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 August 31, 2014

 

[  ]	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

U-SWIRL, 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.)

 

265 Turner Dr, Durango, CO 81303

(Address of principal executive offices, including zip code)

 

(702) 586-8700

(Registrant’s telephone number, including area code)

 

1175 American Pacific, Suite C, Henderson, Nevada 89074

(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. [ ]Yes [x]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). [x]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:

 

On September 30, 2014, the registrant had outstanding 17,815,484 and commitments to issue an additional 4,277,778 shares of its common stock, $.001 par value

 

  

U-SWIRL, INC.

CONSOLIDATED BALANCE SHEETS

 

		August 31, 2014				February 28, 2014
		(Unaudited)
Assets
Current Assets
Cash		$	2,668,618			$	701,748
Accounts Receivable, less allowance for doubtful accounts of $68,000 and $10,000, respectively			613,175				1,418,960
Accounts Receivable, related party			-				11,989
Current Portion of Notes Receivable			78,856				-
Inventory			158,554				118,219
Deferred Tax Assets, Current			111,689				-
Prepaid Expenses			65,053				18,182
Total Current Assets			3,695,945				2,269,098
Leasehold Improvements, Property and Equipment, net			1,731,575				2,939,820
Other Assets
Notes Receivable, less current portion			206,442				-
Deposits			80,715				72,185
Goodwill and other intangible assets, net			9,974,745				10,243,522
Other assets			402,970				541,645
Total Other Assets			10,664,872				10,857,352
Total Assets		$	16,092,392			$	16,066,270
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities		$	2,791,315			$	2,346,572
Accounts Payable, related party			164,710				290,978
Current Portion of long-term debt, related party			24,257				22,837
Total Current Liabilities			2,980,282				2,660,387
Deferred Rent			61,968				105,031
Deferred Income Taxes			29,981				-
Deferred Revenue			1,251,114				1,658,647
Deferred Revenue, related party			30,000				30,000
Notes Payable, related party			7,225,384				8,607,196
Total Liabilities			11,578,729				13,061,261
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, 17,815,484 and 15,440,029 shares issued and Outstanding, respectively			17,815				15,440
Common Stock Payable			4,278				4,278
Additional paid-in Capital			13,424,638				12,381,600
Accumulated deficit			(8,933,068	)			(9,396,309	)
Total Stockholders’ Equity			4,513,663				3,005,009
Total Liabilities and Stockholders’ Equity		$	16,092,392			$	16,066,270

 

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

 

  

U-SWIRL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

		For the three months ended								For the six months ended
		August 31, 2014				August 31, 2013				August 31, 2014				August, 31, 2013
Revenues
Café Sales, net of discounts		$	1,305,268			$	1,253,473			$	2,783,456			$	2,631,722
Franchise Royalties and fees			1,186,655				438,987				2,209,546				778,144
Total Revenues			2,491,923				1,692,460				4,993,002				3,409,866
Café Operating Costs
Food, beverage and packaging costs			482,019				378,184				960,312				829,666
Labor and related expenses			283,020				350,508				610,944				618,849
Occupancy and related expenses			184,306				232,284				405,870				480,627
Franchise development			107,165				-				223,521				-
Marketing and advertising			162,769				54,245				311,499				88,754
General and Administrative			533,154				399,419				1,187,506				826,130
Depreciation and Amortization			206,735				105,370				432,835				210,948
Restructuring and Asset Acquisition Expenses			503,526				-				628,077				-
Fair Value Adjustment			(64,588	)			-				(240,791	)			-
Total costs and expenses			2,398,106				1,520,010				4,519,773				3,054,974
Income from Operations			93,817				172,450				473,229				354,892
Other Income (Expense)
Interest Expense			(9,686	)			(12,658	)			(12,535	)			(27,021	)
Interest Income			2,547				-				2,547				-
Other Expense, net			(7,139	)			(12,658	)			(9,988	)			(27,021	)
Income from continuing operations before income taxes			86,678				159,792				463,241				327,871
Provision for income taxes			-				-				-				-
Net income		$	86,678			$	159,792			$	463,241			$	327,871
Net income per common share, basic		$	0.00			$	0.01			$	0.02			$	0.02
Net income per common share, diluted		$	0.00			$	0.01			$	0.01			$	0.02
Weighted average common shares outstanding and stock payable			22,093,262				14,618,256				21,353,965				14,510,172
Dilutive effect of stock options and warrants			1,453,078				1,717,039				2,073,472				1,334,352
Weighted average common shares outstanding and stock payable, assuming dilution			23,546,340				16,335,295				23,427,437				15,844,524

 

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

 

  

U-SWIRL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

		For the six months ended
		August 31, 2014				August 31, 2013
Cash flows from operating activities
Net income		$	463,241			$	327,871
Adjustments to reconcile net income to net cash used by operating activities
Depreciation and amortization			432,835				210,948
Fair value adjustment on notes payable, related party			(240,791	)			-
Accrued interest on notes payable, related party			-				27,021
Costs of stock-based compensation			152,518				41,525
Asset Impairment			243,000				-
Provision for loss on accounts receivable			58,000				-
Gain on sale of property and equipment			(5,195	)			-
Changes in operating assets and liabilities
Accounts receivable, net			1,030,285				(53,901	)
Inventory			(40,335	)			3,992
Prepaid expenses			(47,138	)			(106,114	)
Deposits			(8,530	)			(403	)
Accounts payable and accrued liabilities			444,743				(54,451	)
Accounts payable, related party			(63,768	)			(11,792	)
Deferred Rent			(43,063	)			(34,171	)
Deferred Revenue			(407,533	)			(38,611	)
Deferred Taxes			(81,708	)			-
Net cash provided by operating activities			1,886,561				311,914
Cash flow from investing activities
Accounts receivable, related party			11,989				(301	)
Proceeds received on Notes Receivable			10,103				-
Additions to Notes Receivable			(295,401	)			-
Construction in Progress			-				(64,501	)
Other Assets			138,676				3,051
Proceeds from sale of assets			525,000
Purchases of property and equipment			(63,352	)			-
Net cash provided (used) by investing activities			327,015				(61,751	)
Cash flows from financing activities
Proceeds from exercise of stock warrants			892,895				-
Proceeds from notes payable, related party			-				64,501
Proceeds from issuance of common stock			-				3,500
Payments on long term debt			(1,139,601	)			-
Net cash provided (used) by financing activities			(246,706	)			68,001
Net change in cash			1,966,870				318,164
Cash, beginning of period			701,748				358,527
Cash, end of period		$	2,668,618			$	676,691
Supplemental disclosure of cash flow information
Interest Paid			3,366				-
Income tax paid			-				-

 

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

 

  

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

1.	DESCRIPTION OF BUSINESS

 

U-Swirl, Inc. was incorporated in the state of Nevada on November 14, 2005. Its wholly-owned subsidiaries are U-Swirl International, Inc. (“U-Swirl”), which was incorporated in the state of Nevada on September 4, 2008, and Moxie Consumer Products, LLC (“Moxie”), a Nevada limited liability company which was organized in the state of Nevada on February 11, 2014 (collectively referred to as the “Company”).

 

In September 2008, the Company acquired the worldwide rights to the U-Swirl Frozen Yogurt^TM concept. The U-Swirl concept allows guests a broad choice in frozen yogurt by providing an assortment of non-fat and low-fat flavors, including tart, traditional and no sugar-added options and numerous toppings, including seasonal fresh fruit, sauces, candy and granola. Guests serve themselves and pay by the ounce instead of by the cup size.

 

In January 2013, the Company entered into agreements to acquire Aspen Leaf Yogurt café assets, consisting of leasehold improvements, property and equipment, for six Aspen Leaf Yogurt cafés and the franchise rights to Yogurtini self-serve frozen yogurt chains from Rocky Mountain Chocolate Factory, Inc. (“RMCF”) in exchange for a 60% controlling ownership interest in the Company, a warrant that allows RMCF to maintain its pro rata ownership interest if existing stock options and/or warrants are exercised, and notes payable totaling $900,000 (the “Rocky Mountain Transaction”).

 

As a result of the change in control occurring in connection with the aforementioned transactions, the Company has been deemed to have been acquired by RMCF. Following the Rocky Mountain Transaction, the Company retained a significant minority interest of the issued and outstanding common stock. Due to the significant minority interest, the fair value increments and decrements have not been included in the accompanying financial statements. As the accounting acquirer, RMCF consolidates the Company’s results of operations in its financial statements. RMCF trades on the NASDAQ Global Market under the trading symbol “RMCF”.

 

In January 2014, the Company entered into business acquisitions with two operators and franchisors of self-serve frozen yogurt cafés, CherryBerry Enterprises, LLC (“CherryBerry”) and Yogli Mogli, LLC (“Yogli Mogli”), thereby adding 182 cafés. CherryBerry and certain affiliates were acquired for approximately $4.25 million in cash and 4,000,000 shares of the Company’s common stock (the “CherryBerry Acquisition”). Yogli Mogli was acquired for $2.15 million in cash and 277,778 shares of the Company’s common stock (the “Yogli Mogli Acquisition”).

 

The Company also entered into an asset acquisition with another operator and franchisor of self-serve frozen yogurt cafés, Fuzzy Peach Franchising, LLC (“Fuzzy Peach”), in February 2014, thereby adding 17 cafés. The Company paid $481,000 at closing, plus an earn-out, based upon royalty income generated by Fuzzy Peach cafés over the next twelve months, that could increase the purchase price by up to another $349,000. RMCF provided the funding for these acquisitions through a convertible note (the “Convertible Note”), which is secured by all of the Company’s assets.

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the six months ended August 31, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year.

 

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the fiscal year ended February 28, 2014.

  

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

As of August 31, 2014 the Company had the following locations:

 

		Locations
Company-owned Cafés
CherryBerry			1
Yogli Mogli			1
U-Swirl			6
Aspen Leaf Yogurt			1
Franchised and licensed Cafés
Fuzzy Peach			19
Josie’s			8
CherryBerry			168
Yogli Mogli			24
U-Swirl			32
Aspen Leaf Yogurt			10
Yogurtini			26
Total			296

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Year-End - Effective January 14, 2013, the Company’s Board of Directors adopted a fiscal year ending on the last day of February.

 

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates. Significant estimates include the fair value of the businesses acquired and the fair value of the Convertible Note.

 

Cash - The Company considers all highly liquid instruments purchased with a maturity of three months or less at date of acquisition to be cash equivalents. There were no cash equivalents at August 31, 2014 or February 28, 2014.

 

Accounts Receivable - During the normal course of business, the Company extends credit to its franchisees for inventory, supplies and fees. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable, assessments of collectability based on historical trends, and an evaluation of the impact of current and projected economic conditions. The process by which the Company performs its analysis is conducted on a franchisee by franchisee basis and takes into account, among other relevant factors, sales history, outstanding receivables, customer financial strength, as well as customer specific and geographic market factors relevant to projected performance. The Company monitors the collectability of its accounts receivable on an ongoing basis by assessing the credit worthiness of its customers and evaluating the impact of reasonably likely changes in economic conditions that may impact credit risks. Estimates with regard to the collectability of accounts receivable are reasonably likely to change in the future.

 

Inventory - Inventories consisting of food, beverages, and supplies are stated at the lower of cost or market. An inventory reserve is established to reduce the cost of obsolete, damaged and excess inventories to the lower of cost or market based on actual differences. This inventory reserve is determined through analysis of items held in inventory, and, if the value of those items at cost is higher than their market value, the Company records an expense to reduce inventory to its actual market value. The process by which the Company performs its analysis is conducted on an item by item basis and takes into account, among other relevant factors, market value, sales history and future sales potential. Cost is determined using the first-in, first-out method.

 

Prepaid Expenses - Prepaid expenses include costs incurred for prepaid rents, insurance, professional fees and deferred offering costs. The Company capitalizes certain costs associated with the offering of its stock and adjusts the deferred cost to offset offering proceeds upon closing of the offering or expenses the costs upon abandonment of the offering.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

Leasehold Improvements, Property and Equipment - Leasehold improvements, property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method based upon the estimated useful lives of the assets, which range from five to ten years.   Leasehold improvements are amortized on the straight-line method over the lives of the respective leases or the service lives of the improvements, whichever is shorter.

 

Company-owned cafés 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 expense 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 the appropriate asset group. As of August 31, 2014 and February 28, 2014, the Company did not have any construction-in-process.

 

The Company reviews its long-lived assets through analysis of fair value whenever events or changes indicate the carrying amount of such assets may not be recoverable. The Company’s policy is to review the recoverability of all assets, at a minimum, on an annual basis. Based on its evaluation, the Company has determined that an impairment of $243,000 exists as of August 31, 2014. 

 

Deposits - Deposits consist of security and utility deposits for multiple locations and a sales tax deposit held with the state of Nevada.

 

Goodwill and Other Intangible Assets - The Company records intangible assets acquired in a business combination under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Other intangible assets are amortized over their estimated useful lives.

 

Goodwill is not amortized. Instead, goodwill is reviewed for impairment at least annually or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. In assessing goodwill for impairment, the Company assesses qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that fair value of a reporting unit is less than its carry amount. Goodwill impairment exists when the carrying value of goodwill exceeds its implied fair value.

 

Other intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for the type of intangible asset and reported separately from goodwill. Intangible assets with definite lives are amortized over the estimated useful lives and tested for impairment when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. Intangible assets with definite lives are tested for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds its net undiscounted cash flows, then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value.

 

Intangible assets are generally valued as the present value of estimated future cash flows expected to be generated from the asset using a risk-adjusted discount rate. Estimates and assumptions about future expected revenue and remaining useful lives of the assets are used when determining the fair value of the Company’s intangible assets.

 

Deferred Rent - Rent expense for company-owned leases, which provide for escalating rents over the terms of the leases, is recorded on a straight-line basis over the lease terms.  The lease terms begin when the Company has the right to control the use of the property, which was before rent payments were actually due under the leases.  

 

The difference between the rent expense and the actual amount payable under the terms of the leases is recorded as a leasehold improvement asset and deferred rent liability on the balance sheets and as both an investing activity and a component of operating activities on the statements of cash flows.  

 

Revenue Recognition Policy - The Company recognizes revenue once pervasive evidence that an agreement exists; the product has been rendered; the fee is fixed and determinable; and collection of the amount due is reasonably assured.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

Revenue from company-owned café sales is recognized when food and beverage products are sold.  Café sales are reported net of sales discounts.

 

Revenue earned as a franchisor is derived from cafés in the Company’s worldwide territory and includes initial franchise fees and royalties. Initial franchise fee revenue from the sale of a franchise is recognized when the Company has substantially performed or satisfied all of its material obligations relating to the sale up through the point at which the franchisee is able to open the franchised café, and the Company has no intention of refunding the entire initial franchise fee or forgiving an unpaid note for the entire initial franchise fee. Substantial performance has occurred when the Company has (a) performed substantially all of its initial services required by the franchise agreement, such as providing to the franchisee (1) a copy of the Operations Manual; (2) assistance in site selection and selection of suppliers of equipment, furnishings, and food; (3) lease review and comments about the lease; and (4) the initial training course to one or two franchisee representatives; and (b) completed all of its other material pre-opening obligations. The Company defers revenue from the initial franchise fee until (a) commencement of operations by the franchisee; or (b) if the franchisee does not open the franchised café, (1) the date on which all pre-opening services and obligations of the Company are substantially complete, or (2) an earlier date on which the franchisee has abandoned its efforts to proceed with the franchise operations, and in either situation, the franchisee is not entitled to, and is not given, a refund of the initial franchise fee. Royalties ranging from three to five percent of net café sales are recognized in the period in which they are earned.

 

Rebates received from purveyors that supply products to the Company’s franchisees are included in franchise royalties and fees. Rebates related to company-owned cafés are offset against café operating costs. Product rebates are recognized in the period in which they are earned.

 

The Company also recognizes a marketing and promotion fee of one percent of net café sales which are included in franchise royalties and fees.

 

Marketing and Advertising Expense - The Company engages in local and regional marketing efforts by distributing advertisements, coupons and marketing materials as well as sponsoring local and regional events. The Company recognizes marketing and advertising expense as incurred.  

 

Share-based Compensation Expense - The Company recognizes all forms of share-based payments, including stock option grants, warrants, and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

 

Share-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period.

 

When computing fair value of share-based compensation, the Company considers the following variables: 

 

●

The expected option term is computed using the “simplified” method.

●

The expected volatility is based on the historical volatility of its common stock using the daily quoted closing trading prices.

●

The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

●

The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.

●

The forfeiture rate is based on the historical forfeiture rate for its unvested stock options.

 

Income Taxes - The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The Company has significant net operating loss carryovers. In accordance with section 382 of the Internal Revenue Code, deductibility of net operating loss carryovers may be subject to annual limitation in the event of a change in control. We have performed a preliminary evaluation as to whether a change in control has taken place, and have concluded that there was a change of control with respect to the net operating losses when 60% of the Company was acquired in January 2013. Our effective income tax rate may increase in future periods, or for the full year as a result of estimates related to the income tax liability arising from the income before income taxes of U-Swirl, Inc.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

Earnings (Loss) per Share - Basic earnings (loss) per share is computed as net earnings (losses) divided by the weighted average number of common shares outstanding and stock payable during each year. Diluted earnings (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and restricted stock units.  Stock payable is considered in the calculation of earnings (loss) per share when the Company believes that all conditions of the issuance have been met, or are reasonably likely to be met. At August 31, 2014 the company included 4,277,778 shares of stock payable in the calculation of earnings (loss) per share.

 

Fair Value Election - As discussed in Note 8, the Company entered into a convertible note agreement with RMCF in January 2014 (the “Convertible Note”). The Convertible Note contains a compound embedded derivative that requires separate accounting from the host debt instrument. The Company elected the fair value option for the Convertible Note as management believes recording the note at fair value better reflects the underlying economics of the transaction.

 

Fair Value Measurements - Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

Level 1: Quoted prices are available in active markets for identical assets or liabilities;

 

Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or

 

Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

 

The valuation policies are determined by the Chief Financial Officer (the “CFO”). Each quarter, the CFO will update the inputs used in the fair value calculations and internally review the changes from period to period for reasonableness. 

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

The Company has consistently applied the valuation techniques discussed below in all periods presented. The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of August 31, 2014 and February 28, 2014 by level within the fair value hierarchy:

 

February 28, 2014		Level 1				Level 2				Level 3				Total
Liabilities
Convertible Note		$	-			$	-			$	7,970,666			$	7,970,666

 

August 31, 2014		Level 1				Level 2				Level 3				Total
Liabilities
Convertible Note		$	-			$	-			$	6,601,522			$	6,601,522

 

The Company determined the fair value of the Convertible Note using the income valuation technique. Because of the hybrid nature of the Convertible Note, the Company first valued the debt host contract, or straight “bond”, component using a discounted cash flow analysis, and then valued the compound embedded derivative features using a Flexible Monte Carlo simulation. See Note 8 for discussion of the embedded features. Significant inputs to the valuation model include the coupon rate, effective yield, volatility, expected return and implied equity value. In addition, the following inputs were used in the Flexible Monte Carlo simulation to value the compound embedded derivative scenarios using different conversion dates, conversion rates, likelihood of default, conversion behavior and dilution of stock price on conversion.

 

The Company’s Convertible Note is included in the Level 3 fair value hierarchy because not all the significant inputs are directly or indirectly observable.

 

The following table summarizes the valuation techniques, models and significant unobservable inputs used for the Company’s Convertible Note (broken into its components), categorized within Level 3 of the fair value hierarchy:

 

 

Liabilities at Fair Value		Fair Value at August 31, 2014				Fair Value at February 28, 2014			Valuation Techniques / Model	Unobservable Inputs
Bond component		$	5,302,194			$	6,177,626		Income approach using discounted cash flow model	Effective yield ranging from 12.5%-20%
Embedded conversion features		$	1,288,892			$	1,791,773		Income approach using flexible Monte Carlo simulation	Expected return ranging from 5% - 10% Implied Equity Value ranging from 5% - 10%

 

Significant increases (decreases) in the unobservable inputs used in the fair value measurements would result in a significantly lower (higher) fair value measurement.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

The following table sets forth a reconciliation of changes in the fair value of the Convertible Note classified as Level 3 in the fair value hierarchy:

 

Balance, February 28, 2014		$	7,970,666
Purchases			372,007
Payments			(1,509,529	)
Unrealized gain			(240,791	)
Subtotal			6,592,353
Undrawn commitment fees			9,169
Balance, August 31, 2014		$	6,601,522

 

 

Accounting Policy for Ownership Interests in Investees - The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, after elimination of all material intercompany accounts, transactions, and profits.

 

New Accounting Pronouncements - In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the new standard.

 

3.	ACCOUNTS RECEIVABLE

 

Accounts receivable consisted of the following at August 31, 2014 and February 28, 2014:

 

		August 31, 2014				February 28, 2014
Accounts receivable, trade		$	298,919			$	175,348
Allowance for doubtful accounts			(68,000	)			(10,000	)
Accounts receivable, other			382,256				1,253,612
Accounts receivable, net		$	613,175			$	1,418,960
Accounts receivable, related party		$	-			$	11,989

 

4.

INVENTORY

 

As of August 31, 2014 and February 28, 2014, inventory consisted of the following:

 

		August 31, 2014				February 28, 2014
Food and beverages		$	95,470			$	61,108
Paper products/Supplies			63,084				57,111
Inventory		$	158,554			$	118,219

  

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

5.	LEASEHOLD IMPROVEMENTS, PROPERTY AND EQUIPMENT

 

Leasehold improvements, property and equipment consisted of the following as of August 31, 2014 and February 28, 2014:

 

		August 31, 2014				February 28, 2014
Café equipment		$	1,304,752			$	1,580,650
Furniture and fixtures			494,718				573,421
Computer equipment			150,625				184,646
Vehicles			30,342				30,342
Leasehold improvements			1,690,030				2,079,227
Provision for asset impairment			(243,000	)
			3,427,467				4,448,286
Less: accumulated depreciation			(1,695,892	)			(1,508,466	)
Leasehold improvements, property and equipment, net		$	1,731,575			$	2,939,820

 

Depreciation expense for the six months ended August 31, 2014 and 2013 was $250,058 and $210,948, respectively.

 

6.	GOODWILL AND INTANGIBLE ASSETS

 

Intangible assets at August 31, 2014 and February 28, 2014 consist of the following:

 

		August 31, 2014													February 28, 2014
		Amortization Period (years)				Gross Carrying Value				Accumulated Amortization				Gross Carrying Value				Accumulated Amortization
Intangible assets subject to amortization
Trademark/Non competition agreements		5	-	20			590,000				20,906				590,000				5,226
Franchise Rights			20				6,580,034				257,883				6,580,034				90,786
Total							7,170,034				278,789				7,170,034				96,012
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill							23,000				-				109,000				-
Franchising goodwill							3,060,500				-				3,060,500				-
Total Goodwill							3,083,500				0				3,169,500				0
Total intangible assets						$	10,253,534			$	278,789			$	10,339,534			$	96,012

 

Amortization expense related to intangible assets totaled $182,777 and $0 during the six months ended August 31, 2014 and 2013, respectively.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

At August 31, 2014, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following:

 

2015		$	189,043
2016			411,477
2017			457,050
2018			479,809
2019			492,502
Thereafter			4,861,364
Total		$	6,891,245

 

7.	DEFERRED REVENUE

 

The Company deferred franchisee fees, area development agreement fees and rebate income of $1,281,114 and $1,688,647 as of August 31, 2014 and February 28, 2014, respectively. Of the total amount deferred, and as reflected on the balance sheet, a portion relates to related parties. See Note 14.

 

8.	NOTES PAYABLE, RELATED PARTY

 

In July 2013, the Company executed promissory notes with RMCF for the purchase and installation of equipment necessary to convert two company-owned cafés into co-branded RMCF and U-Swirl cafés.  Interest accrues on the notes at the rate of 6% per annum, compounded annually and capitalized during the course of construction.  The notes require monthly payments of principal and interest over a five-year period beginning in October 2013.  Payment of the notes is secured by a security interest in all of the equipment purchased with the proceeds of the notes.

 

On January 16, 2014, the Company entered into a loan and security agreement (the “Loan Agreement”) with RMCF pursuant to which RMCF agreed to loan the Company up to $7,750,000. As of August 31, 2014, the Company had borrowed $8,038,616 under this Loan Agreement and repaid $2,497,529, for a net principal balance of $5,541,087. Interest accrues on the unpaid principal balances of the loans at the rate of 9% per annum, and is included in the principal balance. Principal and interest are due January 16, 2016. The outstanding principal and interest is convertible at prices of $0.90 and $0.45 per share of preferred stock, respectively, subject to adjustments upon the occurrence of certain events. Payment of the loans is secured by a security interest in all of the Company’s assets.

 

All payments of principal, interest and fees are payable in cash, shares of Series A Convertible Preferred Stock (the “Preferred Stock”), or a combination thereof, at the option of RMCF. The Preferred Stock to be designated will pay cumulative dividends equal to 9% of the stated value of the Preferred Stock, have a liquidation preference, vote with the Company’s common stock on all matters submitted for a vote of holders of common stock, and be convertible at the option of the holder into shares of the Company’s common stock.

 

The Company may prepay up to $2,100,000 of the outstanding amounts due to RMCF under the Loan Agreement at its option and without penalty in cash from the proceeds raised from (i) advances on rebates from its yogurt suppliers; and (ii) the exercise of outstanding stock options and warrants. The Company also has the option to redeem all of the amounts owed under the Loan Agreement at any time after January 16, 2015 at the rate of 108% of the total amounts owed, by making payment in cash, shares of Preferred Stock, or a combination thereof, at the option of RMCF.

 

Mandatory prepayment of the loans is required upon the receipt of proceeds from the disposition of any of the Company’s assets, the issuance of any equity securities by the Company (other than upon exercise of outstanding stock options or warrants), the issuance of any debt securities by the Company, or the receipt of insurance proceeds.

 

In the event of default, RMCF may charge interest on all amounts due under the Loan Agreement at the default rate of 15% per annum, accelerate payment of all amounts due under the Loan Agreement, and foreclose on its security interest.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

  

 

As discussed in Note 2, the Convertible Note contains a compound embedded derivative related to the conversion feature, equity indexed interest payments, down-round protection default conversion option, default interest and optional redemption feature. The Company records the Convertible Note at fair value.

 

The unrealized gain of $240,791 is recorded as the fair value adjustment in the accompanying Consolidated Statements of Operations. The fair value adjustment includes interest payable under the Convertible Note.

 

The Company is required to pay an undrawn commitment fee equal to 0.10% multiplied by the average daily difference between the loan commitment and the aggregate outstanding loan. The undrawn commitment fee is payable in cash or preferred stock at $0.45 per share.

 

RMCF may convert outstanding principal, or any portion thereof, into shares of preferred stock by dividing the principal to be converted by $0.90 per share. The conversion price is subject to adjustment for traditional recapitalizations. In the event of default, RMCF has the right to convert the Convertible Note into shares of preferred stock at the lessor of $0.45 or the implied equity value, as defined in the loan agreement, multiplied by 3.

 

RMCF also entered into a management services agreement with the Company for $542,500 which will be due on January 16, 2016 and the expense associated with this service agreement will be expensed until the fee is due. The management fee is convertible into preferred stock at $0.45 per share. The management services agreement is for services to be provided through January 16, 2016. The amount due is included in Notes Payable Related Party.

 

As of August 31, 2014 and February 28, 2014, the convertible note due to RMCF consisted of the following:

 

		August 31, 2014				February 28, 2014
Principal		$	5,541,087			$	6,678,609
Undrawn commitment fees			10,436				1,267
Fair value adjustment			1,049,999				1,290,790
Balance		$	6,601,522			$	7,970,666
Less: current maturities			-				-
Convertible note		$	6,601,522			$	7,970,666

 

As of August 31, 2014 and February 28, 2014, notes payable due to RMCF consisted of the following:

 

		August 31, 2014				February 28, 2014
Convertible note, secured, due 1/16/16 - principal		$	5,551,523			$	6,679,876
Construction Loans, secured, due 9/15/18 - principal			105,619				116,867
Management services payable			542,500				542,500
Balance, principal		$	6,199,642			$	7,339,243
Less: current maturities			(24,257	)			(22,837	)
Long-term obligations		$	6,175,385			$	7,316,406

  

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

The following table summarizes annual maturities of our notes payable as of August 31, 2014:

 

		Amount
2015		$	11,589
2016			7,168,268
2017			25,741
2018			27,329
Thereafter			16,714
Total minimum payments			7,249,641
Less: current maturities			(24,257	)
Long-term obligations		$	7,225,384

 

9.	FRANCHISE ROYALTIES AND FEES

 

During the six months ended August 31, 2014 and 2013, the Company recognized the following franchise royalties and fees:

 

		August 31, 2014				August 31, 2013
Royalty income		$	1,486,794			$	440,780
Franchise fee income			104,250				48,361
Rebate income from purveyors that supply products to franchisees			337,083				210,938
Marketing fees			281,419				78,065
Franchise royalties and fees		$	2,209,546			$	778,144

 

10.	OCCUPANCY AND RELATED EXPENSES

 

Occupancy and related expenses consist of the following for the six months ended August 31, 2014 and 2013:

 

		August 31, 2014				August 31, 2013
Rent		$	244,764			$	323,502
Real estate taxes, insurance and CAM fees			73,159				79,081
Utilities			87,947				78,044
Occupancy and related expenses		$	405,870			$	480,627

 

11.	STOCKHOLDERS’ EQUITY

 

During the six months ended August 31, 2014 the Company issued 250,000 shares of restricted common stock to its non-employee directors for services pursuant to its Non-Employee Director Compensation Program (the “Program”). Stock granted pursuant to the Program is immediately vested on the grant date. Associated with this award the Company has recorded stock-based compensation expense of $77,500, representing the estimated fair value on the date of grant. No shares were awarded during the six months ended August 31, 2013.

 

The fair value of each stock option grant is estimated on the date of grant using a Black-Scholes option pricing model. Options awarded in November 2011 and expensed until vested, in November 2013, were valued using the following assumptions: volatility rate of 123.53% - 125.65%; risk-free interest rate of 0.40% - 1.09% based on a U.S. Treasury rate of 3 years; and a 3-year expected option life (simplified method). During the six months ended August 31, 2014, the Company recognized $75,019 of expense associated with previously awarded restricted stock, compared to $9,690 of expense recognized in the six months ended August 31, 2013.

 

 
U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

During the six months ended August 31, 2014 the Company did not recognize any expense associated with stock options, compared to $31,835 recognized in the six months ended August 31, 2013.

 

On January 14, 2013, the Company granted 759,999 shares of restricted common stock to its officers and directors for services. In accordance with the terms of the grant, the shares vest at a rate of 20% per year for a five year period; are subject to forfeiture; and are issued at vesting. The Company has valued unvested stock-based compensation of $96,900 representing the estimated fair value on the date of grant, and will amortize the fair value of the shares to officer compensation expense ratably over the five year vesting period.

 

The following is a summary of the Company’s non-vested restricted stock activity:

 

		Non-vested Shares				Weighted Average Grant Date Fair Value			Weighted Average Remaining Vesting Period (years)
Outstanding - February 28, 2014			607,998				0.1275		3.88
Granted			-				-
Vested			-				-
Forfeited/Cancelled			-				-
Outstanding - August 31, 2014			607,998			$	0.1275		3.38

 

During the three months ended August 31, 2014 the Company recognized all unamortized expense associated with non-vested restricted stock units. This expense was accelerated associated with restructuring activities as described in Note 15 to these financial statements. As of August 31, 2014 there was no amount remaining of unamortized expense associated with restricted stock units.

 

12.	STOCK OPTIONS

 

On June 27, 2007, the stockholders of our Company adopted the 2007 Stock Option Plan which currently permits the granting of options to purchase up to 1,544,002 shares. The 2007 Stock Option Plan will remain in effect until it is terminated by the board of directors except that no incentive stock option will be granted after June 26, 2017. On April 20, 2011, the stockholders of our Company adopted the 2011 Stock Option Plan which permits the granting of options to purchase up to 750,000 shares.

 

The following is a summary of the Company’s stock option activity:

 

		Options				Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (years)		Average Intrinsic Value
Outstanding - February 28, 2014			762,000			$	0.38		2.37		$	360,840
Granted			-				-
Exercised			-				-
Forfeited/Cancelled			-				-
Outstanding - August 31, 2014			762,000			$	0.38		1.87		$	94,140
Exercisable - August 31, 2014			762,000			$	0.38		1.87		$	94,140

 

During the six months ended August 31, 2014 and 2013, the Company expensed $0 and $31,835 related to stock option grants, respectively.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

13.

WARRANTS

 

In April 2014, the Company called its outstanding Class C Warrants for redemption. Pursuant to a notice of redemption, the holders of the Class C Warrants were given until the close of business on May 22, 2014 to exercise their outstanding warrants at $0.60 per share. Thereafter, any remaining unexercised warrants were cancelled and represented only the right to receive a redemption price of $0.05 per warrant. During the quarter ended May 31, 2014 a total of 1,515,882 Class C Warrants and 44,312 underwriter’s warrants were exercised for gross proceeds of $930,799. The Company deposited $11,343 with the warrant redemption agent to pay the warrant redemption price for the 226,865 Class C Warrants that were not exercised prior to the redemption date.

 

On April 21, 2014, the Company and RMCF agreed to modify the warrant issued to RMCF in January 2013, which allowed RMCF to maintain its pro-rata ownership interest if existing stock options and/or warrants were exercised. Under that warrant, RMCF had the right to purchase 1.5 times the number of shares of common stock issued upon exercise of the Company’s Class C warrant. Pursuant to the modification, RMCF agreed to exercise that portion of the warrant which corresponded to the exercise of the Class C warrant to the fullest extent possible on a “cashless exercise” basis immediately after the redemption date for the Class C Warrants. A total of 565,261 shares of common stock were issued to RMCF as a result.

 

The following is a summary of the Company’s warrant activity:

 

		Warrants				Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (years)		Average Intrinsic Value
Outstanding - February 28, 2014			6,023,247			$	0.62		1.8		$	1,751,764
Granted			-				-
Exercised			(4,032,397	)			0.60
Forfeited/Cancelled			(297,850	)			0.60
Outstanding - August 31, 2014			1,693,000			$	0.66		1.72		$	158,835
Exercisable - August 31, 2014			333,532			$	0.96		1.40		$	16,296

 

During the six months ended August 31, 2014 and 2013, the Company expensed $0 and $0 related to stock warrants issued, respectively.

 

14.	RELATED PARTY TRANSACTIONS

 

The Company had a net payable of $717 and a net receivable of $11,989 as of August 31, 2014 and February 28, 2014, respectively, from a U-Swirl franchisee that is owned and operated by the grandchildren of the Company’s former Chief Marketing Officer.

 

As of August 31, 2014 and February 28, 2014, the Company owed $164,710 and $290,978, respectively, to RMCF for inventories and various operating expenses. See also Note 8, Notes Payable, Related Party.

 

As of August 31, 2014 and February 28, 2014, the Company had deferred revenue of $30,000 and $30,000, respectively, from an area developer in which the Company’s former Chief Executive Officer and Chief Operating Officer have a minority interest.

 

  

15. – RESTRUCTURING AND ACQUISITION RELATED CHARGES

 

On January 17, 2014, the Company entered into an Asset Purchase Agreement with CherryBerry, which was the franchisor of self-serve frozen yogurt retail stores branded as “CherryBerry.” Pursuant to the CherryBerry Purchase Agreement, the Company purchased certain assets of CherryBerry used in its business of franchising frozen yogurt stores, including all of its franchise rights and one company-owned store. The Company also entered into an Asset Purchase Agreement with Yogli Mogli, which was the franchisor of self-serve frozen yogurt retail stores branded as “Yogli Mogli”. Pursuant to the Yogli Mogli Purchase Agreement, the Company purchased certain assets of Yogli Mogli used in its business of franchising frozen yogurt stores, including all of its franchise rights and four company-owned stores. On February 20, 2014 the Company entered into an Asset Purchase Agreement to acquire the business assets of Fuzzy Peach Franchising, LLC. The acquisition of all intellectual property and worldwide franchise and license rights includes the rights associated with 17 Fuzzy Peach Frozen Yogurt stores. The company recorded net restructuring charges of $124,551 during the six months ended August 31, 2014 associated with these acquisitions.

 

 

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014

 

 

Associated with the management changes described in Note 16, U-Swirl announced an operational restructuring that is designed to enhance U-Swirl’s operating efficiencies, improve its franchise support capabilities, and rationalize its cost structure. This restructuring resulted in expense associated with termination of the employment agreements with the named officers, severance payments for other employees and expense associated with the impairment of certain leasehold improvements, property and equipment. The Company recorded restructuring charges of $503,526 during the six months ended August 31, 2014 associated with these transactions.

 

Restructuring and acquisition charges incurred were comprised of the following for the six months ended August 31:

 

		2014
Professional fees		$	104,876
Severance/transitional compensation			211,747
Accelerated restricted stock unit vesting			65,329
Leasehold improvements, property and equipment Impairment			243,000
Other			3,125
Total		$	628,077

 

16.	SUBSEQUENT EVENTS

 

On September 4, 2014, Ulderico Conte, Henry E. Cartwright and Terry A. Cartwright resigned as directors of U-Swirl, Inc. In addition, Messrs. Conte, H. Cartwright and T. Cartwright resigned as officers of U-Swirl, Inc. effective October 6, 2014. Their resignations were not due to a disagreement with the Company. Also on September 4, 2014, the Board of Directors of the Company appointed Bryan J. Merryman as the Chairman of the Board, replacing Franklin E. Crail. Mr. Merryman currently serves as the Chief Operating Officer and Chief Financial Officer of the Company’s parent, Rocky Mountain Chocolate Factory, Inc.

 

  

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

 

We were incorporated under the laws of the state of Nevada on November 14, 2005 to own and operate EVOS fast food franchises as “Healthy Fast Food.” We opened two EVOS locations, using the proceeds from private placements and from our initial public offering that was completed in March 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 opened our first company-owned U-Swirl café in the Las Vegas Metropolitan Statistical Area (“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.

 

We began marketing franchises in November 2008. Beginning in 2011, we recognized that (1) the frozen yogurt retail market was experiencing an influx of small chains; (2) if we could grow by acquisition, we could achieve profitability by attaining an economy of scale with respect to our operations; and (3) we could use our common stock, rather than cash, to make these acquisitions. We entered into acquisition discussions with several frozen yogurt retail operators and our discussions culminated with the closing of the RMCF transaction in January 2013 in which we acquired six Aspen Leaf cafés and the franchise rights to Aspen Leaf Yogurt (“ALY”) and Yogurtini self-serve frozen yogurt chains from RMCF in exchange for a 60% controlling ownership interest in our company, promissory notes in the aggregate amount of $900,000, and a warrant that allows RMCF to maintain its pro rata ownership interest if any of our existing stock options and/or warrants are exercised.

 

As of August 31, 2014, we had 9 company-owned cafés and 287 franchised cafés. Management is focusing its efforts on nurturing its relationship with new franchisees, studying each franchise system in order to identify the best practices from each, and integrating these best practices into a single system which will be implemented in the future.

 

Management is also continuing its efforts to expand product offerings, including co-branding arrangements. Some of the cafés will have co-branded RMCF products, while others may have co-branding arrangements with different entities.

 

Results of Operations

 

Three Months Ended August 31, 2014 Compared to the Three Months Ended August 31, 2013

 

For the three months ended August 31, 2014, company-owned U-Swirl cafés generated $1,305,268 in sales, net of discounts, as compared to sales of $1,253,473 for the comparable period in 2013, an increase of 4%. The increase is due primarily to the closing of underperforming locations in the prior fiscal year, which was more than offset by the acquisition of additional locations in January 2014. There were 9 company-owned cafés at August 31, 2014, as compared to 12 at August 31, 2013.

 

Our café operating costs in the three months ended August 31, 2014 were $949,345 or 73% of net sales revenues, resulting in café operating margin of $355,923. For the three months ended August 31, 2013, our café operating costs were $960,976, or 77% of net sales revenues, resulting in café operating margin of $292,497.

 

For the three months ended August 31, 2014, we generated franchise fee income of $92,250, royalty income of $780,244, rebate income of $166,375 and marketing fees of $147,786 as compared to franchise fee income of $33,361, royalty income of $248,774, rebate income of $121,357 and marketing fees of $35,495 during the three months ended August 31, 2013. During the three months ended August 31, 2014, we had 287 franchised cafés in operation for all or part of that period, as compared to 68 during the three months ended August 31, 2013.

 

 

 

Franchise development expense increased to $107,165 in the three months ended August 31, 2014, compared to no amount in the three months ended August 31, 2013. This increase is the result of an increase in franchise units outstanding and the costs associated with supporting these franchise systems.

 

Marketing and advertising expenses were $162,769 for the three months ended August 31, 2014 as compared to $54,245 for the three months ended August 31, 2013. This increase is a result of acquiring additional yogurt brands and the increased expenses related to having more franchised cafés in our network.

 

For the three months ended August 31, 2014, general and administrative expense increased by $133,735 due primarily to increased professional fees and an increase in expense associated with a reserve for uncollectable accounts receivable.

 

Depreciation and amortization expense increased by $101,365, due primarily to the amortization of franchise rights and trademarks associated with business acquisitions that occurred in January 2014.

 

Restructuring and acquisition related charges increased by $503,526 due to certain expenses being incurred related to management changes and the closure or sale of certain assets.

 

We generated income from operations of $93,817 in the three months ended August 31, 2014, as compared to $172,450 in the three months ended August 31, 2013. The decrease in income from operations is primarily a result of restructuring and acquisition related charges.

 

Other expense decreased by $5,519 for the 2014 period due to the closure of four non-recourse financed locations in the prior fiscal year and the associated elimination of those notes payable, partially offset by the monthly payments on our loans for café remodels.

 

As a result of the factors described above, we generated net income of $86,678 for the 2014 period, as compared to net income of $159,792 for the comparable 2013 period.

 

 

Six Months Ended August 31, 2014 Compared to the Six Months Ended August 31, 2013

 

For the six months ended August 31, 2014, company-owned U-Swirl cafés generated $2,783,456 in sales, net of discounts, as compared to sales of $2,631,722 for the comparable period in 2013, an increase of 6%. The increase is due primarily to the closing of underperforming locations in the prior fiscal year, which was more than offset by the acquisition of additional locations in January 2014. There were 9 company-owned cafés for the six months ended August 31, 2014, as compared to 13 for the six months ended August 31, 2013.

 

Our café operating costs in the six months ended August 31, 2014 were $1,977,126 or 71% of net sales revenues, resulting in café operating margin of $806,330. For the six months ended August 31, 2013, our café operating costs were $1,929,142, or 73% of net sales revenues, resulting in café operating margin of $702,580.

 

For the six months ended August 31, 2014, we generated franchise fee income of $104,250, royalty income of $1,486,794, rebate income of $337,083 and marketing fees of $281,419 as compared to franchise fee income of $48,361, royalty income of $440,780, rebate income of $210,938 and marketing fees of $78,065 during the six months ended August 31, 2013. During the six months ended August 31, 2014, we had 287 franchised cafés in operation for all or part of that period, as compared to 68 during the six months ended August 31, 2013.

 

Franchise development expense increased to $223,521 in the six months ended August 31, 2014, compared to no amount in the six months ended August 31, 2013. This increase is the result of an increase in franchise units outstanding and the costs associated with supporting these franchise systems.

 

Marketing and advertising expenses were $311,499 for the six months ended August 31, 2014 as compared to $88,754 for the six months ended August 31, 2013. This increase is a result of acquiring additional yogurt brands and the increased expenses related to having more franchised cafés in our network.

 

  

For the six months ended August 31, 2014, general and administrative expense increased by $361,376 due primarily to the award of stock to directors, costs associated with the reserve for uncollectable accounts receivable and costs and service fees payable for services provided by RMCF.

 

Depreciation and amortization expense increased by $221,887, due primarily to the amortization of franchise rights and trademarks associated with business acquisitions that occurred in January 2014.

 

Restructuring and acquisition related charges increased by $628,077 due to certain expenses being incurred related to management changes, the closure or sale of certain assets and the acquisitions of CherryBerry, Yogli Mogli and Fuzzy Peach in January and February 2014.

 

We generated income from operations of $473,229 in the six months ended August 31, 2014, as compared to $354,892 in the six months ended August 31, 2013. The increase in income from operations is primarily a result of increased franchise royalties and fees.

 

Interest expense decreased by $17,033 for the 2014 period due to the closure of four non-recourse financed locations in the prior fiscal year and the associated elimination of those notes payable, partially offset by the monthly payments on our loans for café remodels.

 

As a result of the factors described above, we generated net income of $463,241 for the 2014 period, as compared to $327,871 for the comparable 2013 period.

 

Liquidity and Financial Condition

 

At August 31, 2014, we had working capital of $593,563 and cash of $2,668,618. At February 28, 2014, we had a working capital deficit of $391,289 and cash of $701,748.

 

For the six months ended August 31, 2014, we had net income of $463,241. Operating activities provided cash of $1,886,561, with the principal adjustment to reconcile the net income to net cash provided by operating activities being the change in accounts receivable of $1,030,285 and the change in accounts payable and liabilities of $444,743. During the comparable 2013 period, we had net income of $327,871, and operating activities provided cash of $311,914. The principal adjustment to reconcile the net income to net cash provided by operating activities was depreciation and amortization of $210,948.

 

During 2014, investing activities provided cash of $327,015, primarily due to proceeds from the sale of assets partially offset by additions to notes receivable. In comparison, investing activities used cash of $61,751 during the 2013 period primarily due to $64,501 used for the purchase and installation of equipment necessary to convert two Company-Owned cafés into co-branded RMCF and U-Swirl cafés.

 

Financing activities used cash of $246,706 during the six months ended August 31, 2014 primarily due to payments on long term debt partially offset by proceeds from the exercise of stock warrants. During the comparable 2013 period financing activities provided cash of $68,001, with $64,501 being proceeds of a construction loan from RMCF for the purchase and installation of equipment necessary to convert two Company-owned cafés into co-branded RMCF and U-Swirl cafés.

 

Accounts receivable decreased from $1,418,960 at February 28, 2014 to $613,175 at August 31, 2014, due primarily to the receipt of gift card funds receivable at February 28, 2014.

 

Accounts payable and accrued liabilities increased $444,743 from $2,346,572 at February 28, 2014 to $2,791,315 at August 31, 2014, due primarily to an increase in gift card liabilities.

 

  

Accounts payable, related party, decreased from $290,978 at February 28, 2014 to $164,710 at August 31, 2014. These are amounts owed to RMCF for inventories and various operating expenses. The decrease is primarily the result of professional fees payable to RMCF at February 28, 2014 being applied to our Promissory Note with this related party as well as some prior store assets being sold to another party and the proceeds being paid to RMCF.

 

At August 31, 2014 we recorded $1,251,114 of deferred revenue compared to $1,658,647 at February 28, 2014. This deferred revenue is in connection with the development fees from area development agreements signed prior to those dates and advances received on rebate income from suppliers to our network of franchise locations. Pursuant to the terms of the agreements, we will recognize franchise fee revenue upon the opening of each café within the respective territories. We recognize the rebate revenue when product is sold to participating locations and our rebate becomes earned.

 

Plan of Operations

 

The amounts owed under contractual obligations, together with approximately $175,000 per month to cover our fixed overhead expenses, are what we require to maintain our existing operations, which now include the ALY, Yogurtini, Fuzzy Peach, Josie’s, CherryBerry and Yogli Mogli chains. Although we have historically experienced losses from operations, including recently, based on our current projections which assume a continued increase in revenues, we believe that the operation of our company-owned cafés and revenues from franchise royalties and fees will provide sufficient cash to maintain our existing operations indefinitely.

 

On September 4, 2014, Ulderico Conte, Henry E. Cartwright and Terry A. Cartwright resigned as directors of U-Swirl, Inc. In addition, Messrs. Conte, H. Cartwright and T. Cartwright resigned as officers of U-Swirl, Inc. effective October 6, 2014. Their resignations were not due to a disagreement with the Company. Also on September 4, 2014, the Board of Directors of the Company appointed Bryan J. Merryman as the Chairman of the Board, replacing Franklin E. Crail. Mr. Merryman currently serves as the Chief Operating Officer and Chief Financial Officer of the Company’s parent, Rocky Mountain Chocolate Factory, Inc.

 

For the current fiscal year ending February 28, 2015, we anticipate significantly increased revenues from franchise royalties and fees with the inclusion of the additional yogurt chains. We expect that our non-café operating expenses will increase over fiscal year 2014 levels, however, we believe we have achieved economies of scale, through business acquisitions, to more than offset the additional expenses in the current fiscal year.

 

The next phase in our consolidation strategy involves taking the appropriate steps to maximize the returns on our investments in these acquisitions. We intend to do this by rationalizing the expense structures of the acquired companies; eliminating duplicative personnel, responsibilities and positions; taking advantage of volume purchasing discounts for raw materials and supplies; and working more closely with Rocky Mountain Chocolate Factory regarding franchisee support programs and marketing strategies.

 

We will continue to look for expansion opportunities through acquisitions, as we believe that the self-serve frozen yogurt industry is fragmented with many small, undercapitalized chains whose owners lack the ability to expand or a viable exit strategy.  Such acquisitions may be completed using cash, shares of our stock, or a combination of both for the purchase consideration.  In those cases, it is possible that our shares may be valued at less than the then current trading price for the stock.

 

We note that we are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations.  Historically, the strongest sales of frozen yogurt have occurred in spring and summer months and our weakest sales have occurred during the winter months.  Our new co-branded locations with RMCF represent our efforts to address the seasonal fluctuations in sales, as demand for gourmet chocolate products is stronger during the fall, winter and spring seasons.

 

Summary of Significant Accounting Policies

 

Accounts Receivable. During the normal course of business, we extend credit to our franchisees for inventory, supplies and fees. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable, assessments of collectability based on historical trends, and an evaluation of the impact of current and projected economic conditions. The process by which we perform our analysis is conducted on a franchisee by franchisee basis and takes into account, among other relevant factors, sales history, outstanding receivables, customer financial strength, as well as customer specific and geographic market factors relevant to projected performance. We monitor the collectability of our accounts receivable on an ongoing basis by assessing the credit worthiness of our customers and evaluating the impact of reasonably likely changes in economic conditions that may impact credit risks. Estimates with regard to the collectability of accounts receivable are reasonably likely to change in the future.

 

  

Inventories. Inventories consisting of food, beverages, and supplies are stated at the lower of cost or market. An inventory reserve is established to reduce the cost of obsolete, damaged and excess inventories to the lower of cost or market based on actual differences. This inventory reserve is determined through analysis of items held in inventory, and, if the value of those items at cost is higher than their market value, we record an expense to reduce inventory to our actual market value. The process by which we perform our analysis is conducted on an item by item basis and takes into account, among other relevant factors, market value, sales history and future sales potential. Cost is determined using the first-in, first-out method.    

 

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 as a gain or loss from operations.

 

Deposits. Deposits consist of security and utility deposits for multiple locations and a sales tax deposit held with the state of Nevada.

 

Goodwill and Other Intangible Assets. We record intangible assets acquired in a business combination under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Other intangible assets are amortized over their estimated useful lives.

 

Goodwill is not amortized. Instead goodwill is reviewed for impairment at least annually or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. In assessing goodwill for impairment, we assess qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that fair value of a reporting unit is less than its carry amount. Goodwill impairment exists when the carrying value of goodwill exceeds its implied fair value.

 

Other intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for the type of intangible asset and reported separately from goodwill. Intangible assets with definite lives are amortized over the estimated useful lives and tested for impairment when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. Intangible assets with definite lives are tested for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds its net undiscounted cash flows, then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value.

 

Intangible assets are generally valued as the present value of estimated future cash flows expected to be generated from the asset using a risk-adjusted discount rate. Estimates and assumptions about future expected revenue and remaining useful lives of the assets are used when determining the fair value of our intangible assets.

 

Deferred Rent. Rent expense for company-owned leases, which provide for escalating rents over the terms of the leases, is recorded on a straight-line basis over the lease terms.  The lease terms began when we had the right to control the use of the property, which was before rent payments were actually due under the leases.  

 

The difference between the rent expense and the actual amount payable under the terms of the leases is recorded as a leasehold improvement asset and deferred rent liability on the balance sheets and as a component of operating activities on the statements of cash flows.

 

  

Revenue recognition policy. We recognize revenue once pervasive evidence that an agreement exists; the product or service has been rendered; the fee is fixed and determinable; and collection of the amount due is reasonably assured.

 

Revenue from company-owned café sales is recognized when food and beverage products are sold. Café sales are reported net of sales discounts.

 

Revenue earned as a franchisor is derived from cafés in our worldwide territory and includes initial franchise fees and royalties. Initial franchise fee revenue from the sale of a franchise is recognized when we have substantially performed or satisfied all of our material obligations relating to the sale up through the point at which the franchisee is able to open the franchised café, and we have no intention of refunding the entire initial franchise fee or forgiving an unpaid note for the entire initial franchise fee. Substantial performance has occurred when we have (a) performed substantially all of the initial services required by the franchise agreement, such as providing to the franchisee (1) a copy of the Operations Manual; (2) assistance in site selection and selection of suppliers of equipment, furnishings, and food; (3) lease review and comments about the lease; and (4) the initial training course to one or two franchisee representatives; and (b) completed all of our other material pre-opening obligations. We defer revenue from the initial franchise fee until (a) commencement of operations by the franchisee; or (b) if the franchisee does not open the franchised café, (1) the date on which all pre-opening services and our obligations are substantially complete, or (2) an earlier date on which the franchisee has abandoned its efforts to proceed with the franchise operations, and in either situation, the franchisee is not entitled to, and is not given, a refund of the initial franchise fee. Royalties ranging from three to five percent of net café sales are recognized in the period in which they are earned.

 

Rebates received from purveyors that supply products to our franchisees are included in franchise royalties and fees. Rebates related to company-owned cafés are offset against café operating costs. Product rebates are recognized in the period in which they are earned.

 

We also recognize a marketing and promotion fee of one percent of net café sales which are included in franchise royalties and fees.

 

Share-based Compensation. We recognize all forms of share-based payments, including stock option grants, warrants, and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

 

Share-based payments are valued using a Black-Scholes option pricing model. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period.

 

When computing fair value, we have considered the following variables:

 

●

The expected option term is computed using the “simplified” method.

●

The expected volatility is based on the historical volatility of our common stock based on the daily quoted closing trading prices.

●

The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

●

We have not paid any dividends on common stock since our inception and do not anticipate paying dividends on our common stock in the foreseeable future.

●

The forfeiture rate is based on the historical forfeiture rate for our unvested stock options.

 

Recently Issued Accounting Pronouncements

 

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the new standard.

 

  

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act. Based upon this evaluation as of August 31, 2014, our management has concluded that those disclosure controls and procedures are effective.

 

During the quarter ended May 31, 2014, we began utilizing RMCF for support services related to information technology and financial reporting services. By so doing, we believe that we now have full segregation of duties within our financial operations.

  

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

None.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item5.

Other Information

 

None.

 

Item 6.

Exhibits

 

Regulation S- K Number	Exhibit
2.1	Asset Purchase Agreement between U-Swirl, Inc. and Aspen Leaf Yogurt, LLC dated January 14, 2013 (1)
2.2	Membership Interest Purchase Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 14, 2013 (1)
2.3	Asset Purchase Agreement among U-Swirl, Inc., CherryBerry Enterprises LLC, CherryBerry Corporate LLC, and CherryBerry LLC, dated January 17, 2014 (2)
2.4	Asset Purchase Agreement among U-Swirl, Inc., Yogli Mogli Franchise LLC, Yogli Mogli LLC, Yogli Mogli Newnan LLC, Yogli Mogli Enterprises LLC, and Yogli Mogli Wheaton, LLC dated January 17, 2014 (2)
3.1	Amended and Restated Articles of Incorporation (3)
3.2	Amended Bylaws (3)
3.3	Certificate of Amendment to Articles of Incorporation filed April 22, 2011(4)
4.1	Form of common stock certificate (5)
4.2	Warrant issued to Rocky Mountain Chocolate Factory, Inc. (1)
4.3	Letter modifying Warrant issued to Rocky Mountain Chocolate Factory, Inc. (6)
10.1	2007 Stock Option Plan, as amended (3)
10.2	2011 Stock Option Plan (4)
10.3	Form of Recourse Notes (1)
10.4	Form of Non-Recourse Notes (1)
10.5	Form of Security Agreement between U-Swirl, Inc. and Aspen Leaf Yogurt, LLC (1)
10.6	Investor Rights Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 14, 2013 (1)
10.7	Investor Rights Agreement between U-Swirl, Inc. and Aspen Leaf Yogurt, LLC dated January 14, 2013 (1)
10.8	Intercompany Advance Agreement between Rocky Mountain Chocolate Factory, Inc. and U-Swirl, Inc. dated March 27, 2013 (7)
10.9	Secured Promissory Notes dated July 16, 2013 to Rocky Mountain Chocolate Factory, Inc. (8)
10.10	Loan and Security Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 16, 2014 (2)

 

 

 

 

Regulation S- K Number	Exhibit
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief 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 Chief Executive Officer
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer
101*	Financial statements from the Quarterly Report on Form 10-Q of U-Swirl, Inc. for the quarterly period ended August 31, 2014, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Cash Flows; and (iv) the Notes to Financial Statements

 

---

(1)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, file number 0-53130, filed January18, 2013.

(2)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, file number 0-53130, filed January 22, 2014.

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

(4)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, file number 0-53130, filed April 26, 2011.

(5)	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.

(6)	Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K, file number 0-53130, filed April 22, 2014.

(7)	Incorporated by reference to the exhibits to the registrant’s annual report on Form 10-K, file number 0-53130, for the fiscal year ended December 31, 2012, filed March 29, 2013.

(8)	Incorporated by reference to the exhibits to the registrant’s quarterly report on form 10-Q for the quarter ended August 31, 2013, file number 0-53130, filed October 15, 2013.

 

*In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement of other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

   

 

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.

 

 

		U-SWIRL, INC.
October 15, 2014	By:	/s/ Bryan J. Merryman
		Bryan J. Merryman, Chief Executive Officer

 

 

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