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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 27, 2009
 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.
  Nevada
    
    20-4463582(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
  
 Yes o No þ
 Yes þ No o
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    9Item 2. Properties
    
    
    23Item 3. Legal Proceedings
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters
And Issuer Purchases of Equity Securities
    
    
    25Item 6. Selected Financial Data
    
    
    26Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    26Item 7A. Quantitive and Qualitive Disclosures about Market Risk
    
    
    39Item 8. Financial Statements and Supplementary Data
    
    
    39Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    70Item 9A. Controls and Procedures
    
    
    70Item 9B Other Information
    
    
    71PART IIIItem 10. Directors, Executive Officers and
Corporate Governance
    
    
    72Item 11. Executive Compensation
    
    
    72Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    72Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    72Item 14. Principal Accounting Fees and Services
    
    
    72PART IVItem 15 Exhibits
    
    
    73Signatures
    
    
    74Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Forward-Looking Statements
  
 PART I
 
 Item 1.
    
    Business
     3




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
    
    Dallas-Fort Worth International Airport and Parkland Hospital in Dallas, Texas.
 
    
    Naples, FL
 
    
    San Jose, CA
   6




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
    
    Better Burger (New York City)
 
    
    Energy Kitchen (New York City)
 
    
    The Pump (New York City)
 
    
    Topz (California)
 
    
    Evos (California, Florida, Nevada, North Carolina)
 
    
    b. good (Boston)
 
    
    Soma Grill (Arizona)
 
    
    Healthy Bites (Florida)
        8




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Item 1A.
    
    Risk Factors
 Risks Related to Our Company and Our Business
 We have a limited operating history and are subject to all of the risks inherent in the expansion
of an early-stage business.
  We
have not been profitable to date and expect our operating losses to continue for the foreseeable
future; we may never be profitable. Our auditors have included an
explanatory paragraph in their opinion as to the substantial doubt
about our ability to continue as a going concern.
    9




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There are risks inherent in expansion of operations, including our ability to sell franchises,
generate profits from new restaurants, find suitable sites and develop and construct stores in a
timely and cost-effective way
    
    
    the availability of suitable sites for new stores;
 
    
    our and our franchisees ability to negotiate acceptable lease or purchase terms for
new locations, obtain adequate financing, on favorable terms, requires to construct,
build-out and operate new stores and meet construction schedules, and hire and train and
retain qualified store managers and personnel;
 
    
    managing construction and development costs of new stores at affordable levels;
 
    
    the establishment of brand awareness in new markets; and
 
    
    the ability of our Company and our area developers to manage this anticipated
expansion.
   10




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
    
    labor disputes;
 
    
    shortages of materials or skilled labor;
 
    
    requirements to use union labor;
 
    
    energy prices;
 
    
    adverse weather;
 
    
    unforeseen engineering problems;
 
    
    environmental problems;
 
    
    construction or zoning problems;
 
    
    local government regulations;
 
    
    modifications in design; and
 
    
    other unanticipated increases in costs.
  Our business plan is dependent on the franchising model; therefore, our success will generally
depend on the success of our franchisees and the profitability of their stores
   11




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Our past and future operating losses may make it more difficult for us to attract new franchisees
  We may be subject to general risk factors affecting the restaurant industry, including current
economic climate, costs of labor, food prices, gasoline prices and the unemployment levels
  
    
    adverse changes in national, regional or local economic or market conditions;
 
    
    increased costs of labor (including increases in the minimum wage);
 
    
    increased costs of food products;
 
    
    availability of, and ability to obtain, adequate supplies of ingredients that meet
our quality standards;
 
    
    increased energy costs;
 
    
    management problems;
 
    
    increases in the number and density of competitors;
 
    
    limited alternative uses for properties and equipment;
 
    
    changing consumer tastes, habits and spending priorities;
 
    
    changing demographics;
 
    
    the cost and availability of insurance coverage;
 
    
    uninsured losses;
 
    
    changes in government regulation;
  12




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
    
    changing traffic patterns;
 
    
    weather conditions; and
    
    local, regional or national health and safety matters.
  There is intensive competition in our industry, and we will be competing with national and regional
chains and independent restaurant operators.
  Our business has been adversely affected by declines in discretionary spending and may be affected
by changes in consumer preferences.
    13




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Increases in costs, including food, labor and energy prices, will adversely affect our results of
operations
  Our stores are concentrated in a small geographic area
  The growth of our Company is dependent on the skills and expertise of management and key personnel.
  Our food service business and the restaurant industry are subject to extensive government
regulation
   
    
    Establish general standards, specifications and requirements for the construction,
design and maintenance of the store premises;
 
    
    regulate matters affecting the health, safety and welfare of our customers, such as
general health and sanitation requirements for restaurants, employee practices concerning
the storage, handling, cooking and preparation of food, special health, food service and
licensing requirements, restrictions on smoking, exposure to tobacco smoke or other
carcinogens or reproductive toxicants and saccharin and availability of and requirements
for public accommodations, including restrooms;
 
    
    set standards pertaining to employee health and safety;
  14




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
    
    set standards and requirements for fire safety emergency preparedness; regulate the
proper use, storage and disposal of waste, insecticides, and other hazardous materials;
    
    establish general requirements or restrictions on advertising containing false or
misleading claims, or health and nutrient claims on menus or otherwise, such as low
calorie or fat free, and
 
    
    establish requirements concerning withholdings and employee reporting of taxes on tips.
     We have not conducted a comprehensive review of all the potential environmental liabilities at our
properties.
   15




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Our success and competitive position depends on our ability to protect our proprietary intellectual
property
  Our plan to rapidly increase the number of stores may make future results unpredictable, as our
success will depend on acceptance of our products in new markets
  New stores, once opened, may not be profitable, and the increases in average store sales and
Company store sales that we have experienced in the past may not be indicative of future results
  
    
    sales performance of new stores
 
    
    competition, either from competitors in the restaurant industry or our own stores;
 
    
    changes in consumer preferences and discretionary spending;
 
    
    consumer understanding and acceptance of UFood stores;
 
    
    road construction and other factors limiting access to new stores;
 
    
    general economic conditions, which can affect store traffic, local labor costs and
prices we pay for ingredients and other supplies; and
 
    
    changes in government regulation.
  16




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Expansion into new markets may present increased risks due to our unfamiliarity with those areas
  We may not persuade customers of the benefits of paying higher prices for higher-quality food
  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
  Our franchisees could take actions that harm our reputation and reduce our royalty revenues
   17




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We could be party to litigation that could adversely affect us by distracting management,
increasing expenses or subjecting us to material money damages and other remedies
  Unfavorable publicity or consumer perception of our nutritional products and any similar products
distributed by other companies could cause fluctuations in our operating results and could have a
material adverse effect on our reputation, the demand for our products and our ability to generate
revenues
  We may incur material product liability claims, which could increase our costs and adversely affect
our reputation, revenues and operating income
   18




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We will need to raise additional capital to meet our business requirements in the future, and such
capital raising may be costly or difficult to obtain and could dilute current stockholders
ownership interests
  
    
    pursuing growth opportunities, including more rapid expansion;
 
    
    opening additional Company-owned stores beyond the four we currently operate
 
    
    acquiring complementary businesses
 
    
    making capital improvements to improve our infrastructure;
 
    
    hiring qualified management and key employees;
 
    
    research and development of new products;
 
    
    increased advertising and marketing expenses;
 
    
    responding to competitive pressures;
 
    
    complying with regulatory requirements such as licensing and registration; and
 
    
    maintaining compliance with applicable laws.
    The failure of our subsidiary to satisfy its obligations under an existing credit facility could
result in a foreclosure on our assets.
   19




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Compliance with the reporting requirements of federal securities laws can be expensive
  Applicable regulatory requirements, including those contained in and issued under the
Sarbanes-Oxley Act, may make it difficult for us to retain or attract qualified officers and
directors, which could adversely affect the management of our business and our ability to obtain or
retain listing of our common stock
   We are a holding company that depends on cash flow from our subsidiaries to meet our obligations
and pay dividends; our subsidiary is restricted from making distributions to us.
   20




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We have reported a material weakness in our internal control over financial reporting as of
December 27, 2009. If we fail to maintain an effective system of internal controls, including
internal controls over financial reporting, we may not be able to accurately report our financial
results or detect fraud. Consequently, investors could lose confidence in our financial reporting
and this may decrease the trading price of our stock.
   We may be exposed to potential risks resulting from new requirements under Section 404 of the
Sarbanes-Oxley Act.
   Risks Related to Our Securities
 There is not now, and there may not ever be, an active market for our common stock
   21




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We cannot assure you that our common stock will become liquid or that it will be listed on a
securities exchange.
  Applicable SEC rules governing the trading of penny stocks limits the trading and liquidity of
our common stock, which may affect the trading price of the common stock.
  The price of our common stock may become volatile due to our operating results, products offered by
our competitors and stock market conditions, which could lead to losses by investors and costly
securities litigation.
  
    
    actual or anticipated variations in our operating results;
 
    
    announcements of developments by us or our competitors;
 
    
    announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
 
    
    adoption of new accounting standards affecting our industry;
 
    
    additions or departures of key personnel;
 
    
    introduction of new products by us or our competitors;
 
    
    sales of our common stock or other securities in the open market; and
 
    
    other events or factors, many of which are beyond our control.
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We do not anticipate dividends to be paid on the common stock, and investors may lose the entire
amount of their investment.
  Securities analysts may not initiate coverage or continue to cover our common stock, and this may
have a negative impact on its market price.
  You may experience dilution of your ownership interests because of the future issuance of
additional shares of common stock.
  
 Item 2.
    
    Properties
   23




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Year ending December 31,2010
    
    $
    656,0002011
    
    
    670,0002012
    
    
    687,0002013
    
    
    695,0002014
    
    
    421,000Thereafter
    
    
    236,000$
    3,365,000
 
 Item 3.
    
    Legal Proceedings
    
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
   24




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
  www.nasdaq.com
 The fiscal year endedDecember 27, 2009
    
    
    December 28, 2008High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    0.36
    
    
    $
    0.10
    
    
    $
    1.52
    
    
    $
    0.95Second Quarter
    
    $
    0.28
    
    
    $
    0.17
    
    
    $
    2.10
    
    
    $
    1.15Third Quarter
    
    $
    0.20
    
    
    $
    0.09
    
    
    $
    1.65
    
    
    $
    0.625Fourth Quarter
    
    $
    0.14
    
    
    $
    0.07
    
    
    $
    0.67
    
    
    $
    0.18
 Dividends
  Securities Authorized for Issuance under Equity Compensation Plans
   25




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Number of securitiesNumber of
    
    
    
    
    
    
    remaining available forsecurities to be
    
    
    
    
    
    
    future issuance underissued upon
    
    
    Weighted-average
    
    
    equity compensationexercise of
    
    
    exercise price of
    
    
    plans (excludingoutstanding
    
    
    outstanding options,
    
    
    securities reflected inoptions
    
    
    warrants and rights
    
    
    column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    3,952,747
    (2)
    
    $
    0.20
    
    
    
    2,080,010Equity compensation
plans not approved
by security holders
    
    
    175,000
    (1)
    
    $
    0.15
    
    
    
    0Total
    
    
    4,127,747
    
    
    $
    0.19
    
    
    
    2,080,010
 (1)
    
    The options to purchase 175,000 shares shown in the table were not granted pursuant to a
compensation plan, but instead represent non-qualified stock options granted to consultants in
lieu of cash payment. The options granted were fully vested.(2)
    
    On May 13, 2009, the Board of Directors approved the grant of 3,929,990 options to acquire
shares of the Companys common stock under the Companys 2007 Equity Incentive Plan to
officers and employees, effective upon the cancelation of the previous options granted to such
persons, and the vesting scheduled will remain the same as the canceled ones.  
 Item 6.
    
    Selected Financial Data
  
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   26




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Critical Accounting Policies & Estimates
     Franchisors
  27




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Year EndedDecember 27,
    
    
    December 28,2009
    
    
    2008Revenues:Store sales
    
    
    85.0
    %
    
    
    93.8
    %Franchise royalties and fees
    
    
    7.9
    
    
    
    5.8Other revenue
    
    
    7.1
    
    
    
    0.4100.0
    %
    
    
    100.0
    %Costs and expenses:Store operating expenses (1):Food and paper cost
    
    
    32.6
    %
    
    
    34.5
    %Cost of goods sold
    
    
    7.4
    
    
    
    9.3Labor
    
    
    29.2
    
    
    
    31.9Occupancy
    
    
    12.0
    
    
    
    12.1Other store operating expenses
    
    
    16.8
    
    
    
    18.2General and administrative expenses
    
    
    67.8
    
    
    
    116.5Advertising, marketing and promotion expenses
    
    
    4.0
    
    
    
    15.2Depreciation and amortization
    
    
    7.5
    
    
    
    8.6Loss on disposal of assets, Impairment of
Goodwill and
Long-lived assets
    
    
    4.1
    
    
    
    35.7Total costs and expenses
    
    
    163.6
    
    
    
    270.8Operating loss
    
    
    (63.6
    )
    
    
    (170.8
    )Other income (expense):Interest income
    
    
    0.4
    
    
    
    1.4Interest expense
    
    
    (17.5
    )
    
    
    (1.3
    )Other expense, net
    
    
    8.1
    
    
    
    1.2Other income (expense), net
    
    
    (9.0
    )
    
    
    1.3Loss before income taxes
    
    
    (72.6
    )
    
    
    (169.6
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    
    (72.6
    %)
    
    
    (169.6
    %)
 (1)
    
    Food and paper costs are shown as a percentage of food sales. The cost of nutritional
products, labor, occupancy and other store operating expenses are shown as a
percentage of total store sales.  30




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Year EndedDecember 27,
    
    
    December 28,2009
    
    
    2008Company-owned locations:Locations at the beginning of the year
    
    
    4
    
    
    
    4Locations opened
    
    
    
    
    
    
    Locations closed
    
    
    
    
    
    
    Locations sold
    
    
    
    
    
    
    Locations transferred
    
    
    
    
    
    
    Locations at the end of the year
    
    
    4
    
    
    
    4Franchise-operated locations:Locations at the beginning of the year
    
    
    6
    
    
    
    4Locations opened
    
    
    4
    
    
    
    3Locations closed
    
    
    (6
    )
    
    
    (1
    )Locations sold
    
    
    
    
    
    
    Locations transferred
    
    
    
    
    
    
    Locations at the end of the year
    
    
    4
    
    
    
    6System-wide locationsLocations at the beginning of the year
    
    
    10
    
    
    
    8Locations opened
    
    
    4
    
    
    
    3Locations closed
    
    
    (6
    )
    
    
    (1
    )Locations sold
    
    
    
    
    
    
    Locations transferred
    
    
    
    
    
    
    Locations at the end of the year
    
    
    8
    
    
    
    10
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EstimatedCapital Requiredto Fund theCompanysOperating Planfrom Dec. 27, 2009to Dec 31, 2011(Millions)Capital required to fund the Companys operating plan (millions):Operating activities (excluding marketing & promotion services
shown below)
    
    $
    4.4Other capital expenditures
    
    
    1.3Marketing and promotion services
    
    
    0.5Debt repayment
    
    
    0.3Estimated capital required through December 30, 2011
    
    $
    6.5
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Less Than
    
    
    1 Year to
    
    
    4 Years to
    
    
    More thanTotal
    
    
    1 Year
    
    
    3 Years
    
    
    5 Years
    
    
    5 YearsLong-term debt
    
    $
    3,901,883
    
    
    $
    857,882
    (1)
    
    $
    3,044,001
    
    
    $
    
    
    
    $
    Capital leases
    
    
    97,892
    
    
    
    58,820
    
    
    
    39,072
    
    
    
    
    
    
    
    Operating leases
    
    
    3,365,000
    
    
    
    656,000
    
    
    
    1,357,000
    
    
    
    1,116,000
    
    
    
    236,000Scheduled interest payments(2)
    
    
    1,106,263
    
    
    
    487,405
    
    
    
    618,858
    
    
    
    
    
    
    
    
 (1)
    
    During the twelve months ended December 27, 2009, we repaid $375,511
of our long-term debt including $350,004 paid to TD Bank for the
credit facility we have with them. Long-term debt due in less than 1
year includes $450,000 that becomes due upon the sale of our Landmark
Center restaurant and store. We currently have no plans to sell our
Landmark Center unit.(2)
    
    Interest on the term note payable to T.D. Banknorth, N.A. is payable
monthly at the banks prime rate (3.25% per annum at December 27,
2009). Future interest on the T.D. Banknorth note was calculated using
an assumed rate of 3.25%. Also includes, the interest due to the
Debenture holders at an interest rate of 8% per annum.     36




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New Accounting Pronouncements
        37




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Item 7A.
    
    Quantitive and Qualitive Disclosures About Market Risk
  
 Item 8.
    
    Financial Statements and Supplementary Data
 Index to Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    40Consolidated Balance Sheets as of December 27, 2009 and
December 28, 2008
    
    
    41 - 42Consolidated Statements of Operations for the Fiscal Years
Ended December 27, 2009 and December 28, 2008
    
    
    43Consolidated Statements of Stockholders Equity (Deficit) for the
Fiscal Years Ended December 27, 2009 and December 28, 2008
    
    
    44Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 27, 2009 and December 28, 2008
    
    
    45Notes to Consolidated Financial Statements
    
    
    46 - 68
  39




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2009
    
    
    2008Current assets:Cash and cash equivalents
    
    $
    2,278,427
    
    
    $
    787,551Restricted cash
    
    
    60,425
    
    
    
    417,490Accounts receivable
    
    
    180,134
    
    
    
    152,373Inventories
    
    
    123,648
    
    
    
    141,807Prepaid expenses and other current assets
    
    
    68,605
    
    
    
    79,6572,711,239
    
    
    
    1,578,878Property and equipment:Equipment
    
    
    937,857
    
    
    
    925,329Furniture and fixtures
    
    
    202,205
    
    
    
    155,744Leasehold improvements
    
    
    1,744,594
    
    
    
    1,782,919Website development costs
    
    
    37,050
    
    
    
    49,3892,921,706
    
    
    
    2,913,381Accumulated depreciation and amortization
    
    
    1,560,402
    
    
    
    1,172,9841,361,304
    
    
    
    1,740,397Other assets:Deferred financing costs, net
    
    
    757,873
    
    
    
    22,828Goodwill
    
    
    75,363
    
    
    
    211,363Other
    
    
    86,560
    
    
    
    89,200919,796
    
    
    
    323,391Total assets
    
    $
    4,992,339
    
    
    $
    3,642,666
   41




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2009
    
    
    2008Current liabilities:Current portion of long-term debt
    
    $
    857,882
    
    
    $
    883,684Current portion of capital lease obligations
    
    
    58,820
    
    
    
    61,725Accounts payable
    
    
    285,150
    
    
    
    614,556Franchisee deposits
    
    
    157,500
    
    
    
    700,000Accrued expenses and other current liabilities
    
    
    157,870
    
    
    
    404,9081,517,222
    
    
    
    2,664,873Long-term liabilities:Long-term debt
    
    
    3,044,001
    
    
    
    349,712Warrant liability
    
    
    3,750
    
    
    
    -0-Capital lease obligations
    
    
    276,920
    
    
    
    86,619Other noncurrent liabilities
    
    
    39,071
    
    
    
    225,2643,363,742
    
    
    
    661,595Total liabilities
    
    
    4,880,964
    
    
    
    3,326,468Commitments and contingenciesStockholders equity:Common stock, $0.001 par value, 300,000,000
shares authorized, 37,934,907 and
34,818,490 shares issued and outstanding
    
    
    37,935
    
    
    
    34,818Additional paid-in capital
    
    
    25,589,311
    
    
    
    24,998,924Accumulated deficit
    
    
    (25,515,871
    )
    
    
    (24,717,544
    )111,375
    
    
    
    316,198Total liabilities and stockholders equity
    
    $
    4,992,339
    
    
    $
    3,642,666
   42




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##### Table of Contents



2009
    
    
    2008Revenues:Store sales
    
    $
    4,632,651
    
    
    $
    5,462,915Franchise royalties and fees
    
    
    429,537
    
    
    
    335,860Other revenue
    
    
    388,648
    
    
    
    25,2675,450,836
    
    
    
    5,824,042Costs and expenses:Store operating expenses:Food and paper costs
    
    
    1,336,240
    
    
    
    1,615,417Cost of Goods sold
    
    
    344,219
    
    
    
    509,775Labor
    
    
    1,354,101
    
    
    
    1,743,831Occupancy
    
    
    554,923
    
    
    
    658,672Other store operating expenses
    
    
    778,155
    
    
    
    992,350General and administrative expenses
    
    
    3,696,425
    
    
    
    6,785,620Advertising, marketing and promotion expenses
    
    
    219,360
    
    
    
    887,259Depreciation and amortization
    
    
    407,593
    
    
    
    500,153Impairment of goodwill
    
    
    136,000
    
    
    
    765,772Impairment of long-lived assets
    
    
    -0-
    
    
    
    1,249,150Loss on disposal of assets
    
    
    88,997
    
    
    
    65,524Total costs and expenses
    
    
    8,916,013
    
    
    
    15,773,523Operating loss
    
    
    (3,465,177
    )
    
    
    (9,949,481
    )Other income (expense):Interest income
    
    
    20,709
    
    
    
    80,825Interest expense
    
    
    (955,016
    )
    
    
    (76,602
    )Other income
    
    
    442,133
    
    
    
    69,953Other income (expense), net
    
    
    (492,174
    )
    
    
    74,176Loss before income taxes
    
    
    (3,957,351
    )
    
    
    (9,875,305
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (3,957,351
    )
    
    $
    (9,875,305
    )Basic and diluted earnings (loss) per share
    
    $
    (0.11
    )
    
    $
    (0.29
    )
   43




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##### Table of Contents



UFOOD RESTAURANT GROUP, INC.
and SUBSIDIARY
 
 
 Common Stock
    
    
    Additional Paid-in
    
    
    AccumulatedShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalances, December 30, 2007
    
    
    29,241,158
    
    
    $
    29,241
    
    
    $
    18,833,096
    
    
    $
    (14,842,239
    )
    
    $
    4,020,098Issuance of units (net of issuance costs of $691,154)
    
    
    4,781,000
    
    
    
    4,781
    
    
    
    4,083,542
    
    
    
    
    
    
    
    4,088,323Stock issued for marketing and promotional services
    
    
    740,000
    
    
    
    740
    
    
    
    1,030,510
    
    
    
    
    
    
    
    1,031,250Stock issued for franchise sales commission
    
    
    56,332
    
    
    
    56
    
    
    
    54,984
    
    
    
    
    
    
    
    55,040Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    996,792
    
    
    
    
    
    
    
    996,792Net loss for year ended December 28, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,875,305
    )
    
    
    (9,875,305
    )Balances, December 28, 2008 as filed
    
    
    34,818,490
    
    
    
    34,818
    
    
    
    24,998,924
    
    
    
    (24,717,544
    )
    
    
    316,198Cumulative effect of reclassification of warrants to warrants liabilities
    
    
    
    
    
    
    
    
    
    
    (3,512,272
    )
    
    
    3,159,024
    
    
    
    (353,248
    )Stock issued for marketing and promotional services
    
    
    
    
    
    
    
    
    
    
    150,920
    
    
    
    
    
    
    
    150,920Stock issued for interest payment
    
    
    2,982,671
    
    
    
    2,983
    
    
    
    312,995
    
    
    
    
    
    
    
    315,978Exercise of stock options
    
    
    7,618
    
    
    
    8
    
    
    
    45
    
    
    
    
    
    
    
    53Stock issued for franchise sales commission
    
    
    82,895
    
    
    
    83
    
    
    
    14,917
    
    
    
    
    
    
    
    15,000Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    483,625
    
    
    
    
    
    
    
    483,625Issuance of warrants in connection with debentures
    
    
    
    
    
    
    
    
    
    
    3,130,200
    
    
    
    
    
    
    
    3,130,200Forfeitures of stock
    
    
    (33,690
    )
    
    
    (34
    )
    
    
    34
    
    
    
    
    
    
    
    Conversion of debentures into stock
    
    
    76,923
    
    
    
    77
    
    
    
    9,923
    
    
    
    
    
    
    
    10,000Net loss for year ended December 27, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,957,351
    )
    
    
    (3,957,351
    )Balances, December 27, 2009
    
    
    37,934,907
    
    
    $
    37,935
    
    
    $
    25,589,311
    
    
    $
    (25,515,871
    )
    
    $
    111,375
  44




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##### Table of Contents



2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (3,957,351
    )
    
    $
    (9,875,305
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    407,593
    
    
    
    500,154Amortization of beneficial conversion feature
    
    
    310,201
    
    
    
    Amortization of deferred financing costs
    
    
    266,176
    
    
    
    15,871Provision for doubtful accounts
    
    
    161,424
    
    
    
    29,949Impairment of goodwill
    
    
    136,000
    
    
    
    765,772Impairment of long lived assets
    
    
    
    
    
    
    1,249,150Change in value of warrant liability
    
    
    (349,498
    )
    
    
    Stock-based compensation
    
    
    483,625
    
    
    
    996,792Loss on disposal of assets
    
    
    88,997
    
    
    
    115,566Non-cash promotion expenses
    
    
    158,302
    
    
    
    1,086,290Non-cash interest payments
    
    
    315,976
    
    
    
    Gain on extinguishment of debt
    
    
    (74,967
    )
    
    
    (68,575
    )Increase (decrease) in cash from changes in assets and liabilities:Accounts receivable
    
    
    (189,185
    )
    
    
    (88,788
    )Inventories
    
    
    18,159
    
    
    
    51,552Prepaid expenses and other current assets
    
    
    11,052
    
    
    
    (39,374
    )Other assets and noncurrent liabilities
    
    
    2,640
    
    
    
    41,343Accounts payable
    
    
    (248,269
    )
    
    
    (112,737
    )Franchisee deposits
    
    
    (542,500
    )
    
    
    195,500Accrued expenses and other current liabilities
    
    
    (187,766
    )
    
    
    (34,318
    )Net cash used in operating activities
    
    
    (3,189,391
    )
    
    
    (5,171,158
    )Cash flows from investing activities:Proceeds from sale of assets
    
    
    5,600
    
    
    
    Acquisition of property and equipment
    
    
    (116,910
    )
    
    
    (792,225
    )Net cash used in investing activities
    
    
    (111,310
    )
    
    
    (792,225
    )Cash flows from financing activities:Proceeds from exercise of options
    
    
    53
    
    
    
    Proceeds from issuance of common stock, net
    
    
    
    
    
    
    4,088,323Proceeds from issuance of convertible debt
    
    
    5,874,000
    
    
    
    Payments for financing costs
    
    
    (1,001,220
    )
    
    
    Payments on long-term debt
    
    
    (375,511
    )
    
    
    (1,303,713
    )Payments on capital lease obligations
    
    
    (62,810
    )
    
    
    (51,999
    )Decrease in restricted cash
    
    
    357,065
    
    
    
    666,122Net cash provided by financing activities
    
    
    4,791,577
    
    
    
    3,398,733Increase(Decrease) in cash and cash equivalents
    
    
    1,490,876
    
    
    
    (2,564,650
    )Cash and cash equivalents  beginning of year
    
    
    787,551
    
    
    
    3,352,201Cash and cash equivalents  end of year
    
    $
    2,278,427
    
    
    $
    787,551
   45




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##### Table of Contents



1. Nature of Operations and Basis of Presentation
    2. Summary of Significant Accounting Policies
       46




---



##### Table of Contents



Leasehold improvements
    
    5 years, or over life of lease, whichever is shorterEquipment
    
    5 yearsFurniture and fixtures
    
    5 yearsWebsite development costs
    
    3 years
   47




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Business
Combinations
   48




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49




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50




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##### Table of Contents



51




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##### Table of Contents



52




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53




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##### Table of Contents



3. Disposal of Assets
   4. Goodwill
     54




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##### Table of Contents



FranchiseStore Operations
    
    
    OperationsSegment
    
    
    Segment
    
    
    TotalBalance as of December 30, 2007
    
    
    841,135
    
    
    
    136,000
    
    
    
    977,135Goodwill written off in
connection with impairment
test
    
    
    (765,772
    )
    
    
    
    
    
    
    (765,772
    )Balance as of December 28, 2008
    
    
    75,363
    
    
    
    136,000
    
    
    
    211,363Goodwill written off in
connection with impairment
test
    
    
    
    
    
    
    (136,000
    )
    
    
    (136,000
    )Balance as of December 27, 2009
    
    
    75,363
    
    
    
    
    
    
    
    75,363
 5. Long-Term Debt
 2008 Investor Warrants
      55




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##### Table of Contents



As of December 27, 2009Liability DerivativesBalance SheetLocation
    
    
    Fair ValueDerivatives designated as hedging
instruments under ASC No. 815:NoneDerivatives not designated as
hedging instruments under ASC No.
815:Derivative warrant liability
    
    Long-term liabilities
    
    $
    3,750Total derivatives
    
    
    
    
    
    $

3,750
  56




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##### Table of Contents



Amount of Gain (Loss)Recognized in Income onLocation of Gain (Loss)
    
    
    DerivativeRecognized in Income on
    
    
    Twelve Months EndedDerivative
    
    
    December 27, 2009Derivatives not designated as
hedging instruments under ASC No.
815:Derivative warrant liability
    
    Other Income (Expense)
    
    $
    349,498Total
    
    
    
    
    
    $
    349,498
   At Issuance
    
    
    December 29, 2008
    
    
    December 27, 2009Expected term (years)
    
    5 - 7 Years
    
    
    5 - 7 Years
    
    
    5 - 7 YearsExpected volatility
    
    
    32.34
    %
    
    
    34.87
    %
    
    
    37.20
    %Risk-free interest rate
    
    
    2.46
    %
    
    
    1.55
    %
    
    
    1.56
    %Expected annual dividend
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
  Balance as of December 28, 2008
    
    $
    Fair value of warrant liability at issuance
    
    
    3,512,272Decrease in fair value at December 29, 2008
    
    
    (3,159,024
    )Decrease in fair value during the twelve months ended
December 27, 2009
    
    
    (349,498
    )Balance as of December 27, 2009
    

$
    3,750
  57




---



##### Table of Contents



2009 Warrants
     58




---



##### Table of Contents



2009
    
    
    2008Term note payable to bank in monthly principal
installments of $29,167 commencing January 2007
through December 2010. Interest is payable
monthly at the banks prime rate (3.25% at
December 31, 2009). The note is secured by
substantially all assets of the Company.
    
    $
    342,072
    
    
    $
    692,076Senior Secured Convertible Debenture $5,874,000
at 8% interest The Debentures bear interest at a
rate of 8% and are due three years from the date
they are issued. The Debentures are convertible
into shares of Common Stock at $0.13 per share.
In conjunction with the Debentures and the 2009
Warrants, the Company recorded debt discount of
$3,130,200 associated with a beneficial
conversion feature on the debt, which is being
accreted using the effective interest method
over the three year term of the debentures. The
discount is $2,829,999 at December 27, 2009.
    
    
    3,044,001
    
    
    
    Landmark Center acquisition promissory note with
no stated interest rate. Due upon the occurrence
of a sales event, as defined in the agreement.
The note agreement includes a restrictive
covenant requiring the Companys wholly-owned
subsidiary, KnowFat of Landmark Center, Inc., to
maintain net equity of not less than $450,000.
    
    
    450,000
    
    
    
    450,000Unsecured, non-interest bearing note payable.
This note payable is due on demand. Interest
imputed on the note using a discount rate of 5%
totaled $59,597, which is being amortized over
the term of the note.
    
    
    56,033
    
    
    
    51,787Indebtedness incurred in connection with the
acquisition of the two franchisee locations. No
stated interest rate; this note payable is due
on demand.
    
    
    2,137
    
    
    
    2,137Note 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.
    
    
    7,640
    
    
    
    37,3963,901,883
    
    
    
    1,233,396Less current portion
    
    
    857,882
    
    
    
    883,684Long-term debt
    
    $
    3,044,001
    
    
    $
    349,712
  Year ending December 31,2010
    
    $
    857,8822011
    
    
    2012
    
    
    3,044,001$
    3,901,883
  59




---



##### Table of Contents



Year ending December 31,2010
    
    $
    70,1432011
    
    
    28,5472012
    
    
    10,576Thereafter
    
    
    5,288114,554Less imputed interest
    
    
    16,66397,891Less current portion
    
    
    58,820Long-term portion of capital lease obligations
    
    $
    39,071
  7. Capital Stock
    th
 Vesting Date
    
    Number of SharesJune 13, 2010
    
    
    152,351June 11, 2011
    
    
    76,175
    60




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##### Table of Contents



Description
    
    Number of Warrants
    
    
    Exercise PriceNew Warrants
    
    
    607,226
    
    
    $
    1.00Placement Agent Warrants
    
    
    2,988,200
    
    
    $
    0.49Vendor Warrants
    
    
    2,916,666
    
    
    $
    1.25Investor Notes warrants
    
    
    2,040,088
    
    
    $
    0.59Investor Warrants
    
    
    5,470,500
    
    
    $
    0.592009 Warrants
    
    
    22,592,308
    
    
    $
    0.142009 Placement Agent W
    
    
    9,036,923
    
    
    $
    0.14Total
    
    
    45,651,911
    61




---



##### Table of Contents



8. Stock-Based Compensation
    2009
    
    2008Expected term (years)
    
    6
    
    6Expected volatility
    
    36.53%
    
    45%Risk-free interest rate
    
    0.89%
    
    4.37%Expected annual dividend
    
    None
    
    None
   62




---



##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at December 30, 2007
    
    
    304,702
    
    
    $
    0.61
    
    
    
    8.8
    
    
    $
    146,257Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    Outstanding at December 28, 2008
    
    
    304,702
    
    
    $
    0.61
    
    
    
    7.8
    
    
    $
    -0-Canceled
    
    
    (181,980
    )
    
    
    
    
    
    
    Exercised
    
    
    (7,618
    )
    
    
    
    
    
    
    
    
    
    
    709Forfeited
    
    
    (82,347
    )Outstanding at December 27, 2009
    
    
    32,757
    
    
    $
    0.01
    
    
    
    5.0
    
    
    $
    2,293Exercisable at December 27, 2009
    
    
    32,757
    
    
    $
    0.01
    
    
    
    5.0
    
    
    $
    2,293
 $709
    63




---



##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at December 30, 2007
    
    
    1,950,000
    
    
    $
    1.00
    
    
    
    10.0
    
    
    $
    175,500Granted
    
    
    897,920
    
    
    $
    1.22
    
    
    
    10.0Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (2,000
    )
    
    $
    1.22
    
    
    
    10.0Outstanding at December 28, 2008
    
    
    2,845,920
    
    
    $
    1.22
    
    
    
    8.8
    
    
    
    -0-Granted
    
    
    3,979,990
    
    
    $
    0.20
    
    
    
    8.2Canceled
    
    
    (2,360,920
    )
    
    $
    1.22Forfeited
    
    
    (545,000
    )
    
    $
    1.11Outstanding at December 27, 2009
    
    
    3,919,990
    
    
    $
    0.20
    
    
    
    8.2
    
    
    
    -0-Exercisable at December 27, 2009
    
    
    3,380,681
    
    
    $
    0.20
    
    
    
    8.8
    
    
    $
    -0-
   9. Income Taxes
 Income Taxes
   2009
    
    
    2008Deferred tax assetsFederal
    
    $
    9,201,000
    
    
    $
    8,192,000State
    
    
    1,668,000
    
    
    
    1,495,000Total deferred tax assets
    
    
    10,869,000
    
    
    
    9,687,000Valuation allowance
    
    
    (10,869,000
    )
    
    
    (9,687,000
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  64




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##### Table of Contents



2009
    
    
    2008FederalDeferredNet operating loss carryforward
    
    $
    1,183,000
    
    
    $
    2,370,000Other
    
    
    (175,000
    )
    
    
    899,0001,008,000
    
    
    
    3,269,000StateDeferredNet operating loss carryforward
    
    
    207,000
    
    
    
    424,000Other
    
    
    (31,000
    )
    
    
    166,000176,000
    
    
    
    590,000Tax benefit before adjustment to valuation allowance
    
    
    1,184,000
    
    
    
    3,859,000Adjustment to valuation allowance
    
    
    (1,184,000
    )
    
    
    (3,859,000
    )Net tax benefit
    
    $
    
    
    
    $
    
  2009
    
    
    2008Federal tax provision rate
    
    
    34
    %
    
    
    34
    %State tax provision, net of federal provision
    
    
    6
    %
    
    
    6
    %Change in valuation allowance
    
    
    (40
    %)
    
    
    (40
    %)
    
    
    
    
     65




---



##### Table of Contents



10. Concentration of Credit Risk
  11. Commitments and Contingencies
    Year ending,2010
    
    $
    656,0002011
    
    
    670,0002012
    
    
    687,0002013
    
    
    695,0002014
    
    
    421,000Thereafter
    
    
    236,000$
    3,365,000
     66




---



##### Table of Contents



12. Supplemental Disclosures of Cash Flow Information
 2009
    
    
    2008Cash paid during the year for interest
    
    $
    78,532
    
    
    $
    76,602Summary of non-cash investing and financing activitiesProperty and equipment acquired with capital lease
    
    $
    12,357
    
    
    $
    65,756
  67




---



##### Table of Contents



13.
Loss per share
  2009
    
    
    2008Net loss allocable to common stockholders
    
    $
    (3,957,351
    )
    
    $
    (9,875,305
    )Weighted average number of shares
outstanding  basic and diluted
    
    
    35,320,547
    
    
    
    33,851,004Basic and diluted loss per common share
    
    $
    (0.11
    )
    
    $
    (0.29
    )
  14. Segment Data
     2009
    
    
    2008Revenues:Store operations
    
    $
    4,632,651
    
    
    $
    5,462,915Franchise operations
    
    
    429,537
    
    
    
    361,128Total revenue
    
    $
    5,062,188
    
    
    $
    5,824,042Segment loss:Store operations
    
    $
    (13,056
    )
    
    $
    (2,781,278
    )Franchise operations
    
    
    (842,440
    )
    
    
    (1,517,876
    )Total segment loss
    
    $
    (855,496
    )
    
    $
    (4,299,154
    )
  68




---



##### Table of Contents



2009
    
    
    2008Advertising, marketing and promotion
    
    $
    219,360
    
    
    $
    887,259Depreciation and amortization
    
    
    407,593
    
    
    
    500,153Unallocated general and administrative expenses
    
    
    1,982,728
    
    
    
    4,262,055Interest (income) expense
    
    
    934,307
    
    
    
    (4,013
    )Other (income) expenses, net
    
    
    (442,133
    )
    
    
    (69,303
    )Net loss
    
    $
    (3,957,351
    )
    
    $
    (9,875,305
    )Depreciation and amortization:Store operations
    
    $
    364,757
    
    
    $
    458,063Franchise operations
    
    
    42,836
    
    
    
    42,091Total depreciation and amortization
    
    $
    407,593
    
    
    $
    500,154Capital expenditures:Store operations
    
    $
    108,102
    
    
    $
    704,027Franchise operations
    
    
    8,808
    
    
    
    153,954Total capital expenditures
    
    $
    116,910
    
    
    $
    857,981Segment assets:Store operations
    
    $
    1,682,070
    
    
    $
    2,050,990Franchise operations
    
    
    3,310,269
    
    
    
    1,591,676Total segment assets
    
    $
    4,992,339
    
    
    $
    3,642,666
 16. Subsequent Events
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Item 9.
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
        70




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##### Table of Contents



Item 9B.
    
    Other Information
   71




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  www.ufoodgrill.com
 
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
   72




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##### Table of Contents



PART
IV
 
 Item 15.
    
    Exhibits, Financial
Statement Schedules
 (a)
    
    The following documents are filed as part of this report:
 (1)
    
    Consolidated financial statements (included in Part II, Item 8):
 Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 27, 2009 and December 28, 2008Consolidated Statements of Operations for the Fiscal Years Ended
December 27, 2009 and December 28, 2008Consolidated Statements of Stockholders Equity (Deficit) for the
Fiscal Years Ended December 27, 2009 and December 28, 2008Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 27, 2009 and December 28, 2008Notes to Consolidated Financial Statements
 (2)
    
    Consolidated financial statement schedules
 None
 (3)
    
    Exhibits included herein:
 See Exhibit Index below for exhibits filed as part of this
Annual Report on Form 10-K.
  73




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UFOOD RESTAURANT GROUP, INC.Date: March 26, 2010
    By:
    /s/ George NaddaffGeorge NaddaffChairman and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ George NaddaffGeorge Naddaff
    
    Chairman of the
Board and Chief
Executive Officer
(Principal
Executive Officer)
    
    March 26, 2010/s/ Charles A. CocotasCharles A. Cocotas
    
    President and Chief
Operating Officer,
Director
    
    March 26, 2010/s/ Irma NortonIrma Norton
    
    Chief Financial
Officer (Principal
Financial Officer)
    
    March 26, 2010Mark Giresi
    
    Director
    
    March 26, 2010Robert Grayson
    
    Director
    
    March 26, 2010/s/ Jeffrey RossJeffrey Ross
    
    Director
    
    March 26, 2010Keith Mueller
    
    Director
    
    March 26, 2010/s/ Rick GoldenRick Golden
    
    Director
    
    March 26, 2010
  74




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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*
  75