Edgar Filing: HEALTHY FAST FOOD INC

f10q-hffi_063010.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 June 30, 2010

[ ] 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 (not required)

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: 2,931,836 shares of Common Stock, $0.001 par value, as of August 16, 2010

HEALTHY FAST FOOD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	Unaudited
	June 30, 2010			December 31, 2009
ASSETS

Current assets
Cash	$	145,803		$	516,925
Accounts receivable		2,871			5,597
Due from U-Create Enterprises		-			1,481
Inventory		69,839			61,658
Prepaid expenses		96,443			77,680
Current assets from discontinued operations		-			8,426
Total current assets		314,956			671,767

Leasehold improvements, property and equipment, net		2,134,773			2,056,346

Other assets
Deposits		46,392			56,762
Deferred offering costs		152,805			70,134
Other asset		55,424			58,475
Other assets from discontinued operations		42,676			85,351
Total other assets		297,297			270,722

Total assets	$	2,747,026		$	2,998,835

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities	$	162,208		$	203,665
Accounts payable and accrued liabilities from
discontinued operations		114,417			154,953
Current portion of long-term debt		5,143			4,808
Total current liabilities		281,768			363,426

Deferred rent		335,444			355,756
Deferred revenue		190,000			100,000
Long-term capital lease		7,484			10,142
Long-term liabilities from discontinued operations		17,633			53,253

Total liabilities		832,329			882,577

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, 2,899,836 and 2,761,336 shares issued and
outstanding at 06/30/10 and 12/31/09, respectively		2,900			2,761
Additional paid-in capital		7,254,131			7,154,117
Compensation payable in stock		16			19
Accumulated deficit		(5,342,350	)		(5,040,639	)
Total stockholders' equity		1,914,697			2,116,258

Total liabilities and stockholders' equity	$	2,747,026		$	2,998,835

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 six months ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
				Restated						Restated
Revenues
Restaurant sales, net of discounts	$	838,222		$	379,572		$	1,388,921		$	395,271
Franchise royalties and fees		8,008			-			13,810			-
Total revenues		846,230			379,572			1,402,731			395,271

Restaurant operating costs
Food, beverage and packaging costs		248,266			109,778			415,839			114,958
Labor and related expenses		173,479			92,699			330,906			108,501
Occupancy and related expenses		108,893			51,948			202,905			57,101
Marketing and advertising		8,631			25,327			30,290			31,804
General and administrative		111,664			82,789			242,126			193,389
Officer compensation		138,527			117,757			292,884			244,049
Investor relations fees		15,000			-			30,000			-
Pre-opening costs		904			8,026			9,648			27,829
Depreciation and amortization		75,206			26,217			145,966			31,600
Total costs and expenses		880,570			514,541			1,700,564			809,231
Loss from operations		(34,340	)		(134,969	)		(297,833	)		(413,960	)

Interest expense		(591	)		(1,877	)		(1,090	)		(1,240	)
Interest income		-			3,018			34			6,023

Loss from continuing operations before income taxes		(34,931	)		(133,828	)		(298,889	)		(409,177	)
Provision for income taxes		-			-			-			-
Loss from continuing operations		(34,931	)		(133,828	)		(298,889	)		(409,177	)
Discontinued operations:
(Income) expense from operations of discontinued
Fresh and Fast restaurant component		4,112			71,508			2,822			143,439
Income tax benefit		-			-			-			-
Gain (loss) on discontinued operations		(4,112	)		(71,508	)		(2,822	)		(143,439	)
Net loss	$	(39,043	)	$	(205,336	)	$	(301,711	)	$	(552,616	)

Earnings per share - basic
Loss from continuing operations	$	(0.01	)	$	(0.05	)	$	(0.11	)	$	(0.16	)
Loss from discontinued operations		(0.00	)		(0.03	)		(0.00	)		(0.06	)
Net loss per common share - basic and fully diluted	$	(0.01	)	$	(0.08	)	$	(0.11	)	$	(0.22	)

Weighted average common shares outstanding -
basic and diluted		2,841,347			2,518,350			2,810,283			2,518,350

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

HEALTHY FAST FOOD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Unaudited
	For the six months ended
	June 30, 2010			June 30, 2009
				Restated
Cash flows from operating activities:
Net loss	$	(301,711	)	$	(552,616	)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Depreciation and amortization		145,966			31,600
Share-based compensation		99,650			-
Loss on disposal of Fresh and Fast restaurant fixed assets		-			52,707
Changes in operating assets and liabilities:
Accounts receivable		2,726			-
Inventory		(8,181	)		(33,736	)
Prepaid expenses		(18,763	)		(38,485	)
Current assets from discontinued operations		8,426			58,574
Other assets from discontinued operations		42,675			66,063
Accounts payable and accrued liabilities		(41,457	)		10,257
Accounts payable and accrued liabilities from discontinued operations		(40,536	)		(61,392	)
Deferred revenue		90,000			15,000
Deferred rent		(20,312	)		127,972
Long-term liabilities from discontinued operations		(35,620	)		(21,981	)
Net cash (used) by operating activities		(77,137	)		(346,037	)

Cash flows from investing activities:
Tenant improvement allowance receivable		-			(26,675	)
Due from U-Create Enterprises		1,481			(1,492	)
Deposits		10,370			(58,360	)
Purchase of fixed assets		(224,393	)		(1,241,189	)
Other asset		3,051			-
Net cash (used) by investing activities		(209,491	)		(1,327,716	)

Cash flows from financing activities:
Deferred offering costs		(82,671	)		-
Proceeds from exercise of warrants		500			-
Payments on capital lease obligation		(2,323	)		(2,031	)
Net cash (used) by financing activities		(84,494	)		(2,031	)

Net change in cash		(371,122	)		(1,675,784	)

Cash, beginning of period		516,925			3,335,740

Cash, end of period	$	145,803		$	1,659,956

Supplemental disclosure of cash flow information:
Interest paid	$	1,090		$	1,240
Taxes paid	$	-		$	-

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

HEALTHY FAST FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(UNAUDITED)

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 31, 2010 with the U.S. Securities and Exchange Commission (“SEC”) for the year ended December 31, 2009.

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

U-Swirl Concept - In 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 a broad choice in frozen yogurt by providing 16 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 June 30, 2010, U-Swirl International, Inc. owned and operated six U-Swirl Yogurt restaurants, sold one franchise, and sold five franchise area developer agreements.

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 and closes non-performing concepts. 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 5 below).

Subsequent Events - The Company has evaluated subsequent events through August 16, 2010, the date it filed its report on Form 10-Q for the quarter ended June 30, 2010 with the SEC.

Reclassifications - Certain prior period amounts have been reclassified to conform with current year presentation.

Revenue Recognition Policy - Revenue from U-Swirl café sales is recognized when food and beverage products are sold. The Company reduces revenue by sales returns and sales discounts.

HEALTHY FAST FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(UNAUDITED)

Revenue earned as a U-Swirl Frozen Yogurt franchisor will be derived from cafés 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.

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

New Pronouncements - In April 2010, the FASB issued updated guidance that sets forth the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate for research and development arrangements. Specifically, consideration that is contingent upon the completion of a milestone may be recognized in its entirety as revenue in the period that milestone has been achieved if the milestone, in its entirety, meets all of the criteria to be considered substantive at the inception of an arrangement. This guidance is effective prospectively for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010 and applies to research or development deliverables under which the performance obligation is satisfied over a period of time and a portion, or all, of the consideration is contingent upon uncertain future events or circumstances. A reporting entity’s decision to use the milestone method of revenue recognition is a policy election. Since we do not currently have contracts that would qualify for the election of the milestone method, the adoption of this guidance will not have a material effect on our consolidated financial statements.

2. GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company incurred a net loss of $301,711 for the six months ended June 30, 2010, and has accumulated net losses totaling $5,342,350 since inception.

The Company has been developing company-owned stores, as well as a franchise network through the sale of franchises and establishment of area representative agreements. It has relied on fund raising and the sales of new franchises to augment the cash flow it receives from operating its company-owned stores. The economic conditions of 2009 resulted in lower-than-expected sales of new franchises, which have resulted in a significant decrease in its cash position. The Company has halted its company-owned store development plan in order to conserve cash.

The Company’s ability to fund its operations will depend on the length of time of the current economic downturn, its future performance, and its ability to successfully implement its business and growth strategies. In the event that it needs additional capital and is unable to obtain it, the Company could be left without sufficient liquidity. The Company will continually monitor its operating and overhead expenses and reduce those expenses to match the revenue flow. Management is considering raising money during the year ended December 31, 2010 to meet any shortfalls from operations. However, realization of a return on investment on company-owned stores, a significant portion of the assets in the accompanying balance sheet, is dependent on Company management’s ability to reach consistent and sustainable profitability. The Company is also dependent on management’s ability to increase sales of new franchises and/or their ability to raise additional capital through a placement of its securities.

HEALTHY FAST FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(UNAUDITED)

3. CASH

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. No amounts were in excess of the federally insured program.

4. LEASEHOLD IMPROVEMENTS, PROPERTY AND EQUIPMENT

Leasehold improvements, property and equipment consist of the following as of June 30, 2010 and December 31, 2009:

	June 30, 2010			December 31, 2009
Café equipment	$	907,392		$	706,588
Signage		101,880			74,712
Furniture and fixtures		124,967			103,317
Computer equipment		102,799			86,840
Vehicles		23,937			23,937
Leasehold improvements		1,159,824			989,390
Construction in process		-			211,622
		2,420,799			2,196,406
Less: accumulated depreciation		(286,026	)		(140,060	)
Leasehold improvements, property and equipment, net	$	2,134,773		$	2,056,346

Depreciation and amortization expense for the six months ended June 30, 2010 and 2009 totaled $145,966 and $31,600 (restated), respectively.

5. 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 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 six months ended June 30, 2010 and 2009:

	2010			2009 (Restated)
Revenues	$	-		$	438,608
Costs and expenses		2,822			(582,047	)
Net income (loss)	$	(2,822	)	$	(143,439	)

Net assets and liabilities of the Fresh and Fast concept operations, which are presented as separately stated amounts in the Consolidated Balance Sheets at June 30, 2010 and December 31, 2009, were as follows:

	June 30, 2010			December 31, 2009
Assets	$	42,676		$	93,777
Liabilities		132,050			208,206
Net liabilities	$	(89,374	)	$	(114,429	)

HEALTHY FAST FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(UNAUDITED)

Abandoned Facilities Lease Commitments - As of June 30 2010, the Company continued to be liable for the lease of one abandoned restaurant for a period of eleven months. Included in Liabilities from Discontinued Operations for the period ended June 30, 2010 is the present value of discounted future rent commitments for the abandoned leased stores totaling $102,345.

EVOS Severance Agreement - As of June 30, 2010, 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 as of June 30, 2010, until such time as both parties have accepted a formal agreement which officially terminates the franchise and area development agreements.

6. DEFERRED OFFERING COSTS

Deferred offering costs consisting of legal, underwriting and filing fees relating to the public offering have been capitalized. The deferred offering costs will be offset against offering proceeds in the event the offering is successful. In the event the offering is unsuccessful or is abandoned, the deferred offering costs will be expensed.

The deferred offering costs have been reclassified as a separate line item on the balance sheet. As of June 30, 2010 and December 31, 2009, the Company had $152,805 and $70,134 in deferred offering costs, respectively.

7. ROYALTY INCOME AND DEFERRED REVENUE

The Company recognized $13,810 and $-0- (restated) in royalty income for the six months ended June 30, 2010 and 2009, respectively.

The Company deferred area representative agreement fee income of $190,000 and $100,000 as of June 30, 2010 and December 31, 2009, respectively. Per the terms of the agreements, the Company will recognize franchise fee revenue upon the opening of each restaurant within the respective territories.

8.	INTEREST INCOME AND EXPENSE

Interest income for the six months ended June 30, 2010 and 2009 totaled $34 and $6,023 (restated), respectively.

Interest expense for the six months ended June 30, 2010 and 2009 totaled $1,090 and $1,240 (restated), respectively.

9.	STOCKHOLDERS’ EQUITY

On May 3, 2010, a warrant-holder exercised 25,000 warrants at $0.02 per warrant into 25,000 shares of the Company’s $0.001 par value common stock (restricted).

During the six months ended June 30, 2010, the Company granted 81,000 shares of its $0.001 par value common stock to officers and a director as share-based compensation. The fair market value of the shares on the dates of grant totaled $72,650. 11,000 shares were recorded as stock payable as of June 30, 2010 because they had not been issued as of that date.

During the six months ended June 30, 2010, the Company granted 30,000 shares of its $0.001 par value common stock to its public relations firm as share-based compensation. The fair market value of the shares on the dates of grant totaled $27,000. 5,000 shares were recorded as stock payable as of June 30, 2010, because they had not been issued as of that date.

HEALTHY FAST FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(UNAUDITED)

10. RELATED PARTY TRANSACTIONS

The Company paid $10,000 and $5,000 in rent for office space and inventory storage for the six months ended June 30, 2010 and 2009, respectively, to a company which is wholly owned by the Company’s officers/shareholders.

The Company was owed $-0- and $1,481 as of June 30, 2010 and December 31, 2009, respectively, 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 six months ended June 30, 2009 pursuant to the Company’s employment agreement with the former officer.

11. OCCUPANCY AND RELATED EXPENSES

Occupancy and related expenses consists of the following for six months ended June 30, 2010 and 2009:

	2010		2009 (Restated)
Rent	$	150,301	$	42,381
Real estate taxes, insurance and CAM fees		21,612		5,391
Utilities		30,992		9,329
Occupancy and related expenses	$	202,905	$	57,101

12. COMMITMENTS AND CONTINGENCIES

In December 2009, the Company signed a letter of intent with an underwriter to provide underwriting services in conjunction with a proposed public offering of the Company’s common stock.

13. SUBSEQUENT EVENTS

We evaluated all of our activity and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our financial statements.

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.

Shortly after signing a franchise agreement in December 2005 to operate an EVOS restaurant in Henderson, Nevada, we engaged in a private placement to raise the capital necessary to open the restaurant. We sold 300,000 shares of common stock in the 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, which opened in October 2006.

In December 2006, we entered into an area representative agreement that gave 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, fund our efforts to solicit franchise owners for our territory, and open another restaurant.

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 net proceeds of the offering were intended to be used to open 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 restaurant 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 Yogurt (“U-Swirl”) on September 30, 2008. We intend to build and operate cafés to be owned and operated by us (“company-owned”) and to franchise to others the right to own and operate U-Swirl cafés 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 café in the Las Vegas MSA in March 2009, and we have since developed five more company-owned cafés in the Las Vegas MSA. In addition, the original U-Swirl café in Henderson, Nevada, continues to operate as a franchisee.

In July 2009, we entered into a franchise agreement for a café in Reno, Nevada, which opened in October 2009. This franchisee signed a franchise agreement for a second location in Reno in April 2010, which is expected to open during the third calendar quarter of 2010. In August 2010, we entered into a franchise agreement for a café in Marietta, Georgia. In addition, we have signed the following area development agreements:

·	Phoenix, Arizona for the development of a minimum of three cafés by November 2010, four more cafés by November 2011 and a total of 23 cafés by November 2019;

·	Monmouth County, New Jersey for the development of a minimum of one café by February 2011 and a total of three cafés by February 2013;

·	Tucson, Arizona for the development of a minimum of one café by April 2011 and a total of four cafés by April 2013; and

·	Boise, Idaho for the development of a minimum of one café by June 2011 and a total of two cafés by June 2012.

We were not successful with the EVOS concept and ceased operating those restaurants under the EVOS concept in July 2009. After briefly operating under a concept known as “Fresh and Fast,” we closed the two restaurants in August 2009, and have reflected activities related to this concept as discontinued operations in our financial statements. Prior periods have been restated to conform to the current presentation.

Results of Operations

Three Months Ended June 30, 2010. For the three months ended June 30, 2010, our U-Swirl cafés generated $838,222 in sales, net of discounts.

Our café operating costs, excluding pre-opening expenses attributable to training, supplies and various grand-opening promotions including product giveaways, were $530,638, or 63% of net sales revenues, resulting in café operating profit of $307,584.

We also generated $8,008 of royalty income from the operation of our franchised café in Reno, Nevada.

We had only two company-owned U-Swirl cafés in operation during the three months ended June 30, 2009, and a franchised location which did not pay us any royalties. Revenues and café operating costs in 2009 were $379,572 and $254,425 (67% of net sales), respectively, resulting in café operating profit of $125,147.

Marketing and advertising expenses were $8,631 for the 2010 period as compared to $25,327 for the 2009 period.

For the three months ended June 30, 2010, general and administrative expense increased by $28,875 (35%) due to increased U-Swirl operations. The largest components of general and administrative expenses for the 2010 period were accounting fees $14,633, legal fees $11,732 and insurance $14,528.

Officer compensation for the 2010 period increased by $20,770 (18%), as we began issuing stock compensation in September 2009. The 2010 expense included $30,250 of stock issued to our officers.

We incurred $15,000 of investor relations fees in the 2010 period compared to $-0- for the 2009 period, as we hired a financial public relations firm in October 2009.

Depreciation and amortization expense increased significantly from $26,217 to $75,206, reflecting our increased base of leasehold improvements, property and equipment due to the operation of the new cafés.

As described above, we accounted for the “Fresh and Fast” concept divestiture as “discontinued operations.” We wrote off all of our assets related to the EVOS restaurant concept, such as leasehold improvements, cash, rent deposits, prepaid franchise fees and inventory. For the three months ended June 30, 2010, we realized a loss of $4,112, as compared to a loss of $71,508 for the 2009 period. At the time of closure, we were liable for the leases of the two abandoned restaurants for a period of 21 months on one location and 48 months on the other. In November 2009, we reached an agreement with the landlord of the location with the longer lease term and settled the liability for 21,244 restricted shares of our common stock, valued at $26,555. We are negotiating with the other landlord.

As a result of the above, our net loss for the three months ended June 30, 2010 was $39,043, as compared to a loss of $205,336 for the comparable 2009 period.

Six Months Ended June 30, 2010. For the six months ended June 30, 2010, our U-Swirl cafés generated $1,388,921 in sales, net of discounts.

Our café operating costs, excluding pre-opening expenses attributable to training, supplies and various grand-opening promotions including product giveaways, were $949,650, or 68% of net sales revenues, resulting in café operating profit of $439,271.

We also generated $13,810 of royalty income from the operation of our franchised café in Reno, Nevada.

We had only two company-owned U-Swirl cafés in operation during the six months ended June 30, 2009, and a franchised location which did not pay us any royalties. Revenues and café operating costs in 2009 were $395,271 and $280,560 (71% of net sales), respectively, resulting in café operating profit of $114,711.

Marketing and advertising expenses were $30,290 for the 2010 period as compared to $31,804 for the 2009 period.

For the six months ended June 30, 2010, general and administrative expense increased by $48,737 (25%) due to increased U-Swirl operations. The largest components of general and administrative expenses for the 2010 period were accounting fees $31,633, consulting fees $20,000, legal fees $37,705 and insurance $23,972.

Officer compensation for the 2010 period increased by $48,835 (20%), as we began issuing stock compensation in September 2009. The 2010 expense included $72,650 of stock issued to our officers.

We incurred $30,000 of investor relations fees in the 2010 period compared to $-0- for the 2009 period, as we hired a financial public relations firm in October 2009.

Depreciation and amortization expense increased significantly from $31,600 to $145,966, reflecting our increased base of leasehold improvements, property and equipment due to the operation of the new cafés.

As described above, we accounted for the “Fresh and Fast” concept divestiture as “discontinued operations.” We wrote off all of our assets related to the EVOS restaurant concept, such as leasehold improvements, cash, rent deposits, prepaid franchise fees and inventory. For the six months ended June 30, 2010, we realized a loss of $2,822, as compared to a loss of $143,439 for the 2009 period. At the time of closure, we were liable for the leases of the two abandoned restaurants for a period of 21 months on one location and 48 months on the other. In November 2009, we reached an agreement with the landlord of the location with the longer lease term and settled the liability for 21,244 restricted shares of our common stock, valued at $26,555. We are negotiating with the other landlord.

As a result of the above, our net loss for the six months ended June 30, 2010 was $301,711, as compared to a loss of $552,616 for the comparable 2009 period.

Liquidity and Financial Condition

As of June 30, 2010. At June 30, 2010, we had working capital of $33,188 and cash of $145,803, as compared to working capital of $308,341 and cash of $516,925 at December 31, 2009.

We had a net loss of $301,711 during the first six months of 2010, and operating activities used cash of $77,137. The principal adjustments to reconcile the net loss to net cash used by operating activities were depreciation and amortization of $145,966 and share-based compensation of $99,650.

We used $209,491 for investing activities during the first six months of 2010, of which $224,393 was used to purchase fixed assets, in connection with our U-Swirl operations. Leasehold improvements, property and equipment, net of accumulated depreciation, was $2,134,773 at June 30, 2010, as compared to $2,056,346 at December 31, 2009. In addition, prepaid expenses were $96,443 at June 30, 2010, as compared to $77,680 at December 31, 2009.

At June 30, 2010, we recorded $190,000 of deferred revenue in connection with the development fees from area development agreements signed in November 2009, February 2010, April 2010 and June 2010. Pursuant to the terms of the agreements, we will recognize $15,000 in franchise fee revenue upon the opening of the first café within each developer’s territory, and $5,000 in franchise fee revenue upon the opening of each subsequent restaurant within each developer’s territory.

We also used $84,494 for financing activities, of which $82,671 was deferred offering costs. At June 30, 2010, deferred offering costs were $152,805, as compared to $70,134 at December 31, 2009.

Going Concern

In its report prepared in connection with our 2009 financial statements, our independent registered public accounting firm included an explanatory paragraph stating that, because of our net loss of $2,363,595 for the year ended December 31, 2009 and accumulated losses of $5,040,639 since inception, there is substantial doubt about our ability to continue as a going concern. Our continued existence will depend on the duration of the current economic downturn, our ability to reduce our overhead expenses to match our revenue flow, our ability to raise additional capital to meet any shortfalls from operations, and our ability to increase sales of new franchises. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Summary of Significant Accounting Policies

Inventories. Inventories consisting of food, beverages and supplies are stated at the lower of cost (FIFO) 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. We have no minimum purchase commitments with our vendors. As of June 30, 2010 and December 31, 2009, inventories consisted of the following: food and beverages totalling $28,164 and $23,280, and non-foods totalling $41,675 and $38,378, respectively. We did not incur any significant charges to cost of sales for spoilage during these periods.

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 in “Gain or Loss from Operations.”

U-Swirl cafés currently under development are accounted for as construction-in-process. Construction-in-process is recorded at acquisition cost, including leasehold improvements, equipment expenditures, professional fees and interest expenses capitalized during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-process is transferred to an appropriate asset. Construction-in-process is valued at the lower of cost or market. Management evaluates the market value of our cafés on a periodic basis for impairment. As of June 30, 2010 and December 31, 2009, construction-in-process totalled $-0- and $211,622, respectively.

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. At June 30 2010 and December 31, 2009, deposits consisted of security deposits for multiple locations totalling $46,392 and $56,762, respectively. All deposits are carried at the lower of fair value or cost.

Revenue recognition policy. Revenue from U-Swirl café sales is recognized when food and beverage products are sold. We reduce revenues by sales returns and sales discounts.

Revenue earned as a U-Swirl Frozen Yogurt franchisor will be derived from cafés 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 franchisor 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 franchise fee revenue of $-0- and $-0- during the six months ended June 30, 2010 and 2009, 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.

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”.

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

On June 16, 2010, Katherine Hemingway, our former Vice President of Marketing and Communications, filed a charge of discrimination against us with the Nevada Equal Rights Commission in connection with her termination of employment with the company. She is seeking monetary damages and stock in amounts yet to be determined. We are still in the process of evaluating her claim. Ms. Hemingway is married to Gregory Janson, a director and significant shareholder of our company.

There are no other legal proceedings pending or, to the best of our knowledge, contemplated or threatened that are deemed material to our business or us.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended June 30, 2010, we issued 48,000 shares of common stock to three officers and a consultant for services valued at $99,650. We also issued 25,000 shares of common stock upon exercise of a warrant at $0.02 per share. We relied upon the exemption from registration contained in Section 4(2) of the Securities Act, as these persons were deemed to be sophisticated with respect to the investment in the securities due to their financial condition and involvement in our business and had access to the kind of information which registration would disclose.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

(Removed and Reserved)

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	2007 Stock Option Plan, as amended (1)
10.2	Asset Purchase Agreement with U-Swirl Yogurt, Inc. Dated September 19, 2008 (5)
10.3	Area Development Agreement for Phoenix Arizona Metropolitan Statistical Area (6)
10.4	Area Development Agreement for Tucson, Arizona (7)
10.5	Form of Franchise Agreement (7)

Regulation S-K Number

Exhibit

10.6	Area Development Agreement for Monmouth County, New Jersey (8)
10.7	Area Development Agreement for Boise, Idaho (8)
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.

(6)	Incorporated by reference to the exhibits to the registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2009, file number 0-53130, filed March 31, 2010.

(7)	Incorporated by reference to the exhibits to the registrant’s amended registration statement on Form S-1, file number 333-164096, filed May 26, 2010.

(8)	Incorporated by reference to the exhibits to the registrant’s amended registration statement on Form S-1, file number 333-164096, filed June 25, 2010.

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.

August 16, 2010	By:	/s/ Henry E. Cartwright
		Henry E. Cartwright, President
		(Interim Principal Financial Officer)