**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





(Mark
      One)





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





For
      the
      fiscal year ended December
      30, 2007




o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      transition period from ____________ to ____________





Commission
      file number 333-136167





**UFOOD
      RESTAURANT GROUP, INC.**


*(Name
      of small business issuer in its charter)*





Nevada
                20-4463582
            
            20-4463582*(State
                or other jurisdiction of*
            
            *(I.R.S.
                Employer**incorporation
                or organization)*
            
            *Identification
                No.)*255
                Washington Street, Suite 100Newton,
                Massachusetts
            
            02458*(Address
                of principal executive offices)*
            **
            *(Zip
                Code)*





(617)
      787-6000


*Issuer’s
      telephone number*





Securities
      registered under Section 12(b) of the Exchange Act:





Title
                of each class
            
            Name
                of each exchange on which registeredNone
            
            None





Securities
      registered under Section 12(g) of the Exchange Act:





None


(Title
      of
      class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act x









Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90
      days. Yes oNo x





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes oNo x





State
      issuer’s revenues for the most recent fiscal year: $4,904,883





The
      aggregate market value of the voting and non-voting Common Stock held by
      non-affiliates was $37,514,790 as of April 10, 2008, based upon the price at
      which the Common Stock was sold.





There
      were 34,022,158 shares of our Common Stock issued and outstanding as of April
      7,
      2008.





Transitional
      Small Business Disclosure Format (Check one):Yes oNo x







**TABLE
      OF CONTENTS**





Page**PART I**Item 1:
            Description
                of Business
            3Item 1A:
            Risk
                Factors
            10Item 2:
            Description
                of Property
            23Item 3:
            Legal
                Proceedings
            23Item 4:
            Submission
                of Matters to a Vote of Security Holders
            24**PART II**Item 5:
            Market
                for Common Equity and Related Stockholder Matters and Small Business
                Issuer Purchases of Equity Securities
            24Item 6:
            Management’s
                Discussion and Analysis or Plan of Operations
            25Item 7:
            Financial
                Statements
            36Item 8:
            Changes
                In and Disagreements with Accountants on Accounting and Financial
                Disclosure
            65Item 8A(T):
            Controls
                and Procedures
            65Item 8B:
            Other
                Information
            66**PART III**Item 9:
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            66Item 10:
            Executive
                Compensation
            68Item 11:
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            72Item 12:
            Certain
                Relationships and Related Transactions, and Director
                Independence
            75Item 13:
            Exhibits
            77Item 14:
            Principal
                Accountant Fees and Services
            80Signatures
            
            81





2





***Forward-Looking
      Statements***





Matters
      discussed in this report 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 within the meaning
      of
      Section 27A of the Securities Act of 1933 and Section 21E of the Securities
      Exchange Act of 1934. 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 report
      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 report 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.





**PART
      I**





**Item 1.**
              **Description
                  of Business.**





**Corporate
      History and Additional Information**





We
      were
      incorporated in the State of Nevada on February 8, 2006 as Axxent Media Corp.
      Prior to December 18, 2007, we were a development stage company as defined
      by
      Statement of Financial Accounting Standard (SFAS) No. 7, *Accounting
      and Reporting by Development Stage Enterprises.* As
      Axxent
      Media Corp., 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.
      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. (UFood or the
      Company).





On
      December 18, 2007, a wholly-owned subsidiaryof the Company merged with and
      into
      KnowFat Franchise Company, Inc. (KnowFat) with KnowFat surviving the merger
      as
      our wholly-owned subsidiary (the Merger). Following the Merger, we 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. KnowFat
      was founded in 2004 to capitalize on the popularity of a chain of fast-casual
      concept restaurants operating under the tradename “Lo Fat Know Fat” in the
      greater Boston area, as well as the growing trend 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 arrived at the conclusion that the KnowFat! name sent the wrong
      marketing message and alienated some people within the mainstream customer
      set.
      As a result, we have decided that future locations will operate under the name
      UFood Grill. To date, we have opened two new original UFood Grills and have
      converted one KnowFat! store into a UFood Grill. The conversion of the remaining
      five KnowFat! Lifestyle Grills will take place over the next several months.
      Management believes that the new brand will embrace the mainstream customer
      better and help extend the concept into a nation-wide chain.




3




As
      of
      April 8, 2008, our operations consisted of five company-operated restaurants
      and
      three franchise-operated locations in Boston, Naples and Sacramento. In
      addition, w e
      have
      sold franchise development agreements for Houston, Miami, San Jose, Sacramento,
      Naples, Chicago and a five state region comprised of Colorado, Utah, Wyoming,
      Montana and Idaho (for a total of 94 franchises).





Prior
      to
      the merger with KnowFat, our headquarters were located in Vancouver, British
      Columbia, Canada. Following the Merger, our headquarters were relocated to
      255
      Washington Street, Suite 100, Newton, Massachusetts 02458. Our telephone number
      is (617) 787-6000.





**Concept
      and Strategy**





UFood
      is
      a franchisor and operator of fast-casual food service restaurants and
      nutritional product retail stores that is capitalizing on the growing trend
      toward healthier living and eating and consumer demands for quick service
      restaurants that offer great-tasting food with healthy attributes, such as
      reduced saturated fat, cholesterol, and processed carbohydrates. UFood uses
      high
      quality ingredients and healthy cooking techniques to ensure that its menu
      items
      taste great and are “better for you.” Guests order at a counter and wait three
      to five minutes for their meals to be prepared. 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. 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 while they are in the restaurants; they
      also
      want to buy products that support an overall healthy lifestyle. Most UFood
      restaurant 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 healthy snacks.





Great
      taste and the overall pleasing dining experience for individual customers remain
      the focus of our mission and concept. We have developed a market segmentation
      model that yielded the following five customer personas:





·
            Healthy
                life style enthusiast (eating healthier fits squarely into their
                way of
                life)


·
            Feel
                Gooder (eating at UFood makes them feel good about
                themselves)


·
            Convenience-only
                (convenience trumps all decision factors when selecting where to
                dine)


·
            Persons
                with restricted diets


·
            Magic
                Bullet (people who seek to have it all at little cost and no
                effort)




Our
      concept and logo is built from the idea of real food for people who care about
      what they eat. Among the numerous dining options out there today, UFood presents
      an option that enables people to make smart choices that fit into their
      lifestyle. By eating smart, people feel better, becoming healthier and happier.
      The UFood logo represents the happy, healthy relationship between the brand
      and
      the customer. The wink within the smiley face symbolizes the fact that UFood
      is
“in the know,” letting the customer in on the awareness that great tasting food
      can also be great for you; which in turn establishes a personal relationship
      and
      dialogue with the customer. With the “Wink” face as the logo, UFood has
      attempted to personalize and humanize the brand.





Approximately
      half of all sales are prepared for take-out, with the guest either calling
      ahead
      or ordering in the restaurant. In addition, nearly 60% of customers frequent
      our
      restaurants for lunch with the remaining 40% comprising the dinner
      market.




4




Most
      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 UFood’s concept has significant growth potential, which UFood hopes to
      realize through a combination of Company and franchisee efforts. Franchising
      will be a key component of UFood’s success. There are currently a total of eight
      restaurant locations including three UFood restaurant locations and five KnowFat
      locations. Six of the locations are in the greater Boston area, with one
      location each in Naples, Florida and Sacramento, California. Through April
      8,
      2008, we had sold seven Master Area Development Agreements and 94 franchise
      licenses throughout the United States.





**Industry
      Background**





The
      United States restaurant industry is benefiting from a long-term trend of
      consumers eating out more frequently, as the restaurant industry’s share of
      consumer food expenditures has increased from 25% in 1955 to 47.5% in 2005.
      According to the National Restaurant Association, restaurant sales are expected
      to reach $537 billion in 2007, an increase of 5% over 2006 sales. The leading
      factors contributing to the recent growth have been the growing population,
      increases in real disposable income per capita, 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 segment 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. These consumer preferences have made
      fast-casual one of the fastest growing sub-segments within the restaurant
      industry, reaching $9 billion in sales in 2005, an annual growth rate of 14%
      over 2004 sales.





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. Approximately 31% of American adults, or 59 million people,
      meet
      the criterion for obesity. In addition, 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. Obese
      children are more likely to be obese as adults, which leads to the 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.





Many
      consumers are actively looking to improve their quality of life and prevent
      health problems. They are changing their diet, increasing exercise and activity,
      and consciously seeking out healthier alternatives to existing main-stream
      restaurants to help improve their overall lifestyles and well-being. Moreover,
      today’s consumers are more knowledgeable than ever before about nutritional
      composition of foods and supplements, and they increasingly demand information
      on what they are consuming, not only from the grocery store, but also from
      restaurants.





According
      to the Nutrition Business Journal, the nutritional products category represents
      a $42 billion business opportunity in the United States. The growth of the
      nutritional supplements market is driven by several factors, including the
      aging
      of the population, increased use of supplements to treat or enhance specific
      physical conditions, and an increasing number of individuals who prioritize
      their health and well-being. Rising healthcare costs and soaring Medicare
      premiums are also causing consumers to seek alternative healthcare therapies,
      including the expanded use of nutritional supplements.




5




**Menu**





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.





Our
      menu
      categories are:





*Entrees*





These
      include sirloin tips, turkey tips, bison patties and chicken breast. Each entrée
      is served with a choice of two sides. The sides include UnFriesTM (baked French
      fries), steamed broccoli, mashed sweet potatoes, black beans, brown rice, and
      steamed vegetables. Entrees are priced between $5.99 and $12.99.





*Fired-Up
      Burgers*





There
      are
      several choices of topping-laden burgers including the Better Bacon Cheeseburger
      which has reduced fat American cheese and turkey bacon and is served on a whole
      grain bun. Each burger option can be prepared with a patty made with any of
      85%
      lean beef, turkey, bison, or vegetarian. Fired-Up Burgers are priced between
      $3.99 and $5.99.





*UnFriesTM*





Nearly
      60% of all orders include UFood’s version of the classic french fries. Unlike
      regular french fries that are typically cooked by deep frying in oil, UnFriesTM
are baked in a convection oven, resulting a crisp wholesome taste that enhances
      the flavor of the potato. UnFriesTM are trans fat-free and have fewer calories
      and lower saturated fat content than regular french fries. UnFries cost $1.59
      and can be bundled with a fountain drink or bottled water and added to any
      meal
      for $2.29.





*Wraps*





Some
      of
      UFood’s best sellers are its Chicken Meatball Marinara and the BBQ Steak Tip and
      Broccoli wraps. Each is served in a natural whole grain white or wheat tortilla.
      Wraps come in two sizes and are priced between $3.99 and $6.99.





*UBowls*





The
      newest addition to the menu, the UBowl, has three options, each of which
      contains either chicken or tofu marinated with light, flavorful sauces and
      served with steamed vegetables over whole grain brown rice. A small UBowl costs
      $4.99 and a large UBowl costs $6.49.





*Signature
      Sandwiches*





UFood’s
      chef has developed several unique, great tasting combinations served on either
      a
      ciabatta bread, a baguette, or on wheat berry bread. Signature sandwiches are
      priced between $3.99 and $5.99.




6




*Specialty
      Salads*





UFood’s
      Bistro Salad has organic field greens, grape tomatoes, feta, walnuts,
      cranberries, and onion, and it is tossed with blueberry-pomegranate vinaigrette.
      Other specialty salads can be topped with chicken breast. Salads are priced
      between $4.99 and $6.99.





*SmuuthiesTM
      and ProlattasTM*





Made
      with
      freshly frozen fruit, juice, and yogurt, these items account for a significant
      component of the menu mix. Prolattas combine a fruit base with a proprietary
      protein blend to create a meal in a cup. Smuuthies are priced at $4.29, and
      the
      protein drinks are $4.99.





The
      nutritional values of each item are prominently listed in a take-away nutrition
      guide displayed on the front counter, which contains information about calories,
      protein, fiber, carbohydrates, good fat, and saturated fat.




**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 to the well-documented expertise and public reputation generated by
      Mr.
      Naddaff and the compelling concept, we have entered into a services agreement
      with George Foreman, a well-known celebrity, to be a spokesperson for the brand
      as well as to assist in generating interest in franchising the UFood concept.
      Mr. Foreman has a successful track record as a spokesperson for various brands,
      including Meineke, Casual Male and the George Foreman Grill, which has sold
      more
      than 80 million grills worldwide. Moreover, Mr. Foreman’s name is strongly
      associated with healthy eating and lifestyle in a way that is attractive to
      both
      men and women. Mr. Foreman also is currently appearing in two major television
      series: *American
      Inventor* and his
      own reality TV show, *Family
      Foreman* .
      Under
      the terms of an exclusive restaurant category agreement, Mr. Foreman will lend
      his name and likeness and assist in marketing and branding efforts of UFood
      restaurants. Mr. Foreman will initially be involved in helping to sell
      franchises. Once UFood has more than 50 stores opened, he will shift his focus
      to generating publicity through personal appearances in UFood restaurants and
      traditional media.





Until
      the
      Boston territory is completely built out, we will allow franchisees to build
      single units in Boston that will co-exist alongside those of other franchisees
      as well as company-owned units. The proximity to our headquarters to 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 will allow for the rapid growth of the Boston market. To date,
      two UFood franchises have been sold in the Boston area.





7


Outside
      of Boston, we plan to award only multi-unit territories to sophisticated,
      experienced owner-operators. These operators will sign Master Area Development
      Agreements wherein they will obtain an exclusive territory in which to build
      UFood outlets. Upon signing these agreements, the operator will pay an upfront
      fee for the rights to the territory, and they will then be bound to a timeline
      over which they must open the units. To date, we have sold 94 franchises to
      seven area developers in the following territories:





· Boston
      area


· Houston


· Naples


· Sacramento


· San
      Jose


· Southern
      Florida


·Chicago


·5
      State Region (MT, CO, UT, WY, ID)





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 the 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 UFood.





We
      will
      also 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 discount loyalty cards with our
      repeat customers. 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, the new company-owned stores will be located in the Northeast (Rhode
      Island and Connecticut), close to our headquarters.





We
      have
      developed three prototype stores that we believe are suitable to differing
      site
      and demographic conditions: 1) 2,000 – 2,500 sq. foot units that feature a
      combination of a restaurant and retail store; 2) 1,500 – 2,000 sq. feet
      units that feature only the restaurant (due to close proximity to other
      health-oriented food stores); and 3) 800 – 1,000 sq. feet units that are
      kiosks in airports, bus and train stations, hospitals and other high-traffic
      locations.





**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 Uniform Franchise Offering
      Circular, 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.




8




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 five 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.





Approximately
      70% of the sports nutrition and vitamin products sold in our nutritional
      supplement business are purchased from two distributors, KCF Nutrition
      Distributors of Milford, Connecticut, and Dynamic Marketing of Cranston, Rhode
      Island.





**Competition**





The
      restaurant industry is intensely competitive. There are many different segments
      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 segment of the restaurant industry.
      In
      addition to competing against other fast-casual restaurants, we compete against
      other segments of the restaurant industry, including fast-food restaurants
      and
      casual dining restaurants. The number, size and strength of competitors within
      each segment 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 “better for you” meal at a foodservice establishment, have several
      choices available to them throughout the country. However, there are no truly
      national chains of health-oriented quick-service restaurants that geographically
      cover the whole United States or even a number of states.





The
      following is a list of “better for you” restaurants that compete in the
      quick-serve environment, mostly on a local level. The largest chain has six
      stores.





· Better
      Burger (NYC)


· Energy
      Kitchen (NYC)


· The
      Pump
      (NYC)


· Topz
      (California)


· Evo’s
      (Florida)


· B.
      Good
      (Boston)


· Soma
      Grill (Arizona)


· Healthy
      Bites (Florida)





Our
      nutritional supplements business competes with a number of outlets that sell
      similar products. Within the specialty retail market, where consumers can find
      knowledgeable staff to recommend supplements, we have three major competitors
      (GNC, Vitamin Shoppe, and Vitamin World) and a wide variety of “mom-and-pop”,
      sports, and specialty nutrition stores.




9




We
      also
      compete with these and many other retail establishments for desirable site
      locations.





**Employees**





As
      of
      December 30, 2007, we employed approximately 50 full-time associates
      (defined as associates who average 35 hours or more per week), of whom 16 were
      employed in general or administrative functions, principally at our headquarters
      in Newton, Massachusetts, and approximately 101 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**





Our
      business is not seasonal.





**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.





**Environmental
      Regulation**





UFood
      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, UFood’s stores have not been the subject of any
      material environmental matters.





**Item 1A.**
              **Risk
                  Factors.**





**Risks
      Related to Our Company and Our Business**




***Lack
      of Operating History.*** **





KnowFat
      was formed approximately four years ago and has a short operating history upon
      which an investor can evaluate its performance. UFood’s 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 the success of UFood 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 UFood operates. KnowFat has had no profits to date, and
      there can be no assurance of future profits. As a result of the expansion stage
      nature of UFood’s business and the fact that it will incur significant expenses
      in connection with its activities, UFood can be expected to sustain operating
      losses for the foreseeable future.




10




***KnowFat
      has not been profitable to date, and expects its operating losses to continue
      for the foreseeable future.***




KnowFat
      has incurred annual operating losses and generated negative cash flows, since
      its inception and has financed its operations principally through equity
      investments and borrowings. At this time, UFood’s ability to generate sufficient
      revenues to fund operations is uncertain. For the fiscal year ended December
      30,
      2007, KnowFat had revenue of $4,094,883 and incurred operating losses of
      $5,007,129. For the fiscal year ended December 31, 2006, KnowFat had revenue
      of
      $3,691,694 and incurred an operating loss of $4,018,849. Our total accumulated
      deficit through December 30, 2007 was $14,842,239.




As
      a
      result of KnowFat’s brief operating history, revenue is difficult to predict
      with certainty. Current and projected expense levels are based largely on
      estimates of future revenue. UFood expects expenses to increase in the future
      as
      UFood expands its sales and marketing, administrative activities and the
      expenses of being a public company. As a result, UFood expects to incur
      additional losses for at least the next 18 months. UFood cannot assure you
      that
      it will be profitable in the future, or generate future revenues. Accordingly,
      the extent of 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 UFood and its ability to affect additional
      financings. The success of the business depends on UFood’s ability to increase
      revenues to offset expenses. If its revenues fall short of projections, UFood’s
      business, financial condition and operating results will be materially adversely
      affected.




***Risk
      Inherent in Expansion of Operations.*** **





UFood
      cannot project with certainty, nor does it make any representations regarding,
      the number of franchises it will be able to sell and what the time period will
      be with respect to its expansion plans. UFood’s failure to sell the projected
      number of franchises would adversely affect UFood’s ability to execute its
      business plan by, among other things, reducing UFood’s revenues and profits and
      preventing UFood from realizing its strategy of being the first major franchiser
      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.





UFood
      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: (i) the availability of suitable sites for new stores;
      (ii)
      the ability of franchisees to negotiate acceptable lease or purchase terms
      for
      new locations, obtain capital required to construct, build-out and operate
      new
      stores, meet construction schedules and hire and train qualified store
      personnel; (iii) the establishment of brand awareness in new markets; and (iv)
      the ability of UFood and its area developers to manage this anticipated
      expansion. Not all of these factors are within the control of UFood or its
      franchisees, and there can be no assurance that UFood will be able to accelerate
      its growth or that UFood will be able to manage the anticipated expansion of
      its
      operations effectively.





UFood
      will depend on contractors and real estate developers to construct its stores.
      Many factors may adversely affect the cost and time associated with the
      development and construction of UFood’s stores, including: (i) labor disputes;
      (ii) shortages of materials or skilled labor; (iii) adverse weather; (iv)
      unforeseen engineering problems; (v) environmental problems; (vi) construction
      or zoning problems; (vii) local government regulations; (viii) modifications
      in
      design; and (ix) other unanticipated increases in costs. Any of these factors
      could give rise to delays or cost overruns which may prevent UFood from
      developing additional stores within its anticipated budgets or time periods
      or
      at all. Any such failure could cause UFood’s business, results of operations and
      financial condition to suffer.




11




***Dependence
      on Franchising Concept.*** **





Because
      royalties from franchisees' sales are a principal component of UFood's revenue
      base, UFood's success is dependent upon the ability of its franchisees to
      promote and capitalize upon UFood’s concept. Even if UFood were successful in
      obtaining the projected number of franchise units, the contemplated expansion
      may entail difficulty in maintaining quality standards, operating controls
      and
      communications, and in attracting qualified 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 UFood’s result of operations.





***Certain
      Factors Affecting the Restaurant Industry.*** **





If
      UFood
      grows as anticipated, UFood and its franchisees may be affected by risks
      inherent in the restaurant industry, including: (i) adverse changes in national,
      regional or local economic or market conditions; (ii) increased costs of labor
      (including increases in the minimum wage); (iii) increased costs of food
      products; (iv) management problems; (v) increases in the number and density
      of
      competitors; (vi) limited alternative uses for properties and equipment; (vii)
      changing consumer tastes, habits and spending priorities; (viii) changing
      demographics; (ix) the cost and availability of insurance coverage; (x)
      uninsured losses; (xi) changes in government regulation; (xii) changing traffic
      patterns; (xiii) weather conditions; and (xiv) local, regional or national
      health and safety matters. UFood and its franchisees may be the subject of
      litigation based on discrimination, personal injury or other claims. UFood
      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 UFood’s 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 UFood.





***Competition.*** **





The
      restaurant industry and the nutritional products business are both intensely
      competitive. There are several healthy-food themed restaurants, most of which
      are small. 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. UFood
      operates in the fast-casual segment of the retail food industry. This segment
      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. In addition, there are a number of nutritional products retail
      stores and franchises across the United States, some of which are very large.
      Some of these restaurants, stores and franchises have substantial financial
      resources, name recognition and reputations. While UFood believes its products
      and services are sufficiently different from those of major restaurants and
      food-service establishments, UFood will 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 UFood’s competitors
      have existed longer and have a more established market presence with
      substantially greater financial, marketing,  personnel
      and other resources than UFood. No assurances can be given that UFood will
      have
      the financial resources, distribution ability, depth of key personnel or
      marketing expertise to compete successfully in these markets.





***Changes
      in Consumer Preferences and Discretionary Spending.*** **





UFood’s
      success depends, in part, upon the popularity of its food products and its
      ability to develop new menu items that appeal to consumers. Shifts in consumer
      preferences away from UFood’s restaurants or cuisine, its inability to develop
      new menu items that appeal to consumers, or changes in its menu that eliminate
      items popular with some consumers could harm UFood’s business. Also, UFood’s
      success depends to a significant extent on discretionary consumer spending,
      which is influenced by general economic conditions and the availability of
      discretionary income. Accordingly, UFood may experience declines in sales during
      economic downturns, which can be caused by various economic factors such as
      high
      gasoline prices, or during periods of uncertainty like that which followed
      the
      terrorist attacks on the United States and the possibility of further terrorist
      attacks. Any material decline in the amount of discretionary spending could
      have
      a material adverse effect on UFood’s sales, results of operations, business and
      financial condition.




12




***Food
      and Supply Costs.*** **





UFood’s
      profitability is dependent on its ability to anticipate and react to changes
      in
      food and supply costs. Various factors beyond UFood’s control, including
      climatic changes and government regulations, may affect food costs.
      Specifically, UFood’s dependence on frequent, timely deliveries of fresh meat
      and produce subject it 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. The failure to react to
      these increases could materially and adversely affect UFood’s business and
      result of operations.





***Geographic
      Concentration.*** **





The
      five
      company-operated stores are all located in Massachusetts. A downturn in the
      regional economy or other significant adverse events in Massachusetts could
      have
      a material adverse effect on UFood’s financial condition.





***Dependence
      on Management and Key Personnel.*** **





During
      the upcoming stages of UFood’s growth, UFood will be entirely dependent upon the
      management skills and expertise of UFood’s management and key personnel,
      including George Naddaff, its current Chairman and Chief Executive Officer,
      and
      Charles A. Cocotas, its current President and Chief Operating Officer. UFood
      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. UFood has 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 or expires, similar insurance may not be available in the
      future on terms acceptable to the Company, and there can be no assurance the
      Company will be able to secure such insurance.





***Government
      Regulation.*** **





UFood
      is
      subject to extensive and varied federal, state and local government regulation,
      including regulations relating to public health and safety and zoning codes.
      UFood operates each of its stores in accordance with standards and procedures
      designed to comply with applicable codes and regulations. However, if UFood
      could not obtain or retain food or other licenses, it would adversely affect
      UFood’s operations. Although UFood has not experienced, and does 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.





California
      and other states and local jurisdictions have enacted laws, rules, regulations
      and ordinances which may apply to the operation of a Company store, including
      those which: (a) establish general standards, specifications and
      requirements for the construction, design and maintenance of the store premises;
      (b) regulate matters affecting the health, safety and welfare of UFood’s
      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; (c) set standards pertaining to
      employee health and safety; (d) set standards and requirements for fire
      safety and general emergency preparedness; (e) regulate the proper use,
      storage and disposal of waste, insecticides, and other hazardous materials;
      (f) 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 (g) establish
      requirements concerning withholdings and employee reporting of taxes on tips.




13




In
      order
      to develop and construct more stores, UFood needs to comply with applicable
      zoning, land use and environmental regulations. Federal and state environmental
      regulations have not had a material effect on UFood’s 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. UFood is also
      required to comply with the accessibility standards mandated by the U.S.
      Americans with Disabilities Act, which generally prohibits discrimination in
      accommodation or employment based on disability. UFood 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, UFood’s current
      expectation is that any such action will not require it to expend substantial
      funds.





UFood
      is
      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. UFood pays
      a
      significant number of its hourly staff at rates consistent with but higher
      than
      the applicable federal or state minimum wage. Accordingly, increases in the
      minimum wage would increase UFood’s labor cost. UFood is also subject to various
      laws and regulations relating to its current and any future franchise
      operations.





UFood
      is
      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.





***Environmental
      Matters.*** ****





UFood
      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. UFood 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 UFood 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, UFood’s stores have not been
      the subject to any material environmental matters, it has not conducted a
      comprehensive environmental review of its properties or operations. UFood has
      not conducted investigations of its properties to identify contamination caused
      by third-party operations; in such instances, the contamination must be
      addressed by the third party. If the relevant third party does not or has not
      addressed the identified contamination properly or completely, then under
      certain environmental laws, UFood could be held liable as an owner and operator
      to address any remaining contamination. Any such liability could be material.
      Further, UFood may not have identified all of the potential environmental
      liabilities at its properties, and any such liabilities could have a material
      adverse effect on its operations or results of operations.




14




***Intellectual
      Property.*** **





UFood
      owns certain common law trademark rights and a number of federal trademark
      and
      service mark registrations. UFood believes that its trademarks and other
      proprietary rights are important to its success and its competitive position.
      UFood therefore devotes appropriate resources to the protection of its
      trademarks and proprietary rights. The protective actions that UFood takes,
      however, may not be enough to prevent unauthorized usage or imitation by others,
      which may cause UFood to incur significant litigations costs and could harm
      its
      image or its brand or competitive position. To date, UFood has not been notified
      that its trademarks or menu offerings infringe upon the proprietary rights
      of
      third parties, but UFood cannot assure you that third parties will not claim
      infringement by it. Any such claim, whether or not it has merit, could be
      time-consuming, result in costly litigation, cause product delays or require
      UFood to enter into royalty or licensing agreements. As a result, any such
      claim
      could have a material adverse effect on UFood’s business, results of operations
      and financial condition. As a franchisor, UFood will grant its franchisees
      a
      limited license to use its registered service marks. The general public could
      incorrectly identify UFood’s franchisees as controlled by UFood. In the event
      that a court determines the franchisee is not adequately identified as a
      franchisee, UFood could be held liable for the misidentified franchisee’s debts,
      obligations and liabilities.





***The
      planned rapid increase in the number of stores may make future results
      unpredictable.***





UFood
      plans to increase the number of its stores significantly 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. UFood’s 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 food and willingness to pay its prices (which reflect often
      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, UFood may find that the UFood concept
      has limited or no appeal to customers in new markets or it 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 UFood
      is
      successful, UFood’s average store sales may not increase at historical
      rates.





15


***Sales
      growth depends primarily on our ability to open new stores and is subject to
      many unpredictable factors.***





UFood
      may
      not be able to open new stores as quickly as planned. UFood has experienced
      delays in opening some stores and that could happen again. Delays or failures
      in
      opening new stores could materially and adversely affect UFood’s growth strategy
      and expected results. As UFood operates more stores and sells more franchises,
      the rate of expansion relative to the size of the store base will decline.
      In
      addition, one of the biggest challenges is locating and securing an adequate
      supply of suitable new store sites. Competition for those sites in target
      markets is intense, and lease costs are increasing (particularly for urban
      locations). The Company’s ability to open new stores also depends on other
      factors, including:





·
            obtaining
                financing and negotiating leases with acceptable
                terms;





·
            hiring
                and training qualified operating personnel in the local
                market;





·
            managing
                construction and development costs of new stores at affordable levels,
                particularly in competitive
                markets;





·
            the
                availability of construction materials and
                labor;





·
            the
                availability of, and ability to obtain, adequate supplies of ingredients
                that meet UFood’s quality standards;
                and





·
            securing
                required governmental approvals (including construction, parking
                and other
                permits) in a timely manner.





***New
      stores, once opened, may not be profitable, and the increases in average store
      sales and company store sales that UFood has experienced in the past may not
      be
      indicative of future results.***





UFood’s
      ability to operate new stores profitably and increase average store sales and
      company store sales will depend on many factors, some of which are beyond its
      control, including:





·
            initial
                sales performance of new stores;





·
            competition,
                either from competitors in the restaurant industry or UFood’s 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 UFood pays for the ingredients and other supplies;
                and





·
            changes
                in government regulation.





If
      UFood
      fails to open stores as quickly as planned, or if new stores do not perform
      as
      planned, UFood’s business and future prospects could be harmed. In addition,
      changes in the average store sales or company store sales could cause operating
      results to vary adversely from expectations.




16




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





Some
      of
      the new stores are planned for markets where UFood has little or no operating
      experience. Those markets may have different competitive conditions, consumer
      tastes and discretionary spending patterns than UFood’s 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 UFood
      may need to build brand awareness in that market through greater investments
      in
      advertising and promotional activity than UFood originally planned. UFood 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.





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





UFood’s
      success depends in large part on its ability to persuade customers that food
      made with higher-quality ingredients is worth the prices they will pay at stores
      relative to prices offered by some competitors, particularly those in the fast
      food segment. That could require UFood to change its pricing, advertising or
      promotional strategies, which could materially and adversely affect its results
      or the brand identity UFood has 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, 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 UFood chooses to pass any higher ingredient costs along to
      consumers. As a result, UFood’s sales may decline. Instances of food-borne
      illnesses, real or perceived, whether at UFood restaurants or those of its
      competitors, could also result in negative publicity about UFood or the
      restaurant industry, which could adversely affect sales. If UFood reacts to
      negative publicity by changing its menu or other key aspects of UFood
      restaurants, UFood 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 its stores profitable. If customers become ill from food-borne illnesses,
      UFood could be forced to temporarily close restaurants.





***UFood’s
      franchisees could take actions that harm its reputation and reduce its royalty
      revenues.***





UFood
      does not exercise control over the day-to-day operations of its franchised
      stores. While UFood tries to ensure that franchised stores meet the same
      operating standards demanded of its company-operated stores, one or more
      franchised stores may not do so. Any operational shortcomings of its franchised
      stores are likely to be attributed to its system-wide operations and could
      adversely affect UFood’s reputation and have a direct negative impact on the
      royalty revenues received from those stores.





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





Customers
      may occasionally file complaints or lawsuits against UFood alleging that it
      is
      responsible for some illness or injury they suffered at or after a visit to
      a
      restaurant, or that UFood has problems with food quality or operations. UFood
      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. UFood 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 segments of the industry) may harm
      UFood’s reputation or prospects and adversely affect its results.




17




***It
      is highly likely that the Company will need to raise additional capital to
      meet
      its business requirements in the future and such capital raising may be costly
      or difficult to obtain and could dilute current stockholders’ ownership
      interests.***





Additional
      capital in the future may not be available on reasonable terms or at all. The
      raising of additional capital may dilute the Company’s current stockholders’
ownership interests. The Company’s income from operations is unlikely to be
      sufficient to achieve its business plan. The Company may need to raise
      additional funds through public or private debt or equity financings to meet
      various objectives including, but not limited to:




·
            pursuing
                growth opportunities, including more rapid expansion;




·
            acquiring
                complementary businesses;




·
            making
                capital improvements to improve our infrastructure;




·
            hiring
                qualified management and key employees;




·
            research
                and development of new products;




·
            responding
                to competitive pressures;




·
            complying
                with regulatory requirements such as licensing and registration;
                and




·
            maintaining
                compliance with applicable laws.




Any
      additional capital raised through the sale of equity or equity backed securities
      may dilute current stockholders’ ownership percentages and could also result in
      a decrease in the fair market value of the Company’s equity securities because
      its assets would be owned by a larger pool of outstanding equity. The terms
      of
      those securities issued by the Company in future capital transactions may be
      more favorable to new investors, and may include preferences, superior voting
      rights and the issuance of warrants or other derivative securities, which may
      have a further dilutive effect.




Furthermore,
      any additional debt or equity financing that the Company may need may not be
      available on terms favorable to the Company, or at all. If the Company is unable
      to obtain required additional capital, it may have to curtail its growth plans
      or cut back on existing business and, further, the Company may not be able
      to
      continue operating if its does not generate sufficient revenues from operations
      needed to stay in business.




The
      Company 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. The Company
      may also be required to recognize non-cash expenses in connection with certain
      securities it issues, such as convertible notes and warrants, which may
      adversely impact the Company’s financial condition.




18


***Bank
      Debt.***




KFLG
      Watertown, Inc.(KFLG), a wholly-owned subsidiary of KnowFat, is a party to
      a
      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 UFood, KnowFat of Downtown Crossing, Inc. and KnowFat of Landmark
      Center, Inc. and 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, UFood, KnowFat of Downtown Crossing,
      Inc. and KnowFat of Landmark Center, Inc. Such foreclosure could be costly
      and
      time consuming to UFood and its 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 UFood to obtain additional debt or equity financing
      in the future.




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




The
      Company is a public reporting company in the United States, and accordingly,
      subject to the information and reporting requirements of 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 its expenses to be higher than they would be if KnowFat
      remained privately-held. In addition, the Company will incur substantial
      expenses in connection with the preparation of a registration statement relating
      to the registration of resales of Common Stock recently sold in a private
      offering of the Company’s securities to accredited investors.




***Applicable
      regulatory requirements, including those contained in and issued under the
      Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain
      or
      attract qualified officers and directors, which could adversely affect the
      management of its business and its ability to obtain or retain listing of its
      Common Stock.***




The
      Company 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 officers.
      The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series
      of new 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. The
      Company may have difficulty attracting and retaining directors with the
      requisite qualifications. If the Company is unable to attract and retain
      qualified officers and directors, the management of its business and its ability
      to obtain or retain listing of our shares of Common Stock on any stock exchange
      (assuming the Company elects to seek and are successful in obtaining such
      listing) could be adversely affected.




***The
      Company is a holding company that depends on cash flow from its wholly-owned
      subsidiary, to meet its obligations.***




The
      Company is a holding company with no material assets other than the stock of
      its
      wholly-owned subsidiaries. Accordingly, all of its operations will be conducted
      by KnowFat, its wholly-owned subsidiary (and the wholly-owned subsidiaries
      of
      KnowFat). The Company currently expects that the earnings and cash flow of
      its
      subsidiary will primarily be retained and used by it in its operations,
      including servicing any debt obligations it may have now or in the future.
      Accordingly, although the Company does not anticipate paying any dividends
      in
      the foreseeable future, its subsidiary may not be able to generate sufficient
      cash flow to distribute funds to the Company in order to allow the Company
      to
      pay future dividends on, or make any distributions with respect to, our Common
      Stock.




19


***We
      have reported a material weakness in our internal control over financial
      reporting as of December 30, 2007. 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 the Company’s financial
      reporting and this may decrease the trading price of its
      stock.***




Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with this Annual
      Report on Form 10-KSB, we are required to furnish a report by management on
      our
      internal controls over financial reporting. Such report contains, among other
      matters, an assessment of the effectiveness of our internal control over
      financial reporting. Our management’s assessment of the effectiveness of our
      internal control over financial reporting as of December 30, 2007 resulted
      in a
      determination that the Company had a material weakness related to its control
      environment because it did not have sufficient personnel or time to complete
      the
      assessment of its internal controls following the merger on December 18,
      2007.




The
      Company must maintain effective internal controls to provide reliable financial
      reports on a timely basis and detect fraud. The Company has been assessing
      its
      internal controls to identify areas that need improvement. It is in the process
      of implementing changes to internal controls, but has not yet completed
      implementing these changes. Failure to implement these changes to the Company’s
      internal controls or any others that it identifies as necessary to maintain
      an
      effective system of internal controls could harm its operating results and
      cause
      investors to lose confidence in the Company’s reported financial information.
      Any such loss of confidence would have a negative effect on the trading price
      of
      the Company’s stock.




***We
      may be exposed to potential risks resulting from new requirements under Section
      404 of the Sarbanes-Oxley Act of 2002.***




In
      addition to the report by management on our internal control over financial
      reporting described above, for our fiscal year ending December 28, 2008 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 of 2002 (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
      the Company’s independent registered public accounting firm will be able to
      issue the attestation required by Section 404. In the event we identify
      significant deficiencies or 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 the Company’s Common
      Stock.***




There
      currently is a limited public market for the Company’s Common Stock. Further,
      although the Common Stock is currently quoted on the OTC Bulletin Board, trading
      of its 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 following the Merger, 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 the Company’s ability to raise additional
      capital.




20





***The
      Company cannot assure you that the Common Stock will become liquid or that
      it
      will be listed on a securities exchange.***




Until
      the
      Common Stock is listed on an exchange, the Company expects its 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 the Company fails to
      meet
      the criteria set forth in SEC regulations, various requirements would be imposed
      by law on broker-dealers who sell the Company’s 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 the Company to raise additional capital in the
      future.




***Applicable
      SEC rules governing the trading of “penny stocks” limits the trading and
      liquidity of the Common Stock which may affect the trading price of the Common
      Stock.***





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





***The
      price of the Common Stock may become volatile, which could lead to losses by
      investors and costly securities litigation.***





The
      trading price of the Common Stock is likely to be highly volatile and could
      fluctuate in response to factors such as:





·
            actual
                or anticipated variations in the Company’s operating
                results;




·
            announcements
                of developments by the Company or its
                competitors;




·
            announcements
                by the Company or its competitors of significant acquisitions, strategic
                partnerships, joint ventures or capital
                commitments;




·
            adoption
                of new accounting standards affecting the Company’s
                industry;




·
            additions
                or departures of key personnel;




·
            introduction
                of new products by the Company or its
                competitors;




·
            sales
                of the Company’s Common Stock or other securities in the open market;
                and




·
            other
                events or factors, many of which are beyond the Company’s
                control.




21




The
      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 the Company, whether or not successful, could
      result in substantial costs and diversion of its management’s attention and
      resources, which could harm the Company’s business and financial
      condition.




***The
      Company does 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 the Common Stock, and the Company
      does not anticipate such a declaration or payment for the foreseeable future.
      The Company expects to use future earnings, if any, to fund business growth.
      Therefore, stockholders will not receive any funds absent a sale of their
      shares. The Company cannot assure stockholders of a positive return on their
      investment when they sell their shares, nor can it assure that stockholders
      will
      not lose the entire amount of their investment.




***Securities
      analysts may not initiate coverage or continue to cover the Common Stock, and
      this may have a negative impact on its market price.***




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





In
      the
      future, the Company may issue its authorized but previously unissued equity
      securities, resulting in the dilution of the ownership interests of its present
      stockholders and the purchasers of Common Stock purchased in the Offering.
      The
      Company is 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 its Board of Directors. As of December 30, 2007,
      there were 29,241,158 shares of Common Stock outstanding and 10,101,106 shares
      subject to outstanding options and warrants. The Company may also issue
      additional shares of its Common Stock or other securities that are convertible
      into or exercisable for Common Stock in connection with hiring or retaining
      employees, future acquisitions, future sales of its securities for capital
      raising purposes, or for other business purposes. The future issuance of any
      such additional shares of Common Stock may create downward pressure on the
      trading price of the Common Stock. There can be no assurance that the Company
      will not be required to issue additional shares, warrants or other convertible
      securities in the future in conjunction with any capital raising efforts,
      including at a price (or exercise prices) below the price at which shares of
      the
      Common Stock is currently traded on the OTC Bulletin Board.


22





***Investors
      may not be able to sell shares in the amounts or at the times they might
      otherwise wish to do so if the SEC does not declare a registration statement
      relating to our recent securities offering effective.***




In
      connection with the recent sale of $10,941,000 of Units (defined below) in
      a
      private offering (the Offering) to accredited investors, the Company and the
      investors entered into a Registration Rights Agreement at the time of the
      closing. Under the Registration Rights Agreement, the Company is obligated
      to
      file a registration statement within 90 days of the date of the final closing
      of
      the Offering, to become effective in an additional 90 days from the filing
      date,
      registering for resale all shares of Common Stock issued in the Offering. The
      Company is obligated to pay monetary penalties equal to one and one-quarter
      percent (1.25%) of the gross proceeds of the Offering 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 proceeds of the Offering. Although the Company believes that it and
      its advisors will be able to take all steps necessary to permit the SEC to
      declare the registration statement effective, it is possible that the SEC may,
      by application of policies or procedures, delay the effectiveness of the
      registration statement or make it impractical for the Company to respond to
      the
      SEC in a manner which permits it to declare the registration statement
      effective.




***When
      the Registration Statement becomes effective, there will be a significant number
      of shares of Common Stock eligible for sale, which could depress the market
      price of such shares.***




Following
      the effective date of the registration statement required to be filed by the
      Registration Rights Agreement, a large number of shares of Common Stock will
      be
      available for sale in the public market, which could harm the market price
      of
      the stock. Further, shares may be offered from time to time in the open market
      pursuant to Rule 144, and these sales may have a depressive effect as well.
      In general, a person who has held restricted shares for a period of one year
      may, upon filing a notification with the SEC on Form 144, sell Common Stock
      into the market in an amount equal to the greater of one percent of the
      outstanding shares or the average weekly trading volume during the last four
      weeks prior to such sale.




**Item 2.**
            **Description
                of Property.**





Our
      corporate headquarters, consisting of approximately 3,278 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 30, 2007, future minimum payments under non-cancelable leases are
      as
      follows:




Year
                ending December 31,2008
            
            $
            727,0002009
            
            
            632,0002010
            
            
            602,0002011
            
            
            616,0002012
            
            
            633,000Thereafter
            
            
            1,270,000$
            4,480,000





**Item 3.**
            **Legal
                Proceedings.**





In
      November 2007, the Company received a letter from counsel to a former franchisee
      regarding potential claims against the Company and certain of its officers
      and
      directors. The letter also states a desire for the parties to reach a
      mutually-satisfactory negotiated resolution to the dispute. A draft demand
      for
      arbitration, which has not been filed, was included with the letter and claims
      that the Company and certain of its officers and directors made false and
      misleading statements (and material omissions of facts) in connection with
      the
      sale of the franchise in violation of the Minnesota Franchise Act. The draft
      demand seeks damages in the approximate amount of $2,000,000. The Company
      believes that it complied with all applicable franchise rules and regulations
      in
      its dealings with the former franchisee and intends to vigorously defend any
      claims that may be brought.


23





KFLG
      Watertown, Inc. (KFLG), a wholly-owned subsidiary of the Company, received
      a
      Default Letter (the Default Letter) on April 2, 2008, 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 Letter claims that KFLG
      is
      in default of its obligations under the Sublease Agreement due to, among other
      things, KFLG’s failure to timely make certain subtenant improvements. The
      Default Letter demands that KFLG pay $104,000 in liquidated damages to BAAB
      and
      pay legal fees and expenses of BAAB in the amount of $28,822. This matter is
      only in the claim stage and no legal proceeding has been commenced. The Company
      believes it made the subtenant improvements on a timely basis and has denied
      BAAB’s allegations that it is in default of the Sublease Agreement. The Company
      has been in contact with representatives of BAAB to try and resolve this matter.
      In the event the Company is unable to resolve this matter, BAAB has indicated
      it
      will seek to enforce any and all of its rights and remedies available under
      the
      Sublease Agreement including the possible termination of the
      Sublease.





In
      connection with the build-out of the Premises at Logan International Airport,
      demands have been made, legal proceedings have been commenced and liens have
      been filed against the Company’s subsidiaries and their properties by certain
      subcontractors that performed work on the Premises in connection with payments
      for services allegedly past due. The general contractor on the project is
      responsible for the amounts claimed by the subcontractors. The Company has
      paid
      the general contractor and intends to assert claims against the general
      contractor for, among other things, the amounts claimed by the
      subcontractors.





The
      Company is subject to legal proceedings and claims which arise in the normal
      course of business. 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.




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





None.




**PART
      II**




**Item
              5.**
            **Market
                for Common Equity and Related Stockholder Matters and Small Business
                Issuer Purchases of Equity
                Securities.**





**Market
      Information**




The
      Common Stock is currently available for trading in the over-the-counter market
      and is quoted on the OTC Bulletin Board under the symbol “UFFC.OB”. The
      following table sets forth, the quoted high and low closing bid quotations
      for
      our common stock since trading began in September 2007, as reported by NASDAQ
      in
      the Info Quotes section of its web site located at
www.nasdaq.com . The bid
      prices reflect inter-dealer quotations, do not include retail markups, markdowns
      or commissions and may not represent actual transactions.


24





**Period**
            
            **High Bid**
            
            **Low Bid**September
                2007
            
            $
            1.27
            
            $
            0.41October
                2007
            
            $
            1.87
            
            $
            0.52November
                2007
            
            $
            1.55
            
            $
            0.98December
                2007
            
            $
            1.51
            
            $
            1.02




**Holders**




We
      have
      approximately 400 record holders of our Common Stock as of March 31,
      2008.




**Dividends**




The
      Company has never declared or paid dividends. 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. The loan agreement with our senior lender prohibits the
      payment of cash dividends.





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





Information
      regarding securities authorized for issuance under equity compensation plans
      is
      presented in Note 11, *Stock-Based
      Compensation,* of
      the
      Notes to our 2007 Consolidated Financial Statements included elsewhere in this
      Annual Report.





**Recent
      Sales of Unregistered Securities; Use of Proceeds from Registered
      Securities.**





Information
      regarding recent sales of unregistered securities has been included in the
      Current Report on Form 8-K filed on December 26, 2007, which is incorporated
      herein by reference.




**Item 6.**
            **Management’s
                Discussion and Analysis of Plan 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





We
      were
      incorporated in the State of Nevada on February 8, 2006 as Axxent Media Corp.
      Prior to December 18, 2007, we were a development stage company as defined
      by
      Statement of Financial Accounting Standard (SFAS) No. 7, *Accounting
      and Reporting by Development Stage Enterprises.* As
      Axxent
      Media Corp., 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.
      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. (UFood or the
      Company).


25




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 as a franchisor and operator of fast-casual food service restaurants
      that capitalize on consumer demands for great tasting food with healthy
      attributes. KnowFat
      was founded in 2004 to capitalize on the popularity of a chain of fast-casual
      concept restaurants operating under the tradename “Lo Fat Know Fat” in the
      greater Boston area, as well as the growing trend 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 arrived at the conclusion that the KnowFat! name sent the wrong
      marketing message and alienated some people within the mainstream customer
      set.
      As a result, we have decided that future locations will operate under the name
      UFood Grill. Management believes that the new brand will embrace the mainstream
      customer better and help extend the concept into a nation-wide
      chain.





As
      of
      December 30, 2007, our operations consisted of five company-operated restaurants
      and three franchise-operated locations in Boston, Naples and Sacramento. One
      of
      our company-operated restaurants and two of our franchise-operated locations
      operate under the name UFood Grill. The conversion of the remaining five
      KnowFat! Lifestyle Grills is expected to take place over the next several
      months. As of April 8, 2008, w e
      had
      sold seven Master Area Development Agreements and 94 franchise licenses
      throughout the United States.





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) to deliver a great 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 and average weekly 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. 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 include sales of hot and cold
      prepared food in a high-quality, 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 years ended December
      30, 2007 and December 31, 2006 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.


26




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.





*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
      use
      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. As a result of adopting SFAS No. 123R,
      our
      net income for the years ended December 30, 2007 and December 31, 2006 was
      lower
      by $249,292 and $23,464, respectively, than if we had continued to account
      for
      stock-based compensation under the previous method.


27




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,**
              **2007**
            
            **December 31,**
              **2006**Revenues:Store
                sales
            
            
            92.6
            %
            
            88.7
            %Franchise
                royalties and fees
            
            
            6.7
            
            
            8.7Other
                revenue
            
            
            0.7
            
            
            2.6100.0
            %
            
            100.0
            %Costs
                and expenses:Store
                operating expenses (1):Cost
                of goods sold, food and paper products
            
            
            44.3
            %
            
            44.9
            %Labor
            
            
            30.9
            
            
            31.9Occupancy
            
            
            9.0
            
            
            9.4Other
                store operating expenses
            
            
            17.5
            
            
            17.2General
                and administrative expenses
            
            
            71.8
            
            
            96.3Advertising,
                marketing and promotion expenses
            
            
            13.7
            
            
            14.9Depreciation
                and amortization
            
            
            8.8
            
            
            6.0Loss
                on disposal of assets
            
            
            13.6
            
            
            —Total
                costs and expenses
            
            
            202.1
            
            
            208.9Operating
                loss
            
            
            (102.1
            )
            
            (108.9
            )Other
                income (expense):Interest
                income
            
            
            0.3
            
            
            1.3Interest
                expense
            
            
            (7.9
            )
            
            (4.0
            )Other
                expense, net
            
            
            (1.5
            )
            
            (0.2
            )Other
                income (expense), net
            
            
            (9.1
            )
            
            (2.9
            )Loss
                before income taxes
            
            
            (111.2
            )
            
            (111.8
            )Income
                taxes
            
            
            —
            
            
            —Net
                loss
            
            
            (111.2
            )%
            
            (111.8
            )%





(1) As
      a
      percentage of store sales.




28





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,**
              **2007**
            
            **December
                31**
              **2006**Company-owned
                locations:Locations
                at the beginning of the year
            
            
            5
            
            
            3Locations
                opened
            
            
            1
            
            
            1Locations
                closed
            
            
            (1
            )
            
            —Locations
                sold
            
            
            (1
            )
            
            —Locations
                transferred
            
            
            —
            
            
            1Locations
                at the end of the year
            
            
            4
            
            
            5Franchise-operated
                locations:Locations
                at the beginning of the year
            
            
            4
            
            
            1Locations
                opened
            
            
            2
            
            
            4Locations
                closed
            
            
            (2
            )
            
            —Locations
                sold
            
            
            —
            
            
            —Locations
                transferred
            
            
            —
            
            
            (1
            )Locations
                at the end of the year
            
            
            4
            
            
            4System-wide
                locationsLocations
                at the beginning of the year
            
            
            9
            
            
            4Locations
                opened
            
            
            3
            
            
            5Locations
                closed
            
            
            (3
            )Locations
                sold
            
            
            (1
            )Locations
                transferred
            
            
            —
            
            
            —Locations
                at the end of the year
            
            
            8
            
            
            9




**Fiscal
      Year Ended December 30, 2007 Compared to Fiscal Year Ended December 31,
      2006**





**General**





For
      the
      year ended December 30, 2007, our comparable store sales for Company owned
      stores decreased 2.7%. System-wide comparable store sales decreased by the
      same
      percentage because there was no franchise store data to compare since all
      franchise-operated stores had been open less than a year. Comparable store
      sales
      are based on sales for stores that have been in operation for the entire period
      of comparison. Franchise-operated 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.





Average
      weekly sales for Company-owned stores increased $2,439, or 12.7%, to $21,582
      for
      the year ended December 30, 2007 from $19,143 for the year ended December 31,
      2006. The increase in average weekly sales for Company-owned stores was
      primarily due to the opening of one new Company-owned store and the acquisition
      of one franchise-operated store during the fourth quarter of 2006 and one new
      Company-owned store that opened in December 2007.





Average
      weekly sales for franchise-operated stores decreased $4,574, or 24.3%, to
      $14,284 for the year ended December 30, 2007 from $18,858 for the year ended
      December 31, 2006. The decrease in average weekly sales for franchise-operated
      stores was primarily due to a change in the status of one store from a
      franchise-operated store to a Company-owned store during the fourth quarter
      of
      2006.


29




System-wide,
      average weekly sales decreased $1,265, or 6.7%, to $17,756 for the year ended
      December 30, 2007 from $19,022 for the year ended December 31, 2006.





**Results
      of Operations**





*Revenues*





Our
      total
      revenues for the year ended December 30, 2007 increased $1,213,189, or 32.9%,
      to
      $4,904,883 from $3,691,694 for the year ended December 31, 2006. The growth
      in
      total revenues for the year ended December 30, 2007, as compared to the prior
      year was primarily due to the addition of one new Company-owned store opened
      during the fourth quarter of 2006 and a change in the status of one store from
      a
      franchise-operated store to a Company-owned store during the fourth quarter
      of
      2006 partially offset by a decrease in sales at a Company-owned store that
      was
      closed in April 2007.





The
      system-wide average weekly sales per store and the related number of operating
      weeks for the year ended December 30, 2007 and December 31, 2006 were as
      follows:





Year
                Ended
            
            Percentage
              ChangeDec.
              30,
              2007
            
            Dec.
              31,
              2006System-wide
                average weekly sales
            
            $
            17,756
            
            $
            19,022
            
            
            (6.7
            )%System-wide
                number of operating weeks
            
            
            433
            
            
            298
            
            
            45.3
            %





Average
      weekly sales is calculated by dividing total net sales by operating weeks.
      Accordingly, the year over year change reflects sales for all locations, whereas
      comparable store sales exclude closed locations and are based on sales for
      locations that have been in operation and owned throughout the period of
      comparison.





Sales
      at
      Company-owned stores for the year ended December 30, 2007 increased by
      $1,270,091, or 38.8%, to $4,543,194 from $3,273,103 for the year ended December
      31, 2006. As a percentage of total revenues, sales at Company-owned stores
      increased to 92.6% of total revenues for the year ended December 30, 2007 from
      88.7% for the year ended December 31, 2006. The increase in sales at
      Company-owned stores for the year ended December 30, 2007 was primarily due
      to
      the opening of one new store and the acquisition of a franchise-operated store
      during the fourth quarter of 2006 partially offset by a decrease in sales of
      a
      Company-owned store closed in April 2007 and a Company-owned store sold in
      September 2007. Average weekly sales for Company-owned stores and the related
      number of operating weeks for the years ended December 30, 2007 and December
      31,
      2006 were as follows:





Year
                Ended
            
            Percentage
              ChangeDec.
              30,
              2007
            
            Dec.
              31,
              2006Company-owned
                stores average weekly sales
            
            $
            21,582
            
            $
            19,143
            
            
            12.7
            %Company-owned
                stores number of operating weeks
            
            
            206
            
            
            171
            
            
            20.5
            %




30





During
      the year ended December 30, 2007, franchise royalties and fees increased $7,168,
      or 2.2% to $326,733 from $319,565 for the year ended December 31, 2006. The
      increase in franchise royalties and fees in 2007 was primarily due to an
      increase in royalties earned on sales at three franchise-operated locations
      that
      opened after December 31, 2006, higher sales at the three franchise-operated
      locations open at December 31, 2006 and higher advertising fund contributions
      partially offset by a decrease in franchise fees.





During
      the year ended December 30, 2007, franchise royalties increased $31,087, or
      28.0%, to $142,233 from $111,146 for the year ended December 31, 2006. Franchise
      fees for the year ended December 30, 2007 decreased by $70,000, or 50.0%, to
      $70,000 from $140,000 for the year ended December 31, 2006. Contributions to
      the
      advertising fund increased by $46,081, or 67.4%, to $114,500 for the year ended
      December 30, 2007 from $68,419for the year ended December 31, 2006.





Average
      weekly sales for franchise-operated stores and the related number of operating
      weeks for the year ended December 30, 2007 and December 31, 2006 were as
      follows:





Year
                Ended
            
            Percentage
              ChangeDec.
              30,
              2007
            
            Dec.
              31,
              2006Franchise-operated
                stores average weekly sales
            
            $
            14,284
            
            $
            18,858
            
            
            (24.3
            )%Franchise-operated
                stores number of operating weeks
            
            
            227
            
            
            127
            
            
            78.7
            %





At
      December 30, 2007, four franchise-operated stores were open and operating and
      commitments to open an additional 64 franchise-operated locations had been
      received. We expect the 64 additional franchise-operated locations to open
      according to the timetable set forth in agreements we have with various area
      developers, with the majority of the locations opening in the next four or
      five
      years. Our standard franchise agreement requires a franchisee 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 franchise agreement 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
      goods sold, food and paper products for the year ended December 30, 2007
      increased by $541,545, or 36.8%, to $2,011,229 from $1,469,684 for the year
      ended December 31, 2006. The increase in cost of goods sold, food and paper
      products was primarily due to an increase in the number of weeks that
      Company-owned stores operated in 2007 compared with 2006. As a percentage of
      store sales, cost of goods sold, food and paper products decreased to 44.3%
      of
      store sales for the year ended December 30, 2007 from 44.9% of store sales
      for
      the year ended December 31, 2006. The decrease in cost of goods sold, food
      and
      paper products as a percentage of store sales was primarily due to operational
      improvements such as portion control, loss prevention and reduced waste
      partially offset by higher meat prices.





Labor
      expense for the year ended December 30, 2007 increased by $362,348, or 34.7%,
      to
      $1,405,662 from $1,043,314 for the year ended December 31, 2006. 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 the
      increase in the number of weeks that Company-owned stores operated in 2007
      compared with 2006. As a percentage of store sales, labor expense decreased
      to
      30.9% of store sales for the year ended December 30, 2007 from 31.9% of store
      sales for the year ended December 31, 2006. The decrease in labor expense as
      a
      percentage of store sales for the year ended December 30, 2007 was primarily
      due
      to increased labor efficiencies resulting from changes in our kitchen
      layout.


31




Occupancy
      costs for the year ended December 30, 2007 increased by $100,904, or 32.6%,
      to
      $410,061 from $309,157 for the year ended December 31, 2006. The increase in
      occupancy costs was primarily attributable to new Company-owned stores and
      the
      increase in the number of weeks that Company-owned stores operated in 2007
      compared with 2006. As a percentage of store sales, occupancy costs decreased
      to
      9.0% of store sales for the year ended December 30, 2007 from 9.4% of store
      sales for the year ended December 31, 2006. The decrease in occupancy costs
      as a
      percentage of store sales was primarily due to the decrease in occupancy costs
      and increase in store sales.





Other
      store operating expenses for the year ended December 30, 2007 increased by
      $235,454, or 41.9%, to $796,804 from $561,350 for the year ended December 31,
      2006. The increase in other store operating expenses was primarily due to the
      increase in the number of weeks that Company-owned stores operated in 2007
      compared with 2006. As a percentage of store sales, other store operating
      expenses increased slightly to 17.5% of store sales during the year ended
      December 30, 2007 from 17.2% of store sales during the year ended December
      31,
      2006.





General
      and administrative expenses for the year ended December 30, 2007 decreased
      by
      $35,582, or 1.0%, to $3,520,392 from $3,555,974 for the year ended December
      31,
      2006. The decrease in general and administrative expenses for the year ended
      December 30, 2007 compared to the same period in the prior year is primarily
      due
      to reduced headcount and reduced professional fees offset by higher stock-based
      compensation expense. General and administrative expenses include $249,292
      of
      stock-based compensation expense in 2007 compared with $23,462 of stock-based
      compensation expense in 2006. As a percentage of total revenues, general and
      administrative expenses decreased to 71.8% of total revenues for the year ended
      December 30, 2007 from 96.3% of total revenues for the year ended December
      31,
      2006. The decrease in general and administrative expenses as a percentage of
      revenues for the year ended December 30, 2007 compared to the same period in
      the
      prior year is primarily due reduced headcount, lower professional fees and
      tighter expense control.





Advertising,
      marketing and promotion expenses for the year ended December 30, 2007 increased
      by $123,110, or 22.5%, to $671,440 from $548,330 for the year ended December
      31,
      2006. The increase in advertising, marketing and promotion expenses was
      primarily due to promotion expense related to the services agreement with George
      Foreman Ventures, LLC (GFV Services Agreement) that became effective June 12,
      2007, partially offset by improved expense control. As a percentage of total
      revenues, advertising, marketing and promotion expenses decreased to 13.7%
      of
      total revenues in 2007 from 14.9% of total revenues in 2006.





Pursuant
      to the terms of the GFV Services Agreement, we agreed to (i) issue 1,371,157
      shares of Common Stock to GFV (ii) issue an additional 152,351 shares of Common
      Stock to GFV promptly following the sale of the 600 th franchise, provided the sale of such franchise has occurred by December 31,
      2009, and (iii) 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 us and our franchisees. One half of the 1,371,157
      shares issued to GFV, or 685,578 shares, vested on June 12, 2007. The remainder
      will vest over four years. In the event there is a change of control as defined
      in the GFV Services Agreement, GFV may return 50% of the shares of common stock
      received in exchange for a prospective increase in the royalty rate to 0.5%.
      During year ended December 30, 2007 we recorded $424,000 of promotion expense
      representing the fair value of the vested shares.


32




Depreciation
      and amortization expense for the year ended December 30, 2007 increased by
      $206,842, or 92.9%, to $429,586 from $222,744 for the year ended December 31,
      2006. Depreciation and amortization expense increased due to new Company-owned
      store locations and new equipment installed in previously existing Company-owned
      store locations. As a percentage of total revenues, depreciation and
      amortization expense increased to 8.8% of total revenues for the year ended
      December 30, 2007 from 6.0% of total revenues for the year ended December 31,
      2006.





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 one
      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.





Net
      interest expense for the year ended December 30, 2007 increased by $271,263,
      or
      277.2%, to $369,130, from $97,867 for the year ended December 31, 2006. As
      a
      percentage of total revenues, net interest expense increased to 7.6% of total
      revenues for the year ended December 30, 2007 from 2.7% of total revenues for
      the year ended December 31, 2006. The increase in net interest expense was
      primarily due to higher debt levels during the year ended December 30, 2007
      compared to the year ended December 31, 2006 and higher interest rates. The
      higher debt levels in 2007 were attributable to debt incurred in connection
      with
      the acquisition of two store locations during the fourth quarter of 2006 and
      $3,000,000 principal amount of promissory notes sold during 2007.





Our
      net
      loss for the year ended December 30, 2007 increased by $1,325,801, or 32.1%,
      to
      $5,451,414, from $4,125,613 for the year ended December 31, 2006. Our net loss
      increased primarily due to the increase in store operating expenses, higher
      promotion expenses resulting from the GFV Services Agreement, higher stock-based
      compensation expense, higher depreciation and amortization expenses, the loss
      recognized in connection with the disposition of two Company-owned store
      locations and higher net interest expense. As a percentage of total revenues,
      our net loss decreased to 111.2% of total revenues for the year ended December
      30, 2007 from 111.8% of total revenues for the year ended December 31,
      2006.





**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents and restricted cash at December 30, 2007 were $4,435,813
      compared to $1,840,090 at December 31, 2006. Cash is primarily used to fund
      (i)
      capital expenditures for new and remodeled company-owned stores, (ii)
      acquisitions of franchise-operated stores, (iii) working capital requirements
      and (iv) net operating losses.





In
      December 2007, the Company consummated a private offering to accredited
      investors of up to 8,000,000 Units of its securities 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. The investors in the offering
      collectively purchased 6,160,000 Units in December 2007 for total cash
      consideration of $6,160,000, before expenses of $1,345,840, and 4,781,000 Units
      in the first quarter of fiscal 2008 for total cash consideration of $4,781,000,
      before estimated expenses of $600,000. Under the terms of the private offering,
      the Company was required to deposit $1,000,000 of the proceeds received in
      an
      escrow account. The amount placed in escrow can only be used to pay qualified
      public relations and investor relations expenses.





At
      December 30, 2007, we had working capital of $1,165,395 compared to a working
      capital deficit of $1,214,657 at December 31, 2006. The increase in working
      capital was primarily due to an increase in cash and cash equivalents. The
      increase in cash and cash equivalents was primarily due to the net cash proceeds
      received from the sale of 6,160,000 Units in the private offering.





We
      used
      $3,134,984 of cash to fund our operating activities in 2007 compared with
      $3,539,743 of cash used to fund our operating activities in 2006, representing
      an improvement of $404,759.


33





During
      2007, we spent $842,447 of cash for investing activities compared with
      $1,066,807 spent on investing activities in 2006. The improvement in net cash
      used in investing activities was primarily due to $150,000 of cash proceeds
      we
      received from the sale of a Company-operated store in 2007. During 2007, we
      spent $992,447 for the acquisition of property and equipment compared with
      $1,065,119 spent on the acquisition of property and equipment in 2006. In 2007
      and 2006 we opened one Company-operated store.





Net
      cash
      provided by financing activities increased by $819,232 to $5,489,542 in 2007
      from $4,670,310 in 2006. The increase was primarily due to an increase in net
      cash proceeds received from the sale of debt and equity securities partially
      offset by an increase in restricted cash. In 2007, the Company received net
      cash
      proceeds of $7,351,320 from the sale of debt and equity securities comprised
      of
      $4,814,160 received from the sale of 6,160,000 Units and $2,537,160 received
      from the sale of $3,000,000 principal amount of promissory notes. Approximately
      $1,000,000 of the proceeds received from the sale of Units was deposited in
      an
      escrow account. The amount placed in escrow may be used by the Company but
      only
      for the payment of qualified public relations and investor relations expenses.
      In 2006, the Company received net cash proceeds of $3,519,466 from the sale
      of
      debt and equity securities comprised of $3,069,466 received from the sale of
      719,440 shares of Series C Preferred Stock and $450,000 received from debt
      incurred in connection with the acquisition of a franchise-operated restaurant.
      In 2006, approximately $1,400,000 of cash which had been restricted became
      unrestricted.





Historically
      we have funded our operations, working capital requirements, acquisitions and
      capital expenditures with cash flow generated by operations and proceeds from
      the issuance of debt and equity securities. We believe that cash flow from
      operations and proceeds from the issuance of debt and equity securities will
      be
      sufficient to fund our operations and capital expenditures for the next twelve
      months.





**Contractual
      Obligations and Other Commitments**





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
      Company’s operating lease obligations at December 30, 2007 and the effect they
      are expected to have on our liquidity and cash flows in future periods are
      as
      follows:




Total
              
              Less Than
                1
                  Year
              
              1 Year to
                3
                  Years
              
              4 Years to
                5 Years
              
              More than
                5 YearsOperating
                  leases
              
              $
              4,480,000
              
              $
              727,000
              
              $
              1,234,000
              
              $
              1,249,000
              
              $
              1,270,000


Our
      capital requirements, including development costs related to the opening or
      acquisition of additional stores and maintenance and remodel expenditures,
      have
      and will continue to be significant. 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. We have incurred significant operating
      losses since inception and expect to incur a significant operating loss in
      2008.


34


**Impact
      of Inflation**





In
      the
      past, we have been able to recover inflationary cost and commodity price
      increases 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.





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 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**





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 effect for fiscal years
      beginning after November 15, 2007.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS No
      157 defines fair value, 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. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected
      to have a material impact on the Company’s future consolidated financial
      statements.





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 the Company engages in will be recorded
      and disclosed following existing GAAP until December 28, 2008. The Company
      expects SFAS No. 141R will have an impact on its 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 it consummates
      after the effective date. The Company is still assessing the impact of this
      standard on its 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 restrospectively. The adoption of
      SFAS
      No. 160 is not expected to have a material impact on the Company’s future
      consolidated financial statements.


35





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.





**Item 7.**
            **Financial
                Statements.**





Index
      to
      Consolidated Financial Statements





Report
                of Independent Registered Public Accounting Firm
            37Consolidated
                Balance Sheets as of December 30, 2007 and December 31,
                2006
            38
                - 39Consolidated
                Statements of Operations for the Fiscal Years Ended December 30,
                2007 and
                December 31, 2006
            40Consolidated
                Statements of Stockholders’ Equity (Deficit) for the Fiscal Years Ended
                December 30, 2007 and December 31, 2006
            41Consolidated
                Statements of Cash Flows for the Fiscal Years Ended December 30,
                2007 and
                December 31, 2006
            42Notes
                to Consolidated Financial Statements
            43
                - 64




36





**REPORT
      OF INDEPENDENT REGISTERD 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 30, 2007 and December 31, 2006,
      and the related consolidated statements of operations, changes in stockholders’
equity (deficit) 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 30, 2007 and December 31, 2006, 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/
      Carlin, Charron & Rosen, LLP





Westborough,
      Massachusetts


April
      14,
      2008




37




UFOOD
      RESTAURANT GROUP, INC. AND SUBSIDIARY





Consolidated
      Balance Sheets


December
      30, 2007 and December 31, 2006




Assets**2007**
            
            **2006**Current
                assets:Cash
                and cash equivalents
            
            $
            3,352,201
            
            $
            1,840,090Restricted
                cash
            
            
            1,083,612
            
            
            —Accounts
                receivable
            
            
            93,534
            
            
            30,068Inventories
            
            
            193,359
            
            
            244,766Prepaid
                expenses and other current assets
            
            
            40,283
            
            
            57,8774,762,989
            
            
            2,172,801Property
                and equipment:Equipment
            
            
            874,853
            
            
            878,763Furniture
                and fixtures
            
            
            156,207
            
            
            189,833Leasehold
                improvements
            
            
            2,301,571
            
            
            1,552,763Website
                development costs
            
            
            80,736
            
            
            27,0503,413,367
            
            
            2,648,409Accumulated
                depreciation and amortization
            
            
            699,305
            
            
            388,6452,714,062
            
            
            2,259,764Other
                assets:Goodwill
            
            
            977,135
            
            
            1,405,325Other
            
            
            129,360
            
            
            229,6321,106,495
            
            
            1,634,957Total
                assets
            
            $
            8,583,546
            
            $
            6,067,522





See
      accompanying notes.


38


UFOOD
      RESTAURANT GROUP, INC. AND SUBSIDIARY





Consolidated
      Balance Sheets


December
      30, 2007 and December 31, 2006





Liabilities
                and Stockholders’ (Deficit)**2007**
            
            **2006**Current
                liabilities:Current
                portion of long-term debt
            
            $
            1,874,993
            
            $
            2,045,722Current
                portion of capital lease obligations
            
            
            51,582
            
            
            57,608Accounts
                payable
            
            
            727,293
            
            
            565,800Franchisee
                deposits
            
            
            504,500
            
            
            647,500Accrued
                expenses and other current liabilities
            
            
            439,226
            
            
            70,8283,597,594
            
            
            3,387,458Long-term
                liabilities:Long-term
                debt
            
            
            730,691
            
            
            1,212,340Capital
                lease obligations
            
            
            83,005
            
            
            106,631Other
                noncurrent liabilities
            
            
            152,158
            
            
            —965,854
            
            
            1,318,971Series
                C convertible preferred stock, $0.001 par value, -0- and 719,440
                shares
                issued and outstanding
            
            
            —
            
            
            3,070,812Total
                liabilities
            
            
            4,563,448
            
            
            7,777,241Commitments
                and contingencies
            
            
            —
            
            
            —Stockholders’
                equity (deficit):Convertible
                preferred stock, $0.001 par value, 10,000,000 shares
                authorizedSeries
                B convertible preferred stock, -0- and 1,407,416 shares issued and
                outstanding
            
            
            —
            
            
            431,187Series
                A convertible preferred stock, -0- and 1,576,040 shares issued and
                outstanding
            
            
            —
            
            
            525,439Common
                stock, $0.001 par value, 300,000,000 shares authorized, 29,241,158
                and
                4,208,745 shares issued and outstanding
            
            
            29,241
            
            
            4,209Additional
                paid-in capital
            
            
            18,833,096
            
            
            6,720,271Accumulated
                deficit
            
            
            (14,842,239
            )
            
            (9,390,825
            )4,020,098
            
            
            (1,709,719
            )Total
                liabilities and stockholders’ equity (deficit)
            
            $
            8,583,546
            
            $
            6,067,522





See
      accompanying notes.


39




UFOOD
      RESTAURANT GROUP, INC. AND SUBSIDIARY





Consolidated
      Statements of Operations


For
      the
      Fiscal Year Ended December 30, 2007 and December 31, 2006




**2007**
            
            **2006**Revenues:Store
                sales
            
            $
            4,543,194
            
            $
            3,273,103Franchise
                royalties and fees
            
            
            326,733
            
            
            319,565Other
                revenue
            
            
            34,956
            
            
            99,0264,904,883
            
            
            3,691,694Costs
                and expenses:Store
                operating expenses:Cost
                of goods sold, food and paper products
            
            
            2,011,229
            
            
            1,469,684Labor
            
            
            1,405,662
            
            
            1,043,314Occupancy
            
            
            410,061
            
            
            309,157Other
                store operating expenses
            
            
            796,804
            
            
            561,350General
                and administrative expenses
            
            
            3,520,392
            
            
            3,555,974Advertising,
                marketing and promotion expenses
            
            
            671,440
            
            
            548,330Depreciation
                and amortization
            
            
            429,586
            
            
            222,744Loss
                on disposal of assets
            
            
            666,838
            
            
            —Total
                costs and expenses
            
            
            9,912,012
            
            
            7,710,553Operating
                loss
            
            
            (5,007,129
            )
            
            (4,018,859
            )Other
                income (expense):Interest
                income
            
            
            18,627
            
            
            49,120Interest
                expense
            
            
            (387,757
            )
            
            (146,987
            )Other
                expense
            
            
            (75,155
            )
            
            (8,887
            )Other
                income (expense), net
            
            
            (444,285
            )
            
            (106,754
            )Loss
                before income taxes
            
            
            (5,451,414
            )
            
            (4,125,613
            )Income
                taxes
            
            
            —
            
            
            —Net
                loss
            
            $
            (5,451,414
            )
            $
            (4,125,613
            )Basic
                and diluted earnings (loss) per share
            
            $
            (0.68
            )
            $
            (0.60
            )




See
      accompanying notes.


40





**UFOOD
      RESTAURANT GROUP, INC.**


**and
      SUBSIDIARY**





Consolidated
      Statements of Changes in Stockholders' Equity (Deficit)


For
      the
      Year Ended December 30, 2007 and December 31, 2006





**Series
                B Convertible**
            
            **Series
                A Convertible**
            
            **Common
                Stock**
            
            **Additional Paid-in**
            
            **Accumulated****Shares**
            
            **Value**
            
            **Shares**
            
            **Value**
            
            **Shares**
            
            **Value**
            
            **Capital**
            
            **Deficit**
            
            **Total****Balances,
                January 1, 2006**
            
            
            1,407,416
            
            $
            62,511
            
            
            1,576,040
            
            $
            289,127
            
            
            4,208,745
            
            $
            4,209
            
            $
            7,278,910
            
            $
            (5,265,212
            )
            $
            2,369,545Dividends
                accrued on mandatory redeemable preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,346
            )
            
            -
            
            
            (1,346
            )Warrants
                exchanged for debt gaurantee
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            24,231
            
            
            -
            
            
            24,231Accrued
                preferred stock dividends
            
            
            -
            
            
            368,676
            
            
            -
            
            
            236,312
            
            
            -
            
            
            -
            
            
            (604,988
            )
            
            -
            
            
            -Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            23,464
            
            
            -
            
            
            23,464Net
                loss for year ended December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,125,613
            )
            
            (4,125,613
            )**Balances,
                December 31, 2006**
            
            
            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 preference stock
            
            
            (1,407,416
            )
            
            (826,957
            )
            
            (1,576,040
            )
            
            (826,148
            )
            
            3,710,642
            
            
            3,710
            
            
            4,965,093
            
            
            -
            
            
            3,315,698Conversion
                of promissory notes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,248,868
            
            
            6,249
            
            
            2,650,560
            
            
            -
            
            
            2,656,809Stock
                issued for marketing and promotional services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,371,157
            
            
            1,371
            
            
            313,629
            
            
            -
            
            
            315,000Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            41,746
            
            
            42
            
            
            249,250
            
            
            -
            
            
            249,292Cancellation
                and re-issuance of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            75,158
            
            
            -
            
            
            75,158Reverse
                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
            
            
            -
            
            
            4,814,160Net
                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




See
      accompanying notes.




41


UFOOD
      RESTAURANT GROUP, INC. AND SUBSIDIARY





Consolidated
      Statements of Cash Flows


For
      the
      Fiscal Year Ended December 30, 2007 and December 31, 2006





**2007**
            
            **2006**Cash
                flows from operating activities:Net
                loss
            
            $
            (5,451,414
            )
            $
            (4,125,613
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            429,586
            
            
            222,744Amortization
                of deferred financing costs
            
            
            20,001
            
            
            10,538Provision
                for doubtful accounts
            
            
            29,229
            
            
            —Warrants
                exchanged for debt guarantee
            
            
            —
            
            
            24,231Adjustment
                to warrant exercise prices
            
            
            75,155
            
            
            —Stock-based
                compensation
            
            
            249,292
            
            
            23,464Loss
                on disposal of assets
            
            
            666,838
            
            
            —Non-cash
                promotion expenses
            
            
            424,000
            
            
            —Non-cash
                interest on bridge loans
            
            
            119,650
            
            
            —Increase
                (decrease) in cash from changes in assets and liabilities:Accounts
                receivable
            
            
            (56,362
            )
            
            (19,201
            )Inventories
            
            
            3,373
            
            
            (107,344
            )Prepaid
                expenses and other current assets
            
            
            17,595
            
            
            6,797Other
                assets and noncurrent liabilities
            
            
            232,429
            
            
            (87,498
            )Accounts
                payable
            
            
            224,208
            
            
            195,866Franchisee
                deposits
            
            
            (143,000
            )
            
            297,500Accrued
                expenses and other current liabilities
            
            
            24,436
            
            
            18,773Net
                cash used in operating activities
            
            
            (3,134,984
            )
            
            (3,539,743
            )Cash
                flows from investing activities:Proceeds
                from sale of assets
            
            
            150,000
            
            
            —Acquisition
                of property and equipment
            
            
            (992,447
            )
            
            (1,065,119
            )Acquisition
                of intangibles
            
            
            —
            
            
            (1,688
            )Net
                cash used in investing activities
            
            
            (842,447
            )
            
            (1,066,807
            )Cash
                flows from financing activities:Proceeds
                from issuance of notes payable
            
            
            2,537,160
            
            
            —Proceeds
                from issuance of common stock, net
            
            
            4,814,160
            
            
            —Proceeds
                from long-term debt
            
            
            —
            
            
            450,000Proceeds
                from issuance of preferred stock
            
            
            
            
            
            3,069,466Payments
                on long-term debt
            
            
            (715,094
            )
            
            (222,011
            )Payments
                on capital lease obligations
            
            
            (63,072
            )
            
            (27,145
            )Increase
                in restricted cash
            
            
            (1,083,612
            )
            
            —Cash
                released from restrictions
            
            
            —
            
            
            1,400,000Net
                cash provided by financing activities
            
            
            5,489,542
            
            
            4,670,310Increase
                in cash and cash equivalents
            
            
            1,512,111
            
            
            63,760Cash
                and cash equivalents – beginning of year
            
            
            1,840,090
            
            
            1,776,330Cash
                and cash equivalents – end of year
            
            $
            3,352,201
            
            $
            1,840,090




See
      accompanying notes.


42


UFOOD
      RESTAURANT GROUP, INC. AND SUBSIDIARY


Notes
      to
      Consolidated Financial Statements




**1.**
            **Nature
                of Operations**





*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 30,
      2007,
      the Company’s operations consisted of five company-operated restaurants and
      three franchise-operated locations. 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 subsidiaries 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 3, UFood changed its fiscal year end from April
      30
      to a 52/53 week fiscal year ending on the Sunday closest to December 31 of
      each
      year. Our 2007 and 2006 fiscal years ended on December 30, 2007 and December
      31,
      2006, 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.


43




*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 31, 200 7
      and
      2006. At December 31, 2007 restricted cash was comprised of $83,612 used to
      collateralize a standby letter of credit and $1,000,000 received from the sale
      of equity securities and deposited in an escrow account to pay 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 $20,001 and $10,538 for the years ended December
      30,
      2007 and December 31, 2006, respectively, and is included in interest
      expense.





*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
                yearsEquipment
            
            
            5
                yearsFurniture
                and fixtures
            
            
            5
                yearsWebsite
                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 $70,182 and $47,453 for the fiscal
      years ended December 30, 2007 and December 31, 2006, respectively.





*Goodwill
      and Other Intangible Assets*





The
      Company accounts for goodwill and other intangible assets under Statement of
      Financial Accounting Standards (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. Intangible assets with finite lives continue to be amortized
      over their useful lives. The Company performs its impairment assessment by
      comparing discounted cash flows from reporting units with the carrying value
      of
      the underlying net assets inclusive of goodwill. The Company performed its
      annual impairment tests as of the first day of the fourth quarter of fiscal
      years 2007 and 2006. Based upon the results of the first step, the Company
      determined that no impairment had occurred, as the fair value of the reporting
      unit exceeded the respective carrying value. At December 30, 2007, the Company
      had no indefinite-lived intangible assets.


44




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. The Company identified no indications
      of impairment.





*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.





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. Prior to fiscal 2007, the
      Company determined its tax contingencies in accordance with SFAS No. 5, *Accounting
      for Contingencies.* The
      Company recorded estimated tax liabilities to the extent the contingencies
      were
      probable and could be reasonably estimated.





*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.


45




*Advertising
      Costs*





The
      Company expenses a dvertising
      costs as incurred. Advertising expense amounted to $82,469 in 2007 and $68,163
      in 2006.





*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.





T he
      Company has adopted 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 adopted this accounting treatment using the modified
      prospective transition method, as permitted under SFAS No. 123R; therefore
      results for prior periods have not been restated. 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,
      and the number of options that will be forfeited prior to the completion of
      their vesting requirements. The provisions of SFAS No. 123R apply to new stock
      options and stock options outstanding, but not yet vested, on the date the
      Company adopted SFAS No. 123R.


46





Stock-based
      compensation expense recognized during the fiscal year ended December 30, 2007
      totaled approximately $218,082 for stock options and $31,210 related to
      restricted stock. Stock-based compensation expense recognized during the fiscal
      year ended December 31, 2006 totaled approximately $23,464 for stock options.
      Stock-based compensation expense was included in general and administrative
      expenses in the accompanying Consolidated Statements of Operations.





Prior
      to
      adoption of SFAS No. 123R, the Company accounted for stock-based compensation
      using the intrinsic value method prescribed in Accounting Principles Board
      (APB)
      25, *Accounting
      for Stock Issued to Employees,* and
      related interpretations, and followed the disclosure requirements of SFAS No.
      123 as amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure”* .
      Accordingly, prior to fiscal 2006, stock-based compensation was included as
      pro
      forma disclosure in the financial statement footnotes.





*New
      Accounting Pronouncements*





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
      years beginning after November 15, 2007.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS No
      157 defines fair value, 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. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected
      to have a material impact on the Company’s future consolidated financial
      statements.





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 the Company engages in will be recorded
      and disclosed following existing GAAP until December 28, 2008. The Company
      expects SFAS No. 141R will have an impact on its 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 it consummates
      after the effective date. The Company is still assessing the impact of this
      standard on its future consolidated financial statements.


47




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 restrospectively. The adoption of
      SFAS
      No. 160 is not expected to have a material impact on the Company’s 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.





**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.


48




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
                StockShares
            
            Par
                Value
            
            Additional
              Paid-in
                CapitalUFood
                shares outstanding immediately prior to the Merger
            
            
            23,700,000
            
            $
            23,700
            
            $
            (23,700
            )UFood
                shares retired
            
            
            (16,200,000
            )
            
            (16,200
            )
            
            16,200Reverse
                acquisition recapitalization adjustment
            
            
            7,500,000
            
            $
            7,500
            
            $
            (7,500
            )




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.


49





**4.**
            **Acquisitions**





*Downtown
      Crossing*





On
      October 2, 2006, the Company, through a wholly-owned subsidiary, acquired the
      business assets of one of the Company’s franchisees. The purchase price of
      $1,125,445 was comprised of a cash payment of $25,000, a promissory note in
      the
      amount of $1, 075,000
      and the assumption of certain current liabilities totaling $25,445.


The
      purchase price was allocated as follows:





Inventory
            
            $
            31,507Goodwill
            
            
            402,326Property
                and equipment
            
            
            630,783Security
                deposits
            
            
            27,605Franchise
                fee
            
            
            33,224$
            1,125,445





The
      agreement also requires monthly payments equal to 10% of gross cash revenue
      (a
      portion of which represents interest on the promissory note) until the
      promissory note is paid in full.





*Landmark
      Center*





On
      September 6, 2006, the Company, through a wholly-owned subsidiary, acquired
      the
      business assets of another franchisee. Upon the occurrence of a sales event,
      as
      defined in the asset purchase agreement, the Company is required to pay the
      seller an amount ranging from 40% to 50% of the sale proceeds received or
      $450,000, whichever is greater.





The
      asset
      purchase agreement requires a quarterly royalty payment to the seller equal
      to
      5% of the store’s gross cash revenue, as defined, and includes a restrictive
      covenant requiring the Company’s wholly-owned subsidiary to maintain net equity
      of not less than $450,000.





**5.**
            **Disposal
                of Assets**





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.





**6.**
            **Goodwill**





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.


50




**7.**
            **Notes
                Payable**





During
      2007, KnowFat secured two tranches of bridge financing as follows:





*Antokal
      Note*





In
      April
      2007, prior to the Merger transaction described in Note 3, KnowFat borrowed
      $1,000,000 from Alan Antokal, a stockholder, pursuant to the terms of a 12%
      Secured Convertible Subordinated Promissory Note (the “Antokal Note”). The
      Antokal 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. The Antokal Note was due April 23, 2008 but
      converted into 2,168,693 shares of KnowFat common stock immediately prior to
      the
      Merger.





*Investor
      Notes*





On
      September 24, 2007, in connection with the Merger and the Offering of Units
      described in Note 10, 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
      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.




51


**8.**
            **Long-Term
                Debt**





Long-term
      debt consists of the following at December 30, 2007 and December 31,
      2006:





2007
            
            2006Term
                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 (7.25% at December 31, 2007). The note is secured by
                substantially all assets of the Company.
            
            $
            1,042,080
            
            $
            1,392,084Downtown
                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
            
            
            1,045,628Landmark
                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
            
            
            450,000Unsecured,
                non-interest bearing note payable. Due in equal monthly installments
                of
                $13,021 through September 2008. Interest imputed on the note using
                a
                discount rate of 5% totaled $59,597, which is being amortized over
                the
                term of the note. The unamortized discount was $1,926 and $11,957
                at
                December 31, 2007 and 2006, respectively.
            
            
            152,099
            
            
            249,363Indebtedness
                incurred in connection with the acquisition of the two franchisee
                locations. No stated interest rate; payable in 36 monthly installments
                of
                $2,142 through February 2008.
            
            
            14,996
            
            
            27,852Note
                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.
            
            
            65,881
            
            
            93,1352,605,684
            
            
            3,258,062Less
                current portion
            
            
            1,874,993
            
            
            2,045,722Long-term
                debt
            
            $
            730,691
            
            $
            1,212,340




52


Maturities
      of long-term debt at December 31, 2007 are as follows:





Year
                ending December 31,2008
            
            $
            1,874,9932009
            
            
            379,7602010
            
            
            350,931$
            2,605,684





**9.**
            **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 13.6% to 18.7%.





Future
      minimum lease payments under these leases are as follows:





Year
                ending December 31,2008
            
            $
            70,6982009
            
            
            55,9892010
            
            
            37,8412011
            
            
            3,921168,449Less
                imputed interest
            
            
            33,862134,587Less
                current portion
            
            
            51,582Long-term
                portion of capital lease obligations
            
            $
            83,005





The
      recorded cost and accumulated amortization of the equipment acquired are
      $ 249,888
      and $106,951, respectively as of December 30, 2007. Amortization expense in
      2007
      and 2006 was $60,972 and $26,903, respectively.





**10.**
            **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. The 1,371,157 shares of common stock
      issued to GFV vest over four years in accordance with the following
      schedule:


53




Vesting
                Date
            
            Number
                of SharesJune
                12, 2007
            
            
            685,578June
                13, 2008
            
            
            304,702June
                13, 2009
            
            
            152,351June
                13, 2010
            
            
            152,351June
                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 30, 2007 include
      $315,000 representing the fair value of the 685,578 shares that vested on June
      12, 2007. 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 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. 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 Company subsequently consummated a second
      closing of 440,000 Units on December 21, 2007. 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 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.


54




Within
      90
      days of the final closing of the Offering, the Company is expected to file
      a
      registration statement, to become effective in an additional 90 days from the
      filing date, registering for resale all shares of Common Stock issued in the
      Offering, 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 is 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.





*Warrants*





At
      December 30, 2007, warrants to purchase 7,759,314 shares of UFood Common Stock
      were issued and outstanding as follows:





Description
            
            Number
                of
              Warrants
            
            Exercise
              PriceNew
                Warrants
            
            
            607,226
            
            $
            1.00Placement
                Agent warrants
            
            
            2,032,000
            
            $
            1.00Investor
                Notes warrants
            
            
            2,040,088
            
            $
            1.25Investor
                Warrants
            
            
            3,080,000
            
            $
            1.25Total
            
            
            7,759,314





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 6,160,000 Units, the Placement Agent was issued warrants to purchase 800,000
      and 1,232,000 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.


55




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 6,160,000 Units included the issuance of 3,080,000 warrants. The Investor
      Warrants have an exercise price of $1.25 and expire in five years.





**11.**
            **Stock-Based
                Compensation**





At
      December 30, 2007, 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 2007 and 2006, the Company recognized
      $249,292 and $23,464 of compensation expense for awards under the Equity
      Plans.





The
      Company estimates the fair value of 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.





The
      fair
      value of each stock option grant was estimated on the date of grant using
      the following assumptions:





**2007**
            
            **2006**Expected
                term (years)
            
            
            6
            
            
            6Expected
                volatility
            
            
            45
            %
            
            40
            %Risk-free
                interest rate
            
            
            4.37
            %
            
            4.71
            %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 30, 2007 and
      December 31, 2006. 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.





56


A
      summary
      of option activity under the 2004 Plan during 2007 and 2006 is presented
      below:





Options
            
            Number
                of
              Shares
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Term
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at January 1, 2006
            
            
            163,096
            
            $
            0.45
            
            
            9.1Granted
            
            
            63,095
            
            $
            0.75
            
            
            10.0Exercised
            
            
            —
            
            
            -Forfeited
            
            
            —
            
            
            -Outstanding
                at December 31, 2006
            
            
            226,191
            
            $
            0.54
            
            
            8.4
            
            $
            113,397Granted
            
            
            148,461
            
            $
            0.66
            
            
            10.0Exercised
            
            
            —
            
            
            -Forfeited
            
            
            (69,950
            )
            $
            0.36
            
            
            8.4Outstanding
                at December 30, 2007
            
            
            304,702
            
            $
            0.61
            
            
            8.8
            
            $
            146,257Exercisable
                at December 30, 2007
            
            
            304,702
            
            $
            0.61
            
            
            8.8
            
            $
            146,257





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 and 2006 was $0.36 and $0.20, respectively. There was no unrecognized
      compensation expense related to options outstanding under the 2004 Plan at
      December 30, 2007.





Upon
      consummation of the Merger described in Note 3, the exercise price of 26,661
      options granted during 2006 was reduced from $4.27 per share to $1.00 per share.
      In addition, all options outstanding under the 2004 Plan became fully vested.
      As
      a result of these modifications, the Company recognized additional compensation
      expense of $4,631 during the year ended December 30, 2007.





*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 3,000,000 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 30, 2007, 1,950,000 stock options were outstanding under the 2007
      Plan. The outstanding stock options have an exercise price of $1.00 per share,
      have a term of 10 years and vest over a three year period. Options to purchase
      625,000 shares vested on the date of grant and 475,000, 475,000 and 375,000
      options will vest in fiscal 2008, 2009 and 2010, respectively.




57


Activity
      under the 2007 Plan from December 18, 2007, the Merger Date, through December
      30, 2007 is presented below:





Number
                of
              Options
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Term
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at December 17, 2007
            
            
            -0-
            
            $
            —Granted
            
            
            1,950,000
            
            
            1.00Exercised
            
            
            —
            
            
            -
            
            
            -Forfeited
            
            
            —
            
            
            -
            
            
            -Outstanding
                at December 30, 2007
            
            
            1,950,000
            
            $
            1.00
            
            
            10.0
            
            $
            175,500Exercisable
                at December 30, 2007
            
            
            625,000
            
            $
            1.00
            
            
            10.0
            
            $
            56,250





The
      weighted average grant date fair value of options granted during 2007 under
      the
      2007 Plan was $0.27.





At
      December 30, 2007 there was $362,748 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 is subject to approval by a majority
      of shares represented at the Company’s annual meeting.





**12.**
              **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 2007 and 2006 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.




58




Net
      deferred tax assets (liabilities) at December 30, 2007 and December 31, 2006
      are
      as follows:





**2007**
            
            **2006**Deferred
                tax assetsFederal
            
            $
            4,923,000
            
            $
            3,182,000State
            
            
            905,000
            
            
            876,000Total
                deferred tax assets
            
            
            5,828,000
            
            
            4,058,000Valuation
                allowance
            
            
            (5,828,000
            )
            
            (4,058,000
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





The
      components of income tax benefit (expense) are as follows:





**2007**
            
            **2006**FederalDeferredNet
                operating loss carryforward
            
            $
            1,678,000
            
            $
            1,337,000Other
            
            
            61,000
            
            
            57,0001,739,000
            
            
            1,394,000StateDeferredNet
                operating loss carryforward
            
            
            317,000
            
            
            361,000Other
            
            
            (286,000
            )
            
            16,00031,000
            
            
            377,000Tax
                benefit before adjustment to valuation allowance
            
            
            1,770,000
            
            
            1,771,000Adjustment
                to valuation allowance
            
            
            (1,770,000
            )
            
            (1,771,000
            )Net
                tax benefit
            
            $
            -
            
            $
            -





The
      Company’s effective income tax rate differs from the federal statutory income
      tax rate as follows for the years ended December 31, 2007 and 2006.





**2007**
            
            **2006**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 2004 through 2007 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 30, 2007.


59




Federal
      and state net operating loss carryforwards expire in 20 27
      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.





**13.**
            **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.





**14.**
            **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 30, 2007 under non-cancelable leases are as
      follows:





Year
                ending December 31,2008
            
            $
            727,0002009
            
            
            632,0002010
            
            
            602,0002011
            
            
            616,0002012
            
            
            633,000Thereafter
            
            
            1,270,000$
            4,480,000








*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.





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.


60





*Legal
      matters*





In
      November 2007, the Company received a letter from counsel to a former franchisee
      regarding potential claims against the Company and certain of its officers
      and
      directors. The letter also states a desire for the parties to reach a
      mutually-satisfactory negotiated resolution to the dispute. A draft demand
      for
      arbitration, which has not been filed, was included with the letter and claims
      that the Company and certain of its officers and directors made false and
      misleading statements (and material omissions of facts) in connection with
      the
      sale of the franchise in violation of the Minnesota Franchise Act. The draft
      demand seeks damages in the approximate amount of $2,000,000. The Company
      believes that it complied with all applicable franchise rules and regulations
      in
      its dealings with the former franchisee and intends to vigorously defend any
      claims that may be brought.





KFLG
      Watertown, Inc. (KFLG), a wholly-owned subsidiary of the Company, received
      a
      Default Letter (the Default Letter) on April 2, 2008, 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 Letter claims that KFLG
      is
      in default of its obligations under the Sublease Agreement due to, among other
      things, KFLG’s failure to timely make certain subtenant improvements. The
      Default Letter demands that KFLG pay $104,000 in liquidated damages to BAAB
      and
      pay legal fees and expenses of BAAB in the amount of $28,822. This matter is
      only in the claim stage and no legal proceeding has been commenced. The Company
      believes it made the subtenant improvements on a timely basis and has denied
      BAAB’s allegations that it is in default of the Sublease Agreement. The Company
      has been in contact with representatives of BAAB to try and resolve this matter.
      In the event the Company is unable to resolve this matter, BAAB has indicated
      it
      will seek to enforce any and all of its rights and remedies available under
      the
      Sublease Agreement including the possible termination of the
      Sublease.





In
      connection with the build-out of the Premises at Logan International Airport,
      demands have been made, legal proceedings have been commenced and liens have
      been filed against the Company’s subsidiaries and their properties by certain
      subcontractors that performed work on the Premises in connection with payments
      for services allegedly past due. The general contractor on the project is
      responsible for the amounts claimed by the subcontractors. The Company has
      paid
      the general contractor and intends to assert claims against the general
      contractor for, among other things, the amounts claimed by the
      subcontractors.





The
      Company is subject to legal proceedings and claims which arise in the normal
      course of business. 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.





**15.**
            **Related
                Party Transactions**





In
      October 2007, in contemplation of the Merger, UFood entered into an employment
      agreement with its chief executive officer (Note 14). 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 2007 and 2006, the Company recorded
      franchise and development fee expenses of $-0- and $125,000,
      respectively.


61





The
      Company retained a Placement Agent in connection with the sale of the Investor
      Notes (Note 7) and the Offering of Units (Note 10). At December 30, 2007, the
      Placement Agent directly and indirectly through affiliates owned 3,700,000
      shares of Common Stock and warrants to purchase 2,082,000 shares of Common
      Stock.





**16.**
            **Supplemental
                Disclosures of Cash Flow
                Information:**





**2007**
                
                **2006**Cash
                    paid during the year for interest
                
                $
                182,422
                
                $
                131,603Summary
                    of non-cash investing and financing activitiesAccrued
                    preferred stock dividends
                
                $
                941,365
                
                $
                606,334Conversion
                    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
                
                $
                33,420
                
                $
                140,655Goodwill
                    acquired with long-term debt
                
                $
                —
                
                $
                402,327Property
                    and equipment acquired with long-term debt
                
                $
                —
                
                $
                658,388Inventory
                    acquired with long-term debt
                
                $
                —
                
                $
                6,506Deposits
                    acquired in business combination
                
                $
                —
                
                $
                33,224Accounts
                    payable assumed in business combinations
                
                $
                —
                
                $
                25,445Long-term
                    debt assumed / incurred in business combinations
                
                $
                —
                
                $
                1,075,000





**17.**
            **Earnings
                per share**





The
      amounts used for basic and diluted per share calculations are as
      follows:





**2007**
            
            **2006**Net
                loss
            
            $
            (5,451,414
            )
            $
            (4,125,613
            )Preferred
                stock dividend requirements
            
            
            (941,365
            )
            
            (606,334
            )Net
                loss allocable to common stockholders
            
            $
            (6,392,779
            )
            $
            (4,731,947
            )Weighted
                average number of shares outstanding –
                basic and
                diluted
            
            
            9,433,081
            
            
            7,919,388Basic
                and diluted per common share
            
            $
            (0.68
            )
            $
            (0.60
            )





Diluted
      earnings (loss) per share are not presented since the effect of the assumed
      exercise of options and warrants to purchase common stock would have been
      anti-dilutive. A total of 125,469 and 24,625 potential common shares from the
      assumed exercise of options and warrants were excluded from the calculation
      of
      diluted net loss per share for the years ended December 30, 2007 and December
      31, 2006, respectively, because their inclusion would have been
      anti-dilutive.


62





**18.**
            **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:




**2007**
              
              **2006**Revenues:Store
                  operations
              
              $
              4,543,194
              
              $
              3,273,103Franchise
                  operations
              
              
              361,689
              
              
              418,591Total
                  revenue
              
              $
              4,904,883
              
              $
              3,691,694Segment
                  loss:Store
                  operations
              
              $
              (999,385
              )
              $
              (401,840
              )Franchise
                  operations
              
              
              (522,137
              )
              
              (618,856
              )Total
                  segment loss
              
              $
              (1,521,522
              )
              $
              (1,020,696
              )Advertising,
                  marketing and promotion
              
              $
              671,440
              
              $
              548,330Depreciation
                  and amortization
              
              
              429,586
              
              
              222,744Unallocated
                  general and administrative expenses
              
              
              2,384,581
              
              
              2,227,089Interest
                  (income) expense
              
              
              369,130
              
              
              97,867Other
                  (income) expenses, net
              
              
              75,155
              
              
              8,887Net
                  loss
              
              $
              (5,451,414
              )
              $
              (4,125,613
              )
 Depreciation
                  and amortization:Store
                  operations
              
              $
              372,404
              
              $
              186,818Franchise
                  operations
              
              
              57,181
              
              
              35,926Total
                  depreciation and amortization
              
              $
              429,586
              
              $
              222,744Capital
                  expenditures:Store
                  operations
              
              $
              937,859
              
              $
              966,428Franchise
                  operations
              
              
              88,008
              
              
              98,691Total
                  capital expenditures
              
              $
              1,025,867
              
              $
              1,065,119Segment
                  assets:Store
                  operations
              
              $
              3,834,155
              
              $
              2,587,638Franchise
                  operations
              
              
              4,749,391
              
              
              3,479,884Total
                  segment assets
              
              $
              8,583,546
              
              $
              6,067,522


63




**18.**
            **Subsequent
                Events**




Subsequent
      to December 30, 2007, the Company completed three additional closings, including
      a final closing on March 31, 2008, of a private Offering of its securities
      to
      accredited investors (see Note 10). The Company sold a total of 4,781,000 Units,
      at a price of $1.00 per Unit, in the first quarter of fiscal 2008 and issued
      2,950,500 Investor Warrants to the investors who purchased Units. In addition,
      the Company paid the Placement Agent commissions totaling $478,100 and issued
      the Placement Agent warrants to purchase 956,200 shares of Common
      Stock.





Subsequent
      to December 30, 2007, the Company paid $800,000 to extinguish the $880,628
      note
      payable issued in connection with the Company’s acquisition of the Downtown
      Crossing restaurant and store (see Note 8).


64





**Item 8.**
            **Changes
                In and Disagreements with Accountants on Accounting and Financial
                Disclosure.**





None.





**Item
      8A(T)**  **Controls
      and Procedures.**





*Evaluation
      of Disclosure Controls and Procedures.*





We
      have
      established disclosure controls and procedures to ensure that material
      information relating to the Company, including its consolidated subsidiaries
      is
      made known to the officers who certify our financial reports and to other
      members of management and the Board of Directors. Based on their evaluations
      as
      of December 30, 2007, our Chief Executive Officer (CEO) and Chief Financial
      Officer (CFO) have concluded that our disclosure controls and procedures (as
      defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective,
      except for the material weakness in internal control over financial reporting
      described below, in ensuring that the information required to be disclosed
      by us
      in the reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC
      rules and forms and that such information is accumulated and communicated to
      our
      management, including our CEO and CFO, as appropriate to allow timely decisions
      regarding required disclosure.





There
      were no significant changes in the Company’s internal controls during the last
      fiscal quarter and as of the end of the period covered by this annual report
      or
      in other factors that could significantly affect these controls subsequent
      to
      the date of their evaluation, including any corrective actions with regard
      to
      significant deficiencies and material weaknesses.





*(a)* *Management’s
        annual report on internal control over financial
        reporting.*





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting. Internal control over financial reporting is a process
      designed under the supervision of our CEO and CFO to provide reasonable
      assurance regarding the reliability of financial reporting and preparation
      of
      our financial statements for external purposes in accordance with generally
      accepted accounting principles.





Management,
      with the participation of our principal executive officer and principal
      financial officer, is required to evaluate the effectiveness of our internal
      controls over financial reporting as of December 30, 2007 based on the criteria
      for effective internal control over financial reporting established in *Internal
      Control -Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on
      that assessment, management has concluded that our internal controls over
      financial reporting were not effective as of December 30, 2007 and that a
      material weakness existed and continues to exist due to our inability to perform
      sufficient testing of internal controls over financial reporting following
      the
      reverse merger on December 18, 2007. A contributing factor to our internal
      control deficiencies is the Company’s small size and the lack of sufficient
      resources to perform the testing of internal controls within the prescribed
      time
      frame. As defined by the Public Company Accounting Oversight Board’s Auditing
      Standard No. 2, a material weakness is a significant control deficiency or
      a
      combination of significant control deficiencies that results in there being
      more
      than a remote likelihood that a material misstatement of the annual or interim
      financial statements will not be prevented or detected. Management continues
      to
      monitor and assess the controls to ensure compliance.





Because
      of its inherent limitations, our internal control over financial reporting
      may
      not prevent or detect misstatements. Therefore, even those systems determined
      to
      be effective can provide only reasonable assurance with respect to financial
      statement preparation and presentation. Projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions or that the degree of compliance
      with the policies or procedures may deteriorate.


65





This
      annual report does not include an attestation report of our registered public
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the SEC that permit us to provide
      only management’s report in this annual report.





*(b)* *Changes
        in internal control over financial reporting.*





There
      were no changes in our internal control over financial reporting that occurred
      during the most recent fiscal quarter that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**Item 8B.**
              **Other
                  Information.**





None.


**PART
      III**





**Item 9.**
                **Directors,
                    Executive Officers, Promoters, Control Persons and Corporate
                    Governance;
                    Compliance With Section 16(a) of the Exchange
                    Act.**





Our
      executive officers and directors are as follows:





**Name**
            
            **Age**
            
            **Position**George
                Naddaff
            
            78
            
            Chief
                Executive Officer and Chairman of the Board of
                DirectorsCharles
                Cocotas
            
            72
            
            President
                and Chief Operating Officer, DirectorGlenn
                Davis
            
            53
            
            Chief
                Financial OfficerEric
                Spitz
            
            38
            
            Executive
                Vice President of Business DevelopmentRobert
                C. Grayson
            
            62
            
            DirectorJeffrey
                Ross
            
            63
            
            DirectorMark
                Giresi
            
            49
            
            Director





**Background
      of officers and directors**





**George
      Naddaff** has
      been
      UFood’s 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
      President and Chief Operating Officer and a director of UFood 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.


66





**Eric
      Spitz** has been
      UFood’s Executive Vice President of Business Development since the Merger. He
      became KnowFat’s Executive Vice President of Business Development in September
      2007 and was KnowFat’s Co-Chief Executive Officer and President from February
      2004 to September 2007 and a director of KnowFat from March 2004. Mr. Spitz
      held
      the post of CEO for Trakus, a sports technology company that he founded in
      1997,
      until joining the KnowFat management team in 2004. Prior to Trakus, he worked
      in
      various capacities for Information Resources, Inc. Mr. Spitz holds an MBA from
      MIT’s Sloan School of Management and a B.A. from the University of
      Pennsylvania.





**Glenn
      Davis** joined
      KnowFat as its Chief Financial Officer in October 2007 and became Chief
      Financial Officer of UFood upon the Merger. Most recently, Mr. Davis has served
      as CFO of several emerging growth companies, including Multilayer Coating
      Technologies (from August 2006 through April 2007), a former division of
      Polaroid Corp., SmartBargains, Inc. (from July 2005 to December 2005), and
      North
      American Midway Entertainment Corp. (from November 2004 to July 2005), a
      provider of carnival rides, food and beverage services at more than 160 venues
      throughout North America. Previously, Mr. Davis was CFO of Homeruns.com (from
      2000 to 2002), an on-line grocery shopping and delivery service. Between his
      CFO
      positions, Mr. Davis has provided consulting services to various clients on
      financial and accounting matters. Mr. Davis holds an MBA from the Amos Tuck
      School of Business Administration at Dartmouth College and a BA in economics
      from DePauw University and is a Certified Public Accountant.





**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 AnnTaylor Corp., Kenneth Cole and Frisby Technologies.





**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 1997 to 1999, 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. Mr. Giresi has worked for Limited Brands since 2000 and is currently
      Executive Vice President-International, where he oversees the worldwide
      development and expansion for Victoria’s Secret and Bath & Body Works. He
      previously spent 15 years at Burger King Corporation where he held several
      executive positions including Senior Vice President of Franchise
      Operations and Development and Worldwide General Counsel. Mr. Giresi holds
      a BS
      from Villanova University and a JD from Seton Hall University.





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;


67


(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**





The
      Company does not have a class of equity securities registered pursuant to
      Section 12 of the Exchange Act.





**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.





**Item 10.**
            **Executive
                Compensation**




**Summary
      Compensation Table**




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


68





**Name and**
              **Principal**
              **Position(s)**
              **(**a**)**
            
            **Year**
              **(**b**)**
            
            **Salary**
              **(**c**)**
            
            **Bonus**
              **(**d**)**
            
            **Stock
                Awards**
              **(**e**)**
            
            **Option
                Awards**
              **(**f**)**
            
            **Non-Equity
                Incentive**
              **Plan
                Compensation**
              **(**g**)**
            
            **Nonqualified
                Deferred Compensation Earnings**
              **(**h**)**
            
            **All Other
                Annual**
              **Compensation**
              **(**i**)**
            
            **Total**
              **(**j**)**George
                Naddaff, Chairman and CEO
            
            
            2007
            
            $
            221,045
            
            $
            -0-
            
            $
            -0-
            
            $
            136,879
            
            $
            -0-
            
            $
            -0-
            
            $
            22,840
            
            $
            357,9242006
            
            $
            209,257
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-
            
            $
            125,000
            
            $
            334,257Eric
                Spitz, Executive Vice President of Business Development
            
            
            2007
            
            $
            196,391
            
            $
            25,000
            
            $
            -0-
            
            $
            34,219
            
            $
            -0-
            
            $
            -0-
            
            $
            0
            
            $
            255,6102006
            
            $
            200,924
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-
            
            $
            -0-
            
            $
            0
            
            $
            200,924





(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 UFood recognized in its 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
                the
                Company’s Common Stock, risk-free interest rate and expected annual
                dividend yield disclosed in Note 11,*Stock-Based
                Compensation,*of
                the Notes to UFood’s 2007 Consolidated Financial Statements included
                elsewhere in this report.





(2)
            All
                Other Annual Compensation (column (i)) earned by Mr. Naddaff in 2007
                represents the amount of expense UFood recognized in its 2007 Consolidated
                Financial Statements for the repricing of 184,533 warrants issued
                to Mr.
                Naddaff in 2006 for his personal guaranty of the Company’s obligations to
                TD BankNorth, N.A. 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)
            All
                Other Compensation earned by Mr. Naddaff in 2006 represents amounts
                paid
                to him for the sale of franchise locations (see Note 15,*Related
                Party Transactions*of
                the Notes to UFood’s 2007 Consolidated Financial
                Statements).





The
      salaries of Mr. Naddaff and Mr. Spitz are currently $300,000, and $175,000,
      respectively.





**Agreements
      with Executive Officers and Consultants**





On
      May 1,
      2004, KnowFat entered into a Founders’ Agreement with each of (i) George
      Naddaff, UFood’s current Chairman and Chief Executive Officer and (ii) Eric
      Spitz, UFood’s current Executive Vice President of Business Development (each, a
“ **Founder** ”).
      Under
      the Founder’s Agreements, all 1,000,000 shares of KnowFat common stock granted
      to Mr. Naddaff have vested and all 500,000 shares of KnowFat common stock
      granted to Mr. Spitz have vested.




KnowFat
      entered into an employment contract on October 15, 2007 with each Founder that
      provides: (i) the term of each employment agreement is for three years; (ii)
      the
      base salary for Mr. Naddaff and Mr. Spitz is $300,000 and $175,000,
      respectively, plus benefits; (iii) Mr. Naddaff and Mr. Spitz will receive
      options to purchase 1,500,000 and 250,000 UFood shares, respectively, under
      the
      2007 Plan; and (iv) if a Founder’s employment is terminated by KnowFat without
      cause, or by the Founder as a result of a constructive termination by KnowFat,
      or as a result of the Founder’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 the Founder (or the Founder’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 will bear an exercise price of
      $1.00 per share, have a term of ten years and vest over a three-year period
      as
      follows: (A) Mr. Naddaff’s options to purchase (i) 500,000 shares will vest upon
      the grant of the options and (ii) 1,000,000 shares will vest in equal monthly
      amounts of approximately 27,778 shares over a three year period; and (B) Mr.
      Spitz’s options to purchase (i) 125,000 shares will vest upon the grant of the
      options and (ii) 125,000 shares will vest in equal monthly amounts of
      approximately 3,472 shares over a three year period. If Mr. Spitz terminates
      his
      employment voluntarily at a point more than 30 days after the effective date
      of
      registration statement by which the securities sold in the Offering are
      registered for resale, Mr. Spitz is entitled to the same severance
      benefits.


69




The
      Founders 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.





**Outstanding
      Equity Awards at Fiscal Year End**





**Name**
            
            **No.
                of**
              **Securities
                Underlying Unexercised Options (#) Exercisable**
            
            **No.
                of Securities Underlying Unexercised Options (#)
                Unexercisable**
            
            **Equity**
              **Incentive**
              **Plan Awards:
                Number of Securities Underlying Unexercised Unearned
                Options**
            
            **Option**
              **Exercise**
              **Price**
            
            **Option
                Expiration**
              **Date**George
                Naddaff
            
            
            500,000
            
            
            1,000,000
            (1)
            
            -0-
            
            $
            1.00
            
            
            Dec. 17, 2017Eric
                Spitz
            
            
            125,000
            
            
            125,000
            (1)
            
            -0-
            
            $
            1.00
            
            
            Dec. 17, 2017




(1)
            The
                vesting schedule for the unexercised shares is outlined in the section
                titled “Agreements with Executive Officers and
                Consultants”.





**2004
      Stock Option Plan**





KnowFat
      did not grant any options or other stock awards to any named executive officers
      in 2007 or 2006.





**2007
      Equity Incentive Plan**





The
      Board
      of Directors and stockholders of the Company 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.


70




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.




***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, the “ **Code** ”)
      and
      stock appreciation rights, as described below:




·
            Options
                granted under the 2007 Plan entitle the grantee, upon exercise, to
                purchase a specified number of shares from us at a specified exercise
                price per share. The exercise price for shares of Common Stock covered
                by
                an option cannot be less than the fair market value of the Common
                Stock on
                the date of grant unless agreed to otherwise at the time of the grant.




·
            Restricted
                stock awards and restricted stock units may be awarded on terms and
                conditions established by the compensation committee, which may include
                performance conditions for restricted stock awards and the lapse
                of
                restrictions on the achievement of one or more performance goals
                for
                restricted stock units.




·
            The
                compensation committee may make performance grants, each of which
                will
                contain performance goals for the award, including the performance
                criteria, the target and maximum amounts payable, and other terms
                and
                conditions.




·
            The
                2007 Plan authorizes the granting of stock awards. The compensation
                committee will establish the number of shares of Common Stock to
                be
                awarded and the terms applicable to each award, including performance
                restrictions.




·
            Stock
                appreciation rights (SARs) entitle the participant to receive a
                distribution in an amount not to exceed the number of shares of Common
                Stock subject to the portion of the SAR exercised multiplied by the
                difference between the market price of a share of Common Stock on
                the date
                of exercise of the SAR and the market price of a share of Common
                Stock on
                the date of grant of the SAR.




***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.


71





**Director
      Compensation**




On
      February 12, 2008, the Company’s 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 the Company’s 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 the Company’s
                Common Stock. All other members of each committee shall receive an
                annual
                grant of non-qualified options to purchase 2,500 shares of the Company’s
                Common Stock.





KnowFat
      did not award stock options or other compensation to its directors in 2006.
      The
      Company’s directors are reimbursed for reasonable and necessary out-of-pocket
      expenses incurred in connection with their service to the Company, including
      travel expenses.





**Item 11.**
                **Security
                    Ownership of Certain Beneficial Owners and Management and Related
                    Stockholder
                    Matters.**





**Securities
      Authorized for Issuance under Equity Compensation Plans**




As
      of the
      end of fiscal year 2007, UFood had the following securities authorized for
      issuance under its equity compensation plans:







**Plan
                Category**
            **Number of securities to**
              **be issued upon exercise**
              **of outstanding options,**
              **warrants and rights**
            **Weighted-average**
              **exercise price of**
              **outstanding options,**
              **warrants and rights**
            **Number of securities**
              **remaining available for**
              **future issuance under**
              **equity compensation**
              **plans (excluding**
              **securities reflected in**
              **column (a))**(a)
            (b)
            (c)Equity
                compensation plans approved by security holders
            2,254,702
            $0.95
            1,050,000Equity
                compensation plans not approved by security holders
            —
            —
            —Total
            2,254,702
            $0.95
            1,050,000





On
      December 6, 2007, the Company’s board of directors approved the grant of 87,090
      non-qualified stock options to an executive of the Company. 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.


72





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 is subject to approval by a majority
      of shares represented at the Company’s annual meeting.




In
      2006,
      the Company issued a warrant 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.


73


**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 8, 2008, by (i) each person who,
      to
      our knowledge, owns more than 5% of the Common Stock; (ii) each of the directors
      and executive officers of the Company; and (iii) all of our executive officers
      and directors as a group. Unless otherwise indicated in the footnotes to the
      following tables, each person named in the table has sole voting and investment
      power and that person’s address is c/o UFood, 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 8, 2008
      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.




**Name
                and Address of Beneficial Owner**
            
            **Amount and**
              **Nature of**
              **Beneficial**
              **Ownership**
            
            **Percent of**
              **Class****+**George
                Naddaff(1)
            
            
            2,317,641
            
            
            6.6
            %Charles
                A. Cocotas(2)
            
            
            230,674
            
            
            *Eric
                Spitz(3)
            
            
            910,304
            
            
            2.7
            %Robert
                C. Grayson(4)
            
            
            106,226
            
            
            *Jeffrey
                Ross(5)
            
            
            114,208
            
            
            *Mark
                Giresi(6)
            
            
            5,897
            
            
            *Glenn
                Davis(7)
            
            
            2,564
            
            
            *Directors
                and Executive Officers as a group(1)-(7)
            
            
            3,687,514
            
            
            10.5
            %Alan
                Antokal(8)
            
            
            2,373,029
            
            
            7.0
            %Spencer
                Trask Ventures, Inc. and its affiliates(9)
            
            
            6,328,200
            
            
            17.1
            %535
                Madison AvenueNew
                York, New York 10022Kevin
              Kimberlin(10)
            
            
            6,328,200
            
            
            17.1
            %Spencer
                Trask Ventures, Inc.535
                Madison AvenueNew
                York, NY 10022


*****  Less
      than
      one percent


+ Based
      on
      34,022,158 shares of Common Stock issued and outstanding as of April 8,
      2008.





(1)
            Includes
                1,549,775 shares of Common Stock beneficially owned by Mr. Naddaff.
                Also
                includes 184,533 shares of Common Stock issuable upon exercise of
                options
                or warrants currently exercisable or exercisable within 60 days of
                the
                date hereof and 583,333 shares of Common Stock issuable upon exercise
                of
                options granted to Mr. Naddaff pursuant to his employment agreement
                which
                will be exercisable within 60 days of the date hereof. Does not include
                an
                additional 916,667 shares of Common Stock issuable upon exercise
                of
                options granted to Mr. Naddaff pursuant to his employment agreement
                which
                will not be exercisable within 60 days of the date
                hereof.


74




(2)
            Consists
                of 230,674 shares of Common Stock issuable upon exercise of options
                or
                warrants currently exercisable or exercisable within 60 days of the
                date
                hereof. Does not include 175,000 shares of Common Stock issuable
                upon
                exercise of options granted to Mr. Cocotas pursuant to the Company’s 2007
                Stock Option Plan which will not be exercisable within 60 days of
                the date
                hereof.


(3)
            Includes
                774,888 shares of Common Stock beneficially owned by Mr. Spitz. Also
                includes 135,416 shares of Common Stock issuable upon exercise of
                options
                granted to Mr. Spitz pursuant to his employment agreement which will
                be
                exercisable within 60 days of the date hereof. Does not include an
                additional 114,584 shares of Common Stock issuable upon exercise
                of
                options granted to Mr. Spitz pursuant to his employment agreement
                which
                will not be exercisable within 60 days of the date
                hereof.


(4)
            Includes
                74,815 shares of Common Stock beneficially owned by Mr. Grayson.
                Also
                includes 31,411 shares of Common Stock issuable upon exercise of
                options
                or warrants currently exercisable or exercisable within 60 days of
                the
                date hereof. Does not include an additional 98,257 shares of Common
                Stock
                issuable upon exercise of options granted to Mr. Grayson pursuant
                to the
                Company’s Non-Employee Director Compensation Plan which will not be
                exercisable within 60 days of the date
                hereof.


(5)
            Includes
                97,646 shares of Common Stock beneficially owned by Mr. Ross. Also
                includes 16,562 shares of Common Stock issuable upon exercise of
                options
                or warrants currently exercisable or exercisable within 60 days of
                the
                date hereof. Does not include an additional 99,103 shares of Common
                Stock
                issuable upon exercise of options granted to Mr. Ross pursuant to
                the
                Company’s Non-Employee Director Compensation Plan which will not be
                exercisable within 60 days of the date
                hereof.


(6)
            Includes
                5,897 shares of Common Stock issuable upon exercise of options or
                warrants
                currently exercisable or exercisable within 60 days of the date hereof.
                Does not include an additional 99,103 shares of Common Stock issuable
                upon
                exercise of options granted to Mr. Giresi pursuant to the Company’s
                Non-Employee Director Compensation Plan which will not be exercisable
                within 60 days of the date hereof.


(7)
            Includes
                2,564 shares of Common Stock issuable upon exercise of options or
                warrants
                currently exercisable or exercisable within 60 days of the date hereof.
                Does not include an additional 47,436 shares of Common Stock issuable
                upon
                exercise of options granted to Mr. Davis pursuant to the Company’s 2007
                Stock Option Plan which will not be exercisable within 60 days of
                the date
                hereof.


(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
                the
                date hereof.


(9)
            Based
                upon information provided to the Company by sources the Company believes
                are reliable, this includes 2,400,000 shares of Common Stock held
                by
                Spencer Trask Investment Partners, LLC and 940,000 shares of Common
                Stock
                held by Spencer Trask Breakthrough Partners LLC. It also includes
                2,988,200, shares of Common Stock issuable upon excercise of warrants
                issued to Spencer Trask Ventures Inc. as Placement Agent and currently
                excercisable or excercisable within 60 days of the date hereof. Kevin
                Kimberlin is the beneficial owner of the securities held by the forgoing
                Spencer Trask entities. Does not include 360,000 shares held by an
                employer of Spenscer Trask Ventures
                Inc.


(10)
            Consists
                of 6,328,200 shares held by the Spenser Trask entities described
                in
                footnote (9) above.





**Item 12.**
                **Certain
                    Relationships and Related Transactions, and Director
                    Independence.**





**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 to purchase up to 184,533 shares of KnowFat’s common
      stock in exchange for Mr. Naddaff’s personal guaranty of KnowFat’s credit
      obligations to the Bank.





KnowFat’s
      directors have received stock option
      grants and reimbursement of certain expenses. See the “Director Compensation”
section of this Report. Two of the Company’s directors are also executive
      officers. Mr. Naddaff
      and Mr. Spitz entered
      into employment agreements with the Company and each receives compensation
      thereunder. See the “Agreements with Executive Officers and Consultants” section
      of this Report.


75





**Transactions
      with Former UFood Shareholders**





Prior
      to
      the closing of the Merger, UFood transferred all of its operating assets and
      liabilities to its wholly owned subsidiary, Axxent Media, Inc., and
      contemporaneously with the closing of the Merger split-off Axxent Media, Inc.
      through the sale of all of the outstanding shares of Axxent Media Inc. to Brent
      Hahn, the former Chief Executive Officer of UFood. In connection with the
      split-off, 16,200,000 shares of Common Stock held by Mr. Hahn prior to the
      Merger were surrendered and cancelled without further consideration.




**Transactions
      with the Placement Agent and Its Related Parties**





The
      Company retained the services of Spencer Trask Ventures, Inc. as placement
      agent
      (Placement Agent) in connection with a private offering (the Offering) of up
      to
      8,000,000 of its securities (Units), 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. The Company 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 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.





The
      Placement Agent acted as UFood’s placement agent in connection with its sale of
      $2,000,000 of principal amount of UFood Convertible Notes which was consummated
      in September 2007 (the Note Offering). The
      Company paid $200,000 to the Placement Agent as cash compensation for such
      services. In addition, the Company issued a warrant to purchase 800,000 shares
      of Common Stock at an exercise price of $1.00 per share as additional
      compensation. The warrants have a term of seven-years and are fully exercisable.
      The Company also paid to the Placement Agent an expense allowance of $75,000
      in
      connection with such placement.




In
      August
      2007, Spencer Trask Breakthrough Partners (STBP), a party related to the
      Placement Agent of the Note Offering, purchased an aggregate of 3,600,000 shares
      of Common Stock from various shareholders of UFood who were selling shareholders
      in UFood’s Form SB-2 Registration Statement that was declared effective by the
      SEC in August 2006. The aggregate purchase price paid to such shareholders
      by
      STBP for such shares was $525,000. In addition, STBP purchased $50,000 of UFood
      Convertible Notes in September 2007 which converted to 102,125 shares of Common
      Stock upon the consummation of the Offering.




STBP
      subsequently transferred 2,400,000 shares of Common Stock to Spencer Trask
      Investment Partners, LLC, a related party to the Placement Agent, and 360,000
      shares to an individual employed by the Placement Agent.


**Board
      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.


76


**Item
                13.**
            **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 from 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 from 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 from 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 from 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
                from
                the Company’s Registration Statement on Form SB-2 filed with the
                Securities and Exchange Commission on July 31, 2006)4.1
            
            Form
                of Investor Warrant of UFood Restaurant Group, Inc. issued as of
                December
                18, 2007 (incorporated by reference from the Company’s Form 8-K filed with
                the Securities and Exchange Commission on December 26,
                2007)4.2
            
            Form
                of Lock-Up Agreement (incorporated by reference from the Company’s Form
                8-K filed with the Securities and Exchange Commission on December
                26,
                2007)10.1
            
            Form
                of Registration Rights Agreement, dated as of December 18, 2007,
                by and
                between UFood Restaurant Group, Inc. and the investors in the Offering
                (incorporated by reference from the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 26,
                2007)10.2
            
            Split-Off
                Agreement, dated as of December 18, 2007, by and among UFood Restaurant
                Group, Inc., Brent Hahn, Axxent Media Inc. and KnowFat Franchise
                Company,
                Inc.(incorporated by reference from the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 26,
                2007)10.3
            
            General
                Release Agreement, dated as of December 18, 2007, by and among UFood
                Restaurant Group, Inc., Brent Hahn, Axxent Media, Inc. and KnowFat
                Franchise Company, Inc.(incorporated by reference from the Company’s Form
                8-K filed with the Securities and Exchange Commission on December
                26,
                2007)10.4
            
            Employment
                Agreement between KnowFat Franchise Company, Inc. and George Naddaff
                (incorporated by reference from the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 26,
                2007)10.5
            
            Employment
                Agreement between KnowFat Franchise Company, Inc. and Eric Spitz
                (incorporated by reference from the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 26,
                2007)10.6
            
            KnowFat
                Franchise Company, Inc. 2004 Stock Option Plan (incorporated by reference
                from the Company’s Form 8-K filed with the Securities and Exchange
                Commission on December 26,
                2007)


77





10.7
            
            UFood
                Restaurant Group, Inc. 2007 Equity Incentive Plan (incorporated by
                reference from 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
                from 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 from the Company’s Form 8-K filed with the Securities and
                Exchange Commission on December 26, 2007)10.10
            
            Escrow
                Agreement by and between UFood Restaurant Group, Inc. and Gottbetter
&
                Partners, LLP, dated December 18, 2007 (incorporated by reference
                from the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                December 26, 2007)10.11
            
            Escrow
                Agreement by and between UFood Restaurant Group, Inc., George Naddaff,
                Eric Spitz and Gottbetter & Partners, LLP, dated December 18, 2007
                (incorporated by reference from the Company’s Form 8-K filed with the
                Securities and Exchange Commission on December 26,
                2007)10.12
            
            Securities
                Purchase Agreement by and between UFood Franchise Company, inc. and
                the
                Buyers (as defined therein), dated September 24, 2007 (incorporated
                by
                reference from the Company’s Form 10-QSB filed with the Securities and
                Exchange Commission on December 13, 2007)10.13
            
            Form
                of Investor Note issued by UFood Franchise Company, Inc. (incorporated
                by
                reference from the Company’s Form 10-QSB filed with the Securities and
                Exchange Commission on December 13, 2007)10.14
            
            Form
                of Placement Agent Warrant issued as of October 4, 2007 (incorporated
                by
                reference from the Company’s Form 10-QSB filed with the Securities and
                Exchange Commission on December 13, 2007)10.15
            
            Placement
                Agency Agreement by and between UFood Franchise Company, Inc. and
                Spencer
                Trask Ventures, Inc., dated as of August 24, 2007 (incorporated by
                reference from the Company’s Form 10-QSB filed with the Securities and
                Exchange Commission on December 13, 2007)10.16
            
            Subordination
                Agreement by and between T.D. Banknorth, N.A. and UFood Franchise
                Company,
                Inc., dated as of September 24, 2007 (incorporated by reference from
                the
                Company’s Form 10-QSB filed with the Securities and Exchange Commission on
                December 13, 2007)10.17
            
            Bridge
                Loan Agreement by and between KnowFat Franchise Company, Inc. and
                UFood
                Franchise Company, dated as of September 24, 2007 (incorporated by
                reference from the Company’s Form 10-QSB filed with the Securities and
                Exchange Commission on December 13, 2007)10.18
            
            Bridge
                Note issued by KnowFat Franchise Company, Inc. to UFood Franchise
                Company,
                Inc. dated September 24, 2007 (incorporated by reference from the
                Company’s Form 10-QSB filed with the Securities and Exchange Commission on
                December 13, 2007)10.19
            
            Bridge
                Note issued by KnowFat Franchise Company, Inc. to UFood Franchise
                Company
                dated October 4, 2007 (incorporated by reference from the Company’s Form
                10-QSB filed with the Securities and Exchange Commission on December
                13,
                2007)10.20
            
            Employment
                agreement between UFood Restaurant Group, Inc. and Charles A. Cocotas
                (incorporated by reference from the Company’s Form 10-QSB filed with the
                Securities and Exchange Commission on February 19,
                2008)


78





10.21
            
            Placement
                Agency Agreement by and between UFood Restaurant Group, Inc., KnowFat
                Franchise Company, Inc. and Spencer Trask Ventures, Inc. dated October
                17,
                2007*10.22
            
            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*10.23
            
            Form
                of Subscription Agreement between UFood Restaurant Group, Inc., Spencer
                Trask Ventures, Inc. and Private Placement Investors*10.24
            
            Form
                of Warrant Issued to Spencer Trask Ventures, Inc. in connection with
                the
                Offering*10.25
            
            Finder’s
                Fee Agreement between UFood Restaurant Group, Inc. and Spencer Trask
                Ventures, Inc. dated December 18, 2007*10.26
            
            UFood
                Restaurant Group, Inc. Non-Employee Director Compensation Plan
                (incorporated by reference from the Company’s Form 10-QSB filed with the
                Securities and Exchange Commission on February 19,
                2008)14.1
            
            UFood
                Restaurant Group, Inc. Code of Ethics (incorporated by reference
                from the
                Company’s Form 10-QSB 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 from the Company’s Form 8-K/A filed with the Securities and
                Exchange Commission on March 11, 2008)21
            
            Subsidiaries
                of the Registrant*31.1
            
            Certification
                of CEO required by Section 302 of the Sarbanes-Oxley Act of
                2002*31.2
            
            Certification
                of CFO required by Section 302 of the Sarbanes-Oxley Act of
                2002*32.1
            
            Certification
                of CEO required by Section 906 of the Sarbanes-Oxley Act of
                2002*32.2
            
            Certification
                of CFO required by Section 906 of the Sarbanes-Oxley Act of
                2002**
            
            Filed
              herewith


79


**Item 14.**
                **Principal
                    Accountant Fees and
                    Services.**





The
      following table sets forth the fees we paid to Carlin, Charron & Rosen, LLP
      (CCR), our independent registered public accounting firm, during our fiscal
      years ended December 30, 2007 and December 31, 2006 for: (i) services rendered
      for the audit of our annual financial statements and the review of our quarterly
      financial statements; (ii) services rendered that are reasonably related to
      the
      performance of the audit or review of our financial statements and that are
      not
      reported as Audit Fees; (iii) services rendered in connection with tax
      compliance, tax advice and tax planning, and (iv) all other services
      rendered.


Year
                  EndedDecember 30, 2007
              
              December 31, 2006Audit
                  fees (1)
              
              $
              35,344
              
              $
              24,055Audit-related
                  fees
              
              
              —
              
              
              —Tax
                  fees (2)
              
              
              20,380
              
              
              4,051All
                  other fees (3)
              
              
              70,085
              
              
              —Total
                  fees
              
              $
              125,809
              
              $
              28,106





(1)
            Audit
                fees represent payments made by KnowFat to CCR in 2007 and 2006 for
                professional services in connection with the audit of our annual
                financial
                statements. The payments were made prior to the reverse Merger on
                December
                18, 2007 and, therefore, were not approved by the Audit
                Committee.


(2)
            Tax
                fees represent payments made by KnowFat to CCR in 2007 and 2006 for
                their
                preparation of our federal and state income tax returns. The payments
                were
                made prior to the reverse Merger on December 18, 2007 and, therefore,
                were
                not approved by the Audit
                Committee.


(3)
            All
                other fees are comprised of (i) $55,085 paid to CCR for professional
                services in connection with their review of KnowFat’s 2007 quarterly
                financial statements and the Current Report on Form 8-K filed on
                December
                26, 2007 in connection with the Merger and (ii) $15,000 for accounting
                assistance prior to the Merger. These amounts were not approved by
                the
                Audit Committee.





On
      February 12, 2008, the Company’s Board of Directors designated an Audit
      Committee. The Audit Committee pre-approves all audit and non-audit services
      to
      be provided by the independent registered public accounting firm. The Board
      of
      Directors and the Audit Committee in their discretion may direct the appointment
      of a different independent registered public accounting firm at any time during
      the year if they determine that such a change would be in the best interests
      or
      our Company and our stockholders.





The
      Audit
      Committee’s responsibilities include:





·
            selecting,
                approving the compensation of, and assessing the independence of
                our
                registered public accounting firm;





·
            overseeing
                the work of our registered public accounting
                firm;





·
            reviewing
                with management and our registered public accounting firm the effect
                of
                regulatory and accounting
                initiatives;





·
            reviewing
                and discussing with management and the registered public accounting
                firm
                our annual and quarterly financial statements and related disclosures;
                and





·
            meeting
                independently with our registered public accounting firm and
                management.


80





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





UFOOD
              RESTAURANT GROUP, INC.Date:
                April 14, 2008
            By:
            /s/
                George NaddaffGeorge
                NaddaffChairman
                and Chief Executive Officer





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





Signature
              
              Title
              
              Date/s/
                  George Naddaff
              
              Chairman
                  of the Board and
                Chief
                  Executive Officer
              
              April
                  14, 2008George
                  Naddaff
              
              (Principal
                Executive Officer)/s/
                  Charles A. Cocotas
              
              President
                  and Chief Operating Officer, Director
              
              April
                  14, 2008Charles
                  A. Cocotas/s/
                  Glenn E.Davis
              
              Chief
                  Financial Officer
                (Principal
                  Financial Officer)
              
              April
                  14, 2008Glenn E.
                Davis/s/
Mark
                  Giresi
              
              Director
              
              April
                  14, 2008Mark
                GiresiDirector
              
              April
                  14, 2008Robert
                Grayson/s/
                  Jeffrey Ross
              
              Director
              
              April
                  14, 2008Jeffrey
                  Ross
  81