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

[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended August 31, 2015

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

For the quarterly period ended May 31, 2015

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-53130

U-SWIRL, INC.

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of

incorporation or organization)

43-2092180

(IRS Employer

Identification No.)

265 Turner Dr., Durango, CO 81303

(Address of principal executive offices) (Zip Code)

(702) 586-8700

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

On ~~June~~September 30, 2015, the registrant had outstanding 22,065,484 shares of its common stock, $.001 par value.

U-SWIRL, INC.

CONSOLIDATED BALANCE SHEETS

	May 31, 2015			February 28, 2015
	August 31, 2015			February 28, 2015
	(Unaudited)
Assets
Current Assets
Cash	$	3,~~158~~490,~~590~~296		$	2,348,121
Accounts receivable, less allowance for doubtful accounts of $65,860 and $59,860, respectively		262,354			267,140
Accounts receivable, less allowance for doubtful accounts of $86,860 and $59,860, respectively		213,200			267,140
Notes receivable, including current maturities		7677,~~056~~203			73,247
Inventory		9198,~~585~~954			97,669
Prepaid expenses		5056,~~358~~900			58,058
Total Current Assets		3,~~638~~936,~~943~~553			2,844,235
Leasehold Improvements, Property and Equipment, net		1,~~390~~290,~~410~~619			1,542,642
Other Assets
Notes receivable, less current portion		~~119~~100,~~795~~059			139,998
Deposits		6968,~~661~~496			75,798
Goodwill and other intangible assets, net		7,~~713~~653,~~766~~408			7,795,175
Other assets		~~185~~117,~~303~~491			264,295
Total Other Assets		87,~~088~~939,~~525~~454			8,275,266
Total Assets	$	13,~~117~~166,~~878~~626		$	12,662,143
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities	$	32,~~056~~870,~~625~~473		$	2,732,233
Accounts payable, related party		~~119~~80,~~568~~872			95,209
Current portion of long-term debt, related party		7,~~391~~060,~~526~~839			7,470,146
Total Current Liabilities		10,~~567~~012,~~719~~184			10,297,588
Deferred rent		5446,~~846~~777			63,224
Deferred revenue		~~627~~491,~~289~~234			805,860
Notes payable, related party		6357,~~492~~106			69,783
Total Liabilities		1110,~~313~~607,~~346~~301			11,236,455
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, 22,065,484 and 21,815,484 shares issued and outstanding, respectively		22,065			21,815
Common stock payable		608			608
Additional paid-in capital		11,211,058			11,111,808
Accumulated deficit		(98,~~429~~674,~~199~~406	)		(9,708,543	)
Total Stockholders’ Equity		12,~~804~~559,~~532~~325			1,425,688
Total Liabilities and Stockholders’ Equity	$	13,~~117~~166,~~878~~626		$	12,662,143

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

U-SWIRL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	~~For the three months ended~~	For the three months ended						For the six months ended
	May 31, 2015		May 31, 2014
		August 31, 2015			August 31, 2014			August 31, 2015			August 31, 2014
Revenues
Café sales, net of discounts	~~$1,030,957~~	$	$1,~~478~~097,~~188~~384		$	1,305,268		$	2,128,341		$	2,783,456
Franchise royalties and fees	~~1,077,418~~		1973,~~022,891~~735			1,186,655			2,051,153			2,209,546
Total revenues	~~2,108,375~~		2,~~501~~071,~~079~~119			2,491,923			4,179,494			4,993,002
Café Operating Costs
Food, beverage and packaging costs	~~306,108~~		~~478~~320,~~293~~389			482,019			626,497			960,312
Labor and related expenses	~~250,586~~		~~327~~258,~~924~~877			283,020			509,463			610,944
Occupancy and related expenses	~~191,442~~		~~221~~190,~~564~~985			184,306			382,427			405,870
Franchise development	~~207,877~~		~~116~~190,~~356~~777			107,165			398,654			223,521
Marketing and advertising	~~128,391~~		~~148~~123,~~730~~785			162,769			252,176			311,499
General and administrative	~~556,378~~		~~654~~365,~~352~~706			533,154			922,084			1,187,506
Depreciation and amortization	~~203,177~~		~~226~~198,~~100~~372			206,735			401,549			432,835
Asset acquisition expenses	-		124,551
Restructuring and asset acquisition expenses			-			503,526			-			628,077
Fair value adjustment	~~(85,612)~~		(~~176~~337,~~203)~~685	)		(64,588	)		(423,297	)		(240,791	)
Total costs and expenses	~~1,758,347~~		21,~~121~~311,~~667~~206			2,398,106			3,069,553			4,519,773
Income from Operations	~~350,028~~		~~379~~759,~~412~~913			93,817			1,109,941			473,229
Other income (expense)
Interest expense	~~(8,008)~~		(27,~~849)~~918	)		(9,686	)		(15,926	)		(12,535	)
Interest income	~~2,999~~		-2,798			2,547			5,797			2,547
Other expense, net	~~(5,009)~~		(25,~~849)~~120	)		(7,139	)		(10,129	)		(9,988	)
Income from continuing operations before income taxes	~~345,019~~		~~376~~754,~~563~~793			86,678			1,099,812			463,241
Provision for income taxes	~~65,675~~		-			-			65,675			-
Net income	~~$ 279,344~~	$	~~$ 376~~754,~~563~~793		$	86,678		$	1,034,137		$	463,241
Basic earnings per common share	~~$0.01~~	$	$0.0203		$	0.00		$	0.05		$	0.02
Diluted earnings per common share	~~$0.01~~	$	$0.0203		$	0.00		$	0.05		$	0.01
Weighted average common shares outstanding	~~22,665,873~~		2022,~~614~~673,~~668~~482			22,093,262			22,669,678			21,353,965
Dilutive effect of stock options and warrants	~~8,126~~		~~2,693,865~~-			1,453,078			4,063			2,073,472
Weighted average common shares outstanding, assuming dilution	~~22,673,999~~		2322,~~308~~673,~~533~~482			23,546,340			22,673,741			23,427,437

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

U-SWIRL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	For the three months ended
		For the six months ended
	May 31, 2015	May 31, 2014
		August 31, 2015			August 31, 2014
Cash flows from operating activities
Net income	~~$279,344~~	$~~376,563~~	1,034,137		$	463,241
Adjustments to reconcile net income to net cash used by operating activities
Depreciation and amortization	~~203,177~~	~~226,100~~	401,549			432,835
Fair value adjustment on notes payable, related party	~~(85,612)~~	~~(176,203)~~	(423,297	)		(240,791	)
Accrued interest on notes payable, related party	~~6,627~~	-	13,255			-
Stock-based compensation	~~99,500~~	~~82,449~~	99,500			152,518
Provision for loss on accounts receivable	6,000	-
Asset Impairment			-			243,000
Loss on asset disposals and the sale of property and equipment	64,521	-
Provision for loss on accounts receivable			27,000			58,000
Changes in operating assets and liabilities
Loss (gain) on asset disposals and the sale of property and equipment			60,889			(5,195	)
Accounts receivable, net	(1,214)	878,038
Deferred rent			(16,447	)		(43,063	)
Inventory	6,084	(40,965)
Deferred revenue			(314,626	)		(407,533	)
Prepaid expenses	7,700	(425)
Deferred Taxes			-			(81,708	)
Deposits	6,137	(7,753)
Changes in operating assets and liabilities
Accounts payable and accrued liabilities	324,392	910,826
Accounts receivable, net			26,940			1,030,285
Accounts payable, related party	24,359	(94,132)
Inventory			(1,285	)		(40,335	)
Deferred rent	(8,378)	(24,277)
Prepaid expenses			1,158			(47,138	)
Deferred revenue	(178,571)	(190,033)
Deposits			7,302			(8,530	)
Net cash provided by operating activities	754,066	1,940,188
Accounts payable and accrued liabilities			138,240			444,743
Cash flow from investing activities
Accounts payable, related party			(14,337	)		(63,768	)
Accounts receivable, related party	-	(1,639)
Other assets			140,782			138,676
Proceeds received on notes receivable	17,394	-
Net cash provided by operating activities			1,180,760			2,025,237
Other assets	69,338	69,338
Cash flow from investing activities
Purchases of goodwill and other intangible assets	(8,205)	-
Accounts receivable, related party			-			11,989
Purchases of property and equipment	(16,198)	(39,672)
Proceeds received on notes receivable			35,983			10,103
Net cash provided by investing activities	62,329	28,027
Additions to notes receivable			-			(295,401	)
Cash flows from financing activities
Purchases of goodwill and other intangible assets			(37,686	)		-
Proceeds from exercise of stock warrants	-	919,456
Proceeds from sales of assets			13,532			525,000
Payments on long term debt	(5,926)	(84,515)
Purchases of property and equipment			(38,472	)		(63,352	)
Net cash provided (used) by financing activities	(5,926)	834,941
Net cash provided (used) by investing activities			(26,643	)		188,339
Net change in cash	810,469	2,803,156
Cash flows from financing activities
Cash, beginning of period	2,348,121	701,748
Proceeds from exercise of stock warrants			-			892,895
Cash, end of period	$3,158,590	$3,504,904
Payments on long term debt			(11,942	)		(1,139,601	)
Supplemental disclosure of cash flow information
Net cash provided (used) by financing activities			(11,942	)		(246,706	)
Interest paid	1,381	1,725
Net change in cash			1,142,175			1,966,870
Income tax paid	4,780	-
Cash, beginning of period			2,348,121			701,748
Cash, end of period		$	3,490,296		$	2,668,618
Supplemental disclosure of cash flow information
Interest paid			2,672			3,366
Income tax paid			4,780			-
Sale of assets and inventory to buyers for notes receivable:
Long-lived assets			-			275,000
Inventory			-			5,433

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

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2015

1.	DESCRIPTION OF BUSINESS

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

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~~there ~~Company~~was ~~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”).

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”). Subsequent to the transaction date Yogli Mogli did not complete the anticipated funding of the gift card liability. As a result, the Company has not issued any of the Yogli Mogli shares. As described in Note 17 of our 10K filing for the year ended February 28, 2015, the Company does not anticipate that the shares will be issued. As of ~~May~~August 31, 2015 those shares had not been issued and the Company has recorded an assumed liability associated with the gift card liability.

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 of $146,257 based upon royalty income generated by Fuzzy Peach cafés over the ~~next~~subsequent twelve months~~, that could increase the purchase price by up to another $349,000~~. RMCF provided the funding for these acquisitions through a related party convertible note, which is secured by all of the Company’s assets. ~~As of May 31, 2015 we had recorded a liability of $146,257 in accounts payable and accrued liabilities associated with~~ (the ~~Fuzzy~~“Convertible ~~Peach~~Note”). ~~earn~~See ~~out~~Note ~~obligation~~9.

As of August 31, 2015 the Company had the following locations:

	Locations
Company-owned Cafés
CherryBerry		1
Yogli Mogli		1
U-Swirl		5
Aspen Leaf Yogurt		2
Franchised and licensed Cafés
Fuzzy Peach		17
Josie’s		5
CherryBerry		123
Yogli Mogli		22
U-Swirl		36
Aspen Leaf Yogurt		5
Yogurtini		23
Let’s Yo!		12
Total		252

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

AsFOR ofTHE ~~May~~THREE ~~31,~~AND ~~2015~~SIX ~~the~~MONTHS ~~Company~~ENDED ~~had~~AUGUST ~~the~~31, ~~following locations:~~2015

	Locations
Company-owned Cafés
CherryBerry		1
Yogli Mogli		1
U-Swirl		5
Aspen Leaf Yogurt		2
Franchised and licensed Cafés
Fuzzy Peach		20
Josie’s		7
CherryBerry		128
Yogli Mogli		22
U-Swirl		29
Aspen Leaf Yogurt		10
Yogurtini		23
Let’s Yo!		12
Total		260

2.	GOING CONCERN

2The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ~~SUMMARY~~As OFof ~~SIGNIFICANT~~August ~~ACCOUNTING~~31, ~~POLICIES~~2015, the Company had a working capital deficiency of $6,075,631, cash of $3,490,296, and related party convertible note of $7,035,857. The Company is in default on the related party convertible note, see Note 9 for discussion of the related party convertible note. The holder has the ability to call the full recourse convertible note and the Company does not have sufficient cash to satisfy the obligation. The default raises substantial doubt about the Company’s ability to continue as a going concern.

~~Basis~~In oforder ~~Presentation~~to -continue ~~The~~as ~~accompanying~~a ~~unaudited~~going ~~consolidated~~concern, ~~financial~~the ~~statements~~Company ~~have~~must ~~been~~reach ~~prepared~~a insatisfactory ~~accordance~~resolution with ~~accounting principles generally accepted in~~ the ~~United~~related ~~States~~party. ofThere ~~America~~are ~~("GAAP")~~no ~~for~~assurances ~~interim~~that ~~financial~~the ~~information~~Company ~~and~~will ~~instructions~~be tosuccessful ~~Form~~in ~~10-Q~~reaching ~~and~~a ~~Article~~satisfactory 10resolution ~~of Regulation S-X. Accordingly, they do not include all information~~ and ~~footnotes required by GAAP for complete financial statements. These financial statements reflect all adjustments (consisting only of normal recurring entries, except as noted) which,~~ in the ~~opinion~~event ~~of management, are necessary for fair presentation. Operating results for~~ the ~~three~~Company ~~months~~is ~~ended May 31~~unsuccessful, ~~2015,~~it ~~are~~would ~~not necessarily indicative of operating results that may~~ be ~~expected~~unlikely ~~during~~for ~~any~~the ~~other~~Company ~~interim~~to ~~period~~continue oras ~~the~~a ~~year~~going ~~ending February 29, 2016~~concern.

The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments that might arise from this uncertainty.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. These financial statements reflect all adjustments (consisting only of normal recurring entries, except as noted) which, in the opinion of management, are necessary for fair presentation. Operating results for the six months ended August 31, 2015, are not necessarily indicative of operating results that may be expected during any other interim period or the year ending February 29, 2016.

The consolidated balance sheet as of February 28, 2015, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

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

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:

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2015

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 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 ~~May~~August 31, 2015 and February 28, 2015 by level within the fair value hierarchy:

February 28, 2015	Level 1		Level 2		Level 3		Total

Liabilities

Convertible Note	$	-	$	-	$	6,903,400	$	6,903,400

May 31, 2015

Level 1

Level 2

Level 3

Total

August 31, 2015

Level 1

Level 2

Level 3

Total

Liabilities

Convertible Note

6,~~824~~493,~~414~~356

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 89 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 ~~May~~August 31, 2015		Fair Value at February 28, 2015		Valuation Techniques / Model	~~Unobservable Inputs~~	Unobservable Inputs
Bond component	$	6,~~305~~325,~~214~~139	$	6,241,896	Income approach using discounted cash flow model	~~Effective yield 12.75%~~	Effective yield 12.75-15%
Embedded conversion features	$	~~488~~131,~~884~~274	$	637,814	Income approach using flexible Monte Carlo simulation	~~Expected return of 0% Implied Equity Value ranging from 5% - 10%~~	Expected return of 0% Implied Equity Value ranging from 5% - 10%
Total	$	6,~~794~~456,~~098~~413	$	6,879,710

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

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2015

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, 2015	$	6,879,710
Purchases		-
Payments		-
Unrealized gain		(85423,~~612~~297	)
Subtotal		6,~~794~~456,~~098~~413
Undrawn commitment fees		3036,~~316~~943
Balance, May 31, 2015	$	6,824,414
Balance, August 31, 2015	$	6,493,356

New Accounting Pronouncements - In ~~May~~September ~~2014~~2015, ~~FASB~~the ~~issued~~Financial ~~ASU~~Accounting ~~No.~~Standards ~~2014-09,~~Board ~~“Revenue~~("FASB") ~~from~~issued ~~Contracts~~Accounting ~~with~~Standards ~~Customers,”~~Update ~~which supersedes the revenue recognition requirements in “Revenue Recognition~~ (~~Topic 605~~“ASU”) 2015-16,” ~~and~~which requires ~~entities to recognize revenue in a way~~ that ~~depicts~~an ~~the~~acquirer ~~transfer~~recognize ofadjustments ~~promised goods or services~~ to ~~customers~~provisional inamounts anthat ~~amount~~are ~~that~~identified ~~reflects~~during the ~~consideration~~measurement toperiod ~~which~~in the ~~entity~~reporting ~~expects~~period ~~to be entitled to~~ in ~~exchange~~which ~~for~~the ~~those~~adjustment ~~goods~~amounts orare ~~services~~determined. ~~ASU~~The ~~2014-09~~standard iswill be effective for ~~fiscal~~us ~~years,~~in ~~and~~the ~~interim~~first ~~periods~~quarter ~~within~~of ~~those~~our ~~years,~~fiscal ~~beginning~~year ~~after December 15,~~ 2017, ~~and~~although isearly toadoption beis ~~applied retrospectively~~permitted. ~~Early~~We ~~adoption~~do isnot ~~permitted~~expect ~~for~~that ~~years~~the ~~beginning~~adoption ~~after~~of ~~December~~this ~~15,~~ASU ~~2016.~~will ~~The~~have ~~Company~~a issignificant ~~currently~~impact ~~evaluating~~on ~~the~~our ~~new~~consolidated ~~standard~~financial statements.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption, but would not allow adoption any earlier than the original effective date of the standard. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09, including possible transition alternatives, will have on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern.” This guidance requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand the nature of the conditions or events, management's evaluation of the circumstances and management's plans to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. We will be required to perform an annual assessment of our ability to continue as a going concern when this standard becomes effective for us in the first quarter of our fiscal year ended February 28, 2017. The adoption of this guidance is not expected to impact our financial position, results of operations or cash flows.

3In July 2015, FASB issued ASU 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ~~ACCOUNTS~~ASU ~~RECEIVABLE~~2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2015, and interim periods within those years, with early adoption permitted. The Company does not believe the implementation of this standard will have a material impact on our consolidated financial statements.

~~Accounts~~In ~~receivable~~April ~~consisted~~2015, FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs be presented in the ~~following~~balance atsheet ~~May~~as 31a direct deduction from the carrying amount of debt liability, ~~2015~~consistent with debt discounts or premiums. The recognition and ~~February~~measurement 28guidance for debt issuance costs would not be affected by the amendments in ASU 2015-03. ASU 2015-03 will be effective for fiscal years beginning after December 15, 2015:. When adopted, ASU 2015-03 is not expected to have a material impact on our consolidated financial statements.

	May 31, 2015			February 28, 2015
Accounts receivable, trade	$	299,574		$	249,652
Allowance for doubtful accounts		(65,860	)		(59,860	)
Accounts receivable, other		28,640			77,348
Accounts receivable, net	$	262,354		$	267,140

4.	ACCOUNTS RECEIVABLE

AtAccounts ~~February 28, 2015, accounts~~ receivable, ~~other consists primarily of a receivable owed to us by Moxie as a result of our change in management. The receivable~~ consisted of ~~specific customer accounts receivable collected after~~ the ~~change~~following inat ~~management~~August ~~and due to the Company as a part of the release of interest in Moxie assets. At May~~ 31, 2015, ~~accounts~~and ~~receivable~~February 28, ~~other consists primarily of gift cards receivable.~~2015:

	August 31, 2015			February 28, 2015
Accounts receivable, trade	$	297,055		$	249,652
Allowance for doubtful accounts		(86,860	)		(59,860	)
Accounts receivable, other		3,005			77,348

Accounts receivable, net	$	213,200		$	267,140

At February 28, 2015, accounts receivable, other consists primarily of a receivable owed to us by Moxie as a result of our change in management. The receivable consisted of specific customer accounts receivable collected after the change in management and due to the Company as a part of the release of interest in Moxie assets. At August 31, 2015, accounts receivable, other consists primarily of a rebate receivable.

INVENTORY

As of August 31, 2015 and February 28, 2015, inventory consisted of the following:

	August 31, 2015		February 28, 2015
Food and beverages	$	60,645	$	62,462
Paper products/Supplies		38,309		35,207
Total Inventory	$	98,954	$	97,669

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

4.FOR ~~INVENTORY~~THE THREE AND SIX MONTHS ENDED AUGUST 31, 2015

As6. ofLEASEHOLD ~~May 31~~IMPROVEMENTS, ~~2015~~PROPERTY ~~and~~AND ~~February 28, 2015, inventory consisted of the following:~~EQUIPMENT

	May 31, 2015		February 28, 2015
Food and beverages	$	62,309	$	62,462
Paper products/Supplies		29,276		35,207
Total Inventory	$	91,585	$	97,669

Leasehold improvements, property and equipment consisted of the following as of August 31, 2015 and February 28, 2015:

5. LEASEHOLD IMPROVEMENTS, PROPERTY AND EQUIPMENT

	August 31, 2015			February 28, 2015
Café equipment	$	1,213,888		$	1,300,449
Furniture and fixtures		537,765			524,167
Computer equipment		169,397			166,747
Leasehold improvements		1,640,858			1,724,951
Asset impairment		(290,640	)		(290,640	)
		3,271,268			3,425,674
Less: accumulated depreciation		(1,980,649	)		(1,883,032	)
Leasehold improvements, property and equipment, net	$	1,290,619		$	1,542,642

~~Leasehold~~Depreciation ~~improvements,~~expense ~~property~~for ~~and equipment consisted of~~ the ~~following~~six asmonths ofended ~~May~~August 31, 2015 and ~~February~~2014 28was $222,096 ~~2015:~~and $250,058, respectively.

	May 31, 2015			February 28, 2015
Café equipment	$	1,220,380		$	1,300,449
Furniture and fixtures		530,754			524,167
Computer equipment		162,284			166,747
Leasehold improvements		1,639,748			1,724,951
Asset impairment		(290,640	)		(290,640	)
		3,262,526			3,425,674
Less: accumulated depreciation		(1,872,116	)		(1,883,032	)
Leasehold improvements, property and equipment, net	$	1,390,410		$	1,542,642

7.	GOODWILL AND INTANGIBLE ASSETS

~~Depreciation~~Intangible ~~expense~~assets ~~for~~at ~~the~~August ~~three months ended May~~ 31, 2015 and ~~2014~~February ~~was $113~~28,~~563~~ ~~and~~2015 ~~$134,712,~~consisted ~~respectively.~~of the following:

6. GOODWILL AND INTANGIBLE ASSETS

				August 31, 2015				February 28, 2015

	Amortization Period (in years)			Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Intangible assets subject to amortization
Trademark/Non-competition agreements	5	-	20		456,000		40,282		456,000		30,814
Franchise Rights		20			5,887,977		580,816		5,850,290		410,830
Total					6,343,977		621,098		6,306,290		441,644
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill					23,000		-		23,000		-
Franchising goodwill					1,907,529		-		1,907,529		-
Total Goodwill					1,930,529		-		1,930,529		-

Total intangible assets				$	8,274,506	$	621,098	$	8,236,819	$	441,644

~~Intangible~~Amortization expense related to intangible assets attotaled ~~May~~$179,453 31and $182,777 ~~2015~~during ~~and~~the ~~February~~six 28months ended August 31, 2015 ~~consist~~and of2014, ~~the~~respectively. ~~following:~~

				May 31, 2015				February 28, 2015
	Amortization Period (Years)			Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Intangible assets subject to amortization
Trademark/Non-competition agreements	5	-	20		456,000		35,548		456,000		30,814
Franchise Rights		20			5,858,496		495,711		5,850,290		410,830
Total					6,314,496		531,259		6,306,290		441,644
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill					23,000		-		23,000		-
Franchising goodwill					1,907,529		-		1,907,529		-
Total Goodwill					1,930,529		-		1,930,529		-
Total intangible assets				$	8,245,025	$	531,259	$	8,236,819	$	441,644

Amortization expense related to intangible assets totaled $89,614 and $91,388 during the three months ended May 31, 2015 and 2014, respectively.

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

AtFOR ~~May~~THE ~~31,~~THREE ~~2015,~~AND ~~annual~~SIX ~~amortization~~MONTHS ofENDED ~~intangible~~AUGUST ~~assets~~31, ~~based upon our existing intangible assets and current useful lives, is estimated to be the following:~~2015

2016		278,389
2017		400,114
2018		416,214
2019		422,700
2020		410,155
Thereafter		3,855,665
Total	$	5,783,237

At August 31, 2015, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is estimated to be the following:

7. DEFERRED REVENUE

2016		189,410
2017		401,588
2018		417,688
2019		424,174
2020		411,629
Thereafter		3,878,390
Total	$	5,722,879

~~The Company deferred franchisee fees, area development agreement fees and rebate income of $627,289 and $805,860 as of May 31, 2015 and February 28, 2015, respectively~~8. DEFERRED REVENUE

8.The ~~NOTES~~Company ~~PAYABLE~~deferred franchisee fees, ~~RELATED~~area ~~PARTY~~development agreement fees and rebate income of $491,234 and $805,860 as of August 31, 2015 and February 28, 2015, respectively.

9.	NOTES PAYABLE, RELATED PARTY

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

On January 16, 2014, the Company entered into a loan and security agreement (the “Loan Agreement”) with RMCF pursuant to which RMCF agreed to loan the Company up to $7,750,000. As of ~~May~~August 31, 2015, the Company had borrowed $8,038,616 under this Loan Agreement and repaid $2,497,529, for a net principal balance of $5,541,087. Interest accrues on the unpaid principal balance of the loan at the rate of 9% per annum, and is included in the principal balance. Principal and interest are due January 16, 2016. The outstanding principal and interest is convertible at prices of $0.90 and $0.45 per share of preferred stock, respectively, subject to adjustments upon the occurrence of certain events. Payment of the loan is secured by a security interest in all of the Company’s assets.

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

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

Mandatory prepayment of the loan 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.

InAs ~~the~~discussed ~~event~~in ofNote ~~default~~2, ~~RMCF~~the ~~may~~Company ~~charge~~is ~~interest~~in ondefault ~~all~~under ~~amounts~~the ~~due~~terms ~~under~~of the Loan Agreement. atThe ~~the~~Company ~~default~~does ~~rate~~not ofhave ~~15%~~sufficient ~~per~~working ~~annum,~~capital ~~accelerate~~to ~~payment~~satisfy ofthe ~~all~~obligation ~~amounts~~if ~~due under~~ the ~~Loan~~lender ~~Agreement,~~requires ~~and~~payment ~~foreclose~~in ~~on its security interest~~cash.

The loan covenants required the Company to maintain consolidated adjusted EBITDA of $1,804,000 for the twelve months ended August 31, 2015. At August 31, 2015 the Company had reported $1,423,000 of adjusted EBITDA. As a result of this default, RMCF may charge interest on all amounts due under the loan agreement with the Company at the default rate of 15% per annum, accelerate payment of all amounts due under the Loan Agreement, and foreclose on its security interest. At August 31, 2015 the conversion of the loan into preferred stock as settlement of the obligation would result in approximately 66% more preferred shares issued when compared to the amount issuable if the Company was compliant with the loan covenants.

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

~~The~~FOR ~~loan~~THE ~~covenants~~THREE ~~required~~AND ~~the~~SIX ~~Company~~MONTHS toENDED ~~maintain~~AUGUST ~~consolidated adjusted EBITDA of $1,804,000 for the twelve months ended May~~ 31, 2015. At May 31, 2015 the Company had reported $1,532,000 of adjusted EBITDA. In the event of default, RMCF may charge interest on all amounts due under the loan agreement with the Company at the default rate of 15% per annum, accelerate payment of all amounts due under the Loan Agreement, and foreclose on its security interest. At May 31, 2015 the conversion of the loan into preferred stock as settlement of the obligation would result in approximately 68% more preferred shares issued when compared to the amount issuable if the Company was compliant with the loan covenants.

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.

The unrealized gain of $85423,~~612~~297 during the ~~three~~six months ended ~~May~~August 31, 2015 represents the change in the fair value adjustment of the convertible note’s derivative feature 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 principal, or any portion thereof, into shares of preferred stock by dividing the principal to be converted by $0.90 per share. The conversion price is subject to adjustment for traditional recapitalizations. InAs ~~the~~a ~~event~~result of the default, RMCF has the right to convert the Convertible Note into shares of preferred stock at the lessor of $0.45 or the implied equity value, as defined in the loan agreement, multiplied by 3.

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

As of ~~May~~August 31, 2015 and February 28, 2015, the convertible note due to RMCF consisted of the following:

	May 31, 2015			February 28, 2015
	August 31, 2015			February 28, 2015
Principal	$	5,541,087		$	5,541,087
Undrawn commitment fees		3036,~~316~~943			23,690
Fair value adjustment		1915,~~253,011~~326			1,338,623
Balance	$	6,~~824~~493,~~414~~356		$	6,903,400
Less: current maturities		(6,~~824~~493,~~414~~356	)		(6,903,400	)
Long-term obligations	$	-		$	-

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

AsFOR ofTHE ~~May~~THREE ~~31,~~AND ~~2015~~SIX ~~and~~MONTHS ~~February~~ENDED ~~28,~~AUGUST ~~2015~~31, ~~notes payable due to RMCF consisted of the following:~~2015

	May 31, 2015			February 28, 2015
Convertible note, secured, due 1/16/16 - principal	$	5,571,403		$	5,564,776
Construction Loans, secured, due 9/15/18 - principal		88,104			94,030
Management services payable		542,500			542,500
Fair Value Adjustment		1,253,011			1,338,623
Balance	$	7,455,018		$	7,539,929
Less: current maturities		(7,391,526	)		(7,470,146	)
Long-term obligations	$	63,492		$	69,783

As of August 31, 2015 and February 28, 2015, notes payable due to RMCF consisted of the following:

The following table summarizes annual maturities of our notes payable as of May 31, 2015:

	August 31, 2015			February 28, 2015

Convertible note, secured, due 1/16/16 - principal	$	5,578,031		$	5,564,776
Construction Loans, secured, due 9/15/18 - principal		82,088			94,030
Management services payable		542,500			542,500
Fair Value Adjustment		915,326			1,338,623
Balance	$	7,117,945		$	7,539,929
Less: current maturities		(7,060,839	)		(7,470,146	)
Long-term obligations	$	57,106		$	69,783

	Amount
2016	$	7,385,234
2017		25,741
2018		27,329
2019		16,714
Total minimum payments		7,455,018
Less: current maturities		(7,391,526	)
Long-term obligations	$	63,492

The following table summarizes annual maturities of our notes payable as of August 31, 2015:

9. FRANCHISE ROYALTIES AND FEES

	Amount

2016	$	7,048,161
2017		25,741
2018		27,329
2019		16,714
Total minimum payments		7,117,945
Less: current maturities		(7,060,839	)

Long-term obligations	$	57,106

~~During~~10. ~~the~~FRANCHISE ~~three~~ROYALTIES ~~months~~AND ~~ended May 31, 2015 and 2014, the Company recognized the following franchise royalties and fees:~~FEES

	May 31, 2015		May 31, 2014
Royalty income	$	593,851	$	706,550
Franchise fee income		177,500		12,000
Rebate income from purveyors that supply products to franchisees		184,989		170,708
Marketing fees		121,078		133,633
Franchise royalties and fees	$	1,077,418	$	1,022,891

During the six months ended August 31, 2015 and 2014, the Company recognized the following franchise royalties and fees:

	August 31, 2015		August 31, 2014
Royalty income	$	1,284,213	$	1,486,794
Franchise fee income		228,500		104,250
Rebate income from purveyors that supply products to franchisees		299,840		337,083
Marketing fees		238,600		281,419
Franchise royalties and fees	$	2,051,153	$	2,209,546

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

~~10.~~FOR ~~OCCUPANCY~~THE THREE AND ~~RELATED~~SIX ~~EXPENSES~~MONTHS ENDED AUGUST 31, 2015

~~Occupancy~~11. ~~and~~OCCUPANCY ~~related~~AND ~~expenses~~RELATED ~~consist of the following for the three months ended May 31, 2015 and 2014:~~EXPENSES

	May 31, 2015		May 31, 2014
Rent	$	124,048	$	125,299
Real estate taxes, insurance and CAM fees		36,719		48,027
Utilities		30,675		48,238
Occupancy and related expenses	$	191,442	$	221,564

Occupancy and related expenses consisted of the following for the six months ended August 31, 2015 and 2014:

11. STOCKHOLDERS’ EQUITY

	August 31, 2015		August 31, 2014
Rent	$	297,584	$	244,764
Real estate taxes, insurance and CAM fees		18,675		73,159
Utilities		66,168		87,947
Occupancy and related expenses	$	382,427	$	405,870

During the three months ended May 31, 2015 and 2014 the Company issued 200,000 and 250,000 shares, respectively, of restricted common stock to its non-employee directors for services pursuant to its Non-Employee Director Compensation Program (the “Program”)12. ~~Stock~~STOCKHOLDERS’ granted pursuant to the Program is immediately vested on the grant date. During the three months ended May 31, 2015 the Company issued 50,000 shares of restricted common stock to its CEO for director related services. These shares were issued at the same terms as the award for non-employee directors. Associated with these awards the Company has recorded stock-based compensation expense during the three months ended May 31, 2015 and 2014 of $99,500 and $77,500, respectively, representing the estimated fair value on the date of grant. EQUITY

~~The~~During ~~fair~~the ~~value~~six ofmonths ~~each~~ended ~~stock~~August ~~option~~31, ~~grant~~2015 isand ~~estimated~~2014 on the ~~date~~Company issued 200,000 and 250,000 shares, respectively, of ~~grant~~restricted ~~using~~common astock ~~Black~~to its non-~~Scholes~~employee ~~option~~directors ~~pricing~~for ~~model~~services pursuant to its Non-Employee Director Compensation Program (the “Program”). ~~Options~~Stock ~~awarded~~granted inpursuant ~~November~~to ~~2011~~the ~~and~~Program ~~expensed~~is ~~until~~immediately vested, inon ~~November~~the ~~2013,~~grant ~~were~~date. ~~valued~~During ~~using~~the six months ended August 31, 2015 the ~~following~~Company ~~assumptions:~~issued ~~volatility~~50,000 ~~rate~~shares of ~~123.53%~~restricted -common ~~125.65%;~~stock ~~risk-free~~to ~~interest~~its ~~rate~~CEO offor ~~0.40%~~director -related 1services.~~09%~~ ~~based~~These onshares awere ~~U.S.~~issued ~~Treasury~~at ~~rate~~the ofsame 3terms ~~years;~~as ~~and~~the aaward 3for non-~~year~~employee ~~expected~~directors. ~~option~~Associated ~~life~~with ~~(simplified~~these ~~method).~~awards ~~The~~the Company ~~did~~has ~~not~~recorded ~~recognize~~stock-based ~~any~~compensation expense during the ~~three~~six months ended ~~May~~August 31, 2015 ~~associated~~and ~~with~~2014 ~~previously~~of ~~awarded restricted stock~~$99,500 ~~compared~~and to $477,~~845~~500, ofrespectively, ~~expense~~representing ~~recognized~~the inestimated ~~the~~fair ~~three~~value ~~months~~on ~~ended~~the ~~May~~date ~~31,~~of ~~2014~~grant.

12The fair value of each stock option grant is estimated on the date of grant using a Black-Scholes option pricing model. ~~STOCK~~Options ~~OPTIONS~~awarded in November 2011 and expensed until vested, in November 2013, were valued using the following assumptions: volatility rate of 123.53% - 125.65%; risk-free interest rate of 0.40% - 1.09% based on a U.S. Treasury rate of 3 years; and a 3-year expected option life (simplified method). The Company did not recognize any expense during the six months ended August 31, 2015 associated with previously awarded restricted stock, compared to $75,019 of expense recognized in the six months ended August 31, 2014.

~~On June 27, 2007, the stockholders of our Company adopted the 2007 Stock Option Plan which currently permits the granting of options to purchase up to 1,544,002 shares~~13. ~~The~~STOCK 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. OPTIONS

~~There~~On ~~was~~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 2,206,548 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 ~~activity~~will ~~during~~be ~~the~~granted ~~three~~after ~~months~~June ~~ended~~26, ~~May~~2017. 31On April 20, ~~2015~~2011, orthe ~~2014~~stockholders of our Company adopted the 2011 Stock Option Plan which permits the granting of options to purchase up to 750,000 shares.

~~13.~~There ~~WARRANTS~~was no stock option activity during the six months ended August 31, 2015 or 2014.

14.

WARRANTS

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

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

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL ~~STATEMENTSFOR THE THREE MONTHS ENDED MAY 31, 2015~~ STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2015

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

	Warrants		Weighted Average Exercise Price		~~Weighted Average Remaining Contractual Life~~	Weighted Average Remaining Contractual Life (in years)	~~Average Intrinsic Value~~		Average Intrinsic Value
Outstanding - February 28, 2015		550,000	$	1.24	~~.86 years~~		$.86	~~5,625~~	$	5,625
Granted		-		-
Exercised		-		-
Forfeited/Cancelled		-		-
Outstanding - May 31, 2015		550,000	$	1.24	0.62 years		$	4,125
Outstanding - August 31, 2015		550,000	$	1.24			0.37		$	-
Exercisable - May 31, 2015		400,000	$	0.88	0.61 years		$	4,125
Exercisable - August 31, 2015		400,000	$	0.88			0.35		$	-

During the ~~three~~six months ended ~~May~~August 31, 2015 and 2014, the Company expensed $0 and $0 related to stock warrants issued, respectively.

1415. RELATED PARTY TRANSACTIONS

As of ~~May~~August 31, 2015 and February 28, 2015, the Company owed $~~119~~80,~~568~~872 and $95,209, respectively, to RMCF for inventories and various operating expenses. See also Note 89, Notes Payable, Related Party.

1516. SUBSEQUENT EVENTS

~~Management~~Subsequent ~~evaluated~~to ~~all~~the ~~activity~~end of the ~~Company~~quarter ~~through~~ the ~~issue~~company ~~date~~was notified of the ~~financial~~intended ~~statements~~closure ~~and~~of ~~concluded~~a franchisee that noholds ~~subsequent~~a ~~events~~note ~~have~~payable ~~occurred~~to ~~that~~the ~~would~~Company ~~require~~in ~~recognition~~the oramount ~~disclosure~~of $50,742. The note is secured by all of the assets at the store location and the Company intends to repossess the assets in satisfaction of the ~~financial~~note. ~~statements~~The company does not believe that this will have a material impact on operations.

1617. ASSET ACQUISITION EXPENSES

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

~~Restructuring~~On September 4, 2014 U-Swirl announced an operational restructuring that is designed to enhance U-Swirl’s operating efficiencies, improve its franchise support capabilities, and ~~acquisition~~rationalize ~~charges~~its ~~incurred~~cost ~~were~~structure. ~~comprised~~This restructuring resulted in expense associated with termination of the ~~following~~employment agreements with the named officers, severance payments for other employees and expense associated with the ~~three~~impairment of certain leasehold improvements, property and equipment. The Company recorded restructuring charges of $503,526 during the six months ended ~~May~~August 31:, 2014 associated with these transactions.

	2014
Professional fees	$	104,876
Severance/transitional compensation		16,550
Other		3,125
Total	$	124,551

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

No restructuring and asset acquisition charges were incurred during the three months ended May 31, 2015.

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

Total	$	628,077

17. CONTINGENCIES

The CherryBerry selling parties 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 gave the selling parties voting rights and rights to dividends as of the acquisition date and were therefore included in the calculation of net loss per common share. The CB Shares were issued to the selling parties in February 2015. 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 and the CherryBerry selling parties comply with other terms of the agreement, the Company has agreed to pay a shortfall payment. If the Company was required to pay the shortfall payment at May 31, 2015, the shortfall payment would approximate $480,000. The Company determined the likelihood of incurring the liability to be less than probable and has not recorded a contingent liability at May 31, 2015.

U-SWIRL, INC.

NOTES TO THE INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2015

No restructuring and asset acquisition charges were incurred during the six months ended August 31, 2015.

18.	CONTINGENCIES

In January 2014, we entered into an Asset Purchase Agreement (the “CherryBerry Purchase Agreement”) with CherryBerry Enterprises LLC, CherryBerry Corporate LLC, CherryBerry LLC, and their respective owners (collectively, the "CherryBerry Selling Parties”), pursuant to which we acquired the franchise rights of frozen yogurt stores branded as “CherryBerry” (the “CherryBerry Acquisition”). As a part of the consideration for the CherryBerry Acquisition, we agreed to issue an aggregate of 4,000,000 shares of our common stock (the “CB Shares”) to the CherryBerry Selling Parties, which were subject to a one-year lock-up agreement. The CB Shares were issued to the CherryBerry Selling Parties in February 2015. Pursuant to the terms of the CherryBerry Purchase Agreement, following expiration of the lock-up period, if any of the CherryBerry Selling Parties desired to sell their CB Shares, they must first offer such shares to us and RMCF prior to any sale of the CB Shares on the open market. If the proceeds from the sale of any of the CB Shares is less than $0.50 per share and the CherryBerry Selling Parties comply with other terms of the CherryBerry Purchase Agreement, we agreed to pay a shortfall payment equal to the difference of the sale price of the CB Shares and $0.50 per share, multiplied by the number of shares sold by the CherryBerry Selling Parties. If we were required to pay the shortfall payment at August 31, 2015, the shortfall payment would approximate $1,640,000. We determined the likelihood of incurring the liability to be less than probable and have not recorded a contingent liability at August 31, 2015. In July and August 2015, the CherryBerry Selling Parties submitted to us several requests for payment of approximately $205,000 of shortfall payments based on the sale of a portion of the CB Shares.

On August 25, 2015, we filed a lawsuit against the CherryBerry Selling Parties, a former officer and director of U-Swirl and unknown other parties, in the District Court for La Plata County, Colorado, alleging wrongful actions on their part to cause the price of our common stock to decline and thereafter making an improper demand for the shortfall payment described above, and certain other actions in violation of various provisions of the CherryBerry Purchase Agreement. We seek unspecified damages, attorneys’ fees, other costs, and a determination that the shortfall payment arrangement is void. On September 30, 2015, the CherryBerry Selling Parties filed an answer and counterclaim to the lawsuit in the U.S. District Court for the District of Colorado, and moved the lawsuit to federal court in the U.S. District Court for the District of Colorado. The counterclaim added RMCF to the lawsuit, and alleges that we materially breached the CherryBerry Purchase Agreement by not paying the shortfall payment, that U-Swirl is the alter ego of RMCF and RMCF is liable for any obligations of ours, and that the RMCF Loan Agreement should be recharacterized as equity. The CherryBerry Selling Parties seek payment in full of the shortfall payment under the CherryBerry Purchase Agreement, declaratory judgements that U-Swirl is the alter ego of RMCF and the Loan Agreement should be recharacterized as equity, and interest, attorneys’ fees, costs and other equitable relief. The lawsuit is currently in the early stages of litigation. We intend to pursue our claims in the lawsuit, and U-Swirl and RMCF intend to defend the counterclaim vigorously. It is not possible at this time to predict the outcome of this matter or reasonably estimate any potential loss.

19.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following as of August 31, 2015 and February 28, 2015:

	August 31, 2015		February 28, 2015
Gift card liabilities	$	2,217,136	$	2,078,525
Accounts payable, trade		462,766		552,112
Other accrued expenses		190,571		101,596
Total accounts payable and accrued liabilities	$	2,870,473	$	2,732,233

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements.” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. These forward-looking statements involve various risks and uncertainties. The nature of our operations and the environment in which we operate subject us to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. The statements, other than statements of historical fact, included in this Quarterly Report are forward-looking statements. Many of the forward-looking statements contained in this document may be identified by the use of forward-looking words such as "will," "intend," "believe," "expect," "anticipate," "should," "plan," "estimate," "potential," or similar expressions. Factors which could cause results to differ include, but are not limited to: seasonality, consumer interest in our products, general economic conditions, receptiveness of our products internationally, consumer and retail trends, costs and availability of raw materials, competition, the success of our co-branding strategy, the success of international expansion efforts and the effect of government regulations. Government regulations which we and our franchisees either are or may be subject to and which could cause results to differ from forward-looking statements include, but are not limited to: local, state and federal laws regarding health, sanitation, safety, building and fire codes, franchising, and employment. For a detailed discussion of the risks and uncertainties that may cause our actual results to differ from the forward-looking statements contained herein, please see the “Risk Factors” contained in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015. These forward-looking statements apply only as of the date of this Quarterly Report. As such they should not be unduly relied upon for more current circumstances. Except as required by law, we undertake no obligation to release publicly any revisions to these forward-looking statements that might reflect events or circumstances occurring after the date of this Quarterly Report or those that might reflect the occurrence of unanticipated events.

History and Overview

We were incorporated under the laws of the state of Nevada on November 14, 2005 to own and operate EVOS fast food franchises as “Healthy Fast Food.” We opened two EVOS locations, using the proceeds from private placements and from our initial public offering that was completed in March 2008.

After experiencing continued operating losses with our EVOS restaurants, we decided to diversify into another healthy fast food concept and acquired the worldwide rights to U-Swirl Frozen Yogurt (“U-Swirl”) on September 30, 2008. We opened our first company-owned U-Swirl café in the Las Vegas Metropolitan Statistical Area (“Las Vegas MSA”) in March 2009, and we have since developed four more company-owned cafés in the Las Vegas MSA. In addition, the original U-Swirl café in Henderson, Nevada, continues to operate as a franchisee.

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

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 the Fuzzy Peach frozen yogurt system in February 2014.

AsIn ofApril ~~May 31,~~ 2015, we ~~had~~acquired 9the ~~company-owned~~business ~~cafés~~assets ~~and~~of ~~251~~the ~~franchised~~Let’s ~~cafés.~~Yo! ~~Management~~frozen isyogurt ~~focusing~~system. ~~its~~As ~~efforts~~part onof ~~nurturing~~this ~~its~~transaction ~~relationship~~we ~~with~~acquired ~~new~~the ~~franchisees, studying each~~ franchise ~~system~~rights ~~in order~~ to ~~identify~~12 ~~the~~self-serve ~~best~~frozen ~~practices~~yogurt ~~from each, and integrating these best practices into a single system which will be implemented in the future~~cafés.

As of August 31, 2015, we had 9 company-owned cafés and 243 franchised cafés. Management is focusing its efforts on nurturing its relationship with new franchisees, studying each franchise system in order to identify the best practices from each, and integrating these best practices into a single system to 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. The first U-Swirl-n-Go was opened in December 2014.

Results of Operations

~~For~~Three ~~the~~Months ~~three~~Ended ~~months~~August ~~ended May~~ 31, 2015, ~~company-owned~~Compared ~~U-Swirl cafés generated $1,030,957 in sales, net of discounts, as compared~~ to ~~sales of $1,478,188 for~~ the ~~comparable~~Three ~~period~~Months inEnded ~~2014,~~August ~~a decrease of 30%. The decrease is due primarily to the closure or sale of certain locations in the prior fiscal year. There were 9 company-owned cafés for the three months ended May~~ 31, ~~2015, as compared to 13 for the three months ended May 31,~~ 2014.

15For the three months ended August 31, 2015, company-owned U-Swirl cafés generated $1,097,384 in sales, net of discounts, as compared to sales of $1,305,268 for the comparable period in 2014, a decrease of 16%. The decrease is due primarily to the sale of certain locations in the prior fiscal year. There were 9 company-owned cafés for the three months ended August 31, 2015, as compared to 9 for the three months ended August 31, 2014. During the three months ended August 31, 2014, 4 company-owned stores were sold to franchisees and their revenues were realized for a portion of the three-month period.

Our café operating costs in the three months ended ~~May~~August 31, 2015 were $~~748~~770,~~136~~251 or 7370% of net sales revenues, resulting in café operating margin of $~~282~~327,~~821~~133. For the three months ended ~~May~~August 31, 2014, our café operating costs were $1949,~~027~~345,~~781,~~ or 7073% of net sales revenues, resulting in café operating margin of $~~450~~355,~~407~~923. This change was a result of the sale of certain stores during the prior year and the associated change in operating expenses.

For the three months ended ~~May~~August 31, 2015, we generated franchise fee income of $~~177~~51,~~500~~000, royalty income of $~~593~~690,~~851~~362, rebate income of $~~184~~114,~~989~~851 and marketing fees of $~~121~~117,~~078~~522 as compared to franchise fee income of $1292,~~000~~250, royalty income of $~~706~~780,~~550~~244, rebate income of $~~170~~166,~~708~~375 and marketing fees of $~~133~~147,~~633~~786 during the three months ended ~~May~~August 31, 2014. During the three months ended ~~May~~August 31, 2015, we had ~~251~~243 franchised cafés in operation for all or part of that period, as compared to ~~285~~287 during the three months ended ~~May~~August 31, 2014.

Franchise development expense increased to $~~207~~190,~~877~~777 in the three months ended ~~May~~August 31, 2015, compared to $~~116~~107,~~356~~165 in the three months ended ~~May~~August 31, 2014. This increase is the result of restructuring activities in the prior year and a focus on franchise support. The increase includes an increase in compensation expense and the associated travel costs of additional personnel.

Marketing and advertising expenses were $~~128~~123,~~391~~785 for the three months ended ~~May~~August 31, 2015 as compared to $~~148~~162,~~730~~769 for the three months ended ~~May~~August 31, 2014. This decrease is a result of a decrease in the number of units in operation, a decrease in same store sales and the associated decreases in marketing fee revenues.

For the three months ended ~~May~~August 31, 2015, general and administrative expense decreased by $97167,~~974~~448 to $~~556~~365,~~378~~706 compared to $~~654~~533,~~352~~154 incurred during the three months ended ~~May~~August 31, 2014. This decrease is due primarily to restructuring activities undertaken in the prior fiscal year and the associated reduction to general and administrative expense.

Depreciation and amortization expense decreased by $228,~~923~~363, due primarily to fewer ~~Company~~company-owned cafés in operation during the period and fewer associated café assets in service.

There was no amount of restructuring and asset acquisition ~~related~~expense ~~expenses~~ during the three months ended ~~May~~August 31, 2015, compared to $~~124~~503,~~551~~526 in the three months ended ~~May~~August 31, 2014. This decrease was the result of ~~less~~restructuring ~~business~~costs ~~acquisition~~incurred ~~activity~~during the three months ended August 31, 2014 with no comparable expense incurred during the ~~period~~three months ended August 31, 2015.

We generated income from operations of $~~350~~759,~~028~~913 in the three months ended ~~May~~August 31, 2015, as compared to $~~379~~93,~~412~~817 in the three months ended ~~May~~August 31, 2014. The ~~decrease~~increase in income from operations is primarily a result of ~~less~~restructuring ~~benefit~~activities ~~being~~in ~~realized~~the ~~associated~~prior ~~with~~fiscal year and the associated reduction in expenses and a favorable fair value adjustment ofon our convertible debt.

Other expense ~~increased~~decreased by $2,~~160~~019 for the 2015 period due to the ~~monthly~~decrease ~~payments~~in principal balance on our construction loans and the associated decrease in monthly interest payments.

~~Income~~There ~~taxes~~ were ~~$65,675~~no income taxes in the three months ended ~~May~~August 31, 2015 ~~compared~~or ~~with~~August ~~no amount in the three months ended May~~ 31, 2014. ~~The increase was a result of management’s expectation that we generate taxable income in the current fiscal year.~~

As a result of the factors described above, we generated net income of $~~279~~754,~~344~~793 for the 2015 period, as compared to $~~376~~86,~~563~~678 for the comparable 2014 period.

Six Months Ended August 31, 2015 Compared to the Six Months Ended August 31, 2014

For the six months ended August 31, 2015, company-owned U-Swirl cafés generated $2,128,341 in sales, net of discounts, as compared to sales of $2,783,456 for the comparable period in 2014, a decrease of 24%. The decrease is due primarily to the sale or closing of certain company-owned cafés. There were 9 company-owned cafés for the six months ended August 31, 2015, as compared to 9 for the six months ended August 31, 2014. During the six months ended August 31, 2014, 4 company-owned cafés were sold to franchisees and their revenues were realized for a portion of the six-month period.

Our café operating costs in the six months ended August 31, 2015 were $1,518,387 or 71% of net sales revenues, resulting in café operating margin of $609,954. For the six months ended August 31, 2014, our café operating costs were $1,977,126, or 71% of net sales revenues, resulting in café operating margin of $806,330.

For the six months ended August 31, 2015, we generated franchise fee income of $228,500, royalty income of $1,284,213, rebate income of $299,840 and marketing fees of $238,600 as compared to franchise fee income of $104,250, royalty income of $1,486,794, rebate income of $337,083 and marketing fees of $281,419 during the six months ended August 31, 2014. During the six months ended August 31, 2015, we had 243 franchised cafés in operation for all or part of that period, as compared to 287 during the six months ended August 31, 2014.

Franchise development expense increased to $398,654 in the six months ended August 31, 2015, compared to $223,521 in the six months ended August 31, 2014. This increase is the result of restructuring activities in the prior year and a focus on franchise support. The increase includes an increase in compensation expense and the associated travel costs of additional personnel.

Marketing and advertising expenses were $252,176 for the six months ended August 31, 2015 as compared to $311,499 for the six months ended August 31, 2014. This decrease is a result of a decrease in the number of units in operation, a decrease in same store sales and the associated decreases in marketing fee revenues.

For the six months ended August 31, 2015, general and administrative expense decreased by $265,422 due primarily to restructuring in the prior year and the associated decrease in general and administrative expenses.

Depreciation and amortization expense decreased by $31,286, due primarily to less depreciation expense associated with fewer company-owned cafés in operation for the entire period.

Restructuring and acquisition related charges decreased by $628,077 due to certain expenses being incurred related to management changes during the prior fiscal year, the closure or sale of certain assets during the six months ended August 31, 2014 and the acquisitions of CherryBerry, Yogli Mogli and Fuzzy Peach in January and February 2014.

We generated income from operations of $1,109,941 in the six months ended August 31, 2015, as compared to $473,229 in the six months ended August 31, 2014. The increase in income from operations is primarily a result of a favorable fair value adjustment on our convertible debt and decreased expenses due to restructuring changes in the prior fiscal year.

Other expense was approximately unchanged for the six months ended August 31, 2015, compared to the six months ended August 31, 2014.

Income taxes were $65,675 in the six months ended August 31, 2015 compared with no amount in the six months ended August 31, 2014. The increase was a result of management’s expectation that we generate taxable income in the current fiscal year, however most of the generated taxable income will be offset by operating loss carryforwards from prior years.

As a result of the factors described above, we generated net income of $1,034,137 for the 2015 period, as compared to $463,241 for the comparable 2014 period.

Liquidity and Financial Condition

At ~~May~~August 31, 2015, we had a working capital deficit of $6.9308 million and cash of $3,~~158~~490,~~590~~296. At February 28, 2015, we had a working capital deficit of $7.45 million and cash of $2,348,121. The working capital deficit at ~~May~~August 31, 2015 and February 28, 2015 is the result of the inclusion of the convertible note in the amount of $7.3704 million and $7.45 million, respectively, as a current liability. ~~Because~~As described in Note 2 to the Financial Statements the holder has the ability to call the full recourse convertible note isimmediately due and payable ~~through~~and the ~~issuance~~Company ofdoes ~~preferred~~not ~~stock,~~have wesufficient docash ~~not~~to ~~believe~~satisfy ~~that~~the obligation. The default matter raises substantial doubt about the ~~working~~Company’s ~~capital~~ability ~~deficit~~to ~~represents~~continue as a ~~liquidity~~going concern.

For the ~~three~~six months ended ~~May~~August 31, 2015, we had net income of $~~279~~1,~~344~~034,137. Operating activities provided cash of $~~754~~1,~~066~~180,760, with the principal adjustment to reconcile the net income to net cash provided by operating activities being depreciation and amortization of $~~203~~401,~~177~~549, ~~and~~ the change in accounts payable and liabilities of $~~324~~138,~~392~~240, stock based compensation expense of $99,500 and the change in other assets of $140,782 partially offset by the fair value adjustment of $(423,297) and the change in deferred revenue of $(314,626). During the comparable 2014 period, we had net income of $~~376~~463,~~563~~241, and operating activities provided cash of $12,~~940~~025,~~188~~237. The principal adjustment to reconcile the net income to net cash provided by operating activities was the change in accounts receivable of $~~878~~1,~~038~~030,285 and the change in accounts payable and liabilities of $~~910~~444,~~826~~743.

16During 2015, investing activities used cash of $26,643, primarily due to proceeds received on notes receivable more than offset by purchases of property, equipment, goodwill and other intangible assets. In comparison, investing activities provided cash of $188,339 during the 2014 period primarily due to proceeds from the sale of assets partially offset by additions to notes receivable.

~~During~~Financing ~~2015, investing~~ activities ~~provided~~used cash of $6211,~~329,~~942 ~~primarily~~for ~~due~~the tosix amonths ~~net~~ended ~~change~~August ~~in other assets and proceeds received on notes receivable partially offset by purchases of property~~31, ~~equipment,~~2015 ~~goodwill~~ and ~~other~~used ~~intangible assets. In comparison, investing activities provided~~ cash of $28246,~~027~~706 during the ~~2014~~prior year period. This was primarily due to apayments ~~net~~on ~~change~~long-term indebt ~~other assets~~ partially offset by ~~purchases~~proceeds offrom ~~property~~the ~~and~~exercise ~~equipment~~of stock warrants.

~~Financing~~Accounts ~~activities~~receivable ~~used~~decreased ~~cash~~from of $5267,~~926~~140 ~~for~~at ~~the~~February ~~three months ended May 31~~28, 2015 ~~and~~to ~~provided cash of~~ $~~834~~213,~~941~~200 ~~during~~at ~~the~~August ~~prior~~31, ~~year period~~2015. ~~This was primarily due to proceeds from the exercise of stock warrants.~~

Accounts ~~receivable~~payable ~~decreased~~and accrued liabilities increased $138,240 from $~~267~~2,~~140~~732,233 at February 28, 2015 to $~~262~~2,~~354~~870,473 at ~~May~~August 31, 2015., due primarily to an increase in gift card liability.

Accounts payable, ~~and~~related ~~accrued liabilities increased $324~~party,~~392~~ decreased from $295,~~732,233~~209 at February 28, 2015 to $380,~~056,625~~872 at ~~May~~August 31, 2015,. ~~due~~These ~~primarily~~are amounts owed to anRMCF ~~increase~~for ininventories ~~gift~~and ~~card~~various ~~liability~~operating expenses. The decrease is primarily the result of the sale of certain assets and the corresponding payment to RMCF.

~~Accounts~~At ~~payable,~~August ~~related party~~31, ~~increased~~2015 ~~from~~we recorded $95491,~~209~~234 atof ~~February~~deferred ~~28,~~revenue ~~2015~~compared to $~~119~~805,~~568~~860 at ~~May~~February 3128, 2015. ~~These~~This ~~are~~deferred ~~amounts~~revenue ~~owed~~is toin ~~RMCF~~connection ~~for~~with ~~inventories~~the development fees from area development agreements signed prior to those dates and ~~various~~advances ~~operating~~received ~~expenses.~~on ~~The~~rebate ~~increase~~income isfrom ~~primarily~~suppliers to our network of franchise locations. Pursuant to the ~~result~~terms of ~~RMCF~~the ~~becoming~~agreements, ~~our~~we ~~health~~will ~~insurance~~recognize ~~provider~~franchise ~~and~~fee ~~amounts~~revenue ~~owed~~upon ~~associated~~the ~~with~~opening of each café within the ~~consolidated~~respective ~~benefit~~territories. ~~plan~~We recognize the rebate revenue when product is sold to participating locations and our rebate becomes earned.

AtGoing May 31, 2015 we recorded $627,289 of deferred revenue compared to $805,860 at February 28, 2015. This deferred revenue is in connection with the development fees from area development agreements signed prior to those dates and advances received on rebate income from suppliers to our network of franchise locations. Pursuant to the terms of the agreements, we will recognize franchise fee revenue upon the opening of each café within the respective territories. We recognize the rebate revenue when product is sold to participating locations and our rebate becomes earned.Concern

We had negative working capital at August 31, 2015 and February 28, 2015. Because of this, there is substantial doubt about our ability to continue as a going concern. Our continued existence will depend on the actions of Rocky Mountain Chocolate Factory concerning our loan agreement, our future performance, and our ability to successfully implement our business and growth strategies. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Plan of Operations

We believe that cash flow generated from operating activities is more than sufficient to cover our contractual liabilities and what we require to maintain our existing operations, which now include the ALY, Yogurtini, Josie’s, CherryBerry, Yogli Mogli, Let’s Yo and Fuzzy Peach Frozen Yogurt chains. Although we have historically experienced losses from operations, including recently, based on our current projections, we believe that the operation of our nine company-owned cafés and revenues from franchise royalties and fees will provide sufficient cash to maintain our existing operations indefinitely.

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

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

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in conformity with GAAP, management must undertake decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based. Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions. By their nature, these judgments are subject to an inherent degree of uncertainty. Accordingly, actual results may vary significantly from the estimates we have applied.

Our critical accounting policies and estimates are consistent with those disclosed in our 2015 Annual Report on Form 10-K. Please refer to Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in our 2015 Annual Report on Form 10-K for a complete description of our Critical Accounting Policies and Estimates.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that material information relating to us is made known to the officers who certify as to our financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act, are 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 an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act. Based upon this evaluation as of ~~May~~August 31, 2015, our management has concluded that those disclosure controls and procedures are effective.

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PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

~~None~~Except as set forth below, we are not currently involved in any material legal proceedings other than routine litigation incidental to our business.

In January 2014, we entered into an Asset Purchase Agreement (the “CherryBerry Purchase Agreement”) with CherryBerry Enterprises LLC, CherryBerry Corporate LLC, CherryBerry LLC, and their respective owners (collectively, the "CherryBerry Selling Parties”), pursuant to which we acquired the franchise rights of frozen yogurt stores branded as “CherryBerry” (the “CherryBerry Acquisition”). As a part of the consideration for the CherryBerry Acquisition, we agreed to issue an aggregate of 4,000,000 shares of our common stock (the “CB Shares”) to the CherryBerry Selling Parties, which were subject to a one-year lock-up agreement. The CB Shares were issued to the CherryBerry Selling Parties in February 2015. Pursuant to the terms of the CherryBerry Purchase Agreement, following expiration of the lock-up period, if any of the CherryBerry Selling Parties desired to sell their CB Shares, they must first offer such shares to U-Swirl and RMCF prior to any sale of the CB Shares on the open market. If the proceeds from the sale of any of the CB Shares is less than $0.50 per share and the CherryBerry Selling Parties comply with other terms of the CherryBerry Purchase Agreement, we agreed to pay a shortfall payment equal to the difference of the sale price of the CB Shares and $0.50 per share, multiplied by the number of shares sold by the CherryBerry Selling Parties. In July and August 2015, the CherryBerry Selling Parties submitted to us several requests for payment of approximately $205,000 of shortfall payments based on the sale of a portion of the CB Shares.

On August 25, 2015, we filed a lawsuit against the CherryBerry Selling Parties, a former officer and director of ours and unknown other parties, in the District Court for La Plata County, Colorado, alleging wrongful actions on their part to cause the price of our common stock to decline and thereafter making an improper demand for the shortfall payment described above, and certain other actions in violation of various provisions of the CherryBerry Purchase Agreement. We seek unspecified damages, attorneys‘ fees, other costs, and a determination that the shortfall payment arrangement is void. On September 30, 2015, the CherryBerry Selling Parties filed an answer and counterclaim to the lawsuit in the U.S. District Court for the District of Colorado, and moved the lawsuit to federal court in the U.S. District Court for the District of Colorado. The counterclaim added RMCF to the lawsuit, and alleges that we materially breached the CherryBerry Purchase Agreement by not paying the shortfall payment, that U-Swirl is the alter ego of RMCF and RMCF is liable for any obligations of ours, and that the RMCF Loan Agreement should be recharacterized as equity. The CherryBerry Selling Parties seek payment in full of the shortfall payment under the CherryBerry Purchase Agreement, declaratory judgements that U-Swirl is the alter ego of RMCF and the Loan Agreement should be recharacterized as equity, and interest, attorneys’ fees, costs and other equitable relief. The lawsuit is currently in the early stages of litigation. We intend to pursue our claims in the lawsuit, and U-Swirl and RMCF intend to defend the counterclaim vigorously.

Item 1A.

Risk Factors

~~In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part 1, “Item 1A~~None. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2015. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We issued 250,000 shares of common stock to our CEO and four non-employee directors for services valued at $99,500. We relied upon the exemption from registration contained in Section 4(2) of the Securities Act, as these persons were deemed to be sophisticated with respect to the investment in the securities due to their financial condition and involvement in our business and had access to the kind of information which registration would disclose.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

Regulation S-K Number	Exhibit
2.1	Asset Purchase Agreement between U-Swirl, Inc. and Aspen Leaf Yogurt, LLC dated January 14, 2013 (1)
2.2	Membership Interest Purchase Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 14, 2013 (1)
2.3	Asset Purchase Agreement among U-Swirl, Inc., CherryBerry Enterprises LLC, CherryBerry Corporate LLC, and CherryBerry LLC, dated January 17, 2014 (2)
2.4	Asset Purchase Agreement among U-Swirl, Inc., Yogli Mogli Franchise LLC, Yogli Mogli LLC, Yogli Mogli Newnan LLC, Yogli Mogli Enterprises LLC, and Yogli Mogli Wheaton, LLC dated January 17, 2014 (2)
3.1	Amended and Restated Articles of Incorporation (3)
3.2	Amended Bylaws (3)
3.3	Certificate of Amendment to Articles of Incorporation filed April 22, 2011(4)
4.1	Form of common stock certificate (5)
4.2	Warrant issued to Rocky Mountain Chocolate Factory, Inc. (1)
4.3	Letter modifying Warrant issued to Rocky Mountain Chocolate Factory, Inc. (6)
10.1	2007 Stock Option Plan, as amended (3)
10.2	2011 Stock Option Plan (4)
10.3	Form of Recourse Notes (1)
10.4	Form of Non-Recourse Notes (1)
10.5	Form of Security Agreement between U-Swirl, Inc. and Aspen Leaf Yogurt, LLC (1)
10.6	Investor Rights Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 14, 2013 (1)
10.7	Investor Rights Agreement between U-Swirl, Inc. and Aspen Leaf Yogurt, LLC dated January 14, 2013 (1)
10.8	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	Intercompany Advance Agreement between Rocky Mountain Chocolate Factory, Inc. and U-Swirl, Inc. dated March 27, 2013 (7)
10.10	Secured Promissory Notes dated July 16, 2013 to Rocky Mountain Chocolate Factory, Inc. (8)
10.11	Loan and Security Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 16, 2014 (2)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer
101*	Financial statements from the Quarterly Report on Form 10-Q of U-Swirl, Inc. for the quarterly period ended August 31, 2015, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Cash Flows; and (iv) the Notes to Financial Statements

Regulation S-K Number	Exhibit
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 Restricted Stock Agreement (1)
10.10	Intercompany Advance Agreement between Rocky Mountain Chocolate Factory, Inc. and U-Swirl, Inc. dated March 27, 2013 (7)
10.11	Secured Promissory Notes dated July 16, 2013 to Rocky Mountain Chocolate Factory, Inc. (8)
10.12	Loan and Security Agreement between U-Swirl, Inc. and Rocky Mountain Chocolate Factory, Inc. dated January 16, 2014 (2)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer
101*	Financial statements from the Quarterly Report on Form 10-Q of U-Swirl, Inc. for the quarterly period ended May 31, 2015, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Cash Flows; and (iv) the Notes to Financial Statements

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

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

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

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

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

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

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

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

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

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SIGNATURES

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

		~~U-SWIRL, INC.~~	U-SWIRL, INC.
July 15, 2015	By:	/s/ Bryan Merryman
October 15, 2015	By:		/s/ Bryan Merryman
		~~Bryan J. Merryman, Chief Executive Officer~~	Bryan J. Merryman, Chief Executive Officer
October 15, 2015	By:		/s/ Jeremy Kinney
			Jeremy Kinney, Chief Financial Officer

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