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" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009 and elsewhere in this report. The information contained in this Report on Form 10-Q and in other public statements by the Company and Company Officers include or may contain forward-looking statements. All statements other than statements of historical facts contained in this Report on Form 10-Q, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "anticipate," "believe," "estimate," "will," "may," "future," "plan," "intend," and "expect" and similar expressions generally identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in the forward-looking statements are reasonable, we cannot be sure that they will be achieved. Actual results may differ materially from the forward-looking statements contained herein due to a number of factors. Overview
Our operations currently consist of seven restaurants located in the Boston area, Naples, FL, Sacramento, CA, and Dallas Forth Worth, TX; comprising four Company-owned restaurants and three franchise-owned locations. We have entered into a total of six area development agreements covering 68 franchise units in nine states (California, Colorado, Florida, Illinois, Idaho, Montana, Texas, Utah and Wyoming), including the four franchise locations currently open and operating, and requiring the construction by franchisees of 60 future UFood Grill outlets. During the three months ended September 27, 2009, the stores in Draper, Utah and Sacramento, CA closed. Also, the Area Development Agreement covering the states of Colorado, Idaho, Montana, Utah and Wyoming became inactive. We have entered into a franchise agreement with Midfield Concessions for one unit at Boston Logan Airport.
We view ourselves primarily as a franchisor and continually review our restaurant ownership mix (that is our mix among Company-owned, franchised and joint venture) in an endeavor to deliver a pleasant customer experience and drive profitability. In most cases, franchising is the best way to achieve both goals. In our Company-owned stores, and in collaboration with our franchisees, we further develop and refine operating standards, marketing concepts and product and pricing strategies, so that we introduce system-wide only those that we believe are most beneficial.
We include in this discussion information on Company, franchisee, and/or system-wide comparable sales. System-wide sales are a non-GAAP financial measure that includes sales at all Company-owned and franchise-operated stores, as reported by franchisees. Management uses system-wide sales information internally in connection with store development decisions, planning and budgeting analysis. Management believes it is useful in assessing customer acceptance of our brand and facilitating an understanding of financial performance as our franchisees pay royalties and contribute to marketing funds based on a percentage of their sales.
We derive revenues from three sources: (i) store sales which include sales of hot and cold prepared food in a fast casual dining environment as well as sales of health and nutrition related products; (ii) franchise royalties and fees represent amounts earned under franchise and area development agreements; and
(iii) other revenues derived primarily from the sale of marketing materials to franchisees. Store operating expenses include the cost of goods, food and paper products sold in Company-owned stores as well as labor and other operating costs incurred to operate Company-owned stores. General and administrative expenses, advertising, marketing and promotion expenses and depreciation expense relate to all three revenue sources.
Critical Accounting Policies & Estimates The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements for the three and nine months ended September 27, 2009 and September 28, 2008 which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the consolidated financial statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Variances in the estimates or assumptions used could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances.

We have chosen accounting policies we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Revenue Recognition
We follow the accounting guidance of ASC No. 952-605-25 and ASC No. 952-340-25
[Prior authoritative guidance: 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 ASC No. 805-10 [Prior authoritative guidance: SFAS No. 141, Business Combinations], and ASC No. 350-20 to 30 [Prior authoritative guidance: SFAS No. 142, Goodwill and Other Intangible Assets]. ASC No. 805-10 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 ASC No. 350-20 to 30, purchased goodwill and intangible assets with indefinite lives are not amortized, but instead tested for impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. At December 30, 2007, the carrying amount of goodwill was $977,135 and was comprised of $841,135 of goodwill attributable to our store operations segment and $136,000 of goodwill attributable to our franchise operations segment. Goodwill attributable to our franchise operations segment is evaluated by comparing the Company's fair market value, determined based upon quoted market prices of the Company's equity securities, to the carrying amount of goodwill. Goodwill attributable to our store operations segment is evaluated on a restaurant by restaurant basis by comparing the restaurant's estimated fair value to the carrying value of the restaurant's underlying net assets inclusive of goodwill. Fair value is determined based upon the restaurant's estimated future cash flows. Future cash flows are estimated based upon a restaurant's historical operating performance and management's estimates of future revenues and expenses over the period of time that the Company expects to operate the restaurant, which generally coincides with the initial term of the restaurant's lease but which may take into account the restaurant's first lease renewal period up to 5 years. The estimate of a restaurant's future cash flows may also include an estimate of the restaurant's terminal value, determined by applying a capitalization rate to the restaurant's estimated cash flows during the last year of the forecast period. The capitalization rate used by the Company was determined based upon the restaurant's location, cash flows and growth prospects.
In August 2008, the Company completed the conversion of three of its Company-owned stores from KnowFat! locations to UFood Grill outlets, including two stores that have goodwill associated with them. Following the store conversions, the Company tested the carrying value of the store's goodwill for impairment as of the first day of the fourth quarter and determined that there was no impairment. For purposes of estimating each store's future cash flows, the Company assumed that comparable store sales would increase by approximately 4% per year; store operating expenses as a percentage of the store's revenues would decrease by a total of 1-1/2% of sales due to labor and purchasing efficiencies; and the terminal value of each store was calculated using a 20% capitalization rate applied to the final year's estimated cash flow. The present value of each restaurant's estimated future cash flows was calculated using a discount rate of 8%.
Following the impairment test performed as of the first day of the fourth quarter, economic conditions in the United States have worsened. The U.S. Government and Federal Reserve have provided an unprecedented level of financial support to U.S. financial institutions, unemployment has risen, home foreclosures have increased, mortgage delinquency rates have increased, credit markets have tightened, volatility in the equity markets has continued and the National Bureau of Economic Research announced that the United States economy has been in recession for almost a year. These factors have all contributed to economic uncertainty and a decrease in consumer spending which in turn has contributed to a decline in sales at Company-owned stores. As a result of these factors and the uncertainty surrounding the level of economic activity in 2009 and beyond, the Company tested the carrying value of the stores' goodwill in December 2008 and determined that the carrying amount of the goodwill attributable to our store operations exceeded its implied fair value and recognized a non-cash impairment charge of $765,772. For purposes of its mid-December 2008 impairment test, the Company assumed that comparable store sales will decline by 6% in 2009 and increase by 2.5% per year thereafter and store operating expenses will continue at their current level as a percentage of store revenues. As a result of the economic uncertainty that currently exists, the Company's estimate of future cash flows did not include an estimate of the restaurant's terminal value since the Company cannot be certain that a buyer could be found for the restaurant at the end of the lease term. The present value of the estimated future cash flows was calculated using a 7% discount rate reflecting the recent decrease in long-term interest rates. The goodwill may be impaired in the future if our actual operating results and cash flows fall short of our expectations.

Executive Summary of Results
The following table sets forth the percentage relationship to total revenues,
except where otherwise indicated, of certain items included in our consolidated
statements of operations for the periods indicated. Percentages may not add due
to rounding:

                                                 Three Months Ended                           Nine months Ended
                                         September 27,         September 28,         September 27,         September 28,
                                             2009                  2008                  2009                  2008
Revenues:
Store sales                                        95.4 %                93.7 %                91.4 %                94.9 %
Franchise royalties and fees                        4.6                   6.3                   8.5                   5.0
Other revenue                                         -                     -                   0.1                   0.1

                                                  100.0 %               100.0 %               100.0 %               100.0 %


Costs and expenses:
Store operating expenses (1):
Food and paper costs                               31.8 %                35.0 %                32.4 %                34.3 %
Cost of nutritional products                        7.0                   8.7                   7.6                  10.2
Labor                                              27.9                  32.2                  29.4                  30.7
Occupancy                                          11.1                  12.7                  12.1                  12.0
Other store operating expenses                     16.1                  17.6                  16.2                  17.5
General and administrative expenses                69.7                  94.2                  74.2                 127.9
Advertising, marketing and promotion
expenses                                            5.3                  11.6                   4.4                  17.1
Depreciation and amortization                       7.9                   8.6                   8.0                   8.2
Loss on disposal of assets                          1.2                     -                   2.0                   0.1

Total costs and expenses                          170.4                 209.9                 174.6                 247.6


Operating loss                                    (70.4 )              (109.9 )               (74.6 )              (147.6 )


Other income (expense):
Interest income                                     0.5                   1.3                   0.4                   1.6
Interest expense                                  (18.2 )                (1.1 )               (13.7 )                (1.4 )
Other income (expense)                             (1.0 )               (12.5 )                 8.2                  (2.8 )

Other income (expense), net                       (18.7 )               (12.4 )                (5.1 )                (2.6 )


Loss before income taxes                          (89.1 )              (122.3 )               (79.7 )              (150.2 )
Income taxes                                          -                     -                     -                     -


Net loss                                          (89.1 )%             (122.3 )%              (79.7 )%             (150.2 )%

(1) Food and paper costs are shown as a percentage of food sales. Cost of nutritional products, labor, occupancy and other store operating expenses are shown as a percentage of total store sales.

The following table sets forth certain data relating to the number of Company-owned, franchise-operated and system-wide store locations:

                                                     Three Months Ended                            Nine months Ended
                                           September 27,           September 28,         September 27,           September 28,
                                               2009                     2008                 2009                    2008
Company-owned locations:
Locations at the beginning of the year                  4                        4                    5                       4
Locations opened                                        -                        -                    -                       -
Locations closed (1)                                    -                        -                   (1 )                     -
Locations sold                                          -                        -                    -                       -
Locations transferred                                   -                        -                    -                       -

Locations at the end of the period                      4                        4                    4                       4


Franchise-owned locations:
Locations at the beginning of the year                  5                        4                    5                       4
Locations opened                                        -                        1                    3                       1
Locations closed                                       (2 )                     (1 )                 (5 )                    (1 )
Locations sold                                          -                        -                    -                       -
Locations transferred                                   -                        -                    -                       -

Locations at the end of the period                      3                        4                    3                       4


System-wide locations
Locations at the beginning of the year                  9                        8                   10                       8
Locations opened                                        -                        1                    3                       1
Locations closed                                       (2 )                     (1 )                 (6 )                    (1 )
Locations sold                                          -                        -                    -                       -
Locations transferred                                   -                        -                    -                       -

Locations at the end of the period                      7                        8                    7                       8

(1) In February 1, 2008, the Company agreed to operate one franchise-owned location pursuant to the terms of a management services agreement. This store was closed on March 27, 2009.

Three Months Ended September 27, 2009 Compared to Three Months Ended September 28, 2008
General
For the three months ended September 27, 2009, our comparable store sales for Company owned stores decreased by 3.5%. Comparable store sales of Company-owned and franchisee-owned locations were adversely impacted by the economic downturn and as a result the slowdown in consumer spending. Comparable store sales are based on sales for stores that have been in operation for the entire period of comparison. Comparable store sales exclude closed locations. Results of Operations
Revenues
Total revenues for the three months ended September 27, 2009 decreased by $273,472, or 17.7% to $1,273,353 from $1,546,825 for the three months ended September 28, 2008. The decrease in total revenues for the three months ended September 27, 2009 as compared to the prior year was primarily due to the closing of two stores operated under a management service agreement during the same period the prior year.

Sales at Company-operated stores for the three months ended September 27, 2009 decreased by $234,866, or 16.2% to $1,214,220 from $1,449,086 for the three months ended September 28, 2008. As a percentage of total sales revenues, sales at Company-operated stores increased to 95.4% of the total revenues for the three months ended September 27, 2009 from 93.7% of the total revenues for the three months ended September 28, 2008. The decrease in sales at Company-operated stores for the three months ended September 27, 2009 was primarily due to the closing of two Company-operated stores managed by the Company under a management services agreement and the decline in comparable store sales.
During the three months ended September 27, 2009, franchise royalties and fees decreased by $38,150, or 39.0% to $59,589 from $97,739 for the three months ended September 28, 2008 due to a decrease in the number of franchisee-owned stores operating and the decrease in comparable sales and a corresponding reduction in royalties.
Costs and Expenses
Food and paper costs for the three months ended September 27, 2009 decreased by $100,707, or 22.6%, to $344,270 from $444,977 for the three months ended September 28, 2008. The decrease was primarily attributable to less Company-operated stores in operation compared to the same period in the prior year. As a percentage of food sales, food and paper costs decreased to 31.8% of food sales for the three months ended September 27, 2009 down from 35.0% of food sales for the three months ended September 28, 2008. The decrease in food and paper costs as a percentage of food sales was primarily attributable to the introduction of new menu items with lower food cost and resourcing some of the raw materials at a lower cost.
The cost of nutritional products for the three months ended September 27, 2009 decreased by $40,957, or 32.6%, to $84,796 from $125,753 for the three months ended September 28, 2008. As a percentage of store sales, the cost of nutritional products decreased to 7.0% of store sales for the three months ended September 27, 2009 from 8.7% of store sales for the three months ended September 28, 2008. The decrease in the cost of nutritional products as a percentage of store sales was primarily attributable to elimination of the nutritional products in two of our Company-operated stores as a result of the conversion to the UFood brand.
Store labor expense for the three months ended September 27, 2009 decreased by $127,672, or 27.4%, to $339,100 from $466,772 for the three months ended September 28, 2008. The decrease in labor expense was primarily attributable to fewer Company-operated stores and less labor hours. As a percentage of store sales, labor expense decreased to 27.9% of store sales for the three months ended September 27, 2009 from 32.2% of store sales for the three months ended September 28, 2008.
Store occupancy costs for the three months ended September 27, 2009 decreased by $48,566, or 26.4%, to $135,114 from $183,680 for the three months ended September 28, 2008. The decrease in occupancy costs was primarily attributable to fewer Company-operated stores. As a percentage of store sales, occupancy costs decreased to 11.1% of store sales for the three months ended September 27, 2009 from 12.7% of store sales for the three months ended September 28, 2008 primarily due to the remaining Company-owned stores with higher average weekly sales than the same period the prior year.
Other store operating expenses for the three months ended September 27, 2009 decreased by $60,116, or 23.5%, to $195,568 from $255,684 for the three months ended September 28, 2008. The decrease was primarily due to fewer stores in operation by the Company, slightly offset by higher cost for utilities. As a percentage of store sales, other store operating expenses decreased to 16.1% of store sales for the three months ended September 27, 2009 from 17.6% of store sales during the three months ended September 28, 2008.
General and administrative expenses for the three months ended September 27, 2009 decreased by $570,249 or 39.1%, to $887,424 from $1,457,673 for the three months ended September 28, 2008. The decrease in general and administrative expenses was primarily due to a significant reduction in investor relations and public relations expenses, stock-based compensation and payroll expenses. As a result of the foregoing, general and administrative expenses decreased to 69.7% of total revenues during the three months ended September 27, 2009 down from 94.2% of total revenues for the three months ended September 28, 2008. Advertising, marketing and promotion expenses for the three months ended September 27, 2009 decreased by $111,216 or 62.1%, to $67,880 from $179,096 for the three months ended September 28, 2008. The decrease in advertising, marketing and promotion expenses was primarily due to a decrease in expenses related to the services agreement with George Foreman Ventures, LLC (GFV Services Agreement) that became effective June 12, 2007, and expenses incurred in connection with the conversion of franchise-owned and Company-operated stores operating under the KnowFat! tradename to stores operating under the UFood Grill tradename. Advertising, marketing and promotion expenses for the three months ended September 27, 2009 and September 28, 2008 include $4,761 and $25,519, respectively, of non-cash, stock-based compensation expense attributable to the GFV Services Agreement. As a percentage of total revenues, advertising, marketing and promotion expenses decreased to 5.3% of total revenues in the three months ended September 27, 2009 down from 11.6% of total revenues in the three months ended September 28, 2008.

Depreciation and amortization expense for the three months ended September 27, 2009 decreased by $32,142, or 24.2%, to $100,894 from $133,036 for the three months ended September 28, 2008. As a percentage of total revenues, depreciation and amortization expense decreased to 7.9% of total revenues for the three months ended September 27, 2009 up from 8.6% of total revenues for the three months ended September 28, 2008.
Other income and expense for the three months ended September 27, 2009 increase by $47,232, or 24.7 % to an expense of $238,525 from $191,293 for the three months ended September 28, 2008. The increase was primarily attributable to the interest payment of the outstanding debentures offset by the fluctuation of the fair value of the warrants issued in connection with our latest private placement offering.
The net loss for the three months ended September 27, 2009 decreased by $755,878, or 40% to $1,135,261, from $1,891,139, for the three months ended September 28, 2008. Our net loss decreased primarily due to the decrease in general and administrative expenses and marketing, advertising and promotion expenses. As a percentage of total revenues, our net loss decreased to 89.1% of total revenues for the three months ended September 27, 2009 down from 122.2% of total revenues for the three months ended September 28, 2008.
Nine Months Ended September 27, 2009 Compared to Nine Months Ended September 28, 2008
General
For the nine months ended September 27, 2009, our comparable store sales for Company owned stores decreased by 10.2%. System-wide comparable store sales decreased by 14.0%. Comparable store sales of Company-owned and franchisee-owned locations were adversely impacted by weather in the Boston area and a slowdown in consumer spending. Comparable store sales are based on sales for stores that have been in operation for the entire period of comparison. Comparable store sales exclude closed locations.
Results of Operations
Revenues
Our total revenues for the nine months ended September 27, 2009 decreased by $628,200, or 13.9%, to $3,879,562 from $4,507,762 for the nine months ended September 28, 2008. The decrease in total revenues was primarily due to fewer Company-operated stores partially offset by an increase in franchise fees from new store openings.
Total store sales at Company-owned stores for the nine months ended September 27, 2009 decreased by $729,792, or 17.1%, to $3,548,216 from $4,278,008 for the nine months ended September 28, 2008. As a percentage of total revenues, sales at Company-owned stores decreased to 91.5% of total . . .