U-Swirl (SWRL) 10-Q 2009 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

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

EXCHANGE ACT OF 1934

For the transition period from  __________________ to  __________________

Commission file number 0-53130

HEALTHY FAST FOOD, INC.

(Exact name of registrant as specified in its charter)

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

1075 American Pacific, Suite C, Henderson, Nevada 89074

(Address of principal executive offices)                   (Zip Code)

(702) 448-5301

(Registrant’s telephone number, including area code)

Not applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [  ]Yes[x]No

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,518,350 shares of Common Stock, $0.001 par value, as of November 10, 2008

HEALTHY FAST FOOD, INC.

BALANCE SHEETS

	Unaudited			Audited
	September 30, 2008			December 31, 2007
ASSETS
Current assets
Cash and equivalents	$	3,982,431		$	604,118
Royalty rebate receivable		1,122			992
Interest receivable		88			-
Inventory		16,535			13,575
Prepaid expenses		23,403			16,750
Total current assets		4,023,579			635,435
Leasehold improvements, property and equipment, net		662,026			454,692
Other assets
Deposits		146,217			146,217
Deferred offering costs		-			332,415
Franchise fees, net of amortization		14,059			15,372
Prepaid franchise fees		217,500			77,500
Total other assets		377,776			571,504
Total assets	$	5,063,381		$	1,661,631
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	139,642		$	133,556
Accrued interest - related parties		-			1,844
Royalties payable		1,688			-
Current portion of long-term debt		4,063			-
Total current liabilities		145,393			135,400
Deferred rent		71,282			87,744
Long-term liabilities		16,055			-
Total liabilities		232,730			223,144
Commitments and contingencies
Stockholders' equity
Preferred stock; $0.001 par value; 25,000,000 shares authorized,
no shares issued and outstanding		-			-
Common stock; $0.001 par value; 100,000,000 shares authorized,
2,518,350 and 1,418,350 shares issued and outstanding
at 9/30/08 and 12/31/07, respectively		2,518			1,418
Additional paid-in capital		6,794,179			2,511,097
Stock subscriptions receivable		(150	)		(150	)
Deficit		(1,965,896	)		(1,073,878	)
Total stockholders' equity		4,830,651			1,438,487
Total liabilities and stockholders' equity	$	5,063,381		$	1,661,631

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

2

HEALTHY FAST FOOD, INC.

STATEMENTS OF OPERATIONS

	Unaudited						Unaudited
	For the three months ended						For the nine months ended
	September 30, 2008			September 30, 2007			September 30, 2008			September 30, 2007
Revenues
Restaurant sales, net of discounts	$	144,400		$	242,631		$	495,493		$	780,744
Franchise royalties and fees		4,999			-			28,010			-
Total revenues		149,399			242,631			523,503			780,744
Restaurant operating costs
Food, beverage and packaging costs		60,572			101,885			210,092			330,503
Labor and related expenses		75,947			102,240			248,900			284,452
Occupancy and related expenses		37,269			23,372			91,128			71,927
Marketing and advertising		14,287			19,235			59,235			61,098
Royalties		6,498			7,417			20,464			21,323
General and administrative		77,149			45,268			231,652			148,485
Officer compensation		70,631			148,949			206,790			332,846
Board fees		-			-			-			34,375
Consulting fees - related party		-			-			-			11,458
Investor relations fees		23,398			-			154,740			-
Intellectual property acquired from related parties		180,000			-			180,000			-
Depreciation and amortization		18,508			18,534			56,583			54,447
Amortization of franchise fees		437			441			1,312			1,312
Total costs and expenses		564,696			467,341			1,460,896			1,352,226
Loss from operations		(415,297	)		(224,710	)		(937,393	)		(571,482	)
Interest expense		(700	)		(17	)		(2,723	)		(6,106	)
Interest income		21,189			8,598			48,097			12,863
Loss before income taxes		(394,808	)		(216,129	)		(892,019	)		(564,725	)
Provision for income taxes		-			-			-			-
Net loss	$	(394,808	)	$	(216,129	)	$	(892,019	)	$	(564,725	)
Net loss per common share - basic and fully diluted	$	(0.18	)	$	(0.25	)	$	(0.40	)	$	(0.45	)
Weighted average common shares outstanding -
basic and diluted		2,211,246			880,157			2,211,246			1,268,337

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

3

HEALTHY FAST FOOD, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

						Stock						Total
	Common Stock			Additional		Subscription			Accumulated			Stockholders'
	Shares	Amount		Paid-in Capital		Receivable			Deficit			Equity
Balance, December 31, 2007 (Audited)	1,418,350	$	1,418	$	2,511,097	$	(150	)	$	(1,073,877	)	$	1,438,488
Issuance of stock pursuant to unit offering
$5.10 per unit, net of underwriting fees of $510,000
and offering costs of $587,160	1,000,000		1,000		1,655,949		-			-			1,656,949
-Fair market value of 1,000,000 A warrants	-		-		1,119,628		-			-			1,119,628
-Fair market value of 2,000,000 B warrants	-		-		1,226,263		-			-			1,226,263
Fair value of share-based compensation	-		-		101,342		-			-			101,342
100,000 shares issued for U-Swirl intellectual property at $1.80/share	100,000		100		179,900		-			-			180,000
Net loss	-		-		-		-			(892,019	)		(892,019	)
Balance, September 30, 2008 (Unaudited)	2,518,350	$	2,518	$	6,794,179	$	(150	)	$	(1,965,896	)	$	4,830,651

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

4

HEALTHY FAST FOOD, INC.

STATEMENTS OF CASH FLOWS

	Unaudited
	For the nine months ended
	September 30, 2008			September 30, 2007
Cash flows from operating activities:
Net (loss)	$	(892,019	)	$	(564,725	)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Depreciation and amortization		56,583			54,447
Amortization of franchise fees		1,312			1,312
Share-based compensation		101,342			272,807
Shares issued to acquire U-Swirl intellectual property		180,000
Stock issued for interest		-			700
Changes in operating assets and liabilities:
Royalty rebate receivable		(130	)		(1,386	)
Interest receivable		(88	)		-
Inventory		(2,960	)		2,382
Prepaid expenses		(6,653	)		-
Accounts payable and accrued liabilities		6,086			12,317
Accrued interest - related parties		(1,844	)		(3,243	)
Royalties payable		1,688			-
Deferred rent		(16,462	)		(14,508	)
Net cash (used) by operating activities		(573,145	)		(239,897	)
Cash flows from investing activities:
Prepaid franchise fees		(140,000	)		-
Purchase of fixed assets		(239,980	)		(19,481	)
Net cash (used) by investing activities		(379,980	)		(19,481	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		4,002,840			1,552,127
Subscriptions receivable		-			(150	)
Deferred offering costs		332,415			(217,295	)
Payments on notes payable - vehicles		(3,817	)		-
Payments on notes payable - related parties		-			(250,200	)
Net cash provided by financing activities		4,331,438			1,084,482
Net change in cash		3,378,313			825,104
Cash, beginning of period		604,118			53,527
Cash, end of period	$	3,982,431		$	878,631
Supplemental disclosure of cash flow information:
Interest paid	$	2,723		$	6,106
Value of warrants issued for offering costs	$	-		$	11,265
Number of shares issued for debt and interest		-			3,350
Value of shares issued for debt and interest	$	-		$	6,701
Capital lease obligations for property and equipment	$	23,937		$	-
Number of shares issued for intellectual property		100,000			-
Value of shares issued for intellectual property	$	180,000		$	-

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

5

HEALTHY FAST FOOD, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Evos Concept

The Company owns and operates an EVOS® fast food franchise restaurant located in Henderson, Nevada under franchise rights purchased from EVOS USA, Inc.  The Company also has secured the exclusive right to solicit EVOS® franchises on behalf of EVOS USA, Inc. as an area representative within a 12-state territory.

U-Swirl Concept

On September 30, 2008, the Company acquired the worldwide rights to the U-Swirl Frozen YogurtSM concept through its wholly-owned subsidiary, U-Swirl International, Inc.  U-SWIRL allows guests the ultimate choice in frozen yogurt by providing 16 non-fat flavors, including tart, traditional and no sugar-added options and more than 40 toppings, including seasonal fresh fruit, sauces, candy and granola. Guests serve themselves and pay by the ounce instead of by the cup size.

The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the financial statements included in the Company’s registration statement on Form S-1/a filed on March 11, 2008 with the U.S. Securities and Exchange Commission for the year ended December 31, 2007.

2.           CASH AND EQUIVALENTS

Concentration of Credit Risk for Cash Held at Banks

The company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000.

During the third quarter ended September 30, 2008, the Company invested $3,000,000 in 13-week maturity US Government Treasury Bills.

3.           FRANCHISE FEE INCOME

The Company recognized $28,010 and $0 in franchise fee income for the nine months ended September 30, 2008 and 2007, respectively.  The $17,500 recognized during the quarter ended March 31, 2008 represents 50% of the initial franchise fee for a new restaurant location purchased by a new franchisee within the Company’s 12 state territory, and is in accordance with the Company’s Area Representative Agreement with EVOS USA, Inc.

4.           DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization expense for the nine months ended September 30, 2008 and 2007 totaled $56,583 and $54,447, respectively.

6

HEALTHY FAST FOOD, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

5.           FRANCHISE FEES AMORTIZATION

Amortization expense related to capitalized franchise fees for the nine months ended September 30, 2008 and 2007 totaled $1,312 and $1,312, respectively.

6.           INTEREST INCOME AND EXPENSE

Interest income for the nine months ended September 30, 2008 and 2007 totaled $48,097 and $12,863, respectively.

Interest expense for the nine months ended September 30, 2008 and 2007 totaled $2,723 and $6,106, respectively.

7.           PREPAID FRANCHISE FEES

On February 29, 2008, the Company paid EVOS, USA, Inc. $140,000 cash to extend its build-out requirements pursuant to the Area Representative Agreement from five restaurants due by May 31, 2008 to five restaurants due initially by December 1, 2008.  On September 12, 2008, the build-out requirements were further extended (without further cost to the Company) to be due by March 1, 2009.  The effect of the cash paid for the extension is to increase the prepaid franchise fees for 12 restaurants from $6,458 per restaurant to $18,125 per restaurant.

8.           STOCKHOLDERS’ EQUITY

As of September 30, 2008, the Company had 2,518,350 shares of common stock issued and outstanding.  The Company has not issued any shares of preferred stock.

Initial Public Offering

On March 25, 2008, the Company closed its initial public offering and sold 1,000,000 units at $5.10 per unit to its underwriter for proceeds of $4,068,776 (net of underwriting fees totaling $510,000 and offering costs totaling $521,224).  Each unit consists of one share of $0.001 par value common stock, one “A” warrant exercisable into one share of common stock at $5.10 per share, and two “B” warrants exercisable into two shares of common stock at $10.20 per share.  The fair market values of the “A” and “B” warrants on the date of grant are based on the Black-Scholes-Merton valuation model and recorded to additional paid-in capital as of September 30, 2008 at $1,119,628 and $1,226,263, respectively.

Related Party Acquisition

On September 30, 2008, the Company closed its acquisition of the worldwide rights to the U-Swirl Frozen YogurtSM concept through its wholly-owned subsidiary, U-Swirl International, Inc., by issuing 100,000 shares of its $0.001 par value common stock to the owners of the U-Swirl concept.  The value of the acquisition is determined by the Company to be $180,000 based on the fair market value of the stock on the date of acquisition at $1.80 per share multiplied by the 100,000 shares issued.  The fair market value of the stock is used as the basis for valuation because it is the most “readily determinable” valuation method in accordance with FAS123R – Share-Based Compensation.  100% of the valuation amount is expensed as “Intellectual property acquired from related parties” because the sellers of the U-Swirl concept are grandchildren of the Company’s CEO, and no “capitalizable” costs (ie. legal or trademarking fees) were incurred by the sellers in developing the concept.

There were no other issuances of preferred or common stock as of September 30, 2008.

7

HEALTHY FAST FOOD, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

9.           STOCK OPTIONS AND WARRANTS

Stock Options – As of December 31, 2007, the Company had issued options to purchase 470,000 shares of common stock with a weighted average strike price of $4.40 per share.  The Company did not grant any new stock options during the nine months ended September 30, 2008.

Warrants – As of December 31, 2007, the Company had issued warrants to purchase 200,000 shares of common stock with a weighted average strike price of $2.98 per share, of which 25,000 had been exercised into 25,000 shares of the Company’s common stock.

On February 21, 2008, the Company issued a warrant to its corporate investor relations firm to purchase 60,000 units (each unit containing one share of common stock, one “A” warrant, and two “B” warrants) with an exercise price of $6.12 per unit for services relating to its investor relations.  The warrant has been valued at $101,342 using the Black-Scholes-Merton valuation model based upon the following assumptions: term of 5 years, a risk free interest rate of 2.8%, a dividend yield of 0%, and volatility of 40%.  The value of the warrants was allocated against additional paid in capital and investor relations expense.

				Weighted
	Number		Weighted	Average
	of		Average	Remaining
	Shares		Exercise Price	Contractual Life in Years
Balance, December 31, 2007	175,000		2.98	9.08
Warrants granted and assumed	60,000		1.20	4.58
Warrants expired	-0-		-0-	-0-
Warrants canceled	-0-		-0-	-0-
Warrants exercised	-0-		-0-	-0-
Balance, June 30, 2008	235,000	$	2.53	6.83

All warrants outstanding are exercisable as of September 30, 2008.

Fair Value of Equity Awards  - The above tables reflect the assumptions utilized to value the stock-based compensation as of September 30, 2008 under SFAS 123R and using the Black-Scholes-Merton valuation model.  The risk-free interest rate is based upon U.S. Treasury Rates for instruments with similar terms.  The full term of the options and warrants granted was used for the expected life since the options and warrants were granted to senior management and outside consultants where turnover is expected to be low and since they are expected to hold the options and warrants for the full term to obtain the maximum benefit.  The Company has not paid dividends to date and does not plan to pay dividends in the near future.  The volatility assumptions were derived from historical volatilities of competitors whose shares are traded in the public markets and are adjusted to reflect anticipated behavior specific to the Company.

Risk-free interest rate	2.8-4.92%
Expected life (years)	5-10 Yrs
Expected dividend yield	0.0%
Volatility	40.0%

8

HEALTHY FAST FOOD, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

10.           RELATED PARTY TRANSACTIONS

A Company officer/shareholder has donated 100 square feet of office space for Company use.  The estimated fair market value of the space is $70/month.  The annualized donated rent of $490 is considered immaterial to the financial statements and consequently not recorded on the Company’s financial statements.

The Company paid $36,000 in rent to a real estate holding company held jointly by the Company’s Chief Financial Officer and his spouse as compensation for the nine months ended September 30, 2008 pursuant to the Company’s employment agreement with the officer.

11.           OCCUPANCY AND RELATED EXPENSES

Occupancy and related expenses consists of the following for the nine months ended September 30, 2008 and 2007:

	2008		2007
Rent and CAM fees	$	62,387	$	59,747
Utilities		28,741		12,180
Occupancy and related expenses	$	91,128	$	71,927

12.           COMMITMENTS AND CONTINGENCIES

Franchise agreement – On March 30, 2007, EVOS USA, Inc. modified the terms of the franchise agreement that governs the Company’s franchisor-franchisee relationship.  Under the modified terms, all franchisees will pay a royalty on gross revenues of 3.5% for the first year of operations, 4.5% for the second year of operations, and 5.5% for all subsequent years of operation.  The Company paid a 5.5% royalty on gross revenues for the period October 14, 2006, through March 30, 2007.  The royalty rate has been reduced for the Company’s Henderson restaurant to 3.5% until March 31, 2008, 4.5% until March 31, 2009, and 5.5% thereafter.  If the Company would have been required to pay the 5.5% royalty rate during the nine months ended September 30, 2008, the pro forma impact would have been to increase the net loss and net loss per share by $4,955 and $-0-, respectively.

9

ITEM 2.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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.

We entered into a franchise agreement effective December 14, 2005 to operate an EVOS restaurant in Henderson, Nevada.  Shortly after signing the franchise agreement, we found a location for the restaurant, obtained approval of the site from EVOS USA, Inc., and entered into a lease in January 2006.  From January 2006 to September 2006, we sold 300,000 shares of common stock in a private placement, resulting in net proceeds of $544,878.  These proceeds, together with loans from related parties, were used to build out, open and operate the restaurant.  From February 2006 to October 2006, we redesigned the restaurant interior in cooperation with EVOS USA, Inc., obtained the necessary permits and licenses from government agencies and authorities, built out the improvements to the leasehold site, installed furniture and equipment, received training from EVOS USA, Inc., hired and trained restaurant staff, and launched a marketing and advertising campaign for the restaurant’s opening in October 2006.

In December 2006, we entered into an area representative agreement that gives us the exclusive right to develop EVOS restaurants in a 12-state territory.  To maintain our exclusivity in that territory, we are required to open a minimum number of restaurants within certain timeframes through 2016.  These restaurants may be opened by us or by franchise owners that we identify and solicit.  By December 1, 2008, we must have five restaurants opened and by May 31, 2009, we must have 12 additional restaurants opened.  EVOS USA, Inc. extended the original deadline of May 31, 2008 to December 1, 2008 upon payment of an extension fee of $140,000.  The December 1, 2008 deadline was further extended by EVOS USA, Inc. without any additional payment to March 1, 2009.

We estimate the cost of opening an EVOS restaurant to range from $380,500 to $534,750.  While we spent in excess of $534,750 to open our first restaurant, we believe that our estimate is reasonable because of amount of the unusual costs incurred in opening the first restaurant.  Specifically, we incurred costs for interior design changes that have since been adopted by EVOS USA, Inc. for all new restaurants.  These changes delayed the opening of the restaurant, thereby causing us to incur occupancy costs prior to opening.  If the cost of the interior design changes and occupancy costs are excluded from the amounts we expended, the cost to open the Henderson restaurant falls within the stated estimated range.  Given current economic conditions in our particular market, we will take appropriate action to maximize shareholder value.

From December 2006 to June 2007, we engaged in a second private placement of 389,450 shares of common stock, resulting in net proceeds of $1,552,127.  These proceeds were used to repay related party loans, pay some of the expenses of our initial public offering, and fund our efforts to solicit franchise owners for our territory.  A portion of these proceeds may also be used to open another restaurant.  During this period, we improved our operations at the Henderson restaurant and began to build the infrastructure necessary to support the operation of multiple restaurants.  We hired a director of operations and a director of training in March 2007.

In March 2008, we completed an initial public offering of 1,000,000 units, each unit consisting of one share of common stock, one Class A warrant and two Class B warrants, resulting in gross proceeds of $5,100,000 and net proceeds of $4,002,840.  The proceeds of the offering will be used to open six company-owned restaurants in the Las Vegas area in the next 12 to 18 months, as well as for marketing expenses, franchise development and working capital.

We propose to open one restaurant in Las Vegas, Nevada by the end of the current fiscal year.  EVOS USA, Inc. has approved the site for the restaurant and we expect to have final building and health inspections conducted before November 30, 2008.  Opening this restaurant will require approximately $500,000 for leasehold improvements, purchase of fixed assets, security deposits,

10

hiring restaurant personnel, training expenses, advertising and promotion, and other pre-opening expenses.  In addition, we will need to hire employees to staff the additional restaurant.  We will not need to hire any additional corporate-level employees.   

In addition to our store opening in Las Vegas, our franchisee in California opened its first store in November 2008.

Results of Operations

Three Months Ended September 30, 2008.  For the three months ended September 30, 2008, our restaurant generated $144,400 in sales, as compared to $242,631 for the three months ended September 30, 2007.  Management believes that the decline in sales revenues reflected the downturn in the local economy, as unemployment rates in the Las Vegas area increased from 5.1% in September 2007 to 7.4% in September 2008 (according to the Nevada Department of Employment, Training and Rehabilitation).

Our restaurant operating costs were $194,573, or 135% of net sales revenues, resulting in a restaurant operating loss of $50,173.  During the comparable quarter in 2007, restaurant operating costs were 105% of net revenues and we lost $11,518 on our restaurant operations.  Part of the increase in restaurant operating costs as a percentage of net sales revenues is due to the fact that some of the restaurant operating costs are fixed, such as salaries for our director of operations and our director of training, as well as occupancy costs.  These costs do not fluctuate with restaurant sales.  Restaurant operating costs for the 2008 period reflect the increased royalty rate of 4.5% that went into effect beginning April 2008.  After March 2009, we will pay royalties at the rate of 5.5%.  We paid a 5.5% royalty on gross revenues from the date the restaurant opened in October 2006 through March 30, 2007.  If we would have been required to pay the 5.5% royalty rate during the three months ended September 30, 2008, the pro forma impact would have been to increase the net loss and the net loss per share by $4,955 and $0, respectively.

We generated our first franchise royalties and fees in 2008, as a result of soliciting a franchisee for the new restaurant location within our 12-state territory.  The $4,999 recognized during the quarter represents 50% of the royalties paid to EVOS USA, Inc.

For the quarter ended September 30, 2008, general and administrative expense increased by $31,881 (70%) due to hiring an internal bookkeeper ($6,600), legal fees ($17,000), transfer agent fees ($3,200), officers and directors insurance ($3,500) and a general increase in the overall overhead of operating a public company.  The largest components of general and administrative expenses for the 2008 period were legal fees ($22,000), insurance costs ($13,000), and administrative salaries and payroll taxes ($6,639).

Officer compensation for the quarter ended September 30, 2008 decreased by $78,318 (53%), due primarily to the stock options granted to officers in the 2007 quarter.  No options were granted in 2008.

The increase in investor relations fees of $23,398 (100%) is due to a contract entered into in February 2008, which requires monthly fees of $7,500.

We incurred a $180,000 expense resulting from the acquisition of the U-Swirl Frozen Yogurt concept.  We issued 100,000 shares of our common stock to the owners of the concept.  The shares were valued at $180,000, based on the fair market value of the stock on the date of acquisition.  This entire amount was expensed as intellectual property acquired from related parties because the owners of the concept are grandchildren of our chief executive officer.

As a result of the above, our net loss for the three months ended September 30, 2008 was $394,808, as compared to a loss of $216,129 for the comparable 2007 quarter.

11

Nine  Months Ended September 30, 2008.  For the nine months ended September 30, 2008, our restaurant generated $495,493 in sales, as compared to $780,744 for the nine months ended September 30, 2007.  Management believes that the decline in sales revenues reflected the downturn in the local economy, as described above.

Our restaurant operating costs were $629,819, or 127% of net sales revenues, resulting in a restaurant operating loss of $134,326.  During the comparable period in 2007, restaurant operating costs were 99% of net revenues and we generated a small profit of $11,441 from restaurant operations.  Part of the increase in restaurant operating costs as a percentage of net sales revenues is due to the fact that some of the restaurant operating costs are fixed, such as salaries for our director of operations and our director of training, as well as occupancy costs.  These costs do not fluctuate with restaurant sales.

We generated our first franchise royalties and fees in 2008, as a result of soliciting a franchisee for the new restaurant location within our 12-state territory.  The $23,011 recognized during the nine-month period represents 50% of an initial franchise fee and royalties paid to EVOS USA, Inc.

For the nine months ended September 30, 2008, general and administrative expense increased by $83,167 (56%) due to hiring an internal bookkeeper ($20,000), auditing and review fees ($15,000), legal fees ($12,000), insurance premiums ($13,000), transfer agent fees ($8,900), business meals and entertainment ($6,200), and a general increase in the overall overhead of operating a public company.  The largest components of general and administrative expenses for the 2008 period were auditing and review fees ($40,400), legal fees ($42,000), insurance costs ($34,500), and administrative salaries and payroll taxes ($20,000).

Officer compensation for the nine months ended September 30, 2008 decreased by $126,056 (38%) and board fees decreased by $34,375 (100%), due primarily to the stock options granted to officers and directors in the 2007 quarter.  No options were granted in 2008.  While in 2008 we did not incur stock compensation expense of $226,972 for stock options granted to officers in 2007, salaries increased by $94,000 as we hired our director of operations in March 2007 and our chief financial officer in July 2007.

The increase in investor relations fees of $154,740 is due to a contract entered into in February 2008, which requires monthly fees of $7,500.  We also granted a warrant as part of the compensation for the investor relations firm that was valued at $101,342.

As described above, we incurred $180,000 of expense in connection with the U-Swirl Frozen Yogurt concept.

As a result of the above, our net loss for the nine months ended September 30, 2008 was $892,019, as compared to a loss of $564,725 for the comparable 2007 period.

Liquidity and Financial Condition

As of September 30, 2008. At September 30, 2008, we had working capital of $3,878,184 and cash of $982,431 and short-term investments of $3,000,000, as a result of completing our initial public offering in March 2008.  Working capital and cash at December 31, 2007 were $500,035 and $604,118, respectively.

During the nine months ended September 30, 2008, we used $3,379,980 for investing activities, of which $239,980 was used for the purchase of fixed assets, $140,000 was paid to EVOS USA, Inc. for the extension of our build-out deadline, and $3,000,000 was invested in 3-month treasury bills.  As we had a net loss of $892,019, operating activities used cash of $573,145.  The principal adjustments to reconcile the net loss to net cash used by operating activities was share-based compensation of $101,342 as a result of warrants issued to our investor relations firm, and $180,000 for the shares issued to acquire the U-Swirl Frozen Yogurt concept.

12

Summary of Significant Accounting Policies

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

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

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

Deposits.  Deposits consist primarily of the $128,025 security deposit, of which $64,012 was paid and $64,013 was unpaid as of December 31, 2007, in connection with our Henderson restaurant property lease and is carried at the lower of fair value or cost.

Franchise fees.  Franchise fees paid to EVOS USA, Inc. are stated at cost.  Amortization of the franchise fees is calculated based on the straight-line method over the ten-year useful life of the franchise agreement.  In accordance with SFAS 142, paragraph 11, the useful life of an intangible asset is determined by the period over which the asset is expected to contribute either directly or indirectly to our future cash flows.  Franchise renewal fees are also recorded at cost and amortized over the useful life of the renewal term.  Upon closing or disposal of a restaurant, the accounts will be relieved of cost and accumulated amortization and the related gain or loss will be reflected in income from continued operations.  As of September 30, 2008, franchise fees consisted of $14,059 net of $3,441 of accumulated amortization.

Prepaid franchise fees.  Prepaid franchise fees consist entirely of the advances and payments made to EVOS USA, Inc. in connection with our entering into the Area Representative Agreement in December 2006.  We have the right to develop and operate an additional 12 EVOS restaurants without paying additional franchise fees.  As we open new restaurants, a proportional amount of prepaid franchise fees will be capitalized to franchise fees and amortized over the useful life of the franchise agreement in accordance with SFAS 142, paragraph 11.

On February 29, 2008, we paid EVOS USA, Inc. $140,000 to extend our build-out requirements pursuant to the Area Representative Agreement from five restaurants due by May 31, 2008 to five restaurants due initially by December 1, 2008, but later extended to March 1, 2009 (without additional cost to us).  The effect of the cash paid for the extension is to increase the prepaid franchise fees for 12 restaurants from $6,458 per restaurant to $18,125 per restaurant.

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

Revenue earned as an area representative for EVOS USA, Inc. will be derived from restaurants in our 12-state territory and will include initial franchise fees, continuing service fees, and royalties.  Continuing service fees and royalties will be recognized in the period in which they are earned.  Franchise fee revenue is recognized and fully earned upon the completion of our commitment to train franchisees of each of the EVOS restaurants sold in our 12-state territory.  SFAS 45, paragraph 5(a)-(c), stipulates that

13

initial franchise fee revenue from a franchise sale should be recognized when the franchiser has substantially performed or satisfied all material services or conditions relating to the sale.  Substantial performance has occurred when the franchiser has: (a) no remaining obligations or intent to refund any cash received or to forgive any unpaid notes or receivables; (b) performed substantially all of the initial services required by the franchise agreement (such as providing assistance in site selection, obtaining facilities, advertising, training, preparing operating manuals, bookkeeping, or quality control); and (c) met all other material conditions or obligations.  We believe that completion of our training commitment satisfies the “substantial performance” definition outlined above.  We recognized $28,010 and $0 in franchise fee revenue during the nine months ended September 30, 2008 and 2007, respectively.

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4.  CONTROLS AND PROCEDURES

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

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

14

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The registrant’s registration statement on Form SB-2 (File No. 333-145360) was declared effective on March 18, 2008.  Paulson Investment Company, Inc. acted as the underwriter.  1,000,000 Units, each Unit consisting of one share of common stock, one redeemable Class A Warrant and two non-redeemable Class B Warrants, were offered for gross proceeds of $5,100,000.  The registrant registered a total of 1,150,000 Units, as well as 100,000 Units sold to the underwriter, and the securities underlying the exercise of all the Warrants.

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

Through September 30, 2008, approximately $374,000 of the net proceeds had been used as follows:  $240,000 for the buildout of the registrant’s new restaurant location (purchase and installation of machinery and equipment) and $134,000 towards the operating loss of the existing restaurant (working capital).  None of the proceeds were paid to officers, directors, affiliates or more than 10% shareholders.

For the three months ended September 30, 2008, the registrant issued 100,000 shares of common stock for the purchase of the U-Swirl Frozen Yogurt concept, in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933.  The purchaser of the shares, U-Swirl Yogurt, Inc., was deemed to be sophisticated with regard to an investment in the registrant’s shares.  No underwriters were used in connection with the transaction.  The shares were valued at $180,000.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5.          Other Information

None.

Item 6. Exhibits

Regulation S-K Number	Exhibit
3.1	Amended and Restated Articles of Incorporation (1)
3.2	Amended Bylaws (1)
4.1	Form of common stock certificate (2)

15

Regulation S-K Number Exhibit

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

_____________________

16

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

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

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

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

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

17

SIGNATURES

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

	HEALTHY FAST FOOD, INC.
November 14, 2008	By:	/s/ Brad Beckstead
		Brad Beckstead
		Chief Financial Officer

18