U-SWIRL, INC. - FORM 10-Q - November 16, 2009

Attached files

file	filename
EX-32.1 - EXH 32-1 CERTIFICATION - U-SWIRL, INC.	exh32-1_certification.htm
EX-31.1 - EXH 31-1 CERTIFICATION - U-SWIRL, INC.	exh31-1_certification.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-53130

HEALTHY FAST FOOD, INC.

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of

incorporation or organization)

43-2092180

(IRS Employer

Identification No.)

1075 American Pacific, Suite C, Henderson, Nevada 89074

(Address of principal executive offices) (Zip Code)

(702) 448-5301

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [x]Yes [ ]No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ]Yes [ ]No

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

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ]Yes [x] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,538,350 shares of Common Stock, $0.001 par value, as of November 6, 2009

HEALTHY FAST FOOD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	Unaudited			Audited
	September 30, 2009			December 31, 2008
ASSETS
Current assets
Cash and equivalents	$	725,916		$	3,335,740
Tenant improvement allowance receivable		10,335			-
Due from U-Create Enterprises, Inc.		1,134			-
Inventory		74,492			15,100
Prepaid expenses		32,269			23,495
Current assets from discontinued operations		6,916			100,113
Total current assets		851,062			3,474,448

Leasehold improvements, property and equipment, net		1,900,834			64,586
Leasehold improvements, property and equipment from
discontinued operations, net		-			814,849

Other assets
Deposits		108,572			5,400
Other assets from discontinued operations		85,350			159,839
Total other assets		193,922			165,239

Total assets	$	2,945,818		$	4,519,122

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	75,308		$	62,781
Accounts payable and accrued liabilities from discontinued
operations		183,514			110,202
Current portion of long-term debt		4,649			4,203
Total current liabilities		263,471			177,186

Deferred rent		220,021			20,059
Long-term capital lease		11,406			14,951
Long-term liabilities from discontinued operations		76,145			187,423

Total liabilities		571,043			399,619

Commitments and contingencies

Stockholders' equity
Preferred stock; $0.001 par value; 25,000,000 shares authorized,
no shares issued and outstanding		-			-
Common stock; $0.001 par value; 100,000,000 shares authorized,
2,523,350 shares issued and outstanding at 9/30/09 and 12/31/08		2,523			2,518
Additional paid-in capital		6,835,653			6,794,179
Stock subscriptions receivable		(150	)		(150	)
Compensation payable in stock		21			-
Deficit		(4,463,272	)		(2,677,044	)
Total stockholders' equity		2,374,775			4,119,503

Total liabilities and stockholders' equity	$	2,945,818		$	4,519,122

The accompanying notes are an integral part of these financial statements.

HEALTHY FAST FOOD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Unaudited						Unaudited
	For the three months ended						For the nine months ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Revenues
Restaurant sales, net of discounts	$	515,332		$	-		$	910,603		$	-
Franchise royalties and fees		15,000			-			15,000			-
Total revenues		530,332			-			925,603			-

Restaurant operating costs
Food, beverage and packaging costs		152,574			-			267,523			-
Labor and related expenses		138,561			-			247,062			-
Occupancy and related expenses		99,656			2,394			156,758			6,742
Marketing and advertising		74,342			10,675			106,145			28,735
General and administrative		176,797			60,661			408,111			173,646
Officer compensation		50,726			43,331			294,775			122,678
Investor relations fees		-			23,398			-			154,740
Intellectual property acquired from related parties		-			180,000			-			180,000
Depreciation and amortization		44,673			201			82,039			603
Total costs and expenses		737,329			320,660			1,562,413			667,144
Loss from operations		(206,997	)		(320,660	)		(636,810	)		(667,144	)

Interest expense		(570	)		(700	)		(1,810	)		(2,723	)
Interest income		1,422			21,189			7,445			48,097

Loss from continuing operations before income taxes		(206,145	)		(300,171	)		(631,175	)		(621,770	)
Provision for income taxes		-			-			-			-
Income from continuing operations		(206,145	)		(300,171	)		(631,175	)		(621,770	)
Discontinued operations:
Loss from operations of discontinued Fresh and
Fast restaurant component (including loss on
disposal of $814,849)		1,027,467			94,637			1,155,053			270,249
Income tax benefit		-			-			-			-
Loss on discontinued operations		(1,027,467	)		(94,637	)		(1,155,053	)		(270,249	)
Net loss	$	(1,233,612	)	$	(394,808	)	$	(1,786,228	)	$	(892,019	)

Earnings per share - basic
Loss from continuing operations	$	(0.08	)	$	(0.14	)	$	(0.25	)	$	(0.28	)
Loss from discontinued operations		(0.41	)		(0.04	)		(0.46	)		(0.12	)
Net loss per common share - basic and fully diluted	$	(0.49	)	$	(0.18	)	$	(0.71	)	$	(0.40	)

Weighted average common shares outstanding -
basic and diluted		2,518,350			2,211,246			2,518,350			2,211,246

The accompanying notes are an integral part of these financial statements.

HEALTHY FAST FOOD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Unaudited
	For the nine months ended
	September 30, 2009			September 30, 2008

Cash flows from operating activities:
Net loss	$	(1,786,228	)	$	(892,019	)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Depreciation and amortization		82,039			56,583
Amortization of franchise fees		-			1,312
Share-based compensation		41,500			101,342
Shares issued to acquire U-Swirl intellectual property		-			180,000
Loss on disposal of Fresh and Fast festaurant assets		814,849			-
Changes in operating assets and liabilities:
Current assets from discontinued operations		93,197			(130	)
Interest receivable		-			(88	)
Inventory		(59,392	)		(2,960	)
Prepaid expenses		(8,774	)		(6,653	)
Other assets from discontinued operations		74,489			-
Accounts payable and accrued liabilities		12,527			6,086
Accrued interest - related parties		-			(1,844	)
Royalties payable		-			1,688
Accounts payable and accrued liabilities from discontinued operations		(37,966	)		-
Deferred rent		199,962			(16,462	)
Net cash (used) by operating activities		(573,797	)		(573,145	)

Cash flows from investing activities:
Tenant improvement allowance receivable		(10,335	)		-
Due from U-Create Enterprises		(1,134	)		-
Deposits		(103,172	)		-
Prepaid franchise fees		-			(140,000	)
Purchase of fixed assets		(1,918,287	)		(239,980	)
Net cash (used) by investing activities		(2,032,928	)		(379,980	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		-			4,002,840
Deferred offering costs		-			332,415
Payments on capital lease obligation		(3,099	)		(3,817	)
Net cash provided (used) by financing activities		(3,099	)		4,331,438

Net change in cash		(2,609,824	)		3,378,313

Cash, beginning of period		3,335,740			604,118

Cash, end of period	$	725,916		$	3,982,431

Supplemental disclosure of cash flow information:
Interest paid	$	1,810		$	2,723
Taxes paid	$	-		$	-
Capital lease obligations for property and equipment	$	-		$	23,937
Number of shares issued for intellectual property		-			100,000
Value of shares issued for intellectual property	$	-		$	180,000

The accompanying notes are an integral part of these financial statements.

HEALTHY FAST FOOD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(UNAUDITED)

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Healthy Fast Food, Inc. (the “Company”) was incorporated in the state of Nevada on November 14, 2005.

The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the financial statements included in the Company’s annual statement on Form 10-K filed on March 27, 2009 with the U.S. Securities and Exchange Commission (“SEC”) for the year ended December 31, 2008.

U-Swirl Concept

On September 30, 2008, the Company acquired the worldwide rights to the U-Swirl Frozen YogurtSM concept through its wholly-owned subsidiary, U-Swirl International, Inc. U-SWIRL allows guests the ultimate choice in frozen yogurt by providing up to 20 non-fat flavors, including tart, traditional and no sugar-added options and more than 40 toppings, including seasonal fresh fruit, sauces, candy and granola. Guests serve themselves and pay by the ounce instead of by the cup size. As of September 30, 2009, U-Swirl International, Inc. owned and operated five U-Swirl Yogurt restaurants and had one licensed restaurant in operation.

Discontinued Operations - Fresh and Fast (formerly EVOS) Concept

For purposes of determining discontinued operations, the Company has determined that the “concept” level is a component of the entity within the context of FASB ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”. A component of an entity comprises of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. The Company routinely evaluates its concept base to identify relevant factors for success and determine appropriate actions necessary to grow and operate a successful concept and similarly to identify relevant factors and actions that need to be taken on an underperforming concept including the closing of a non-performing concept. The Company evaluates the results of operations of the concept both quantitatively and qualitatively to determine if appropriate for reporting as discontinued operations.

The Company owned and operated two fast food restaurants located in Henderson and Las Vegas, Nevada under the “Fresh and Fast” Concept. The restaurants were formerly operated under franchise rights and “EVOS” branding purchased from EVOS USA, Inc. Effective March 1, 2009, the Company notified EVOS USA, Inc. of its intent to terminate the franchise and area development agreements. Effective July 1, 2009, the Company ceased conducting business under the EVOS USA, Inc. franchise and area development agreements and converted the restaurants to the “Fresh and Fast” Concept. Effective August 1, 2009, the Company determined to cease conducting business under the “Fresh and Fast” Concept altogether in order to focus on its U-Swirl Yogurt Concept, and has accordingly accounted for the “Fresh and Fast” Concept divestiture as “discontinued operations” (see Note 2 below).

Subsequent Events

The Company has evaluated subsequent events through November 16, 2009, the date it filed its report on Form 10-Q for the quarter ended September 30, 2009 with the SEC.

HEALTHY FAST FOOD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(UNAUDITED)

Franchise Revenue Recognition Policy

Revenue earned as a U-Swirl Frozen Yogurt franchisor will be derived from restaurants in U-Swirl International, Inc.’s worldwide territory and will include initial franchise fees, continuing service fees, and royalties. Continuing service fees and royalties will be recognized in the period in which they are earned. Franchise fee revenue is recognized and fully earned upon the signing and acceptance of the franchise agreement and franchise fee by both parties. FASB ASC 952-605-25 stipulates that initial franchise fee revenue from a franchise sale should be recognized when the franchiser has substantially performed or satisfied all material services or conditions relating to the sale. Substantial performance has occurred when the franchisor has: (a) no remaining obligations or intent to refund any cash received or to forgive any unpaid notes or receivables; (b) performed substantially all of the initial services required by the franchise agreement (such as providing assistance in site selection, obtaining facilities, advertising, training, preparing operating manuals, bookkeeping, or quality control); and (c) met all other material conditions or obligations. The Company recorded U-Swirl franchise fee revenue of $15,000 and $0 during the nine months ended September 30, 2009 and 2008, respectively.

Costs and expenses are recognized during the period in which they are incurred.

New Pronouncements

In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value,” which updates FASB ASC 820-10. The update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:

•		A valuation technique that uses a) the quoted price of an identical liability when traded as an asset, or b) quoted prices for similar liabilities or similar liabilities when traded as assets.

•		Another valuation technique that is consistent with the principles of FASB ASC 820, examples include an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability.

This standard is effective for financial statements issued for interim and annual periods beginning after August 2009. ASC 820 does not have an impact on the Company’s financial position or results of operations.

In June 2009, the FASB issued ASC 105, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. FASB ASC 105 establishes a single source of authoritative, nongovernmental U.S. GAAP, except for rules and interpretive releases of the SEC. The effective date of ASC 105 is for interim and annual reporting periods ending after September 15, 2009. ASC 105 does not have an impact on the Company’s financial position or results of operations as it does not change authoritative guidance.

In May 2009, the FASB issued ASC 855, Subsequent Events. FASB ASC 855 provides guidance on the disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The date through which any subsequent events have been evaluated and the basis for that date must be disclosed. FASB ASC 855 requires that the Company disclose the analysis of subsequent events through the date that its Financial Statements are issued. FASB ASC 855 also defines the circumstances under which an entity should recognize such events or transactions and the related disclosures of such events or transactions that occur after the balance sheet date. The effective date of FASB ASC 855 is the Company’s interim or annual financial periods ending after September 15, 2009.

In April 2009, the FASB issued ASC 825-10-65, Interim Disclosures about Fair Value of Financial Instruments, which expands the fair value disclosures for all financial instruments within the scope of

HEALTHY FAST FOOD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(UNAUDITED)

FASB ASC 825-10-50 to interim reporting periods. The Company has adopted FASB ASC 825-10-65, and it is effective for interim reporting periods ending after June 15, 2009. ASC 825-10-65 does not have an impact on the Company’s financial position or results of operations as it focuses on additional disclosures.

In April 2009, the FASB issued ASC 820-10-65-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FASB ASC 820-10-65-4 is an amendment of FASB ASC 820-10, Fair Value Measurements. FASB ASC 820-10-65-4 applies to all assets and liabilities and provides guidance on measuring fair value when the volume and level of activity has significantly decreased and guidance on identifying transactions that are not orderly. FASB ASC 820-10-65-4 requires interim and annual disclosures of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, which occurred during the period. The Company has adopted FASB ASC 820-10-65-4, which is effective for interim and annual reporting periods ending after June 15, 2009. ASC 820-10-65-4 does not have a material impact on the Company’s financial position or results of operations.

2. DISCONTINUED OPERATIONS – FRESH AND FAST (FORMERLY EVOS) CONCEPT

During August 2009, the Company closed its two Fresh and Fast (formerly EVOS) restaurants. As a result of the closures, activities of the Fresh and Fast concept have been accounted for as discontinued operations. These results are presented as net amounts in the Condensed Consolidated Statements of Operations, with prior periods restated to conform to the current presentation. Selected operating results for these discontinued operations are presented in the following table for the nine months ended September 30, 2009 and 2008:

	2009			2008
Revenues	$	468,483		$	523,503
Costs and expenses		(808,687	)		(793,752	)
Loss on disposal of fixed assets, net of liabilities		(814,849	)		-
Net loss	$	(1,155,053	)	$	(270,249	)

Net assets of the Fresh and Fast concept operations, which are presented as a net amount in the Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008, were as follows:

	2009			2008
Assets	$	92,266		$	1,074,801
Liabilities		(259,659	)		(316,779	)
Net assets	$	(167,393	)	$	758,022

Abandoned Facilities Lease Commitments

As of September 30, 2009, the Company continues to be liable for the leases of the two abandoned restaurants for a period of 20 months on one store and 47 months on the other. Included in Liabilities from Discontinued Operations for the nine months ending September 30, 2009 is the present value of discounted future rent commitments for the two abandoned leased stores totaling $217,368.

EVOS Severance Agreement

As of September 30, 2009, the Company was under continued negotiations to sever its franchisee relationship with EVOS USA, Inc. A formal severance agreement has yet to be accepted by both parties. The Company continues to record royalty fee payable and area developer’s royalty fee receivable as of September 30, 2009, until such time as both parties have accepted a formal agreement which officially terminates the franchise and area development agreements.

HEALTHY FAST FOOD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(UNAUDITED)

3. CASH AND EQUIVALENTS

Concentration of Credit Risk for Cash Held at Banks

The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Some amounts were in excess of the Federally insured program, however, management does not consider these amounts to pose a significant credit risk to the Company.

During the third quarter ended September 30, 2008, the Company invested $3,000,000 in 13-week maturity US Government Treasury Bills. The T-Bills matured and were redeemed in full on January 9, 2009.

4. TENANT IMPROVEMENT ALLOWANCE RECEIVABLE

During June 2009, the Company entered into a lease agreement for a new U-Swirl Yogurt restaurant. According to the terms of the agreement, the lessor owed the Company $26,675 in cash for tenant improvements. The lessor was unable to pay the amount due. The Company and the lessor agreed to amortize the amount against future monthly rents over a 5-month period. As of September 30, 2009, the amount receivable on the Company’s Balance Sheet to be amortized against future rents was $10,335.

5. FRANCHISE FEE INCOME AND DEFERRED REVENUE

The Company recognized $15,000 and $-0- in franchise fee income for the nine months ended September 30, 2009 and 2008, respectively.

6. LEASEHOLD IMPROVEMENTS, PROPERTY AND EQUIPMENT

Leasehold improvements, property and equipment consist of the following:

	September 30, 2009			December 31, 2008
Restaurant equipment	$	706,588		$	-
Signage		74,712			32,219
Furniture and fixtures		103,317			-
Computer equipment		86,840			4,076
Vehicles		23,937			-
Leasehold improvements		988,621			29,433
		1,984,015			65,728
Less: accumulated depreciation		(83,181	)		(1,142	)
Leasehold improvements, property and equipment, net	$	1,900,834		$	64,586

Depreciation and amortization expense for the nine months ended September 30, 2009 and 2008 totaled $82,039 and $603, respectively.

7.	INTEREST INCOME AND EXPENSE

Interest income for the nine months ended September 30, 2009 and 2008 totaled $7,445 and $48,097, respectively.

Interest expense for the nine months ended September 30, 2009 and 2008 totaled $1,810 and $2,723, respectively.

HEALTHY FAST FOOD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(UNAUDITED)

8.	SHAREHOLDERS EQUITY

As of September 30, 2009, the Company granted 26,000 shares of its $0.001 par value common stock to officers and directors as share-based compensation. The fair market value of the shares on the date of grant totaled $41,500. Of these shares, 21,000 were unissued as of September 30, 2009, and are therefore recorded as “Compensation Payable in Stock” on the Company’s Balance Sheet.

9. RELATED PARTY TRANSACTIONS

A Company officer/shareholder has donated 100 square feet of office space for Company use. The estimated fair market value of the space is $70/month. The annualized donated rent of $840 is considered immaterial to the financial statements and consequently not recorded on the Company’s financial statements.

The Company paid $11,000 in rent for inventory storage for the nine months ended September 30, 2009 to a company which is wholly owned by the Company’s officers/shareholders.

The Company was owed $1,134 from U-Create Enterprises, a company which is a U-Swirl franchisee and is owned and operated by the grandchildren of the Company’s Chief Executive Officer. The corporate secretary/treasurer of U-Create Enterprises is also the Company’s corporate secretary.

The Company paid $24,000 in rent to a real estate holding company held jointly by the Company’s former Chief Financial Officer and his spouse as compensation for the nine months ended September 30, 2009 pursuant to the Company’s employment agreement with the former officer.

10. OCCUPANCY AND RELATED EXPENSES

Occupancy and related expenses consists of the following for the nine months ended September 30, 2009 and 2008:

	2009		2008
Rent and CAM fees	$	138,632	$	6,742
Utilities		18,126		-
Occupancy and related expenses	$	156,758		6,742

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and the related notes included in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those projected in the forward-looking statements as a result of many factors.

History and Overview

Healthy Fast Food, Inc. (the “Company”) was incorporated under the laws of the state of Nevada on November 14, 2005 to own and operate EVOS fast food franchises.

We entered into a franchise agreement effective December 14, 2005 to operate an EVOS restaurant in Henderson, Nevada. Shortly after signing the franchise agreement, we found a location for the restaurant, obtained approval of the site from EVOS USA, Inc. (EVOS USA”), and entered into a lease in January 2006. From January 2006 to September 2006, we sold 300,000 shares of common stock in a private placement, resulting in net proceeds of $544,878. These proceeds, together with loans from related parties, were used to build out, open and operate the restaurant. The restaurant opened in October 2006.

In December 2006, we entered into an area representative agreement that gives us the exclusive right to develop EVOS restaurants in a 12-state territory. To maintain our exclusivity in the territory, we were required to open a minimum number of restaurants within certain timeframes through 2016. These restaurants could be opened by us or by franchise owners that we identified and solicited. From December 2006 to June 2007, we engaged in a second private placement of 389,450 shares of common stock, resulting in net proceeds of $1,552,127. These proceeds were used to repay related party loans, pay some of the expenses of our initial public offering, and fund our efforts to solicit franchise owners for our territory. A portion of these proceeds were also used to open another restaurant. During this period, we improved our operations at the Henderson restaurant and began to build the infrastructure necessary to support the operation of multiple restaurants. We hired a director of operations and a director of training in March 2007.

In March 2008, we completed an initial public offering of 1,000,000 units, each unit consisting of one share of common stock, one Class A warrant and two Class B warrants, resulting in gross proceeds of $5,100,000 and net proceeds of $4,002,840. The proceeds of the offering were intended to be used to open six company-owned EVOS restaurants in the Las Vegas metropolitan statistical area (the “Las Vegas MSA”) during the following 12 to 18 months, as well as for marketing expenses, franchise development and working capital. We opened our second restaurant in the Las Vegas MSA in December 2008, and our EVOS sub-franchisee in California opened its first store in November 2008.

After experiencing continued operating losses with our EVOS restaurants, we decided to diversify into another healthy fast food concept and acquired the worldwide rights to U-Swirl Frozen YogurtSM (“U-Swirl”) on September 30, 2008. Our intent with the acquisition of the rights to U-Swirl is to build and operate stores to be owned and operated by the Company (“Company-owned”) and to franchise to others the right to own and operate U-Swirl stores pursuant to either a (a) license agreement as a U-Swirl licensee, (b) a franchise and area development agreement as a U-Swirl franchisee, or (c) a joint venture agreement as a U-Swirl joint-venture partner.

We opened our first Company-owned U-Swirl location in the Las Vegas MSA in March 2009, and the Company has since developed five more Company-owned locations in the Las Vegas MSA. In addition, the original U-Swirl store continues to operate as a licensee.

We issued a Franchise Disclosure Document (the “FDD”) in November 2008 and filed it in certain states which require filing. In July 2009, we entered into a franchise agreement with Galena Frozen Yogurt Company, which over the next 12 months plans to open three U-Swirl Frozen Yogurt stores in

Reno, Nevada, and at least one U-Swirl store in Northern California. The first store in Reno opened in October 2009.

Results of Operations

Three Months Ended September 30, 2009. For the three months ended September 30, 2009, our U-Swirl restaurants generated $515,332 in sales. As we did not have any U-Swirl locations in operation in 2008, there is no comparable period information available. Franchise royalties and fees were derived from the sale of a new U-Swirl Yogurt franchise store and franchise area development agreement in Reno, Nevada.

Our restaurant operating costs, including pre-opening expenses attributable to training, supplies and various grand-opening promotions including product giveaways, were $390,791, or 76% of net sales revenues, resulting in a restaurant operating profit of $124,541.

Marketing and advertising expenses were $74,342 for the 2009 quarter as compared to $10,675 for 2008, as we opened four Company-owned U-Swirl locations during the period.

For the quarter ended September 30, 2009, general and administrative expense increased by $116,136 (191%) due primarily to increased U-Swirl operations. The largest components of general and administrative expenses for the 2009 period were accounting fees ($8,005), administrative salaries and payroll taxes ($6,712), consulting fees ($55,000), insurance ($11,324), licenses, permits and fees ($10,192), legal fees ($19,574), office and postage expense ($6,822) and supplies ($27,352).

Officer compensation for the quarter ended September 30, 2009 increased by $7,395 (17%), as we paid salaries to all of our officers during the 2009 quarter. We hired a chief operating officer in August 2009 and increased the salaries of some of our officers.

We discontinued the services of our investor relations firm in December 2008. We incurred $23,398 of investor relations fees in 2008, as we hired a financial public relations firm in conjunction with our becoming a public company.

The increase in depreciation and amortization expense of $44,472 reflects our increased base of leasehold improvements, property and equipment.

We owned and operated two fast food restaurants located in Henderson and Las Vegas, Nevada under the “Fresh and Fast” Concept. The restaurants were formerly operated under franchise rights and “EVOS” branding purchased from EVOS USA, Inc. Effective March 1, 2009, we notified EVOS USA, Inc. of our intent to terminate the franchise and area development agreements. Effective July 1, 2009, we ceased conducting business under the EVOS USA, Inc. franchise and area development agreements and converted the restaurants to the “Fresh and Fast” Concept. Effective August 1, 2009, we determined to cease conducting business under the “Fresh and Fast” Concept altogether in order to focus on our U-Swirl Yogurt Concept, and have accordingly accounted for the “Fresh and Fast” Concept divestiture as “discontinued operations”. We wrote off all of our assets related to the EVOS restaurant concept, resulting in a loss of $1,027,467, as compared to a loss of $94,637 for the 2008 quarter.

As a result of the above, our net loss for the three months ended September 30, 2009 was $1,233,612, as compared to a loss of $394,808 for the comparable 2008 quarter.

Nine Months Ended September 30, 2009. For the nine months ended September 30, 2009, our U-Swirl restaurants generated $910,603 in sales.

Our restaurant operating costs, including pre-opening expenses attributable to training, supplies and various grand-opening promotions including product giveaways, were $671,343, or 74% of net sales revenues, resulting in a restaurant operating profit of $239,260.

Marketing and advertising expenses were $106,145 for the 2009 period as compared to $28,735 for the 2008 period, as we opened six Company-owned U-Swirl locations during that time.

For the nine months ended September 30, 2009, general and administrative expense increased by $234,465 (135%) due to increased U-Swirl operations. The largest components of general and administrative expenses for the nine months ended September 30, 2009 were accounting fees ($25,295), administrative salaries and payroll taxes ($24,921), consulting fees ($55,666), insurance ($24,348), licenses, permits and fees ($20,016), legal fees ($84,650), office and postage expenses ($19,042) and supplies ($63,802).

Officer compensation for the nine months ended September 30, 2009 increased by $172,097 (140%), as we paid salaries to all of our officers during the nine months ended September 30, 2009.

We discontinued the services of our investor relations firm in December 2008. We incurred $154,740 of investor relations fees in 2008, as we hired a financial public relations firm in conjunction with our becoming a public company. Of this amount, $101,342 was the value of warrants to purchase 60,000 units issued to the public relations firm as part of its compensation.

The increase in depreciation and amortization expense of $81,436 reflects our increased base of leasehold improvements, property and equipment due to the operation of the new stores.

We reported a loss from operations of our discontinued EVOS restaurants of $1,155,053, as compared to a loss of $270,249 for the 2008 period.

As a result of the above, our net loss for the nine months ended September 30, 2009 was $1,786,228, as compared to a loss of $892,019 for the comparable 2008 period.

Liquidity and Financial Condition

As of September 30, 2009. At September 30, 2009, we had working capital of $587,591 and cash of $725,916. Working capital and cash at December 31, 2008 were $3,297,262 and $3,335,740, respectively. The decrease in working capital was due to our loss for the nine-month period and the purchase of fixed assets for our six U-Swirl restaurants. Leasehold improvements, property and equipment increased from $879,435 at December 31, 2008, to $1,900,834 at September 30, 2009.

During the nine months ended September 30, 2009, we used $1,918,287 for the purchase of fixed assets and $103,172 for deposits in connection with the opening of U-Swirl restaurants. During the nine months ended September 30, 2008, we used $379,980 for investing activities, of which $239,980 was used for the purchase of fixed assets and $140,000 was paid to EVOS USA. As we had a net loss of $1,786,228 in 2009, operating activities used cash of $573,797 as compared to $573,145 in 2008.

Summary of Significant Accounting Policies

Inventories. Inventories consisting of food, beverages and supplies are stated at the lower of cost or market, including provisions for spoilage commensurate with known or estimated exposures which are recorded as a charge to cost of sales during the period spoilage is incurred.

Leasehold improvements, property and equipment. Leasehold improvements, property and equipment are stated at cost less accumulated depreciation. Expenditures for property acquisitions, development, construction, improvements and major renewals are capitalized. The cost of repairs and maintenance is expensed as incurred. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 5 to 10 years. Leasehold improvements are amortized over the shorter of the lease term, which generally includes reasonably assured option periods, or the estimated useful lives of the assets. Upon sale or other disposition of a depreciable asset,

cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected gain or loss from operations.

We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. We use an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Deposits. Deposits consist of the $108,572 in security deposits for multiple locations. All deposits are carried at the lower of fair value or cost.

Revenue, discounts and expense recognition. Revenue from restaurant sales is recognized when food and beverage products are sold. We reduce revenue by sales returns and sales discounts.

Revenue earned as a U-Swirl Frozen Yogurt franchisor will be derived from restaurants in U-Swirl International, Inc.’s worldwide territory and will include initial franchise fees, continuing service fees, and royalties. Continuing service fees and royalties will be recognized in the period in which they are earned. Franchise fee revenue is recognized and fully earned upon the signing and acceptance of the franchise agreement and franchise fee by both parties. FASB ASC 952-605-25 stipulates that initial franchise fee revenue from a franchise sale should be recognized when the franchiser has substantially performed or satisfied all material services or conditions relating to the sale. Substantial performance has occurred when the franchisor has: (a) no remaining obligations or intent to refund any cash received or to forgive any unpaid notes or receivables; (b) performed substantially all of the initial services required by the franchise agreement (such as providing assistance in site selection, obtaining facilities, advertising, training, preparing operating manuals, bookkeeping, or quality control); and (c) met all other material conditions or obligations. We recorded U-Swirl franchisee fee revenue of $15,000 and $0 during the nine months ended September 30, 2009 and 2008, respectively.

Costs and expenses are recognized during the period in which they are incurred.

Discontinued Operations – Fresh and Fast (formerly EVOS) Concept. For purposes of determining discontinued operations, we have determined that the “concept” level is a component of the entity within the context of FASB ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”. A component of an entity comprises of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. We routinely evaluate our concept base to identify relevant factors for success and determine appropriate actions necessary to grow and operate a successful concept and similarly to identify relevant factors and actions that need to be taken on an underperforming concept including the closing of a non-performing concept. We evaluate the results of operations of the concept both quantitatively and qualitatively to determine if appropriate for reporting as discontinued operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and interim principal financial officer. Based on this evaluation, this officer has concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that 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’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and interim principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

We are not a party to any pending legal proceedings.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The registrant’s registration statement on Form S-1 (File No. 333-145360) was declared effective on March 18, 2008. Paulson Investment Company, Inc. acted as the underwriter. 1,000,000 Units, each Unit consisting of one share of common stock, one redeemable Class A Warrant and two non-redeemable Class B Warrants, were offered for gross proceeds of $5,100,000. The registrant registered a total of 1,150,000 Units, as well as 100,000 Units sold to the underwriter, and the securities underlying the exercise of all the Warrants.

On March 25, 2008, the registrant completed its initial public offering for net proceeds of $4,002,840. All of the expenses of the offering, totaling $1,097,160, were direct or indirect payments to persons other than officers, directors, affiliates or more than 10% shareholders.

Through September 30, 2009, $3,579,000 of the net proceeds had been used as follows: $460,000 for the buildout of the new EVOS restaurant located in Las Vegas, NV; $1,977,000 for five U-Swirl restaurants (purchase and installation of equipment); $250,000 to fund U-Swirl International, Inc.; and $892,000 towards corporate overhead and operating loss of the restaurants (working capital).

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6.

Exhibits

Regulation S-K Number	Exhibit
3.1	Amended and Restated Articles of Incorporation (1)
3.2	Amended Bylaws (1)
4.1	Form of common stock certificate (2)
4.2	Form of Class A warrant (included in Exhibit 4.5)
4.3	Form of Class B warrant (included in Exhibit 4.5)
4.4	Form of unit certificate (3)
4.5	Form of Warrant Agreement between the Registrant and Computershare Trust Company, N.A. (4)
4.6	Form of Representative’s Purchase Warrants (3)
10.1	EVOS Restaurant Franchise Agreement dated December 14, 2005 (1)
10.2	Conditional Assignment of Telephone Numbers and Listings to EVOS USA, Inc. dated December 14, 2005 (1)
10.3	Collateral Assignment and Assumption of Lease to EVOS USA, Inc. dated December 14, 2005 (1)
10.4	Addendum to Franchise Agreement dated February 6, 2006 (1)
10.5	2007 Stock Option Plan, as amended (1)
10.6	Promissory Note dated October 24, 2006 to Henry E. Cartwright and Ira J. Miller as Trustee of the Miller Family Trust dated July 18, 2000 (1)
10.7	Warrant to purchase common stock issued to Ira J. Miller dated November 20, 2006 (1)
10.8	Area Representative Agreement between EVOS USA, Inc. and Healthy Fast Food, Inc. dated December 1, 2006 (1)
10.9	Territory and Development Schedule Addendum to the Area Representative Agreement effective February 26, 2007 (1)
10.10	Letter agreement with EVOS USA, Inc. dated July 10, 2007 (1)
10.11	Contract of Employment with Brad Beckstead dated July 25, 2007 (1)
10.12	Letter agreement with EVOS USA, Inc. dated July 30, 2007 (1)
10.13	Letter agreement with EVOS USA, Inc. dated February 7, 2008 (4)
10.14	Asset Purchase Agreement with U-Swirl Yogurt, Inc. Dated September 19, 2008 (5)
31.1	Rule 13a-14(a) Certification of Principal Executive Officer and Interim Principal Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Executive Officer and Interim Principal Financial Officer

___________________________

(1)	Incorporated by reference to the exhibits to the registrant’s registration statement on Form S-1, file number 333-145360, filed August 13, 2007.

(2)	Incorporated by reference to the exhibits to the registrant’s amended registration statement on Form S-1, file number 333-145360, filed March 11, 2008.

(3)	Incorporated by reference to the exhibits to the registrant’s amended registration statement on Form S-1, file number 333-145360, filed March 25, 2008.

(4)	Incorporated by reference to the exhibits to the registrant’s amended registration statement on Form S-1, file number 333-145360, filed February 8, 2008.

(5)	Incorporated by reference to the exhibit to the registrant’s current report on Form 8-K, file number 0-53130, filed September 22, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HEALTHY FAST FOOD, INC.

November 16, 2009	By:	/s/ Henry E. Cartwright
		Henry E. Cartwright, President
		(Interim Principal Financial Officer)

U-SWIRL, INC. - FORM 10-Q - November 16, 2009

Attached files

U-SWIRL, INC. Reports