Amended Annual Report (10-k/a)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 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 No. 000-53130

U-Swirl, Inc.

(Exact name of registrant as specified in its charter)

Nevada	43-2092180
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1175 American Pacific, Suite C, Henderson, Nevada	89074
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (702) 586-8700

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ¨ Yes þ No

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 þ 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). þ Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 þ

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $10,659,138 as of August 31, 2013

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 17,815,484 shares of common stock as of May 31, 2014

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2014, filed with the Securities and Exchange Commission on June 13, 2014 (the “Form 10-K”), is solely to amend Items 7, 8, 13 and 15 and to furnish Exhibit 101 to the Form 10-K. Exhibit 101 provides the financial statements and related notes from the Form 10-K formatted in XBRL (Extensible Business Reporting Language).

No other changes have been made to the Form 10-K. Except as set forth in the amended disclosures contained in Items 7, 8, 13 and 15, this Amendment No. 1 to the Form 10-K continues to speak as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-K.

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Item 7.

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 annual 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, including those discussed in “Risk Factors,” “Business” and elsewhere in this report.

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 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. As of December 31, 2012, we had 24 franchised cafés and six company-owned cafés in operation in 10 different states.

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 (the “Rocky Mountain Transaction”).

In October 2013, we acquired the franchise rights to nine self-serve frozen yogurt cafés, and license agreements to two self-serve frozen yogurt cafés from Josie’s Frozen Yogurt, LLC (“Josie’s”) .

In January 2014, we acquired the assets of the CherryBerry and Yogli Mogli frozen yogurt systems, thereby tripling the size of our self-serve frozen yogurt café network. We also acquired the business assets of Fuzzy Peach frozen yogurt system in February 2014.

As of February 28, 2014, we had 13 company-owned cafés and 272 franchised cafés in 37 different states and three foreign countries. Management is focusing its efforts on nurturing its relationship with the ALY, Yogurtini, Josie’s, CherryBerry, Yogli Mogli and Fuzzy Peach 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.

In addition, we have recently launched the offering of U-Swirl-n-Go Store franchises, which are limited-product stores within non-traditional locations, such as convenience stores, airports, hotels and other mass gathering areas. The initial investment for these franchises is substantially less and more flexible royalty fees, instead of fees based on a percentage of revenues, are offered. We currently anticipate that the first U-Swirl-n-Go location will be opened in the summer of 2014.

Since we are now a subsidiary of RMCF, we changed our fiscal year-end to that of RMCF, the last day of February, which required the filing of a transition report for the two months ended February 28, 2013.

Results of Operations

We have presented audited Consolidated Statements of Operations for the year ended February 28, 2014, the two months ended February 28, 2013 (the “2013 Transition Period”) and the year ended December 31, 2012 (the “2012 Fiscal Year”). So that the readers of this report will have a better understanding of the changes in our results of operations for the 2014 fiscal year, we have included an unaudited consolidated statement of operations for the twelve months ended February 28, 2013 (the “2013 Fiscal Year”). See Note 19 of our Notes to the Consolidated Financial Statements.

For the year ended February 28, 2014, our cafés generated $4,051,789 in sales, net of discounts, as compared to $433,084, $2,405,839 and $2,280,323 for the 2013 Transition Period, 2013 Fiscal Year and 2012 Fiscal Year, respectively. The increase for the 2014 period was due primarily to an increase in the average number of company-owned cafés, which averaged twelve for 2014, versus seven for the 2013 Fiscal Year.

Our 2014 café operating costs were $3,186,089 or 79% of net sales revenues, resulting in café operating profit of $865,700. For the 2013 Transition Period, café operating costs were $414,587 or 96% of net sales revenues, resulting in café operating profit of $18,497. As discussed below, the spring and summer quarters are our busiest times of the year, and the two-month 2013 Transition Period represents our slowest months of the year. As a result, our café operating costs as a percentage of revenues for that period were significantly higher than what we normally experience for an entire year of operations. For the 2013 Fiscal Year, café operating costs were $1,902,184 or 79% of net sales revenues, resulting in café operating profit of $503,655, and for the 2012 Fiscal Year, café operating costs were $1,751,642 or 77% of net sales revenues, resulting in café operating profit of $528,681. Management believes that the higher operating costs in 2014 and 2013 were due to the acquisition of six company-owned cafés in January 2013. Management is working towards better operating efficiencies to achieve a 77% level.

For 2014, we generated franchise fee income of $68,111, royalty income of $879,312, rebate income of $387,507 and marketing fees of $141,930. For the 2013 Transition Period, we generated franchise fee income of $0, royalty income of $69,636, rebate income of $45,485 and marketing fees of $15,175. During the fiscal year ended February 28, 2014, we had 272 franchised cafés for all or part of that period, as compared to 58 franchised cafés in operation for all or part of the two months ended February 28, 2013 and 24 franchised cafés in operation for all or part of the year ended December 31, 2012.

We incurred $60,493 for franchise development expense in the 2014 period, which represents salaries and travel expenses for five individuals that we retained following the acquisition of CherryBerry and Yogli Mogli to support our growing franchise base.

Marketing and advertising expenses were $254,947 for the 2014 period, as compared to $9,399, $72,912, and $75,291 for the 2013 Transition Period, 2013 Fiscal Year, and 2012 Fiscal Year, respectively. Marketing fees paid by our franchisees increase in accordance with system-wide sales. Therefore, we spent more on store marketing expenses for the 2014 fiscal year as we had an average of 90 stores versus 30 stores most of the prior fiscal year.

For the year ended February 28, 2014, general and administrative expense was $1,693,597, as compared to $440,513, $1,463,577, and $1,183,733 for the 2013 Transition Period, 2013 Fiscal Year and 2012 Fiscal Year, respectively. The increase in 2014 was due primarily to the increase in the growth of our Company.

Depreciation and amortization expense for the 2014 period was $520,979, as compared to $70,146, $327,259, and $308,361 for the 2013 Transition Period, 2013 Fiscal Year and 2012 Fiscal Year, respectively. The increase in 2014 reflects the ownership of an average of twelve company-owned locations for the year, as compared to an average of seven company-owned locations for the prior year.

We incurred asset acquisition expenses of $619,435 for the year ended February 28, 2014, which represented legal fees associated with the acquisitions, due diligence fees for accountants and auditors, the expense of auditing the acquired companies, and the legal fees associated with updating our Franchise Disclosure Document to reflect the acquisitions.

In addition, we recorded a fair value adjustment of $1,290,790 in connection with the Note Payable to RMCF that funded the acquisition of the CherryBerry, Yogli Mogli and Fuzzy Peach assets. This is a non-cash charge which includes interest payable under the note.

As a result of the above, our loss from operations was $2,097,681 in 2014, as compared to $371,265, $787,679, and $514,806 for the 2013 Transition Period, 2013 Fiscal Year and 2012 Fiscal Year, respectively.

We borrowed from RMCF to fund the acquisition of the CherryBerry, Yogli Mogli and Fuzzy Peach assets. Accordingly, interest expense for 2014 was $28,803, as compared to $6,579, $7,304, and $828 for the 2013 Transition Period, 2013 Fiscal Year and 2012 Fiscal Year, respectively. This resulted in a net loss for 2014 of $2,126,484, as compared to $377,584, $793,669, and $514,425 for the 2013 Transition Period, 2013 Fiscal Year and 2012 Fiscal Year, respectively.

Liquidity and Capital Resources

At February 28, 2014, we had a working capital deficit of $391,289 and cash of $701,748. At February 28, 2013, we had a working capital deficit of $61,045 and cash of $358,527.

In January 2013, in connection with the Rocky Mountain Transaction, we purchased leasehold improvements, property and equipment for six Aspen Leaf Yogurt cafés from RMCF in exchange for $900,000 in notes payable. Interest accrues on the unpaid principal balances of the notes at the rate of 6% per annum, compounded annually, and the notes require monthly payments of principal and interest over a five-year period beginning January 2014 in the case of the recourse notes and January 2015 in the case of the non-recourse notes. Payment of the notes is secured by a security interest in the six Aspen Leaf Yogurt cafés acquired. In November 2013, the Company closed four of its under-performing company-owned Aspen Leaf Yogurt cafés and wrote off $400,000 in non-recourse notes payable together with accrued interest of $20,991. Consistent with the non-recourse note agreements, we returned the assets underlying the notes to RMCF, the note holder. We subsequently entered into an agreement to purchase certain assets salvaged from these closed locations. We agreed to pay $177,500 to RMCF for the assets salvaged from these locations, which was approximately the predecessor cost of these assets. In February 2014, we paid off the recourse notes.

In July 2013, we 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. At February 28, 2014, the unpaid balance of these notes was $116,867.

In January 2014, we acquired the business assets of 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 our common stock. Yogli Mogli was acquired for $2.15 million in cash and 277,778 shares of our common stock. RMCF provided the funding for these acquisitions through a convertible note, which is secured by all of our assets.

Under the loan and security agreement with RMCF, RMCF agreed to loan us up to $7,750,000. Interest accrues at the rate of 9% per annum, with the principal and unpaid accrued interest due January 16, 2016. We are 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. Payment of the loan is secured by a security interest in all of our assets. All payments of principal, interest and undrawn commitment 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 rights and preferences of the Preferred Stock include cumulative dividends equal to 9% of the stated value of $0.90 per share, a liquidation preference, the right to vote with our common stock on all matters submitted for a vote to holders of the common stock, and the right to convert into shares of our common stock. We may prepay up to $2,100,000 of the outstanding amounts due at our option and without penalty in cash from the proceeds raised from (i) advances on rebates from our yogurt suppliers and (ii) the exercise of outstanding stock options and warrants. We also have the option to redeem all 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. At February 28, 2014, we owed $6,679,876 to RMCF under the convertible note.

RMCF also entered into a management services agreement with us for $542,500 which will be due on January 16, 2016. 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.

Subsequent to February 28, 2014, we redeemed our outstanding Class C Warrants, and 1,515,882 Class C Warrants were exercised for gross proceeds of $909,529. We plan to use the proceeds to prepay amounts owed under the RMCF convertible note.

For the year ended February 28, 2014, we had a net loss of $2,126,484. Operating activities provided cash of $1,733,751, with the principal adjustments to reconcile the net loss to net cash provided by operating activities being the fair value adjustment on the note payable to RMCF of $1,290,790 and depreciation and amortization of $520,979. For the two months ended February 28, 2013, we had a net loss of $377,584. Operating activities provided cash of $94,164, with the principal adjustments to reconcile the net loss to net cash provided by operating activities being issuance of common stock for non-employee services of $95,625 and depreciation and amortization of $70,146. We used cash of $108,111 for operating activities for the year ended December 31, 2012, with the principal adjustments to reconcile the net loss of $514,425 being depreciation and amortization of $308,361 and amortization of stock-based compensation of $116,745.

During 2014, investing activities used cash of $7,758,620, primarily due to $6,267,035 for the purchase of franchise rights and intangible assets associated with the CherryBerry, Yogli Mogli and Fuzzy Peach acquisitions and $1,494,295 for property and equipment associated with those acquisitions and with the conversion of two company-owned stores into co-branded stores. During the two months ended February 28, 2013 and year ended December 31, 2012, investing activities used cash of $2,719 and $587, respectively.

Financing activities provided cash of $6,368,090 for the year ended February 28, 2014, with $7,793,295 being proceeds from the RMCF loan offset by $1,532,803 in loan repayments. Financing activities provided cash of $79,784 for the two months ended February 28, 2013, which consisted of working capital received in the RMCF Transaction. For the year ended December 31, 2012, financing activities used cash of $4,641, consisting of payment on our capital lease obligation.

As a result of the acquisitions of CherryBerry, Yogli Mogli and Fuzzy Peach, our accounts receivable and accounts payable balances were significantly higher at February 28, 2014 than at February 28, 2013. We picked up certain amounts as receivables, but also picked up the corresponding amounts as payables. In addition, the overall growth of the Company, from 56 franchisees at February 28, 2013 to 272 at February 28, 2014, has increased our balances. Accounts receivable increased from $113,681 at February 28, 2013 to $1,418,960 at February 28, 2014, due to $1,253,612 in gift card liability receivables and marketing funds owed to us by CherryBerry and Yogli Mogli. Accounts payable increased from $653,161 at February 28, 2013 to $2,346,572 at February 28, 2014. Included in the payables were most of the asset acquisition expenses.

At February 28, 2014, we recorded $1,688,647 of deferred revenue in connection with the development fees from area development agreements signed prior to that date, as compared to $326,500 at February 28, 2013. Pursuant to the terms of the agreements, we will recognize franchise fee revenue upon the opening of each café within the respective territories.

Contractual Obligations

The following table summarizes our obligations and commitments to make future payments for the periods specified as of February 28, 2014:

	Operating Leases			Notes Payable			Total

2015	$	590,310		$	22,837		$	613,147
2016		405,901			7,246,622			7,652,523
2017		217,876			25,741			243,617
2018		163,752			27,329			191,081
2019		146,833			16,714			163,547
Thereafter		17,623			-			17,623
Total minimum payments		1,542,295			7,339,243			8,881,538
Less: current maturities		(590,310	)		(22,837	)		(613,147	)

Long-term obligations	$	951,985		$	7,316,406		$	8,268,391

Plan of Operations

The amounts set forth in the Contractual Obligations table, 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, Josie’s, CherryBerry, Yogli Mogli and Fuzzy Peach Frozen Yogurt 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 13 company-owned cafés and revenues from franchise royalties and fees will provide sufficient cash to maintain our existing operations indefinitely.

For the current fiscal year ending February 2015, we anticipate significantly increased revenues from franchise royalties and fees with the inclusion of the ALY, Yogurtini, Josie’s, CherryBerry, Yogli Mogli and Fuzzy Peach chains. We expect that our non-café operating expenses will increase over 2014 levels, however we anticipate achieving some levels of economy of scale savings in fiscal 2015.

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.

While we have experienced profitable operations for the six months ended August 31, 2013, 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. Accordingly, we incurred a net loss of $197,616 for the quarter ended November 30, 2013 and incurred an operating loss for the quarter ending February 28, 2014. 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.

Critical Accounting Policies and Estimates

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.

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, 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 recorded at cost. Depreciation and amortization are computed using the straight-line method based upon the estimated useful life of the asset, 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.

Deposits . Deposits consist of security 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 both an investing activity and 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 has been rendered; the fee is fixed and determinable; and collection of the amount due is reasonably assured.

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

Franchise and Royalty Fees . 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 a 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 our 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 of our pre-opening services and 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 . 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.

Marketing Fees . We also recognize a marketing and promotion fee ranging from one to three percent of net café sales which are included in franchise royalties and fees.

Marketing and Advertising Expense . We engage in local and regional marketing efforts by distributing advertisements, coupons and marketing materials as well as sponsoring local and regional events. We recognize marketing and advertising expense as incurred.

Share-Based Compensation Expense . 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, 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, we consider 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 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.

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 its unvested stock options.

Fair Value. We have chosen to elect the fair value option of the convertible note with RMCF as management believes that the fair value option better reflects the underlying economics of the transaction. The fair value of the convertible note is considered a significant estimate.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, “ Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ”. The ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The ASU is effective for annual and interim periods beginning after January 1, 2013. We adopted this guidance in 2013 without material impact on our financial position, results of operations or cash flows.

In July 2013, the FASB issued ASU No. 2013-11, “ Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013, and early adoption is permitted. We adopted this guidance without a material impact on our financial position, results of operations or cash flows.

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 8.

Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

U-Swirl, Inc. and Subsidiaries

Henderson, Nevada

We have audited the accompanying consolidated balance sheet of U-Swirl, Inc. and Subsidiaries (the “Company”) as of February 28, 2014, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of U-Swirl, Inc. and Subsidiaries as of February 28, 2013, for the two months then ended, and for the year ended December 31, 2012, were audited by other auditors and whose report, dated May 24, 2013, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting (“Internal Control”). Our audit included consideration of Internal Control as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s Internal Control. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U-Swirl, Inc. and Subsidiaries as of February 28, 2014, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

EKS&H LLLP

June 13, 2014

Denver, Colorado

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of U-Swirl, Inc.

We have audited the accompanying consolidated balance sheets of U-Swirl, Inc. as of February 28, 2013 and December 31, 2012, and the consolidated statements of operations, stockholders’ equity, and cash flows for the two months ended February 28, 2013 and the year ended December 31, 2012. U-Swirl, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of U-Swirl, Inc. as of February 28, 2013 and December 31, 2012, and the results of its operations and its cash flows for the two months ended February 28, 2013 and the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/ L.L. Bradford & Company, LLC

L.L. Bradford & Company, LLC

May 24, 2013

Las Vegas, Nevada

U-SWIRL, INC.

CONSOLIDATED BALANCE SHEETS


	February 28, 2014			February 28, 2013
ASSETS

Current assets
Cash	$	701,748		$	358,527
Accounts receivable, net		1,418,960			113,681
Accounts receivable, related party		11,989			8,597
Inventory		118,219			98,511
Prepaid expenses		18,182			24,592
Total current assets		2,269,098			603,908

Leasehold improvements, property and equipment, net		2,939,820			2,235,716

Other assets
Deposits		72,185			39,086
Goodwill and other intangible assets, net		10,243,522			800,000
Other assets		541,645			39,153
Total other assets		10,857,352			878,239

Total assets	$	16,066,270		$	3,717,863


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities	$	2,346,572		$	653,161
Accounts payable, related party		290,978			11,792
Current portion of long-term debt, related party		22,837			-
Total current liabilities		2,660,387			664,953

Deferred rent		105,031			126,792
Deferred revenue		1,658,647			296,500
Deferred revenue, related party		30,000			30,000
Notes payable, related party		8,607,196			906,579
Total liabilities		13,061,261			2,024,824

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, 15,440,029 and 14,402,088 shares issued
and outstanding, respectively		15,440			14,402
Common stock payable		4,278			750
Prepaid equity-based compensation		(75,019	)		(94,399	)
Additional paid-in capital		12,456,619			9,042,111
Accumulated deficit		(9,396,309	)		(7,269,825	)
Total stockholders' equity		3,005,009			1,693,039

Total liabilities and stockholders' equity	$	16,066,270		$	3,717,863

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

U-SWIRL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended			For the Two Months Ended			For the Year Ended
	February 28, 2014			February 28, 2013			December 31, 2012

Revenues
Café sales, net of discounts	$	4,051,789		$	433,084		$	2,280,323
Franchise royalties and fees		1,476,860			130,296			523,898
Total revenues		5,528,649			563,380			2,804,221

Café operating costs
Food, beverage and packaging costs		1,307,238			156,634			745,380
Labor and related expenses		1,109,734			146,840			571,954
Occupancy and related expenses		769,117			111,113			434,308
Franchise development		60,493			-			-
Marketing and advertising		254,947			9,399			75,291
General and administrative		1,693,597			440,513			1,183,733
Depreciation and amortization		520,979			70,146			308,361
Asset acquisition expenses		619,435			-			-
Fair value adjustment		1,290,790			-			-
Total costs and expenses		7,626,330			934,645			3,319,027
Loss from operations		(2,097,681	)		(371,265	)		(514,806	)

Interest income		-			260			1,209
Interest expense		(28,803	)		(6,579	)		(828	)

Loss from continuing operations before income taxes		(2,126,484	)		(377,584	)		(514,425	)
Provision for income taxes		-			-			-
Net loss	$	(2,126,484	)	$	(377,584	)	$	(514,425	)

Net loss per common share, basic and diluted	$	(0.14	)	$	(0.03	)	$	(0.10	)

Weighted average common shares outstanding,
basic and diluted		15,332,233			12,171,282			4,938,753

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

U-SWIRL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

											Prepaid								Total
	Common Stock				Common Stock Payable						Stock-Based			Additional		Accumulated			Stockholders'
	Shares		Amount		Shares			Amount			Compensation			Paid-in Capital		Deficit			Equity
Balance, December 31, 2011		4,868,836	$	4,869		-		$	-		$	-		$	7,815,030	$	(6,377,816	)	$	1,442,083

Issuance of common stock as compensation		132,000		132		-			-			-			29,128		-			29,260

Amortization of stock-based compensation		-		-		-			-			-			116,745		-			116,745

Net loss		-		-		-			-			-			-		(514,425	)		(514,425	)

Balance, December 31, 2012		5,000,836		5,001		-			-			-			7,960,903		(6,892,241	)		1,073,663

Issuance of common stock pursuant to Rocky Mountain Transaction		8,641,253		8,641		-			-			-			871,143		-			879,784

Issuance of common stock as compensation		759,999		760		-			-			(96,900	)		96,140		-			-

Issuance of common stock for non-employee services		-		-		750,000			750			-			94,875		-			95,625

Amortization of prepaid stock-based compensation		-		-		-			-			2,501			-		-			2,501

Amortization of stock-based compensation		-		-		-			-			-			19,050		-			19,050

Net loss		-		-		-			-			-			-		(377,584	)		(377,584	)

Balance, February 28, 2013		14,402,088		14,402		750,000			750			(94,399	)		9,042,111		(7,269,825	)		1,693,039

Issuance of common stock payable		750,000		750		(750,000	)		(750	)		-			-		-			-

Issuance of common stock pursuant to option exercise		50,000		50		-			-			-			16,200		-			16,250

Issuance of common stock pursuant to warrant exercise, net of offering costs		237,941		238		-			-			-			91,110		-			91,348

Issuance of common stock pursuant to CherryBerry Acquisition		-		-		4,000,000			4,000			-			3,056,000		-			3,060,000

Issuance of common stock pursuant to Yogli Mogli Acquisition		-		-		277,778			278			-			212,222		-			212,500

Amortization of prepaid stock-based compensation		-		-		-			-			19,380			-		-			19,380

Amortization of stock-based compensation		-		-		-			-			-			38,976		-			38,976

Net loss		-		-		-			-			-			-		(2,126,484	)		(2,126,484	)

Balance, February 28, 2014		15,440,029	$	15,440		4,277,778		$	4,278		$	(75,019	)	$	12,456,619	$	(9,396,309	)	$	3,005,009

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

U-SWIRL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended			For the Two Months Ended			For the Year Ended
	February 28, 2014			February 28, 2013			December 31, 2012
Cash flows from operating activities:
Net loss	$	(2,126,484	)	$	(377,584	)	$	(514,425	)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization		520,979			70,146			308,361
Fair value adjustment on notes payable, related party		1,290,790			-			-
Accrued interest on notes payable, related party		28,803			6,579			-
Amortization of prepaid stock-based compensation		19,380			2,501			-
Issuance of common stock as compensation		-			-			29,260
Issuance of common stock for non-employee services		-			95,625			-
Amortization of stock-based compensation		38,976			19,050			116,745
Changes in operating assets and liabilities:
Accounts receivable, net		(1,305,279	)		(40,476	)		44,321
Inventory		(19,708	)		(55,400	)		42,555
Prepaid expenses		6,410			2,009			1,460
Deposits		(33,099	)		54			8,732
Accounts payable and accrued liabilities		1,693,411			364,807			70,555
Accounts payable, related party		279,186			11,792			-
Deferred rent		(21,761	)		(11,439	)		(100,675	)
Deferred revenue		1,362,147			6,500			(115,000	)
Net cash provided by (used in) operating activities		1,733,751			94,164			(108,111	)

Cash flows from investing activities:
Accounts receivable, related party		(3,392	)		(1,549	)		(283	)
Purchases of property and equipment		(1,494,295	)		(2,187	)		(6,405	)
Purchases of goodwill and other intangible assets		(6,267,035	)		-			-
Decrease in other assets		6,102			1,017			6,101
Net cash used in investing activities		(7,758,620	)		(2,719	)		(587	)

Cash flows from financing activities:
Payments on capital lease obligation		-			-			(4,641	)
Working capital received from Rocky Mountain Transaction		-			79,784			-
Proceeds from notes payable, related party		7,793,295			-			-
Repayments on notes payable, related party		(1,532,803	)		-			-
Proceeds from issuance of common stock		107,598			-			-
Net cash provided by (used in) financing activities		6,368,090			79,784			(4,641	)

Net change in cash		343,221			171,229			(113,339	)

Cash, beginning of period		358,527			187,298			300,637

Cash, end of period	$	701,748		$	358,527		$	187,298

Supplemental disclosure of cash flow information:
Interest paid	$	8,267		$	-		$	828
Income tax paid	$	-		$	-		$	-
Disposition of café assets in connection with café closings	$	400,000		$	-		$	-
Forgiveness of non-recourse debt in connection with café closings	$	(400,000	)	$	-		$	-

Supplemental disclosure of noncash investing and financing activities:
Rocky Mountain Transaction:
Acquisition of property and equipment through issuance
of notes payable	$	-		$	900,000		$	-
Acquisition of franchise rights through issuance of common stock	$	-		$	800,000		$	-
Other assets	$	542,500		$	-		$	-
Management services payable	$	(542,500	)	$	-		$	-

CherryBerry Acquisition:
Acquisition of franchise rights and intangible assets
through issuance of common stock	$	3,060,000		$	-		$	-

Yogli Mogli Acquisition:
Acquisition of franchise rights and intangible assets
through issuance of common stock	$	212,500		$	-		$	-

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

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

NOTE 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 will consolidate the Company’s results of operations in its financial statements. RMCF trades on the NASDAQ Global Market under the trading symbol “RMCF”.

In October 2013, the Company acquired the franchise rights to nine self-serve frozen yogurt cafés and license agreements to two self-serve frozen yogurt cafés from Josie’s Frozen Yogurt, LLC (“Josie’s”). Subsequent to closing the transaction, a Josie’s franchisee closed one café. In November 2013, the Company closed four of its under-performing company-owned Aspen Leaf Yogurt cafés.

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, which is secured by all of the Company’s assets.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

As of February 28, 2014 the Company had the following locations:

	Number of locations
	U-Swirl	Aspen Leaf	Yogurtini	Josie’s	Cherry- Berry	Yogli Mogli	Fuzzy Peach	Total
Company-owned Cafés	6	2	-	-	1	4	-	13
Franchised cafés	30	9	28	10	156	22	17	272
Total	36	11	28	10	157	26	17	285

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

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

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities, at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the financial statements are the fair value of the businesses acquired and the fair value of the Convertible Note.

Cash and Cash Equivalents

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 February 28, 2014 or 2013.

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.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

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.

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 life of the asset, 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 February 28, 2014 and 2013, the Company did not have any construction-in-process.

The Company reviews its long-lived assets through analysis of estimated 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 no impairment exists as of February 28, 2014 or 2013.

Deposits

Deposits consist of security 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.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

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 the Company had the right to control the use of the property, which was before rent payments were actually due under the leases.

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.

Café Sales

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

Franchise Royalties and Fees

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 a 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.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

Rebates

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.

Marketing Fees

The Company also recognizes a marketing and promotion fee ranging from one to three 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.

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. Based on its evaluation, the Company does not believe it will not have an income tax liability as of the end of its current fiscal year.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 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 during each year. Diluted earnings (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options and restricted stock units.

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 Controller and are approved by the Chief Executive Officer (the “CEO”). Each quarter, the Controller and the CEO will update the inputs used in the fair value calculations and internally review the changes from period to period for reasonableness.

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 February 28, 2014 and 2013 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

February 28, 2013

Level 1

Level 2

Level 3

Total

Liabilities

Convertible Note

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

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 February 28, 2014	Valuation Techniques / Model	Unobservable Inputs

Bond component	$6,177,626	Income approach using discounted cash flow model	Effective yield 13.75%

Embedded conversion features	$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.

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, 2013	$	-
Purchases		7,666,609
Payments		(988,000	)
Unrealized loss		1,290,790
Subtotal		7,969,399
U ndrawn commitment fees		1,267
Balance, February 28, 2014	$	7,970,666

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.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

New Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, “ Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment .” This ASU permits an entity to make a qualitative assessment of whether it is more likely than not that indefinite-lived intangible assets are impaired before calculating the fair value of the assets. After assessment of certain qualitative factors, if it is determined to be more likely than not that an indefinite-lived asset is impaired, entities must perform the quantitative impairment test. Otherwise, the quantitative test becomes optional. The amended guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company adopted this guidance without a material impact on its financial position, results of operations or cash flows.

In February 2013, the FASB issued ASU No. 2013-02, “ Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income ”. The ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The ASU is effective for annual and interim periods beginning after January 1, 2013. The Company adopted this guidance without a material impact on its financial position, results of operations or cash flows.

In July 2013, the FASB issued ASU No. 2013-11, “ Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists .” ASU 2013-11 amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013, and early adoption is permitted. The Company adopted this guidance without a material impact on its financial po sition, results of operations or cash flows.

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.

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at February 28, 2014 and 2013:

	February 28, 2014			February 28, 2013
Accounts receivable, trade	$	175,348		$	153,681
Allowance for doubtful accounts, trade		(10,000	)		(40,000	)
Accounts receivable, other		1,253,612			-
Accounts receivable, net	$	1,418,960		$	113,681

Accounts receivable, related party	$	11,989		$	8,597

Accounts receivable, other consists of gift card liability receivables and marketing funds owed to us by CherryBerry and Yogli Mogli as a result of the respective business acquisitions.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

NOTE 4 - INVENTORY

As of February 28, 2014 and 2013, inventory consisted of the following:

	February 28, 2014		February 28, 2013
Food and beverages	$	61,108	$	71,026
Paper products		28,054		27,485
Supplies		29,057		-
Inventory	$	118,219	$	98,511

NOTE 5 - LEASEHOLD IMPROVEMENTS, PROPERTY AND EQUIPMENT

Leasehold improvements, property and equipment consisted of the following as of February 28, 2014 and 2013:

	February 28, 2014			February 28, 2013
Café equipment	$	1,580,650		$	1,176,845
Signage		112,395			112,395
Furniture and fixtures		461,026			308,698
Computer equipment		184,646			151,563
Vehicles		30,342			30,342
Leasehold improvements		2,079,227			1,578,757
		4,448,286			3,358,600
Less: accumulated depreciation		(1,508,466	)		(1,122,884	)
Leasehold improvements, property and equipment, net	$	2,939,820		$	2,235,716

NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consisted of the following as of February 28, 2014 and 2013:

	February 28, 2014			February 28, 2013
Trademarks	$	561,000		$	-
Franchise rights		6,580,034			800,000
Non-competition agreements		29,000			-
Goodwill		3,169,500			-
		10,339,534			800,000
Less: accumulated amortization		(96,012	)		-
Goodwill and other intangible assets, net	$	10,243,522		$	800,000

NOTE 7 - DEFERRED REVENUE

The Company deferred franchise fees, area development agreement fees and rebate income of $1,688,647 and $326,500 as of February 28, 2014 and 2013, respectively. Of the total amount deferred, and as reflected on the balance sheets, an allocation has been made to a related party classification. See also Note 18.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

NOTE 8 - NOTES PAYABLE, RELATED PARTY

In January 2013, in connection with the Rocky Mountain Transaction, the Company purchased leasehold improvements, property and equipment for six Aspen Leaf Yogurt cafés from RMCF in exchange for $900,000 in notes payable. Interest accrues on the unpaid principal balances of the notes at the rate of 6% per annum, compounded annually, and the notes require monthly payments of principal and interest over a five-year period beginning January 2014 in the case of the recourse notes and January 2015 in the case of the non-recourse notes. Payment of the notes is secured by a security interest in the six Aspen Leaf Yogurt cafés acquired.

In November 2013, the Company closed four of its under-performing company-owned Aspen Leaf Yogurt cafés and $400,000 in non-recourse notes payable together with accrued interest of $20,991 were abated. See also Note 16.

The Company repaid the balance of the full-recourse notes, together with accrued interest, in February 2014.

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 (the “Convertible Note”). As of February 28, 2014, the Company had borrowed $7,666,609 under this Loan Agreement and repaid $988,000, for a net principal balance of $6,678,609. Interest accrues on the unpaid principal balance of the loan at the rate of 9% per annum, and is included in the principal balance. Principle and interest are due January 16, 2016. The outstanding principal and interest is convertible at price of $0.90 and $0.45 per share of preferred stock, respectively, subject to adjustments upon occurrence of certain events. Payment of the loan is secured by a security interest in all of the Company’s assets.

All payments of principal, interest and undrawn commitment 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.

As discussed in Note 1, 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.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

The unrealized loss of $ 1,290,790 includes the fair value adjustment of $1,290,790 and is included 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 principle, 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. 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 February 28, 2014 the Convertible Note due to RMCF consisted of the following:

	February 28, 2014

Principal	$	6,678,609
Undrawn commitment fee s		1,267
Fair value adjustment/unrealized loss		1,290,790
Balance		7,970,666
Less: current maturities		-
Long-term obligations	$	7,970,666

As of February 28, 2014 and 2013, total notes payable principal balance due to RMCF consisted of the following:

	February 28, 2014			February 28, 2013
Convertible note, secured, due 01/16/16 - principal	$	6,679,876		$	-
Construction loans, secured, due 9/15/18		116,867			-
Management services payable		542,500			-
Full-recourse, secured, due 12/14/18		-			503,655
Non-recourse, secured, due 12/14/19		-			402,924
Balance, principal		7,339,243			906,579
Less: current maturities		(22,837	)		-
Long-term obligations, principal	$	7,316,406		$	906,579

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

The following table summarizes the Company’s note payable obligations and related accrued interest as of February 28, 2014:

For the Fiscal Year Ended February 28 or 29:	Amount
2015	$	22,837
2016		7,246,622
2017		25,741
2018		27,329
2019		16,714
Thereafter		-
Total minimum payments		7,339,243
Less: current maturities		(22,837	)

Long-term obligations	$	7,316,406

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Operating leases

The Company conducts its retail operations in facilities leased under five to ten-year non-cancelable operating leases. Certain leases contain renewal options for between five and ten additional years at increased monthly rentals. Two of the leases provide for contingent rentals based on sales in excess of predetermined base levels.

The following table summarizes the future minimum rental payments required under such operating leases as of February 28, 2014:

For the Fiscal Year Ended February 28 or 29:	Amount
2015	$	590,310
2016		405,901
2017		217,876
2018		163,752
2019		146,833
Thereafter		17,623
Total minimum payments		1,542,295
Less: current maturities		(590,310	)

Long-term obligations	$	951,985

Contingencies

Resulting from the purchase of the franchise rights of Yogurtini, the Company may pay up to an additional aggregate amount of $1,400,000, which is contingent on financial performance of the franchise rights over a two-year period beginning January 13, 2013. During the year ended February 28, 2014, the Company paid $472,398 toward the contingent purchase price.

Resulting from the purchase of the franchise rights of Josie’s, the Company may pay up to an aggregate amount of $63,000, which is contingent on number of franchised cafes of the system that are in operation on the two year anniversary of the October 1, 2013 closing date.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

The CherryBerry selling parties have entered into a one-year lock-up agreement with respect to the 4,000,000 shares of the Company’s common stock (the “CB Shares”) payable at the closing of the CherryBerry Acquisition. The CB Shares payable give the selling parties voting rights and rights to dividends as of the acquisition date and are therefore included in the calculation of net loss per common share. The CB Shares shall be issued to the selling parties upon the satisfaction of certain conditions. Following expiration of the lock-up period, if any of the CherryBerry selling parties desire to sell their CB Shares, they must first offer such shares to the Company and then to RMCF, at a price equal to the average of the market prices at the time of sale. If the proceeds from the sale of any of the CB Shares is less than $0.50 per share, the Company has agreed to pay a shortfall payment.

Resulting from the purchase of the franchise rights of Fuzzy Peach, the Company may be required to pay up to an additional aggregate amount of $349,000, contingent on financial performance of the franchise rights over the twelve month period beginning February 19, 2014.

NOTE 10 - FRANCHISE ROYALTIES AND FEES

During the year ended February 28, 2014, the two months ended February 28, 2013 and the year ended December 31, 2012, the Company recognized the following franchise royalties and fees:

	February 28, 2014		February 28, 2013		December 31, 2012
Royalty income	$	879,312	$	69,636	$	266,532
Franchise fee income		68,111		-		135,000
Rebate income from purveyors that supply products to franchisees		387,507		45,485		122,366
Marketing fees		141,930		15,175		-
Franchise royalties and fees	$	1,476,860	$	130,296	$	523,898

NOTE 11 - OCCUPANCY AND RELATED EXPENSES

Occupancy and related expenses consist of the following for the year ended February 28, 2014, the two months ended February 28, 2013 and the year ended December 31, 2013:

	February 28, 2014		February 28, 2014		December 31, 2012
Rent	$	514,155	$	74,695	$	300,874
Real estate taxes, insurance and CAM fees		123,126		21,713		54,257
Utilities		131,836		14,705		79,177
Occupancy and related expenses	$	769,117	$	111,113	$	434,308

NOTE 12 - INCOME TAXES

A reconciliation of the statutory federal income tax rate and the effective rate as a percentage of pretax income is as follows for the periods:

	February 28, 2014			February 28, 2013			December 31, 2012
U.S. federal statutory income tax rate		34.0	%		34.0	%		34.0	%
State income tax – net of federal benefit		2.0	%		0.0	%		0.0	%
Valuation of embedded derivatives		(61.0	) %		0.0	%		0.0	%
		(25.0	) %		34.0	%		34.0	%
Valuation allowance		25.0	%		(34.0	) %		(34.0	) %
Effective tax rate		0.0	%		0.0	%		0.0	%

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

Significant components of the Company’s deferred income taxes are as follows:

	February 28, 2014			February 28, 2013			December 31, 2012
Deferred tax assets:
Net operating loss	$	2,450,861		$	2,166,726		$	2,038,347
Asset acquisition expenses		210,608			-			-
		2,661,469			2,166,726			2,038,347
Less valuation allowance		(2,661,469	)		(2,166,726	)		(2,038,347	)
Net deferred tax assets	$	-		$	-		$	-

Company files income tax returns in the U.S. federal and various state taxing jurisdictions.

Realization of the Company's deferred tax assets is dependent upon the Company generating sufficient taxable income, in the appropriate tax jurisdictions, in future years to obtain benefit from the reversal of net deductible temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. As of February 28, 2014, the Company has recorded a full valuation allowance related to the realization of its deferred income tax assets.

The Company accounts for uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. As such, the Company is required to make judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to the Company's judgments which can materially affect amounts recognized in the balance sheets and statements of operations. The result of the assessment of the Company's tax positions did not have an impact on the financial statements for the year ended February 28, 2014, the two months ended February 28, 2013 or the year ended December 31, 2012. The Company's federal tax returns for all years after 2010 and the Company's state tax returns after 2009 are subject to future examination by tax authorities for all of the Company's tax jurisdictions. The Company does not have any significant unrecognized tax benefits and does not anticipate a significant increase or decrease in unrecognized tax benefits within the next twelve months. Amounts are recognized for income tax related interest and penalties as a component of general and administrative expense in the statement of income and are immaterial for year ended February 28, 2014, the two months ended February 28, 2013 and the year ended December 31, 2012.

In accordance with section 382 of the Internal Revenue Code, deductibility of the Company’s U.S. net operating loss carryovers may be subject to annual limitation in the event of a change in control. Management has performed a preliminary evaluation as to whether a change in control has taken place, and has concluded that there was a change of control with respect to the net operating losses of the Company when RMCF acquired a majority ownership interest in January 2013. The Company’s net operating losses expire starting in 2025.

The Company has estimated that its potential future tax deductions of its accumulated net operating losses, limited by section 382, to be approximately $1.0 million. The Company has recorded a valuation allowance for this amount to reflect the likelihood of realization of this deferred tax asset.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

NOTE 13 - STOCKHOLDERS’ EQUITY

In August 2013, the Company issued 750,000 shares of common stock previously recorded to common stock payable.

During the year ended February 28, 2014, the Company issued 50,000 shares of common stock pursuant to the exercise of common stock options for total gross proceeds of $16,250.

During the year ended February 28, 2014, warrant holders exercised warrants into 237,941 shares of the Company’s common stock for total gross proceeds of $91,348, net of direct offering costs of $38,375.

On January 17, 2014, the Company entered into asset purchase agreements to acquire the CherryBerry franchise system, consisting of 156 franchised self-serve frozen yogurt cafés and one company-owned café. The CherryBerry system and certain affiliates were acquired for approximately $4.25 million in cash and 4,000,000 shares of the Company’s common stock (the “CB Shares”) at a fair value of $3,060,000 based upon the average of the high and low quoted trading price on the closing date. RMCF provided the funding for these acquisitions through a convertible note, which is secured by all of the Company’s assets. See also Note 8.

The CB Shares shall be issued to the selling parties upon the satisfaction of certain conditions. As of February 28, 2014 those shares had not been issued and have been recorded to common stock payable.

On January 17, 2014, the Company entered into asset purchase agreements to acquire the Yogli Mogli franchise system, consisting of 22 cafés and four company-owned cafés at the time of the closing. The Yogli Mogli system was acquired for $2.15 million in cash and 277,778 shares of the Company’s common stock (the “YM Shares”) at a fair value of $212,500 based upon the average of the high and low quoted trading price on the closing date. RMCF provided the funding for these acquisitions through a convertible note, which is secured by all of the Company’s assets. See also Note 8.

The YM Shares shall be issued upon the earlier of (i) the Yogli Mogli selling parties delivering fully executed copies of all of the lease assignment and assumption agreements related to each company-owned location; and (ii) July 17, 2014. As of February 28, 2014 those shares had not been issued and have been recorded to common stock payable.

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

Outstanding - December 31, 2012	-	$	-	-
Granted	759,999		0.1275	5.00 years
Vested	-		-	-
Forfeited/Cancelled	-		-	-
Outstanding - February 28, 2013	759,999		0.1275	4.88 years
Granted	-		-
Vested	(152,001)		-
Forfeited/Cancelled	-		-
Outstanding - February 28, 2014	607,998	$	0.1275	3.88 years

During the year ended February 28, 2014, the two months ended February 28, 2013 and the year ended December 31, 2013, the Company expensed $19,380, $2,501 and $0 related to restricted common stock grants, respectively.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

NOTE 14 - 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 1,515,208 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	Average Intrinsic Value

Outstanding - December 31, 2012		962,000		$	0.36	3.58 years		-
Granted		-			-
Exercised		-			-
Forfeited/Cancelled		-			-
Outstanding - February 28, 2013		962,000			0.36	3.41 years	$	34,830
Granted		-			-
Exercised		(50,000	)		0.33
Forfeited/Cancelled		(150,000	)		0.30
Outstanding - February 28, 2014		762,000		$	0.38	2.37 years	$	360,840
Exercisable – February 28, 2014		762,000		$	0.38	2.37 years	$	360,840

During the year ended February 28, 2014, the two months ended February 28, 2013 and the year ended December 31, 2012, the Company expensed $38,976, $19,050 and $116,745 related to stock option grants, respectively.

NOTE 15 - WARRANTS

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

	Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Average Intrinsic Value

Outstanding - December 31, 2012		5,111,500		$	5.31	1.45 years	$	18,000
Granted		9,110,250			4.61
Exercised		-			-
Forfeited/Cancelled		(150,000	)		6.12
Outstanding - February 28, 2013		14,071,750			4.61	1.32 years		52,245
Granted		105,688			-
Exercised		(237,941	)		0.55
Forfeited/Cancelled		(7,916,250	)		8.21
Outstanding - February 28, 2014		6,023,247		$	0.62	1.80 years	$	1,751,764
Exercisable - February 28, 2014		2,274,659		$	0.65	1.66 years	$	588,631

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

During the year ended February 28, 2014, the two months ended February 28, 2013 and the year ended December 31, 2012, the Company expensed $0, $0 and $0 related to stock warrants issued, respectively.

NOTE 16 - COMPANY-OWNED STORE CLOSURES

In November 2013 the Company closed four under-performing company-owned Aspen Leaf Yogurt cafés. The operation of these locations was transferred to the Company in January 2013 in connection with the Rocky Mountain Transaction.

The Company acquired the assets associated with these locations in exchange for $400,000 in non-recourse notes payable. Prior to the closing of these locations the Company had recorded $420,991 in notes payable and accrued interest. See also Note 8.

Consistent with the non-recourse note agreements, the Company returned the assets underlying the notes to RMCF, the note holder. The Company subsequently entered into an agreement to purchase certain assets salvaged from these closed locations. The Company has agreed to pay $177,500 to RMCF for the assets salvaged from these locations and believes that this approximates the predecessor cost of these assets.

The closure of these locations resulted in the following accounting treatment:

Reduction in property and equipment	$	400,000
Reduction in depreciation expense		44,755
Reduction in notes payable, related party		400,000
Reduction in interest expense		20,991
Increase in equipment not in service		177,500
Increase in accounts payable, related party		177,500

NOTE 17 - ACQUISITION OF CHERRYBERRY, YOGLI MOGLI AND FUZZY PEACH

On January 17, 2014, the Company entered into an Asset Purchase Agreement with CherryBerry, which was the franchisor of self-serve frozen yogurt cafés branded as “CherryBerry.” Pursuant to the CherryBerry Purchase Agreement, the Company purchased certain assets of CherryBerry used in its business of franchising frozen yogurt cafés, including all of its franchise rights and one company-owned café. The assets were acquired for approximately $4.25 million in cash and 4 million shares of the Company’s common stock. The Company also entered into an Asset Purchase Agreement with Yogli Mogli LLC, which was the franchisor of self-serve frozen yogurt cafés 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 cafés, including all of its franchise rights and four company-owned cafés. The assets were acquired for approximately $2.15 million in cash and 277,778 shares of the Company’s common stock. The Yogli Mogli Purchase Agreement contains customary representations and warranties, covenants and indemnification obligations.

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 purchased the Fuzzy Peach Franchising, LLC assets for $481,000 in cash paid at the time of closing, plus an earn-out that could require an increase in the purchase price by up to another $349,000 based upon royalty income generated by Fuzzy Peach stores over the next twelve months.

The Company completed these acquisitions because the self-serve frozen yogurt market is extremely fragmented, and the Company believes successful consolidators will dominate the industry within a few years. The Company believes the self-serve frozen yogurt industry offers the potential for above-average investment returns, which is predicated upon management’s ability to identify attractive growth opportunities that are compatible with the geographical and operational requirements for long-term success.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

The Company preliminarily estimated the fair value consideration paid, the assets acquired and liabilities assumed and allocated a portion of the total purchase consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values at the acquisition date. The excess of the total purchase consideration over the aggregate estimated fair values was recorded as goodwill. Goodwill represents the synergies that the Company believes will arise from the acquisition transactions. All of the goodwill generated in this acquisition is deductible for tax purposes. The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed:

	CherryBerry		Yogli Mogli			Fuzzy Peach		Total
Assets acquired	$	7,310,000	$	2,420,500		$	481,000	$	10,211,500
Lease liabilities assumed		-		(58,000	)		-		(58,000	)

Total purchase price	$	7,310,000	$	2,362,500		$	481,000	$	10,153,500

Included in the preliminary purchase price allocation is a provisional amount related to the fair value of the Company’s common stock issued as consideration for the acquisitions and a preliminary valuation of the contingent consideration of the $0.50 floor. The preliminary fair value of the securities was based on the trading market value of the stock; however, the trading market price may not be indicative of the fair value of the Company’s common stock because the stock has a low level of trading activity. As such, the Company will perform additional valuation procedures to determine if the trading market value of the Company’s common stock is representative of its fair value on the acquisition date. The Company is in the process of completing procedures to determine the fair value of the common stock issued and the contingent consideration, which may result in adjustments to goodwill. The Company expects to finalize the purchase price allocation during fiscal 2015.

The assets acquired were made up of the following during the years ended February 28, 2014:

	CherryBerry		Yogli Mogli		Fuzzy Peach		Total
Café asset	$	261,000	$	1,003,000	$	-	$	1,264,000
Trademarks		405,000		156,000		-		561,000
Franchise rights		3,615,000		1,201,000		481,000		5,297,000
Non-compete agreements		23,000		6,000		-		29,000
Goodwill		3,006,000		54,500		-		3,060,500

Total assets acquired	$	7,310,000	$	2,420,500	$	481,000	$	10,211,500

The consideration for the purchase price was made up the following assets during the year ended February 28, 2014:

	CherryBerry		Yogli Mogli		Fuzzy Peach		Total
Common stock	$	3,060,000	$	212,500	$	-	$	3,272,500
Cash		4,250,000		2,150,000		481,000		6,881,000

Total consideration paid	$	7,310,000	$	2,362,500	$	481,000	$	10,153,500

As a part of these transactions the Company recognized $619,435 as acquisition related expenses. The value of U-Swirl, Inc. common stock was $0.765 and was determined by averaging the high and the low trading prices on the date of the transactions.

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

Since the date of acquisition, revenue and net income (loss) included in our operating results from the acquired companies were as follows:

	CherryBerry		Yogli Mogli

Revenues	$	130,505	$	140,571
Net income (loss)		54,321		(3,008	)

Supplemental Pro Forma Data (Unaudited)

U-Swirl used the acquisition method of accounting to account for these acquisitions and, accordingly, the results of CherryBerry and Yogli Mogli are included in U-Swirl’s consolidated financial statements for the period subsequent to the date of acquisition. The unaudited supplemental pro forma financial data presented below for the year ended February 28, 2014 and 2013 gives effect to these acquisitions as if they had occurred on March 1, 2012. The supplemental data includes amortization expense related to the acquired intangible assets and transaction costs, such as legal fees, directly associated with the acquisition.

This unaudited supplemental pro forma financial data is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the Company completed the acquisition at the beginning of fiscal 2013.

	Year ended February 28, 2014			Year ended February 28, 2013

Pro forma net revenues	$	10,860,186		$	10,394,477
Pro forma loss from continuing operations		(747,711	)		(1,715,486	)
Pro forma loss from continuing operations per share (basic)		(0.04	)		(0.17	)

NOTE 18 - RELATED PARTY TRANSACTIONS

The Company was owed $11,989 and $8,597 as of February 28, 2014 and 2013, respectively, from a U-Swirl franchisee that is owned and operated by the grandchildren of the Company’s Chief Marketing Officer. The corporate secretary and treasurer of the franchisee is also the Company’s corporate secretary.

As of February 28, 2014 and 2013, the Company owed $290,978 and $11,792 to RMCF for inventories, restaurant equipment and various operating expenses, respectively. In January 2014, the Company entered into a Convertible Note with RMCF. See also Note 8.

As of February 28, 2014 and 2013, the Company had deferred revenue of $30,000 and $30,000, respectively, from an area developer in which the Company’s Chief Executive Officer and Chief Operating Officer have a minority interest.

NOTE 19 - 2013 COMPARABLE PERIOD RESULTS OF OPERATIONS (UNAUDITED)

Due to the change in fiscal year which occurred in January 2013, the Company does not have audited results of operations for the twelve months ended February 28, 2013. Unaudited results of operations for the twelve months ended February 28, 2013 are presented below for comparison to the twelve months ended February 28, 2014:

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

U-SWIRL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended			For the Year Ended
	February 28, 2014			February 28, 2013
				Unaudited
Revenues
Café sales, net of discounts	$	4,051,789		$	2,405,839
Franchise royalties and fees		1,476,860			572,414
Total revenues		5,528,649			2,978,253

Café operating costs
Food, beverage and packaging costs		1,307,238			797,098
Labor and related expenses		1,109,734			633,143
Occupancy and related expenses		769,117			471,943
Franchise development		60,493			-
Marketing and advertising		254,947			72,912
General and administrative		1,693,597			1,463,577
Depreciation and amortization		520,979			327,259
Asset acquisition expenses		619,435			-
Fair value adjustment		1,290,790			-
Total costs and expenses		7,626,330			3,765,932
Loss from operations		(2,097,681	)		(787,679	)

Interest income		-			1,314
Interest expense		(28,803	)		(7,304	)

Loss from continuing operations before income taxes		(2,126,484	)		(793,669	)
Provision for income taxes		-			-
Net loss	$	(2,126,484	)	$	(793,669	)

Net loss per common share, basic and diluted	$	(0.14	)	$	(0.13	)

Weighted average common shares outstanding,
basic and diluted		15,332,233			6,111,947

U-SWIRL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED FEBRUARY 28, 2014

NOTE 20 - SUBSEQUENT EVENTS

In March 2014, our wholly-owned subsidiary, Moxie, acquired the business assets of Moxie USA, LLC, which distributed beverage and gummies products, for an earnout of up to a total of 250,000 shares of the Company’s common stock. Moxie currently distributes beverage and gummies products in 15 states. The Company’s goal is to utilize Moxie as a more efficient way to provide complementary products such as beverages and gummies, which are sold as toppings, to franchisees as well as other retail clients.

In March 2014, the Company granted 250,000 shares of common stock to various directors for services. The fair value of the shares on the date of grant totaled approximately $220,000 based upon the value of the services provided.

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 warrants that remain unexercised will automatically be redeemed by the Company at a redemption price of $0.05 per warrant. A total of 1,648,135 Class C Warrants were exercised for gross proceeds of $988,881. 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. See also Note 15.

In May 2014, the Company issued a warrant to purchase up to 44,312 shares of restricted common stock at $0.60 per share. The warrants subsequently expired on May 22, 2014 pursuant to the Notice of Redemption along with the other outstanding Class C Warrants.

In May 2014, the Company entered into a tentative agreement to sell three company-owned cafés . The Company received a deposit of $600,000 from the buyer to secure the rights to acquire the assets through definitive agreement. These cafés were acquired in January 2014 as part of the Yogli Mogli Acquisition. The Company believes that the sale of these assets will approximate the preliminary value assigned to the assets and that the sale of the assets will not have a material impact on results of operations.

Management evaluated all activity of the Company through the issue date of the financial statements and concluded that no other subsequent events have occurred that would require recognition or disclosure in the financial statements.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Purchase of U-Swirl Frozen Yogurt Concept

On September 30, 2008, we acquired the worldwide rights to the U-Swirl Frozen Yogurt concept in exchange for 100,000 restricted shares of our common stock from a company then known as U-Swirl Yogurt, Inc. (now known as U Create Enterprises), which is owned by the grandchildren and family of Henry E. Cartwright. The shares were valued at $180,000, based on the fair market value of the stock on the date of acquisition. U Create Enterprises operates a frozen yogurt café in Henderson, Nevada, as our franchisee. As part of the terms of the acquisition, we agreed that no franchise fees or royalties would be charged with respect to this location, as it will permit us to use the location as a training facility. We did not obtain a formal valuation on the use of the Henderson location for training purposes, but we believed that being able to have our initial U-Swirl employees trained there and utilize the past experience of that location with respect to restaurant operation procedures and staffing, inventory and advertising was critical to us at the time. In addition, we granted U Create Enterprises the right to open additional locations in Henderson, Boulder City and Pahrump, Nevada. U Create Enterprises will pay an initial franchise fee of $5,000 for each location and a 3% royalty on net sales. We were owed $11,989 and $8,597 as of February 28, 2014 and 2013, respectively, by u-Create Enterprises.

Area Development Agreement with RMR Group, LLC

On February 15, 2010, we entered into an area development agreement with RMR Group, LLC for the Monmouth County, New Jersey, development area. American Pacific Investments, Limited, which owns one-third of RMR Group, is a Nevada limited liability company whose members are Ulderico Conte, Terry A. Cartwright, Paul Heroy and Stan Cartwright. Ulderico Conte and Terry Cartwright are directors and officers of the Company, and Terry Cartwright and Stan Cartwright are the adult children of Henry E. Cartwright. RMR Group paid a $30,000 development fee, which was derived in accordance with our then existing policy of $15,000 plus $5,000 times the minimum number of units for an area development agreement. The minimum number of units for the Monmouth County area was determined to be three. We have entered into an amendment to the area development agreement to delay the development schedule by one year. RMR Group has identified a location for its initial café that has been involved in various construction delays which have further stalled the development of the area.

Amounts Owed to RMCF

In addition, we owed $290,978 and $11,792 to RMCF at February 28, 2014 and 2013, respectively, for inventories, restaurant equipment and various operating expenses.

Future Transactions

All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions, and we will maintain at least two independent directors on our board of directors to review all material transactions with affiliates.

Director Independence

As of the date of this annual report, our common stock is not listed on any exchange. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent. Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the Nasdaq Capital Market’s requirements for independent directors (Nasdaq Marketplace Rule 5605(a)(2)). The Nasdaq independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company.

Scott G. Capdevielle, Franklin E. Crail, Clyde W. Engle, Bryan J. Merryman and Lee N. Mortenson are considered independent directors under the above definition.

Item 15.

Exhibits, Financial Statement Schedules

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, 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	Voting Agreement among U-Swirl, Inc., Henry Cartwright, Ulderico Conte, Terry Cartwright, Rocky Mountain Chocolate Factory, Inc., and Aspen Leaf Yogurt, LLC dated January 14, 2013 (1)
10.9	Form of Employment Agreement between U-Swirl, Inc. and its executive officers (1)
10.10	Form of Restricted Stock Agreement (included in Exhibit 10.9)
10.11	Intercompany Advance Agreement between Rocky Mountain Chocolate Factory, Inc. and U-Swirl, Inc. dated March 27, 2013 (7)
10.12	Secured Promissory Notes dated July 16, 2013 to Rocky Mountain Chocolate Factory, Inc. (8)
10.13	Loan and Security Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 16, 2014 (2)
14.1	Code of Ethics for Chief Executive Officer (9)
14.2	Code of Ethics for Chief Financial Officer (9)
21.1	List of Subsidiaries
31.1	Rule 13a-14(a) Certification of Chief Executive Officer and interim 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 and interim Chief Financial Officer
101	Financial statements from the Annual Report on Form 10-K of U-Swirl, Inc. for the fiscal year ended February 28, 2014, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Stockholders’ Equity; (iv) the Statements of Cash Flows; and (v) 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 January 18, 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.

(9)	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, 2008, filed March 27, 2009.

*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 or 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 Section 13 or 15(d) 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.