.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To remove from registration by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each
prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other
than registration statements relying on Rule&nbsp;430B or other than prospectuses filed in reliance on Rule&nbsp;430A,
shall be deemed to be part of and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is
part of the registration statement or made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any
purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a
primary offering of securities of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> Any preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule&nbsp;424;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">iii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> The portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided by
or on behalf of the undersigned registrant; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">iv.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD> Any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II - 8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II - 9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused
this registration statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Newton, Massachusetts, on May&nbsp;1, 2009.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>UFood Restaurant Group, Inc.</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ George Naddaff</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">George Naddaff</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with the requirements of the Securities Act of 1933, as amended, this
registration statement was signed by the following persons in the capacities and on the dates
stated:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Date</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ George Naddaff
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
George Naddaff
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><BR>
Chairman
and Chief Executive Officer<BR>

(Principal Executive Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;1, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Charles Cocotas
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Charles A. Cocotas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">President,
Chief Operating Officer
and Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;1, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Irma Norton
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Irma Norton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><BR>
Acting
Chief Financial Officer<BR>

(Principal Financial Officer and Principal

Accounting Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;1, 2009</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark Giresi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Robert Grayson
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Robert Grayson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;1, 2009&nbsp;</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;1, 2009&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">/s/&nbsp;Jeffrey Ross<DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Jeffrey Ross
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "y76886sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 903604}]
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S-1
Table of Contents
As filed with the Securities and Exchange Commission on May 1, 2009
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 100
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 100
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. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
þ
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)
(2)
Price Per Share
(3)
Price
(3)
Fee
Common Stock, par
value $0.001 per
share
79,567,064
$
0.225
$
17,902,589.40
$
998.96
(1)
Consists of (i) 45,184,615 shares of common stock issuable upon the conversion of convertible
debentures issued to investors, (ii) 10,844,308 shares of common stock issuable as in kind interest
under the debentures issued to investors, (iii) 22,592,308 shares of common stock issuable upon
exercise of warrants issued to investors, and (iv) 289,583 shares of common stock and 656,250
shares of common stock issuable upon the exercise of warrants issued to investor relations and
public relations firms.
(2)
Pursuant to Rule 416 under the Securities Act of 1933, as amended, the number of shares of
common stock registered hereby is subject to adjustment to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(3)
Estimated solely for the purpose of determining the amount of the registration fee, based on
the average of the high and low sale prices of the common stock as reported by the OTC Bulletin
Board on April 28, 2009, in accordance with Rule 457(c) under the Securities Act of 1933.
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.
Table of Contents
The information in this prospectus is not complete and may be changed. The selling stockholders may
not sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and the selling
stockholders are not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to completion, dated May 1, 2009
UFOOD RESTAURANT GROUP, INC.
Prospectus
79,567,064 shares of common stock
This prospectus relates to the offering by the selling stockholders of UFood Restaurant Group,
Inc., of up to 79,567,064 shares of our common stock, par value $0.001 per share. These shares
include (i) 45,184,615 shares of our common stock issuable upon the conversion of 8% Senior Secured
Convertible Debentures (the "Debentures") issued to investors, (ii) 10,844,308 shares of common
stock issuable as in kind interest under the Debentures, (iii) 22,592,308 shares of our common
stock issuable upon exercise of warrants (the "Warrants") issued to investors, and (iv) 289,583
shares of our common stock issued and 656,250 shares of our common stock issuable upon exercise of
warrants issued to investor relations and public relations firms (the "IR Warrants"). 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
, 2009,
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
5 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
, 2009.
TABLE OF CONTENTS
PAGE
SUMMARY
3
NOTE REGARDING FORWARD-LOOKING STATEMENTS
6
RISK FACTORS
6
SELLING STOCKHOLDERS
18
USE OF PROCEEDS
23
DETERMINATION OF OFFERING PRICE
23
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
25
DESCRIPTION OF BUSINESS
34
PROPERTIES
41
LEGAL PROCEEDINGS
41
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
43
EXECUTIVE COMPENSATION
45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
48
PLAN OF DISTRIBUTION
49
DESCRIPTION OF SECURITIES
50
LEGAL MATTERS
53
EXPERTS
53
WHERE YOU CAN FIND MORE INFORMATION
54
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
54
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
54
FINANCIAL STATEMENTS
F-1
EX-5.1
EX-10.40
EX-23.2
Table of Contents
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 Statement of Financial
Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises.
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 the 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.
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 twelve restaurants in the Boston area, Naples, FL, Chicago, IL,
Draper, UT, Sacramento, CA and at the Dallas Ft. Worth Airport, comprising four Company-owned
restaurants and eight franchise-owned locations. We have entered into a total of six area
development agreements covering 68 franchise units in nine states (California, Colorado, Florida,
Illinois, Idaho, Montana, Texas, Utah and Wyoming), including seven of the eight franchise
locations currently open and operating, and requiring the construction by franchisees of 60 future
UFood Grill outlets.
Of the six area development agreements described above, three were entered into during 2008. The
three area development agreements we entered into in 2008 cover 46
UFood Grill outlets (41 future
and five operating), comprising five UFood Grill units in the Chicago metropolitan area (including
three units that are currently open and operating), 38 UFood Grill units in a five-state area
composed of Colorado, Utah, Montana, Idaho and Wyoming (including one unit that opened in February
2009) and three units at airports in Texas (including one unit that opened in March 2009). The
three area development agreements we entered into prior to 2008 cover 22 UFood Grill outlets
including three UFood Grill outlets currently open and operating and 19 UFood Grill outlets to be
constructed in the future in Naples, FL, Sacramento, CA, and San Jose, CA.
3
Table of Contents
Of the 60 franchise locations to be constructed under existing area development agreements, six
locations are expected to open in 2009, ten locations in 2010, 13 locations in 2011 and 31
locations thereafter. The rate at which current and future area developers and franchisees open
locations will depend upon several factors, including the identification of suitable store sites,
the negotiation of long-term leases, the permitting process, the construction of the stores, the
ability to attract, train and retain employees and the ability to secure financing on acceptable
terms. We intend to supplement the opening of franchisee-owned locations with additional
Company-owned locations. While we have not set a specific target or timetable for Company-owned
stores, we expect Company-owned locations will be concentrated in the New England area and could
represent approximately 10% of total system-wide locations over the longer term. The rate at which
we open Company-owned locations will depend on the same factors that impact the development and
opening of franchisee-owned locations as well as the financial resources available to us. We
currently do not have the financing in place to construct and operate additional Company-owned
locations and there is no assurance that we will be able to secure the financing necessary to
construct and operate additional Company owned locations.
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 100, 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
34,818,490 shares
(1)
Common stock offered by the Company
None
Common stock offered by the selling stockholders
79,567,064 shares
(2)
Common stock outstanding after the offering
114,095,971 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 6 of
this prospectus before deciding
whether or not to invest in
shares of our common stock.
(1)
As of April 28, 2009.
(2)
Includes (i) 22,592,308 shares of common stock issuable upon exercise of warrants held by
the investors, (ii) 45,184,615 shares of common stock issuable upon conversion of the 8% Senior
Secured Convertible Debentures held by the investors, (iii) 10,844,308 shares of common stock
payable as in kind interest under the debentures held by the investors, and (iv) 289,583 shares of
common stock and 656,250 shares of common stock issuable upon the exercise of warrants issued to
investor relations and public relations firms.
(3)
Assumes (i) the full exercise of the warrants held by the investor selling stockholders to
acquire 22,592,308 shares of common stock, (ii) the full conversion by of the 8% Senior Secured
Convertible Debentures held by the investor selling stockholders into 45,184,615 shares of common
stock, (iii) the issuance of 10,844,308 shares of common as in kind interest under the debentures
held by
the investor selling stockholders, (iv) the full exercise of the warrants held by the investor
relations and public relations firms selling stockholders to acquire 656,250 shares of common
stock, and (v) all of our other outstanding options and warrants are not exercised.
4
Table of Contents
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 28,
December 30,
2008
2007
Statement of Operations Data
Revenues
$
5,824,042
$
4,904,883
Total costs and expenses
15,773,523
9,912,012
Net loss
$
(9,875,305
)
$
(5,451,414
)
Weighted average shares outstanding, basic and
fully diluted
33,851,004
9,433,081
Net loss per common share, basic and fully diluted
$
(0.29
)
$
(0.68
)
Statement of Cash Flows Data
Net cash used in operating activities
$
(5,171,158
)
$
(3,134,984
)
Cash and cash equivalents (end of period)
787,551
3,352,201
At
December 28,
December 30,
Balance Sheet Data
2008
2007
Current assets
$
1,578,878
$
4,762,989
Total assets
3,642,666
8,583,546
Current liabilities
2,664,873
3,597,594
Total liabilities
3,326,468
4,563,448
Total stockholders' equity (deficit)
316,198
4,020,098
5
Table of Contents
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.
KnowFat was formed approximately four 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.
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 fiscal year
ended December 28, 2008, we had revenue of $5,824,042 and incurred an operating loss of $9,949,481.
For the fiscal year ended December 30, 2007, we had revenue of $4,904,883 and incurred an operating
loss of $5,007,129. Our total accumulated deficit through December 28, 2008, was $24,717,544.
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.
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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 94%
of our total revenues for the year ended December 28, 2008. 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 year ended December 28, 2008, our store operations business segment generated revenue of
$5,462,915 and an operating loss of $2,781,278. The store segment operating loss for the year ended
December 28, 2008 included a loss resulting from the impairment of long lived assets and goodwill
of $2,050,655, and $305,000 of legal and other costs associated with the subcontractor liens
described in Note 13 of the Notes to Consolidated Financial Statements as of December 28, 2008.
During the year ended December 30, 2007, our store operations business segment generated revenues
of $4,543,194 and an operating loss of $999,385. The operating loss for our store operations
business segment for the year ended December 30, 2007 included a loss on disposal of $666,838
resulting from the closure of one Company-owned store and the sale of another Company-owned store.
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;
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•
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
nonperformance 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. Currently, the area developers in San Jose and Naples, whose agreements
require them to develop an aggregate of 12 restaurants, had failed to meet their agreed opening
timelines for an aggregate of eight restaurants; however, construction had begun on one of the
eight restaurants. 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;
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•
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
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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.
According to a recent survey by the National Restaurant Association, restaurant operators reported
negative comparable store sales in four of the first six months of 2008. For the twelve months
ended December 28, 2008, comparable store sales for our Company-owned stores decreased by 9.4% and
our system-wide comparable store sales decreased by 9.5%. 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 2009 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. However, we believe the volatility in food and energy prices in 2008
has contributed to a slowdown in consumer spending in 2009, which in turn has adversely affected
our revenues.
Our stores are concentrated in a small geographic area.
Five 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, California 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;
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•
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 the identified 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
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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.
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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.
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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.
As of December 28, 2008, we estimated 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 and Capital Resources" below. Additional capital in the future 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.
14
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The failure of our subsidiary to satisfy its obligations under an existing credit facility could
result in a foreclosure on our assets.
KFLG Watertown, Inc. (KFLG), our wholly-owned subsidiary, is a party to an approximately $692,076
credit facility with TD Banknorth , N.A. (the Bank), which is secured by a lien on the assets of
KFLG. The obligations of KFLG under the credit facility are guaranteed by KnowFat of Downtown
Crossing, Inc., KnowFat of Landmark Center, Inc., and our Chief Executive Officer, and are secured
by liens on the assets of each. In the event that KFLG fails to satisfy its obligations under the
Bank credit facility, the Bank may attempt to foreclose on the assets of KFLG, KnowFat of Downtown
Crossing, Inc., KnowFat of Landmark Center, Inc., and our Chief Executive Officer. Any such
foreclosure could be costly and time consuming to us and our subsidiaries and could result in the
forfeiture of the assets subject to the Bank's liens. In addition, the Bank's liens could make it
more difficult for us to obtain additional debt or equity financing in the future.
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, and the compliance obligations of the Sarbanes-Oxley Act. 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; our subsidiary is restricted from making distributions to us.
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. Additionally, our ability to
participate as an equity holder in any distribution of assets of any subsidiary upon liquidation is
generally subordinate to the claims of creditors of the subsidiary. Under the terms of the credit
facility with TD Banknorth, KFLG is prohibited, without the prior written consent of TD Banknorth,
from declaring, making or paying any distribution of any kind or dividend (other than dividends
payable solely in common stock) except that any of KFLG's subsidiaries may make a distribution to
KFLG.
We have reported a material weakness in our internal control over financial reporting as of
December 28, 2008. 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
15
Table of Contents
December 28, 2008, 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 2009, 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.
We may be exposed to potential risks resulting from new requirements under Section 404 of the
Sarbanes-Oxley Act.
In addition to the report by management on our internal control over financial reporting described
above, for our fiscal year ending December 27, 2009, and thereafter, such report must also contain
a statement that our auditors have issued an attestation report on our management's assessment of
such internal control. If our auditors are unable to attest that our management's report is fairly
stated (or they are unable to express an opinion on the effectiveness of our internal control when
such attestation is required), we could lose investor confidence in the accuracy and completeness
of our financial reports which could have a material adverse effect on our stock price.
While we intend to expend resources to prepare the documentation required by Section 404 of the
Sarbanes-Oxley Act (Section 404), and to perform the required testing procedures, there is a risk
that we will not comply with all of the requirements imposed by Section 404. Accordingly, there can
be no assurance that our independent registered public accounting firm will be able to issue the
attestation required by Section 404. In the event we identify significant deficiencies or
additional material weaknesses in our internal controls that we cannot remediate in a timely manner
or we are unable to receive an attestation from our independent registered public accounting firm
with respect to our internal controls, investors and others may lose confidence in the reliability
of our financial statements and our ability to obtain equity or debt financing could be adversely
affected.
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.
16
Table of Contents
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 March 30, 2009, there were 34,818,490 shares of common stock
outstanding and 18,520,391 shares of common stock subject to outstanding
17
Table of Contents
options and warrants. 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 45,184,615 shares of our common stock issuable upon conversion of 8% Senior
Secured Convertible Debentures sold in a private placement which closed on March 19, 2009
and April 20, 2009;
•
Up to 10,844,308 shares of our common stock issuable as in kind interest on the 8%
Senior Secured Convertible Debentures;
•
Up to 22,592,308 shares of our common stock issuable upon the exercise of warrants sold
in the private placement which closed on March 19, 2009 and April 20, 2009;
•
Up to 289,583 shares of our common stock previously issued to certain in investor
relations and public relations firms; and
•
Up to 656,250 shares of our common stock issuable upon the exercise of warrants issued
to such investor relations and public relations firms.
Pursuant to registration rights agreements executed in connection with the closing of the private
placement which closed on March 19, 2009 and April 20, 2009, 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. 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 three of the selling stockholders are affiliates of
broker-dealers. We have been advised that each such broker-dealer and affiliate of a broker-dealer
purchased our common stock and warrants in the ordinary course of business, not for resale, and at
the time of purchase, did not have any agreements or understandings, directly or indirectly, with
any person to distribute the related common stock.
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
18
Table of Contents
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 34,818,490 shares of our
common stock outstanding as of April 28, 2009. 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.
Percentage of
Shares of
Shares of
Common
Common
Shares of
Common Stock
Shares of
Stock
Stock
Shares of Common
Common Stock
Underlying
Common Stock
Outstanding
Owned
Stock Underlying
Payable as In
Warrants
Beneficially
Beneficially
Before
Debentures
Kind Interest
Beneficially
Shares of
Owned Upon
Owned Upon
the
Beneficially Owned
Under the
Owned Before
Common Stock
Completion of
Completion of
Selling Stockholder
Offering
Before the Offering
Debentures
the Offering
Being Offered
the Offering(a)
the Offering
Abrams, Marc
325,985
384,615
92,308
192,308
669,231
325,985
*
Adams, Terry
0
769,231
184,615
384,615
1,338,461
0
—
Adilman, David
0
61,538
14,769
30,769
107,076
0
—
Anasazi Partners II, LLC‡
50,000
76,923
18,462
38,462
133,847
50,000
*
Andrews, David M.
0
769,231
184,615
384,615
1,338,461
0
—
Arie Leibovitz Trust
Agreement UAD 6/04/86
0
384,615
92,308
192,308
669,231
0
—
Avent Jr., Thomas W.
100,000
384,615
92,308
192,308
669,231
100,000
*
Baker, Adrienne
100,000
153,846
36,923
76,923
267,692
100,000
*
Baker, Christopher P. ‡
100,000
153,846
36,923
76,923
267,692
100,000
*
Baldwin, Byron
60,000
153,846
36,923
106,923
267,692
90,000
*
Beadle, Loren G.
0
1,538,462
369,231
769,231
2,676,924
0
—
Benham, David
0
76,923
18,462
38,462
133,847
0
—
BonAnno Family
Partnership, LLLP
100,000
1,153,846
276,923
626,923
2,007,692
150,000
*
BonAnno Jr., R. James
0
769,231
184,615
384,615
1,338,461
0
—
BonAnno, Raymond J. &
Joan E.
100,000
1,153,846
276,923
626,923
2,007,692
150,000
*
Bradley A.Luepnitz & Fay
Luepnitz JTWROS
0
153,846
36,923
76,923
267,692
0
—
Brakeley, Harry
0
769,231
184,615
384,615
1,338,461
0
—
Campbell, Lisa L.
0
153,846
36,923
76,923
267,692
0
—
Cannetti, Frank D.
0
76,923
18,462
38,462
133,847
0
—
Celi, John S.
0
115,385
27,692
57,692
200,769
0
—
Cimorolo Partners, LLC‡
100,000
153,846
36,923
76,923
267,692
100,000
*
Corbett, Donald
0
76,923
18,462
38,462
133,847
0
—
Coreless, Kenneth
0
769,231
184,615
384,615
1,338,462
0
—
Cornale, Alessandro
0
76,923
18,462
38,462
133,847
0
—
Cornelius, Craig B.
0
384,615
92,308
192,308
669,231
0
—
Cranshire Capital, L.P.(1)
0
384,615
92,308
192,308
669,231
0
—
D&H Pinnacle Partners, LLC
50,000
50,000
12,000
50,000
87,000
75,000
*
19
Table of Contents
Percentage of
Shares of
Shares of
Common
Common
Shares of
Common Stock
Shares of
Stock
Stock
Shares of Common
Common Stock
Underlying
Common Stock
Outstanding
Owned
Stock Underlying
Payable as In
Warrants
Beneficially
Beneficially
Before
Debentures
Kind Interest
Beneficially
Shares of
Owned Upon
Owned Upon
the
Beneficially Owned
Under the
Owned Before
Common Stock
Completion of
Completion of
Selling Stockholder
Offering
Before the Offering
Debentures
the Offering
Being Offered
the Offering(a)
the Offering
Daniel Blacker and
Stefanie Lisa Schwartz,
Tenants by the Entirety
0
115,385
27,692
57,692
200,769
0
—
Daugherty, Paul
0
384,615
92,308
192,308
669,231
0
—
David Stone and Arlene
Stone JTWROS
0
192,308
46,154
96,154
334,616
0
—
Defries, Graham
65,000
307,692
73,846
186,346
535,385
97,500
*
Delves, Robert
0
769,231
184,615
384,615
1,338,462
0
—
Donald Neil Gissler/ Lynn
Patton Gissler
0
384,615
92,308
192,308
669,231
0
—
Donohue IV, James C.
0
384,615
92,308
192,308
669,231
0
—
Drew S. Dettling Living
Trust U/A Dated
06/06/1991
0
384,615
92,308
192,308
669,231
0
—
Eller, Ron
20,000
76,923
18,462
48,462
133,847
30,000
*
Finnegan, Timothy M.
0
769,231
184,615
384,615
1,338,462
0
—
George, Philip Andrew
0
769,231
184,615
384,615
1,338,462
0
—
Gleichenhaus, Barry A.
0
384,615
92,308
192,308
669,231
0
—
Golden Opportunity
Consulting, LLC
0
1,538,462
369,231
769,231
2,676,924
0
—
Goodson, Michael D.
0
769,231
184,615
384,615
1,338,462
0
—
Gordon, Bruce
0
384,615
92,308
192,308
669,231
0
—
Gornick, Thomas G.
0
192,308
46,154
96,154
334,616
0
—
Greenberg, Mark
0
1,153,846
276,923
576,923
2,007,692
0
—
Henry S. Smith Revocable
Trust
10,000
192,308
46,154
101,154
334,616
15,000
*
Hill, Jr., James C.
0
76,923
18,462
38,462
133,847
0
—
Hinkle, Donald E.
0
76,923
18,462
38,462
133,847
0
—
Jaster, Gary W.
0
76,923
18,462
38,462
133,847
0
—
Jecmen, Scott J.
0
1,923,077
461,538
961,538
3,346,153
0
—
Jewitt, Raymond
0
384,615
92,308
192,308
669,231
0
—
Johnson, Keith F.
0
153,846
36,923
76,923
267,692
0
—
Jones, Greg S.
0
153,846
36,923
76,923
267,692
0
—
Joseph C. Benucci & Donna
M. Benucci
0
384,615
92,308
192,308
669,231
0
—
Keller, Kenton
0
1,153,846
276,923
576,923
2,007,692
0
—
Lavery, Paul
75,000
192,308
46,154
133,654
334,616
112,500
*
Leininger, Eric G.
0
384,615
92,308
192,308
669,231
0
—
Leonard Mayne, Jonathan
0
230,769
55,385
115,385
401,539
0
—
Levine, Seth
0
192,308
46,154
96,154
334,616
0
—
Lin, Frank
0
115,385
27,692
57,692
200,769
0
—
20
Table of Contents
Percentage of
Shares of
Shares of
Common
Common
Shares of
Common Stock
Shares of
Stock
Stock
Shares of Common
Common Stock
Underlying
Common Stock
Outstanding
Owned
Stock Underlying
Payable as In
Warrants
Beneficially
Beneficially
Before
Debentures
Kind Interest
Beneficially
Shares of
Owned Upon
Owned Upon
the
Beneficially Owned
Under the
Owned Before
Common Stock
Completion of
Completion of
Selling Stockholder
Offering
Before the Offering
Debentures
the Offering
Being Offered
the Offering(a)
the Offering
Lloyd, Judith Helen
0
384,615
92,308
192,308
669,231
0
—
Loomis, Roy S. / Claudia
J.
0
384,615
92,308
192,308
669,231
0
—
MarketByte LLC(2)
200,000
0
0
83,333
141,667
141,667
*
Martingale Holdings II,
LLC
0
961,538
230,769
480,769
1,673,076
0
—
Mehok, Matthew W.
0
138,642
33,231
69,231
241,104
0
—
Monaco, Gene
450,000
2,307,692
553,846
1,153,846
4,015,384
450,000
1.29
%
Montgomery, Robert L.
0
153,846
36,923
76,923
267,692
0
—
Morgan, Guy Vernon
0
76,923
18,462
38,462
133,847
0
—
Mueller, Keith
0
1,923,077
461,538
961,538
3,346,153
0
—
Mueller, Wendy O.
0
384,615
92,308
192,308
669,231
0
—
Neal, Barry S.
0
192,308
46,154
96,154
334,616
0
—
Neptune Media, LLC(3)
75,000
0
0
0
37,500
37,500
*
New Century Capital
Consultants, Inc. (4)
145,833
0
0
1,604,167
625,000
1,125,000
3.14
%
Nicholson, Keith
0
192,308
46,154
96,154
334,616
0
—
Oxenreider, Keith B. and
Angela M.
0
769,231
184,615
384,615
1,338,462
0
—
Pereira, Jr., Antonio J.
0
384,615
92,308
192,308
669,231
0
—
Piscitelli, Jr., Joseph R.
0
76,923
18,462
38,462
133,847
0
—
Point Prospect, Inc.
0
769,231
184,615
384,615
1,338,462
0
—
Rathjen, Steven L.
0
384,615
92,308
192,308
669,231
0
—
Reinhart, John J.
0
384,615
92,308
192,308
669,231
0
—
Richard, Donald J.
769,231
184,615
384,615
1,338,462
0
—
Robbins, Hilary A.
0
192,308
46,154
96,154
334,616
0
—
Robbins, Jessica M.
0
192,308
46,154
96,154
334,616
0
—
Robbins, John
0
961,538
230,679
480,769
1,672,986
0
—
Robert W. Denner Living
Trust 12-01-1995
0
769,231
184,615
384,615
1,338,462
0
—
Semple, Bob
0
384,615
92,308
192,308
669,231
0
—
Sheldon, Alan J.
0
230,769
55,385
115,385
401,539
0
—
Skaletsky, Marc S.
29,300
76,923
18,462
50,962
133,846
41,800
*
Smee, Richard Anthony
100,000
115,385
27,692
57,692
200,769
100,000
*
Smelgus, James
0
115,385
27,692
57,692
200,769
0
—
Somelofske, Martin J.
50,000
126,923
30,462
88,462
220,847
75,000
*
Strom, Greg
0
769,231
184,615
384,615
1,338,462
0
—
Snyder, Stephen C.
0
192,308
46,154
96,154
334,616
0
—
Susan K. Smith Trust
0
461,538
110,769
230,769
803,076
0
—
21
Table of Contents
Percentage of
Shares of
Shares of
Common
Common
Shares of
Common Stock
Shares of
Stock
Stock
Shares of Common
Common Stock
Underlying
Common Stock
Outstanding
Owned
Stock Underlying
Payable as In
Warrants
Beneficially
Beneficially
Before
Debentures
Kind Interest
Beneficially
Shares of
Owned Upon
Owned Upon
the
Beneficially Owned
Under the
Owned Before
Common Stock
Completion of
Completion of
Selling Stockholder
Offering
Before the Offering
Debentures
the Offering
Being Offered
the Offering(a)
the Offering
TGR Group LLC(5)
200,000
0
0
83,333
141,667
141,667
*
The Apregan Family Living
Trust
0
576,923
138,462
288,462
1,003,847
0
—
Tompkins, Joseph B.
0
769,231
184,615
384,615
1,338,462
0
—
Tutino, Victor
0
192,308
46,154
96,154
334,616
0
—
Wakil, Salman
0
384,615
92,308
192,308
669,231
0
—
Warren H. Watkins Trust,
Warren H. Watkins Trustee
U/A with Warren H Watkins
Dated 1/27/03
0
769,231
184,615
384,615
1,338,462
0
—
Uelner, Scott M.
0
38,462
9,231
19,231
66,924
0
—
Weir, Sean
0
384,615
92,308
192,308
669,231
0
—
Were, Hugo
0
115,385
27,692
57,692
200,769
0
—
Wittkemper, Gerd
0
769,231
184,615
384,615
1,338,462
0
—
Woodward, Jr., John L.
0
76,923
18,462
38,462
133,847
0
—
Wolf, Ronald
0
76,923
18,462
38,462
133,847
0
—
(a)
Assumes that all of the shares of common stock beneficially owned by each selling stockholder
being offered pursuant to this prospectus, including all shares of common stock underlying
warrants, are sold in the offering, and that shares of common stock beneficially owned by such
selling stockholder but not being registered by this prospectus are not sold.
*
Less than 1%
‡
The selling stockholder is an affiliate of a broker-dealer.
(1)
Downsview Capital, Inc. ("Downsview") is the general partner of Cranshire Capital, L.P.
("Cranshire") and consequently has voting control and investment discretion over securities held by
Cranshire. Mitchell P. Kopin ("Mr. Kopin"), President of Downsview, has voting control over
Downsview. As a result of the foregoing, each of Mr. Kopin and Downsview may be deemed to have
beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as
amended) of the shares of common stock beneficially owned by Cranshire.
(2)
On April 9, 2008, we entered into a services agreement with MarketByte LLC, as part of our
corporate awareness campaign, in connection with which we issued to them an aggregate of 200,000
shares of our common stock and warrants to purchase an aggregate of 83,333 shares of our common
stock in partial payment for their services. No dollar value was assigned to these services in the
agreements. The issuance of the shares and warrants above was exempt from registration under
Section 4(2) of the Securities Act. One-half of the shares and warrants issued to MarketByte LLC
vested on January 1, 2009 and were registered under a registration statement filed with the
Securities and Exchange Commission on June 27, 2008, as amended. The remaining one-half of the
shares and warrants vested on March 19, 2009 upon the publication and dissemination of a report
profiling the Company and its products and are being registered hereunder. Lawrence D. Isen has
the power to vote and dispose of the shares being registered on behalf of MarketByte LLC. Lawrence
D. Isen may also be deemed to beneficially own shares being registered on behalf of Lawrence D.
Isen and TGR Group LLC.
(3)
On April 9, 2008, we entered into a services agreement with Neptune Media, LLC, as part of our
corporate awareness campaign, in connection with which we issued to them an aggregate of 75,000
shares of our common stock in partial payment for their services. No dollar value was assigned to
these services in the agreements. The issuance of the shares above was exempt from registration
under Section 4(2) of the Securities Act. One-half of the shares issued to Neptune Media, LLC
vested on January 1, 2009. The remaining one-half of the shares vested on March 19, 2009 upon the
publication and dissemination of a report profiling the Company and its products and are being
registered hereunder. Snezana Radovanovic- Estevez has the power to vote and dispose of the shares
being registered on behalf of Neptune Media, LLC.
22
Table of Contents
(4)
On April 21, 2008, we entered into a consulting agreement with New Century Capital Consultants,
Inc., as part of our corporate awareness campaign, in connection with which we issued to them an
aggregate of 250,000 shares of our common stock and warrants to purchase an aggregate of 2,750,000
shares of our common stock in partial payment for their services. No dollar value was assigned to
these services in the agreements. The issuance of the shares and warrants above was exempt from
registration under Section 4(2) of the Securities Act. The shares and warrants issued to New
Century Capital Consultants vest in equal installments over twenty-four months through April 2010
or upon the achievement of specified milestones tied to average daily trading volume of the
Company's common stock and/or the publication of articles about the Company by local and national
media outlets. To date, the specified milestones have not been achieved and the shares and
warrants associated therewith have not vested. As of January 8, 2009, 93,750 shares and 1,031,250
warrants had vested and were registered in a registration statement filed with the Securities and
Exchange Commission on June 27, 2008, as amended. As of the date which is 60 days from the date
hereof, 52,083 additional shares and 572,917 additional warrants issued to New Century will have
vested and are being registered hereunder. Stephen Schaeffer has the power to vote and dispose of
the shares being registered on behalf of New Century Capital Consultants, Inc.
(5)
On April 9, 2008, we entered into a services agreement with TGR Group LLC, as part of our
corporate awareness campaign, in connection with which we issued to them an aggregate of 200,000
shares of our common stock and warrants to purchase an aggregate of 83,333 shares of our common
stock in partial payment for their services. No dollar value was assigned to these services in the
agreements. The issuance of the shares and warrants above was exempt from registration under
Section 4(2) of the Securities Act. One-half of the shares and warrants issued to TGR Group LLC
vested on January 1, 2009 and were registered under a registration statement filed with the
Securities and Exchange Commission on June 27, 2008, as amended. The remaining one-half of the
shares and warrants vested on March 19, 2009 upon the publication and dissemination of a report
profiling the Company and its products and are being registered hereunder. Arthur Kang has the
power to vote and dispose of the shares being registered on behalf of TGR Group LLC. Lawrence D.
Isen may also be deemed to beneficially own these shares in addition to shares being registered on
behalf of Lawrence D. Isen and MarketByte LLC.
All selling stockholders (other than the investor relations and public relations firms noted above)
acquired (i) 8% Senior Secured Convertible Debentures 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 March 19, 2009 and April
20, 2009. In connection with the first and second closings of the private placement, we issued (i)
debentures in the aggregate principal amount of $5,874,000, and (ii) warrants to purchase an
aggregate of 22,592,308 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." 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.
23
Table of Contents
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 April 28,
2009, there were 34,818,490 shares of our common stock issued and outstanding and 49,847,276
shares issuable upon exercise of outstanding stock options and warrants. On that date, there were
approximately 390 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 April 28, 2009, the last reported sale price of
our shares on the OTC Bulletin Board was $0.23. 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 30, 2009 (through April 28, 2009)
$
0.28
$
0.21
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. Under the terms of a credit agreement dated as of May 27, 2005 between
our wholly-owned subsidiary, KFLG Watertown, Inc. (KFLG) and TD Banknorth, N.A. (as amended, the
Credit Agreement), KFLG is prohibited, without the prior written consent of TD Banknorth, from
declaring, making or paying any distribution of any kind or dividend (other than dividends payable
solely in common stock), except that any of KFLG's subsidiaries may make a distribution to KFLG.
See "Risk Factors— We are a holding company that depends on cash flow from our subsidiaries to
meet our obligations and pay dividends; our subsidiary is restricted from making distributions to
us" above and "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Credit Agreement with TD Banknorth, N.A." and Note 7,
Long-Term Debt
, to our 2008 Consolidated Financial Statements below.
24
Table of Contents
Securities Authorized for Issuance under Equity Compensation Plans
The Company has two share-based, shareholder-approved equity compensation plans, the 2004 Stock
Option Plan (2004 Plan) and the
2007 Equity Incentive Plan (2007 Plan). Descriptions of these plans, and certain information
regarding options issued thereunder, are presented in Note 10,
Stock-Based Compensation
, our 2008
Consolidated Financial Statements below.
As of the end of fiscal year 2008, 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
warrants and rights
warrants and rights
column (a))
Plan Category
(a)
(b)
(c)
Equity compensation
plans approved by
security holders
3,110,622
$
1.029
3,194,080
Equity compensation
plans not approved
by security holders
1,387,090
(1)
$
1.22
0
Total
4,497,712
$
1.06
3,194,080
(1)
The options to purchase 1,000,000 shares shown in the table were not granted pursuant to a
compensation plan, but instead represent non-qualified stock options granted to our chief executive
officer, George Naddaff, by our board of Directors on May 1, 2008. The options granted to Mr.
Naddaff were fully vested. On the same day, the Board of Directors also granted non-qualified
options to purchase 300,000 shares to our chief operating officer, Charles Cocotas. The stock
options granted to Mr. Cocotas will vest monthly over the remaining period of his employment
agreement and expire ten years from the date of the grant. The remaining balance of 87,090 options
was granted to Mr. Cocotas by our Board of Directors on December 6, 2007, fully vested.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be
read in conjunction with our financial statements and related notes included elsewhere in this
report. This discussion contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors discussed in "Risk Factors" and elsewhere
in this report.
Overview
Our operations currently consist of twelve restaurants in the Boston area, Naples, FL, Chicago, IL
and Sacramento, CA, comprising four Company-owned restaurants and eight franchise-owned locations.
We have entered into a total of six area development agreements covering 68 franchise units in nine
states (California, Colorado, Florida, Illinois, Idaho, Montana, Texas, Utah and Wyoming),
including seven of the eight franchise locations currently open and operating, and requiring the
construction by franchisees of 60 future UFood Grill outlets.
We view ourselves primarily as a franchisor and continually review our restaurant ownership mix
(that is our mix among company-owned, franchised and joint venture) in an endeavor to deliver a
pleasant customer experience and drive profitability. In most cases, franchising is the best way to
achieve both goals. In our company-owned stores, and in collaboration with our franchisees, we
further develop and refine operating standards, marketing concepts and product and pricing
strategies, so that we introduce system-wide only those that we believe are most beneficial.
We include in this discussion information on company, franchisee, and/or system-wide comparable
sales. System-wide sales are a non-GAAP financial measure that includes sales at all company-owned
and franchise-operated stores, as reported by franchisees.
25
Table of Contents
Management uses system-wide sales
information internally in connection with store development decisions, planning and budgeting
analysis. Management believes it is useful in assessing customer acceptance of our brand and
facilitating an understanding of financial performance as our franchisees pay royalties and
contribute to marketing funds based on a percentage of their sales.
We derive revenues from three sources: (i) store sales which include sales of hot and cold prepared
food in a fast casual dining environment as well as sales of health and nutrition related products;
(ii) franchise royalties and fees represent amounts earned under franchise and area development
agreements; and (iii) other revenues derived primarily from the sale of marketing materials to
franchisees. Store operating expenses include the cost of goods, food and paper products sold in
company-owned stores as well as labor and other operating costs incurred to operate company-owned
stores. General and administrative expenses, advertising, marketing and promotion expenses and
depreciation expense relate to all three revenue sources.
Critical Accounting Policies & Estimates
The discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements for the fiscal years ended December 28, 2008 and December 30,
2007 which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of the consolidated financial statements requires us to make
estimates, judgments and assumptions, which we believe to be reasonable, based on the information
available. These estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses. Variances in the estimates or assumptions used could yield materially
different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our
accounting policies and resulting estimates to make adjustments we consider appropriate under the
facts and circumstances.
We have chosen accounting policies we believe are appropriate to report accurately and fairly our
operating results and financial position, and we apply those accounting policies in a consistent
manner.
Revenue Recognition
We follow the accounting guidance of SFAS No. 45,
Accounting for Franchise Fee Income
. Franchisee
deposits represent advances on initial franchise fees prior to the opening of the franchisee
location. We recognize initial franchise fee revenue when all material services we are required to
perform and all material conditions we are required to satisfy have been substantially completed,
which is generally the opening of the franchised location. We defer direct costs related to
franchise sales until the related revenue is recognized; however, the deferred costs shall not
exceed anticipated revenue less estimated additional related costs. Such costs include training,
facilities design, menu planning and marketing. Franchise royalty revenues are recognized in the
same period the relevant franchisee sales occur.
We record revenue for Company-owned store sales upon delivery of the related food and other
products to the customer.
Valuation of Goodwill
We account for goodwill and other intangible assets under SFAS No. 141,
Business Combinations
, and
SFAS No. 142,
Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30, 2001, and that certain
intangible assets acquired in a business combination be recognized as assets apart from goodwill.
Under SFAS No. 142, purchased goodwill and intangible assets with indefinite lives are not
amortized, but instead tested for impairment at least annually or whenever events or changes in
circumstances indicate the carrying value may not be recoverable. At December 30, 2007, the
carrying amount of goodwill was $977,135 and was comprised of $841,135 of goodwill attributable to
our store operations segment and $136,000 of goodwill attributable to our franchise operations
segment. Goodwill attributable to our franchise operations segment is evaluated by comparing the
Company's fair market value, determined based upon quoted market prices of the Company's equity
securities, to the carrying amount of goodwill. Goodwill attributable to our store operations
segment is evaluated on a restaurant —by-restaurant basis by comparing the restaurant's estimated
fair value to the carrying value of the restaurant's underlying net assets inclusive of goodwill.
Fair value is determined based upon the restaurant's estimated future cash flows. Future cash
flows are estimated based upon a restaurant's historical operating performance and management's
estimates of future revenues and expenses over the period of time that the Company expects to
operate the restaurant, which generally coincides with the initial term of the restaurant's lease
but which may take into account the restaurant's first lease renewal period up to 5 years. The
estimate of a restaurant's future cash flows may also include an estimate of the restaurant's
terminal value, determined by applying a capitalization rate to the restaurant's estimated cash
flows during the last year of the forecast period. The capitalization rate used by the Company was
determined based upon the restaurant's location, cash flows and growth prospects.
In August 2008, the Company completed the conversion of three of its Company-owned stores from
KnowFat! locations to UFood Grill outlets, including two stores that have goodwill associated with
them. Following the store conversions, the Company tested the carrying value of the store's
goodwill for impairment as of the first day of the fourth quarter and determined that there was no
impairment. For purposes of estimating each store's future cash flows, the Company assumed that
comparable store sales would
26
Table of Contents
increase by approximately 4% per year; store operating expenses as a
percentage of the store's revenues would decrease by a total of 1-1/2% of sales due to labor and
purchasing efficiencies; and the terminal value of each store was calculated using a 20%
capitalization rate applied to the final year's estimated cash flow. The present value of each
restaurant's estimated future cash flows was calculated using a discount rate of 8%.
Following the impairment test performed as of the first day of the fourth quarter, economic
conditions in the United States have worsened. The U.S. Government and Federal Reserve have
provided an unprecedented level of financial support to U.S. financial institutions, unemployment
has risen, home foreclosures have increased, mortgage delinquency rates have increased, credit
markets have tightened, volatility in the equity markets has continued and the National Bureau of
Economic Research announced that the United States economy has been in recession for almost a year.
These factors have all contributed to economic uncertainty and a decrease in consumer spending
which in turn has contributed to a decline in sales at Company-owned stores. According to The
Conference Board, Inc., the decline in real consumer spending experienced in the third and fourth
quarters of 2008 are expected to last through the first half of 2009. As a result of these factors
and the uncertainty surrounding the level of economic activity in 2009 and beyond, the Company
tested the carrying value of the stores' goodwill in December 2008 and determined that the carrying
amount of the goodwill attributable to our store operations exceeded its implied fair value and
recognized a non-cash impairment charge of $765,772. For purposes of its mid-December 2008
impairment test, the Company assumed that comparable store sales will decline by 6% in 2009 and
increase by 2.5% per year thereafter and store operating expenses will continue at their current
level as a percentage of store revenues. As a result of the economic uncertainty that currently
exists, the Company's estimate of future cash flows did not include an estimate of the restaurant's
terminal value since the Company cannot be certain that a buyer could be found for the restaurant
at the end of the lease term. The present value of the estimated future cash flows was calculated
using a 7% discount rate reflecting the recent decrease in long-term interest rates. Following the
non-cash impairment charge, the carrying value of goodwill attributable to our store operations
segment is $75,363. The carrying amount of goodwill may be impaired in the future if our actual
operating results and cash flows fall short of our expectations.
Impairment of Long-Lived Assets
In accordance with SFAS No. 144,
Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of,
when impairment indicators exist, the Company evaluates its long-lived
assets for potential impairment. Potential impairment is assessed when there is evidence that
events or changes in circumstances have occurred that indicate the carrying amount of an asset may
not be recovered. When events or changes in circumstances have occurred that indicate a long-lived
asset may be impaired, the Company uses estimates of future cash flows on a restaurant-by-
restaurant basis to test the recoverability of its long-lived assets. Future cash flows are
estimated based upon the restaurant's historical operating performance and management's projections
of future revenues and expenses and may take into account the restaurant's estimated terminal
value. During the fourth quarter of 2008, the Company determined that the carrying value of the
long-lived assets of its store operations segment may not be recovered and recorded a non-cash
impairment charge of $1,249,150. The impairment charge was primarily due to a decrease in
forecasted sales resulting from the economic downturn which is expected to continue through 2009,
an increase in the carrying value of the underlying assets of two stores as a result of the
conversion from KnowFat! locations to UFood Grill outlets and new restaurants that opened in the
fall of 2008 in the vicinity of one of our Company-owned stores and which are expected to have an
adverse impact on the stores future sales growth. Long-lived assets may be impaired in the future
if our actual operating results and cash flows fall short of our expectations.
Rent Expense
We recognize rent expense on a straight-line basis over the reasonably assured lease term as
defined in SFAS No. 98,
Accounting for Leases
. The reasonably assured lease term on most of our
leases is the initial non-cancelable lease term, which generally equates to between five and ten
years. In addition, certain of our lease agreements provide for scheduled rent increases during
the lease terms or for rental payments that commence on a date other than the date of initial
occupancy. We include any rent escalations and rent holidays in its determination of straight-line
rent expense. Consequently, rent expense for new locations is charged to expense beginning with
the consummation date of the lease.
Stock-Based Compensation
We have adopted the provisions of SFAS No. 123R,
Share-based Payment
, which establishes accounting
for equity instruments exchanged for employee services. Under the provisions of SFAS 123R,
shared-based compensation is measured at the grant date, based upon the fair value of the award,
and is recognized as an expense over the employee's requisite service period (generally the vesting
period of the equity grant).
We used the prospective approach as required by SFAS No. 123R and accordingly, compensation costs
for periods prior to adoption were not restated. Under this approach, compensation cost is
recognized for all share-based payments granted after the date of adoption based on the grant date
fair value, estimated in accordance with the provisions of SFAS No. 123R. Financial statement
amounts for prior periods have not been revised to reflect the fair value method of expensing
share-based compensation.
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Table of Contents
Executive Summary of Results
The following table sets forth the percentage relationship to total revenues, except where
otherwise indicated, of certain items included in our consolidated statements of operations for the
periods indicated. Percentages may not add due to rounding:
Year Ended
December 30,
December 31,
2008
2007
Revenues:
Store sales
93.8
%
92.6
%
Franchise royalties and fees
5.8
6.7
Other revenue
0.4
0.7
100.0
%
100.0
%
Costs and expenses:
Store operating expenses (1):
Food and paper cost
34.5
%
35.4
%
Cost of goods sold
9.3
18.9
Labor
31.9
30.9
Occupancy
12.1
9.0
Other store operating expenses
18.2
17.5
General and administrative expenses
116.5
71.8
Advertising, marketing and promotion expenses
15.2
13.7
Depreciation and amortization
8.6
8.8
Loss on disposal of assets, Impairment of
Goodwill and Long-lived assets
35.7
13.6
Total costs and expenses
270.8
202.1
Operating loss
(170.8
)
(102.1
)
Other income (expense):
Interest income
1.4
0.3
Interest expense
(1.3
)
(7.9
)
Other expense, net
1.2
(1.5
)
Other income (expense), net
1.3
(9.1
)
Loss before income taxes
(169.6
)
(111.2
)
Income taxes
—
—
Net loss
(169.6
%)
(111.2
%)
(1)
Food and paper costs are shown as a percentage of food sales. The cost of nutritional
products, labor, occupancy and other store operating expenses are shown as a percentage of
total store sales.
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The following table sets forth certain data relating to the number of Company-owned,
franchise-operated and system-wide store locations:
Year Ended
December 30,
December 31
2008
2007
Company-owned locations:
Locations at the beginning of the year
4
5
Locations opened
—
1
Locations closed
—
(1
)
Locations sold
—
(1
)
Locations transferred
—
—
Locations at the end of the year
4
4
Franchise-operated locations:
Locations at the beginning of the year
4
4
Locations opened
3
2
Locations closed
(1
)
(2
)
Locations sold
—
—
Locations transferred
—
—
Locations at the end of the year
6
4
System-wide locations
Locations at the beginning of the year
8
9
Locations opened
3
3
Locations closed
(1
)
(3
)
Locations sold
—
(1
)
Locations transferred
—
—
Locations at the end of the year
10
8
Fiscal Year Ended December 28, 2008 Compared to Fiscal Year Ended December 30, 2007
General
For the twelve months ended December 28, 2008, our comparable store sales for Company-owned stores
decreased by 9.4%. All of the comparable store locations are located in the greater Boston area. As
of December 28, 2008, one franchisee-owned comparable store location was operated by the Company
pursuant to a separate management services agreement. Comparable store sales are based on sales for
stores that have been in operation for the entire period of comparison. Franchisee-owned stores
which we acquire are included in comparable store sales once they have been open for the entire
period of comparison. Comparable store sales exclude closed locations.
Results of Operations
Revenues
Our total revenues for the year ended December 28, 2008 increased by $919,159, or 18.7%, to
$5,824,042 from $4,904,883 for the year ended December 30, 2007. The increase in total revenues for
the year ended December 28, 2008, as compared to the prior year was primarily due to sales
generated by new Company-owned restaurant that opened at Boston's Logan International Airport in
December 2007 and two franchisee stores operated by the company under two management services
agreement partially offset by the decrease in comparable store sales.
Total store sales at Company-owned stores for the year ended December 28, 2008 increased by
$919,721, or 20.2%, to $5,462,915 from $4,543,194 for the year ended December 30, 2007. As a
percentage of total revenues, sales at Company-owned stores increased to 93.8% of total revenues
for the year ended December 28, 2008 from 92.6% of total revenues for the year ended December 30,
2007. The increase in sales at Company-owned stores for the year ended December 28, 2008 was
primarily due to sales generated by the
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Logan Airport location opened in December 2007 and the
operation of two franchisee stores under two separate management services agreements, partially
offset by a decrease in sales due to the sale of a Company-owned restaurant in September 2007.
During the year ended December 28, 2008, franchise royalties and fees increased by 9,127, or 2.8%
to $335,860 from $326,733 for the year ended December 30, 2007 primarily due to a an increase in
franchise fees offset by a decrease in royalties. The Company recognized $87,500 of revenue from
initial franchise fees during the year ended December 28, 2008 compared with $70,000 for the year
ended December 30, 2007.
As of December 28, 2008, our operations consisted of ten restaurants in the Boston area, Naples,
FL, Chicago, IL and Sacramento, CA, comprising four Company-owned restaurants and six
franchise-owned locations. At December 28, 2008, we operated one of the franchise-owned locations
pursuant to a management services agreement. As of December 28, 2008, we had entered into a total
of six area development agreements covering 68 franchise units in nine states (California,
Colorado, Florida, Illinois, Idaho, Montana, Texas, Utah and Wyoming), including five of the six
franchise locations that were open and operating, and requiring the construction by franchisees of
63 future UFood Grill outlets (as of March 23, 2009, three of the 63 outlets have opened).
The six area development agreements covering 68 franchise units do not include an area development
agreement covering five units in Houston, Texas. We have determined that the area developer for
Houston would not be able to construct or open the five units specified in his area development
agreement because the developer has not complied with the agreed development schedule and, to our
knowledge, has taken no steps to identify potential store locations or otherwise develop his
territory. While we have not formally terminated this agreement, we have not included those five
units in any discussions in this report. During the year ended December 28, 2008, the franchise
location in Waltham, Massachusetts closed, two franchise locations opened in Chicago and one
location opened in California. Our standard franchise and area development agreements require
franchisees and area developers to develop a specified number of stores on or before specific
dates. If a franchisee or area developer fails to develop stores on schedule, we have the right to
terminate the agreement, retain up-front franchise fees and develop company-owned locations or
develop locations through new area developers in that market. We may exercise one or more
alternative remedies to address defaults by area developers and franchisees of the terms of their
franchise agreements including the failure to open locations on time and non-compliance with our
operating and brand requirements and other covenants under the franchise agreement.
Costs and Expenses
Cost of food and paper products for the year ended December 28, 2008, increased by $461,166, or
40.0%, to $1,615,417 from $1,154,251 for the year ended December 30, 2007. The increase in food and
paper cost was primarily due to an increase in the number of company-operated stores in 2008
compared with 2007. As a percentage of store sales, food and paper cost decreased to 34.5% of store
sales for the year ended December 28, 2008, from 35.4% of store sales for the year ended December
30, 2007. The decrease in food and paper cost as a percentage of store sales was primarily due to
operational improvements such as portion control, loss prevention, locked meat prices and reduced
waste. The cost of goods sold for the year ended December 28, 2008, decreased by $347,203, or 40.5%
to $509,775 from $856,978 for the year ended December 30, 2007. The decrease in cost of goods sold
was primarily due to the elimination of the retail space within our stores as a result of the
conversion of the stores to UFood outlets. As a percentage of the retail sales, the cost of goods
sold decreased to 65.7% of store retail sales for the year ended December 28, 2008, from 67.0% of
store retail sales for the year ended December 30, 2007.
Labor expense for the year ended December 28, 2008, increased by $338,169, or 24.1%, to $1,743,831
from $1,405,662 for the year ended December 30, 2007. The increase in labor expense was primarily
attributable to costs of new employees hired in connection with the opening of new company-owned
store locations and pay rate increases for employees that were due for pay rate review. As a
percentage of store sales, labor expense increased to 31.9% of store sales for the year ended
December 28, 2008, from 30.9% of store sales for the year ended December 30, 2007. The increase in
labor expense as a percentage of store sales for the year ended December 28, 2008, was primarily
due to a decrease in same store sales and increase in pay rates.
Occupancy costs for the year ended December 28, 2008, increased by $248,611, or 60.6%, to $658,672
from $410,061 for the year ended December 30, 2007. The increase in occupancy costs was primarily
attributable to a new company-owned store and the two franchisee-owned stores operated by the
Company under management services agreement. As a percentage of store sales, occupancy costs
increased to 12.1% of store sales for the year ended December 28, 2008, from 9.0% of store sales
for the year ended December 30, 2007. The increase in occupancy costs as a percentage of store
sales was primarily due to the higher rent cost of our airport location and the decrease in same
store sales.
Other store operating expenses for the year ended December 28, 2008, increased by $195,546, or
24.5%, to $992,350 from $796,804 for the year ended December 30, 2007. The increase in other store
operating expenses was primarily due to our Logan Airport store that opened in December 2007 and
two stores operated under management services agreements during 2008. As a percentage of store
sales, other store operating expenses increased to 18.2% of store sales during the year ended
December 28, 2008, from 17.5% of store sales during the year ended December 30, 2007.
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General and administrative expenses for the year ended December 28, 2008, increased by $3,265,228,
or 92.8%, to $6,785,620 from $3,520,392 for the year ended December 30, 2007. The increase in
general and administrative expenses for the year ended December 28, 2008, compared to the same
period in the prior year is primarily due to employee stock option compensation, investor and
public relations expenses and legal fees and settlements. General and administrative expenses
include $996,792 of stock-based compensation expense in 2008 compared with $249,292 of stock-based
compensation expense in 2007. Also, general and administrative expenses for the year ended December
28, 2008 include $1,475,108 of investor and public relations expenses. As a percentage of total
revenues, general and administrative expenses increased to 117% of total revenues for the year
ended December 28, 2008, from 71.8% of total revenues for the year ended December 30, 2007.
Advertising, marketing and promotion expenses for the year ended December 28, 2008, increased by
$215,819, or 32.1%, to $887,259 from $671,440 for the year ended December 30, 2007. The increase in
advertising, marketing and promotion expenses was primarily due to the rebranding of our KnowFat
stores into UFood outlets. As a percentage of total revenues, advertising, marketing and promotion
expenses increased to 15.2% of total revenues in 2008 from 13.7% of total revenues in 2007.
Depreciation and amortization expense for the year ended December 28, 2008, increased by $70,567,
or 16.4%, to $500,153 from $429,586 for the year ended December 30, 2007 due to new company-owned
store locations and new equipment installed in previously existing company-owned store locations as
result of the conversion of the store to UFood outlets. As a percentage of total revenues,
depreciation and amortization expense decreased to 8.6% of total revenues for the year ended
December 28, 2008, from 8.8% of total revenues for the year ended December 30, 2007.
The impairment of long-lived assets for the year ended December 28, 2008 of $1,249,150 was due to
the write down of assets of two store locations. The write down was attributable to a decrease in
forecasted sales resulting from the economic downturn which is expected to continue through 2009
and new restaurants that opened in the vicinity of one of the stores and which are expected to have
an adverse impact on the stores future sales growth.
The loss on disposal of assets for the year ended December 30, 2007, represents the costs
associated with the closing of one company-owned store and the sale of another company-owned store.
The costs associated with the disposition of the two stores were accounted for in accordance with
SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities
" and are comprised
of $232,073 representing the liability for the remaining lease obligation, $428,191 for the
write-off of goodwill and $6,574 representing a loss incurred on the disposition of inventory,
plant and equipment.
The company recognized a non-cash impairment charge for the year ended December 28, 2008 of
$765,772 as result of testing the carrying value of goodwill attributable to our store operations
segment in December 2008. We determined that the carrying amount of goodwill attributable to our
store operations exceeded its implied fair value, according with SFAS 142. For purposes of the
impairment test, the Company assumed that comparable store sales will decline by 6% in 2009 and
increase by 2-1/2% per year thereafter and store operating expenses will continue at their current
level as a percentage of store revenues. As a result of the economic uncertainty that currently
exists, the Company did not include an estimate of the restaurant's terminal value in its estimated
future cash flows since the Company cannot be certain that a buyer could be found for the
restaurant at the end of the lease term. The present value of the estimated future cash flows was
calculated using a 7% discount rate reflecting the recent decrease in long-term interest rates.
Net interest expense/income for the year ended December 28, 2008, decreased by $373,353, or 101.
1%, to an income of $4,013, from $369,130 of expense for the year ended December 30, 2007. As a
percentage of total revenues, net interest expense decreased to 0.1% of income of total revenues
for the year ended December 28, 2008, from 7.6% of total revenues for the year ended December 30,
2007. The decrease in net interest expense was primarily due to lower debt levels during the year
ended December 28, 2008, compared to the year ended December 30, 2007, and higher interest income.
In April 2008, we repaid approximately $812,054 of debt incurred in connection with the acquisition
of one of our company owned store locations
Our net loss for the year ended December 28, 2008, increased by $4,423,891, or 81.2%, to
$9,875,305, from $5,451,414 for the year ended December 30, 2007. Our net loss increased primarily
due to higher stock-based compensation expense, higher depreciation and amortization expenses, the
loss recognized in connection with the impairment charges for long-lived assets and goodwill,
expenses for investor and public relations, and legal settlements. As a percentage of total
revenues, our net loss increased to 169.6% of total revenues for the year ended December 28, 2008,
from 111.2 % of total revenues for the year ended December 30, 2007.
Liquidity and Capital Resources
Historically we have funded our operations, working capital requirements, acquisitions and capital
expenditures with proceeds from the issuance of debt and equity securities. Our future capital
requirements and the adequacy of available funds will depend on many factors, including the pace of
expansion, real estate markets, site locations and the nature of the arrangements negotiated with
landlords,
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as well as access to the debt and/or equity capital markets. We have incurred
significant operating losses since our inception and we expect to incur operating losses for the
foreseeable future.
Our current business plan assumes no Company-owned stores will be constructed during 2009. As set
forth in the following table, we will need to secure approximately $6.0 million of additional
capital through the sale of debt securities or equity securities or both to fund our current
business plan through December 31, 2010. The amounts shown below may change as we execute our
business plan.
Estimated
Capital Required
to Fund the
Company's
Operating Plan
from Dec. 28, 2008
to Dec 31, 2010(Millions)
Capital Required to Fund the Company's Operating Plan (millions):
Operating activities (excluding marketing & promotion services shown below)
$
4.4
Other capital expenditures
0.1
Marketing and promotion services
0.7
Debt repayment
0.8
Estimated capital required through December 30, 2010
$
6.0
The estimated capital required to fund our current plan is expected to come from the sale of debt
securities, equity securities or both. None of the capital required is expected to come from the
exercise of warrants. Currently, we do not have a bank line of credit or other source of additional
debt financing. There can be no assurance that we will be able to secure the additional capital
that our business plan requires. See "Risk Factors—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."
At and for the Fiscal Year Ended December 28, 2008
Cash and cash equivalents and restricted cash at December 28, 2008 were $1,205,041 compared to
$4,435,813 at December 30, 2007. Cash is primarily used to fund our (i) capital expenditures for
new and remodeled company-owned stores, (ii) acquisitions of franchisee-owned stores, (iii) working
capital requirements and (iv) net operating losses. At December 28, 2008, restricted cash included
$41,852 of cash proceeds received from the private placement offering completed in March 2008 and
deposited in an escrow account to fund qualified public relations and investor relations expenses
We used $5,171,158 of cash to fund our operating activities in the twelve months ended December 28,
2008 compared with $3,134,984 of cash used to fund our operating activities in twelve months ended
December 30, 2007. The increase in cash used to fund our operating activities was primarily due to
cash used for investor relations and public relations activities, costs of operating as a public
company and legal and other costs associated with the settlement of a dispute with a former
franchisee and changes in working capital.
During the twelve months ended December 28, 2008, we spent $792,225 primarily for the conversion of
four KnowFat! locations to UFood Grill outlets, compared with $992,447 spent for the acquisition of
equipment during the twelve months ended December 30, 2007, primarily for the construction of one
company-owned location.
During the twelve months ended December 28, 2008, financing activities provided $3,398,733 of cash
including $4,088,323 of net cash proceeds from the sale of 4,781,000 Units of our securities. In
addition, during the twelve months ended December 28, 2008, we used $1,303,713 of cash to repay
outstanding indebtedness including $812,054 to repay indebtedness incurred in connection with the
acquisition of a company-owned store and $350,004 to repay bank debt. Restricted cash at December
31, 2007 was primarily comprised of $1,000,000 of cash received from the private sale of our
securities and deposited into an escrow account to be used to pay qualified public relations and
investor relations expenses. Restricted cash decreased by $666,122 during the twelve months ended
December 28, 2008 primarily due to the payment of qualified public relations and investor relations
expenses. For the twelve months ended December 30, 2007, financing activities provided $5,489,542
of cash, including $2,537,160 of net cash proceeds received from the issuance of notes payable and
$4,814,160 of net cash proceeds from the sales of 4,781,000 units of our securities.
Credit Agreement with TD Banknorth, N.A.
Under the terms of a credit agreement dated as of May 27, 2005 between our wholly-owned subsidiary,
KFLG Watertown, Inc. and TD Banknorth, N.A. (as amended, the Credit Agreement), KFLG is obligor on
a term loan that matures in May 2010. No additional amounts are available to be borrowed under the
Credit Agreement. At December 28, 2008, the outstanding balance on the term loan
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Table of Contents
was $692,076. The
term loan is due in monthly installments of $29,167 through May 2010 and bears interest at the
bank's prime rate (3.25% at December 28, 2008). The term loan is secured by substantially all of
the assets of KFLG and its subsidiaries. The term loan is guaranteed by the Company's chief
executive officer and its wholly-owned subsidiary, KnowFat Franchise Company, Inc.
Under the terms of the Credit Agreement, KFLG is prohibited, without the prior written consent of
TD Banknorth, from declaring, making or paying any distribution of any kind or dividend of any kind
whatsoever (other than dividends payable solely in common stock) except that any of KFLG's
subsidiaries may make a distribution to KFLG so long as there is a loan outstanding. Such
restriction has not had and is not expected to have any impact on our ability to meet our cash
obligations.
Commitments, Contractual Obligations and Off Balance Sheet Arrangements
In addition to our capital expenditures requirements, we have certain other contractual and
committed cash obligations. Our contractual cash obligations primarily consist of non-cancelable
operating leases for our stores, and administrative offices. Lease terms for our stores and
administrative offices are generally for seven to ten years with renewal options at most locations
and generally require us to pay a proportionate share of real estate taxes, insurance, common area,
and other operating costs. Some store leases provide for contingent rental (
i.e.
, percentage
rent) payments based on sales in excess of specified amount. Certain of our lease agreements
provide for scheduled rent increases during the lease terms or for rental payments commencing at a
date other than the date of initial occupancy.
The following table sets forth information as of December 28, 2008, with respect to our contractual
obligations and the effect they are expected to have on our liquidity and cash flows in future
periods:
Less Than
1 Year to
4 Years to
More than
Total
1 Year
3 Years
5 Years
5 Years
Long-term debt
$
1,233,396
$
883,684
(1)
$
349,712
$
—
$
—
Capital leases
148,344
61,725
86,619
—
—
Operating leases
3,747,000
626,000
1,218,000
1,274,000
629,000
Scheduled interest payments(2)
29,943
18,608
6,335
—
—
(1)
During the twelve months ended December 28, 2008, we repaid $1,303,713
of our long-term debt including $812,054 paid in April 2008 to
extinguish the note payable issued in connection with the acquisition
of the Boston Downtown Crossing restaurant and store. Long-term debt
due in less than 1 year includes $450,000 that becomes due upon the
sale of our Landmark Center restaurant and store. We currently have no
plans to sell our Landmark Center unit.
(2)
Interest on the term note payable to T.D. Banknorth, N.A. is payable
monthly at the bank's prime rate (3.25% per annum at December 28,
2008). Future interest on the T.D. Banknorth note was calculated using
an assumed rate of 3.25%.
Impact of Inflation
Our profitability depends in part on our ability to anticipate and react to increases in our
operating costs, including food, labor, occupancy (including utilities and energy), insurance and
supplies costs. 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. Historically, the effects of inflation on our net income
have not been materially adverse. However, 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 latter half of fiscal 2008 and beyond and 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. The extent of
the impact may depend on our ability to increase our menu prices and the timing thereof.
Many of our employees are paid hourly rates related to federal and state minimum wage laws.
Although we have and will continue to attempt to pass along any increased labor costs through food
price increases, there can be no assurance that all such increased labor costs can be reflected in
our prices or that increased prices will be absorbed by consumers without diminishing to some
degree
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consumer spending at our stores. However, we have not experienced to date a significant
reduction in store profit margins as a result of changes in such laws, and management does not
anticipate any related future significant reductions in gross profit margins.
Recent Accounting Pronouncements
Adoption of New Accounting Principle
Effective January 1, 2008, we adopted SFAS No. 157,
Fair Value Measurements,
for all financial
assets and liabilities. SFAS No. 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS No. 157 establishes a framework for measuring fair value
and enhances disclosures about fair value measures required under other accounting pronouncements,
but does not change existing guidance as to whether or not an instrument is carried at fair
value. The adoption of SFAS No. 157 did not expect to have a material impact on our consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities — including an amendment of FASB Statement No. 115
. Under SFAS No. 159, a
company may elect to measure eligible financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported
in earnings at each subsequent reporting date. If elected, SFAS No. 159 is effective for fiscal
year beginning after November 15, 2007.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations.
SFAS No. 141R establishes
principles and requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The statement also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and specifies what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. SFAS No. 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. Accordingly, any business combinations we engage in will
be recorded and disclosed following existing GAAP until December 28, 2008. We expect SFAS No. 141R
will have an impact on our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions
we consummate after the effective date. We are still assessing the impact of this standard on our
future consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements, an Amendment of ARB 51.
SFAS No. 160 changes the accounting and reporting for minority
interests. Minority interests will be re-characterized as non-controlling interests and will be
reported as a component of equity separate from the parent's equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the non-controlling interest will be included
in consolidated net income on the face of the income statement and upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. SFAS No. 160 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years, except for
the presentation and disclosure requirements, which will apply retrospectively. The adoption of
SFAS No. 160 is not expected to have a material impact on our future consolidated financial
statements.
In March 2008 the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities — an amendment of FASB Statement No. 133
. SFAS No. 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives and strategies for
using such instruments, as well as any details of credit risk-related contingent features contained
within derivatives. SFAS No. 161 also requires entities to disclose additional information about
the amounts and location of derivatives included in the financial statements, how the provisions of
SFAS No. 133 have been applied, and the impact that hedges have on an entity's financial position,
financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim
periods beginning after November 15, 2008. The adoption of SFAS No. 161 is not expected to have a
material impact on our future consolidated financial statements. In December 2007, the Securities
and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 110. SAB No. 110 expresses the
views of the staff regarding the use of a "simplified" method, as discussed in SAB No. 107, in
developing an estimate of the expected term of "plain vanilla" share options in accordance with
SFAS No. 123R. SAB No. 110 is not expected to have a significant impact on our consolidated
financial statements.
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
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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 Statement of Financial
Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises.
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 process, 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 and we currently do not expect the sale of nutritional products
to be significant to our business in the future. None of our franchise locations currently carries
nutrition 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 twelve restaurants in the Boston area, Naples, FL, Chicago, IL,
Draper, UT, Sacramento, CA and at the Dallas Ft. Worth Airport, comprising four Company-owned
restaurants and eight franchise-owned locations. We have entered into a total of six area
development agreements covering 68 franchise units in nine states (California, Colorado, Florida,
Illinois, Idaho, Montana, Texas, Utah and Wyoming), including seven of the eight franchise
locations currently open and operating, and requiring the construction by franchisees of 60 future
UFood Grill outlets.
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Of the six area development agreements described above, three were entered into during 2008. The
three area development agreements we entered into in 2008 cover 46 UFood Grill outlets (41future
and five operating), comprising five UFood Grill units in the Chicago metropolitan area (including
three units that are currently open and operating), 38 UFood Grill units in a five-state area
composed of Colorado, Utah, Montana, Idaho and Wyoming (including one unit that opened in February
2009) and three units at airports in Texas (including one unit that opened in March 2009). The
three area development agreements we entered into prior to 2008 cover 22 UFood Grill outlets
including three UFood Grill outlets currently open and operating and 19 UFood Grill outlets to be
constructed in the future in Naples, FL, Sacramento, CA, and San Jose, CA.
Of the 60 franchise locations to be constructed under existing area development agreements, six
locations are expected to open in 2009, ten locations in 2010, 13 locations in 2011 and 31
locations thereafter. The rate at which current and future area developers and franchisees open
locations will depend upon several factors, including the identification of suitable store sites,
the negotiation of long-term leases, the permitting process, the construction of the stores, the
ability to attract, train and retain employees and the ability to secure financing on acceptable
terms. We intend to supplement the opening of franchisee-owned locations with additional
Company-owned locations. While we have not set a specific target or timetable for Company-owned
stores, we expect Company-owned locations will be concentrated in the New England area and could
represent approximately 10% of total system-wide locations over the longer term. The rate at which
we open Company-owned locations will depend on the same factors that impact the development and
opening of franchisee-owned locations as well as the financial resources available to us. We
currently do not have the financing in place to construct and operate additional Company-owned
locations and there is no assurance that we will be able to secure the financing necessary to
construct and operate additional Company-owned locations.
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 10, Se
gment Data
, of Notes to Consolidated Financial Statements.
Our headquarters are located at 255 Washington Street, Suite 100, 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 either taken to the
table by each guest or delivered to the table by a UFood server. Delivering great taste and an
overall pleasing dining experience for an individual customer is the focus of UFood's mission and
concept.
Many customers not only want to eat well; they also want to buy products that support an overall
healthy lifestyle. Some of our locations offer integrated convenience-style retail stores that
carry a wide variety of health-oriented nutrition products, such as supplements, vitamins,
nutrition bars, energy drinks and healthier snacks.
As part of the re-branding effort that culminated in the UFood Grill concept, we developed a market
segmentation model that identified the following five customer personas:
•
Healthy life style enthusiast (eating healthier fits squarely into their way of life)
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•
Feel Gooder (eating at UFood makes them feel good about themselves)
•
Convenience-only (convenience trumps all decision factors when selecting where to dine)
•
People with restricted diets
•
Magic Bullet (people who seek to have it all at little cost and no effort)
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 and are considering the addition of breakfast service at some of
our urban locations.
Some of our restaurant locations also offer an integrated convenience-style retail store that
carries a wide variety of health-oriented nutrition products, such as supplements, vitamins,
nutrition bars, energy drinks, and healthy snacks.
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 twelve UFood Grill restaurant locations open. Five of the locations
are in the greater Boston area, with one location in Naples, Florida, three locations in Chicago,
Illinois, two locations in Sacramento, California, one location in Draper, Utah and one location at
the Dallas/Ft. Worth Airport.
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 47.5% in 2005, and restaurant sales
are expected to reach $566 billion in 2009, an increase of 2.9% over 2008 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 2006. 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.
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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 either
taken to the table by each guest or delivered to the table by a UFood server. 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 a two-part franchising strategy. We will award franchises both on an individual basis in the
Boston area and to area developers outside of Boston.
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.
We will allow franchisees to build single units in the Boston metro area that will co-exist
alongside those of other franchisees as well as company-owned units. The proximity to our
headquarters of our Boston area restaurants will enable management to closely monitor these
single-unit franchises. In addition, the simultaneous construction of several franchises in the
Boston area would allow for more rapid growth of the Boston market.
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. Currently we have six area developers who
have committed to building and operating 68 franchise locations (including 8 locations currently
open and operating) in six areas:
•
Dallas-Fort Worth International Airport and other airports in Texas
•
Naples, FL
•
Sacramento, CA
•
San Jose, CA
•
Chicago, IL
•
Five-State Region (MT, CO, UT, WY, ID)
We have six 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.
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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 already instituted a loyalty program that utilizes magnetically encoded discount loyalty
cards with our repeat customers. The program provides members with a 3% return on their purchases,
a free birthday meal and discount coupons. Our database contains the names of over 20,000 loyalty
card users. The loyalty card provides us with a direct communications channel with our customers,
drives sales and allows us to track consumer behavior. 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 twelve 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 one 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.
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, US Foodservice, Inc. The balance of our
restaurant supplies come from local vegetable and bread suppliers. Most food, produce and other
products are shipped from US Foodservice'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.
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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 four 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 March 28, 2009, we employed approximately 35 full-time associates (defined as associates who
average 35 hours or more per week), of whom 10 were employed in general or administrative
functions, principally at our headquarters in Newton, Massachusetts, and approximately 25 were
employed in our five 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" (pending), "UFood Grill" (pending), "Proccino" (pending), "KnowFat! Lifestyle Grille,"
"KnowFat," "Prolatta," 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 quarter 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."
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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 9,737 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 December 28, 2008, future minimum payments under non-cancelable leases were as follows:
Year ending December 28,
2009
$
626,000
2010
602,000
2011
616,000
2012
633,000
2013
641,000
Thereafter
629,000
$
3,747,000
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,
including the matters described below, and we intend to defend vigorously each such case. Based on
information currently available, we believe the amount, or range, of reasonably possible losses in
connection with the actions against us, including the matters described below, 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.
BAA Boston, Inc., Default Claim
KFLG Watertown, Inc. (KFLG) d/b/a KnowFat and or KnowFat Franchise Company, Inc., our wholly-owned
subsidiary, received a Default Letter and Notice of Liquidated Damages on September 28, 2007, as
well as several other follow up notices of default (collectively, the Default Letters) from BAA
Boston, Inc. (BAAB) claiming certain defaults under KFLG's Sublease Agreement with BAAB for retail
premises (the Premises) at Logan International Airport in Boston, Massachusetts (the Sublease
Agreement). The Default Letters claimed that KFLG was in default of its obligations under the
Sublease Agreement due to, among other things, KFLG's failure to timely open the Premises for
business. The Default Letters demanded that KFLG pay $104,000 in liquidated damages to BAAB and pay
legal fees and expenses of BAAB in the amount of $48,000. The Company has resolved this matter and
the Default Letters have been rescinded.
Subcontractors' Claims
In connection with the build-out of the Premises, several of the subcontractors that performed work
at the Premises claimed that the general contractor failed or refused to pay amounts due them.
Accordingly, such subcontractors asserted mechanic's liens totaling $253,431 (the Lien Amounts)
against our leasehold interest in the Premises. In April 2008, pursuant to the terms of the
Sublease Agreement, we obtained target lien dissolution bonds in order to dissolve the liens
against our leasehold interest in the Premises. The lien bond surety required the Company to post
cash collateral in the amount of 120% of the Lien Amounts. The general contractor on the project
was responsible for the amounts claimed by the subcontractors and was previously forced into
involuntary bankruptcy. We
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have paid the general contractor and intend to assert claims against the
general contractor for, among other things, the amounts claimed by the subcontractors. In January,
2009, we settled with the subcontractors. The subcontractor liens have been removed and the bond
and cash collateral related to this matter have been released.
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
Our executive officers and directors are as follows:
Name
Age
Position
George Naddaff
79
Chief Executive Officer and Chairman of the Board of Directors
Charles Cocotas
73
President and Chief Operating Officer, Director
Irma Norton
41
Acting Chief Financial Officer
Robert C. Grayson
64
Director
Jeffrey Ross
64
Director
Mark Giresi
51
Director
Background of Officers and Directors
George Naddaff
has been our Chairman and Chief Executive Officer since the merger with KnowFat on
December 18, 2007. Prior to the merger Mr. Naddaff was KnowFat's Co-Chief Executive Officer 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.
Charles A. Cocotas
has been our President and Chief Operating Officer and a director since the
merger with KnowFat on December 18, 2007. Mr. Cocotas joined KnowFat as a consultant in May 2007.
In September 2007 he was appointed as KnowFat's President and Chief Operating Officer. From 1999 to
2007, Mr. Cocotas was principal of the Charles A. Cocotas Restaurant Consulting firm in
Massachusetts. 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.
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 the
merger. 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 has many years of
experience in the retail industry, and currently serves as a director of St. John's Knits, Inc.,
Kenneth Cole and Lillian August Designs, Inc..
Jeffrey Ross
has been a director of KnowFat since 2005 and a director of UFood since the merger.
Since 1999 he has been Managing Partner of RossFialkow Capital Partners, an investment advisory
firm specializing in private equity and merger and acquisition transactions. From January 1997 to
July 1997, he was President and Chief Executive Officer of Hearthstone Assisted Living, a chain of
assisted living facilities in Houston, Texas.
Mark Giresi
has been a director of KnowFat since December 6, 2007, and a director of UFood since
the merger. 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 the Company's 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
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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 of Law degree from Seton Hall Law School.
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, Glenn E. Davis, Mark A.
Giresi, Robert C. Grayson and Eric Spitz.
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 100, 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 100, Newton, MA 02458 Attn: Chief Financial Officer.
Board of Directors
The Board of Directors currently consists of five 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 Jeffrey Ross were designated as members of the Compensation
Committee, Mark Giresi and Charles Ramat, who resigned as a director on February 29, 2008, were
designated as members of the Audit Committee, and Robert Grayson, Charles Ramat and Jeffrey Ross
were designated as members 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 April 28, 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
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Table of Contents
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 100, Newton,
Massachusetts 02458. Shares of Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days of April 28, 2009 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 Naddaff
(1)
3,834,782
10.4
%
Charles A. Cocotas
(2)
570,968
1.6
%
Robert C. Grayson
(3)
151,637
*
Jeffrey Ross
(4)
196,965
*
Mark Giresi
(5)
51,154
*
Glenn Davis
(6)
29,077
*
Eric Spitz
(7)
774,888
2.2
%
Directors and Executive Officers as a group
(1)-(7)
5,609,471
14.8
%
Alan Antokal
(8)
2,373,029
6.8
%
Kevin Kimberlin
(9)
4,483,712
12.5
%
Spencer Trask Ventures, Inc.
535 Madison Avenue
New York, NY 10022
*
Less than one percent
+
Based on 34,818,490 shares of common stock issued and outstanding as of April 30, 2009.
(1)
Includes 1,650,249 shares of Common Stock beneficially owned by Mr.
Naddaff. Also includes 184,533 shares of Common Stock issuable upon
exercise of warrants currently exercisable or exercisable within 60
days of April 28, 2009 and 2,000,000 shares of Common Stock issuable
upon exercise of options currently exercisable or exercisable within 60
days of April 28, 2009. Does not include 500,000 shares of Common
Stock issuable upon exercise of options granted to Mr. Naddaff which
will not be exercisable within 60 days of April 28, 2009.
(2)
Consists of 570,968 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of April
28, 2009. Does not include 134,706 shares of Common Stock issuable upon
exercise of options granted to Mr. Cocotas which will not be
exercisable within 60 days of April 28, 2009.
(3)
Includes 74,815 shares of Common Stock beneficially owned by Mr.
Grayson. Also includes 25,668 shares of Common Stock issuable upon
exercise of warrants currently exercisable or exercisable within 60
days of April 28, 2009 and 51,154 shares of Common Stock issuable upon
exercise of options currently exercisable or exercisable within 60 days
of April 28, 2009. Does not include an additional 53,846 shares of
Common Stock issuable upon exercise of options granted to Mr. Grayson
which will not be exercisable within 60 days of April 28, 2009.
(4)
Includes 122,646 shares of Common Stock beneficially owned by Mr. Ross.
Also includes 18,594 shares of Common Stock issuable upon exercise of
warrants currently exercisable or exercisable within 60 days of April
28, 2009 and 55,725 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of April
28, 2009. Does not include an additional 53,846 shares of Common Stock
issuable upon exercise of options granted to Mr. Ross which will not be
exercisable within 60 days of April 28, 2009.
(5)
Includes 51,154 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of April
28, 2009. Does not include an additional 53,846 shares of Common Stock
issuable upon exercise of options granted to Mr. Giresi which will not
be exercisable within 60 days of April 28, 2009.
(6)
Includes 6,000 shares of Common Stock beneficially owned by Mr. Davis.
Also includes 23,077 shares of Common Stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of April
28, 2009. Does not include an additional 26,923 shares of Common Stock
issuable upon exercise of options granted to Mr. Davis which will not
be exercisable within 60 days of April 28, 2009.
(7)
Includes 774,888 shares of common stock beneficially owned by Mr. Spitz.
(8)
Includes 2,307,677 shares of Common Stock beneficially owned by Mr.
Antokal. Also includes 65,352 shares of Common Stock issuable upon
exercise of options or warrants currently exercisable or exercisable
within 60 days of April 28, 2009.
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Table of Contents
(9)
Based upon a Schedule 13D filed with the SEC by Kevin B. Kimberlin on
July 17, 2008, includes 102,125 shares of common stock held by Spencer
Trask Breakthrough Partners, LLC ("STBP") and 3,240,000 shares of
common stock held by Spencer Trask Investment Partners, LLC. Also
includes warrants to purchase (i) 51,063 share of common stock held by
STBP, (ii) 372,500 shares of common stock held by Concord Equities
Group, Inc., (iii) 358,584 shares of common stock held by Spencer Trask
& Co., and (iv) 359,440 shares of common stock held by Washington
Associates, LLC, all of which are currently exercisable. Kevin
Kimberlin may be deemed to beneficially own the shares of common stock
and currently exercisable warrants listed in this footnote 8.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth, for the last two fiscal years, the compensation earned by our Chief
Executive Officer, our President our former Chief Financial Officer and our former Executive Vice
President of Business Development. None of our other executive officers received annual
compensation in excess of $100,000 for fiscal year 2008. Our Chief Executive Officer and our
President are 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
Bonus
Awards
Awards
Compensation
Earnings
Compensation
Total
(
a
)
(
b
)
Salary(
c
)
(
d
)
(
e
)
(
f
)
(
g
)
(
h
)
(
i
)
(
j
)
George Naddaff,
2008
$
301,620
$
-0-
$
55,000
$
699,933
$
-0-
$
-0-
$
-0-
$
1,056,553
Chairman and CEO
2007
$
221,045
$
-0-
$
-0-
$
136,879
$
-0-
$
-0-
$
22,840
$
357,924
Charles A. Cocotas
2008
$
206,703
$
-0-
$
-0-
$
102,566
$
-0-
$
-0-
$
-0-
$
309,269
President and COO
Glenn Davis (3)
2008
$
171,713
$
-0-
$
-0-
$
8,901
$
-0-
$
-0-
$
-0-
$
180,614
Former CFO
Eric Spitz
2008
$
169,189
50,000
$
-0-
$
11,407
$
-0-
$
-0-
$
-0-
$
230,596
Former Executive
Vice President of
Business
Development
2007
$
196,391
$
25,000
-0-
$
34,219
$
-0-
$
-0-
$
-0-
$
255,610
(1)
The amount shown for option awards (column (f)) is based upon the
estimated fair value of stock options granted to the named executive
and represents the amount of compensation expense we recognized in our
consolidated financial statements for the indicated fiscal year. The
fair value of the stock option award(s) was determined using a Black
Scholes option pricing model and the assumptions for expected option
term, volatility of our Common Stock, risk-free interest rate and
expected annual dividend yield disclosed in Note 10,
Stock-Based
Compensation,
of the Notes to our 2008 Consolidated Financial
Statements included in the Company's annual report.
(2)
All Other Annual Compensation (column (i)) earned by Mr. Naddaff in
2007 represents the amount of expense we recognized in our 2007
Consolidated Financial Statements for the repricing of 184,533
warrants issued to Mr. Naddaff in 2006 for his personal guaranty of
KnowFat's obligations to TD BankNorth, N.A. (the "Bank"). Immediately
prior to the consummation of the merger with KnowFat, the exercise
price of all outstanding KnowFat warrants was reduced to $1.00 and
such exercise price was not affected by the conversion ratio in the
merger.
(3)
The Annual Compensation includes the aggregate amount paid to Fenway
Consulting Group and cash and options paid to the Consultant by the
Company.
The salary of Mr. Naddaff is currently $300,000, and the salary of Mr. Cocotas is currently
$200,000. Mr. Spitz's employment with the Company terminated on December 31, 2008, and Mr. Davis'
services for the Company were terminated on April 29, 2009.
Agreements with Executive Officers and Consultants
On May 1, 2004, KnowFat entered into a Founder's Agreement with George Naddaff, our current
Chairman and Chief Executive Officer. Under the Founder's Agreement, all 1,000,000 shares of
KnowFat common stock granted to Mr. Naddaff have vested.
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Table of Contents
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.
On January 22, 2009, we entered into a letter agreement (the "Separation Agreement") with Eric
Spitz pursuant to which the parties agreed to terminate Mr. Spitz's employment with us as of
December 31, 2008. Under the terms of the Separation Agreement, Mr. Spitz is entitled to receive
severance payments in the aggregate amount of $175,000, payable in accordance with the terms of the
Separation Agreement, and to receive certain employee benefits during the severance period.
Mr. Naddaff, Eric Spitz and Low Fat No Fat Gourmet Café, Inc. ("LFNF") are parties to a Joint
Venture Agreement dated January 26, 2004 (the "JV Agreement"). Under the JV Agreement, LFNF
granted KnowFat the exclusive right to franchise the concept of retail outlets offering food
service featuring low-fat, low-carbohydrate and low-calorie food items, selected beverages and
nutritional products to the general public and agreed to contribute all its trademarks, copyrights,
know-how, trade secrets and other intellectual property to KnowFat. As consideration, KnowFat
issued 545,454 shares of its common stock to LFNF. The JV Agreement also provides that LFNF has
the right to send one attendee to meetings of the Board of directors as an observer.
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.
On October 23, 2007, KnowFat entered into a consulting agreement with Fenway Consulting Group to
refer Glenn Davis to provide financial consulting services to the Company as an Interim Chief
Financial Officer. Fenway and the Company agreed that the assignment was on a temporary basis as
determined by the Company. The Company paid Fenway an hourly rate for all hours worked by the
referred Consultant. Mr. Davis' services for the Company were terminated on April 29, 2009.
Outstanding Equity Awards at Fiscal Year End
December 28, 2008
The following table sets forth certain information, as of December 28, 2008, concerning securities
authorized for issuance under the our Equity Incentive Plan.
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Table of Contents
Outstanding Equity Awards at Fiscal Year End
Equity
Incentive Plan
Awards:
No. of
Number of
Securities
No. of Securities
Securities
Underlying
Underlying
Underlying
Unexercised
Unexercised
Unexercised
Option
Options(#)
Options(#)
Unearned
Exercise
Option
Name
Exercisable
Unexercisable
Options
Price
Expiration Date
George Naddaff
833,336
666,664
(1)
-0-
$
1.00
Dec. 17, 2017
1,000,000
-0-
-0-
1.23
April 30, 2018
Charles A. Cocotas
305,674
100,000
-0-
1.00
Dec. 17, 2017
123,729
176,271
-0-
1.23
April 30, 2018
Glenn Davis
14,744
35,256
-0-
1.22
February 11, 2018
Eric Spitz
166,667
83,333
-0-
1.00
Dec. 17, 2017
(1)
The vesting schedule for the unexercised shares is outlined in the section entitled
"Agreements with Executive Officers and Consultants" above.
2004 Stock Option Plan
KnowFat did not grant any options or other stock awards under the 2004 Stock Option Plan to any
named executive officers in 2008 or 2007.
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.
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.
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Table of Contents
•
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.
Duration, Amendment and Termination
The Board has the power to amend, suspend or terminate the 2007 Plan without stockholder approval
or ratification at any time or from time to time. No change may be made that increases the total
number of shares of common stock reserved for issuance pursuant to incentive awards or reduces the
minimum exercise price for options or exchange of options for other incentive awards, unless such
change is authorized by our stockholders within one year. Unless sooner terminated, the 2007 Plan
would terminate ten years after it is adopted.
Other Equity Awards
In May 2008, the Board of Directors awarded Mr. Naddaff and Mr. Cocotas non-qualified options to
purchase 1,000,000 and 300,000 shares, respectively, of UFood common stock at an exercise price of
$1.23. The options granted to Mr. Naddaff are fully vested and expire ten years from the date of
grant. The options granted to Mr. Cocotas vest in monthly installments over the remaining term of
his employment agreement (through January 2010) and expire ten years from the date of grant.
Director Compensation
On February 12, 2008, our Board of Directors approved the following compensation for non-employee
directors:
(a)
Each non-employee director shall be granted non-qualified options
to purchase 100,000 shares of common stock at an exercise price equal to the
closing stock price on February 11, 2008. Such grant shall represent a tri-annual
retainer for the 2008, 2009 and 2010 fiscal years. The options granted shall vest
weekly over 36 months and shall expire February 11, 2018.
(b)
Each non-employee director who serves as chairman of the Audit,
Compensation or Nominating and Corporate Governance committee shall receive an
annual grant of non-qualified options to purchase 3,000 shares of common stock.
All other members of each committee shall receive an annual grant of
non-qualified options to purchase 2,500 shares of common stock.
KnowFat did not award stock options or other compensation to its directors in 2007. Our directors
are reimbursed for reasonable and necessary out-of-pocket expenses incurred in connection with
their service to us, including travel expenses.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and Officers of UFood
In May 2006, KnowFat entered into an agreement with George Naddaff, Chairman and CEO, by which Mr.
Naddaff received a warrant, exercisable at $1.00 per share, to purchase up to 184,533 shares of
KnowFat common stock in exchange for Mr. Naddaff's personal guaranty of KnowFat's credit
obligations to T.D. Banknorth N.A. of up to $1.75 million. (The current loan balance is $575,408.)
The warrant issued to Mr. Naddaff expires in May 2016.
KnowFat's directors have received stock option grants and reimbursement of certain expenses. See
the "Director Compensation" section of this prospectus. Two of our directors are also executive
officers. Messrs. Naddaff and Cocotas have entered into employment agreements with us, and each
receives compensation thereunder. See "Executive Compensation—Agreements with Executive Officers
and Consultants" above in this prospectus.
Transactions with Spencer Trask Ventures, Inc. and Its Related Parties
We retained the services of Spencer Trask Ventures, Inc., as placement agent in connection with a
private offering of up to 8,000,000 units of our securities, plus an over-allotment of 5,000,000
units, at a price of $1.00 per unit, to accredited investors in December 2007. Each unit consists
of one share of common stock and a warrant to purchase one-half, or 50%, of a share of common
stock. We paid the Placement Agent a commission of 10% of the funds raised from the investors in
the offering plus an expense allowance of $190,000. In
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Table of Contents
addition, the placement agent received
warrants to purchase a number of shares of common stock equal to 20% of the shares of common stock
included in the units sold to investors in the offering. As a result of the foregoing, the
placement agent was paid commissions of $616,000 and received warrants to purchase 1,232,000 shares
of common stock in connection with the first and second closings of the offering in December 2007.
The placement agent was paid further commissions of approximately $478,100 and received warrants to
purchase an additional 956,200 shares of common stock in connection with the third, fourth and
fifth closings of the offering which occurred on January 22, 2008, February 6, 2008 and March 31,
2008 respectively.
Spencer Trask and its related entities beneficially owned more than 10% of the Company's common
stock immediately after the reverse merger and to our knowledge continue to do so.
Board Independence
Although we are not currently subject to the listing standards of any exchange or to the SEC rules
pertaining to director independence, we believe that Messrs. Grayson and Giresi are "independent"
directors as that term is defined by applicable listing standards of the Nasdaq stock market and
SEC rules, including the rules relating to the independence standards of an audit committee and the
non-employee definition of Rule 16b-3 promulgated under the Exchange Act. Jeffrey Ross, who is not
an independent director, is a member of the Compensation Committee and the Nominating and Corporate
Governance Committee of the Board of Directors.
PLAN OF DISTRIBUTION
Each selling stockholder (the "Selling Stockholders") of the common stock and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their
shares of common stock covered hereby on the OTC Bulletin Board or any other stock exchange, market
or trading facility on which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following
methods when selling shares:
•
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
•
block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate the
transaction;
•
purchases by a broker-dealer as principal and resale by the broker-dealer for its
account;
•
an exchange distribution in accordance with the rules of the applicable exchange;
•
privately negotiated transactions;
•
settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
•
in transactions through broker-dealers that agree with the Selling Stockholders
to sell a specified number of such shares at a stipulated price per share;
•
through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
•
a combination of any such methods of sale; or
•
any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission
in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with FINRA IM-2440.
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In connection with the sale of the common stock or interests therein, the Selling Stockholders may
enter into hedging transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the common stock in the course of hedging the positions they assume.
The Selling Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The Selling Stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or create one or more
derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares
may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does
not have any written or oral agreement or understanding, directly or indirectly, with any person to
distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the Company incident to the
registration of the shares. The Company has agreed to indemnify the Selling Stockholders against
certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act
including Rule 172 thereunder. The Selling Stockholders have advised us that there is no
underwriter or coordinating broker acting in connection with the proposed sale of the resale shares
by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares
may be resold by the Selling Stockholders without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in
compliance with the current public information under Rule 144 under the Securities Act or any other
rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule
144 under the Securities Act or any other rule of similar effect. The resale shares will be sold
only through registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares of Common Stock covered hereby
may not be sold unless they have been registered or qualified for sale in the applicable state or
an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the
distribution of the resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in Regulation M, prior
to the commencement of the distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of shares of the common stock by
the Selling Stockholders or any other person. We will make copies of this prospectus available to
the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to
each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the
Securities Act).
DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our amended and restated Articles of Incorporation provide for the issuance of 310,000,000 shares
of capital stock, of which 300,000,000 are shares of common stock, par value $0.001 per share, and
10,000,000 are blank-check preferred stock.
Equity Securities Issued and Outstanding
As of April 28, 2009, there were issued and outstanding:
•
34,818,490 shares of our common stock;
•
No shares of preferred stock;
•
Options to purchase 4,197,365 shares of our common stock:
50
Table of Contents
o
2,946,572 of which options are currently vested and exercisable; and
o
1,250,793 of which options will vest through May 2011; and
•
Warrants to purchase 45,651,911 shares of our common stock, 44,506,078 of which are currently exercisable.
Description of Common Stock
The holders of our common stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders, including the election of directors. Except as otherwise provided by law,
the holders of common stock vote as one class. Generally, all matters to be voted on by
stockholders must be approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of common stock that are present in
person or represented by proxy, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights granted holders of any
preferred stock, amendments to the articles of incorporation generally must be approved by a
majority of the votes entitled to be cast by all outstanding shares of common stock. The amended
and restated Articles of Incorporation do not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of preferred stock created
by the Board from time to time, the common stock holders will be entitled to share pro rata such
cash dividends as may be declared from time to time by the Board from funds available. Subject to
any preferential rights of any outstanding series of preferred stock, upon liquidation, dissolution
or winding up of our Company, the common stock holders will be entitled to receive pro rata all
assets available for distribution to such holders. There are no preemptive or other subscription
rights, conversion rights or redemption or scheduled installment payment provisions relating to
shares of common stock. All of the outstanding shares of common stock are fully paid and
nonassessable. Our common stock is traded on the OTC Bulletin Board under the symbol "UFFC.OB."
Description of Preferred Stock
We are authorized to issue 10,000,000 shares of "blank check" preferred stock, $0.001 par value per
share, none of which as of the date hereof is designated or outstanding. Our Board of Directors is
vested with authority to divide the shares of preferred stock into series and to fix and determine
the relative rights and preferences of the shares of any such series. Once authorized, the dividend
or interest rates, conversion rates, voting rights, redemption prices, maturity dates and similar
characteristics of preferred stock will be determined by our Board of Directors, without the
necessity of obtaining approval of the stockholders.
Description of Options
The options to purchase shares of our common stock under the 2004 Plan were issued to former
KnowFat option holders. All of these options became immediately exercisable upon consummation of
the merger, and no further options will be granted under the 2004 Plan. The options to purchase
shares of our common stock under the 2007 Plan were issued to our executive officers and certain
employees. 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 stockholders on August 29, 2008. We may grant options
to purchase up to an additional 3,412,080 shares of common stock pursuant to the 2007 Plan. See
"Market for Common Equity and Related Stockholder Matters—Securities Authorized for Issuance under
Equity Compensation Plans" above and Note 10,
Stock-Based Compensation
, of Notes to our 2008
Consolidated Financial Statements.
Description of Warrants
There are currently 45,651,911 warrants outstanding representing the right to purchase 44,506,078
shares that are currently exercisable, as follows:
(A)
(B)
(C)
(D)
Warrants
Included in
Column (A)
Warrants Included
Number of Shares of
Number of
That Are
in Column (A)
Common Stock
Exercise
Warrants
Currently
Exercisable by
Issuable Upon
Price per
Expiration
Outstanding
Exercisable
Cashless Exercise
Exercise of Warrants
Share
Date
5,120,088
5,120,088
5,120,088
5,120,088
(1)
$
0.59
(2)
December
2012
431,500
431,500
431,500
431,500
(1)
$
0.59
(2)
January
2013
963,500
963,500
963,500
963,500
(1)
$
0.59
(2)
February
2013
995,500
995,500
995,500
995,500
(1)
$
0.59
(2)
March
2013
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(A)
(B)
(C)
(D)
Warrants
Included in
Column (A)
Warrants Included
Number of Shares of
Number of
That Are
in Column (A)
Common Stock
Exercise
Warrants
Currently
Exercisable by
Issuable Upon
Price per
Expiration
Outstanding
Exercisable
Cashless Exercise
Exercise of Warrants
Share
Date
2,916,666
1,770,833
—
2,916,666
$
1.25
April
2013
2,988,200
2,988,200
2,988,200
2,988,200
$
0.49
(2)
December
2014
281,483
281,483
—
281,483
$
1.00
November
2015
17,850,000
17,850,000
17,850,000
17,850,000
$
0.14
March
2016
13,779,231
13,779,231
13,779,231
13,779,231
$
0.14
April
2016
184,533
184,533
—
184,533
$
1.00
May
2016
141,210
141,210
—
141,210
$
1.00
December
2016
Total
45,651,911
44,506,078
42,128,019
45,651,911
(1)
Warrants may be exercised in a cashless exercise any time after dates
ranging between December 2008 through March 2009 only if a
registration statement covering the resale of the underlying shares is
not available. A "cashless exercise" means that in lieu of paying the
aggregate purchase price for the shares being purchased upon exercise
of the warrants in cash, the holder will forfeit a number of shares
underlying the warrants with a "fair market value" equal to such
aggregate exercise price. We will not receive additional proceeds to
the extent that warrants are exercised by cashless exercise.
(2)
As a result of the Company's recent private placement, the exercise
price of the warrants was reduced pursuant to the terms of such
warrants.
The exercise price and number of shares of common stock issuable on exercise of the warrants may be
adjusted in certain circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. The warrants also benefit from weighted
average price protection for the term of the warrants in the event that we issue additional
shares of common stock (or securities convertible into common stock) (with certain exceptions)
without consideration or for a consideration per share less than the exercise price of the warrants
then in effect.
Registration Rights
Registration Rights Granted in Connection with the Private Placement
In connection with the closing of the private placement which closed on March 19, 2009 and April
20, 2009, we entered into registration rights agreements with the investors in that offering, under
the terms of which we committed to file a registration statement, within 45 days from the first
closing of the offering, covering the resale of the common stock: (i) issuable upon conversion of
the Debentures; (ii) issuable as in kind interest due under the Debentures; and (iii) issuable upon
exercise of the Warrants, and to use reasonable best efforts to cause such registration statement
to become effective as promptly as possible. Also, we agreed to use reasonable best efforts to
maintain the effectiveness of such registration statement until the earlier of (i) the date on
which the shares may be resold by the Selling Stockholders without registration and without regard
to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the
Company to be in compliance with the current public information under Rule 144 under the Securities
Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this
prospectus or Rule 144 under the Securities Act or any other rule of similar effect. Interest is
payable under the Debentures quarterly in cash or, at our option, in shares of our common stock at
a conversion rate equal to fair market value of our common stock on the interest payment date. For
the purpose of this registration statement, we have assumed that the conversion rate on each
applicable interest payment date will be $0.13 per share of common stock, which is the same
conversion rate used for the conversion of the principal amount of the Debentures.
Registration Rights Granted in Connection with the Corporate Awareness Campaign
In May 2008, we commenced a corporate awareness campaign in the investment community. In connection
with this campaign, we entered into service agreements with a number of investor relations and
public relations firms, under which we issued to the service providers an aggregate of 740,000
shares of our common stock and warrants to purchase an aggregate of 2,916,666 shares of our common
stock in partial payment for their services and granted them "piggyback" registration rights
entitling them to include their shares in the registration statement required to be filed following
the closing of the private placement as described above. Of the total number of shares and
warrants issued to the investor relations and public relations firms, 346,250 shares of our common
stock and warrants to purchase an aggregate of 1,114,583 shares of our common stock were vested as
of January 7, 2009 and were included in the registration statement filed with the SEC on June 26,
2008, as amended. 268,750 additional shares of common stock and warrants to purchase an
additional 427,084 shares of our common stock are included in the registration statement of which
this prospectus forms a part.
The registration statement of which this prospectus forms a part was filed pursuant to the
registration rights granted in connection with the private placement as well as those granted in
connection with the corporate awareness campaign.
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Anti-Takeover Effects of Provisions of Nevada State Law
We may be or in the future we may become subject to Nevada's control share laws. A corporation is
subject to Nevada's control share law if it has more than 200 stockholders, at least 100 of whom
are stockholders of record and residents of Nevada, and if the corporation does business in Nevada,
including through an affiliated corporation. This control share law may have the effect of
discouraging corporate takeovers. We currently have approximately 400 stockholders.
The control share law focuses on the acquisition of a "controlling interest," which means the
ownership of outstanding voting shares that would be sufficient, but for the operation of the
control share law, to enable the acquiring person to exercise the following proportions of the
voting power of the corporation in the election of directors: (1) one-fifth or more but less than
one-third; (2) one-third or more but less than a majority; or (3) a majority or more. The ability
to exercise this voting power may be direct or indirect, as well as individual or in association
with others.
The effect of the control share law is that an acquiring person, and those acting in association
with that person, will obtain only such voting rights in the control shares as are conferred by a
resolution of the stockholders of the corporation, approved at a special or annual meeting of
stockholders. The control share law contemplates that voting rights will be considered only once by
the other stockholders. Thus, there is no authority to take away voting rights from the control
shares of an acquiring person once those rights have been approved. If the stockholders do not
grant voting rights to the control shares acquired by an acquiring person, those shares do not
become permanent non-voting shares. The acquiring person is free to sell the shares to others. If
the buyer or buyers of those shares themselves do not acquire a controlling interest, the shares
are not governed by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control
shares with a majority or more of the voting power, any stockholder of record, other than the
acquiring person, who did not vote in favor of approval of voting rights, is entitled to demand
fair value for such stockholder's shares.
In addition to the control share law, Nevada has a business combination law, which prohibits
certain business combinations between Nevada corporations and "interested stockholders" for three
years after the interested stockholder first becomes an interested stockholder, unless the
corporation's board of directors approves the combination in advance. For purposes of Nevada law,
an interested stockholder is any person who is: (a) the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the outstanding voting shares of the corporation, or (b) an
affiliate or associate of the corporation and at any time within the previous three years was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of the
then-outstanding shares of the corporation. The definition of "business combination" contained in
the statute is sufficiently broad to cover virtually any kind of transaction that would allow a
potential acquirer to use the corporation's assets to finance the acquisition or otherwise to
benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada's business combination law is to potentially discourage parties interested in
taking control of our Company from doing so if it cannot obtain the approval of our board of
directors.
Transfer Agent
The transfer agent for our common stock is Continental Stock Transfer & Trust Company. The transfer
agent's address is 17 Battery Place, New York, New York 10004, and its telephone number is (212)
509-4000.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by Robinson & Cole, LLP,
1055 Washington Blvd., Stamford, Connecticut 06901.
EXPERTS
The consolidated financial statements for the fiscal years ended December 28, 2008, and December
30, 2007, included in the registration statement have been audited by CCR LLP, independent
registered public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the registration statement, and are
included in reliance upon such report given upon the authority of said firm as experts in auditing
and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports and other information with the SEC. You
may read or obtain a copy of these reports at the SEC's public reference room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549 on official business days between the hours of 10:00 am and
3:00 pm. You may obtain information on the operation of the public reference room and their copy
charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
registration statements, reports, proxy information statements and other information regarding
registrants that file electronically with the SEC. The address of the website is
http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act to
register the shares offered by this prospectus. The term "registration statement" means the
original registration statement and any and all amendments thereto, including the schedules and
exhibits to the original registration statement or any amendment. This prospectus is part of that
registration statement. This prospectus does not contain all of the information set forth in the
registration statement or the exhibits to the registration statement. For further information with
respect to us and the shares we are offering pursuant to this prospectus, you should refer to the
registration statement and its exhibits. Statements contained in this prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily complete, and you
should refer to the copy of that contract or other documents filed as an exhibit to the
registration statement. You may read or obtain a copy of the registration statement at the SEC's
public reference facilities and Internet site referred to above.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Nevada Revised Statutes, our directors and officers are not individually liable to us or
our stockholders for any damages as a result of any act or failure to act in their capacity as an
officer or director unless it is proven that:
•
His act or failure to act constituted a breach of his fiduciary duty as a director or officer; and
•
His breach of these duties involved intentional misconduct, fraud or a knowing violation of law.
Nevada law allows corporations to provide broad indemnification to its officers and directors. At
the present time, our Articles of Incorporation and Bylaws also provide for broad indemnification
of our current and former directors, trustees, officers, employees and other agents.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our
directors, officers and controlling persons we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On February 12, 2008, our board of directors unanimously approved the dismissal of Manning Elliot
LLP as our principal accountants and engaged Carlin, Charron & Rosen, LLP (CCR) as our new
principal accountants. The audit committee of the board did not separately approve the dismissal,
though all members of the committee were present at the board meeting.
During our two most recently completed fiscal years and the subsequent interim period preceding the
decision to change principal accountants, there were no disagreements with Manning Elliot on any
matter of accounting principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Manning Elliot, would have caused it to
make references to the subject matter of the disagreement in connection with its report. Manning
Elliot's report to our directors and stockholders dated June 13, 2007, which is included in our
Form 10-KSB filed with the Securities and Exchange Commission on June 27, 2007, indicated Manning
Elliot's "substantial doubt about the Company's ability to continue as a going concern." Manning
Elliot's reports on our financial statements for the past two years did not otherwise contain an
adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During our two most recently completed fiscal years and the
subsequent interim period preceding the decision to change principal accountants, there were no
reportable events as defined in Regulation S-K Item 304(a)(v).
We provided Manning Elliot with a copy of the disclosures made by us in a current report filed with
respect to their dismissal (which were substantially the same as the statements made above), and at
our request Manning Elliot furnished us with a letter stating that it agrees with the statements as
they relate to Manning Elliott. A copy of this letter was filed as Exhibit 16.1 to our Current
Report on Form 8-K/A filed with the SEC on March 11, 2008, and is incorporated herein by reference.
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We engaged CCR as our principal accountants effective as of February 12, 2008. During our two most
recent fiscal years and the subsequent interim period prior to engaging CCR, neither we nor anyone
on our behalf consulted with CCR regarding the application of accounting principles to a specific
transaction, either completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, and neither a written report nor oral advice was provided to us by CCR
that was an important factor considered by us in reaching a decision as to any accounting, auditing
or financial reporting issue; provided, however, that on December 18, 2007, a wholly-owned
subsidiary of ours merged with and into KnowFat Franchise Company, Inc., with KnowFat as the
surviving corporation in the merger, and prior to the merger, CCR was the principal accountant of
KnowFat since March 2004.
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Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
UFOOD RESTAURANT GROUP, INC.
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets as of December 28, 2008 and December 30, 2007
F-3
Consolidated Statements of Operations for the Fiscal Years Ended December 28, 2008 and December 30, 2007
F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Fiscal Years Ended December 28, 2008
and December 30, 2007
F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 2008 and December 30, 2007
F-7
Notes to Consolidated Financial Statements
F-8
F - 1
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of UFood Restaurant Group, Inc:
We have audited the accompanying consolidated balance sheets of UFood Restaurant Group, Inc and
Subsidiary (the Company) as of December 28, 2008 and December 30, 2007, and the related
consolidated statements of operations, changes in stockholders' equity and cash flows for the
fiscal years then ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States of America). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion of the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of UFood Restaurant Group, Inc and Subsidiary as of
December 28, 2008 and December 30, 2007, and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
/s/CCR LLP
Westborough, Massachusetts
March 30, 2009
F - 2
Table of Contents
UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 28, 2008 and December 30, 2007
Assets
2008
2007
Current assets:
Cash and cash equivalents
$
787,551
$
3,352,201
Restricted cash
417,490
1,083,612
Accounts receivable
152,373
93,534
Inventories
141,807
193,359
Prepaid expenses and other current assets
79,657
40,283
1,578,878
4,762,989
Property and equipment:
Equipment
925,329
874,853
Furniture and fixtures
155,744
156,207
Leasehold improvements
1,782,919
2,301,571
Website development costs
49,389
80,736
2,913,381
3,413,367
Accumulated depreciation and amortization
1,172,984
699,305
1,740,397
2,714,062
Other assets:
Goodwill
211,363
977,135
Other
112,028
129,360
323,391
1,106,495
Total assets
$
3,642,666
$
8,583,546
See accompanying notes.
F - 3
Table of Contents
UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 28, 2008 and December 30, 2007
Liabilities and Stockholders' Equity
2008
2007
Current liabilities:
Current portion of long-term debt
$
883,684
$
1,874,993
Current portion of capital lease obligations
61,725
51,582
Accounts payable
614,556
727,293
Franchisee deposits
700,000
504,500
Accrued expenses and other current liabilities
404,908
439,226
2,664,873
3,597,594
Long-term liabilities:
Long-term debt
349,712
730,691
Capital lease obligations
86,619
83,005
Other noncurrent liabilities
225,264
152,158
661,595
965,854
Total liabilities
3,326,468
4,563,448
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 300,000,000 shares
authorized, 34,818,490 and 29,241,158 shares
issued and outstanding
34,818
29,241
Additional paid-in capital
24,998,924
18,833,096
Accumulated deficit
(24,717,544
)
(14,842,239
)
316,198
4,020,098
Total liabilities and stockholders' equity
$
3,642,666
$
8,583,546
See accompanying notes.
F - 4
Table of Contents
UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Fiscal Year Ended December 28, 2008 and December 30, 2007
2008
2007
Revenues:
Store sales
$
5,462,915
$
4,543,194
Franchise royalties and fees
335,860
326,733
Other revenue
25,267
34,956
5,824,042
4,904,883
Costs and expenses:
Store operating expenses:
Food and paper costs
1,615,417
1,154,251
Cost of Goods sold
509,775
856,978
Labor
1,743,831
1,405,662
Occupancy
658,672
410,061
Other store operating expenses
992,350
796,804
General and administrative expenses
6,785,620
3,520,392
Advertising, marketing and promotion expenses
887,259
671,440
Depreciation and amortization
500,153
429,586
Impairment of goodwill
765,772
—
Impairment of long-lived assets
1,249,150
—
Loss on disposal of assets
65,524
666,838
Total costs and expenses
15,773,523
9,912,012
Operating loss
(9,949,481
)
(5,007,129
)
Other income (expense):
Interest income
80,825
18,627
Interest expense
(76,602
)
(387,757
)
Other expense
69,953
(75,155
)
Other income (expense), net
74,176
(444,285
)
Loss before income taxes
(9,875,305
)
(5,451,414
)
Income taxes
—
—
Net loss
$
(9,875,305
)
$
(5,451,414
)
Basic and diluted earnings (loss) per share
$
(0.29
)
$
(0.68
)
See accompanying notes.
F -5
Table of Contents
UFOOD RESTAURANT GROUP, INC.
and SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Fiscal Years Ended December 28, 2008 and December 30, 2007
Series B Convertible
Series A Convertible
Common Stock
Additional Paid-in
Accumulated
Shares
Value
Shares
Value
Shares
Value
Capital
Deficit
Total
Balances, January 1, 2007
1,407,416
431,187
1,576,040
525,439
4,208,745
4,209
6,720,271
(9,390,825
)
(1,709,719
)
Dividends accrued on mandatory redeemable preferred stock
—
—
—
—
—
—
(244,886
)
—
(244,886
)
Accrued preferred stock
dividends
—
395,770
—
300,709
—
—
(696,479
)
—
—
Conversion of preferred stock
(1,407,416
)
(826,957
)
(1,576,040
)
(826,148
)
3,710,642
3,710
4,965,093
—
3,315,698
Conversion of promissory notes
—
—
—
—
6,248,868
6,249
2,650,560
—
2,656,809
Stock issued for marketing and promotional services
—
—
—
—
1,371,157
1,371
313,629
—
315,000
Stock-based compensation
—
—
—
—
41,746
42
249,250
—
249,292
Cancellation and re-issuance
of warrants
—
—
—
—
—
—
75,158
—
75,158
Reverse acquisition recapitalization adjustment
—
—
—
—
7,500,000
7,500
(7,500
)
—
—
Issuance of Units (net of
issuance costs of $1,345,840)
—
—
—
—
6,160,000
6,160
4,808,000
—
4,814,160
Net loss for year ended
December 30, 2007
—
—
—
—
—
—
—
(5,451,414
)
(5,451,414
)
Balances, December 30, 2007
—
$
—
—
$
—
29,241,158
$
29,241
$
18,833,096
$
(14,842,239
)
$
4,020,098
Issuance of Units (net of
issuance costs of $691,154)
—
—
—
—
4,781,000
4,781
4,083,542
—
4,088,323
Stock issued for marketing and promotional services
—
—
—
—
740,000
740
1,030,510
—
1,031,250
Stock issued for franchise
sales commission
56,332
56
54,984
55,040
Stock-based compensation
—
—
—
—
996,792
—
996,792
Net loss for year ended
December 28, 2008
—
—
—
—
—
—
—
(9,875,305
)
(9,875,305
)
Balances, December 28, 2008
—
$
—
—
$
—
34,818,490
$
34,818
$
24,998,924
$
(24,717,544
)
$
316,198
F -6
Table of Contents
UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Fiscal Year Ended December 28, 2008 and December 30, 2007
2008
2007
Cash flows from operating activities:
Net loss
$
(9,875,305
)
$
(5,451,414
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
500,154
429,586
Amortization of deferred financing costs
15,871
20,001
Provision for doubtful accounts
29,949
29,229
Impairment of goodwill
765,772
—
Impairment of long lived assets
1,249,150
—
Adjustment to warrant exercise prices
—
75,155
Stock-based compensation
1,051,832
249,292
Loss on disposal of assets
115,566
666,838
Non-cash promotion expenses
1,031,250
424,000
Non-cash interest on bridge loans
—
119,650
Gain on extinguishment of debt
(68,575
)
—
Increase (decrease) in cash from changes in assets and liabilities:
Accounts receivable
(88,788
)
(56,362
)
Inventories
51,552
3,373
Prepaid expenses and other current assets
(39,374
)
17,595
Other assets and noncurrent liabilities
41,343
232,429
Accounts payable
(112,737
)
224,208
Franchisee deposits
195,500
(143,000
)
Accrued expenses and other current liabilities
(34,318
)
24,436
Net cash used in operating activities
(5,171,158
)
(3,134,984
)
Cash flows from investing activities:
Proceeds from sale of assets
—
150,000
Acquisition of property and equipment
(792,225
)
(992,447
)
Net cash used in investing activities
(792,225
)
(842,447
)
Cash flows from financing activities:
Proceeds from issuance of notes payable
—
2,537,160
Proceeds from issuance of common stock, net
4,088,323
4,814,160
Payments on long-term debt
(1,303,713
)
(715,094
)
Payments on capital lease obligations
(51,999
)
(63,072
)
(Increase) decrease in restricted cash
666,122
(1,083,612
)
Net cash provided by financing activities
3,398,733
5,489,542
Increase(Decrease) in cash and cash equivalents
(2,564,650
)
1,512,111
Cash and cash equivalents — beginning of year
3,352,201
1,840,090
Cash and cash equivalents — end of year
$
787,551
$
3,352,201
See accompanying notes.
F -7
Table of Contents
UFOOD RESTAURANT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Nature of Operations
UFood Restaurant Group, Inc. was incorporated in the State of Nevada on February 8, 2006 as Axxent
Media Corp. Prior to December 18, 2007, UFood was a development stage company headquartered in
Vancouver, Canada. As Axxent Media Corp., the Company's 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. On August 8, 2007, the
Company changed its name to UFood Franchise Company, and on September 25, 2007, changed its name to
UFood Restaurant Group, Inc. (UFood or the Company).
On December 18, 2007, (Merger Date) pursuant to the terms of an Agreement and Plan of Merger and
Reorganization, a wholly-owned subsidiary of the Company merged with and into KnowFat Franchise
Company, Inc. (KnowFat). Following the merger (the Merger), UFood continued KnowFat's business
operations as a franchisor and operator of fast-casual food service restaurants that capitalize on
consumer demands for great tasting food with healthy attributes. As of December 28, 2008, the
Company's operations consisted of four company-owned restaurants and six franchise-owned locations.
One of the franchise-owned locations was operated by the company pursuant to a management series
agreement. On the Merger Date, each share of KnowFat common stock issued and outstanding
immediately prior to the Merger was exchanged for 1.52350763 shares of UFood Common Stock. All
share amounts have been adjusted to reflect the effect of the share exchange.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements of UFood Restaurant Group, Inc. and its
subsidiary consist of the accounts of UFood Restaurant Group, Inc. and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.
Certain reclassifications have been made to conform previously reported data to the current
presentation.
Fiscal Year
Following the merger described in Note 1, UFood changed its fiscal year end from April 30 to a
52/53 week fiscal year ending on the Sunday closes to December 31 of each year. Our 2008 and 2007
fiscal years ended on December 28, 2008 and December 30, 2007, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual amounts could differ from those estimates.
Cash Equivalents
Cash equivalents represent highly liquid instruments with original maturities of three months or
less when purchased. Cash equivalents consist of money market accounts at December 28, 2008 and
December 30, 2007. At December 28, 2008 restricted cash was comprised of $375,638 used to
collateralize a standby letter of credit and $41,852 that can only be used to pay qualified
investor relations and public relations expenses.
Inventories
Inventories, which primarily consist of food products, paper goods and supplies and vitamins and
supplements for resale, are stated at the lower of cost or market, with cost determined by the
average cost method.
Deferred Financing Costs
Deferred financing costs represent costs paid to third parties in order to obtain long-term
financing and have been included in other assets. Deferred financing costs are amortized over the
life of the related debt. Amortization expense related to these costs were $15,871 and $20,001 for
the years ended December 28, 2008 and December 30, 2007, respectively, and is included in interest
expense.
F -8
Table of Contents
Property and Equipment
Property, equipment and leaseholds are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated useful lives or the
related reasonably assured lease term. The estimated useful lives used for financial statement
purposes are:
Leasehold improvements
5 years
Equipment
5 years
Furniture and fixtures
5 years
Website development costs
3 years
Upon retirement or sale, the cost of assets disposed and their related accumulated depreciation are
removed from the accounts. Any resulting gain or loss is credited or charged to operations.
Maintenance and repairs are charged to expense when incurred, while betterments are capitalized.
The total amounts expensed for maintenance and repairs were $92,808 and $70,182 for the fiscal
years ended December 28, 2008 and December 30, 2007, respectively.
Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets under SFAS No. 141,
Business Combinations
, and
SFAS No. 142,
Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30, 2001, and that certain
intangible assets acquired in a business combination be recognized as assets apart from goodwill.
Under SFAS No. 142, purchased goodwill and intangible assets with indefinite lives are not
amortized, but instead tested for impairment at least annually or whenever events or changes in
circumstances indicate the carrying value may not be recoverable. At December 28, 2008, the
Company had no indefinite-lived intangible assets.
Intangible assets with finite lives consist of costs incurred to obtain debt financing and are
being amortized on a straight-line basis over the term of the related debt.
Impairment of Long-Lived Assets
In accordance with SFAS No. 144,
Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of,
when impairment indicators exist, the Company evaluates its long-lived
assets for potential impairment. Potential impairment is assessed when there is evidence that
events or changes in circumstances have occurred that indicate the carrying amount of an asset may
not be recovered. When events or changes in circumstances have occurred that indicate a long-lived
asset may be impaired, the Company uses estimates of future cash flows on a restaurant-by-
restaurant basis to test the recoverability of its long-lived assets. Future cash flows are
estimated based upon the restaurant's historical operating performance and management's projections
of future revenues and expenses and may take into account the restaurant's estimated terminal
value. During the fourth quarter of 2008, the Company determined that the carrying value of the
long-lived assets of its store operations segment may not be recovered and recorded a non-cash
impairment charge of $1,249,150. The impairment charge is primarily due to a decrease in forecasted
sales resulting from the economic downturn which is expected to continue through 2009, an increase
in the carrying value of the underlying assets of two stores as a result of the conversion from
KnowFat! locations to UFood Grill outlets and new restaurants that opened in the fall of 2008 in
the vicinity of one of our Company-owned stores and which are expected to have an adverse impact on
the stores future sales growth. Long-lived assets may be impaired in the future if our actual
operating results and cash flows fall short of our expectations.
Key man insurance
The Company has obtained Key Man insurance on the Chairman and CEO of the Company with a base face
amount of $2,500,000 with no surrender value as of December 28, 2008.
Income Taxes
The provision for income taxes is determined in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted income tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled.
Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
F -9
Table of Contents
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes.
FIN No. 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109.
FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This
pronouncement also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. Effective January 1, 2007, the Company
adopted the provisions of FIN No. 48 and the provisions of FIN No. 48 have been applied to all
income tax positions commencing from that date. The cumulative effect of adopting FIN No. 48 was
not material.
Revenue Recognition
The Company records revenue for company-owned store sales upon the delivery of the related food and
other products to the customer.
The Company follows the accounting guidance of SFAS No. 45,
Accounting for Franchise Fee Income
.
Franchisee deposits represent advances on initial franchise fees prior to the opening of the
franchisee location. We recognize initial franchise fee revenue when all material services we are
required to perform and all material conditions we are required to satisfy have been substantially
completed, which is generally the opening of the franchised location. The Company defers direct
costs related to franchise sales until the related revenue is recognized; however, the deferred
costs shall not exceed anticipated revenue less estimated additional related costs. Such costs
include training, facilities design, menu planning and marketing. Franchise royalty revenues are
recognized in the same period the relevant franchisee sales occur.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense amounted to $90,279 in 2008
and $82,469 in 2007.
Pre-Opening Costs
All pre-opening costs directly associated with the opening of new company-owned restaurant
locations, which consist primarily of labor and food costs incurred during in-store training and
preparation for opening, but exclude manager training costs which are included in other operating
expenses, are expensed when incurred.
Rent Expense
The Company recognizes rent expense on a straight-line basis over the reasonably assured lease term
as defined in SFAS No. 98,
Accounting for Leases.
The reasonably assured lease term on most of the
Company's leases is the initial non-cancelable lease term, which generally equates to between 5 and
10 years. In addition, certain of the Company's lease agreements provide for scheduled rent
increases during the lease terms or for rental payments commencing at a date other than the date of
initial occupancy. The Company includes any rent escalations and other rent holidays in its
determination of straight-line rent expense. Therefore, rent expense for new locations is charged
to expense upon the commencement date of the lease.
Earnings Per Share Data
Earnings per share are based on the weighted average number of shares outstanding during the period
after consideration of the dilutive effect, if any, for common stock equivalents, including stock
options, restricted stock, and other stock-based compensation. Earnings per common share are
computed in accordance with SFAS No. 128,
Earnings Per Share,
which requires companies to present
basic earnings per share and diluted earnings per share. Basic earnings per share are computed by
dividing net income by the weighted average number of shares of common stock outstanding during the
year. Diluted earnings per common share are computed by dividing net income by the weighted average
number of shares of common stock outstanding and dilutive securities outstanding during the year.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include accounts receivable,
accounts payable and other accrued expenses approximate their fair values due to the short-term
maturity of these instruments.
Stock-Based Compensation
The Company maintains two stock-based incentive plans. The Company grants options to purchase
common stock at an option price equal to the market value of the stock at the date of grant.
Options generally vest over a three year period beginning on the date of grant and have a ten year
term.
F -10
Table of Contents
The Company applies the fair value recognition provisions of SFAS No. 123R,
Share-Based Payment
,
which requires all stock-based compensation, including grants of employee stock options, to be
recognized in the statement of operations based on their fair values. The Company uses the
Black-Scholes option pricing model which requires extensive use of accounting judgment and
financial estimates, including estimates of the expected term participants will retain their vested
stock options before exercising them, the estimated volatility of the Company's common stock price
over the expected term.
Stock-based compensation expense recognized during the fiscal year ended December 28, 2008 totaled
approximately $996,792 for stock options. Stock-based compensation expense recognized during the
fiscal year ended December 30, 2007 totaled approximately $218,082 for stock options. Stock-based
compensation expense was included in general and administrative expenses in the accompanying
Consolidated Statements of Operations.
New Accounting Pronouncements
Adoption of New Accounting Principle
Effective January 1, 2008, we adopted SFAS No. 157,
Fair Value Measurements,
for all financial
assets and liabilities. SFAS No. 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS No. 157 establishes a framework for measuring fair value
and enhances disclosures about fair value measures required under other accounting pronouncements,
but does not change existing guidance as to whether or not an instrument is carried at fair value.
The adoption of SFAS No. 157 did not expect to have a material impact on our consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities — including an amendment of FASB Statement No. 115
. Under SFAS No. 159, a
company may elect to measure eligible financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported
in earnings at each subsequent reporting date. If elected, SFAS No. 159 is effective for fiscal
year beginning after November 15, 2007.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations.
SFAS No. 141R establishes
principles and requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The statement also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and specifies what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. SFAS No. 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. Accordingly, any business combinations we engage in will
be recorded and disclosed following existing GAAP until December 28, 2008. We expect SFAS No. 141R
will have an impact on our consolidated financial statements when effective, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions
we consummate after the effective date. We are still assessing the impact of this standard on our
future consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements, an Amendment of ARB 51.
SFAS No. 160 changes the accounting and reporting for minority
interests. Minority interests will be re-characterized as non-controlling interests and will be
reported as a component of equity separate from the parent's equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the non-controlling interest will be included
in consolidated net income on the face of the income statement and upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. SFAS No. 160 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years, except for
the presentation and disclosure requirements, which will apply retrospectively. The adoption of
SFAS No. 160 is not expected to have a material impact on our future consolidated financial
statements.
In March 2008 the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities — an amendment of FASB Statement No. 133
. SFAS No. 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives and strategies for
using such instruments, as well as any details of credit risk-related contingent features contained
within derivatives. SFAS No. 161 also requires entities to disclose additional information about
the amounts and location of derivatives included in the financial statements, how the provisions of
SFAS No. 133 have been applied, and the impact that hedges have on an entity's financial position,
financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim
periods beginning after November 15, 2008. The adoption of SFAS No. 161 is not expected to have a
material impact on our future consolidated financial statements.
F -11
Table of Contents
In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No.
110. SAB No. 110 expresses the views of the staff regarding the use of a "simplified" method, as
discussed in SAB No. 107, in developing an estimate of the expected term of "plain vanilla" share
options in accordance with SFAS No. 123R. SAB No. 110 is not expected to have a significant impact
on our consolidated financial statements.
3. Reverse Merger
On December 18, 2007, pursuant to the terms of an Agreement and Plan of Merger and Reorganization,
the Company, through a wholly-owned subsidiary, merged with and into KnowFat Franchise Company,
Inc. Following the merger, UFood continued KnowFat's business operations as a franchisor and
operator of fast-casual food service restaurants. Concurrently with the closing of the Merger and
in contemplation of the Merger, the Company consummated a private offering (the Offering) of up to
8,000,000 units of its securities (Units) at a price of $1.00 per Unit. Each Unit consists of one
share of Common Stock and a warrant to purchase one-half, or 50%, of a share of Common Stock.
Immediately prior to the Merger, UFood had 23,700,000 shares of Common Stock issued and outstanding
and $2,000,000 principal amount of 9% Convertible Promissory Notes (Investor Notes) outstanding. On
the Closing Date, the Investor Notes together with accrued interest of $40,087 automatically
converted into 4,080,175 Units at a conversion rate of $0.50 per Unit. In conjunction with the
Merger, 16,200,000 shares of UFood's Common Stock issued and outstanding prior to the Merger were
retired.
Immediately prior to the Merger, KnowFat had 5,621,648 shares of common stock issued and
outstanding and 1,576,040 shares of Series A Preferred Stock (Series A Preferred Shares), 1,407,416
shares of Series B Preferred Stock (Series B Preferred Shares) and 719,440 shares of Series C
Preferred Stock (Series C Preferred Shares and, collectively, with the Series A Preferred Shares
and the Series B Preferred Shares, the Preferred Shares) issued and outstanding. KnowFat also had a
$1,000,000 convertible promissory note outstanding (the Antokal Note).
In connection with the Merger, on the Closing Date, all of KnowFat's issued and outstanding
Preferred Shares and the Antokal Note converted into 3,710,642 and 2,168,693 shares, respectively,
of KnowFat common stock. On the Closing Date and in connection with the Merger, each share of
KnowFat's issued and outstanding common stock before the merger, including the common stock issued
upon conversion of the Preferred Shares and the Antokal Note, automatically converted into the
right to receive 1.52350763 shares (the Conversion Ratio) of the Company's common stock, par value
$0.001 (Common Stock) per share.
In addition, on the Closing Date, all of the issued and outstanding options and warrants to
purchase shares of KnowFat common stock were exchanged, respectively, for options (the New Options)
and warrants (the New Warrants) to purchase shares of the Company's Common Stock. The number of
shares of Common Stock issuable under, and the price per share upon exercise of, the New Options
were calculated based on the terms of the original KnowFat options, as adjusted by the Conversion
Ratio. The number of shares of Common Stock issuable under the New Warrants was calculated based on
the terms of the original warrants, as adjusted by the Conversion Ratio. Immediately prior to the
consummation of the Merger, the exercise price of all outstanding KnowFat warrants was adjusted to
$1.00, and such exercise price was not affected by the conversion ratio in the Merger.
As a result of the foregoing, on the Closing Date, an aggregate of 12,500,000 shares of Common
Stock were issuable to former KnowFat stockholders and upon exercise of outstanding KnowFat options
and warrants. Of these, 11,500,983 shares of Common Stock were issued, and an aggregate of 391,791
and 607,226 shares of Common Stock were reserved for issuance upon the exercise of the New Options
and New Warrants, respectively. UFood's stockholders before the merger retained 7,500,000 shares of
Common Stock after the Merger.
The following table summarizes the effect of the reverse merger recapitalization adjustment on
stockholders' equity:
Common Stock
Additional
Shares
Par Value
Paid-in Capital
UFood shares
outstanding
immediately prior
to the Merger
23,700,000
$
23,700
$
(23,700
)
UFood shares retired
(16,200,000
)
(16,200
)
16,200
Reverse acquisition
recapitalization
adjustment
7,500,000
$
7,500
$
(7,500
)
F -12
Table of Contents
The Merger Agreement includes a post-merger adjustment to the number of shares of Common Stock
issued to the former KnowFat stockholders in an amount up to 2,000,000 shares of Common Stock for
any breach of the Merger Agreement discovered during the two-year period following the Closing
Date. The Merger has been treated as a recapitalization of the Company for financial accounting
purposes. Accordingly, the UFood's financial statements before the merger have been replaced with
the historical financial statements of KnowFat before the merger.
4. Disposal of Assets
During 2008, the company recorded a loss on disposal of assets of $35,733 due to the write off of
obsolete equipment and furniture and fixtures as a result of the conversion of four KnowFat stores
to UFood Grill outlets.
During 2007, the Company recorded a loss on disposal of assets of $666,838 resulting from the
closure of one restaurant and the sale of a second restaurant. The disposition of the two stores
was accounted for in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or
Disposal Activities.
In April 2007, the Company recorded a loss of $493,032 in connection with the closure of a
restaurant in Woburn, Massachusetts. The loss represents the net present value of the remaining
lease obligation and the write-off of goodwill and equipment.
In September 2007, the Company sold its restaurant in Shrewsbury, Massachusetts, for $150,000 of
cash and a note receivable of $36,333. The note receivable is non-interest bearing and is due in
2008. The Company recorded a loss of $173,806 in connection with the sale.
5. Goodwill
At September 28, 2008, the carrying amount of goodwill was $977,135 and was comprised of $841,135
of goodwill attributable to our store operations segment and $136,000 of goodwill attributable to
our franchise operations segment. Goodwill attributable to our franchise operations segment is
evaluated by comparing the Company's fair market value, determined based upon quoted market prices
of the Company's equity securities, to the carrying amount of goodwill.
In August 2008, the Company completed the conversion of three of its Company-owned stores from
KnowFat! locations to UFood Grill outlets, including two stores that have goodwill associated with
them. Following the store conversions, the Company tested the carrying value of the store's
goodwill for impairment as of the first day of the fourth quarter and determined that there was no
impairment. For purposes of estimating each store's future cash flows, the Company assumed that
comparable store sales would increase by approximately 4% per year; store operating expenses as a
percentage of the store's revenues would decrease by a total of 1-1/2% of sales due to labor and
purchasing efficiencies; and the terminal value of each store was calculated using a 20%
capitalization rate applied to the final year's estimated cash flow. The present value of each
restaurant's estimated future cash flows was calculated using a discount rate of 8%.
Following the impairment test performed as of the first day of the fourth quarter, economic
conditions in the United States have worsened. The U.S. Government and Federal Reserve have
provided an unprecedented level of financial support to U.S. financial institutions, unemployment
has risen, home foreclosures have increased, mortgage delinquency rates have increased, credit
markets have tightened, volatility in the equity markets has continued and the National Bureau of
Economic Research announced that the United States economy has been in recession for almost a year.
These factors have all contributed to economic uncertainty and a decrease in consumer spending
which in turn has contributed to a decline in sales at Company-owned stores. According to The
Conference Board, Inc., the decline in real consumer spending experienced in the third and fourth
quarters of 2008 are expected to last through the first half of 2009. As a result of these factors
and the uncertainty surrounding the level of economic activity in 2009 and beyond, the Company
tested the carrying value of the stores' goodwill in December 2008 and determined that the carrying
amount of the goodwill attributable to our store operations exceeded its implied fair value and has
recognized a non-cash impairment charge of $765,772. For purposes of its mid-December 2008
impairment test, the Company has assumed that comparable store sales will decline by 6% in 2009 and
increase by 2-1/2% per year thereafter and store operating expenses will continue at their current
level as a percentage of store revenues. As a result of the economic uncertainty that currently
exists, the Company's estimate of future cash flows did not include an estimate of the restaurant's
terminal value since the Company cannot be certain that a buyer could be found for the restaurant
at the end of the lease term. The present value of the estimated future cash flows was calculated
using a 7% discount rate reflecting the recent decrease in long-term interest rates. Following the
non-cash impairment charge, the carrying value of goodwill attributable to our store operations
segment is $75,363. During 2007, goodwill decreased by $428,190 due to the write-off of goodwill
associated with the closure of one restaurant and the sale of another restaurant
The carrying amount of goodwill may be impaired in the future if our actual operating results and
cash flows fall short of our expectations.
F -13
Table of Contents
Franchise
Store Operations
Operations
Segment
Segment
Total
Balance as of January 1, 2007
$
1,269,325
$
136,000
$
1,405,325
Goodwill written off in connection with the closure of
one restaurant and the sale of one restaurant
(428,190
)
—
(428,190
)
Balance as of December 30, 2007
841,135
136,000
977,135
Goodwill written off in connection with impairment test
(765,772
)
—
(765,772
)
Balance as of December 28, 2008
$
75,363
$
136,000
$
211,363
6. Notes Payable
In April 2007, KnowFat borrowed $1,000,000 from Alan Antokal, a stockholder, pursuant to the term
of a 12% Secured convertible Subordinated Promissory Note. This note was secured by substantially
all of KnowFat's assets and was subordinate in right of payment to the prior payment of all of
KnowFat's obligations to its senior lender. This note payable was due April 23, 2008 but converted
into 2,168,693 shares of KnowFat common stock immediately prior to the Merger
.
On September 24, 2007, in connection with the Merger and the Offering of Units described in Note,
UFood sold $1,035,000 principal amount of 9% Convertible Promissory Notes and on October 4, 2007,
UFood sold an additional $965,000 of Investor Notes. The proceeds from the sale of Investor Notes,
net of transaction costs of $462,840, were used to provide bridge financing to KnowFat prior to the
Merger. The Investor Notes were due 120 days from the date of issuance. On the Closing Date, in
connection with the Merger, the Investor Notes together with accrued interest converted into
4,080,175 Units. The final closing of the offering describe above was March 31, 2008. The total
units sold were 10,941,000.
The Company retained a placement agent (Placement Agent) to sell the Investor Notes and paid the
Placement Agent a commission of 10% of the funds raised from the sale of the Investor Notes and an
expense allowance of $75,000. In addition, the Placement Agent received a warrant (Placement Agent
Warrants) to purchase 800,000 shares of Common Stock. The Placement Agent Warrants are exercisable
for seven years at an exercise price of $1.00 per share.
F -14
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7. Long-Term Debt
Long-term debt consists of the following at December 28, 2008 and December 30, 2007:
2008
2007
Term note payable to bank in monthly principal
installments of $29,167 commencing January 2007
through May 2010. Interest is payable monthly at
the bank's prime rate (3.25% at December 31,
2008). The note is secured by substantially all
assets of the Company.
$
692,076
$
1,042,080
Downtown Crossing acquisition note payable.
Interest accrues at 6% per annum and is payable
monthly, with certain limitations as defined in
the agreement. All unpaid amounts are due on or
before December 31, 2007, as defined in the
agreement. The note is secured by the assets
acquired.
—
880,628
Landmark Center acquisition promissory note with
no stated interest rate. Due upon the occurrence
of a sales event, as defined in the agreement.
The note agreement includes a restrictive
covenant requiring the Company's wholly-owned
subsidiary, KnowFat of Landmark Center, Inc., to
maintain net equity of not less than $450,000.
450,000
450,000
Unsecured, non-interest bearing note payable.
This note payable is due on demand. Interest
imputed on the note using a discount rate of 5%
totaled $59,597, which is being amortized over
the term of the note.
$
51,787
$
152,099
Indebtedness incurred in connection with the
acquisition of the two franchisee locations. No
stated interest rate; this note payable is due
on demand.
2,137
14,996
Note payable to the Watertown landlord in
connection with the acquisition of the training
center in 2004. The note is payable in monthly
installments of $2,566 including interest at 5%
through April 2010.
37,396
65,881
1,233,396
2,605,684
Less current portion
883,684
1,874,993
Long-term debt
$
349,712
$
730,691
Maturities of long-term debt at December 28, 2008 are as follows:
Year ending December 31,
2009
$
883,684
2010
349,712
$
1,233,396
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8. Capital Lease Obligations
The Company leases certain equipment under capital leases. The equipment has been recorded at the
present value of the total lease payments using discount rates ranging from 13.9% to 17.95%.
Future minimum lease payments under these leases are as follows:
Year ending December 31,
2009
$
81,333
2010
64,855
2011
23,259
Thereafter
12,339
181,786
Less imputed interest
33,442
148,344
Less current portion
61,725
Long-term portion of capital lease obligations
$
86,619
The recorded cost and accumulated amortization of the equipment acquired are $223,926 and $147,479,
respectively as of December 28, 2008. Amortization expense in 2008 and 2007 was $40,528 and
$60,972, respectively.
9. Capital Stock
On December 18, 2007, the Company, through a wholly-owned subsidiary, merged with and into KnowFat
Franchise Company, Inc. (see Note 3).
Share Transactions Prior to the Merger
During 2007, prior to the Merger, KnowFat issued 1,412,903 shares of common stock comprised of
41,746 shares issued to consultants and vendors and 1,371,157 shares issued to George Foreman
Ventures LLC (GFV) pursuant to the terms of a Services Agreement which became effective June 12,
2007. The 41,746 shares issued to consultants and vendors were valued at $31,237, or $0.75 per
share.
Under the terms of the Services Agreement with GFV, KnowFat also agreed to (i) issue GFV an
additional 152,351 shares of common stock promptly following the sale of the 600
th
franchise, provided the sale of such franchise occurs by December 31, 2009 and (ii) pay GFV a
royalty equal to 0.2% of aggregate net sales, in exchange for the performance of certain services
by George Foreman and a limited license to use Mr. Foreman's name and likeness in connection with
the promotion of restaurants operated by KnowFat and its franchisees. At December 28, 2008,990,280
shares of common stock issued to GFV were vested. The remaining 380,877 shares of common stock
issued to vest over four years in accordance with the following schedule:
Vesting Date
Number of Shares
June 13, 2009
152,351
June 13, 2010
152,351
June 11, 2011
76,175
In the event there is a change of control after December 18, 2007, as defined in the Services
Agreement, GFV has the right to return 50% of the shares of common stock received in exchange for a
prospective increase in the royalty rate to 0.5%
Advertising, marketing and promotion expenses for the year ended December 28, 2008 include $454,698
representing the fair value of 304,702 shares that vested on June 13, 2008. Fair value was
determined to be equal to the fair value of the common shares included in the Offering of Units
(described below).
Shares Issued in Connection with the Merger
In connection with the Merger described in Note 3, on the Closing Date, 1,576,040 shares of Series
A Preferred Stock and 719,440 shares of Series C Preferred Stock converted on a 1 for 1 basis into
2,295,480 shares of KnowFat common stock and 1,407,416 shares
F - 16
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of Series B Preferred Stock converted on a 1.005504 for 1 basis into 1,415,162 shares of KnowFat
common stock. In addition, the Antokal Note converted into 2,168,693 shares of KnowFat common
stock.
All dividends on the Preferred Shares and accrued interest on the Antokal Note were forfeited upon
conversion. The amount of cumulative but undeclared dividends on the Closing Date and at December
31, 2006 was approximately $1,897,000 and $956,000, respectively.
Following the conversion of the Preferred Shares and the Antokal Note, on the Closing Date, all of
KnowFat's common stock, par value $0.001 per share, issued and outstanding before the merger were
exchanged for 11,500,983 shares of UFood's Common Stock, par value $0.001 per share.
On the Closing Date and in connection with the Merger, $2,000,000 of Investor Notes issued by UFood
in 2007 together with accrued interest of $40,087 automatically converted into 4,080,175 Units at a
conversion rate of $0.50 per Unit.
Offering of Units
Concurrently with the closing of the Merger and in contemplation of the Merger, the Company
completed the initial closing of a private offering (the Offering) of 5,720,000 units of its
securities (Units), at a price of $1.00 per Unit. The Company subsequently consummated a second
closing of 440,000 Units on December 21, 2007. During 2008, the company completed three additional
closings for a total of five closings combined; the units sold in the 2008 closings were 4,781,000
units of its securities (Units), at a price of $1.00 per Unit. Total amount of units sold in this
offering during 2007 and 2008 was 10,941,000 units. Each Unit consists of one share of Common
Stock and a warrant to purchase one-half, or 50%, of a share of Common Stock. The warrants
(Investor Warrants) are exercisable for a period of five years at an exercise price of $1.25 per
whole share of Common Stock.
In connection with the Offering, the Company retained a placement agent and paid the Placement
Agent a commission of 10% of the funds raised from the investors in the Offering plus an expense
allowance of $225,000. In addition, the Placement Agent received warrants to purchase a number of
shares of Common Stock equal to 20% of the shares of Common Stock included in the Units sold to
investors in the Offering. The Placement Agent warrants are exercisable for seven years at an
exercise price of $1.00 per share. The Placement Agent was paid commissions and expenses of
$1,336,250 and received warrants to purchase 2,088,200 shares of Common Stock in connection with
the first and second closings of the Offering.
The company filed a registration statement that became effective on January 12, 2009, including
Common Stock (i) included in the Units; (ii) issuable upon exercise of Investor Warrants; (iii)
issuable upon conversion of the Investor Notes; and (iv) issuable upon exercise of warrants issued
to purchasers of the Investor Notes in connection with the conversion of their Investor Notes. The
Company was obligated to pay monetary penalties equal to one and one-quarter percent (1.25%) of the
purchase price paid by the holders of registrable securities for each full month that (i) the
Company is late in filing the registration statement or (ii) the registration statement is late in
being declared effective; provided, that in no event shall the aggregate of any such penalties
exceed fifteen percent (15%) of the gross purchase price paid by the holders of registrable
securities. However, the company has obtained from the majority of the shares represented in this
Offering the waiver for the outstanding liquidated damages as a result of the delayed effectiveness
of the registration statement.
F - 17
Table of Contents
Warrants
At December 28, 2008, warrants to purchase 14,022,680 shares of UFood Common Stock were issued and
outstanding as follows:
Description
Number of Warrants
Exercise Price
New Warrants
607,226
$
1.00
Placement Agent warrants
2,988,200
$
1.00
Vendor Warrants
2,916,666
$
1.25
Investor Notes warrants
2,040,088
$
1.25
Investor Warrants
5,470,500
$
1.25
Total
14,022,680
In connection with the Merger, all of KnowFat's issued and outstanding warrants converted into New
Warrants to purchase shares of the Company's Common Stock. The number of shares of Common Stock
issuable under the New Warrants was calculated based on the terms of the original KnowFat warrants,
as adjusted by the Conversion Ratio. Immediately prior to the consummation of the Merger, the
exercise price of all outstanding KnowFat warrants was adjusted to $1.00, and such exercise price
was not affected by the conversion ratio in the Merger.
As a result of the foregoing, on the Closing Date, 281,482 KnowFat warrants issued in the
connection with the sale of Series B preferred stock and 141,211 KnowFat warrants issued in
connection with the sale of Series C preferred stock were exchanged for 422,693 New Warrants with
an exercise price of $1.00. The Company recognized an expense of $75,158 as a result of the change
in the exercise price to $1.00.
In addition, the warrant issued to an officer of the Company in 2006 to purchase up to 184,533
shares of KnowFat common stock for his personal guaranty of the Company's obligations to TD
BankNorth, N.A. was exchanged for a New Warrant with an exercise price of $1.00.
In connection with the Company's sale of $2,000,000 of Investor Notes and the sale of 10,941,000
Units, the Placement Agent was issued warrants to purchase 800,000 and 2,188,200 shares,
respectively, of UFood Common Stock at an exercise price of $1.00. The warrants issued to the
Placement Agent expire seven years from the date they were issued.
In connection with the conversion of the $2,000,000 of Investor Notes, 2,040,088 warrants were
issued to the purchasers of the Investor Notes. The Investor Note warrants have an exercise price
of $1.25 and expire in five years.
The sale of 10,941,000 Units included the issuance of 5,470,500 warrants. The Investor Warrants
have an exercise price of $1.25 and expire in five years.
10. Stock-Based Compensation
At December 28,2008, the Company has two share-based, shareholder approved employee compensation
plans, the 2004 Stock Option Plan (2004 Plan) and the 2007 Equity Incentive Plan (2007 Plan, and
together with the 2004 Plan, the Equity Plans), which are described below. During 2008 and 2007,
the Company recognized $996,792 and $249,292 of compensation expense for awards under the Equity
Plans.
The Company estimates the fair value of the stock options using a Black Scholes option pricing
model with the assumptions noted in the following table. Key inputs used to estimate the fair value
of stock options include the exercise price of the award, the expected option term, the expected
volatility of the Company's stock over the option's expected term, the risk-free interest rate over
the option's expected term, and the Company's expected annual dividend yield.
F - 18
Table of Contents
The fair value of each stock option grant was estimated on the date of grant using the following
assumptions:
2008
2007
Expected term (years)
6
6
Expected volatility
45%
45%
Risk-free interest rate
4.37%
4.37%
Expected annual dividend
None
None
The expected term is based on the weighted average midpoint between vesting and the contractual
term. Expected volatility is based on the historical volatility of published common stock prices
over the last six years of comparable publicly held companies. The risk-free interest rate for the
expected term of the stock option is based on the U.S. Treasury yield. The Company believes that
the valuation technique and the approach utilized to develop the underlying assumptions are
appropriate in calculating the fair values of stock options granted for the years ended December
28, 2008 and December 30, 2007. Estimates of fair value are not intended to predict actual future
events or the value ultimately realized by persons who receive equity awards.
The 2004 Plan
Under the terms of the 2004 Plan, the Company was authorized to grant incentive stock options
(ISO's), non-qualified stock options and restricted stock for up to 304,702 shares of common stock
in the aggregate, to employees, officers, directors, consultants and agents of the Company. The
Company believes that such awards align the interests of its employees with those of its
shareholders. In general, stock option awards under the 2004 Plan are granted with an exercise
price equal to the fair value of the Company's stock at the date of grant, vest over a three-year
period and expire ten years from the date of grant. As a result of the Merger, no awards will be
made under the 2004 Plan after December 18, 2007; A summary of option activity under the 2004 Plan
during 2008 and 2007 is presented below:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Shares
Price
Term
Value
Outstanding at January 1, 2007
226,191
$
0.54
8.4
Granted
148,461
$
0.66
10.0
Exercised
—
—
Forfeited
(69,950
)
(0.36
)
8.4
Outstanding at December 31, 2007
304,702
$
0.61
8.8
$
146,257
Granted
—
—
—
Exercised
—
—
Forfeited
Outstanding at December 30, 2008
304,702
$
0.61
7.8
$
-0-
Exercisable at December 30, 2008
304,702
$
0.61
7.8
$
-0-
At December 30, 2007, all of the options outstanding under the 2004 Plan were vested. The weighted
average grant date fair value of options granted during 2007 was $0.36. There was no unrecognized
compensation expense related to options outstanding under the 2004 Plan at December 28, 2008.
The 2007 Plan
The 2007 Plan was approved in contemplation of the Merger. There were no awards under the 2007 Plan
prior to December 18, 2007, the Closing Date of the Merger. Awards of ISO's, non-qualified stock
options, stock appreciation rights, restricted stock units, restricted stock or performance units
may be made under the 2007 Plan of up to a maximum of 6,000,000 shares of Common Stock to
employees, directors, consultants and agents of the Company. The Company believes awards under the
2007 Plan align the interests of its employees with those of its shareholders. At December 28,
2008, 2,845,920 stock options were outstanding under the 2007 Plan.
Activity under the 2007 Plan from December 18, 2007, the Merger Date, through December 28, 2008 is
presented below:
F - 19
Table of Contents
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Shares
Price
Term
Value
Outstanding at December 18, 2008
-0-
$
—
—
Granted
1,950,000
$
1.00
Exercised
—
—
Forfeited
—
—
Outstanding at December 30, 2007
1,950,000
$
1.00
10.0
$
175,500
Granted
897,920
$
1.22
10.0
Exercised
—
—
Forfeited
(2,000
)
$
1.22
10.0
Outstanding at December 28, 2008
2,845,920
$
1.22
8.8
-0-
Exercisable at December 28,2008
1,402,266
$
1.13
8.8
$
-0-
The weighted average grant date fair value of options granted during 2008 and 2007 under the 2007
Plan was $0.60 and $0.27 respectively.
At December 28, 2008 there was $700,039 of total unrecognized compensation cost related to
non-vested options granted under the 2007 Plan. This cost will be recognized over approximately
three years.
On December 6, 2007, the Company's board of directors approved the grant of 87,090 non-qualified
stock options to an employee. The options have an exercise price of $0.66 per share, are
exercisable for 10 years and are fully vested. The Company recognized compensation expense of
$15,649 in connection with this option award.
On February 12, 2008, the Company's board of directors approved a 3,000,000 increase in the number
of shares of Common Stock reserved for issuance under the 2007 Plan to 6,000,000 shares. The
increase was subject to approval by a majority of shares represented at the Company's annual
meeting and was obtained in August 29, 2009
11. Income Taxes
On January 1, 2007, the Company adopted the provisions of FIN No. 48. FIN No. 48 requires that the
impact of tax positions taken by the Company be recognized in the financial statements if they are
more likely than not of being sustained based upon the technical merits of the position. The
Company has a valuation allowance against the full amount of its net deferred taxes. The Company
currently provides a valuation allowance against deferred taxes when it is more likely than not
that some portion, or all, of its deferred tax assets will not be realized. The implementation of
FIN No. 48 had no impact on the Company's financial statements due to the valuation allowances that
have historically been provided against all deferred tax assets.
No provision for current income taxes has been recorded for 2008 and 2007 due to the Company's
cumulative net losses. Significant components of deferred tax assets are net operating loss
carryforwards; start-up costs and organizational costs capitalized for tax purposes, and deferred
revenue. Significant components of deferred tax liabilities are depreciation of property and
equipment. The net deferred tax assets are fully reserved by a valuation allowance due to the
uncertainty of realizing the tax benefit of the deferred tax assets.
F - 20
Table of Contents
Net deferred tax assets (liabilities) at December 28, 2008 and December 30, 2007 are as follows:
2008
2007
Deferred tax assets
Federal
$
8,192,000
$
4,923,000
State
1,495,000
905,000
Total deferred tax assets
9,687,000
5,828,000
Valuation allowance
(9,687,000
)
(5,828,000
)
Net deferred tax assets
$
—
$
—
The components of income tax benefit (expense) are as follows:
2008
2007
Federal
Deferred
Net operating loss carryforward
$
2,370,000
$
1,678,000
Other
899,000
61,000
3,269,000
1,739,000
State
Deferred
Net operating loss carryforward
424,000
317,000
Other
166,000
(286,000
)
590,000
31,000
Tax benefit before adjustment to valuation allowance
3,859,000
1,770,000
Adjustment to valuation allowance
(3,859,000
)
(1,770,000
)
Net tax benefit
$
—
$
—
The Company's effective income tax rate differs from the federal statutory income tax rate as
follows for the fiscal years ended December 28, 2008 and December 30, 2007.
2008
2007
Federal tax provision rate
34
%
34
%
State tax provision, net of federal provision
6
%
6
%
Change in valuation allowance
(40
%)
(40
%)
—
—
Management has evaluated the evidence bearing upon the realization of its deferred tax assets and
has determined that it is more likely than not that the Company will not recognize the benefits of
federal and state deferred tax assets. As a result, management has recorded a full valuation
allowance. If the Company should generate sustained future taxable income against which these tax
attributes might be applied, some portion or all of the valuation allowance would be reversed.
The Company's income tax returns have not been audited by the Internal Revenue Service (IRS) or any
state taxing authority. The years 2005 through 2008 remain open to examination by the IRS and
state taxing authority. The Company believes it is not subject to any tax exposure beyond the
preceding discussion. The Company's policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date FIN No. 48 was
adopted, we did not have any accrued interest or penalties associated with any unrecognized tax
benefits, nor was any significant interest expense recognized during the year ended December 28,
2008
Federal and state net operating loss carryforwards expire in 2027 and 2012, respectively. Ownership
changes, as defined in Section 382 of the Internal Revenue Code, may have limited the amount of net
operating loss carryforwards that may be utilized annually to offset future taxable income.
Subsequent ownership changes could further affect the limitation in future years.
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Table of Contents
12. Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk include
cash and cash equivalents, which occasionally exceed current federal deposit insurance limits.
Substantially all of the cash and cash equivalents are maintained in a certain large commercial
bank. Senior management continually reviews the financial stability of this institution.
13. Commitments and Contingencies
Leases
The Company rents store and office locations under non-cancelable operating leases and tenant at
will arrangements. The agreements expire on various dates through December 2016, and some include
options to extend. The leases require the Company to pay its share of the operating expenses of the
leased properties, including taxes, utilities and insurance.
Future minimum payments at December 28, 2008 under non-cancelable leases are as follows:
Year ending December 31,
2009
$
626,000
2010
602,000
2011
616,000
2012
633,000
2013
641,000
Thereafter
629,000
$
3,747,000
Employment Agreements
On October 15, 2007, in contemplation of the Merger described in Note 3, the Company entered into
employment agreements with its chief executive and its vice president of business development. Each
agreement is for a term of three years and provides for the payment of a base salary and benefits,
an annual bonus to be determined by the Company's Board of Directors, an equity award under the
Company's 2007 Equity Incentive Plan and, in the case of the Company's chief executive, a payment
for each franchise sold.
In October 2007, in contemplation of the Merger, UFood entered into an employment agreement with
its chief executive officer. Under the terms of the agreement, the Company agreed to pay
the executive a fee of $10,000 upon the consummation by the company of the sale of a franchise
restaurant. To the extent any franchise transaction is part of an Area Development Agreement,
$5,000 of the fee is payable in cash and the remainder is payable in shares of the Company's Common
Stock. The franchise and development fee arrangement included in the executive's employment
agreement replaced a similar arrangement covering the period preceding the Merger, except that
franchise and development fees earned prior to the Merger were payable 100% in cash. During 2008
and 2007, the Company recorded franchise and development fee expenses of $ 40,000 and $-0-,
respectively.
The agreements further provide that if the executive's employment is terminated by the Company
without cause, or by the executive as a result of constructive termination by the Company, or as a
result of the executive's death or disability, the Company is obligated to pay severance
(consisting of salary and benefits as in effect at the time of termination) to the executive (or
the executive's legal representatives) for a period equal to the lesser of 12 months or the then
remaining balance of the employment term. One of the employment agreements provides that if the
executive terminates his employment voluntarily at a point more than 30 days after the effective
date of the registration statement by which the Units sold in the Offering are registered for
resale, the executive is entitled to the same termination benefits he would be entitled to if his
employment is terminated by the Company without cause.
Legal matters
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,
including the matters described below, and we intend to defend vigorously each such case. Based on
information currently available, we believe the amount, or range, of reasonably possible losses in
connection with the actions against us, including the matters described below, 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
F - 22
Table of Contents
on the level of our income for such period. In the opinion of management, the ultimate liabilities
with respect to these actions will not have a material adverse effect on the Company's financial
position, results of operations or cash flow.
BAA Boston, Inc., Default Claim
KFLG Watertown, Inc. (KFLG) d/b/a KnowFat and or KnowFat Franchise Company, Inc., our wholly-owned
subsidiary, received a Default Letter and Notice of Liquidated Damages on September 28, 2007, as
well as several other follow up notices of default (collectively, the Default Letters) from BAA
Boston, Inc. (BAAB) claiming certain defaults under KFLG's Sublease Agreement with BAAB for retail
premises (the Premises) at Logan International Airport in Boston, Massachusetts (the Sublease
Agreement). The Default Letters claimed that KFLG was in default of its obligations under the
Sublease Agreement due to, among other things, KFLG's failure to timely open the Premises for
business. The Default Letters demanded that KFLG pay $104,000 in liquidated damages to BAAB and pay
legal fees and expenses of BAAB in the amount of $48,000. The Company has resolved this matter and
the Default Letters have been rescinded.
Subcontractors' Claims
In connection with the build-out of the Premises, several of the subcontractors that performed work
at the Premises claimed that the general contractor failed or refused to pay amounts due them.
Accordingly, such subcontractors asserted mechanic's liens totaling $253,431 (the Lien Amounts)
against our leasehold interest in the Premises. In April 2008, pursuant to the terms of the
Sublease Agreement, we obtained target lien dissolution bonds in order to dissolve the liens
against our leasehold interest in the Premises. The lien bond surety required the Company to post
cash collateral in the amount of 120% of the Lien Amounts. The general contractor on the project
was responsible for the amounts claimed by the subcontractors and was previously forced into
involuntary bankruptcy. We have paid the general contractor and intend to assert claims against the
general contractor for, among other things, the amounts claimed by the subcontractors. In January,
2009, we settled with the subcontractors. The subcontractor liens have been removed and the bond
and cash collateral related to this matter have been released.
14. Supplemental Disclosures of Cash Flow Information:
2008
2007
Cash paid during the year for interest
$
76,602
$
182,422
Summary of non-cash investing and financing activities
Accrued preferred stock dividends
$
—
$
941,365
Conversion of promissory notes into Common Stock
$
—
$
2,656,809
Conversion of preferred stock into Common Stock
$
—
$
4,968,803
Property and equipment acquired with capital lease
$
65,756
$
33,420
15. Loss per share
The amounts used for basic and diluted per share calculations are as follows:
2008
2007
Net loss
$
(9,875,305
)
$
(5,451,414
)
Preferred stock dividend requirements
-0-
(941,365
)
Net loss allocable to common stockholders
$
(9,875,305
)
$
(6,392,779
)
Weighted average number of shares outstanding — basic and diluted
33,851,004
9,433,081
Basic and diluted loss per common share
$
(0.29
)
$
(0.68
)
Our diluted earnings (loss) per share is the same as our basic loss per share since the effect of
the assumed exercise of options and warrants to purchase common stock is anti-dilutive. A total of
16,530,174 and 4,811,987 potential common shares from the assumed exercise of options and warrants
were excluded from the calculation de diluted net loss per share for the years ended December 28,
2008 and December 30, 2007, respectively, because their inclusion would have been anti-dilutive.
F - 23
Table of Contents
16. Segment Data
The Company operates 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 which licenses qualified operators to conduct business under the KnowFat
and UFood Grill tradenames and also costs to monitor the operations of these business units. Under
the terms of the franchise agreements, the licensed operators pay royalties and fees to the Company
in return for the use of the Knowfat and UFood Grill tradenames.
The accounting policies of the segments are the same as those described in Note 2. Interest
expense has been allocated based on operating results and total assets employed in each segment.
Inter-segment transactions are uncommon and not material. Therefore, they have not been separately
reflected in the financial table below. The totals of the reportable segments' revenues, net loss
and assets agree with the comparable amounts contained in the Company's audited financial
statements.
Segment information for the Company's two business segments follows:
2008
2007
Revenues:
Store operations
$
5,462,915
$
4,543,194
Franchise operations
361,128
361,689
Total revenue
$
5,824,042
$
4,904,883
Segment loss:
Store operations
$
(2,781,278
)
$
(999,385
)
Franchise operations
(1,517,876
)
(522,137
)
Total segment loss
$
(4,299,154
)
$
(1,521,522
)
Advertising, marketing and promotion
$
887,259
$
671,440
Depreciation and amortization
500,153
429,586
Unallocated general and administrative expenses
4,262,055
2,384,581
Interest (income) expense
(4,013
)
369,130
Other (income) expenses, net
(69,303
)
75,155
Net loss
$
(9,875,305
)
$
(5,451,414
)
Store operations
$
458,062
$
372,404
Franchise operations
42,091
57,181
Total depreciation and amortization
$
500,153
$
429,586
Capital expenditures:
Store operations
$
704,027
$
937,859
Franchise operations
153,954
88,008
Total capital expenditures
$
857,981
$
1,025,867
F - 24
Table of Contents
2008
2007
Segment assets:
Store operations
$
2,050,990
$
3,834,155
Franchise operations
1,591,676
4,749,391
Total segment assets
$
3,642,666
$
8,583,546
17. Subsequent Events
On March 20, 2009, the Company sold $3,315,000 of Senior Secured Convertible Debentures (the
Debentures) in a private offering to accredited investors. The debentures bear interest at a rate
of 8% and are due three years from the date they are issued. The Debentures are convertible into
shares of common stock at $0.13 per share. In addition, each investor will receive 5-year
detachable Warrants to purchase a number of shares of Common Stock equal to 50% of the shares
underlying the Investor's Debenture. Interest on the Debentures a rate of 8% per annum is payable
on a quarterly basis. Subject to certain conditions, the company has the right to pay interest on
the Debentures in either cash or shares of Common Stock, or in a combination of cash and Common
Stock. After the one year anniversary of the Closing, the Company has the right to redeem the
Debentures at a 20% premium, subject to certain conditions. Subject to certain conditions, the
company has the right to force conversion of the Debenture into shares of Common Stock. The
company has agreed to file a registration statement with the Securities and Exchange Commission
covering all shares of Common Stock issuable upon conversion of the Debentures and/or exercise of
the Warrants.
In connection with the offering, the Company engaged a placement agent and agreed to pay the
placement agent a cash fee equal to 10% of the gross proceeds received by the Company. and (ii)
issue to the placement agent warrant to purchase 25,500,000 shares of the Company's Common Stock
underlying the Debentures and Warrants issuable to Investors in this Offering at an exercise price
equal to $0.1365, and exercisable for a period of 5 years.
On
December 31, 2008, Mr. Eric Spitz and the Company jointly decided to terminate his employment
agreement.
On March 27, 2009, the franchisee-owned outlet in Bedford, Massachusetts closed. The Company had
been operating the Bedford location pursuant to a management services agreement.
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Table of Contents
79,567,064 Shares of Common Stock
UFood Restaurant Group, Inc.
PROSPECTUS
, 2009
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except for registration fees, which are actual) of the approximate
amount of the fees and expenses payable by us in connection with the issuance and distribution of
the shares of our common stock.
EXPENSE
AMOUNT
Registration Fee
$
998.96
Legal Fees and Expenses
100,000
Accounting Fees and Expenses
5,500
Miscellaneous Fees and Expenses
5,000
Total
$
111,499
Item 14. Indemnification of Directors and Officers.
Nevada Revised Statutes (NRS) Sections 78.7502 and 78.751 provide us with the power to indemnify
any of our directors, officers, employees and agents. The person entitled to indemnification must
have conducted himself in good faith, and must reasonably believe that his conduct was in, or not
opposed to, our best interests. In a criminal action, the director, officer, employee or agent must
not have had reasonable cause to believe that his conduct was unlawful.
Under NRS Section 78.751, advances for expenses may be made by agreement if the director or officer
affirms in writing that he has met the standards for indemnification and will personally repay the
expenses if it is determined that such officer or director did not meet those standards.
Our bylaws include an indemnification provision under which we have the power to indemnify our
current and former directors, trustees, officers, employees and other agents against expenses
(including attorneys' fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by any such person, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. Our bylaws further provide for the advancement of all expenses incurred in connection
with a proceeding upon receipt of an undertaking by or on behalf of such person to repay such
amounts if it is determined that the party is not entitled to be indemnified under our bylaws.
These indemnification rights are contractual, and as such will continue as to a person who has
ceased to be a director, trustee, officer, employee or other agent, and will inure to the benefit
of the heirs, executors and administrators of such a person.
Item 15. Recent Sales of Unregistered Securities.
Sales by KnowFat
In November 2006, KnowFat sold units consisting of 719,440 shares of Series C convertible preferred
stock and warrants to purchase 141,211 shares of KnowFat common stock to certain investors for an
aggregate consideration of $3,069,466. The shares and warrants were issued to accredited investors
as defined under Regulation D and otherwise in accordance with the provisions of Regulation D. None
of the securities were sold through an underwriter and, accordingly, there were no underwriting
discounts or commissions involved.
In September 2006, KnowFat entered into agreements with George Foreman Ventures, LLC, pursuant to
which KnowFat was granted the limited right to use George Foreman's name and likeness in connection
with the promotion of restaurants operated by KnowFat and its franchisees in exchange for: (i)
900,000 shares of KnowFat common stock; (ii) 100,000 additional shares of KnowFat common stock
following the sale of the 600
th
franchise of an outlet offering our products, provided
such sale occurs by December 31, 2009; and (iii) 0.2% of the aggregate net sales of the franchise
and company owned stores during the term of the agreements. The sale was exempt from registration
under Section 4(2) of the Securities Act.
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Table of Contents
In October 2006 and September 2007, KnowFat issued an aggregate of 4,234 shares of its common stock
valued at $5.00 per share (for an aggregate consideration of $21,170) to certain of its vendors in
consideration for the marketing and consulting services provided by such vendors to KnowFat. The
issuance was exempt from registration under Section 4(2) of the Securities Act.
Sales by Axxent Media Corporation
In September and October 2007, Axxent Media Corporation sold $2,000,000 principal amount of its 9%
convertible promissory notes to accredited investors for total cash consideration of $2,000,000.
All of the gross proceeds that Axxent received from the note offering were used to provide a bridge
loan to KnowFat to meet KnowFat's capital needs prior to the closing of the merger and the private
placement. The convertible notes bore interest at the rate of 9% per annum and were for a term of
180 days, and automatically converted into shares of our common stock and warrants to purchase our
common stock upon the closing of the merger. The aggregate principal amount of the convertible
notes, plus accrued and unpaid interest, converted into 4,080,175 shares of our common stock and
warrants to purchase 2,040,088 shares of our common stock. The convertible notes were sold to
accredited investors as defined under Regulation D and non-U.S. persons as defined under Regulation
S, and otherwise in accordance with the provisions of Regulation D and/or Regulation S. In
connection with the note offering, we paid the placement agent for the note offering a cash
commission of $200,000, and issued to that placement agent warrants to purchase 800,000 shares of
our common stock at an exercise price of $1.00 per share.
Shares Issued in Connection with the Merger
Simultaneously with the closing of the merger in December 2007, all of the issued and outstanding
shares of KnowFat, consisting of (i) 1,034,481 shares of series A preferred stock converted, on a
one-to-one basis, (ii) 923,800 shares of series B preferred stock converted, one a 1-to-1.005504
basis and (iii) 719,440 shares of series C preferred stock converted, on a one-to-one basis, into
shares of KnowFat common stock. On the closing date, the holders of common stock of KnowFat
(including the converted shares of preferred stock) surrendered all of their issued and outstanding
shares and received 11,500,983 shares of our common stock. Also on the closing date, (a) the
holders of the issued and outstanding warrants to purchase KnowFat common stock received the new
warrants to purchase shares of our common stock, and (b) the holders of issued and outstanding
options to purchase KnowFat common stock received new options to purchase shares of our common
stock. 607,226 and 391,791 shares of our common stock, respectively, are reserved for issuance on
exercise of the new warrants and the new options. The number of shares of our common stock issuable
under, and the price per share upon exercise of, the new options were calculated based on the terms
of the original options of KnowFat, as adjusted by the conversion ratio in the merger. The new
options became immediately exercisable upon consummation of the merger. The number of shares of our
common stock issuable under the new warrants was calculated based on the terms of the original
warrants of KnowFat, as adjusted by the conversion ratio in the merger. Immediately prior to the
consummation of the merger, the exercise price of all outstanding KnowFat warrants was adjusted to
$1.00, and such exercise price was not affected by the conversion ratio in the merger.
Our pre-merger stockholders retained 7,500,000 shares of our common stock in the merger.
The transactions described above were exempt from registration under Section 4(2) of the Securities
Act and Rule 506 of Regulation D. None of the securities were sold through an underwriter and,
accordingly, there were no underwriting discounts or commissions involved.
Shares Issued in Connection with the First Private Placement
Concurrently with the closing of the merger in December 2007, and in contemplation of the merger,
we consummated a private offering of 6,160,000 units of our securities, at a price of $1.00 per
unit. Each unit consists of one share of our common stock and a warrant to purchase one-half, or
50%, of a share of our common stock. The investors collectively purchased the units for total cash
consideration of $6,160,000.
In January 2008, we sold 863,000 units at a price of $1.00 per unit, in February 2008, we sold
1,927,000 units at a price of $1.00 per unit and in March 2008 we sold 1,991,000 units at a price
of $1.00 per unit. Each unit consists of one share of our common stock and a warrant to purchase
one-half of one share of our common stock. The investors collectively purchased these units for
aggregate cash consideration of $4,781,000.
All of the units were sold only 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 Rule 506 of Regulation D and/or Regulation S. In the
offering, no general solicitation was made by us or any person acting on our behalf. The units were
sold pursuant to transfer restrictions, and the certificates for shares of common stock and
warrants underlying the units sold in the offering contain appropriate legends stating that such
securities are not registered under the Securities Act and may not be offered or sold absent
registration or an exemption from registration.
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Table of Contents
We paid the placement agent retained in connection with the offering a commission of 10% of the
funds raised from the investors in the offering plus an expense allowance. In addition, the
placement agent received warrants to purchase a number of shares of common stock equal to 20% of
the shares of common stock included in the units sold to investors in the offering. As a result of
the foregoing, the placement agent was paid commissions aggregating $1,094,100 and received
warrants to purchase a total of 2,188,200 shares of our common stock in connection with the
offering.
The offering is more fully described in the Company's Form 8-K, filed with the Securities and
Exchange Commission (the "SEC") on December 26, 2007, the Company's Form 8-K, filed with the SEC on
February 8, 2008, and the Company's Form 8-K, filed with the SEC on March 31, 2008, each of which
is incorporated herein by reference.
Shares and Warrants Issued in Connection with Corporate Awareness Campaign
In May 2008, we commenced a corporate awareness campaign in the investment community. The campaign
encompasses investor relations and public relations services, including traditional media outlets
like television, radio, and print, and the internet. The corporate awareness campaign encompasses
the following activities: (i) written articles and television coverage of the Company via
traditional media outlets; (ii) arranging meetings with investment professionals and prospective
investors in various cities in the United States; (iii) introductions to potential financing
sources; (iv) preparation, printing and distribution of profile reports about the Company to
various proprietary databases; and (v) distribution of press releases, news releases and research
on the Company and its activities. To date activities pursuant to the corporate awareness campaign
have encompassed the preparation and distribution of press releases and the preparation and
distribution in June 2008 of a 12 page color report describing the Company. In general, the
campaign aims to build awareness for our brand with current and prospective shareholders,
franchisees and customers. The campaign does not involve the sale of franchises. In connection with
the campaign, we entered into service agreements with a number of investor relations and public
relations firms, in connection with which we issued to the service providers an aggregate of
740,000 shares of our common stock and warrants to purchase an aggregate of 2,916,666 shares of our
common stock in partial payment for their services. The services provided by the investor
relations and public relations firms are provided on a "best efforts" basis. The transactions
described above were exempt from registration under Section 4(2) of the Securities Act as they did
not involve any public offering or general solicitation, the recipients had access to information
that would be included in a registration statement, the recipients acquired the shares for
investment and not resale, and we took appropriate measures to restrict resale.
The table below shows the recipient, date and the number of shares and warrants with respect to
each issuance to one of these service providers:
Service Provider
Date
Shares
Warrants
New Century Capital Consultants, Inc.
April 21, 2008
250,000
2,750,000
MarketByte LLC
April 9, 2008
200,000
83,333
TGR Group LLC
April 9, 2008
200,000
83,333
Neptune Media, LLC
April 9, 2008
75,000
—
AviaTech
April 9, 2008
15,000
—
The shares and warrants issued to New Century Capital Consultants, Inc. (New Century) vest in equal
installments over twenty-four months through April 2010 or upon the achievement of specified
milestones tied to average daily trading volume of the Company's common stock and/or the
publication of articles about the Company by local and national media outlets. To date, the
specified milestones have not been achieved. As of April 28, 2009, 125,000 shares and 1,375,000
warrants issued to New Century were vested.
As of the date hereof, all of the shares and warrants issued to MarketByte LLC, TGR Group LLC and
Neptune Media, LLC have vested.
All of the shares issued to AviaTech were vested on June 17, 2008 when they were granted.
No dollar value was assigned to these services in the agreements. The aggregate consideration
received for each issuance is being accounted for in accordance with the provisions of SFAS 123R
and EITF 96-18. Since there are no performance criteria (e.g., deliverables) or performance
commitment dates specified in the agreements, the performance completion date is assumed to be the
measurement date for determining the fair value of the equity awards. Accordingly, since the terms
of each award are known, each award is valued at each vesting date until the award is fully vested.
Therefore, it is not feasible to state a total dollar value of the consideration received for the
shares. See Note 9 to our 2008 Consolidated Financial Statements, for additional information.
II - 3
Table of Contents
Shares Issued in Connection with the Second Private Placement
On March 19 and April 20, 2009, we consummated a private offering of Debentures in the aggregate
principal amount of $5,874,000 and Warrants to purchase an aggregate of 22,592,308 shares of our
common stock. The investors collectively purchased the securities for total cash consideration of
$5,874,000.
All of the securities were sold only 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 Rule 506 of Regulation D and/or Regulation S. In
the offering, no general solicitation was made by us or any person acting on our behalf. The
securities were sold pursuant to transfer restrictions, and the certificates for shares of common
stock and warrants sold in the offering contain appropriate legends stating that such securities
are not registered under the Securities Act and may not be offered or sold absent registration or
an exemption from registration.
We paid the placement agent retained in connection with the offering (i) a commission of 10% of the
aggregate subscription amount of the securities sold in the offering, plus (ii) $50,000 for its
fees and expenses, plus (iii) an expense allowance equal to 3% of the aggregate subscription amount
of the securities sold in the offering. In addition, the placement agent (or its assigns) received
warrants to purchase a number of shares of common stock equal to twenty percent (20%) of the
maximum number of shares of common stock underlying the securities sold in the offering. As a
result of the foregoing, the placement agent was paid a commission of $763,620 and received
warrants to purchase 9,036,023 shares our common stock in connection with the offering.
The offering is more fully described in the Company's Form 8-K, filed with the Securities and
Exchange Commission on April 22, 2009, which is incorporated herein by reference.
Item 16. Exhibits.
Exhibit No.
Description
2.1
Agreement and Plan of Merger and Reorganization, dated as of December 18, 2007, by and among
UFood Restaurant Group, Inc., KnowFat Acquisition Corp. and KnowFat Franchise Company, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission on December 26, 2007)
2.2
Certificate of Merger (incorporated by reference to Exhibit 2.2 to the Company's Form 8-K
filed with the Securities and Exchange Commission on December 26, 2007)
3.1(a)
Amended and Restated Articles of Incorporation of UFood Restaurant Group, Inc. (f/k/a Axxent
Media Corporation and UFood Franchise Company) (incorporated by reference to Exhibit 3.1(a)
to the Company's Form 8-K filed with the Securities and Exchange Commission on August 22,
2007)
3.1(b)
Amendment to Articles of Incorporation of UFood Restaurant Group, Inc. (incorporated by
reference to Exhibit 3.1(b) to the Company's Form 8-K filed with the Securities and Exchange
Commission on September 26, 2007)
3.2
Amended and Restated Bylaws of UFood Restaurant Group, Inc. (f/k/a Axxent Media Corporation
and UFood Franchise Company) (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on
July 31, 2006)
5.1*
Opinion of Robinson & Cole, LLP
10.1
Employment Agreement between KnowFat Franchise Company, Inc., and George Naddaff
(incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed with the
Securities and Exchange Commission on December 26, 2007)
10.2
Employment agreement between UFood Restaurant Group, Inc., and Charles A. Cocotas
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-k filed with the
Securities and Exchange Commission on February 19, 2008)
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Table of Contents
Exhibit No.
Description
10.3
Joint Venture Agreement dated as of January 26, 2004 between George Naddaff and Eric Spitz
and Low Fat No Fat Gourmet Café, Inc. (incorporated by reference to Exhibit 10.39 to the
Company's Form S-1/A filed with the Securities and Exchange Commission on September 11,
2008)
10.4
Form of UFood Area Development Agreement (incorporated by reference to Exhibit 10.41 to the
Company's Form S-1/A filed with the Securities and Exchange Commission on November 18, 2008)
10.5
Form of UFood Franchise Agreement (incorporated by reference to Exhibit 10.42 to the
Company's Form S-1/A filed with the Securities and Exchange Commission on November 18, 2008)
10.6
KnowFat Franchise Company, Inc., 2004 Stock Option Plan (incorporated by reference to
Exhibit 10.6 to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 26, 2007)
10.7
UFood Restaurant Group, Inc., 2007 Equity Incentive Plan (incorporated by reference to
Exhibit 10.7 to the Company's Form 10-QSB filed with the Securities and Exchange Commission
on December 13, 2007)
10.8
Form of Stock Option Agreement by and between UFood Restaurant Group, Inc., and participants
under the 2004 Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Company's
Form 8-K filed with the Securities and Exchange Commission on December 26, 2007)
10.9
Form of Stock Option Agreement by and between UFood Restaurant Group, Inc., and participants
under the 2007 Equity Incentive Plan (incorporated by reference to Exhibit 10.9 to the
Company's Form 8-K filed with the Securities and Exchange Commission on December 26, 2007)
10.10
UFood Restaurant Group, Inc., Non-Employee Director Compensation Plan (incorporated by
reference to Exhibit 10.26 to the Company's Form 8-K filed with the Securities and Exchange
Commission on February 19, 2008)
10.11
Services Agreement dated September 6, 2006, between KnowFat Franchise Company, Inc., and
George Foreman Ventures, LLC (incorporated by reference to Exhibit 10.24 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.12
Promotion License Agreement dated September 6, 2006, between KnowFat Franchise Company,
Inc., and George Foreman Ventures, LLC (incorporated by reference to Exhibit 10.25 to the
Company's Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.13
Letter Agreement dated June 12, 2007, between KnowFat Franchise Company Inc, and George
Foreman Ventures, LLC (incorporated by reference to Exhibit 10.26 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.14
Credit Agreement dated as of May 27, 2005, between KFLG Watertown, Inc., and TD Banknorth,
N.A. (incorporated by reference to Exhibit 10.27 to the Company's Form S-1/A filed with the
Securities and Exchange Commission on July 9, 2008)
10.15
Guarantee and Security Agreement, dated as of September 6, 2006, made by KnowFat Of Landmark
Center, Inc., in favor of TD Banknorth, N.A. (incorporated by reference to Exhibit 10.28 to
the Company's Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.16
First Amendment to Credit Agreement dated as of December 31, 2005, between KFLG Watertown,
Inc., and TD Banknorth, N.A. (incorporated by reference to Exhibit 10.29 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.17
Second Amendment to Credit Agreement dated as of May 31, 2006, between KFLG Watertown, Inc.,
and TD Banknorth, N.A. (incorporated by reference to Exhibit 10.30 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.18
Third Amendment to Credit Agreement dated as of July 31, 2006, between KFLG Watertown, Inc.,
and TD Banknorth, N.A. (incorporated by reference to Exhibit 10.31 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
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Table of Contents
Exhibit No.
Description
10.19
Fourth Amendment to Credit Agreement dated as of October 2, 2006, between KFLG Watertown,
Inc., and TD Banknorth, N.A. (incorporated by reference to Exhibit 10.32 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.20
Media Services Agreement dated as of April 8, 2008, between Crosscheck Media Services and
UFood Restaurant Group, Inc. (incorporated by reference to Exhibit 10.33 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.21
Consulting Agreement dated as of April 21, 2008, between New Century Capital Consultants and
UFood Restaurant Group, Inc. (incorporated by reference to Exhibit 10.34 to the Company's
Form S-1/A filed with the Securities and Exchange Commission on July 9, 2008)
10.22
Consulting Agreement dated as of April 21, 2008, between Stara Zagora Kompanija, LTD, UFood
Restaurant Group, Inc., and Neptune Media, LLC (incorporated by reference to Exhibit 10.35
to the Company's Form S-1/A filed with the Securities and Exchange Commission on July 9,
2008)
10.23
Consulting Agreement dated as of April 9, 2008, between MarketByte LLC and UFood Restaurant
Group, Inc. (incorporated by reference to Exhibit 10.36 to the Company's Form S-1/A filed
with the Securities and Exchange Commission on July 9, 2008)
10.24
Consulting Agreement dated as of April 9, 2008, between TGR Group LLC and UFood Restaurant
Group, Inc. (incorporated by reference to Exhibit 10.37 to the Company's Form S-1/A filed
with the Securities and Exchange Commission on July 9, 2008)
10.25
Consulting Agreement dated as of June 16, 2008, between Aviatech and UFood Restaurant
Group, Inc. (incorporated by reference to Exhibit 10.38 to the Company's Form S-1/A filed
with the Securities and Exchange Commission on July 9, 2008)
10.26
Placement Agency Agreement by and between UFood Restaurant Group, Inc., KnowFat Franchise
Company, Inc., and Spencer Trask Ventures, Inc., dated October 17, 2007 (incorporated by
reference to Exhibit 10.21 to the Company's Form 10-KSB filed with the Securities and
Exchange Commission on April 14, 2008)
10.27
Amendment No. 1 to Placement Agency Agreement, dated February 14, 2008, by and between UFood
Restaurant Group, Inc., KnowFat Franchise Company, Inc., and Spencer Trask Ventures, Inc.,
dated October 17, 2007 (incorporated by reference to Exhibit 10.22 to the Company's Form
10-KSB filed with the Securities and Exchange Commission on April 14, 2008)
10.28
Finder's Fee Agreement between UFood Restaurant Group, Inc., and Spencer Trask Ventures,
Inc., dated December 18, 2007 (incorporated by reference to Exhibit 10.25 to the Company's
Form 10-KSB filed with the Securities and Exchange Commission on April 14, 2008)
10.29
Form of Registration Rights Agreement, dated as of December 18, 2007, by and between UFood
Restaurant Group, Inc., and the investors in the Spencer Trask private placement
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission on December 26, 2007)
10.30
Placement Agent Agreement by and between UFood Franchise Company, Inc. and Garden State
Securities Inc., dated as of February 4, 2009, as amended (incorporated by reference to
Exhibit 10.5 to the Company's Form 8-K filed with the Securities and Exchange Commission on
April 22, 2009)
10.31
Securities Purchase Agreement by and between UFood Franchise Company, Inc., and the
Purchasers (as defined therein), dated March 19, 2009 (incorporated by reference to
Exhibit 10.3 to the Company's Form 8-K filed with the Securities and Exchange Commission on
April 22, 2009)
10.32
Securities Purchase Agreement by and between UFood Franchise Company, Inc., and the
Purchasers (as defined therein), dated April 20, 2009 (incorporated by reference to
Exhibit 10.4 to the Company's Form 8-K filed with the Securities and Exchange Commission on
April 22, 2009)
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Exhibit No.
Description
10.33
Registration Rights Agreement, dated as of March 19, 2009, by and between UFood Restaurant
Group, Inc., and the Investors in the Private Placement (incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on
April 22, 2009)
10.34
Registration Rights Agreement, dated as of April 20, 2009, by and between UFood Restaurant
Group, Inc., and the Investors in the Private Placement (incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on
April 22, 2009)
10.35
Subsidiary Guarantee, dated as of March 19, 2009, made by each of the Guarantors (as defined
in the Subsidiary Guarantee) in favor of the Purchasers (as defined in the Subsidiary
Guarantee) (incorporated by reference to Exhibit 10.9 to the Company's Form 8-K filed with
the Securities and Exchange Commission on April 22, 2009)
10.36
Subsidiary Guarantee, dated as of April 20, 2009, made by each of the Guarantors (as defined
in the Subsidiary Guarantee) in favor of the Purchasers (as defined in the Subsidiary
Guarantee) (incorporated by reference to Exhibit 10.10 to the Company's Form 8-K filed with
the Securities and Exchange Commission on April 22, 2009)
10.37
Security Agreement, dated as of March 19, 2009, among UFood Restaurant Group, Inc., all of
the subsidiaries of the Company and the Secured Parties (as defined in the Security
Agreement) (incorporated by reference to Exhibit 10.8 to the Company's Form 8-K filed with
the Securities and Exchange Commission on April 22, 2009)
10.38
Form of Common Stock Purchase Warrant of UFood Restaurant Group, Inc., issued as of March
19, 2009 and April 20, 2009 to Investors in the Company's Private Placement (incorporated by
reference to Exhibit 10.6 to the Company's Form 8-K filed with the Securities and Exchange
Commission on April 22, 2009)
10.39
Form of 8% Senior Secured Convertible Debenture, issued as of March 19, 2009 and April 20,
2009 to Investors in the Company's Private Placement (incorporated by reference to
Exhibit 10.7 to the Company's Form 8-K filed with the Securities and Exchange Commission on
April 22, 2009)
10.40*
Letter Agreement between UFood Restaurant Group, Inc. and Eric Spitz, dated January 22, 2009.
14.1
UFood Restaurant Group, Inc., Code of Ethics (incorporated by reference to Exhibit 14.1 to
the Company's Form 8-K filed with the Securities and Exchange Commission on February 19,
2008)
16.1
Letter to the Securities and Exchange Commission from Manning Elliot LLP, dated March 6,
2008, regarding a change in Certifying Accountant (incorporated by reference to Exhibit 16.1
to the Company's Form 8-K/A filed with the Securities and Exchange Commission on March 11,
2008)
21.1
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Company's
Form 10-KSB filed with the Securities and Exchange Commission on April 14, 2008)
23.1*
Consent of Robinson & Cole, LLP (included in its opinion filed as Exhibit 5.1)
23.2*
Consent of CCR LLP
* Filed herewith
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Item 17. Undertakings.
The undersigned registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this
registration statement:
i.
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
ii.
To reflect in the prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
iii.
To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such
information in the registration statement.
2.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3.
To remove from registration by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
4.
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each
prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other
than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A,
shall be deemed to be part of and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is
part of the registration statement or made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
5.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any
purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a
primary offering of securities of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
i.
Any preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
ii.
Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
iii.
The portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided by
or on behalf of the undersigned registrant; and
iv.
Any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
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6.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused
this registration statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Newton, Massachusetts, on May 1, 2009.
UFood Restaurant Group, Inc.
By:
/s/ George Naddaff
Name:
George Naddaff
Title:
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as amended, this
registration statement was signed by the following persons in the capacities and on the dates
stated:
Signature
Title
Date
/s/ George Naddaff
George Naddaff
Chairman
and Chief Executive Officer
(Principal Executive Officer)
May 1, 2009
/s/ Charles Cocotas
Charles A. Cocotas
President,
Chief Operating Officer
and Director
May 1, 2009
/s/ Irma Norton
Irma Norton
Acting
Chief Financial Officer
(Principal Financial Officer and Principal

Accounting Officer)
May 1, 2009
Mark Giresi
Director
/s/ Robert Grayson
Robert Grayson
Director
May 1, 2009
May 1, 2009
/s/ Jeffrey Ross
Jeffrey Ross
Director